AN ACT Relating to hospitals; amending RCW 70.38.105, 70.39.140, 43.131.050, 43.131.253, and 43.131.254; creating a new section; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The legislature recognizes that dramatic changes have occurred in the hospital industry and the methods of delivering health care in this state and the nation. The legislature further recognizes that payers for health care, health care purchasers, changing federal policy, and changes in state reimbursement policies have dramatically altered the economics of hospital administration. The legislature also recognizes changes in health care economics including competition from nonregulated health care entities, restrictive regulatory policies, and the decreasing ability of hospitals to acquire capital financing, will continue to discourage innovative methods and incentives that will encourage hospital cost containment and quality patient care.

The legislature recognizes that past legislative policy intended to restrict the supply of health care and to limit the rates charged therefor may be unduly restrictive in this new, highly competitive market. As a result, this policy may need modification, change, or elimination.

It is the intent of the legislature to update and eliminate certain statutory regulations affecting hospitals, to eliminate certain restrictions on their operations, to allow more operational flexibility and accountability at the local level, and to encourage incentives for hospitals to acquire capital funds through equity financing while assuring reasonably broad controls on the unneccessary expansion of the hospital system and reasonable price increases for hospital services.

Sec. 2. Section 10, chapter 161, Laws of 1979 ex. sess. as last amended by section 21, chapter 288, Laws of 1984 and RCW 70.38.105 are each amended to read as follows:

(1) The department is authorized and directed to implement the certificate of need program in this state pursuant to the provisions of this chapter.

(2) There shall be a state certificate of need program which is administered consistent with the requirements of federal law as necessary to the receipt of federal funds by the state.

(3) No person shall engage in any undertaking which is subject to certificate of need review under subsection (4) of this section without first having received from the department either a certificate of need or an exception granted in accordance with this chapter.

(4) The following shall be subject to certificate of need review under this chapter:

(a) The construction, development, or other establishment of a new health care facility;

(b) The sale, purchase, or lease of part or all of any existing hospital as defined in RCW 70.39.020;

(c) Any capital expenditure by or on behalf of a health care facility which ((~~substantially changes the services of the facility after January 1, 1981, provided that the substantial changes in services are specified by the department in rule~~)) results in the addition of health care services primarily or exclusively for the following:

(i) In-patient pediatric care;

(ii) The care of traumatic burns; or

(iii) The transplant of organs;

(d) ((Any capital expenditure by or on behalf of a health care facility which exceeds the expenditure minimum as defined by RCW 70.38.025. However, a capital expenditure which is not subject to certificate of need review under (a), (b), (c), (e), (f), or (g) of this subsection and which is solely for any one or more of the following is not subject to certificate of need review except to the extent required by the federal government as a condition to receipt of federal assistance and does not substantially affect patient charges:

~~(i) Communications and parking facilities;~~

~~(ii) Mechanical, electrical, ventilation, heating, and air conditioning systems;~~

~~(iii) Energy conservation systems;~~

~~(iv) Repairs to, or the correction of, deficiencies in existing physical plant facilities which are necessary to maintain state licensure;~~

~~(v) Acquisition of equipment, including data processing equipment, which is not or will not be used in the direct provision of health services;~~

~~(vi) Construction which involves physical plant facilities, including administrative and support facilities, which are not or will not be used for the provision of health services;~~

~~(vii) Acquisition of land; and~~

~~(viii) Refinancing of existing debt;~~

~~(e)~~)) A change in bed capacity of a health care facility which increases the total number of licensed beds ((or redistributes beds among facility and service categories of acute care, skilled nursing, intermediate care, and boarding home care if the bed redistribution is to be effective for a period in excess of six months;

~~(f) Acquisition of major medical equipment:~~

~~(i) If the equipment will be owned by or located in a health care facility; or~~

(ii) If, after January 1, 1981, the equipment is not to be owned by or located in a health care facility, the department finds consistent with federal regulations the equipment will be used to provide services for hospital inpatients, or the person acquiring such equipment did not notify the department of the intent to acquire such equipment at least thirty days before entering into contractual arrangements for such acquisition;

(g) Any new institutional health services which are offered in or through a health care facility, and which were not offered on a regular basis by, in, or through such health care facility within the twelve-month period prior to the time such services would be offered; and

(h) Any expenditure by or on behalf of a health care facility in excess of the expenditure minimum made in preparation for any undertaking under subsection (4) of this section and any arrangement or commitment made for financing such undertaking. Expenditures of preparation shall include expenditures for architectural designs, plans, working drawings, and specifications. The department may issue certificates of need permitting predevelopment expenditures, only, without authorizing any subsequent undertaking with respect to which such predevelopment expenditures are made.

~~(5) No person may divide a project in order to avoid review requirements under any of the thresholds specified in this section~~)).

Sec. 3. Section 15, chapter 5, Laws of 1973 1st ex. sess. as last amended by section 14, chapter 288, Laws of 1984 and RCW 70.39.140 are each amended to read as follows:

(1) From and after a date not less than twelve months but not more than twenty-four months after the adoption of the uniform system of accounting and financial reporting required by RCW 70.39.100, as the commission may direct, the commission shall have the power to initiate such reviews or investigations as may be necessary to assure all purchasers of health care services that the total costs of a hospital are reasonably related to the total services offered by that hospital, that costs do not exceed those that are necessary for prudently and reasonably managed hospitals, that the hospital's rates are reasonably related to the hospital's aggregate costs; and that rates are set equitably among all purchasers or classes of purchasers of services without undue discrimination or preference. Effective July 1, 1985, this chapter does not preclude any hospital from negotiating with and charging any particular payer or purchaser rates that are less than those approved by the commission, if:

(a) The rates are cost justified and do not result in any shifting of costs to other payers or purchasers in the current or any subsequent year; and

((~~(c)~~)) (b) All the terms of such negotiated rates are filed with the commission within ten working days and made available for public inspection.

The commission may retrospectively disapprove such negotiated rates in accordance with procedures established by the commission if such rates are found to contravene any provision of this section.

(2) In order to properly discharge these obligations, the commission shall have full power to review projected annual revenues and approve the reasonableness of rates proposed to generate that revenue established or requested by any hospital subject to the provisions of this chapter. No hospital shall charge for services at rates exceeding those established in accordance with the procedures established hereunder. After June 30, 1985, rates for inpatient care shall be expressed using an appropriate measure of hospital efficiency, such as that based on diagnosis-related groups, and, if necessary for federal medicare participation in a hospital reimbursement control system, hospitals shall charge for such care at rates prospectively established and expressed in terms of a comparable unit of total payment, such as diagnosis-related groups. In the event any hospital reimbursement control system is implemented, children's hospitals shall be exempted until such time as a pediatric based classification system which reflects the unique resource consumption by patients of a children's hospital is perfected. For the purposes of this exemption, children's hospitals are defined as hospitals whose patients are predominantly under eighteen years of age.

(3) As an alternative to the rate-setting methods described in this section, the commission shall develop and implement within three months of the effective date of this 1986 act, an expedited review process for hospitals that choose to submit, along with the data and information required under RCW 70.39.110, a proposed master price list that details proposed prices for all items and services in use or that potentially could be used at such hospital. The expedited review process shall be available for use for the rate year immediately following the effective date of this 1986 act.

(a) A baseline master price list shall be approved if the commission finds that:

(i) The total cost of services contained in the list is reasonably related to the total cost of the hospital and does not exceed those costs necessary for prudently and reasonably managed hospitals;

(ii) The rates are reasonably related to the hospital's aggregate costs for such procedures, taking into account capital and other costs indigenous to any hospital facility; and

(iii) The rates are set equitably among all purchasers or classes of purchasers or services without undue discrimination or preference.

For purposes of this chapter, "baseline master price list" means the master price list filed initially under this subsection together with any amendments submitted before commission action.

(b) A hospital may apply for approval of an updated master price list on an annual basis, under the expedited review process established in this section. So long as the updated master price list reflects price increases no more than one percent over the consumer price index for the state of Washington or region, as established by a relevant federal or other authority selected by the commission, from the previous year's updated master price list or baseline master price list if the application is in a year immediately following the establishment of a baseline master price list, then such updated master price list shall be approved.

(c) Baseline master price lists or updated master price lists shall remain in effect for one year. Amendment during that time shall only be allowed by the commission if the commission finds, upon its own review or upon petition by a hospital, that the consumer price index for the current period is increasing at an unanticipated rate, defined as a rate increasing in excess of fifteen percent more than the original consumer price index used for that annual period as a base, or if a hospital experiences significant increases in costs as a result of governmental action or other actions which are similarly beyond the hospital's control.

(d) The commission shall not allow any hospital that chooses the expedited review process to carry forward to any subsequent year any operating loss or surplus sustained unless such loss was approved as part of a budget amendment as allowed in (c) of this subsection.

(4) In the interest of promoting the most efficient and effective use of health care service, and providing greater promise of hospital cost containment, the commission may develop a hospital reimbursement control system in which all payers or purchasers participate, that includes procedures for establishing prospective rates, that deals equitably with the costs of providing charity care, and that shall include the participation of the federal medicare program under the social security amendments of 1983, Public Law 98-21. The commission shall have the authority to require utilization reviews of patient care to ensure that hospital admissions and services provided are medically justified. The commission may seek approval, concurrence, or participation in such a system from any federal agency, such as the department of health and human services, prior to securing legislative approval pursuant to concurrent resolution for implementation of any hospital reimbursement control system developed pursuant to this section. The commission shall involve the legislature in the development of any plan for a hospital reimbursement control system.

((~~(4)~~)) (5) The commission shall assure that no hospital or its medical staff either adopts or maintains admission practices or policies which result in:

(a) A significant reduction in the proportion of patients who have no third-party coverage and who are unable to pay for hospital services;

(b) A significant reduction in the proportion of individuals admitted for inpatient hospital services for which payment is or is likely to be less than the anticipated charges for or costs of such services; or

(c) The refusal to admit patients who would be expected to require unusually costly or prolonged treatment for reasons other than those related to the appropriateness of the care available at the hospital((~~; or~~)).

((~~(5)~~)) (6) The commission shall serve as the state agency responsible for coordinating state actions and otherwise responding and relating to the efforts of the federal department of health and human services in planning and implementing federal cost containment programs with respect to hospitals and related health care institutions as authorized by the social security amendments of 1983, as now or hereafter amended, or other federal law, and any rules or regulations promulgated thereto. In carrying out this responsibility, the commission may assume any function or role authorized by appropriate federal regulations implementing the social security amendments of 1983; or assume any combination of such roles or functions as it may determine will most effectively contain the rising costs of the varying kinds of hospitals and related health care institutions in Washington state. In determining its functions or roles in relation to federal efforts, the commission shall seek to ensure coordination, and the reduction of duplicatory cost containment efforts, by the state and federal governments, as well as the diligent fulfillment of the purposes of this chapter and declared public policy and legislative intent herein.

Nothing in this chapter limits the ability of the department of social and health services to establish hospital payment rates pursuant to RCW 74.09.120 or in accord with a federally approvable state plan under Title XIX of the federal social security act.

Sec. 4. Section 5, chapter 289, Laws of 1977 ex. sess. as amended by section 1, chapter 22, Laws of 1979 and RCW 43.131.050 are each amended to read as follows:

Except as provided in RCW 43.131.253, the legislative budget committee shall cause to be conducted a program and fiscal review of each state agency scheduled for termination by the processes provided in this chapter. Such program and fiscal review shall be completed and a report prepared on or before June 30th of the year prior to the date established for termination. Upon completion of its report, the legislative budget committee shall transmit copies of the report to the office of financial management. The office of financial management may then conduct its own program and fiscal review of the agency scheduled for termination and shall prepare a report on or before September 30th of the year prior to the date established for termination. Upon completion of its report the office of financial management shall transmit copies of its report to the legislative budget committee. The legislative budget committee shall prepare a final report that includes the reports of both the office of financial management and the legislative budget committee. The legislative budget committee and the office of financial management shall, upon request, make available to each other all working papers, studies, and other documents which relate to reports required under this section. The legislative budget committee shall transmit the final report to all members of the legislature, to the state agency concerned, to the governor, and to the state library.

Sec. 5. Section 9, chapter 223, Laws of 1982 as amended by section 25, chapter 288, Laws of 1984 and RCW 43.131.253 are each amended to read as follows:

The hospital commission and its powers and duties shall be terminated on June 30, ((~~1989~~)) 1987, as provided in RCW 43.131.254. The legislative budget committee shall conduct a performance audit of the state hospital commission. The final audit report shall be available to the legislature at least six months prior to the scheduled termination date. The audit shall include, but is not limited to, objective findings of fact, conclusions, and recommendations as to continuation, modification, or termination of the hospital commission.

Sec. 6. Section 10, chapter 223, Laws of 1982 as amended by section 26, chapter 288, Laws of 1984 and RCW 43.131.254 are each amended to read as follows:

The following acts or parts of acts, as now existing or hereafter amended, are each repealed, effective June 30, ((~~1990~~)) 1987:

(1) Section 2, chapter 5, Laws of 1973 1st ex. sess., section 1, chapter 288, Laws of 1984 and RCW 70.39.010;

(2) Section 3, chapter 5, Laws of 1973 1st ex. sess., section 2, chapter 288, Laws of 1984 and RCW 70.39.020;

(3) Section 4, chapter 5, Laws of 1973 1st ex. sess., section 3, chapter 288, Laws of 1984 and RCW 70.39.030;

(4) Section 5, chapter 5, Laws of 1973 1st ex. sess., section 1, chapter 36, Laws of 1977, section 4, chapter 288, Laws of 1984 and RCW 70.39.040;

(5) Section 6, chapter 5, Laws of 1973 1st ex. sess., section 5, chapter 288, Laws of 1984, section 104, chapter 287, Laws of 1984 and RCW 70.39.050;

(6) Section 7, chapter 5, Laws of 1973 1st ex. sess., section 1, chapter 35, Laws of 1977, section 6, chapter 288, Laws of 1984 and RCW 70.39.060;

(7) Section 8, chapter 5, Laws of 1973 1st ex. sess., section 7, chapter 288, Laws of 1984, section 17, chapter 125, Laws of 1984 and RCW 70.39.070;

(8) Section 9, chapter 5, Laws of 1973 1st ex. sess., section 8, chapter 288, Laws of 1984 and RCW 70.39.080;

(9) Section 10, chapter 5, Laws of 1973 1st ex. sess., section 9, chapter 288, Laws of 1984 and RCW 70.39.090;

(10) Section 11, chapter 5, Laws of 1973 1st ex. sess., section 10, chapter 288, Laws of 1984 and RCW 70.39.100;

(11) Section 12, chapter 5, Laws of 1973 1st ex. sess., section 11, chapter 288, Laws of 1984 and RCW 70.39.110;

(12) Section 13, chapter 5, Laws of 1973 1st ex. sess., section 12, chapter 288, Laws of 1984 and RCW 70.39.120;

(13) Section 14, chapter 5, Laws of 1973 1st ex. sess., section 82, chapter 75, Laws of 1977, section 13, chapter 288, Laws of 1984 and RCW 70.39.130;

(14) Section 15, chapter 5, Laws of 1973 1st ex. sess., section 1, chapter 163, Laws of 1974 ex. sess., section 14, chapter 288, Laws of 1984, section 3 of this 1986 act and RCW 70.39.140;

(15) Section 16, chapter 5, Laws of 1973 1st ex. sess., section 1, chapter 154, Laws of 1977 ex. sess., section 18, chapter 288, Laws of 1984 and RCW 70.39.150;

(16) Section 17, chapter 5, Laws of 1973 1st ex. sess., section 19, chapter 288, Laws of 1984 and RCW 70.39.160;

(17) Section 18, chapter 5, Laws of 1973 1st ex. sess., section 67, chapter 57, Laws of 1985 and RCW 70.39.170;

(18) Section 19, chapter 5, Laws of 1973 1st ex. sess. and RCW 70.39.180;

(19) Section 20, chapter 5, Laws of 1973 1st ex. sess. and RCW 70.39.190;

(20) Section 21, chapter 5, Laws of 1973 1st ex. sess., section 20, chapter 288, Laws of 1984 and RCW 70.39.200;

(21) Section 22, chapter 5, Laws of 1973 1st ex. sess. and RCW 70.39.900;

(22) Section 23, chapter 5, Laws of 1973 1st ex. sess. and RCW 70.39.910;

(23) Section 15, chapter 288, Laws of 1984 and RCW 70.39.165;

(24) Section 23, chapter 288, Laws of 1984 and RCW 70.39.195; and

(25) Section 24, chapter 288, Laws of 1984 and RCW 70.39.125.

NEW SECTION. Sec. 7. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 8. This act is necessary for the immediate preservation of the public peace, health, and safety, the support of the state government and its existing public institutions, and shall take effect immediately.