Elliot began construction of the Elliot Medical Center at Londonderry in 2005; it is owned by 40 Buttrick Road, a wholly-owned affiliate of Elliot. In August 2005, Elliot notified the state Health Services Planning and Review Board of its intent to build a medical office building exempt from CON review; the board discussed but voted not to take action on the letter, according to court documents. In October 2006, Elliot requested from the board a determination that the installation of a third fixed MRI scanner would not require a CON, suggesting that “the facility would be more than a physicians’ office building and would include services of a hospital outpatient department.” That’s when Parkland Medical Center, Derry Medical Center and Catholic Medical Center, jointly asked the board to determine whether the project required CON review.
An informal investigation led the board to decide in March 2007 that , with the exception of the “costs costs associated with Primary Care, Senior Care and Behavioral Health,” Elliot Medical Center is subject to CON review. Elliot did not appeal this decision. However, the first stage of a the planned three-stage development of Elliot Medical Center was already complete, and in July 2007, Elliot asked the board to exempt phase one from CON review (known as an NSR petition). Elliot told the board it intended to sell Phase I of the facility, which had been declared a condominium, to a non-affiliated third-party developer, Anagnost Investments, at fair market value, then lease it back, also at fair market value. Because applicable costs would be below the statutory threshold amount, Elliot said, the NSR petition should be granted.
While Parkland, Derry and Catholic medical centers argued that the board had already determined CON review was needed, the board approved the NSR petition on condition that Elliot submit the condominium declaration, bylaws, appraisal and lease agreement for review, according to court documents. Elliot created the Buttrick Road Medical Condominium and submitted the documents to the board; as planned, Elliot and the developer later entered into a purchase and sale agreement transferring the Phase I building. When the board denied Parkland, Derry and Catholic their requests for reconsideration and rehearing, the appeal on which the state Supreme Court ruled here was filed.
In the appeal, the three petitioners argue that the board erred in approving the NSR petition for three reasons: the board ignored its unanimous March 2007 decision that the Elliot Medical Center required CON review; the board didn’t include the operating lease payments in determining whether the costs exceeded the statutory threshold; and the board failed to require a CON for the transfer of ownership. There are three basic principles dictated by the statute governing CON review that are relevant here:
1. No new institutional health service shall be offered or developed within the state, nor shall any arrangement or commitment for financing the offering or developing of a new institutional health service be made, except pursuant to obtaining a certificate of need for such service.
2. No certificate of need shall be granted by the board unless a standard has been developed which delineates the need for the service and outlines the criteria which must be met by any person proposing such a service.
3. Transfer of ownership of an existing healthcare facility and development of a healthcare facility requiring a capital expenditure in excess of the statutory amount are included on the list of “new institutional health services” that require CON review.
However, the doctrine of administrative finality also holds that, “once the board determines that a project is exempt under one of the provisions of RSA 151-C:13, the project is not subject to review under the other provisions of RSA chapter 151-C, and it becomes unnecessary to determine whether the board would normally be required to” perform CON review. Further, despite the fact Elliot intends to offer MRI and “services of a hospital outpatient department,” including urgent care services, which would require licensing, the services were not offered when any of the transfers occurred. As a result, says the state Supreme Court, phase one of the project does not constitute an existing healthcare facility and, “because none of the transfers involved existing healthcare facilities, the board did not err in not requiring CON review.”
In a separate concurring opinion, Justice Dalianis notes that the affirmation of the board’s decision to not require CON review essentially rests on a technicality, and offers the following:
I concur in the majority opinion because I believe that the plain meaning of the applicable statutes compels the result reached. As the majority aptly holds, although under the plain language of RSA 151-C:5, II(b) (2005), certificate of need (CON) review is required when transferring even a part of an existing health care facility, Phase I of the Elliot Medical Center at Londonderry Project is not an existing health care facility as that term is defined in RSA 151-C:2, XV-a (2005). Thus, none of the transfers at issue trigger CON review. I regard Elliot Health System’s transfer of ownership of Phase I as a clever way to circumvent CON review. Although Elliot Health System knew that CON review would be required for this facility once it began to offer urgent care, nevertheless, before the facility offered urgent care, Elliot Health System arranged to sell it to the developer for this sale and lease-back deal to avoid CON review. While this kind of lease-back deal is allowed under the current statutory scheme, the legislature might wish to revisit RSA chapter 151-C (2005 & Supp. 2008) in light of this case.
Read the full case opinion here (free registration required).
