Alabama Certificate of Need CHOW Rule Affected by Court Decision

The Alabama Court of Civil Appeals (the Court) recently ruled that the current regulations governing the Certificate of Need (CON) process in Alabama for changes of ownership (CHOWs) of an existing health care facility are in conflict with the CON statute. The CON statute provides that “[a] certificate of need shall not be transferrable, assignable, or convertible, other than between members of a parent-subsidiary controlled corporate group as defined in Internal Revenue Code, 26 U.S.C. § 1563 (a)(1), and shall be valid solely to the person and purpose named thereon, except to such other member of the controlled group, or by change of name or merger with another corporation.” Ala. Code § 22-21-270. Under the regulations promulgated by the State Health Planning and Development Agency (SHPDA), parties to a CHOW are required to submit a Notice of Change of Ownership and payment of a $2,300 fee, but purchasers are not required to obtain a new CON. Upon submission of the requisite notice and fee, SHPDA issues a determination that a new CON is not required, provided there are no changes in service, conversion of beds, or increase in bed capacity.

The Court held that the CON statute prohibits the transfer of a CON in a CHOW, thus requiring a purchaser to obtain a new CON, rather than simply filing the Notice of Change of Ownership. This decision has the potential to cause significant delays in obtaining regulatory approval for CHOWs of certain health care facilities, including asset sales of hospitals, nursing homes, specialty care assisted living facilities, home health agencies, and other provider types subject to CON review. However, the Court held that a CON may be transferred in a stock sale or corporate merger. Thus, to the extent that full CON review is required for a CHOW, purchasers and sellers may be able to avoid delays in obtaining CON approval by structuring their transactions as stock sales or mergers.

A copy of the Court’s decision is available by clicking here.

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