Gauging critical access hospital protections

Questions remain about the effect of changes in state licensing law

New Hampshire’s healthcare system is composed of a variety of organizations ranging from large tertiary hospitals, to small free-standing surgery centers to community health clinics. Among these, “critical access hospitals” are a vital aspect of our healthcare infrastructure.

The federal government created the critical access hospital, or CAH, designation in order to support small, rural hospitals that provide needed services to the communities in which CAHs are located.

These services include 24-hour emergency rooms, inpatient and outpatient services, and other community-based care, such as wellness activities. Hospitals designated as CAHs are limited to 25 inpatient beds. New Hampshire has 13 CAHs throughout the state, from Monadnock Community Hospital in Peterborough to Upper Connecticut Valley Hospital in Colebrook.

For many of the state’s residents, CAHs offer effective, high-quality care close to home.

Designation as a CAH means that the federal government’s Medicare program pays for inpatient and outpatient care in an advantageous manner that is different than for large hospitals. Simply put, CAHs are paid for their “reasonable costs” in providing inpatient and outpatient services to Medicare patients. In contrast, larger hospitals are reimbursed based upon a variety of factors that may not cover all of larger hospitals’ costs.

Inherent in this “cost-based” payment system is the federal government’s recognition that small, rural hospitals serve less well-off patient populations and that negative, local economic forces can have a greater effect upon CAHs than upon larger hospitals.

The New Hampshire Legislature also recognizes the important role CAHs play in providing access to healthcare in rural areas and their often vulnerable economic status.

In 2016, it abolished the state’s “certificate of need” program, which had overseen the construction of new health facilities and the renovation of existing ones. At the same time, the Legislature revised the state’s health facilities licensing statute to acknowledge: (1) the crucial nature of CAHs as “community assets,” (2) the reliance CAHs have on the revenue streams of certain services to fund their operations and (3) the susceptible nature of CAHs’ economic health if confronted by new entrants in the local market.

The revised statute (sometimes referred to as “certificate of need lite”) serves to deliver a degree of protection from other providers whose health services in a CAH’s service area may affect its ability to provide “essential healthcare services.” The statute requires two mandatory steps specific to any new healthcare facility proposed within a 15-mile radius of a CAH.

First, the statute requires an applicant for a license to publish in a newspaper covering the CAHs’ service area notice of the proposal and to certify that complete information about the proposed facility has been delivered by registered mail to the CAH’s CEO at least 10 days before the submission of the application. These requirements are designed to offer an opportunity for the public and the CEO to comment on the effect that the proposal will have on the CAH’s continued ability to offer services the community deems essential.

The second step requires the Health and Human Services Commissioner to issue a written determination, after inquiry to the CAH, that the proposed new facility “will not have a material adverse impact on the essential healthcare services” in the CAH’s service area.

Within 30 days of the filing of an application of a new facility’s license, any person has the right to object in writing. If a license is granted, that person can then request a rehearing before the commissioner.

Although this statutory process gives a CAH an opportunity to examine a potential new facility and then to comment upon it, several questions remain:

• How should “essential healthcare services” be defined?

• Does the definition vary depending upon the unique attributes of the population served by each CAH?

• What constitutes a “material adverse impact” on such essential health services?

• When must the commissioner issue the written determination — prior to, during or after the new facility’s construction?

• Given the recent affiliations and mergers either approved by, or awaiting approval from, the New Hampshire Attorney General and Charitable Trust Unit, what effect, if any, will such affiliations and mergers have in analyzing what constitutes a “material adverse impact on the essential healthcare services” in a CAH’s service area?

CAHs offer high-quality healthcare to a substantial number of New Hampshire residents, and the Legislature has recognized CAHs’ importance by enacting laws that permit comment on potential new services that threaten a CAH’s revenue stream.

To the extent that affiliations, consolidations, and mergers among healthcare providers include CAHs, it will be interesting to see how providers and regulators interpret the protective provisions of the revised health facilities licensing statute.

Andrew Eills, an attorney with Sheehan Phinney Bass & Green, focuses his healthcare practice in the areas of compliance, employment, regulation, transactions and non-profit governance.