Request By:
W. Thomas Bunch, Esq.
P.O. Box 2086
Lexington, Kentucky 40594
Opinion
Opinion By: Robert F. Stephens, Esq., Attorney General; Mark F. Armstrong, Esq., Assistant Attorney General
We are in receipt of your letter in which you ask whether the rule of OAG 78-441 (May 5, 1978) was properly applied to your client, a physician specializing in radiology, who desires to purchase a CAT scanner for his use in the practice of radiology. Your also ask us to reconsider and clarify the rule of OAG 78-441 (May 5, 1978). As we discuss, infra, your inquiry requires a determination of the jurisdiction of the Kentucky Certificate of Need and Licensure Board (hereinafter "Board") under the Kentucky Certificate of Need, Licensure and Regulations Act of 1972 (hereinafter "Act"), KRS 216.405 to 216.485. To appreciate the significance of your inquiry and to aid in understanding our response thereto, it will be necessary to review the Act (Part I) and to review OAG 78-441 (May 5, 1978) (Part II). Thereafter, we will discuss the Proposed Definition of a Physician's Office (Part III).
This opinion is issued pursuant to 40 KAR 1:020 § 3.
PART I
The expressed purpose of the Act is:
". . . [T]o provide for the orderly development of all health facilities and health services in accordance with the needs of the various regions of the Commonwealth through a certificate of need program. Further, it is the intent of KRS 216.405 to 216.485 to combine and coordinate the licensure and regulation of health facilities and health services in order to insure the availability and delivery of quality health care to the citizens of the Commonwealth."
To effectuate this purpose, the Board is created, KRS 216.425(1), with the powers, inter alia, to:
"(3) . . . [P]romulgate administrative regulations . . . and do any other acts necessary to administer KRS 216.405 to 216.485 [, KRS 216.425(3) and]
. . . (b) to issue certificates of need in accordance with the provisions of KRS 216.405 to 216.485 [, KRS 216.425(4)(b)]."
A certificate of need is defined as, ". . . [A]n authorization by the Board . . . to construct, expand or modify a health facility, or to initiate, expand or modify a health service. " KRS 216.405(3). The term, "construction or modification" is defined to include:
". . . [T]he erection, building, alteration, reconstruction, modernization, improvement, extension or establishment of a health facility or service, or the purchase or acquisition of diagnostic or therapeutic equipment, the inspection and supervision thereof, and the studies, surveys, designs, plans, working drawings, specifications, procedures, and other actions necessary thereto, which:
(a) Requires the total capital expenditure in excess of one hundred thousand dollars ($100,000); or
(b) Will either
1. Initiate or expand the scope or type of services rendered, or
2. Increase or decrease the bed complement of a health facility or health service. " KRS 216.405(4)
The term, "health facility and health services, " is defined as:
". . . [A]ny program, institution, place, building, or agency or portion thereof, public or private, whether organized for profit or not, used, operated or designed to provide medical diagnosis, treatment, nursing, rehabilitative or preventive care to any person or persons. This shall include, but shall not be limited to health facilities and health services commonly referred to as hospitals, extended care and recuperation centers, nursing homes, personal care homes, homes for the aged and infirm, intermediate care facilities, outpatient clinics, ambulatory care facilities, emergency care centers and services, community mental health and mental retardation centers, home health agencies, health maintenance organizations and others providing similarly organized services regardless of nonenclature." KRS 216.405(6)
The otherwise plenary jurisdiction of the Board is limited by KRS 216.405(6)(a) and KRS 216.455. This latter statute provides, in the part here applicable, that the jurisdiction of the Board shall not extend to, "Private offices and clinics of physicians, dentists and other practitioners of the healing arts." KRS 216.455(1).
In OAG 78-441 (May 5, 1978), we discussed the meaning of the term, "private offices and clinics. " This point we will again discuss, infra, in Part II. It is only necessary at this time to make two observations, regarding the effect of the Act.
First, however defined, "private offices and clinics" are health facilities within the definition of KRS 216.405(6). These health facilities are exempted from the Act by virtue of KRS 216.455(1). Thus, "private offices and clinics" may properly be referred to as "exempt health facilities and health services. " It is not necessary to determine whether "exempt health facilities and health services" is a type of health facility which the Board is required to classify and catagorize pursuant to KRS 216.425(5) because a more compelling reason exists for the Board to describe a private office or clinic. Namely, the Board has a right and duty to define the limits of its jurisdiction in order to properly administer the Act. Therefore, the Board can and should adopt a regulation by which its jurisdiction is defined in terms of a description of a private office or clinic.
The nature of the regulation will be discussed with more specificity in Part III, infra. At this time, however, it is only necessary to establish that there is a theoretical foundation for the Board to adopt a regulation by which "private offices and clinics" are defined. Namely, the Board has jurisdiction to define its jurisdiction and the definition of its jurisdiction does not constitute the unlawful exercise of jurisdiction over an exempt health facility.
The second observation to be made about the Act is that the exemptions in KRS 216.455 could be in conflict with the intent of the Act as expressed in KRS 216.415. Rules of statutory construction require that all parts of the Act be harmonized and reconciled, Bischoff v. Hennessy, Ky., 251 S.W.2d 582 (1952), in order to effectuate the intent of the Act, Wesley v. Bd. of Education, Ky., 403 S.W.2d 28 (1966). Thus, the exemptions in KRS 216.455 cannot be so broadly defined to defeat the intent of the Act, George v. Scent, Ky., 346 S.W.2d 784 (1961). In other words, the exemptions must be given a limited effect so that the purpose of the Act is not frustrated. As we said in OAG 78-441 (May 5, 1978), at 3:
"Thus, the phrase, 'private offices and clinics, ' cannot be interpreted so broadly that one of the exemptions in KRS 216.445(1) would defeat the express intent of the Act. For example, a physician may not construct a hospital, as defined in 902 KAR 20:010, and claim it is exempt under KRS 216.445(1) as a 'private office or clinic. ' In other words, it is the actual use of the health facility and not the name attached thereto which determines whether it qualifies for the exemption as a 'private office or clinic. '"
On the other hand, the exemptions cannot be so narrowly limited to render them void, Brooks v. Meyers, Ky., 279 S.W.2d 764 (1955). Thus, definition of private offices and clinics must fall within a somewhat restricted range: Neither so broad that the intent of the Act is frustrated nor too narrow that the existence of the exemption is nullified.
PART II
In OAG 78-441 (May 5, 1978) (hereinafter "Opinion"), we were asked whether the jurisdiction of the Board, which would otherwise attach, could be defeated by a mere claim that the health facility was exempt as under the "private offices and clinics" exception in KRS 216.455(1). The precise rule of the Opinion was stated thusly:
"Summary: We are of the opinion that a health care facility may be exempt from KRS 216.405 et seq. as a 'private office or clinic' under KRS 216.455(1). Whether a particular health care facility is entitled to the exemption is a matter to be determined by the Board created by KRS 216.405(2). The Board's determination of whether to grant a particular health care facility rests upon whether the use of the facility is consonant with the function of a 'private office or clinic' as defined above. In making its determination, the Board should consider the factors set forth above and any other circumstances surrounding the use and function of the facility which the Board deems appropriate in a particular case. Our opinion extends no further and is limited to the expression of it in this Summary." Opinion, at 4.
The factors which we recommended the Board take into account were:
"Accordingly, whether a particular health facility is exempt as a 'private office or clinic' is determined by such factors as (1) the number of patients who are referred to it by other physicians, (2) whether the facility is associated or connected with another health care facility, (3) whether the patient is charged by the referring physician or other health care facility, and (4) whether the facility is largely devoted to the use of equipment which is normally found only in larger health care facilities." Opinion, at 3.
Based upon the Board's evaluation of these four factors and such other appropriate circumstances, see Opinion, at 4, quoted supra, at 4, the Board could make a factual determination of whether the particular health facility was, in fact, a private office or clinic. The opinion, therefore, left the fact finding to the discretion of the Board.
As a matter of law, to preserve the overall intent of the Act as well as the specific exemption, we tentatively offered a legal definition:
"In this regard, in its popular meaning, . . . a 'private office or clinic' necessarily refers only to the office or offices and adjunct facilities, such as an examining room, used by a physician or group of associated physicians to diagnose and treat their own patients. This description of 'private office or clinic' is not offered as a comprehensive definition. Rather, it is used here only as a working definition to emphasize that to qualify under the exemption, the 'private office or clinic' must be devoted primarily for the diagnosis, care, and treatment of the physician's own patients. " Opinion, at 3.
The facts of the Opinion did have some influence on the tentative legal definition we offered as well as the factors enumerated therein. Namely, in the Opinion, we were faced with a spurious claim to exempt status to deliberately defeat the Board's jurisdiction. While such a claim is not present here, the concern underlying the Opinion remains constant and validates the conclusions arrived at in the Opinion.
The underlying concern was that a physician would render a particular health service in his private office or clinic which would ordinarily be rendered by a hospital or other regulated health care facility. Thus, the private office or clinic would be functioning as a hospital, at least as far as the particular health service is concerned, without the attendant regulation to which a hospital would be subject. As a result, the orderly development and coordination of the delivery of health services would, or at least could, be removed from the Board's control.
Based, therefore, upon this discussion, this present opinion does adopt and reaffirm the rule of OAG 78-441 (May 5, 1978). You ask also that the Opinion be clarified and we now attend to this request.
Our opinion was and is directed toward questions of law and not questions of fact. In the Opinion, the legal question was whether a private office or clinic could be vested with a function of a hospital to deliberately evade the Board jurisdiction upon the mere claim as an exempt health facility. The legal question here is whether a bona fide office or clinic retains its exempt status when it assumes a function of a hospital. In each case, the answer must be in the negative. As we pointed out earlier, "It is the actual use of the health facility and not the name attached thereto which determines . . . [its status as an exempt health facility] ." Opinion, at 3.
The negative answer given to the foregoing legal question does not in any way dispose of the question of whether the intended purchase of a CAT scanner by your client is within the jurisdiction of the Board. We emphasize as strongly as possible that the resolution of this question turns upon a factual finding by the Board of whether after the purchase, the resulting operation of the health facility will retain its character as a private office or clinic. We believe that the four factors mentioned in the Opinion, at 3, are legally significant factors the existence or non-existence of which could be used to determine the legal question of whether the ultimate fact found by the Board; e.g., that the resulting health facility is or is not exempt, was arbitrary or within its jurisdiction, see KRS 216.465.
Thus, the Board must make a factual determination of whether the health facility is a private office or clinic. The existence of the four factors are legally relevant to determine whether the Board's factual determination is legally proper under the Act. To that extent, therefore, the four factors are also factually relevant; but the existence of these four factors does not determine the answer to the factual question of whether the health facility is a private office or clinic.
For example, a CAT scanner may, as a matter of fact, be a type of equipment normally found in hospitals. This was a factor mentioned in the Opinion, at 3. Its existence, however, does not automatically demand a factual determination that the health facility is, as a matter of fact, no longer a private office or clinic. The Board may determine that advances in medical practice require a private office or clinic to have such equipment. In the alternative, the Board may consider a circumstance outside of the four factors mentioned in the Opinion and based thereon, factually determine that the use of a CAT scanner does not cause the health facility to lose its exempt status.
The significance, therefore, of the four factors thus: If, for example, the Board determines that after the purchase of a CAT scanner, the health facility will lose its exempt status, the existence of one or more of the four factors are legally relevant to support an argument that the Board's finding of the ultimate fact is proper under the Act.
Three final points need to be mentioned. First, the Board is not restricted to the four factors in making its finding of fact. The Board may and should consider all relevant and appropriate circumstances concerning the actual use of the health facility which will assist it in making its factual finding.
Second, the Opinion is directed toward the actual use of the health facility as determinative of its status. The use of the term, "the physician's private practice," as synonymous with the term, "private offices and clinics, " is an error and whether the health service is rendered in the physician's private practice is irrelevant. For example, an anesthesiologist may have a private practice consisting of the patients he anesthetizes in the hospital. Assuming that the Board's jurisdiction would otherwise attach, this fact does not permit him to purchase an advanced device to induce anesthesia on his hospital patients and to claim that it is part of his private practice.
Third, as we have repeatedly stressed, the Opinion and this Opinion is concerned with questions of law and not of fact. Thus, any opinion which this office will render in the future will be strictly limited to the following legal questions:
1. Is the decision of the Board supported by findings of fact;
2. Is the decision arbitrary in that it rests upon a clearly erroneous finding of fact; and
3. Is the decision within the Board's jurisdiction.
PART III
In the course of preparing this opinion, we agreed to review and comment upon any definition of "private offices and clinics. " Letter to Terry Morrison, William L. Shadoan and W. Thomas Bunch from Mark F. Armstrong, Dated Dec. 27, 1978. The Board has forwarded for comment a "Suggested Definition of a Physician's Office." This proposed definition provides:
"'Private office of a physician' shall mean any facility:
(i) Which is utilized by one or more physicians for the provision to patients, on an out-patient basis, of diagnostic and treatment services which the physicians are authorized by law to provide;
(ii) Which is under the exclusive management, control and legal responsibility of such physicians; and
(iii) Which is subject to the physicians' exclusive right of occupancy, whether through ownership, lease or otherwise."
We have hithertofore established the right of the Board to define exempt health facilities and the extent of the definition; namely, the definition of an exempt health facility cannot be so broad to defeat the intent of the Act nor so narrow as to nullify the existence of the exemption. The discussion leading to these two points need not be repeated here, see Parts I and II, supra. Suffice it to say that the ultimate test is whether the intent of the Act is effectuated, Wesley v. Bd. of Education, supra, and it will be against this standard that the proposed regulation must be measured, Henry v. Parrish, 307 Ky. 559, 211 S.W.2d 418 (1948).
The first sentence should be modified to read, "'Private offices and clinics of physicians, dentists and other practitioners of the healing arts' shall mean any health facility. . . ." The modification serves to include the offices and clinics of all health care providers which are included in the statute exemption. It also restricts the "any facility" to "any health facility" which is the only type of facility over which the Board has jurisdiction, see KRS 216.405(6).
We perceive no essential difference between sections (ii) and (iii) and will consider them as a unit. With exception of the fact that (ii) and (iii) are limited to physicians, rather than all the health care providers, these two sections are unobjectionable.
We may now focus attention to section (i) which is the key to the proposed definition and ask the question of whether this section would prevent the private office or clinic from being used as a hospital or to provide a health service which should be or would otherwise be within the jurisdiction of the Board to effectuate the intent of the Act.
We believe that the following illustration demonstrates the inadequacy of the definition. The definition does not prohibit a hospital from leasing office space in the hospital to a radiologist who will utilize the offices to perform radiographic studies on patients in the hospital. The radiologist could then purchase, for example, a CAT scanner for use in his own private office in the hospital and the purchase would be exempt from the Board's control despite the fact that, in substance, the CAT scanner would be for the benefit and use of the hospital. Thus, in this manner, every hospital could avoid the jurisdiction of the Board.
The validity of this illustration is not defeated by the requirement that the patients be treated on an "out-patient basis." While the patients would be in-patients from the hospital's point of view, they would be out-patients from the radiologist's point of view as soon as the patients entered his "private office."
The validity of the illustration is not defeated by the restriction that the patients receive "diagnostic and treatment" services. It is true that a radiologist in the illustration would not ordinarily be rendering treatment services, which could exclude his office from the definition. Nevertheless, first, it is a rule of construction that the conjunction, "and," may be read the disjunctive, "or," in appropriate circumstances, See Duncan v. Wiseman Baking Co., Ky., 357 S.W.2d 694, 698 (1962). Thus, mere diagnosis without treatment would not necessarily exclude the radiologist from the definition. Second, it is doubtful whether the concept of "private offices and clinics" will permit the Board to require every physician to render diagnostic and treatment services in order to retain its exempt status.
Based upon the foregoing discussion, we cannot approve the proposed definition, and secondly, cannot recommend its adoption. While the suggested definition does have the virtue of simplicity, as discussed, supra, it does both too much and too little. More importantly, its albeit laudable, straightforward character should not obscure the fact that it could easily constitute "a trap for the unwary" whether an applicant for a Certificate of Need or the Board.
Because the Suggested Definition of a Physician's Office is legally insufficient, we are unable to determine whether your client can legally claim to be an exempt health facility and health service. Moreover, since the Board has not made a determination of its status which is supported by findings of fact, we are unable to determine whether the Board properly applied the Opinion to your client.
Summary: The following conclusions of law are adopted in this Opinion:
1. The Board should adopt a regulation which defines private offices and clinics as the term is used in KRS 216.455(1), in order to define the limits of its jurisdiction.
2. The proposed definition of private offices and clinics is legally insufficient.
3. When the jurisdiction of the Board otherwise attaches to the construction or modification of a health facility and health service and a claim is made that the health facility or health service is exempt as a private office or clinic, the Board must make a factual determination of whether the health facility and health service is a private office or clinic and this factual determination must be supported by findings of fact.