On March 27, 2023, North Carolina Governor Roy Cooper signed House Bill 76, now known as Session Law 2023-7,  into law. Also called “Access to Healthcare Options,” Session Law 2023-7 primarily aims to expand Medicaid. However, the law will also result in major reforms to the State’s Certificate of Need (CON) program. These reforms are described below. While some reforms go into effect immediately, others will go into effect after Health Access Stabilization Program (HASP) payments are issued to hospitals as part of Medicaid expansion.

Immediate Reforms

Now that the bill has been signed into law, N.C. Gen. Stat. § 131E-176 is altered in the following ways:

• The cost threshold triggering CON review of a diagnostic center is doubled from $1,500,000 to $3,000,000. Whether a freestanding facility, program, or provider is considered a diagnostic center for CON purposes depends upon the collective value of its medical diagnostic equipment that is individually valued at $10,000 or more. The prior threshold imposed CON review upon a freestanding facility, program, or provider if its inventory or proposed inventory of medical diagnostic equipment valued at $10,000 or more exceeded $1,500,000. Now, freestanding facilities, programs, and providers can essentially have double the inventory before being subject to CON review as a diagnostic center.

• “Chemical dependency treatment facility” and “psychiatric facility” are removed from the definition of “health service facility,” and “psychiatric beds” and “chemical dependency treatment beds” are removed from the definition of “health service facility bed.” Thus, CONs are no longer required for 24-hour drug treatment facilities and licensed facilities for individuals with mental health disorders, developmental disabilities, and substance use disorders and the services provided by those facilities. Note, of course, that the removal of CON review does not remove the other oversight of these facilities and their services, including their licensure and certification requirements.

• The cost threshold for replacement equipment requiring a CON is increased from $2,000,000 to $3,000,000. Additionally, beginning September 30, 2023, and on September 30 each year thereafter, the cost threshold amount shall be adjusted using the Medical Care Index component of the Consumer Price Index published by the U.S. Department of Labor for the 12-month period preceding the previous September 1. This means that providers have greater latitude with respect to cost when selecting replacement equipment for comparable medical equipment currently in use; however, the chosen replacement equipment will still need to be considered “comparable” to the equipment it is replacing. Replacement equipment is not “comparable” if (1) the replacement equipment to be acquired is capable of providing a health service that the equipment to be replaced cannot provide; or (2) the equipment to be replaced was acquired less than 12 months prior to the date the written notice required by G.S. 131E-184(a) is submitted to the CON Section and it was refurbished or reconditioned when it was acquired by the person requesting the exemption.” 10A N.C.A.C. 14C .0303.

N.C. Gen. Stat. § 131E-184 is also altered to allow licensed home care agencies, as defined in N.C. Gen. Stat. § 131E-136, to provide early and periodic screening, diagnosis, and treatment services to children up to 21 years of age, in compliance with federal Medicaid requirements under 42 U.S.C. § 1396d, without being subject to CON review.

Further, capital expenditures and replacement equipment expenditures are exempted from review when they exceed the monetary thresholds set forth in their respective statutes and meet applicable conditions outlined in N.C. Gen. Stat. §§ 131E-184(e), (f), and (g).

Changes Effective After Healthcare Access and Stabilization Program (HASP) Payments

The bill also provides for HASP, which is a healthcare access and stabilization program that provides acute care hospitals with increased reimbursements funded through hospital assessments. The law’s provisions pertaining to the HASP program will go into effect on the date that the Current Operations Appropriations Act for the 2023-2034 fiscal year becomes law. Thus, the following reforms will only become effective both after the budget is passed and after HASP payment(s) are issued, as outlined below.

The two biggest changes are with respect to ambulatory surgery facilities (ASFs) and magnetic resonance imaging (MRI) scanners. Currently, there are two conditions precedent before any provider in North Carolina may add operating rooms (OR) and MRI scanners. First, there must be a need determination in the State Medical Facilities Plan (SMFP) and second, an applicant must file a CON application and receive approval for its proposal. Both types of need determinations are usually highly competitive, with multiple applicants vying for a limited allotment of ORs and MRI scanners. Session Law 2023-7 would eliminate these requirements but only in certain circumstances, as detailed below.

ASFs: Two years after first HASP payment

Two years after the first HASP payment, the definition of health service facility will be narrowed to exclude qualified urban ASFs from CON review pursuant to N.C. Gen. Stat. § 131E-176(9b). A qualified urban ASF is defined as an ASF that meets the following criteria:

• Is licensed by the Department to operate as an ASF;

• Has a single specialty or multispecialty ambulatory surgical program; and

• Is located in a county with a population greater than 125,000 according to the 2020 federal decennial census or any subsequent federal decennial census.

Going forward, a qualified urban ASF must also meet a charity care requirement pursuant to N.C. Gen. Stat. § 131E-147.5 such that “[t]he percentage of … total earned revenue that is attributed to self-pay and Medicaid revenue shall be equivalent to at least four percent (4%).”

Based on the 2020 census, the counties where a qualified ASF could be are: Wake, Mecklenburg, Guilford, Forsyth, Cumberland, Durham, Buncombe, Union, Gaston, Cabarrus, New Hanover, Johnston, Onslow, Iredell, Alamance, Pitt, Davidson, Catawba, Orange, Rowan, Randolph, Brunswick, and Harnett.

Notably, ORs in hospitals would still be regulated under the CON law.

While the new law does not specifically discuss the type of rooms in ASFs (ORs or endoscopy rooms), we believe that endoscopy room only ASFs in highly populated counties would also be exempt from CON review. That is because endoscopy room only ASFs are licensed as ASFs by the North Carolina Division of Health Service Regulation.

The new law also does not address the addition of ORs to qualified urban ASFs. For example, could an existing ASF in Wake County add ORs without a CON? We believe the answer to this question is also yes, provided that the addition occurs two years after the first HASP payment.

Finally, an ASF in a county that is today less than 125,000 in population would need to wait until the results of the 2030 decennial census to see if it qualifies under Session Law 2023-7. Even if the county’s population exceeded 125,000 in 2027, for example, the determinant is the decennial census figure.

MRI Scanners: Three years after first HASP payment

Three years after the first HASP payment, the definition of “diagnostic center” pursuant to N.C. Gen. Stat. § 131E-176(7a) will be narrowed. A facility, program, or provider in a county with a population greater than 125,000 will not be considered a diagnostic center for which CON review is required solely because it has a MRI scanner. Similarly, MRI scanners in counties with a population greater than 125,000 will no longer be considered major medical equipment under N.C. Gen. Stat. § 131E-176(14o) and the definition of new institutional health services in N.C. Gen. Stat. § 131E-176(16) will be altered to include only MRI scanners in counties with populations of less than 125,000.

As a result, MRI CON applications will no longer be needed for North Carolina’s most populous counties, whether in a hospital or outpatient setting. MRI reviews in urban areas are among the most hotly contested CON matters, so this change will have a corresponding effect in the number of CON appeals that are filed. Based on the 2020 census, the counties where a CON for an MRI scanner will no longer be required are: Wake, Mecklenburg, Guilford, Forsyth, Cumberland, Durham, Buncombe, Union, Gaston, Cabarrus, New Hanover, Johnston, Onslow, Iredell, Alamance, Pitt, Davidson, Catawba, Orange, Rowan, Randolph, Brunswick, and Harnett.

As discussed above, the determinant is the decennial census so a county that was below 125,000 in population as reported in the 2020 decennial census does not qualify, even if the population exceeds 125,000 between now and 2030.

One question that remains unanswered by the current law is whether mobile MRI scanners will be impacted by these changes. We believe that mobile scanners in highly populated counties would be similarly exempt from review, though it is important to note the law does not specifically address this. As these and other questions about the law emerge, it is also possible that the NC Division of Health Service Regulation, Healthcare Planning and Certificate of Need Section will opine as to the impact of the law.

Although it has been modified over the years, North Carolina’s CON law has remained highly regulated and resilient since the current version of the law was enacted in 1977. North Carolina has long been regarded as one of the most stringently regulated CON states in the country. While Session Law 2023-7’s changes to the CON law are not surprising, they are dramatic, especially with respect to the repeal of CON requirements for ASFs and MRI scanners in North Carolina’s most populous areas. Though we do not foresee further CON changes in this legislative session, we continue to actively monitor these issues. For questions or assistance with your CON filing needs or strategy, please contact our experienced team of CON practitioners.