Surgical Care Affiliates, LLC v. N.C. Department of Health & Human Services

NO. COA13-1322

NORTH CAROLINA COURT OF APPEALS

Filed: 19 August 2014

SURGICAL CARE AFFILIATES, LLC and
BLUE RIDGE DAY SURGERY CENTER,
L.P.,
Petitioners,

v. Office of
Administrative Hearings
No. 12 DHR 09678
N.C. DEPARTMENT OF HEALTH AND
HUMAN SERVICES, DIVISION OF HEALTH
SERVICE REGULATION, CERTIFICATE OF
NEED SECTION,
Respondent,

and

WAKEMED,
Respondent-Intervenor.

Appeal by Petitioners from Final Decision entered 23 July

2013 by Judge Eugene J. Cella in the Office of Administrative

Hearings. Heard in the Court of Appeals 23 April 2014.

Nexsen Pruet, PLLC, by Frank S. Kirschbaum, Robert A.
Hamill, and Rachael Lewis Anna, for Petitioners.

Attorney General Roy Cooper, by Special Deputy Attorney
General June S. Ferrell, for Respondent.

Smith Moore Leatherwood LLP, by Maureen Demarest Murray,
Terrill Johnson Harris, and Carrie A. Hanger for
Respondent-Intervenor.

STEPHENS, Judge.
 -2-

Background

This case involves the proposed relocation of two specialty

ambulatory operating rooms from Southern Eye Ophthalmic Surgery

Center (“Southern Eye”)1 to the WakeMed health care system’s

Raleigh Campus, where the operating rooms would be used as

“shared operating rooms” for inpatients and outpatients. WakeMed

is a nonprofit corporation that owns and operates multiple

health care facilities in the Triangle region of North Carolina.

WakeMed purchased Southern Eye on 10 May 2012 with the intention

of relocating its operating rooms to WakeMed Raleigh.

Petitioners Surgical Care Affiliates, LLC (“SCA”) and Blue Ridge

Day Surgery Center, L.P. (“Blue Ridge”)2 operate a multispecialty

ambulatory surgical facility in Raleigh,3 are direct competitors

1
A specialty ambulatory operating room is a surgical facility
that is used for single-day, outpatient surgical procedures
limited to one specialty area. See N.C. Gen. Stat. § 131E-
176(1b), (24f) (2013). For Southern Eye, that specialty is
ophthalmic surgery.
2
SCA is the managing partner of Blue Ridge and has an ownership
interest in the partnership.
3
A multispecialty ambulatory surgical facility is a surgical
facility that is used for same-day surgical procedures occurring
over at least three defined specialty areas, including general
surgery. See N.C. Gen. Stat. § 131E-176(15a).
 -3-
with WakeMed, and contest the proposed relocation of these

rooms.

WakeMed filed a certificate of need (“CON”) application

with the North Carolina Department of Health and Human Services

(“the Agency”) on 16 April 2012, officially proposing to move

the two operating rooms to its Raleigh Campus. The Agency

conditionally granted that application on 27 September 2012.

Following the Agency’s decision, SCA and Blue Ridge petitioned

for a contested case hearing to challenge the decision.4 An

administrative law judge with the Office of Administrative

Hearings (“the ALJ”) heard the matter beginning 15 April 2013

and affirmed the Agency’s decision on 23 July 2013 by final

decision. Petitioners appeal from the ALJ’s final decision.

Discussion

On appeal, Petitioners argue that the ALJ erred in

affirming the Agency’s decision because (1) the Agency failed to

apply certain agency-created regulations, referred to by

Petitioners as “the conversion rules,” to WakeMed’s CON

4
A “contested case” is an “administrative proceeding [held under
Chapter 150B of the North Carolina General Statutes] to resolve
a dispute between an agency and another person that involves the
person’s rights, duties, or privileges, including licensing or
the levy of a monetary penalty.” N.C. Gen. Stat. § 150B-2(2)
(2013).
 -4-
application and (2) this failure “substantially prejudice[d]

[Petitioners’] rights.” We affirm the decision of the ALJ on the

issue of substantial prejudice and, therefore, do not reach the

issue of the application of the conversion rules.

I. Standard of Review

“In cases appealed from administrative tribunals, we review

questions of law de novo and questions of fact under the whole

record test.” Diaz v. Div. of Soc. Servs., 360 N.C. 384, 386,

628 S.E.2d 1, 2 (2006) (citation omitted). Pursuant to section

150B-51 of the North Carolina General Statutes:

(b) The court reviewing a final decision may
affirm the decision or remand the case for
further proceedings. It may also reverse or
modify the decision if the substantial
rights of the petitioners may have been
prejudiced because the findings, inferences,
conclusions, or decisions are:

(1) In violation of constitutional
provisions;

(2) In excess of the statutory
authority or jurisdiction of the agency
or administrative law judge;

(3) Made upon unlawful procedure;

(4) Affected by other error of law;

(5) Unsupported by substantial evidence
admissible under [sections] 150B-29(a),
150B-30, or 150B-31 in view of the
entire record as submitted; or
 -5-
(6) Arbitrary, capricious, or an abuse
of discretion.

(c) In reviewing a final decision in a
contested case, the court shall determine
whether the petitioner is entitled to the
relief sought in the petition based upon its
review of the final decision and the
official record. With regard to asserted
errors pursuant to subdivisions (1) through
(4) of subsection (b) . . . , the court
shall conduct its review of the final
decision using the de novo standard of
review. With regard to asserted errors
pursuant to subdivisions (5) and (6) of
subsection (b) . . . , the court shall
conduct its review of the final decision
using the whole record standard of review.

N.C. Gen. Stat. § 150B-51(b)–(c) (2013) (italics added). “Under

de novo review, the court considers the matter anew and freely

substitutes its own judgment for that of the trial court.”

McMillan v. Ryan Jackson Props., LLC, __ N.C. App. __, __, 753

S.E.2d 373, 377 (2014) (citation and internal quotation marks

omitted).

In applying the whole record test, the
reviewing court is required to examine all
competent evidence . . . in order to
determine whether the [final] decision is
supported by “substantial evidence.”
Substantial evidence is such relevant
evidence as a reasonable mind might accept
as adequate to support a conclusion.

Parkway Urology, P.A. v. N.C. Dep’t of Health & Human Servs.,

205 N.C. App. 529, 535, 696 S.E.2d 187, 192 (2010) (citations
 -6-
omitted), disc. rev. denied, __ N.C. __, 705 S.E.2d 753 (2011)

[hereinafter Parkway Urology].

II. Substantial Prejudice

After the Agency decides to issue, deny, or withdraw a CON

or exemption or to issue a CON pursuant to a settlement

agreement, “any affected person [as defined by section 131E-

188(c)] shall be entitled to a contested case hearing under

Article 3 of Chapter 150B of the General Statutes.” Id. at 535,

696 S.E.2d at 192 (citation omitted). Subsection (c) defines an

“affected person” as, inter alios, “any person who provides

services, similar to the services under review, to individuals

residing within the service area or the geographic area proposed

to be served by the applicant.” N.C. Gen. Stat. § 131E-188(c)

(2013). In addition to meeting this “prerequisite[] to filing a

petition for a contested case hearing regarding CONs,” the

petitioner must also satisfy “the actual framework for deciding

the contested case [as laid out in section 150B-23(a) of]

Article 3 of Chapter 150B of the General Statutes.” Parkway

Urology, 205 N.C. App. at 536, 696 S.E.2d at 193 (citation

omitted; emphasis in original).
 -7-
Section 150B-23(a) of the North Carolina General Statutes

provides that a petitioner must state facts in its petition

which

tend[] to establish that the agency named as
the respondent has deprived the petitioner
of property, has ordered the petitioner to
pay a fine or civil penalty, or has
otherwise substantially prejudiced the
petitioner’s rights and that the agency:

(1) Exceeded its authority or
jurisdiction;

(2) Acted erroneously;

(3) Failed to use proper procedure;

(4) Acted arbitrarily or capriciously;
or

(5) Failed to act as required by law or
rule.

N.C. Gen. Stat. § 150B-23(a) (2013) (emphasis added).5 This Court

has interpreted subsection (a) to mean that the ALJ in a

contested case hearing must “determine whether the petitioner

has met its burden in showing that the agency substantially

prejudiced [the] petitioner’s rights.” Parkway Urology, 205 N.C.

App. at 536, 696 S.E.2d at 193 (citation and emphasis omitted)

5
Section 150B-23 was amended in 2013 to include an additional
subsection. This amendment is unrelated to the issues raised by
the parties in this appeal. See 2013 N.C. Sess. Laws 397, sec.
4.
 -8-
(overruling the petitioner’s argument that it was not required

to show substantial prejudice as long as it could show that it

was an affected person). Therefore, under section 150B-23 and

our opinion in Parkway Urology, a petitioner in a CON case must

show (1) either that the agency (a) has deprived the petitioner

of property, (b) ordered the petitioner to pay a fine or civil

penalty, or (c) substantially prejudiced the petitioner’s

rights, and (2) that the agency erred in one of the ways

described above. See N.C. Gen. Stat. § 150B-23(a); 205 N.C. App.

at 536, 696 S.E.2d at 193; see also Caromont Health, Inc. v.

N.C. Dep’t of Health & Human Servs., __ N.C. App. __, __, 751

S.E.2d 244, 248 (2013) (“The administrative law judge must,

therefore, determine whether the petitioner has met its burden

in showing that the agency substantially prejudiced [the]

petitioner’s rights, as well as whether the agency also acted

outside its authority, acted erroneously, acted arbitrarily and

capriciously, used improper procedure, or failed to act as

required by law or rule.”) (citation omitted; certain emphasis

added).

Here, the ALJ concluded in the final decision that

Petitioners were “‘affected persons’ because they provide

surgical services that are similar to services provided by
 -9-
WakeMed,” and the parties do not dispute that conclusion. In

addition, Petitioners do not argue that the Agency deprived them

of property or ordered them to pay a fine or civil penalty.

Rather, Petitioners contend that they were substantially

prejudiced by the Agency’s decision, which was erroneously and

improperly decided. Specifically, Petitioners argue that they

were substantially prejudiced either (1) as a matter of law or,

in the alternative, (2) because the Agency’s decision gives

WakeMed an unfair competitive advantage amounting to substantial

prejudice. We disagree.

(1) Substantial Prejudice as a Matter of Law

Petitioners contend that the Agency’s decision

substantially prejudiced their rights as a matter of law because

(a) the ALJ had already determined that Petitioners were

substantially prejudiced and (b) the Agency’s alleged failure to

follow its own rules necessarily constitutes substantial

prejudice as a matter of law. We are unpersuaded.

(a) The ALJ’s Statement

Petitioners assert that the Agency’s decision substantially

prejudiced their rights as a matter of law because the ALJ made

a finding to that effect during the contested case hearing. This

argument takes the ALJ’s statement out of context. Responding to
 -10-
WakeMed’s motion for summary judgment, the ALJ made the

following comment at the hearing:

The Court: All right. As far as this
particular motion is concerned and ruling on
the motion for summary judgment, I’m going
to find that I think there is enough
evidence on the record that there is
substantial prejudice by not applying this
rule and consequently deny the motion for
summary judgment.

Following that ruling, Wakemed presented evidence, and

Petitioners presented rebuttal witnesses. Afterward, the parties

attempted to clarify the ALJ’s initial ruling:

[Counsel for WakeMed]: . . . [I]t’s our
understanding, Your Honor, that you deferred
— that you denied the motion [for summary
judgment] and decided to have a hearing on
the issue of whether the multispecialty
rules applied. . . .

. . . .

The summary judgment motion that we filed
was to say that they were not substantially
prejudiced as a matter of law, and that was
what was renewed yesterday and that you also
denied. . . .

. . . .

The Court: I don’t know that I can agree or
disagree —

. . . .

— Without sitting down and thinking about it
and looking at it.
 -11-
[Counsel for the Agency]: I think, Judge
. . . , that the heart of this is we
understood that you did not grant summary
judgment in favor of [SCA], but you also
didn’t grant summary judgment the other way
and say that the Agency was correct on the
rule. You said, “I’d go to trial[,] and I’ll
hear the evidence.”

. . . .

The Court: I wasn’t deciding on the merits,
no.

(Emphasis added). The ALJ’s comments make clear that his

preliminary ruling constituted a denial of Respondents’ motion

for summary judgment on grounds that Petitioners had presented

enough evidence to proceed with the hearing. It was not a final

determination on the merits and does not control or undermine

the ALJ’s ultimate, written determination, following the

presentation of the parties’ evidence, that Petitioners failed

to show substantial prejudice. Accordingly, Petitioners’

argument that the ALJ determined the issue of substantial

prejudice in their favor at the contested case hearing is

overruled.

(b) Failure to Follow Rules as Substantial
Prejudice

Petitioners also argue that the Agency’s alleged failure to

apply its own rules constitutes substantial prejudice as a

matter of law, citing N.C. Dep’t of Justice v. Eaker, 90 N.C.
 -12-
App. 30, 367 S.E.2d 392 (1988), overruled on other grounds,

Batten v. N.C. Dep’t of Corrs., 326 N.C. 338, 389 S.E.2d 35

(1990); Hospice at Greensboro, Inc. v. N.C. Dep’t of Health &

Human Servs., 185 N.C. App. 1, 647 S.E.2d 651, disc. review

denied, 361 N.C. 692, 654 S.E.2d 477–78 (2007) [hereinafter

Hospice at Greensboro]; and HCA Crossroads Residential Ctrs.,

Inc. v. N.C. Dep’t of Human Res., 327 N.C. 573, 398 S.E.2d 466

(1990) [hereinafter HCA Crossroads] for support. This argument

is without merit.

Petitioners cite Eaker for the rule that a plaintiff need

not “show prejudice once he carries his burden of showing that

the Department [of Justice] failed to follow the [State

Personnel] Commission’s policies,” 90 N.C. App. at 37, 367

S.E.2d at 397, and seek to apply that rule here. In Eaker, the

Department of Justice attempted to eliminate a research

associate position in the Department’s Sheriffs’ Standards

Division. 90 N.C. App. at 31, 367 S.E.2d at 394. The research

associate position belonged to the petitioner, who sought a

contested case hearing following his termination. Id. The

petitioner alleged that the Department’s actions were the result

of political discrimination and “that the Department failed to

comply with its own policies or those of the State Personnel
 -13-
Commission regarding ‘reductions in force.’” Id. The State

Personnel Commission rejected the petitioner’s political

discrimination claim, but agreed that the Department had failed

to follow the Commission’s policies for a reduction in force and

recommended that the petitioner be reinstated to his position.

Id. at 31–32, 367 S.E.2d at 394. The case was appealed to the

trial court, which reversed the Commission on grounds that the

Department had followed all mandatory policies for reductions in

force and, even if it had not followed those policies, that the

“petitioner had failed to show [prejudice in the form of] a

substantial chance of a different result.” Id. at 32, 367 S.E.2d

at 394.

On appeal, this Court reversed the trial court because it

“improperly placed [the] burden on the Department [to prove that

appropriate procedures for personnel reduction were utilized].”

Id. at 36, 367 S.E.2d. at 397. We also elected to address the

Department’s remaining arguments and concluded that the

petitioner “does not have to show prejudice once he carries his

burden of showing that the Department failed to follow the

Commission’s policies.” Id. at 37–38, 367 S.E.2d at 397–98. We

reasoned that the Commission’s policies were promulgated

pursuant to statutory authority and, thus, had “the force of
 -14-
law.” Id. Because the substance of those policies required the

Department to consider a number of discretionary factors,

however, we pointed out that a showing of prejudice would be

“nearly impossible” for the petitioner to achieve. Id.

Specifically, we observed that

[t]o show prejudice from failure to follow
policy, [the] petitioner would have to show,
not only how he stood in relation to other
employees in the same class as to type of
appointment, length of service, and work
performance, but he would have to show the
weight which the Department would attribute
to each of those factors. The Commission and
the reviewing court would be relegated to
speculating how the Department would weigh
each factor.

Id. at 38, 367 S.E.2d at 398. Therefore, we held that it was

sufficient to show prejudice for the petitioner to establish

that the Department failed to follow the mandatory policies of

the Commission, which had been promulgated pursuant to statutory

authority. Id. A separate showing of prejudice was unnecessary

in that circumstance. Id.

Assuming without deciding that the Eaker opinion raises

issues that are analogous to those in this case, its

interpretation of prejudice is no longer applicable to section

150B-23(a) of Article 3 of the Administrative Procedure Act. The

petitioner in Eaker submitted his petition to the State
 -15-
Personnel Commission on 24 April 1985. 1585 N.C. App. Records &

Briefs No. 8710SC857, 2 (1987). At that time, Article 3 of

Chapter 150 contained no requirement that a petitioner establish

that it had been deprived of property, ordered to pay a fine or

penalty, or substantially prejudiced in addition to showing that

the agency exceeded its authority or jurisdiction, acted

erroneously, failed to use proper procedure, acted arbitrarily

and capriciously, or failed to act as required by law or rule.

See 1973 N.C. Sess. Laws 1331, sec. 1. Those burdens were added

to the statute during the 1985 session of the General Assembly

and came into effect on 1 January 1986. 1985 N.C. Sess. Laws

746, secs. 1, 19 (“This act shall not affect contested cases

commenced before January 1, 1986.”). As this Court has since

explained, the amended provisions of section 150B-23(a) require

the ALJ in a contested case hearing to “determine whether the

petitioner has met its burden in showing that the agency

substantially prejudiced [the] petitioner’s rights, and that the

agency also acted outside its authority, acted erroneously,

acted arbitrarily and capriciously, used improper procedure, or

failed to act as required by law or rule.” Britthaven, Inc. v.

N.C. Dep’t of Human Res., 118 N.C. App. 379, 382, 455 S.E.2d

455, 459 (emphasis modified), disc. review denied, 341 N.C. 418,
 -16-
461 S.E.2d 754 (1995). These burdens require that, when the

petitioner alleges that the Agency did not properly apply its

own rules, the petitioner must also prove, and the ALJ must

separately decide the issue of, substantial prejudice, i.e.,

that the Agency’s failure to follow its rules actually caused

sufficient harm to the petitioner. See id.; see also Parkway

Urology, 205 N.C. App. at 535–37, 696 S.E.2d at 192–93; N.C.

Gen. Stat. § 150B-23(a). The Agency’s mere failure to follow its

own rules is not enough. Accordingly, Defendant’s argument in

reliance on Eaker is overruled.

We turn now to the next case cited by Petitioners to

support their contention that the Agency’s alleged failure to

follow its rules constitutes substantial prejudice as a matter

of law. The petitioner in Hospice at Greensboro was a hospice

service provider located in Greensboro. 185 N.C. App. at 3–5,

647 S.E.2d at 653–54. Following the Agency’s issuance of a “no

review” letter, which authorized the respondent to open an

office in Greensboro without first obtaining CON review, the

petitioner sought a contested case hearing. Id. The respondent

filed a motion for summary judgment on grounds that the

petitioner “was not an ‘aggrieved party’ because the issuance of

[the letter] . . . did not ‘substantially prejudice’ [the
 -17-
petitioner’s] rights,” and that motion was granted. Id. at 5–6,

647 S.E.2d at 654–55.

On appeal by the respondent, we affirmed the decision to

grant the petitioner’s motion for summary judgment because the

issuance of the letter, “which result[ed] in the establishment

of a new institutional health service without a prior

determination of need, substantially prejudice[d the

petitioner,] a licensed, pre-existing competing health service

provider[,] as a matter of law.” Id. at 16, 647 S.E.2d at 661.

In so holding, we noted that “the CON [s]ection’s issuance of

[the letter] . . . effectively prevented any existing health

service provider or other prospective applicant from challenging

[the] proposal [to open a new office] at the agency level,

except by filing a petition for a contested case.” Id. at 17,

647 S.E.2d at 661–62.

In this case, unlike Hospice at Greensboro, the Agency

conducted a full review of WakeMed’s CON application. This

review included consideration “of the applications submitted for

this cycle[,] . . . the [CON] law, . . . the State Medical

Facilities Plan, and other applicable information.” The Agency

elected to approve WakeMed’s application only after completing

the CON review process. Petitioners had the opportunity to
 -18-
comment on the application and took advantage of that

opportunity by submitting a detailed discussion of the validity

of WakeMed’s CON application. In addition, Petitioners

participated in a public hearing on 18 June 2012, summarizing

their concerns. Thus, Petitioners were not prohibited from

challenging WakeMed’s CON application at the agency level.

Petitioners’ argument is overruled as it pertains to Hospice at

Greensboro.

As for HCA Crossroads, the final case cited by Petitioners

in support of their position, the controlling issue in that case

was “whether the [relevant agency] lost subject matter

jurisdiction when it failed to act, within the time prescribed

by law, on applications for [CONs] for construction of chemical

dependency treatment facilities.” 327 N.C. at 574, 398 S.E.2d at

467. On that issue our Supreme Court held that the agency lost

its authority to deny applications for CONs by failing to act in

a timely manner. Id. The Court did not address section 150B-

23(a) or the requirement that a petitioner opposing the issuance

of a CON must establish substantial prejudice. See id.

Accordingly, Petitioners’ argument in reliance on HCA Crossroads

is overruled.
 -19-
Petitioners argue that they were substantially prejudiced

as a matter of law because the Agency failed to apply the

conversion rules. As discussed above, however, the petitioner

must establish that the Agency has deprived it of property, has

ordered it to pay a fine or penalty, or has otherwise

substantially prejudiced the petitioner’s rights, and, in

addition, the petitioner must establish that the agency’s

decision was erroneous in a certain, enumerated way, such as

failure to follow proper procedure or act as required by rule or

law. Parkway Urology, 205 N.C. App. at 535–37, 696 S.E.2d at

192–93; see also N.C. Gen. Stat. § 150B-23(a). These are

discrete requirements and proof of one does not automatically

establish the other. See Parkway Urology, 205 N.C. App. at 535–

37, 696 S.E.2d at 192–93; see generally Britthaven, Inc., 118

N.C. App. at 382, 455 S.E.2d at 459 (treating the substantial

prejudice and agency error requirements as separate elements to

be addressed at the hearing). As we have already stated,

the ALJ [in a CON case must, in evaluating
the evidence,] determine whether the
petitioner has met its burden in showing
that [(1)] the agency substantially
prejudiced [the] petitioner’s rights, and
. . . [(2)] acted outside its authority,
acted erroneously, acted arbitrarily and
capriciously, used improper procedure, or
failed to act as required by law or rule.
 -20-
205 N.C. App. at 536, 696 S.E.2d at 193 (citing Britthaven,

Inc., 118 N.C. App. at 382, 455 S.E.2d at 459; certain emphasis

added). Therefore, while the Agency’s action under part two of

this test might ultimately result in substantial prejudice to a

petitioner, the taking of the action does not absolve the

petitioner of its duty to separately establish the existence of

prejudice, i.e., to show how the action caused it to suffer

substantial prejudice. See id. Accordingly, Petitioners’

argument that they were substantially prejudiced solely on the

basis that the Agency failed to apply the conversion rules is

overruled.

(2) Substantial Prejudice by Competitive Disadvantage

Second, Petitioners argue that they were substantially

prejudiced by the Agency’s decision because that decision will

likely make it more difficult for Petitioners to acquire

additional operating rooms in the future, giving WakeMed a

competitive advantage. Again, we disagree.

Medical facilities, including operating rooms, are

regulated by chapter 131E of the North Carolina General Statutes

(“the Act”). In section 175, the General Assembly stated “[t]hat

the proliferation of unnecessary health services facilities

results in costly duplication and underuse of facilities, with
 -21-
the availability of excess capacity leading to unnecessary use

of expensive resources and overutilization of health care

services.” N.C. Gen. Stat. § 131E-175(4). As a consequence, a

CON is required for the development of an additional

institutional health service, including the use and

implementation of an operating room. See N.C. Gen. Stat. § 131E-

178(a); see also Hope-A Women’s Cancer Ctr., P.A. v. N.C. Dep’t

of Health & Human Servs., 203 N.C. App. 276, 281, 691 S.E.2d

421, 424 (2010) (“The fundamental purpose of the [CON] law is to

limit the construction of health care facilities in this [S]tate

to those that the public needs and that can be operated

efficiently and economically for their benefit.”), disc. review

denied, __ N.C. __, 706 S.E.2d 254 (2011).

In order for the Agency to issue a CON, the proposed

project must be “consistent with applicable policies and need

determinations in the State Medical Facilities Plan

[(“SMFP”)] . . . .” N.C. Gen. Stat. § 131E-183. The SMFP is a

document prepared by the North Carolina State Health

Coordinating Council and the Agency “which constitutes a

determinative limitation on the provision of any . . . operating

rooms . . . that may be approved.” N.C. Gen. Stat. §§ 131E-

183(a)(1), -176, -177(4). CON review is not typically required,
 -22-
however, if the party seeking to develop the additional health

service acquires an existing health service facility. N.C. Gen.

Stat. § 131E-184(a)(8).

In determining whether there is a need for additional

health service facilities, the Agency considers a number of

factors, including the number of operating rooms currently in

use and how regularly those rooms are being used. Operating

rooms that are used infrequently are considered “underutilized”

and are not a part of the Agency’s calculus. At the time WakeMed

filed its CON application, there was not a need for additional

operating rooms in Wake County.

The operating rooms that WakeMed seeks to relocate from

Southern Eye to its Raleigh Campus are currently considered

“underutilized.” Therefore, they are not counted in the Agency’s

formula for determining need. At the hearing, Petitioners

presented testimony that the operating rooms would no longer be

considered underutilized if transferred to the Raleigh Campus.

As a result, those rooms would be counted in the Agency’s

subsequent need determination formula. Petitioners argue that

this change constitutes substantial prejudice because it means

that the Agency will be less likely to find a need for more

operating rooms in the near future and, thus, Petitioners will
 -23-
be unable to expand their health care service. We do not find

merit in Petitioners’ argument.

In order to establish substantial prejudice, the petitioner

must “provide specific evidence of harm resulting from the award

of the CON . . . that went beyond any harm that necessarily

resulted from additional . . . competition . . . .” Parkway

Urology, 205 N.C. App. at 539, 696 S.E.2d at 194–95 (“[The

petitioner] did not, however, quantify th[e] financial harm in

any specific way, other than testimony regarding the amount of

revenue [it] receives . . . .”). The harm required to establish

substantial prejudice cannot be conjectural or hypothetical. It

must be concrete, particularized, and “actual” or imminent. See

Ridge Care, Inc. v. N.C. Dep’t of Health & Human Servs., 214

N.C. App. 498, 506, 716 S.E.2d 390, 396 (2011) (“[The

p]etitioner[s’] claims of potential harm should [the respondent]

decide to develop facilities in the counties where petitioners

are located or where they may wish to file CON applications are

similarly unsupported. There was no evidence presented that [the

respondent] is planning to develop facilities in those counties

or that petitioners have suffered any actual harm.”) (emphasis

added).
 -24-
Petitioners’ argument that they were substantially

prejudiced by the Agency’s decision is based on sheer

speculation. They have neither alleged nor proven that the

relocation of these two operating rooms has caused them any

actual harm. In fact, SCA’s vice president of operations

admitted during the 15 April 2013 hearing that Petitioners had

not undertaken any analysis of the economic impact of the

Agency’s decision upon them prior to filing their petition.

According to the vice president, Petitioners have instead

look[ed] at the fact that we need additional
operating rooms based on surgeons and
specialties that we’re trying to move in and
the space that we need to do those. And to
me the harm comes from the surplus and this
adding to the surplus and potentially just
making it longer before we’re ever able to
expand.

As the vice president made clear in her testimony, the only

purported harm to Petitioners is the possibility that the

Agency’s decision will make it more difficult for them to expand

their business. This concern is based on their understanding of

how the need-determination process works. It is not clear,

however, that the outcome suggested by Petitioners will occur.

When the vice president was asked whether SCA would “definitely

decide to apply” for more operating rooms when a need

determination is eventually made, she admitted that she could
 -25-
not be sure because “who knows when that will be and who knows

what the situation will be then[.]”

At the moment, the operating rooms are still a part of

Southern Eye. They have not been transferred to WakeMed’s

Raleigh Campus, and an SMFP taking those rooms into account has

not been issued. Even if this occurs, however, Petitioners have

not presented any evidence that the transfer of these rooms

would result in substantial prejudice. Although Petitioners

allege that they would like to expand their business, they have

not and cannot assert that they will necessarily do so when or

if the Agency finds a need. Indeed, it is entirely plausible

that a health care provider other than Petitioners would obtain

any new operating rooms found to be needed in the future. For

these reasons, Petitioners’ argument that the relocation of the

operating rooms will likely result in substantial prejudice by

competitive disadvantage is overruled.

Petitioners have failed to show that the Agency’s decision

to grant WakeMed’s application resulted in substantial

prejudice. Because a showing of substantial prejudice is a

necessary element of Petitioners’ attempt to successfully oppose

the Agency’s decision, we need not address Petitioners’ argument
 -26-
that the Agency should have applied the conversion rules. We

affirm the ALJ’s final decision.

AFFIRMED.

Judges HUNTER, JR., ROBERT N., and ERVIN concur.