Cost of lease of premises not included for CON purpose.

IS YOUR HOSPITAL SEEKING A CERTIFICATE OF NEED (CON)? Is your hospital planning to object to an application for a CON? If it is, it might be wise to read this case. A New Hampshire surgical center seeking a CON was confronted with the issue of whether or not its costs of leasing its space had to be calculated in the total costs of a project. Since there was a $1 million cost trigger before there was a need for a CON, it was vital to prove that the cost of the project did not exceed the $1 million trigger.

UNDER NEW HAMPSHIRE LAW, ANY NEW INSTITUTIONAL HEALTH SERVICE MUST OBTAIN A CON. However, if a facility meets the requirements of one of the several exceptions under the law, the regulatory agency has no authority, and the project is not subject to CON review. The New Hampshire Health Services Planning and Review Board (Board) granted Portsmouth Regional Hospital intervenor status on the application of Northeast Surgical Care Project (the Project) owned and developed by Northeast Surgical Care, LLC (Northeast Surgical). The Board determined that the cost involved did not exceed the statutory threshold and, therefore, did not require a CON. The Board denied Portsmouth Regional Hospital's motion for reconsideration. The hospital appealed asserting that the Board erred in determining the cost of the project because it failed to include the costs of leasing the real estate. Northeast Surgical did not include in the cost of the project. The hospital appealed.

THE SUPREME COURT OF NEW HAMPSHIRE HELD THE COST OF ACQUISITION OF REAL ESTATE IS NOT A CONSTRUCTION COST. Accordingly, the court confirmed the judgment of the lower court. The court found, inter alia, that there was no merit in Hospital's contention that even though an asset might be donated or rented to the developer of an ambulatory surgical facility and not appear as a capital expense on the developer's balance sheet, it would still be a `capital expenditure' under the law. The court accepted Northeast Surgical's position that the cost of the lease in this case was an "operating cost" and not a "capital expenditure." Once the Board determines that a project is exempt, the project is not subject to review under other provisions of the law, and it becomes unnecessary to determine whether the Board would normally be required to develop standards for the institution. The law explicitly states that outpatient facilities, "which do not require construction of greater than the appropriate threshold level are excluded from the CON requirements." It was clear from the plain language of the law that the only consideration in determining whether a facility is excluded is whether the construction costs exceed the statutory threshold.

HAD THE LEGISLATURE INTENDED THAT THE BOARD CONSIDER ALL CAPITAL EXPENDITURES, IT WOULD HAVE USED THE APPROPRIATE TERM IN THE LAW. All words in a statute can be assumed to be given their ordinary meaning consistent with the lawful interpretation of the statute. An expenditure which, under generally accepted accounting principles consistently applied, is not properly chargeable as an expense of operation or maintenance, and includes acquisition by purchase, by transfer, or by lease or comparable arrangement, or through donation, if the expenditure would have been considered a capital expenditure if acquisition had been by purchase. Because Northeast Surgical renovated a portion of an existing building and constructed an addition, consideration of whether the project exceeded the statutory threshold is limited to a review of the costs associated with the "actual commencement of any construction" and the "addition to any existing facility." These costs would not include the cost of acquiring land and existing buildings, but rather costs related to construction such as labor costs, materials, and fixed equipment. Editor's Note: The statute had been amended because many acute care hospitals were successful in increasing the threshold level for their expenditures from $1 million to $1,5 million and because the legislature determined that each year the threshold levels would be adjusted for inflation. Ironically, in this case, the hospital was on the other side of the issue. It was concerned about the prospective competition oft he ambulatory surgical care center proposed by Northeast Surgical. Hospital administrators and their legal counsel should be keenly aware of the issue in this case whether they contemplate building an addition to a hospital facility or, conversely, seek to prevent a competitor from encroaching on their market area. In re Appeal of Portsmouth Regional Hospital, 2002 WL 1539804 N.E.2d--NH (2002)

Meet the Editor & Publisher: A. David Tammelleo, JD, is a nationally recognized authority on health care law. Practicing law for nearly 40 years, he concentrates in health care law with the Rhode Island law firm of A. David Tammelleo & Associates. He has presented seminars on medical, nursing and hospital law throughout the United States. In addition to his writings as Editor of Medical Law's, Nursing Law's & Hospital Law's Reagan Reports, his legal articles have been published in the most prestigious health law journals. A prolific writer, his thousands of articles, as well as his achievements as an attorney and lecturer, have won him recognition in Martindale-Hubbell's Bar Register of Preeminent Lawyers and Marquis Who's Who in American Law.