January 31, 1996
Subject: Certificates of Need
Written By: Scott White
Requested By: Senator Benny Ray Bailey, The Honorable Senator from Knott County
Syllabus: The Health Policy Board can only approve a certificate of need for nursing facility beds with funds appropriated in the Biennial Budget.
OAGs Cited: 89-16
Statutes Construed: KRS 216.2903, 216.2905(2)(a) & (h), 216B.015(8), 216B.040(2), 216B.061 and 47.011
Constitutional Provisions Cited: �49, 50, 230
OPINION OF THE ATTORNEY GENERAL
The Office of the Attorney General is asked by Senator Bailey to render an opinion on two issues pertaining to the Health Policy Boards' approval process concerning certificates of need for additional nursing facility beds. The Attorney General provides this opinion on a public question of law submitted by a member of the legislature. KRS 15.025(2).
Senator Bailey requests our opinion on two questions:
(1) Are Health Policy Board approvals for certificates of need for additional nursing facility beds null and void due to the failure of the Board to solicit an opinion regarding the availability of state funding for additional nursing facility beds?; and
(2) Is the State Executive Budget required to include additional funding to be appropriated by the 1996 General Assembly, for the additional nursing facility beds approved by the Board?
It must be noted at the outset that in providing this opinion, the Office of the Attorney General is neither rendering an opinion nor making any finding as to the need for nursing facility beds in a particular geographical area. That is not a proper subject for us to express an opinion.
Based upon our analysis of the law contained herein, as well as the effect of various provisions of the Kentucky Constitution, we answer both questions in the negative. It is also our opinion that any certificates of need which have been issued for additional nursing facility beds which require additional general fund appropriations beyond that budgeted in the 1994 Biennial Budget Act are, indeed, null and void should the General Assembly, at its discretion, elect not to fund them.
A. The Kentucky Health Policy Board
The Kentucky Health Policy Board was created by statute in 1994 as an independent agency of state government. KRS 216.2903. Its goal is to control health care costs, improve quality and efficiency, encourage competition, and develop a system of integrated health care delivery . . . Id. In addition, the legislature empowered the board in KRS 216.2905(2) to:
(a) Analyze specific health service costs and benefits, and define and develop a priority listing of minimum health benefits on the basis of the relationships between costs, benefits, and improved quality of life for citizens of the Commonwealth of Kentucky. The board shall use the minimum list of health care benefits to recommend to the 1996 Regular Session of the General Assembly a plan for the implementation and funding of a universal access plan for all Kentuckians; . . .
(h) Approve or disapprove certificate-of-need applications under KRS Chapter 216B.
Thus, the Kentucky Health Policy Board is the governmental agency created by the General Assembly to approve or disapprove certificate of need applications required to be made under KRS Chapter 216B.
B. The Certificates of Need for Nursing Facility Beds Process
A certificate of need is an authorization by the Health Policy Board to acquire, establish, alter, or substantially change the bed capacity or health service within the scope of Chapter 216B of the Kentucky Revised Statutes. See, KRS 216B.015(8).
The legislature in 216B.040(2) requires the Health Policy Board to promulgate regulations establishing the certificate of need application process, and to establish criteria for issuance and denial for certificates of need which shall be limited to the following considerations . . . . Id.
KRS 216B.040(2)(a)2. sets forth six considerations for which criteria are to be established by the Health Policy Board. Significant to our analysis, considerations a. and d. require the Health Policy Board to establish criteria concerning budget and operational financing. The statute provides at sub-part a.:
Consistency with plans. Each proposal approved by the Board shall be consistent with the state health plan, subject to biennial budget authorizations and limitations, and with consideration given to the proposals impact on health care costs in the Commonwealth. [Emphasis added].
Sub-part d. provides as follows:
Costs, economic feasibility, and resources availability. The proposal, when measured against the cost of alternatives for meeting needs, shall be judged to be an effective and economical use of resources, not only in capital investment, but also in ongoing requirements for health manpower and operational financing. [Emphasis applied].
It is plain that the ability of the Health Policy Board to issue a certificate of need for nursing facility beds is dependent upon biennial budget authorizations. This is particularly true when read in conjunction with sub-part d.'s language concerning operational financing (source of funds).
Pursuant to the statutory authority of 216B.040, the Health Policy Board promulgated 909 KAR 1:040 Certificate of Need Process. Section 2 of that regulation sets forth the criteria . . . in determining whether to issue or deny a certificate of need. This regulation requires the applicant for a certificate of need to provide various information, and then requires the Health Policy Board to utilize that information. Pertinent regulatory criteria to our analysis include:
(1) Consistency with the state health plan and any biennial state budget authorizations and limitations directly affecting the proposal; and,
(4)(d) the availability of resources, including health care personnel, management personnel, and funds for capital and operating needs.
Thus, it is clear that the applicant must provide information upon the state budget authorizations and limitations (translated: appropriations by the legislature), and the availability of funds for capital and operating needs (translated: the revenue source). Then, upon this information, the Health Policy Board makes an issuance decision. It is also clear from the actual form application filed with the Health Policy Board by the applicant that the applicant lists the revenue source for the particular bedsincluding Medicaid. Thus, the Health Policy Board is given notice at the outset of its determination whether Medicaid dollars are being relied upon by the applicant.
We now move to the questions presented by Senator Bailey.
QUESTION 1: Is the Health Policy Board required to solicit an opinion from the legislature regarding the availability of state funding for nursing facility beds?
In the area of long-term care, the primary function of the board is to ascertain the needs of each county in the Commonwealth. This information is in turn used to determine whether or not to issue the applicant's certificate of need. As previously stated, 909 KAR 1:040(2) contains the specific criteria for the issuance of a certificate of need. However, a careful review of this regulation and KRS Chapter 216B reveals that there is no requirement that the Board solicit an opinion from any source regarding the availability of funding prior to issuing a certificate of need.
However, it does not flow from this that the Board should disregard funding availability. To the contrary, funding availability is a criteria both by statute [KRS 216B.040(2)(a)2.a. and d.] and regulation [909 KAR 1:040 � 2 (1), and (4)(d)]. In fact, the applicant is to provide this data to the Board for its use in making the determination of whether to issue the certificate.
QUESTION 2: Is the State Executive Budget Required to Include Additional Funding to be Appropriated by the 1996 General Assembly for Additional Nursing Facility Beds Approved by the Health Policy Board?
To begin our analysis of this question, it would be constructive to set forth the views on this issue of both the Health Policy Board and Senator Bailey.
The Health Policy Board's position is that when it approves a certificate of need for nursing facility beds (either new construction or conversion), they have merely determined, based upon the statistical evidence, that there exists a particular need for more long-term care beds in a particular geographical area. As an administrative act, the Board believes that, at that point, the Commonwealth has not incurred a financial obligation. Rather, the Board takes the position that the Commonwealth has not become obligated at that point to pay any type of matching funds until the applicant has obtained its license and actually fills the bed with a patient who is a Medicaid recipient.
Senator Bailey has expressed concern that, as a practical matter, many long-term care beds, which are nursing facility beds, are Medicaid funded and have a real and measurable impact on the Commonwealth's budget. Specifically, Senator Bailey has asked whether or not the Board is limited by the biennial budget in the number of beds which it may approve. If not, is the General Assembly then required to include additional appropriations in the budget for additional long-term care beds which have effects on future biennial budgets.
The Kentucky Health Policy Board was created by the General Assembly in 1994. In its legislative findings and purposes, the General Assembly fully authorized and empowered the Board:
. . . to perform any certificate of need function and other statutory functions necessary to improve the quality and increase access to health care facilities, services, and providers, and to create a cost-efficient health care delivery system for the citizens of the Commonwealth.
KRS 216B.010. As noted earlier, although the legislature created the Board and empowered it to implement this legislative purpose, the legislature also set forth standards controlling the administration of this law in KRS 216B.040(2). The General Assembly required the Health Policy Board to promulgate regulations which established criteria for the issuance and denial of certificates of need based on six considerations.
The creation of the Kentucky Health Policy Board by the General Assembly is a permissible delegation of its legislative power. In Bloemer v. Turner, 281 Ky. 832, 137 S.W.2d 387 (1940), the Supreme Court discussed the practicalities of an agency's implementation of legislative will by stating:
But, obviously the legislature cannot deal with subordinate rules or cover the details of administration and execution in its regulatory enactments . . . there must be left to those upon whom the duty of carrying out the legislative will devolves. However, the legislature must lay down policies and establish standards.
Id. at 391. This constitutional principle was expanded upon in the well-known case of LRC v. Brown, 664 S.W.2d 907 (Ky. 1984). There, the Supreme Court stated:
It is clear . . . that delegation, of legislative power, to be lawful must not include the exercise of discretion as to what the law shall be. In addition, such delegation must have standards controlling the exercise of administrative discretion. Finally, the delegating authority must have the right to withdraw the delegation.
Id. at 915.
Here, the General Assembly sets forth its legislative will in KRS 216B.010, Legislative Findings and Purposes, by creating the Kentucky Health Policy Board. In 216B.040 functions of boardregulatory authority, the General Assembly set forth standards which control the Health Policy Board's exercise of administrative discretion in implementing the legislative will. Thus, it is our opinion that this is a delegation of legislative authority which meets constitutional muster.
The problem arises, however, in the approval process of a certificate of need for nursing facility beds. The Health Policy Board says that its administrative action of approving a certificate of need has no budgetary impact. Senator Bailey argues to the contrary. It is clear that as both a statutory and practical matter, that the Health Policy Board is incorrect.
The appropriation of state funds is within the sole authority of the legislative branch of government. Section 230 of the Kentucky Constitution states No money shall be drawn from the State Treasury except in pursuance of appropriations made by law. As noted by the Supreme Court, the purpose of Section 230 . . . is to prevent the expenditure of the state's money without the consent of the General Assembly. Armstrong v. Collins, 709 S.W.2d 437 (Ky. 1986). The Court stated:
It is clear that the power of the dollar the raising and expenditure of the money necessary to operate state government is one which is within the authority of the legislative branch of government. The constitution of the Commonwealth so states and we have so stated.
Id. at 441. There can be no doubt that the power to appropriate state funds rests solely within the discretion of the legislature. Appropriations can only be made through the device of a bill. As the Court in LRC v. Brown stated:
The appropriation bill is the main ingredient of the budget document, and is specially singled out in section 88 (of the Kentucky Constitution), which deals with bills, and bills only. Appropriations, therefore, must be in the form of a bill. In addition, Kentucky Constitution Section 47, requires that all revenue matters must be introduced in the House of Representatives and such documents are referred to as bills. (emphasis of the court).
664 S.W.2d at 928. There can be no doubt that the expenditure of general funds, commonly known as an appropriation, can only be done with the approval of the General Assembly.
This is most important to note because when the legislature delegates its power, it must not delegate its power to make a law. Such a delegation of power is unconstitutional. See, Bloemer, 137 S.W.2d at 391; and Brown, 664 S.W.2d at 915. The above analysis is critical to our opinion, because if the position of the Health Policy Board is correct, then it is assuming legislative power to make an appropriation. The Board in effect seeks to commit general funds of the Commonwealth without a bill of the General Assembly. This is an unconstitutional delegation of power, and would render the Health Policy Board an unconstitutional entity.
The General Assembly, in its wisdom, recognized this unconstitutional exigency by mandating that all approvals of certificates of need for nursing facility beds be subject to the particular budget in effect at the time a particular application for a certificate of need is considered. That is, if there are appropriated funds for a certificate of need, then the certificate of need can issue (so long as the other criteria promulgated by the Health Policy Board are met). If there are insufficiently appropriated funds for a particular certificate of need to issue, then the certificate of need must be denied. To do otherwise would be an unconstitutional appropriation by the Health Policy Board.
The realities of the certificate of need process for nursing facility beds cannot be ignored, and nor are they. The Health Policy Board requires an applicant to tell it the source of the funds which will pay for a particular bed. Specifically, it asks the applicant if Medicaid funds are to be used. So, at the time of the certificate of need determination, the Board has the data required to determine if a grant of the certificate will involve unappropriated funds. Thus, the reality: when a certificate of need for a nursing facility bed is granted and Medicaid dollars are a source of funds, then the state is obligated to expend dollars. The Health Policy Board must look to its appropriation of Medicaid funds at the time of decision to determine if it can so commit general fund dollars. Obviously, this is particularly troublesome in the situation where the issuance of the certificate of need will entail construction of a new facility, or an addition to an existing facility. In that situation, the Health Policy Board is appropriating state funds from a future unenacted biennial budget.
The above scenario can best be illustrated with a simple example. Assume that in 1995, the Health Policy Board issues a certificate of need for 100 nursing facility beds. Based on the application, 90% of the funding will be from Medicaid dollars. This certificate of need entails the construction of a facility for these 100 new beds. It is not until 1997 that the new construction is completed, the beds are in place and the patients are lying in them. In this scenario, it is the 1997-98 biennial budget from which these Medicaid funds are appropriated. This is obviously a budget nightmare for the General Assembly, and clearly creates significant constitutional problems for the actions of the Health Policy Board.
Even if we were to concede the Health Policy Board's position that by issuing a certificate of need it has only created a contingent appropriation, our answer to Senator Bailey's question remains the same: The present General Assembly is not required to appropriate funds for these new or converted beds.
In OAG 89-16, we opined that the General Assembly is not required to appropriate funds after the biennium if general funds are required. OAG 89-16 at p._2. This analysis finds favor in Wilson v. Kentucky Transportation Cabinet, 884 S.W.2d 641 (Ky. 1994). There the Supreme Court was confronted with a situation in which Economic Development Road revenue bonds authorized by the General Assembly were legal debt obligations of the Commonwealth within the meaning of sections 49 and 50 of the Constitution. The Supreme Court held that neither the Commonwealth, nor the Kentucky Turnpike Authority, were obligated to pay the bond issue or the interest thereon, except from revenues generated by the Authority from rental payments or other revenues. The Court stated:
The funds to pay the bondholders arise from a biennial appropriation which is subject to the determination of the General Assembly in each biennium. The General Assembly has the absolute option of either making the appropriation for the serial release payments [future payments] or declining to do so. The risk of loss is squarely on the bondholders.
The bondholders in this case take the risk that future legislatures will not appropriate the annual lease payments. The legislature has no legal obligation to make such an appropriation and the general revenues of Kentucky are not pledged in any way to pay the outstanding sums. There is no enforceable legal obligation and no debt created within the meaning of the Kentucky Constitution.
Id. at 642 and 645.
In short, it is clear that although an agency may contingently obligate the Commonwealth, the General Assembly has the final authority to ignore the obligation during the biennial budget process by not funding that particular obligation. See also, Preston v. Clements, 313 Ky. 479, 232 S.W.2d 85 (1950). Thus, even were the Health Policy Board (a non-revenue producing entity) constitutionally able to contingently appropriate, the General Assembly always retains the power to choose not to appropriate. To do otherwise, would be to give the Health Policy Board the keys to the State Treasury. This is unconstitutional. See, James v. Walker, 147 Ky. 646, 144 S.W.744, 746 (dissenting opinion, Hobson, C.J., 1912).
Therefore, under either analysis, the Health Policy Board cannot authorize certificates of need which would require additional appropriations from the general fund of either a present or future biennial budget.
To complete our analysis, it is wise to turn to the language of the Biennial Budget enacted in 1994. Chapter 47 of KRS Appropriations Appendix A (Executive). Part I, G of the Biennial Budget sets out the operating budget of the Cabinet for Human Resources. Paragraph 50 (c)(2) sets out the Biennial Budget for the Department for Medicaid Services benefits. In detailing these funds, the General Assembly stated that no funds are included for additional Nursing Facility Medicaid funded beds, notwithstanding KRS 216B.061. That statute, KRS 216B.061, details the actions which require a certificate of need. In order to make a substantial change in the bed capacity of a health facility, 216B.061(1) requires that a certificate of need first be obtained. Thus, notwithstanding that language, the General Assembly in enacting the biennial budget clearly stated that there were no funds for additional nursing facility Medicaid funded bedseither new or converted. In short, since there were no funds, then there could be no additional beds funded during that biennial budget.
Moreover, Part III of Appendix A General Provisions states at No. 6:
No state agency, cabinet, department, office or program shall incur any obligation against the General Fund or Road Fund appropriations contained herein unless such obligations may be reasonably determined to have been contemplated in the enacted budget and is based upon supporting documentation considered by the General Assembly, legislative and executive records and the statutory budget memorandum.
It is plain from the Biennial Budget Bill itself that the Health Policy Board had neither the power, nor the funds to issue certificates of need for additional nursing facility beds. It is even more obvious that such obligations were not reasonably . . . contemplated by the General Assembly.
The obvious effect of the budget language is that the Health Policy Board was empowered to issue certificates for various health care needs that include nursing facility beds. However, the budget of 1994 did not provide any funds for the Health Policy Board to grant such certificates of need. The General Assembly, in its legislative discretion, has chosen to effectively eliminate the efficacy of KRS 216B.040 as it relates to the issuance of certificates of need for nursing facility beds. This is a permissible and constitutional action of the General Assembly. See, Armstrong v. Collins, 709 S.W.2d at 441-443, and:
The General Assembly has the basic constitutional power and responsibility to tax and to spend the public's money. This power . . . is exclusive to the General Assembly and includes the power to use a budget bill to repeal, amend, modify and suspend existing statutes.
Id. at 448.
Finally, in response to Senator Bailey's second question, the General Assembly is under no obligation to appropriate any additional funding for nursing facility beds which rely on Medicaid as a revenue source and which were approved by the Health Policy Board since the present Biennial Budget went into effect.
Although the Kentucky Health Policy Board is not required to solicit the opinion of anyone regarding the availability of state funding for additional nursing facility beds, it is required to premise its issuance of certificates of need for nursing facility beds upon biennial budget authorizations and limitations. Moreover, the General Assembly is not required to appropriate any additional funds for any certificates of need issued for nursing facility beds since the Biennial Budget of 1994 which exceed the amount appropriated therein.
A. B. CHANDLER III
CIVIL AND ENVIRONMENTAL