Mississippi State Department of Health v. Natchez Community Hospital

IN THE SUPREME COURT OF MISSISSIPPI
NO. 1998-SA-01055-SCT
MISSISSIPPI STATE DEPARTMENT OF HEALTH AND Q. S. C., LLC d/b/a FIRST
CHOICE SURGICAL CENTER
v.
NATCHEZ COMMUNITY HOSPITAL

DATE OF JUDGMENT: 05/29/1998
TRIAL JUDGE: HON. DENISE OWENS
COURT FROM WHICH APPEALED: HINDS COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANTS: OFFICE OF THE ATTORNEY GENERAL
BY: ELLEN Y. DALE O'NEAL

L. CARL HAGWOOD

J. CHADWICK MASK

ROBERT N. WARRINGTON

KYLE LESLIE HOLIFIELD
ATTORNEYS FOR APPELLEE: GAIL WRIGHT LOWERY
KATHRYN H. HESTER
ELLEN MORRIS
MICHAEL R. HESS
NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES
DISPOSITION: AFFIRMED - 7/29/1999
MOTION FOR REHEARING FILED: 08/12/99; denied 10/07/99
MANDATE ISSUED: 10/14/99

BEFORE PITTMAN, P.J., WALLER AND COBB, JJ.

PITTMAN, PRESIDING JUSTICE, FOR THE COURT:

STATEMENT OF THE CASE
¶1. This case is appealed from the Chancery Court of Hinds County where Chancery Judge Denise Owens
vacated the Final Order of the Mississippi State Department of Health ("the Department") granting a
Certificate of Need ("CON") to Q.S.C., LLC, d/b/a First Choice Surgical Center ("QSC") to establish a
freestanding ambulatory surgery center ("ASC") in Natchez, Mississippi. The Department and QSC
perfected this appeal from the chancery court's judgment.

STATEMENT OF FACTS

¶2. On June 27, 1997, QSC filed a Certificate of Need application with the Department for the
establishment and operation of an ASC in Natchez. The Department deemed the application complete on
July 7, 1997, and sent notice to all affected parties. Natchez Community Hospital ("NCH") and Natchez
Regional Medical Center ("NRMC") requested a public hearing.

¶3. On September 15-16, 1997, and October 6-7, 1997, a public hearing was held. The Department,
QSC, NCH, and NRMC, appeared at the hearing and offered testimony and evidence.

¶4. QSC is owned by Dr. Arnold E. Feldman. QSC proposes to renovate a single specialty surgery center
owned and operated by Dr. Feldman into an ASC that offers a full range of surgical services and
procedures in general outpatient surgery. The facility will contain two operating rooms, three pre-
op/recovery rooms, and business, staff, and counseling areas, and will require a capital expenditure of
approximately $509,462.

¶5. QSC's CON application was filed under the 1996-97 Mississippi State Health Plan ("the Plan").
Chapter X of the Plan establishes the criteria and standards which the applicant must meet before receiving
CON authority to establish an ASC. The Mississippi Certificate of Need Review Manual (Rev. 1997) (the
"Manual") provides general CON criteria and considerations by which the Department reviews all
applications for Certificates of Need.

¶6. The Staff of the Health Planning and Resource Development Division of the Department ("the Staff")
issued a Staff Analysis recommending disapproval of QSC's CON application. The Hearing Officer found,
after the public hearing, that QSC had presented credible and substantial evidence that the proposed ASC
met all the criteria set forth in the Plan. The Hearing Officer issued his Findings of Fact, Conclusions of Law
and Recommendations ("Findings of Fact"), recommending that QSC's CON be granted. The State Health
Officer reviewed the record, concurred in the Hearing Officer's recommendation, and granted the requested
CON.

¶7. NCH appealed the Final Order of the Mississippi State Department of Health to the Chancery Court of
the First Judicial District of Hinds County, Mississippi, on February 18, 1998. Oral argument was held on
May 26, 1998. Chancellor Denise Owens reversed the Department's Final Order, issuing a Memorandum
Opinion and Judgment vacating and setting aside QSC's CON on May 29, 1998. The Department and
QSC appealed to this Court on June 4, 1998.

STATEMENT OF THE ISSUE

I. WHETHER THE CHANCELLOR ERRONEOUSLY ENGAGED IN FACT-FINDING
WITH REGARD TO QSC'S COMPLIANCE WITH CRITERION ONE BY FINDING
THAT QSC COULD NOT PERFORM 800 PROCEDURES PER YEAR, CONTRARY TO
 THE SPECIFIC FINDING OF THE DEPARTMENT.

STANDARD OF REVIEW

¶8. A strict standard governs judicial review of administrative agency decisions. Miss. Code Ann. § 41-7-
201(2)(f) (1993) sets forth the applicable standard of review here:

. . . The order shall not be vacated or set aside, either in whole or in part, except for errors of law,
unless the court finds that the order of the State Department of Health is not supported by substantial
evidence, is contrary to the manifest weight of the evidence, is in excess of the statutory authority or
jurisdiction of the State Department of Health, or violates any vested constitutional rights of any party
involved in the appeal. . . .

¶9. Most recently, this Court has outlined this limited standard of review as follows:

This is a proceeding for judicial review of administrative action, and it is important that we understand
and accept what this fact implies. The Legislature has directed that a S[tate] H[earing] O[fficer]'s
CON order be subject to judicial review, but that it. . . shall not be vacated or set aside, either in
whole or in part, except for errors of law, unless the Court finds that the order . . . is not supported
by substantial evidence, is contrary to the manifest weight of the evidence, is in excess of the statutory
authority or jurisdiction of the . . . Department . . ., or violates any vested constitutional rights of any
part involved in the appeal. Miss. Code Ann. § 41-7-201(4) (Supp. 1990).

This is nothing more than a statutory restatement of familiar limitations upon the scope of judicial
review of administrative agency decisions. Magnolia Hospital v. Mississippi State Department of
Health, 559 So.2d 1042, 1044 (Miss. 1990); See also Mississippi State Dep't of Health v.
Mississippi Baptist Med. Ctr., 663 So.2d 563, 573 (Miss. 1995).

The decision of the hearing officer and State Health Officer is afforded great deference
upon judicial review by this court even though we review the decision of the chancellor.
Mississippi State Dep't of Health v. Southwest Mississippi Reg'l Med. Ctr., 580 So.2d 1238, 1240
(Miss. 1991).

St. Dominic-Jackson Mem'l Hosp. v. Mississippi State Dep't of Health, 728 So.2d 81, 83 (Miss.
1998) (emphasis added).

¶10. This Court has stated:

[O]ur Constitution does not permit the judiciary of this state to retry de novo matters on
appeal from administrative agencies. Our courts are not permitted to make administrative
decisions and perform the functions of an administrative agency. Administrative agencies must
perform the functions required of them by law. When an administrative agency has performed its
function, and has made the determination and entered the order required of it, the parties may then
appeal to the judicial tribunal to hear the appeal. The appeal is a limited one . . . since the courts
cannot enter the field of administrative agency. The court will entertain the appeal to determine
whether or not the order of the administrative agency (1) was supported by substantial
evidence, (2) was arbitrary and capricious, (3) was beyond the power of the administrative
agency to make, or (4) violated some statutory or constitutional right of the complaining
 party.

Cook v. Mardi Gras Casino Corp., 697 So.2d 378, 380 (Miss. 1997) (emphasis added)(quoting
Mississippi Dep't of Envtl. Quality v. Weems, 653 So.2d 266, 273 (Miss. 1995) (quoting State Tax
Comm'n v. Earnest, 627 So.2d 313, 319 (Miss. 1993)).

DISCUSSION OF LAW

I. WHETHER THE CHANCELLOR ERRONEOUSLY ENGAGED IN FACT-FINDING
WITH REGARD TO QSC'S COMPLIANCE WITH CRITERION ONE BY FINDING
THAT QSC COULD NOT PERFORM 800 PROCEDURES PER YEAR, CONTRARY TO
THE SPECIFIC FINDING OF THE DEPARTMENT.

¶11. QSC and the Department allege that the chancellor engaged in impermissible fact-finding regarding
QSC's compliance with Criterion 1 of the State Health Plan. The chancellor reviewed the evidence before
her and found that there was not sufficient evidence for the State Health Officer to grant the CON.

¶12. It is within the power of the chancellor to reverse the decision to grant the CON if such decision was
not supported by substantial evidence. Substantial evidence means more than a scintilla or a suspicion.
Mississippi Real Estate Comm'n v. Anding, 732 So.2d 192, 196 (Miss. 1999) (citing Mississippi
Real Estate Comm'n v. Ryan, 248 So.2d 790, 793-94 (Miss. 1971)).

¶13. If an administrative agency's decision is not based on substantial evidence, it necessarily follows that
the decision is arbitrary and capricious. An administrative agency's decision is arbitrary when it is not done
according to reason and judgment, but depending on the will alone. Burks v. Amite County Sch. Dist.,
708 So.2d 1366, 1370, 125 Ed. Law Rep. 1012 (Miss. 1998). An action is capricious if done without
reason, in a whimsical manner, implying either a lack of understanding of or disregard for the surrounding
facts and settled controlling principles. Id.

¶14. We have reviewed the record in this case and determined the decision to grant the CON was not
based on substantial evidence, thereby rendering the decision arbitrary and capricious. As such, we affirm
the judgment of the chancellor in reversing the grant of the CON.

¶15. Criterion 1 of the State Health Plan states:

Need Criterion: The applicant shall demonstrate that the proposed ambulatory surgery facility shall
perform a minimum of 800 procedures per operating room or procedure room per year.

(1996-1997 State Health Plan, p. X-10.) In the Hearing Officer's recommendation to grant the CON,
which was ultimately adopted by the State Health Officer, the Hearing Officer specifically found that
"Q.S.C. provided credible and substantial evidence that its proposed ASC will perform the required
number of procedures." The Hearing Officer took into consideration the testimony of Drs. Arnold E.
Feldman, Richard M. Myers, Jr., and James R. Todd, Jr. and Ronald Calisher, QSC's expert witness, as
well as letters and affidavits from other physicians supporting the ASC. The Hearing Officer discounted the
testimony of other physicians who stated that they would not use the proposed ASF.

¶16. The chancellor noted in her memorandum order that "[t]he ability of Q.S.C. to meet that 800
procedure threshold is at best conjectural and speculative." Indeed, the numbers provided by the doctors as
estimates of projected usage appear to be pure speculation.

¶17. Dr. Feldman, in his application for the CON, estimated his projected usage for the ASC to be 1,600
cases. He testified at the hearing that he arrived at that number because the State required a minimum usage
of 800 cases per year per room. He had no factual basis for his estimated usage.

¶18. Dr. Feldman then testified that he would be the major admitting physician to this ASC. The record
shows that Dr. Feldman performed only 235 surgeries at his single-service surgery center the year before
the application for the CON was filed. The record further shows that Dr. Feldman performed only 87
additional out-patient procedures at NCH and NRMC. This totals only 322 procedures actually
performed. While it is feasible that Dr. Feldman's practice will continue to grow, it is not realistic to believe
that Dr. Feldman himself will be able to perform 800 to 1,000 cases at the ASC as he speculates.

¶19. Dr. James Todd, Jr., testified that he planned to use the ASC to perform approximately 200 surgeries
per year. However, Dr. Todd later testified that he had performed only 90 surgeries in 1996 and 57
surgeries in 1997. He also testified that he would send approximately one-half of his surgery patients to the
proposed ASC.

¶20. Taking Dr. Todd's information as true, he would have to perform 400 surgeries per year in order to
transfer one-half to the ASC to reach the estimated rate of 200 surgeries. Dr. Todd would, in effect, have
to more than triple his current rate of surgery to meet his estimate.

¶21. Additionally, NRMC proffered testimony that Dr. Todd, in previous litigation, swore under oath that
he was permanently and totally disabled and that he had severe difficulties in performing even the simplest
tasks. This further casts doubt on the ability of Dr. Todd to triple his current rate of surgery.

¶22. Dr. Feldman offered the testimony of other physicians to try to prove that the new ASC would meet
the usage requirements. However, these other physicians also seemed to have overestimated their projected
usage of the ASC.

¶23. Dr. Richard Meyers, Jr., testified that he would transfer 350-500 cases to the ASC from either his
office or from Field Memorial Hospital. Dr. Meyers testified that he performed 99% of his surgeries at
Field, estimating that number to be "[p]robably in excess of 400." The actual records show that Dr. Meyers
performed only 165 procedures in 1995, 119 procedures in 1996, and 130 procedures in the first ten
months of 1997. Dr. Meyers then changed his testimony to state that he would probably only transfer 100
cases to the ASC.

¶24. During and after the hearing, Dr. Feldman introduced letters and affidavits from other doctors who
pledged to use the facility. Dr. Bernadette Sherman, through letter and affidavit, projected her usage to be
in excess of 100 cases per year. However, affidavits from NCH and NRMC show that in 1997, Dr.
Sherman performed only 21 procedures at the two hospitals. No evidence was offered in support of Dr.
Sherman's projections.

¶25. Dr. Frank Guerdon submitted a letter in support of the ASC stating that he would perform between 50
and 100 procedures. Dr. Alphonse Reed, also through a letter, estimated his usage of the ASC at 100 or
more. The affidavits submitted by NCH and NRMC show that Dr. Guerdon performed only 51 procedures
in 1997, while Dr. Reed performed only 11. As was the case with Dr. Sherman, no evidence was offered
to support this projected increase.
¶26. The majority of evidence offered in support of the ASC seems to be nothing more than unsupported
estimates made by physicians. Moreover, these estimates are contradicted by the actual numbers of
procedures these physicians have performed in the past. The estimate of projected procedures supplied to
the Hearing Officer has no factual basis. This Court has stated that a physician's ". . . unsupported
statements do not constitute 'substantial evidence.'" Mississippi State Dep't of Health v. Mississippi
Baptist Med. Ctr., 663 So.2d 563, 578 (Miss. 1995). We agree with the chancery court that the decision
to grant the CON based on an estimated usage of 800 procedures per room was not supported by
substantial evidence and is, therefore, arbitrary and capricious.

¶27. Because we are affirming the chancellor's reversal in the court below, we need not address the other
issues put forth by the parties.

CONCLUSION

¶28. Unsupported statements by physicians do not provide substantial evidence upon which the Department
should grant a CON. The number of procedures projected by Dr. Feldman in his application, as well as the
estimates offered by other physicians, appear to be pure speculation. For these reasons, we affirm the
judgment of the Hinds County Chancery Court reversing the Department's grant of the CON.

¶29. AFFIRMED.

SULLIVAN, P.J., BANKS, McRAE, SMITH, MILLS, WALLER AND COBB, JJ., CONCUR.
PRATHER, C.J., NOT PARTICIPATING