The Massachusetts Department of Public Health (DPH) Determination of Need (DoN) Program has promulgated final DoN regulations (shown here compared against the draft revisions.) Approved by the Massachusetts Public Health Council (PHC) on January 11, 2017, DPH anticipates that the DoN regulations (105 CMR 100.000, et seq.) will be published in the Massachusetts Register on January 27, 2017, which will be their effective date.

Commissioner Monica Bharel, M.D., MPH emphasized that the overarching goal of these revisions is to meaningfully infuse public health and population health principles within this longstanding health care regulation. The Commissioner noted that it is her belief that successful cost containment must occur in the context of tackling social determinants of health. Our previous blog post, published at the time the draft revisions were presented to the PHC, reviews in some detail the DoN Program’s public policy goals underpinning these revisions, and we refer you to that post for more information.

At the presentation of the draft revisions to the PHC on August 23, 2016, DPH announced its intent to solicit and encourage robust public comment, and the public did not disappoint. A January 11, 2017 memorandum from senior DPH staff to Commissioner Bharel and members of the PHC requesting approval of the final proposed DoN regulations stated that DPH received over 100 comments, submitted at two public hearings and in writing during the 45-day public comment period. The memorandum summarizes not only the comments received, but the stakeholders who submitted the comments and DPH’s public policy rationale for its reaction to many of the comments. Materials (available here and here) accompanying the presentation of the final proposed DoN regulations also summarize the draft revisions, comments received and final proposed DoN regulations.

Many comments addressed the requirements for DoN review of ambulatory surgery, transfer of ownership, Community Health Initiative (CHI) projects, as well as application requirements, review process and criteria, and standard conditions. Two areas that generated many of the public comments, and which resulted in adjustments to the proposed DoN regulations, are discussed below.

Ambulatory Surgery

Ambulatory surgery has long been a hot-button topic. There is currently a moratorium on the addition or expansion of freestanding ambulatory surgery centers (ASCs), so it is not surprising that revisions to the DoN regulations regarding ambulatory surgery generated the majority of the comments that DPH received. DPH was candid in stating that a goal for the proposed revisions, which among other things required hospital engagement in DoN applications regarding ambulatory surgery, was to assure that community hospitals (viewed as critical access entry points) and the healthcare system as a whole were not adversely affected by a lift of the moratorium. Not surprisingly, owners of ASCs, trade associations, as well as some Massachusetts payors objected to certain elements of the proposed regulations designed to protect these hospitals, noting that lower-cost, freestanding ASCs add value to the health care system and should be encouraged. Owners of existing ASCs (more than 50 currently operate in Massachusetts) were also concerned that proposed provisions that would have restricted their ability to file DoN applications associated with an existing ASC, lacked sufficient “grandfathering” protections.

In the final DoN regulations, DPH sought to strike an appropriate balance of allowing for controlled growth of ASCs without adversely affecting independent community hospitals, while providing some measure of protection for existing ASCs. The DoN regulations include the following key provisions that allow more opportunity for non-hospital affiliated ASCs: (i) a Health Policy Commission (HPC) certified ACO can apply for DoN approval for the construction of freestanding ASC capacity (with a limited exemption for main campus and expansion of existing satellite campus capacity); and (ii) existing freestanding ASCs (licensed before January 1, 2017) are grandfathered, and may apply for a DoN approval for expansion, conversion, transfer of ownership, transfer of site, or change in designated location (effectively lifting the current moratorium). However, an applicant for DoN approval of the construction of a new freestanding ASC must be either an HPC-certified ACO, or in a joint venture with an independent community hospital or an HPC-certified ACO. If an HPC-certified ACO wants to locate a freestanding ASC within the primary service area of one of the 10 remaining independent community hospitals in the Commonwealth, the applicant would be required to either obtain a letter of support from the hospital or engage in a joint venture or affiliation with the hospital. (The fact that the HPC identifies only 10 independent, non-affiliated community hospitals in Massachusetts is, itself, pause for thought and reflects just how much the health care system has changed over the past decade.)

Transfer of Ownership

Tied to regulations that limited review of transfers of ownership to several specific criteria, in the years following recent health care cost containment and other reform efforts, the DoN Program found itself somewhat out of alignment with other state agencies, such as the HPC and the Massachusetts Attorney General. In the draft revisions, DPH proposed to align its process with the HPC’s review of transfers of ownership that are subject to HPC Cost and Market Impact Reviews (CMIR). While the Massachusetts Health and Hospital Association (MHA) asked DPH to strike all references to the HPC, other comments requested additional clarity on how the more coordinated approach to review would work, and specifically asked that DPH limit its consideration of any comments from the HPC only to situations where the HPC refers the proposed project to the Massachusetts Attorney General. Not surprisingly, DPH did not strike all references to the HPC, as the MHA requested, but clarified that it will consider comments submitted by the HPC based on the CMIR within the context of the DoN Factors for approval of transfers of ownership. This should provide sufficient guardrails to assure that DPH’s review remains within the goals and jurisdiction of the DoN Program.

DPH also aligned the DoN regulatory definition of transfer of ownership with that included in DPH’s draft licensure regulations. In the final DoN regulations, DPH included provisions that specifically set out the types and thresholds of changes in ownership or control that constitute a transfer of ownership. DPH also added a general provision that “’Transfer of Ownership’ may also mean any change in the ownership structure of a Hospital or Clinic [or organization’ or parent(s)’ organization]” that the Commissioner determines is a shift in control and that also gives the Commissioner the discretion to determine that a proposed change does not rise to the level of a transfer of ownership. This language is consistent with proposed revisions to DPH’s hospital and clinic licensure.

DPH grandfathered ASCs that received an original license as a clinic on or before January 1, 2017 so that they may apply for a DoN in connection with a transfer of ownership.

Applicants for DoN approval of a transfer of ownership should be prepared to demonstrate compliance with DoN Factors 1 (Applicant Panel Patient Need, Public Health Value and Operational Objectives), 3 (Compliance), and 4 (Financial Viability and Reasonableness of Expenditures and Costs), but will be exempt from DoN Factors 2 (Health Priorities), 5 (Relative Merit) and 6 (Community-Based Health Initiatives).

More to Come

After the January 27, 2017 effective date of the DoN regulations, DPH is expected to issue sub-regulatory guidance, including its list of what constitutes a DoN-required service. DPH held five listening sessions to obtain public input on planned sub-regulatory guidance. DPH presented materials about the development of the Community-Based Health Initiative Planning Guideline, the Health Priorities Guideline, and the Community Engagement Guideline.

Stakeholders need to carefully review the revised DoN regulations to determine how they will affect their operations and strategic planning. It will be interesting to follow the first several DoN applications under the new regulations. The DoN Program Director and staff will be an important resource for applicants navigating the revised DoN regulations.