Formal Review

Navigating the CON application process can feel like a never-ending maze. Not only is the process lengthy and expensive, an applicant often must overcome a competitor’s objections to stand a chance at receiving a CON. To offer any services covered by Kentucky’s CON laws (see list on page 10), you need to start by putting together an application. In theory, you fill out a form, submit it to the Cabinet for Health and Family Services (Cabinet), and wait for a decision.

Sounds straightforward, right? But nothing about CON is that simple. The formal CON application process involves nine steps and often requires a hearing akin to a full-blown trial. To stand any chance at getting a CON, you will have to hire attorneys and consultants and can be forced to wait months or years before you get a final decision. In the meantime, you’ll be in limbo, not knowing whether you can open your business. There is also a faster process, called “nonsubstantive review.” Let’s walk through the application process.

First, you need to determine if you’re requesting substantive (formal) review or nonsubstantive review. The Office of the Inspector General provided this dizzying flow chart 1  in an attempt to clarify the process:

Let’s say you want to open a home health agency. That requires formal review, so your application must satisfy these five review criterion: (1) consistency with the State Health Plan (SHP) 2 ; (2) need and accessibility; (3) interrelationships and linkages; (4) costs, economic feasibility, and resource availability; and (5) quality of care. 3  The first criteria (consistency with the SHP) is often the most strictly construed, but even if your application is inconsistent with the SHP, the reviewer still makes findings about the rest of the criteria.

Second, you check the SHP, a document that the Cabinet publishes every three years. 4  The Cabinet is supposed to update it annually and it must be approved by the Governor. 5  The SHP is available to download on the Cabinet’s website. A CON application often lives or dies with the SHP because it contains formulas or other assessments that determine whether a facility or service is “needed.” These formulas vary depending on the proposed facility or service. If the formulas in the SHP don’t show a “need” for your service in your geographic area, the Cabinet cannot approve your CON application. 6

For example, a home health agency can open in a county only if the formula shows that at least 250 new patients need home health services. The Cabinet calculates need like this 7

First, determine the number of people in given age groups (e.g., ages 65–74 or 75–84) who used home healthcare (averaged over the last two years). These are base rates that the Cabinet considers the “right” amount of use.

Next, for each county, multiply the statewide age-group rates by the projected population for the SHP year and add results together. This produces an estimate of how many people per county “should” be using home health services. This is projected need.

Finally, subtract the amount of use from the projected need to determine each county’s “need” for home health services. 8

Applying this formula is mandatory for new entrants. Even if you collected sworn statements from 250 individuals unable to find adequate service, it would be immaterial. The Cabinet would still find that your application was inconsistent with the SHP.

But, of course, every rule has an exception. Unsurprisingly, the exception advantages incumbents. Incumbent home health agencies can expand when need reaches 125 new patients. 9  Thus, existing home health agencies can easily prevent new home health agencies from opening by expanding before need reaches 250, permanently shutting any competition out of the market.

In reality, trusting past usage to predict future need is risky. The 2013 Capacity Report aptly noted the flaw in relying on past usage as a baseline, 10  citing nursing homes as an example:

If patients are not admitted to nursing facilities in the first place because of capacity constraints, then baseline utilization data may underestimate actual demand for nursing services (unmet demand is not captured). Future projections could correspondingly under-represent demand. This consideration applies particularly to health services that operate at or close to capacity today. 11

Moreover, existing providers have an incentive to game the formula. A newcomer’s application is more likely to be denied if existing facilities are operating under capacity. Knowing this, incumbent providers may have an incentive to keep beds unfilled or appointments open despite CON’s goal of preventing the underutilization of care.

Third, assuming the SHP reflects that a need exists, you will start on your application. This often involves paying an attorney and/or consultant to help with formal documents. These experts will know how the application process works, do statistical analyses to show that there’s a lack of care, help you make financial projections, and otherwise help you with your business plans. Lawyers can be hard to come by for new providers. When Dipendra and Kishor searched for one in Louisville, every lawyer they called represented a health system, or had in the past, and therefore had a conflict of interest. Remember, even if there is a need according to the SHP, your application still needs to comply with the four remaining review criteria:

  1. Need and accessibility. In essence, you have to prove need a second time. This might require a consultant to prove the need for your service using different metrics than the SHP formula. And proving accessibility can be a catch-22. Services in a rural area might be needed and not opposed by an existing agency, but they might not be considered accessible. By contrast, services in an urban area would be more accessible but attract opposition from existing providers who will argue enough service exists.
  2. Interrelationships and linkages. Basically, you must show that you are connected to existing healthcare infrastructure. You might collect letters from future potential employees and potential providers/facilities that would refer patients to your home health agency. You might even get letters from future patients. This criterion favors existing providers. They’re already linked to existing healthcare facilities and networks and have no incentive to support new providers.
  3. Costs and economic feasibility. Here, you need to disclose your finances to show your project is economically feasible. The Cabinet wants to see how much it will cost you to open, your projected revenue in the first couple of years, and how much capital you can invest. If you have any backers or partners, the Cabinet will want to know that too. Again, you may need a consultant, accountant, or other expert to help you prepare this part of your application.
  4. Quality of care. Finally, you must attest that you will offer high-quality care. Although this sounds like the most important criterion, the Cabinet never follows up on the assertions in a provider’s application after issuing a CON. That’s part of the licensing and inspection process managed by the Cabinet’s Office of Inspector General Healthcare Division. CON laws are not a tool to ensure the quality of healthcare services. And it’s very unlikely the Cabinet would deny a CON application based on quality concerns alone.

Fourth, after paying your advisors to help prepare your application, you’re finally ready to file. Keep your checkbook out—the filing fees range from $1,000 to $25,000 depending on the cost of your project. 12  Be aware, the Cabinet will keep your application fee even if it does not approve your application. From 2019 through May 2023, the Cabinet collected over $2 million in filing fees.

Fifth, the Cabinet will review your application and either ask for additional information or formally confirm that your application is complete. 13  Then, the Cabinet publishes your application in its monthly CON Newsletter. The Newsletter notifies your competition that you’ve applied for a CON. This step is mandatory. There may be delays, though, because the Cabinet publishes home health agency CON applications only in February, May, August, and November. 14  Different types of CON applications are published in different months.

Sixth, now the real fun begins. Once the Cabinet publishes the Newsletter with information about your application, any “affected person” has 15 days to intervene in the review process and request a hearing. 15  In theory, a future user of your home health agency is an “affected person” and could request a hearing. In practice, that never happens because consumers don’t oppose access to more care. Only potential competitors intervene to oppose your application. They often drop their objections, however, if you agree not to directly compete with their territory. 16  

Although the hearing is before an administrative agency and not in a court, you need to be represented by an attorney and prepare like you would for a full-blown trial. You will appear before a hearing officer who acts like a judge. Your opposition is often a large healthcare system with the resources to stretch the application process out in hopes that you will give up. And it works. Some applicants decide they don’t want to deal with the headache of a hearing, or simply can’t afford to keep paying an attorney, and walk away at this point.

Before the hearing, the parties (including your would-be competitors) may engage in discovery, subpoena witnesses, and file dispositive motions. 17  At the hearing, each party is allowed to present its case; make an opening statement; call witnesses; cross-examine opposing witnesses; offer documentary evidence into the record; and make a closing statement. 18  The burden is on you to prove that you satisfy all five review criteria. Your opponents will argue that they are already providing enough care and that if the Cabinet grants your application, it will hurt their bottom lines.

Seventh, after the hearing concludes, the hearing officer will consider the evidence and issue a final order approving or disapproving your application. This entire process can last months or sometimes over a year. If they feel their application will be denied, some applicants choose to withdraw their applications at this point.

Eighth, you get a final order! Let’s say the hearing officer grants your CON application. You might think you can go open your home health agency. But wait; any affected person can appeal this order as long as they were a party during the administrative hearing. The affected person can request reconsideration from the Cabinet and/or appeal the order to the Franklin Circuit Court. 19  And as with any other judicial decision, the losing party can appeal from the Circuit Court’s decision. If the Cabinet does not approve your CON application, you have the same rights to appeal.

The appeal process will add years to your timeline and put the status of your CON in jeopardy. You are not allowed to open your agency while appeals are pending.

Ninth, if you are lucky enough to avoid the appeal process, you can begin taking steps toward opening. You must submit progress reports to the Cabinet every six months until you become operational. Otherwise, the Cabinet can revoke your CON. 20

This process is not for the faint of heart. It’s clear why many entrepreneurs give up without applying or simply avoid states with CON laws altogether. As a result, Kentucky has missed out on countless healthcare providers and innovations that are enjoyed in other parts of the country. The CON process can’t be the best way to ensure access to affordable, quality healthcare services in the Bluegrass State.

Nonsubstantive Review

The nonsubstantive review process moves faster. Certain services like adult day care, transferring acute care hospital beds between facilities with one owner, hospital-owned freestanding emergency departments, and private duty nursing agencies are eligible for nonsubstantive review. 21  Under this process, there is “a presumption that the facility or service is needed and a presumption that the facility or service is consistent with the [SHP].” 22  There’s no relying on population projections or worrying about need formulas. Although there are a few requirements for different facilities and services, 23  they are not subjective in the way that the review criteria like interrelationships and linkages or economic feasibility are during formal review. If you meet the requirements under nonsubstantive review, it’s very likely the Cabinet will approve your application. 24

Affected persons can still request a hearing, but under nonsubstantive review, the burden flips. Here, the Cabinet will approve an application unless the affected person can prove that a need for the facility or service does not exist by clear and convincing evidence.

If your application for nonsubstantive review is not approved, you have three options. One, you can go through the formal review process. Two, you can request that the Cabinet reconsider the nonsubstantive review decision. Three, you can appeal the decision to the Franklin Circuit Court. 25