Maine Hospital Association,

MEMORANDUM

TO: Senator Brannigan
Representative Perry
Members of the Health & Human Services Committee

FROM: David Winslow, Vice President

DATE: April 29, 2009

RE: Testimony on LD 1395, An Act to Amend the Maine Certificate of Need Act of 2002

Senator Brannigan, Representative Perry and members of the Health and Human Services Committee, my name is David Winslow and I am the Vice President of Financial Policy for the Maine Hospital Association. I am here today to speak on behalf of our 39 member hospitals in opposition to LD 1395.

The Maine Hospital Association has always been in favor of the State's Certificate of Need law and remains supportive of the law today. We are, however, supportive of a CON law that works well and believe that the changes in LD 1395 are not necessary and will become a distraction to a review process that today is appropriately focused on projects whose scope is such that they have meaningful impact on the cost of health care in Maine.

This bill lowers the CON reviewability threshold for major medical equipment by approximately 29%, it expands the CON law to require review of physician office space that is owned by a hospital, and lowers the CON reviewability threshold for capital projects from over $3 million to $2 million; a reduction of approximately 33%. The bill also freezes these threshold amounts and does not allow for any cost of living adjustments in future years.

Perhaps the most significant policy shift contained in LD 1395 is that for the first time the replacement of major medical equipment will become subject to CON review. This policy change would be problematic in many ways. Decisions around replacing equipment are made on a replacement cycle and when the equipment is nearing the end of its useful life. Hospitals should not have to undertake what amounts to a year long review process that could allow for the equipment to break down, or worse, fail at a critical time during this period. Also, what happens if an application for replacement equipment is denied? Does that mean the hospital is subject to the full three year waiting period before entering the next year long cycle when the replacement could be considered again?

Potentially disallowing replacement equipment will also cause problems with bonding and other long term financing. For instance, what financing entity would want to purchase a 30 year bond for an approved project if the hospital is subject to having that CON approval reconsidered every five to six years when the equipment wears out and needs to be replaced? Replacement equipment, by
definition, performs the same function as its predecessor equipment and should not be continuously subject to review.

We estimate that the combination of the four major changes proposed in this bill will lead to between fifteen and twenty additional CON applications being filed each year. This number of new applications without significant additional staff and resources at DHHS will overburden and create problems with a process that is thoughtful and works quite well today.

Capital spending is one of the first places where budget reductions occur in a tight economy. The processes that hospital administrators and community-led Boards of Directors use when deciding to replace equipment or undertake capital projects in today's economic climate are already very strict. It has also become quite expensive to file CON applications given the process changes implemented by the Department in the past few years and this shouldn't be overlooked. Filing fifteen to twenty additional CON applications each year will require significant hospital resources to be diverted for pre-development costs and CON application preparation.

The bill also makes several procedural changes to the CON process that we are opposed to:

Section 14 exempts CON letters of intent and associated correspondence from being a matter of public record until the CON application is filed. We believe all documents filed with the CON unit should be public record and available for immediate review by any and all interested parties.
Section 16 of the bill requires the applicant to schedule a technical assistance meeting with the CON unit within 30 days of filing an application but there is no deadline by which the Department actually has to hold such a meeting. We would suggest that the Department be required to hold this technical assistance meeting within 60 days of receiving the application.
Section 20 extends the timelines of the Certificate of Public Advantage process. Such an extension will unnecessarily delay projects seeking approval through this new statute.

Finally, Section 18 increases the penalty for violation of this law from the current maximum of $5,000 to $50,000 and allows the Department to directly assess such a penalty as opposed to having to prove its case in Superior Court as required under the current law. Hospitals take the requirements of the CON law very seriously already and we don't feel such a dramatic increase in penalty is necessary or appropriate. I would also note that the application process used by the Maine Health and Higher Education Facilities Authority requires full CON approval or non-reviewability determinations by DHHS as part of its financing approval process. Most commercial lenders also require such a letter as part of the loan approval process.

Maine's CON law and process works quite well as is; however, CON is complicated and time consuming to administer with important procedural deadlines often being exceeded by the Department. We urge the Committee not to lower the review thresholds, not to extend the law to physician office space and replacement equipment, and not to make the process changes listed above. Maine has some important health planning decisions to be made in the coming years and those large projects are where the Department should be focusing its CON review efforts.

Thank you and I would be happy to answer any questions.

Advocacy