Before initiating any healthcare project or new healthcare service, physicians should determine whether the project will require a certificate of need (CON).
<b>What is a CON?</b>
A CON is a determination by Alabama’s CON Review Board that a proposed project is in the best interests of the citizens of the state and that it would not be unnecessarily duplicative of other services or unreasonably detrimental to existing providers. In general, no person, group or entity is allowed to acquire or construct a “new institutional health service” without first obtaining a CON. Under the CON laws, a “new institutional health service” is defined to include, among other things, the initiation of a new healthcare facility and/or expenditures made by or on behalf of a healthcare facility.
<b>What is the Physician Office Exemption?</b>
Since the beginning of the CON program in Alabama, numerous physicians have proposed and implemented healthcare projects without first having to obtain a CON. The basis for their exemption arises from the statutory definition of a healthcare facility for purposes of the CON laws. Alabama Code section 22-21-260(6) provides, in pertinent part, “the term healthcare facility shall not include the offices of private physicians or dentists, whether for individual or group practices and regardless of ownership.” Therefore, if a proposed healthcare project is for the offices of a private physician, dentist or group of physicians or dentists, a CON will not be required.
<b>What Factors Are Important?</b>
Medical practice often requires doctors to work from several geographic areas and in different settings, so a determination of whether a proposed project is, in fact, in the “office” of a physician is often difficult to make. Over years of applying the exemption, the board has noted several factors it has considered important to the analysis, ultimately creating a four-part common sense definition of what constitutes a physician’s office: (1) the proposed services are to be provided, and related equipment used, exclusively by the physicians identified as owners or employees of the physicians’ practice for the care of their patients; (2) the proposed services are to be provided, and related equipment used, at the primary office of the physicians; (3) all patient billings related to such services are through, or expressly on behalf of, the physicians’ practice, and not on behalf of a third party; and (4) the equipment shall not be used for inpatient care, nor by, through or on behalf of a healthcare facility.
Board rulings also have made clear that the board will review the evidence in its “totality” and that no single factor will govern the determination in the absence of other considerations.
<b>Most Recent Application</b>
The board’s most recent application of the physician office exemption arose earlier this year when a urology group submitted a request for a letter of nonreviewability from the Alabama State Health Planning and Development Agency (SHPDA), confirming that it was not required to obtain a CON to construct a new facility and to acquire and locate within the facility a Varian Medical System costing about $3 million. In its analysis, the board noted that a Varian Medical System is composed of sophisticated equipment that is capable of treating a wide range of cancers, including cancers of the brain, throat and liver — all of which were services well beyond those previously offered by the urology group. The board also noted that the use of the equipment would require the practice to hire a radiation oncologist. Finally, the urology group’s Web site revealed that it operated from two different geographical locations as well as satellite clinics in three separate townships covering two counties. Ruling that the urology group’s proposed project would not be exempt from CON review, the board noted that, “the far-flung nature of practice is particularly significant when viewed in the light of the broad capabilities of the Varian Medical System and (the urology group’s) plans to add at least one oncology radiologist at the new facility.” The board’s decision clearly reflected its concern that the outpatient facility traveled beyond a common sense definition of a physician’s office and could lead to the provision of duplicate programs and services in neighboring localities which, in effect, would circumvent the policies behind the requirement of certificate of need review.
<b>What about Your Project?</b>
If a physician or a group of physicians is considering initiating a new healthcare project or service, the best course is to seek the advice of experienced healthcare counsel on the applicability of the CON law. If necessary, the design of the project can be tweaked at its early stages in order to ensure full compliance with the physician office exemption and, thus, avoid the possibility of greater legal expense if the project is ever challenged by a competitor.
The author would like to expressly thank Mark Wilkerson of the Montgomery law firm of Wilkerson & Bryan, who serves as attorney for SHPDA, for his assistance with background information for this article.
<i> Carey McRae is a partner in the Health Care Practice Group at Balch & Bingham LLP. He can be reached at (205) 226-8705 or by e-mail at cmcrae@balch.com.</i>
June 2008
