This month, Alabama Governor Robert Bentley signed into law key revisions to the state’s Certificate of Need (CON) Laws that clarify and, we believe, will facilitate change of control transactions among health care providers. In a nutshell, the amendments clarify that transactions involving the sale, lease, or change of ownership of CON-owning entities are not subject to CON review.
The amendments erase any lingering questions about the remaining applicability of the withdrawn and vacated opinion in Florence Surgery Center, L.P., d/b/a Shoals Outpatient Surgery, and SCA-Florence, LLC v. Eye Surgery Center of Florence, LLC; Valley Surgery Center, L.L.C.; and Alabama State Health Planning and Development Agency, No.2110812, 2013 Ala. Civ. App. LEXIS 38 (Ala. Civ. App., Feb. 8, 2013), which found that the transfer of a CON could only be accomplished through the purchase of all of the stock of a corporation holding the CON and that a CON issued to a limited liability company could not be transferred through any means to a totally separate and unrelated limited liability company. The recent legislative amendments explicitly expand the CON provisions to limited liability companies and other legal entities.
The practical impact of the amendments is the exclusion of most health care entity change of ownership transactions from CON review. Alabama law requires all “new institutional health services” to be subject to CON review. However, the amendment to the definition of “new institutional health services” now excludes “transaction[s] involving the sale, lease or other transfer or change of control of an existing health care facility, existing health maintenance organization, or existing institutional health services.” Such transactions remain subject to CON review, however, if they involve the addition of new institutional health services.
The new ability to acquire a CON by change of ownership does have its limits: Transferability is impacted by whether or not the CON has vested. Generally speaking, a CON “vests” when the new institutional health service has been implemented and is in use. Prior to becoming vested, a CON still is not transferable, assignable, or convertible except to an entity under common ownership and control, which is defined in the section. Under the new law, once a CON has vested it “survive[s] changes of control and changes of ownership of the health care facility without further certificate of need approval by this agency.” If, before the certificate is issued, an applicant enters into an agreement to transfer ownership or control of such health care facility to another party once the certificate has vested, then the applicant must disclose the agreement to the State Health Planning & Development Agency (SHPDA) prior to a decision by the CON Review Board to grant or deny the certificate.
The fact that change of ownership transactions of existing health care entities are no longer subject to approval by the CON Review Board does not mean they are now private affairs. SHPDA may still require the submission of informational filings related to a transfer of control or ownership interests, so disclosure may still be necessary. Additionally, health care providers contemplating a change of ownership should consult with health care counsel to determine whether there are legal reasons to request and obtain from SHPDA a letter of non-reviewability.