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Certificates of Need - Good, Bad or Indifferent?

Currently, in Tennessee, if you want to build, develop, or expand a health facility or initiate certain health services, you must first apply for and obtain a Certificate of Need.

Tennessee is one of approximately 36 states that continues to regulate the growth of certain health care institutions through the  Certificate of Need process. According to the Tennessee Health Services and Development (HSDA) website, the Certificate of Need (“CON") requirements started in the 1970's, when the federal government urged states to control the rising health care costs by managing the growth of health care services and facilities through health planning.  In 1973, the Tennessee General Assembly created the Health Facilities Commission to administer the Certificate of Need program.  In 1974, the federal government enacted the National Health Planning and Resources Development Act, which among other things, provided federal funds to assist with state health planning. The Act was repealed in 1987, resulting in the loss of federal funds and a reduction of the state's planning staff. However, Tennessee and a number of other states continued the Certificate of Need requirement.

A Certificate of Need is granted by the Tennessee Health Services and Development Agency, which is an eleven member board a nd an agency of state government independent from the Department of Health. The members of the HSDA are appointed by various officials in state government, including six who are appointed by the Governor. At least five of the members represent the interest of specific health care industries, such as the nursing home, home health or hospital industry.

Applying for a Certificate of Need is a daunting process that requires public notice, the filing of a detailed and very specific application and a public hearing in which potential competitors may present their grounds for opposing the need for a new facility or service.  At best the process takes from 90 to 120 days not including the time required to prepare the Application which is itself a time consuming process.   In the application and the hearing before the HSDA, an applicant must show that the proposed project is needed, financially feasible and will contribute to the orderly growth of health care in Tennessee. The filing fee for an Application is between $3,000 and $45,000 dollars depending on the size of the project.

Arguably, the HSDA’s review and granting of a CON is governed or at least guided by the principals of health planning. Tennessee has implemented health planning and the 2014 health plan is available. The state health plan adopts specific criteria, statistical and otherwise for determining need for a new health care service or facility.

The Certificate of Need program may indeed be a useful tool  for insuring that the growth of health care facilities and services does not outpace the need.  However, it is possible that this risk of over growth in the health care industry could be controlled by normal business competition, at least  with respect to some types of services and facilities. These issues and the structure and necessity of the Certificate of Need laws is reconsidered and debated regularly by the Tennessee legislature.  For the present, the Certificate of Need requirements in Tennessee continue to be a costly barrier to entry for new health care businesses which may contribute to the orderly growth of the health care in Tennessee.

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