Lawmakers want to scrap state approval needed for many new health care facilities

A group of Oregon Republican lawmakers wants to eliminate a state requirement they say is depriving patients of needed psychiatric, rehabilitative and other services.

But opponents of the idea say the current law shields Oregon’s health care system and the public from harmful industry practices.

House Bill 4139 would exclude new psychiatric hospitals, as well as skilled nursing and rehabilitation facilities from an approval process known as the “certificate of need.” The process requires applicants to show why the services are needed, a step intended to deter the construction of duplicative or unnecessary health care facilities deemed likely to drive up patient costs while blocking needed investments elsewhere.

Under the process, most projects are approved. But in recent years, several companies backed out of projects after protracted battles. The bill’s supporters say the approval process scares off investment, saying states that abandoned the tool have seen expansions of the type of health care facilities Oregon needs.

“This is a no-brainer,” state Rep. Lucetta Elmer, a McMinnville Republican who is spearheading the bill, told The Lund Report. She said some patients are already having to leave the state for care and the problem will get worse as the population ages.

State Rep. Cyrus Javadi, a Tillamook Republican and bill cosponsor, told The Lund Report that after pouring money into Oregon’s lagging behavioral health system, lawmakers should remove red tape on creating needed beds.

Opponents include medical providers and labor groups who argue the bill won’t spur the production of facilities they say Oregon needs and won’t resolve labor shortages that are affecting patient access. They argue the bill would deny local providers and advocacy groups a say over projects that could affect patient care for years.

Chris Bouneff, executive director of the Oregon chapter of the National Alliance on Mental Illness, told the House health committee Tuesday, Feb. 13, that Oregon can’t quickly overcome 20 years of underinvesting in mental health and substance use services by treating the crisis like a wildfire to be drenched with water.

“A firehose approach just will not work,” he said. “Our actions have to be planned and purposeful.”

The bill is one of the biggest changes to Oregon’s health care system lawmakers are considering during the five-week session that’s scheduled to conclude March 10. Its cosponsors are all Republican, making its prospects uncertain in the Democratic-controlled Legislature.

Patients cite harm

A prominent supporter of the bill, Dave Nichols, told lawmakers during the hearing Tuesday that his parents couldn’t find a specialized rehabilitation facility in Oregon or Washington that would admit him after he suffered a severe brain injury in a rock climbing accident in 2017.

“Being so far away from family and friends and support systems was very difficult,” he said. “The cost to relocate was significant and for many this option would not even be possible.”

He called the certificate of need process a “real barrier” for needed rehabilitation services.

Kathryn Nichols, his mother, shared stories from other individuals who had to leave the state after suffering traumatic brain injuries.

Oregon’s approval system was adopted in 1971 “out of the legislature’s desire to achieve reasonable access to quality health care at a reasonable cost,” according to the Oregon Health Authority’s website.

Companies wanting to build a new facility covered by the process must use health care and population data to prove the need to regulators.

More than a dozen states have eliminated certificate of need laws since Congress in 1987 repealed a mandate that they have them. As of 2023, 35 states continue to require state approval of facilities based on need, according to the National Conference of State Legislatures.

In Florida, conservative lawmakers’ decision to eliminate the state approval process led to a hospital building boom of new ones cropping up to cater to wealthier populations with better insurance, leaving less affluent populations with less access to care, KFF Health News reported last year. Critics said the change will drive up individual patient costs systemwide as new facilities try to recoup investments, and also leads to the new facilities skimming profitable patients away from facilities that cater to less affluent populations, hurting lower-income patients’ quality of care.

But in the hearing, Jamie Cavanaugh, an attorney with the libertarian Institute for Justice legal nonprofit, disagreed.

“The original justifications for certificate of need laws simply don’t exist any longer,” she told lawmakers.

States that have repealed their certificate of need laws have more rural hospitals, dialysis services, imaging centers and psychiatric care than states that don’t, Cavanaugh said. She based her remarks on a review of academic literature on the subject she published with an economist last year.

She said psychiatric facilities in states that have certificate of need laws are 5.3% less likely to accept Medicare than those that do. Additionally, five of the six states with the most substance use treatment beds per 100,000 people do not have certificate of need laws, she said.

James Bailey, a Providence College associate professor of Economics, Providence College, submitted written testimony with similar findings, including that the approval process led to less psychiatric care.

With Oregon ranking poorly on mental health treatment, lawmakers have poured $1.5 billion into the behavioral health system in recent years. A recent report from a state-hired consultant found that Oregon will have to spend more than $500 million over at least five years to create the 3,000 behavioral health beds to meet the need.

State Rep. Rob Nosse, a Portland Democrat who chairs the committee, suggested during the hearing that removing the certificate of needs process won’t help solve Oregon’s behavioral health crisis. He said that state-led efforts have focused on building residential treatment facilities that are limited to 16 beds to be eligible for Medicaid funding.

“What we have heard is that those facilities don’t need to go through a certificate of need to be able to do this,” he said. “I’m trying to figure out why we should support a change in the process when we sort of know what we think we need.”

In 2022, the controversial national for-profit psychiatric chain Universal Health Services withdrew its application for a 100-bed psychiatric hospital in Wilsonville, complaining of “untenable” state restrictions.

Providence Health & Services and Legacy Health both opposed the Universal Health Services-proposed Wilsonville psychiatric hospital. Both are health systems involved in litigation alleging state authorities are improperly warehousing civil commitment patients in private hospitals.

Providence lobbyist Jessica Adamson told the committee that health care providers collaborate daily on utilizing behavioral health beds. She said Providence would welcome more partnerships. She said that Universal Health Services’ project would have instead “pulled commercial volume” out of hospitals and jeopardized their ability to care for poor and vulnerable patients.

The best way to increase behavioral health beds is to increase Medicaid rates, she said.

Bouneff, of the Oregon chapter of the National Alliance on Mental Illness, told The Lund Report a hospital that only offers psychiatric care has different financial pressures than those that also make money off of cancer treatment and other services. He said a free-standing psychiatric hospital could be incentivized to primarily serve patients with private insurance.

Bouneff told lawmakers his group supports keeping the certificate of need process for psychiatric facilities. He said the process only applies to new psychiatric facilities with a costly level of care that serves relatively few people with acute symptoms for ideally no more than seven to 10 days. Additionally, he said the process gives people with lived experience a voice in the approval of new facilities.

“If we overbuild or if we build the wrong kind of inpatient care in the wrong place, the impacts can be profound,” he said.

He warned lawmakers not to view beds and treatment environments as “interchangeable.”

Battles over beds

Dr. Martin Bomalaski submitted written testimony in support of the bill stating that Oregon ranks near last in the nation for available inpatient rehabilitation beds.

“This is due largely to Oregon’s onerous certificate of need process, which has been weaponized in recent years by competing interests who seek to protect their share of a limited market,” he wrote.

In recent years, two companies abandoned their certificate of need applications for projects that would have created a total of 100 inpatient rehabilitation beds in Washington County. Both projects were opposed by Legacy Health and the Oregon Health Care Association, the state nursing home trade group.

Pennsylvania-based Post-Acute Medical in 2018 applied to build a 50-bed inpatient rehabilitation hospital in Tigard. Five years later, a lawyer for the company wrote a bitter letter withdrawing the application, citing protracted legal battles.

Similarly, Encompass Health Rehabilitation Hospital scrapped its application for a 50-bed inpatient rehabilitation hospital in Hillsboro. A letter from the company’s attorney withdrew the project, citing an “unwarranted delay” despite a clear demand for inpatient rehabilitation services. While stuck in Oregon’s certificate of need process, Encompass Health built 1,518 new inpatient rehabilitation beds in other states, according to the process.

Both letters complained that Legacy Health used the process to quash competition. Legacy argued in a filing that both companies had overstated demand for their proposed facilities, arguing it would hurt existing providers financially. A long-term care trade group, the Oregon Health Care Association, also disputed that there was a need for the project.

Libby Batlan, the Oregon Health Care Association lobbyist, told the committee her group opposes the bill.

“The fact that Oregon has relatively few nursing facility beds per capita should actually be viewed as a pride point,” Libby Batlan, the group’s lobbyist told the committee. “It helps ensure individuals receive care in least restrictive settings and aligns with the legislature’s stated values.”

She said Oregon’s nursing facilities are operating at just under three-quarters of their capacity, but she said that is because of ongoing workforce challenges.

Also opposing the bill are the Hospital Association of Oregon and SEIU Oregon State Council, which represents 85,000 workers.

Matt Swanson, SEIU’s lobbyist, told lawmakers the certificate of need process provided a chance to raise concerns about Universal Health Systems’ record on patient safety in other states.

Troy Duker, the hospital association’s lobbyist, asked lawmakers to slow down on making such a sweeping change to the process.

“I’m asking you all to be prudent as we consider taking a sledgehammer to the way that the state manages the continuum of care across Oregon,” he said.

Elmer said she hopes the bill will at least start a conversation. She suggested during the hearing that she would be open to a compromise to temporarily suspend the requirement.

Jake Thomas is the legislative reporter for The Lund Report, an independent, nonprofit online news site dedicated to in-depth coverage of Oregon’s health care industry. You can reach him at jake@thelundreport.org or on X @jakethomas2009. This article is published with permission of The Lund Report. Read more stories at thelundreport.org.

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