IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA17-137
Filed: 19 September 2017
Office of Administrative Hearings, No. 16 DHR 08034
BLUE RIDGE HEALTHCARE HOSPITALS INC. d/b/a CAROLINAS
HEALTHCARE SYSTEM – BLUE RIDGE, Petitioner,
v.
NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES,
DIVISION OF HEALTH SERVICE REGULATION, HEALTHCARE PLANNING
AND CERTIFICATE OF NEED SECTION, Respondent,
and
CALDWELL MEMORIAL HOSPITAL, INC. and SCSV, LLC, Respondent-
Intervenors.
Appeal by petitioner from Final Decision entered 3 October 2016 by
Administrative Law Judge Selina Malherbe Brooks in the North Carolina Office of
Administrative Hearings. Heard in the Court of Appeals 23 August 2017.
Smith Moore Leatherwood LLP, by Maureen Demarest Murray, Carrie A.
Hanger and Matthew Nis Leerberg, for petitioner-appellant Blue Ridge
Healthcare Hospitals, Inc. d/b/a Carolinas Healthcare System – Blue Ridge.
Attorney General Joshua H. Stein, by Assistant Attorney General Jill A.
Bryan and Special Deputy Attorney General June Ferrell, for respondent-
appellee North Carolina Department of Health and Human Services.
Williams Mullen, by Joy Heath and Elizabeth D. Scott, for respondent-
intervenors-appellees Caldwell Memorial Hospital, Inc. and SCSV, LLC.
TYSON, Judge.
BLUE RIDGE HEALTHCARE HOSPS., INC. V. N.C. DEPT. OF HEALTH & HUMAN SERVS.
Opinion of the Court
Blue Ridge Healthcare Hospitals, Inc. d/b/a Carolinas Healthcare System –
Blue Ridge (“Blue Ridge”) appeals from a final decision of the Administrative Law
Judge (“ALJ”), which granted summary judgment in favor of the North Carolina
Department of Health and Human Services (“DHHS”), Caldwell Memorial Hospital,
Inc. (“Caldwell Memorial”), and SCSV, LLC. We affirm.
I. Background
A. Caldwell Memorial
Caldwell Memorial is a not-for-profit community hospital located in Lenoir,
North Carolina, which became part of the UNC Health Care System in 2013.
Caldwell Memorial operates and maintains eight operating rooms, which are the
only operating rooms located in Caldwell County. Three of the operating rooms are
located at Hancock Surgery Center (“HSC”), which is housed in an older building
previously used as a shopping center. HSC is located approximately 0.6 miles from
Caldwell Memorial, and is licensed as part of Caldwell Memorial.
In July 2015, Caldwell Memorial and SCSV, LLC (collectively, “Caldwell
Memorial”) filed a Certificate of Need (“CON”) application with DHHS’s Division of
Health Service Regulation, Healthcare Planning and Certificate of Need Section
(“the Agency”), seeking approval to establish Caldwell Surgery Center (“CSC”), a
new separately-licensed ambulatory surgery center to be located in Granite Falls,
one to two miles from the southern border of Caldwell County.
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Caldwell Memorial seeks to create a second point of surgery access within a
more densely populated area of Caldwell County in addition to the city of Lenoir.
Ambulatory surgical centers are capable of offering surgical services to patients at a
purported lower cost than surgeries performed inside of hospitals. Caldwell
Memorial asserts an ambulatory surgery center is suited to attract and retain
capable surgeons by offering physician investment opportunities, which are not
available in hospital operating rooms. The propriety of this investment opportunity
is not before us.
The total inventory of currently licensed operating rooms located in Caldwell
County would not change as a result of Caldwell Memorial’s proposal. Caldwell
Memorial had sought previous approval in 2014 to relocate the three operating
rooms from HSC to CSC, but the Agency denied the CON application.
B. Blue Ridge
Blue Ridge maintains and operates six operating rooms at its Morganton
hospital campus and four operating rooms at its Valdese hospital campus. It
submitted written comments in opposition to the application, and participated in
the public hearing held in September 2015. Blue Ridge had also submitted its
objections to Caldwell Memorial’s previous CON applications. Two other hospitals
and an ambulatory surgery center in the extended geographical area also submitted
comments in opposition to Caldwell Memorial’s applications.
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The proposed site for CSC is five miles from both Viewmont Surgery Center
and Frye Medical Center, twelve miles from Catawba Valley Medical Center, and
eleven miles from Blue Ridge’s Valdese hospital campus. All of these facilities
possessed surgical capacity during the Agency’s review. Viewmont Surgery Center
in Catawba County is the only multi-specialty ambulatory surgery center in the
area, but does not offer the surgical specialties proposed in Caldwell Memorial’s
CON application, such as spine and vascular surgery. Blue Ridge notes the
existence of a significant surplus of operating rooms in Caldwell, Burke, and
Catawba Counties in support of its opposition to Caldwell Memorial’s application.
C. Agency and ALJ Decision
By letter dated 28 December 2015, the Agency notified Caldwell Memorial of
its decision to conditionally approve its application to establish the ambulatory
surgery center. On 29 January 2016, Blue Ridge filed a petition for a contested case
hearing in the Office of Administrative Hearings (“OAH”) and challenged the
Agency’s decision to approve Caldwell Memorial’s CON application. See N.C. Gen.
Stat. § 131E-188(a) (2015) (providing any “affected person” is entitled to bring a
contested case challenging the agency’s decision on a CON application); N.C. Gen.
Stat. § 131E-188(c) (defining “affected person” to include “any person who provides
services, similar to the services under review, to individuals residing within the
service area or geographic area proposed to be served by the applicant”). The ALJ
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Opinion of the Court
permitted Caldwell Memorial and Frye Regional Medical Center, LLC (“Frye”) to
intervene.
Caldwell Memorial and the Agency moved for summary judgment before the
OAH on 9 September 2016. Blue Ridge and Frye opposed the motion. By final
decision entered on 3 October 2016, the ALJ granted summary judgment in favor of
Caldwell Memorial and the Agency. Blue Ridge appeals.
II. Jurisdiction
Jurisdiction lies in this Court from the final decision of the ALJ pursuant to
N.C. Gen. Stat. §§ 131E-188(b) and 7A-27(a) (2015).
III. Issues
Blue Ridge argues the Agency erred by ignoring or applying certain criteria
set forth in N.C. Gen. Stat. § 131E-183 when it approved Caldwell Memorial’s CON
application and asserts genuine issues of material fact exist regarding the
conformity of the CON application with the statutory review criteria.
IV. Standard of Review
The North Carolina Administrative Code governs our review of the ALJ’s
decision, and provides:
(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:
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(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 . . . in view
of the entire record as submitted; or
(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. . . .
(d) In reviewing a final decision allowing . . . summary
judgment, the court may enter any order allowed by G.S.
1A-1, Rule 12(c) or Rule 56. . . .
N.C. Gen. Stat. § 150B-51 (2015).
“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. . . . [and]
that the agency erred in one of the ways described above.” Surgical Care Affiliates,
LLC v. N.C. Dep’t of Health & Human Servs., 235 N.C. App. 620, 624, 762 S.E.2d
468, 471 (2014) (citation, quotation marks, and brackets omitted).
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Opinion of the Court
Here, Blue Ridge appeals from the ALJ’s order granting summary judgment.
Summary judgment is properly entered “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that any party is entitled
to a judgment as a matter of law.” N.C. Gen. Stat. § 1A-1, Rule 56(c) (2015).
The evidence “must be viewed in a light most favorable to the non-moving
party.” Patmore v. Town of Chapel Hill, 233 N.C. App. 133, 136, 757 S.E.2d 302,
304, disc. review denied, 367 N.C. 519, 758 S.E.2d 874 (2014) (citation omitted).
“The party seeking summary judgment bears the initial burden of demonstrating
the absence of a genuine issue of material fact. If the movant successfully makes
such a showing, the burden then shifts to the nonmovant to come forward with
specific facts establishing the presence of a genuine factual dispute for trial.”
Liberty Mut. Ins. Co. v. Pennington, 356 N.C. 571, 579, 573 S.E.2d 118, 124 (2002)
(citations omitted).
“We review [the ALJ’s] order granting or denying summary judgment de
novo. Under a de novo review, the court considers the matter anew and freely
substitutes its own judgment for that of the lower tribunal.” Craig v. New Hanover
Cty. Bd. of Educ., 363 N.C. 334, 337, 678 S.E.2d 351, 354 (2009) (citations and
internal quotation marks omitted).
V. Agency’s Application of N.C. Gen. Stat. § 131E-183 Criteria
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Our General Assembly recognized that potential and projected profits would
drive the development of medical facilities and services in the marketplace. The
General Assembly concluded the public is best served by having access to affordable
healthcare that is distributed throughout the State based upon certificates of need.
See N.C. Gen. Stat. § 131E-175(1)-(4) (2015). Otherwise, an over-abundance of
facilities in certain areas would “lead[] to unnecessary use of expensive resources
and overutilization of health care services” and result in greater costs to the public.
See N.C. Gen. Stat. § 131E-175(4), (6)-(10).
The Agency’s decision to approve an applicant’s CON is based upon the
Agency’s determination of whether the applicant has complied with the list of
review criteria set forth in N.C. Gen. Stat. § 131E-183(a). “The [Agency] shall
review all applications utilizing the criteria outlined in this subsection and shall
determine that an application is either consistent with or not in conflict with these
criteria before a certificate of need for the proposed project shall be issued.” N.C.
Gen. Stat. § 131E-183(a) (2015); see also Parkway Urology, P.A., v. N.C. Dep’t of
Health & Human Servs., 205 N.C. App. 529, 534, 696 S.E.2d 187, 191-92 (2010),
disc. review denied, 365 N.C. 78, 705 S.E.2d 753 (2011).
A. Geographic Scope of Agency’s Review
Blue Ridge argues the agency incorrectly limited its analysis of Criteria 3, 3a,
4, and 6 to the circumstances in Caldwell County, and did not consider any
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facilities, utilization, needs of the population, or circumstances in any of the other
counties from which Caldwell Memorial is projected to draw patients to the new
facility.
Blue Ridge further asserts the Agency failed to assess how the needs of
patients from other counties would be met by the proposed relocation of operating
rooms or how they would be impacted by physicians’ plans to perform cases and
procedures at the new facility, resulting in the reduction of services provided at
facilities in other counties.
The four criteria of N.C. Gen. Stat. § 131E-183(a) at issue requires the
following of the CON applicant:
(3) The applicant shall identify the population to be served
by the proposed project, and shall demonstrate the need
that this population has for the services proposed, and the
extent to which all residents of the area, and, in
particular, low income persons, racial and ethnic
minorities, women, handicapped persons, the elderly, and
other underserved groups are likely to have access to the
services proposed.
(3a) In the case of a reduction or elimination of a service,
including the relocation of a facility or a service, the
applicant shall demonstrate that the needs of the
population presently served will be met adequately by the
proposed relocation or by alternative arrangements, and
the effect of the reduction, elimination or relocation of the
service on the ability of low income persons, racial and
ethnic minorities, women, handicapped persons, and
other underserved groups and the elderly to obtain
needed health care.
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(4) Where alternative methods of meeting the needs for
the proposed project exist, the applicant shall
demonstrate that the least costly or most effective
alternative has been proposed.
. . . .
(6) The applicant shall demonstrate that the proposed
project will not result in unnecessary duplication of
existing or approved health service capabilities or
facilities.
N.C. Gen. Stat. § 131E-183(a) (emphasis supplied).
While Criterion 3 requires identification of the “population to be served” and
the “need that this population has for the services proposed,” the statute does not
set forth the precise method by which this analysis is to be performed. Criterion 3
does not set forth guidance concerning the geographical location of the “population
to be served” or the “area.” N.C. Gen. Stat. § 131E-183(a)(3). Caldwell Memorial’s
CON application projected that 50.2% of the new facility’s operating room’s patients
would come from Caldwell County, and 49.8% would come from outside of Caldwell
County. For the procedure room, only 38.52% of the patients are projected to come
from Caldwell County and 61.48% from elsewhere.
Similarly, Criterion 3a requires identification and an analysis of the
“population presently served,” which includes patients from a multi-county area.
N.C. Gen. Stat. § 131E-183(3a). Blue Ridge argues the Agency limited its analysis
of the reduction in services to facilities and patients located within Caldwell
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County, and ignored the impact on medically underserved groups in other counties,
who would be required to travel farther to the new facility.
Criteria 4 and 6 also do not set forth any geographical scope for the Agency’s
analysis. With regard to Criterion 4, Blue Ridge asserts the Agency improperly
limited its analysis of whether Caldwell Memorial “demonstrate[d] that the least
costly or most effective alternative has been proposed,” where alternative methods
for meeting the proposed project’s needs exist. N.C. Gen. Stat. § 131E-183(a)(4).
Finally, Blue Ridge asserts the Agency ignored the numerous surgical
facilities located in Burke County, very near to the proposed site of the Granite
Falls facility, in applying Criterion 6 to determine whether Caldwell Memorial
demonstrated the “project will not result in unnecessary duplication of existing or
approved health service capabilities or facilities.” N.C. Gen. Stat. § 131E-183(a)(6).
Blue Ridge relies upon this Court’s decision in AH N.C. Owner LLC v. N.C.
Dep’t of Health & Human Servs., 240 N.C. App. 92, 771 S.E.2d 537 (2015). That
case dealt with the Agency’s interpretation of Criterion 20 of N.C. Gen. Stat. §
131E-183(a), which states “[a]n applicant already involved in the provision of health
services shall provide evidence that quality care has been provided in the past.”
N.C. Gen. Stat. § 131E-183(a)(20).
This Court recognized, “[b]ecause the General Assembly has not articulated
with specificity how the Agency should determine an applicant’s conformity with
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Criterion 20, the Agency was authorized to establish its own standards in assessing
whether an applicant that was already involved in providing health care services
had provided quality care in the past.” AH N.C. Owner, 240 N.C. App. at 100, 771
S.E.2d at 542 (emphasis supplied).
In AH N.C. Owner, the Agency reviewed multiple competing CON
applications, which proposed to expand the number of nursing home beds in Wake
County in response to a determination of need. Id. at 95, 771 S.E.2d at 539.
Consistent with the Agency’s prior practice, it evaluated each applicant’s conformity
with Criterion 20 by examining each applicant’s history of quality of care solely
within Wake County, which resulted in an evaluation of past quality of care for
those applicant’s who already operated facilities in Wake County. Id. at 101, 771
S.E.2d at 542-43. The ALJ rejected the Agency’s limit of its review of Criterion 20 to
only Wake County. Id.
This Court explained:
As the ALJ noted, certain review criteria in N.C. Gen.
Stat. § 131E-183(a) are specifically limited to the service
area of the proposed project. Criterion 18a, for example,
requires the applicant to “demonstrate the expected
effects of the proposed services on competition in the
proposed service area . . . .” N.C. Gen. Stat. § 131E-
183(a)(18a) (emphasis added). Criterion 20, on the other
hand, contains no such geographic limitation.
It is well established that in order to determine the
legislature’s intent, statutory provisions concerning the
same subject matter must be construed together and
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harmonized to give effect to each. Cape Hatteras Elec.
Membership Corp. v. Lay, 210 N.C. App. 92, 101, 708
S.E.2d 399, 404 (2011). Furthermore, as this Court has
previously explained, “[w]hen a legislative body includes
particular language in one section of a statute but omits it
in another section of the same [statute], it is generally
presumed that the legislative body acts intentionally and
purposely in the disparate inclusion or exclusion.” N.C.
Dep’t of Revenue v. Hudson, 196 N.C. App. 765, 768, 675
S.E.2d 709, 711 (2009) (citation, quotation marks, and
brackets omitted).
Id. at 111, 771 S.E.2d at 548-49 (alterations in original).
This Court affirmed the ALJ and held “basic principles of statutory
construction support the ALJ’s conclusion that the General Assembly did not intend
for the Agency’s evaluation of an applicant’s past quality of care to be limited to the
service area of the proposed project.” Id. at 112, 771 S.E.2d at 549.
As specifically stated in AH N.C. Owner, the Agency is authorized to
“establish its own standards” to determine whether the applicant met the
requirements of the statutory criteria. Id. at 100, 771 S.E.2d at 542. “It is well
settled that when a court reviews an agency’s interpretation of a statute it
administers, the court should defer to the agency’s interpretation of the statute . . . as
long as the agency’s interpretation is reasonable and based on a permissible
construction of the statute.” Craven Reg’l Med. Auth. v. N.C. Dep’t of Health &
Human Servs., 176 N.C. App. 46, 58, 625 S.E.2d 837, 844 (2006) (citations omitted)
(emphasis supplied).
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“If the statute is silent or ambiguous with respect to the specific issue, the
question for the court is whether the agency’s answer is based on a permissible
construction of the statute.” Cty. of Durham v. N.C. Dep’t of Env’t & Natural Res.,
131 N.C. App. 395, 397, 507 S.E.2d 310, 311 (1998) (citation, quotation marks, and
brackets omitted), disc. review denied, 350 N.C. 92, 528 S.E.2d 361 (1999).
Our decision in AH N.C. Owner is distinguishable and does not control our
analysis and outcome here. In that case, in “consider[ing] whether deference should
be accorded to the Agency’s interpretation of . . . the appropriate geographic scope of
the quality of care assessment required under Criterion 20,” the Court determined
the existence of “no logical basis for disregarding such information evidencing
quality of care on a statewide level[,]” and “such a policy actually contravenes one of
the primary purposes of the CON laws.” AH N.C. Owner, 240 N.C. App. at 110-13,
771 S.E.2d at 548-49. The Court further stated, “[s]ignificantly . . . Agency
employees were unable to identify a plausible justification for its past interpretation
of the geographic scope element of Criterion 20.” Id. at 113, 771 S.E.2d at 549.
Here, unlike in AH N.C. Owner, Martha Frisone, Assistant Chief of the
DHHS’s CON section, testified by deposition that “it has long been Agency practice
to use the same standards duly promulgated in the [administrative] rules when
evaluating the statutory criteria, which don’t [sic] contain any standards at all[.]”
The Agency’s practice is consistent with the law.
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N.C. Gen. Stat. § 131E-183(b) specifically states the Agency “is authorized to
adopt rules for the review of particular types of applications that will be used in
addition to those criteria outlined in subsection (a) . . . and may vary according to
the purpose for which a particular review is being conducted or the type of health
service reviewed.” See Craven, 176 N.C. App. at 51, 625 S.E.2d at 841 (recognizing
“the Agency has adopted rules to be used as regulatory criteria in conjunction with
Criterion 3” (emphasis supplied)).
Ms. Frisone further stated:
Where a patient goes and where a surgeon goes is surgeon
and patient choice. And so the need methodology itself for
determining a need for additional ORs does not take into
account surpluses in adjoining counties, and we don’t take
them into account either in reviewing a – certainly not in
reviewing a proposal to relocate two existing dedicated
outpatient ORs and license them separately as an AMSU,
which would reduce the cost for the patient.
Ms. Frisone explained the Agency reviewed the statutory criteria in
conjunction with the provisions of the North Carolina Administrative Code, which
state the requirements an applicant must meet to establish need for operating
rooms and ambulatory surgical facilities. See 10A N.C.A.C. 14C.2101 et seq. Title
10A, Subchapter 14C of the Administrative Code sets forth the “Certificate of Need
Regulations.”
Section 2100 states the “criteria and standards for surgical services and
operating rooms,” and defines “service area” as “the Operating Room Service Area
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as defined in the applicable State Medical Facilities Plan [‘SMFP’].” 10A N.C.A.C.
14C.2101(10). In 2015, the SMFP defined “service area” as “the operating room
planning area in which the operating room is located. The operating room planning
areas are the single and multicounty groupings shown in Figure 6-1.” Figure 6-1 of
the SMFP shows Caldwell County as a single county operating room service area.
Unlike in AH N.C. Owner, the Agency used its articulated and established
practice of applying the standards and definitions set forth in the Administrative
Code for determining certificates of need, where N.C. Gen. Stat. § 131E-183(a) is
silent on the geographic scope of the Agency’s review. Giving deference to the
Agency’s procedures and practice, we hold Blue Ridge has failed to meet its burden
to show the Agency’s interpretation and application of N.C. Gen. Stat. § 131E-183(a)
is unreasonable or based on an impermissible construction of the statute. Craven,
176 N.C. App. at 58, 625 S.E.2d at 844. Blue Ridge’s argument is overruled.
B. Application of Criterion 6
Blue Ridge argues the Agency failed to apply Criterion 6 as an independent
criterion, where the findings under Criterion 6 simply repeat findings under other
criteria. Blue Ridge bases its claim upon the inclusion of the following language in
the Agency’s findings for Criterion 6: “The discussions regarding analysis of need,
alternatives and competition found in Criteri[a] (3), (4) and (18a), respectively, are
incorporated herein by reference.” The Agency concluded Caldwell Memorial
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“adequately demonstrate[s] that the proposed project would not result in the
unnecessary duplication of existing or approved ORs in Caldwell County.”
Ms. Frisone explained that the Agency evaluates each criterion
independently, and frequently relies upon the same facts in making its
determination under each criterion. The Agency is permitted to rely upon the same
facts and evidence in reviewing multiple criteria. Blue Ridge has failed to show the
Agency failed to undertake an independent review and application of Criterion 6.
C. Application of Criterion 5
Blue Ridge argues the Agency erred in its application of Criterion 5, which
requires Caldwell Memorial to show:
(5) Financial and operational projections for the project
shall demonstrate the availability of funds for capital and
operating needs as well as the immediate and long-term
financial feasibility of the proposal, based upon
reasonable projections of the costs of and charges for
providing health services by the person proposing the
service.
N.C. Gen. Stat. § 131E-183(a)(5).
Criterion 5 requires an applicant to demonstrate: (1) the availability of funds
for capital and operating needs, and (2) the financial feasibility of the proposal
based upon the applicant’s reasonable projections. Id.
The Agency must “determine the availability of funds for the project from the
entity responsible for the funding[.]” Retirement Villages, Inc. v. N.C. Dep’t of
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Human Res., 124 N.C. App. 495, 498, 477 S.E.2d 697, 699 (1996). “[I]n cases where
the project is to be funded other than by the applicants, the application must
contain evidence of a commitment to provide the funds by the funding entity.” Id. at
499, 477 S.E.2d at 699. “Without a commitment, an applicant cannot adequately
demonstrate availability of funds or the requisite financial feasibility.” Johnston
Health Care Ctr., L.L.C. v. N.C. Dep’t of Human Res., 136 N.C. App. 307, 313, 524
S.E.2d 352, 357 (2000). “[T]he above statutory criterion does not require the
submission of financial statements by the applicants. It merely requires the Agency
to determine the availability of funds for the project from the entity responsible for
funding, which may or may not be an applicant.” Retirement Villages, 124 N.C. App.
at 498-99, 477 S.E.2d at 699.
In its CON application, Caldwell Memorial asserted the CSC shell building
would be constructed by Brackett Flagship Properties, LLC (“BFP”). BFP would
create a limited liability company to serve as the landlord and lease the property to
Caldwell Memorial. Caldwell Memorial would be responsible for the design and
upfit of the building. Caldwell Memorial estimated the total cost associated with
the building to be $4,350,000.00.
The Agency determined that total capital cost of the project will be
$3,650,000.00, and the working capital costs will be $700,000.00. Caldwell
Memorial provided a letter dated 8 July 2015 from a Vice President of First Citizens
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Bank, which includes two term sheets of the proposed financing for the project. One
shows the financing for the capital costs of $3,650,000.00 and the other shows the
financing for the working capital costs of $700,000.00.
Caldwell Memorial also provided a letter dated 8 July 2015 from appellant
SCSV, LLC, which stated SCSV was committed to utilizing the funding provided by
the bank to develop the facility. Caldwell Memorial provided another letter from its
vice president and chief financial officer, which confirmed that Caldwell Memorial is
committed to financing a portion of the capital costs in the amount of $150,000.00,
and the hospital has sufficient funds on hand to cover this cost. The Agency
concluded Caldwell Memorial “adequately demonstrate[d] that sufficient funds will
be available for the capital and working capital needs of the project,” and “that the
financial feasibility of the proposal is based upon reasonable projections of costs and
charges.”
Blue Ridge argues the Agency erred in determining Criterion 5 was satisfied
where Caldwell Memorial’s CON application contained no documentation of BFP’s
finances or funding source. We disagree.
Our Court has determined similar arrangements to be in conformity with the
requirements of Criterion 5. In Total Renal Care of N.C., LLC v. N.C. Dep’t of
Health & Human Servs., 171 N.C. App. 734, 615 S.E.2d 81 (2005), the Agency
awarded a CON to Bio-Medical Applications (“BMA”) for ten kidney dialysis
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BLUE RIDGE HEALTHCARE HOSPS., INC. V. N.C. DEPT. OF HEALTH & HUMAN SERVS.
Opinion of the Court
machines, to be located inside a building to be leased from a lessor, who would
“upfit, install, and build” the building. Id. at 735-36, 615 S.E.2d at 82. The ALJ
determined BMA’s application was non-conforming to Criterion 5, because BMA
had failed to include the future lessor as an applicant. Id. This Court overruled the
ALJ and upheld the Agency’s determination that BMA was not required to name
the lessor as an applicant, and BMA’s CON application was in conformity with the
statutory criteria. Id. at 739, 615 S.E.2d at 84.
Caldwell Memorial’s costs to lease the building, upfit and house the
ambulatory surgery center are properly asserted and accounted for. Its application
separately documented the availability and commitment of funds for the acquisition
of the specialized medical equipment necessary to develop and improve the
ambulatory surgery center in the shell building. Caldwell Memorial was not
required to show a source of funding for BFP’s construction of the shell building. See
id. Blue Ridge’s argument is overruled.
VI. Substantial Prejudice
As an alternate basis to affirm the ALJ’s decision, it is well-established that
“when the petitioner alleges [agency error], the petitioner must also prove . . .
substantial prejudice.” Surgical Care Affiliates, 235 N.C. App. at 628, 762 S.E.2d at
473-74. Even if the Agency erred in its application of the statutory criteria in
reviewing Caldwell Memorial’s CON, Blue Ridge has also failed to meet its burden
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BLUE RIDGE HEALTHCARE HOSPS., INC. V. N.C. DEPT. OF HEALTH & HUMAN SERVS.
Opinion of the Court
of showing prejudice in the Agency’s decision to grant the CON to reverse the ALJ’s
decision.
The Agency determined that Caldwell Memorial’s proposed project does not
involve the addition of any new health service facility beds, services, or equipment.
The project involves relocating three existing operating rooms from HSC to a
separately licensed and freestanding ambulatory surgical facility. The Agency
determined Caldwell Memorial owns and operates all eight operating rooms in
Caldwell County, and there are no existing ambulatory surgical facilities in
Caldwell County. The total number of operating rooms currently located in
Caldwell County will not change. Only how those operating rooms are licensed, and
where they are located within Caldwell County, will change under the CON.
Blue Ridge argues it would lose patients and profits due to the approval of
the CSC facility. Blue Ridge asserts Dr. Jason Zook, a spine surgeon who operates
at Blue Ridge’s facility, has expressly stated he intends to direct all of his surgeries
to CSC in Granite Falls. Blue Ridge asserts it has spent significant funds in
recruiting Dr. Zook and establishing Blue Ridge’s spine surgery program. Blue
Ridge also argues its other services, specifically the neonatal and emergency
services, would be compromised by losing the profits provided by Dr. Zook’s
surgeries.
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BLUE RIDGE HEALTHCARE HOSPS., INC. V. N.C. DEPT. OF HEALTH & HUMAN SERVS.
Opinion of the Court
Our Court has explained that adopting Blue Ridge’s argument “would have
us treat any increase in competition resulting from the award of a CON as
inherently and substantially prejudicial to any pre-existing competing health
service provider in the same geographic area. This argument would eviscerate the
substantial prejudice requirement contained in N.C. Gen. Stat. § 150B-23(a).”
Parkway Urology, 205 N.C. App. at 539, 696 S.E.2d at 195.
As in the present case, the appellant in CaroMont Health, Inc. v. N.C. Dep’t of
Health & Human Servs., 231 N.C. App. 1, 8, 751 S.E.2d 244, 249 (2013), asserted
that specific evidence of financial harm resulting from the award of a CON
constitutes a showing of substantial prejudice. This Court rejected the argument in
CaroMont and held that such a physician-directed “shift” of cases is “normal
competition.” Id. at 8, 751 S.E.2d at 250.
The Court explained that the claim of harm arose “solely out of the fact that
competition would be increased by virtue of the authorization of two additional GI
endoscopy rooms located in Gaston County” so “patients and doctors in Gaston
County would now have a choice between CaroMont’s facilities and another
separate facility also located in Gaston County.” Id. at 9, 751 S.E.2d 250. As in
CaroMont, Blue Ridge has asserted harm from normal competition, which does not
constitute a showing of substantial prejudice from the Agency’s allowance of the
CON. Id.
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BLUE RIDGE HEALTHCARE HOSPS., INC. V. N.C. DEPT. OF HEALTH & HUMAN SERVS.
Opinion of the Court
Blue Ridge’s failure to show substantial prejudice is also fatal to its contested
case. The ALJ correctly granted summary judgment in favor of the Agency and
upholding the Agency’s approval of the CON for Caldwell Memorial.
VII. Conclusion
We review the Agency’s application of the criteria set forth in N.C. Gen. Stat.
§ 131E-183(a) with deference to the Agency’s interpretation of the statute. Craven
Reg’l Med. Auth., 176 N.C. App. at 58, 625 S.E.2d at 844. Blue Ridge has failed to
carry its burden to show the Agency’s interpretation was either unreasonable or not
based upon a permissible construction of the statute. See id.
As an alternative and independent basis for our holding, Blue Ridge has also
failed to show it was substantially prejudiced by the Agency’s approval of Caldwell
Memorial’s CON application and issuance of the CON. See Caromont, 231 N.C. App.
at 8-9, 751 S.E.2d at 249-50. The ALJ’s order granting summary judgment in favor
of Caldwell Memorial is affirmed. It is so ordered.
AFFIRMED.
Judges ELMORE and STROUD concur.
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