St. Dominic Hospital v. Mississippi State Department of Health

IN THE SUPREME COURT OF MISSISSIPPI

NO. 2004-SA-01239-SCT

ST. DOMINIC-JACKSON MEMORIAL HOSPITAL

v.

MISSISSIPPI STATE DEPARTMENT OF HEALTH
AND RIVER OAKS HOSPITAL, INC.

DATE OF JUDGMENT: 05/27/2004
TRIAL JUDGE: HON. PATRICIA D. WISE
COURT FROM WHICH APPEALED: HINDS COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANT: KATHRYN RUSSELL GILCHRIST
EDMUND L. BRUNINI
DAVID WELDON DONNELL
ATTORNEYS FOR APPELLEES: SARAH E. BERRY
BARRY K. COCKRELL
JENNIFER CLARE EVANS
NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES
DISPOSITION: AFFIRMED - 09/15/2005
MOTION FOR REHEARING FILED:
MANDATE ISSUED:

CONSOLIDATED WITH

NO. 2004-SA-01241-SCT

ST. DOMINIC-JACKSON MEMORIAL HOSPITAL

v.

MISSISSIPPI STATE DEPARTMENT OF HEALTH
AND RIVER OAKS HOSPITAL, INC.

DATE OF JUDGMENT: 05/28/2004
TRIAL JUDGE: HON. STUART ROBINSON
COURT FROM WHICH APPEALED: HINDS COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANT: KATHRYN RUSSELL GILCHRIST
EDMUND L. BRUNINI
DAVID WELDON DONNELL
ATTORNEYS FOR APPELLEES: SARAH E. BERRY
BARRY K. COCKRELL
JENNIFER CLARE EVANS
NATURE OF THE CASE: STATE BOARDS AND AGENCIES
DISPOSITION: AFFIRMED - 09/15/2005
MOTION FOR REHEARING FILED:
MANDATE ISSUED:

BEFORE WALLER, P.J., EASLEY AND GRAVES, JJ.

EASLEY, JUSTICE, FOR THE COURT:

PROCEDURAL HISTORY

¶1. St. Dominic-Jackson Memorial Hospital (St. Dominic) appealed the final orders of the

Mississippi Department of Health (Department) granting River Oaks Hospital’s (ROH) two

separate applications for a certificate of need (CON) for the addition of acute care beds at its

facility and a CON for renovation and expansion of its facility. The Chancery Court of the

First Judicial District of Hinds County heard St. Dominic’s two separate appeals and affirmed

the Department’s decisions. St. Dominic now appeals to this Court.

FACTS

¶2. ROH filed two separate applications of CON with the Department.1 The first

application addressed ROH’s need to renovate 27,300 square feet of the facility, including

diagnostic imaging and cardiopulmonary services, and to construct an additional 162,000

1
ROH also owns Woman’s Hospital (Woman’s).

2
square feet for a new emergency services department and additional medical office space. The

second application requested an additional 90 acute care beds.

¶3. The Department deemed the expansion application complete and reviewed it during the

January 2003 review cycle. The Department’s Staff (Staff) requested additional information

on the bed application. St. Dominic and Mississippi Baptist Medical Center (Baptist) filed

written comments with the Department objecting to the bed application. The Staff issued a

letter to ROH regarding whether it considered relocating some of its unused beds from

Woman’s Hospital. ROH issued letters in response to the comments.

¶4. The Staff issued findings that both CONs were in compliance with all applicable

criteria, standards and goals of the Mississippi State Health Plan and the Mississippi

Certificate of Need Review Manual (CON Review manual). The Department recommended

that the total number of new beds be reduced from 90 to 57 and 33 beds relocated to ROH

from Woman’s. Baptist did not express any further comment or objection to ROH’s

applications. St. Dominic requested a public hearing on both applications. St. Dominic

requested the two applications be consolidated at the administrative hearing. Hearing Officer

David K. Scott granted the consolidation of the hearings. The hearing on the bed and expansion

applications was held over the course of seven days. ROH presented twelve witnesses: two

expert witnesses, five physicians and four members of ROH’s administration. Harold

Armstrong, Chief of Health Planning at the Department, testified in favor of both applications.

St. Dominic presented a health planning expert.

¶5. Subsequence to the hearing, the Hearing Officer issued a findings of fact and conclusion

of law and recommendation. The Hearing Officer recommended in his report that the facility

3
expansion application and the bed addition application be approved. The Hearing Officer

recommended the reduction to 81 acute care beds consisting of 48 new beds at ROH and 33

beds from Woman’s relocated to ROH.

¶6. The State Health Officer, Dr. Brian W. Amy, concurred with the recommendation of

the Hearing Officer. The State Health Officer entered a final order approving ROH’s facility

expansion application. In a separate order, the State Health Officer approved ROH’s bed

addition application with a reduction from 90 to 81 acute care beds, consisting of 48 new beds

and 33 acute care beds relocated from Woman’s to ROH.

¶7. Pursuant to Miss. Code Ann. § 41-7-201, St. Dominic appealed both final orders to the

Chancery Court of the First Judicial District of Hinds County, Mississippi. Chancellor

William H. Singletary was assigned the appeal regarding the bed application. He upheld the

Department’s decision and approval by reduction.2 In his ruling, Chancellor Singletary stated:

[I]t is the cumulative impact of all of the evidence, testimony, statistics and
documentation offered by witnesses over the course of seven days that fully
substantiates the award of 81 beds to River Oaks ...[T]he decision of MSDH
[Department] was not based upon a single statistic or assertion; the decision was
a thoughtful and reasoned response to a voluminous amount of evidence. The
decision was supported by substantial evidence and was not arbitrary or
capricious.

He found that ROH had sustained a 70 percent occupancy and established the need for 81

acute care beds. He further relied on evidence of ROH’s current and projected occupancy

levels, the consultant’s recommendation and the growth of its ancillary services.

2
Chancellor Singletary issued an opinion of the Court. Chancellor Stuart
Robinson executed the final judgment affirming the Department’s final order regarding the
addition of 81 acute care beds.

4
¶8. Chancellor Patricia D. Wise heard ROH’s expansion application and concluded that this

Department’s approval of ROH’s application should not be disturbed. She issued an opinion

and order of the court which identified three basic components of the expansion application:

(1) the relocation and expansion of the emergency department; (2) the renovation and

expansion of the imaging department; and (3) the construction of a medical office building

(MOB). She further relied on the growth of the ancillary departments substantiating the need

for the first two components and the physicians’ testimony for support of a need for the MOB.

She concluded that there was “more than substantial evidence to support the [Department’s]

Final Order,” and that “[t]he overwhelming weight of the evidence presented demonstrates the

need for the proposed project.”

¶9. St. Dominic now appeals both chancery court judgments to this Court. This Court

consolidated both appeals for review. St. Dominic raises the following issues:

I. Whether substantial evidence supported ROH’s CON for the
addition of 81 acute care beds and supported substantial
compliance with the applicable criteria and standards in the
Mississippi State Health Plan and the Mississippi Certificate of Need
Review Manual.

II. Whether substantial evidence supported ROH’s CON for the
renovation and expansion of its facility and supported substantial
compliance with the applicable criteria and standards in the
Mississippi State Health Plan and the Mississippi Certificate of Need
Review Manual.

DISCUSSION

¶10. While the State Health Officer’s CON order is subject to review, judicial review is

limited by statute. Miss Code Ann. § 41-7-201(2)(f) provides:

5
 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.

¶11. This Court assigns great deference to decisions of administrative agencies. Delta Reg’l

Med. Ctr. v. Miss. State Dep’t of Health, 759 So.2d 1174, 1176 (Miss. 1999) (citing Melody

Manor Convalescent Ctr. v. Miss. State Dep’t of Health, 546 So.2d 972, 974 (Miss. 1989)).

There is a rebuttal presumption in favor of the decision rendered by an agency. His Way

Homes’ Inc. v. Miss. Gaming Comm’n, 733 So.2d 764, 767 (Miss. 1999) (citing Sprouse v.

Miss. Employment Sec. Comm’n., 639 So.2d 901, 902 (Miss. 1994)); Miss. Comm’n on

Envtl. Quality v. Chickasaw County Bd. of Supervisors, 621 So.2d 1211, 1216 (Miss. 1993).

“[T]he burden or proving to the contrary is on the challenging party.” Id. This Court, as well

as, the chancery court, cannot “substitute its judgment for that of the agency or reweigh the

facts of the case.” Id.

¶12. Our constitution does not allow for the courts to conduct a de novo retrial of matters

on appeal from administrative agencies. Cook v. Mardi Gras Casino Corp., 697 So.2d 378,

380 (Miss. 1997). That is, the judiciary is not permitted to make administrative decisions. Id.

Therefore, this Court has established a strict limitation pursuant to Miss. Code Ann. § 41-7-

201(2)(f) for appellate review.

¶13. In Miss. State Dep’t of Health v. Natchez Community Hosp., 743 So.2d 973, 977

(Miss. 1999), this Court stated “it is within the power of the chancellor to reverse the decision

6
to grant the CON if such decision was not supported by substantial evidence. Substantial

evidence means more than a scintilla or a suspicion.”

¶14. To be reversed on appeal, an administrative agency’s decision must be demonstrated to

be arbitrary and capricious and not based on substantial evidence. See id.; See also Cain v.

Miss. State Dep’t of Health, 666 So.2d 506, 510 (Miss. 1995); Delta Med. Ctr. v.

Greenwood Leflore Hosp., 609 So.2d 1276, 1277 (Miss. 1992). This Court in Miss. State

Dep’t of Health v. S.W. Miss. Reg’l Med. Ctr., 580 So.2d 1238, 1239 (Miss. 1991), held that

“[t]he terms ‘arbitrary’ and ‘capricious’ are open-textured and not susceptible of precise

definition or mechanical application.” See HTI Health Servs. of Miss., Inc. v. Miss. State

Dep’t of Health, 603 So.2d 848, 851 (Miss. 1992).

¶15. In Attala County Board of Supervisors v. Miss. State Dep’t of Health, 867 So.2d

1019, 1023-24 (Miss. 2004), this Court adopted the following definitions:

“Arbitrary” means fixed or done capriciously or at pleasure. An act is arbitrary
when it is done without adequately determining principle; not done according to
reason or judgment, but depending upon the will alone, - absolute in power,
tyrannical, despotic, non-rational, - implying either a lack of understanding of
or a disregard for the fundamental nature of things.

“Capricious” means freakish, fickle, or arbitrary. An act is capricious when it
is done without reason, in a whimsical manner, implying either a lack of
understanding of or a disregard for the surrounding facts and settled controlling
principles....” HTI Health Services, 603 So.2d at 851 (quoting S.W. Miss. Med.
Ctr., 580 So.2d at 1239).

I. Bed CON Application

7
¶16. St. Dominic argues the Department’s finding that ROH needed 81 additional beds was

not supported by substantial evidence. The Staff issued a detailed, multi-paged staff analysis

dated May 2003 outlining ROH’s CON application for additional acute care beds at it’s

facility. The Staff reviewed the plan’s conformance with the Mississippi State Health Plan

(SHP), stating in pertinent part as to the criterion need, as follows:

The Plan stipulates that an applicant shall document the need for the proposed
project. In addition, the applicant proposing to add hospital beds shall document
that the facility has maintained an occupancy rate of at least 70 percent for the
most recent two (2) years.

The applicant submits that River Oaks Hospital has experienced explosive
growth during the four most recent years. This growth has impacted all
departments of the hospital including radiology, inpatient and outpatient surgery,
obstetrics, the neonatal intensive care unit, emergency services and therapy.

River Oaks attributes the growth and utilization of facilities and services at the
hospital to the following reasons:

• The addition of 36 new physicians to the hospital’s medical staff
since December 1, 1999;

• The institution of new services, treating patients with higher
acuity and utilizing more sophisticated and complicated
procedures and equipment, such as diagnostic cardiac
catheterization and angiography at the Facility;

• The provision of higher acuity services by River Oaks Hospital
has resulted in the average length of stay for patients increasing,
thereby increasing the utilization of acute care beds;

• Between 1990 and 2000, the population of Rankin County grew
by 32.3 percent to 110,738 and is expected to grow to
approximately 143,462 residents by 2010;

• The hospital’s emergency services department, which directly
drives utilization of inpatient, acute care services, has
experienced continued and steady growth; and

8
• The 44 percent increase in the number of deliveries, which
results in greater utilization of acute care and neonatal intensive
care beds.

The applicant submits that the average daily census at River Oaks Hospital has
increased from 68 patients per day in Fiscal Year 1999 to 85 patients per day
in Fiscal year 2002. As a result of this increase, River Oaks Hospital has
exceeded 70 percent occupancy for the past 2 fiscal years. As shown on page
one of this staff analysis, River Oaks maintained an average occupancy rate of
73.53 percent for Fiscal Year 2001, and a preliminary average occupancy rate
of 77.39 percent for Fiscal Year 2002.

River Oaks utilized a linear regression analysis of the actual, historical total
patient days for FY 1999 through FY 2003 to project future values ...

Applicant submits that if the hospital does not add acute care beds, this increase
in utilization would result in the facility reaching a 111 percent average
occupancy rate within this seven (7) year period ...

Applicant further submits that as an operator of a very high volume surgical
department, River Oaks experiences extreme variations in inpatient census.
***
Applicant submits that beyond the expected natural growth rate based on
historical utilization, River Oaks is expected to experience additional increases
as a result of (1) the addition of new physicians to the medical staff; (2) the
increase of the average length of stay (“ALOS”) for patients due to the hospital’s
treatment of higher acuity patients; (3) the natural effect of Rankin County’s
population growth, and (4) the impact of an expanded and growing emergency
services department.

Effect of Additional Medical Staff. Applicant states that it has experienced
success in recruiting new physicians to its medical staff due to its commitment
to quality patient care, its location in rapidly growing Rankin County, and the
addition of expanded, conveniently located office space. The hospital
anticipates continued growth, especially in the practice area of obstetrics and
gynecology. The addition of new OB/GYNs to the hospital staff will also bring
added utilization of the facility, both in ancillaries such as imaging and surgery,
as well as in acute care services.

Growth in Average Length of Stay. In recent years the hospital has implemented
more complex services such as diagnostic cardiac catheterization and
angiography while adding specialists treating neurological problems and more

9
advanced cardiology symptoms. As a result, River Oaks Hospital expects the
average length of stay for its patients to increase.

Applicant submits that in FY 2002, River Oaks experienced an ALOS of 4.21.
If the ALOS were to increase by .03 per year from Fiscal Year 2002 to Fiscal
Year 2008, the hospital would experience an increase of 1,900 patient days per
year by FY 2008.

Effect of Rankin County’s Population Growth. Rankin County’s 2005
population projection is 129,142 ... expected to grow to 143,462 by 2010 ...

Applicant submits that in FY 2002, River Oaks experienced 31,108 patient days
of acute care utilization, while Rankin County had a projected population of
114,010. As a result, the hospital provided approximately 272.54 patient days
per 1,000 residents. Advancing this methodology, River Oaks expects to
experience an additional 5,933 patient days per year by FY 2008 as a result of
the population growth.

Impact of Growing Emergency Services Department. Emergency visits
increased at River Oaks from 15,715 in FY 2000 to 17,470 in FY 2002. If this
same growth were to continue, River Oaks anticipates servicing approximately
22,7341 patients by FY 2008.

In FY 2002, 15.4 percent of all emergency department visits resulted in an
inpatient visit, generating, in that year, approximately 11,326 patient days for the
hospital. If the current growth continues, the applicant expects that the
emergency department utilization will further impact the facility’s utilization.

Impact of Continued Growth of Obstetrical Services. Applicant submits that
between FY 2000 and FY 2002, River Oaks recognized an explosive increase in
obstetrical utilization growing from 1,307 deliveries in FY 2000 to 1,887 in FY
2002. If this 15 percent growth continued, within three years almost 3,000
deliveries will occur at the hospital ...

Based on anticipated growth in medical staff, ALOS and population, River Oaks
projects a cumulative increase in patient days of approximately 10,233 per year
by FY 2008. As a result, applicant states the hospital can potentially experience
an average daily census exceeding 150 within three (3) years of the full
complement of acute care beds being implemented. Even with the addition of
the requested 90 acute care beds, applicant states that the facility could face
occupancy rates in the high 70 percent range.

10
 In addition to the statistical analysis provided, the hospital presented subjective
substantiation for the need for expanded capabilities at River Oaks through
quotes of six (6) physician member of East Lakeland OB-GYN Associates, PA,
the Flowood mayor, and by three (3) physician members of Woman’s Health
Associates, PLLC.

¶17. The Staff further reviewed the application following that the Mississippi Certificate of

Need Review Manual which addresses general criteria by which CON applications are

reviewed. The Department in General Requirement (GR) Criterion 3- Availability of

Alternatives addressed the comments received from St. Dominic and Baptist suggesting

relocation of beds rather than additional beds. The Department considered ROH’s response

and proposal to modify its application by reduction to “(a) [r]educe the requested number of

new acute care beds from 90 to 57; and (b) [r]elocate 33 acute care beds from Woman’s

Hospital to River Oaks Hospital.”

¶18. At the conclusion of its analysis, the Staff recommended the addition of 90 acute care

beds, by reduction to 57 new acute care beds and the relocation of 33 acute care beds from

Woman’s. In rendering its recommendation, the Staff concluded:

This project is in substantial compliance with the criteria and standards for
renovation and addition of hospital beds, as contained in the FY 2003 State
Health Plan, the Mississippi Certificate of Need Review Manual, 2000
revisions, and all adopted rules, procedures, and plans of the Mississippi State
Department of Health.

The applicant has adequately documented the need for the proposed project,
based on growth and utilization of facilities and services and an occupancy rate
in excess of 70 percent for the most recent two years. Opposition to the project
alluded to the over bedded hospital service area, for which applicant responded
with a willingness to accept modification of the project by reduction.

11
¶19. Baptist did not express any further opposition. St. Dominic, however, requested a

public hearing.3 A hearing was conducted to review the CON application “for their compliance

with the Mississippi State Health Plan and the Mississippi CON Review Manuel, 2000, and all

adopted rules, procedures and plans of the Mississippi State Department of Health.” Following

the public hearing, the Hearing Officer issued his findings of fact and recommendation.

¶20. The Hearing Officer found that ROH’s CON application for additional acute beds should

be approved. However, the Hearing Officer found that 81 additional acute care beds, consisting

of 48 new acute care beds at ROH and 33 acute care beds relocated from Woman’s to ROH

would satisfy ROH’s need. The Hearing Officer examined ROH’s need for the additional acute

care beds, concluding as follows:

¶21. With respect to the bed addition application, Criterion 1(b) applies and provides:

Projects which involve the addition of beds: The applicant shall document the
need for the proposed project. In addition to the documentation required as
stated in Need Criterion (1)(a), the applicant shall document that the facility is
question has maintained an occupancy rate of at least 70 percent for the most
recent two (2) years.

River Oaks presented evidence to show that it has exceeded 70% occupancy of
its current licensed bed capacity for more than two years. In fact, for FY 2003,
River Oaks had an average daily occupancy rate of 81%. Not only did River
Oaks meet the 70% threshold, there were times when River Oaks had more
patients than licensed acute care beds. This high occupancy rate clearly shows
a need for additional acute care beds. The determination of the appropriate
number of additional beds is not so clear. There is no specific methodology set
forth in the State Health Plan to determine the exact number of additional beds
a hospital should be awarded once a need for additional beds has been
determined. River Oaks used current and projected patient loads, staffing
efficiencies, design considerations and the advice of architects to determine
there was a need for 90 additional acute care beds. This consists of a new 33-
bed medical/surgical unit, 33 acute care beds dedicated to obstetrical utilization,

3
The CON applications were consolidated for the hearing at St. Dominic’s request.

12
 15 additional NICU (neonatal intensive care unit) beds and the conversion of 9
existing observation beds to licensed acute care beds.

River Oaks also used a statistical methodology commonly referred to as the
“least squared” or “best fit” analysis as applied to linear regression. Through the
use of this methodology, River Oaks documented a projected average daily
census for FY 2007 of 112 patients per day and 118 patients per day for FY
2008. River Oaks also provided other secondary methodologies to support
these numbers. River Oaks contends that once a hospital reaches the 70%
threshold, the determination for the appropriate number of additional beds
needed should be based on an occupancy rate of between 50% and 60%. This
would allow reasonable growth by the hospital and the ability to handle high
volume occupancy rate ranging between 50% and 60%, River Oaks would need
between 187 and 224 beds. Since River Oaks is currently licensed for 110
acute care beds, the need would be between 77 and 114 additional beds. River
Oaks determined that 90 new beds would be reasonable based on discussions
with physicians and nurses, projected utilization and the most efficient use of
the physical space available. From the evidence presented, it is reasonable to
conclude that there is a need for 33 new medical/surgical beds, 33 new
obstetrical beds and 15 new NICU beds. However, River Oaks contends that
there is a need to convert 9 observation beds to licensed acute care beds on the
basis that it would allow the hospital to more readily accommodate overflow and
emergency situations. I find this to be without merit. Using the censes
projections of River Oaks of 112 patients per day for FY 2007, and taking into
account the addition of 33 new beds medical surgical beds, 33 new obstetrical
beds and 15 new NICU beds, the hospital would have an occupancy rate of 70%.
Even if the hospital were at 70% occupancy, that would leave 57 licensed acute
care beds for overflow and emergency situations. I find that 81 additional acute
care beds will sufficiently meet the needs of River Oaks.

¶22. In his conclusion and recommendation, the Hearing Officer further stated that “the

evidence supported the addition of 81 new acute care beds.” The Hearing Officer noted that

ROH’s offer to relocate 33 licensed acute care beds from Woman’s “in an attempt to lessen

the impact of adding new acute care beds. . . should be lauded as beneficial to the area health

care system . . . and makes good health planning sense.”

¶23. The State Hearing Officer reviewed ROH’s proposal for CON and the Hearing Officer’s

recommendation and found that it complied with the Department’s adopted Plans, Criteria, and

13
standards. The State Hearing Officer issued a letter constituting the final order and certificate

approving, by reduction to 81 acute care beds, ROH’s application for a CON for increased

acute care beds at its facility.

¶24. St. Dominic appealed the Department’s final order regarding the addition of acute care

beds to chancery court pursuant to Miss. Code Ann. § 41-7-201. Chancellor Singletary heard

the appeal regarding the bed addition CON and issued an opinion of the court. He determined

that the Department’s decision to approve ROH’s bed addition CON was not reversible under

the standard set forth in Miss. Code Ann. § 41-7-201(d).4 The chancery court found:

The applicable specific criterion in the State Health Plan requires that for the
addition or relocation of beds, “the applicant shall document the need for the
proposed project.” SHP Criterion 1b. P. IX-29. The first step in establishing
need for a project requires that the applicant “document that the facility in
question has maintained an occupancy rate of at least 70 percent for the most
recent two (2) years.” Id. The applicant must then be able to establish that a
need exists for the specific number of beds requested by citing “licensure or
regulatory code deficiencies, institutional long-term plans (duly adopted by the
governing board), recommendations made by consultant firms, and deficiencies
cited by accreditation agencies (JCAHO, CAP, etc.).” SHP Criterion 1b, citing
SHP Criterion 1a. P. IX-28. Clearly, there is substantial evidence to support the
finding of MSDH [Department] that River Oaks successfully met these
requirements.

Agencies are believed to be invested with special knowledge in their areas of
expertise and this special knowledge should be respected by the judiciary. Mr.
Armstrong [Harold Armstrong, Chief of Health Planning at the Department of
Health] has given extensive testimony as to the analysis of MSDH concerning
the 70% occupancy rule. The Court finds no evidence that the application of
this rule is arbitrary or capricious. In fact, the evidence is clear that this analysis
is both reasonable and rational and has been applied uniformly to all CON
applications. Therefore, the Court finds that the conclusion of MSDH that River
Oaks has complied with the 70% occupancy rule is not subject to reversal.

4
The record reflects that Chancellor Robinson, rather than Chancellor Singletary,
executed a separate final judgment affirming the Department’s final order granting ROH’s
application for a CON for additional acute care beds.

14
Once the threshold occupancy level has been satisfied, an applicant must
“document the need for the proposed project. Documentation may consist of,
but is not limited to, citing of licensure or regulatory code deficiencies,
institutional long term plans (duly adopted by the governing board),
recommendations made by consulting firms, and deficiencies cited by
accreditation agencies (JCAHO, CAP, etc).” SHP Criterion 1a. P. IX-28. Mr.
Armstrong testified that appropriate evidence of compliance with this criterion
is not limited solely to the items enumerated in the rule, but also include various
other factors, such as evidence of rapid growth of services offered by a facility,
increased utilization by physicians, greater use of ancillary services, and further
demand for physician office space ...

The evidence at hearing showed that the proposed project is designed to
accommodate the rapid growth experienced by River Oaks over the past years,
as well as to prepare the hospital for the anticipated increased utilization
expected during the next five years. The uncontroverted evidence showed that
the total patient days at River Oaks increased from 27,767 in Fiscal Year 1999
to 33,916 in FY 2003. This has resulted in an average daily census of 89.3 in
FY 2003 and a current occupancy rate of 81%. Further, on 25% of all days
during FY 2002, River Oaks’ occupancy exceeded 90%.

The high utilization over the past few years occurred in each of the three major
areas of acute care services: medical surgical, obstetrics and neonatal intensive
care unit (NICU).... The evidence also showed dramatic growth in the
emergency department and the diagnostic imaging department. As shown by the
testimony presented at hearing, River Oaks is continuously faced with difficulty
in admitting patients in a timely manner; some patients have even been forced
to wait in the emergency department, the surgery recovery units, admissions and
physician’s offices. The hospital has further been forced to decline patients,
particularly obstetrical patients in labor, due to the lack of available delivery and
patient rooms.

Noel Falls, a health planning expert, who testified on behalf of River Oaks,
estimated that the recent growth in acute care services created a need for
additional acute care beds within a range of 77 to 114 beds. Notably, Debra
Kolb, the health planning expert who testified on behalf of St. Dominic,
admitted that River Oaks did have a need for additional acute care beds; Ms.
Kolb only disagreed with the specific number of beds proposed by River Oaks.
. . The Hearing Officer then proceeded to cite specific evidence in the record
to substantiate the award of 81 beds to River Oaks. The specific evidence
includes current and projected patient loads, staffing efficiencies, design
considerations, advice of architects, as well as expert testimony. The Hearing
Officer further noted that through the use of a statistical methodology, Mr. Falls

15
 documented “a projected average daily census for FY 2007 of 112 patients per
day and 118 patients per day for FY 2008.” The Hearing Officer found that
River Oaks “also provided other secondary methodologies to support these
numbers.” Reviewing all relevant evidence, including discussion with physicians
and nurses, projected utilization and the most efficient use of the physical space
available, the Hearing Officer found that “it is reasonable to conclude that there
is a need for 33 new medical/surgical beds, 33 new obstetrical beds, and 15 new
NICU beds.”

Further evidence presented at hearing showed that the number of physicians who
actively utilize River Oaks has increased materially over the past few years ...
Further, MSDH considered the population growth of Rankin [C]ounty which is
unparalleled in the State.... [T]he cumulative impact of all of the evidence,
testimony, statistics and documentation offered by witnesses over the course
of seven days that fully substantiates the award of 81 beds to River Oaks. River
Oaks presented the testimony of 12 witnesses, displayed a videotaped walk-
through of the hospital describing the current limitations of the existing facility
and introduced in excess of 120 exhibits at hearing.... The decision was
supported by substantial evidence and was not arbitrary or capricious. Likewise,
this decision was not in excess of the statutory authority or jurisdiction of the
State Department of Health, or a violation of any vested constitutional rights of
any party involved in the appeal.

¶25. We find that there is substantial evidence in the record to support the Department’s

decision to allow the addition of 81 new acute care, by reduction, to ROH’s facility. Therefore,

St. Dominic has failed to meet its burden of proving the Department erred. See His Way

Homes, Inc.,733 So.2d at 767. Moreover, since the Department weighed and considered all

factors under the Mississippi State Health Plan and the Mississippi Certificate of Need

Review Manual general criteria, the Department’s decision was not arbitrary or capricious,

and it was supported by substantial evidence. Jackson HMA, Inc. v. Miss. State Dep’t of

Health, 822 So.2d 968, 972-73 (Miss. 2002); Natchez Cmty. Hosp., 743 So.2d at 977.

Accordingly, the chancery court did not err in affirming the Department’s decision. I I .

Expansion CON Application

16
¶26. St. Dominic argues that there is not substantial evidence to support the expansion CON

application. ROH submitted an application requesting an expansion and relocation of its

emergency department; an expansion through renovation of its diagnostic imaging department;

and construction of a four story medical office building (MOB). Two main sub-issues are

raised by St. Dominic those being that (1) the elements of criterion 1(a) were not satisfied, and

(2) the evidence used to show the need to expand and renovate was not credible or sufficient.

While St. Dominic argues about evidence that allegedly is not included, it does not

demonstrate that ROH failed to show that there is no substantial evidence to support the CON,

nor that the rulings were arbitrary or capricious.

¶27. The general standard of review for CON cases has previously been stated in this

memorandum. Pursuant to Miss. Code Ann. §§ 41-7-191 & -201(2)(f), the State Health

Officer adopted the Hearing Officer’s recommendation and the Staff’s analysis to determine

that the CON application for the expansion/renovation and MOB of River Oaks was in

substantial compliance with the MSDH adopted plans, criteria, and standards.

¶28. The Staff’s analysis found that the project was in substantial compliance for the

expansion and renovation contained in the State Health Plan and the Mississippi Certificate

of Need Review Manual. The Staff found that the need requirement was upheld and ultimately

recommended approval of the project. In its conclusion and recommendation, the Staff stated:

This project is in substantial compliance with the criteria and standards for
expansion and renovation as contained in the FY 2003 State Health Plan; the
Mississippi Certificate of Need Review Manual, 2000 revisions; and all adopted
rules, procedures, and plans of the Mississippi State Department Health.

The applicant documented the need for the proposed project, based on growth
and utilization of facilities and services in the areas affected by the project.

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 Therefore, the Division of Health Planning and Resource Development
recommends approval of the application by River Oaks Hospital, Inc. for the
Vision 2003 Facility Expansion/Renovation and Medical Office Building
project.

¶29. The Staff analysis included specific finding regarding the State Health Plan (SHP)

Criterion 1 which is the need requirement. The Staff stated:

According to the applicant, this project is necessitated by the rapid growth in the
types of services offered at the facility, the increased number of physicians on
the hospital’s medical staff, and the increase in the demand for ancillary
services. Applicant submits that within the past three years, River Oaks has
experienced:

• 49% growth in the utilization of its existing radiology and imaging
services;

• 11% growth in the number of patients treated in the hospital’s
emergency department;

• the addition of 36 new physicians to the hospital’s medical staff;

• the addition of new acute care services, including diagnostic cardiac
catheterization and angiography.

The applicant submits that as a result of this growth, current hospital facilities
have become inadequate to serve the volumes being experienced. In addition,
due to the lack of space, existing programs, such as physical and occupational
therapy, are experiencing difficulty in expanding and reaching peak operational
efficiencies.

The project involves the construction of a new medical office building and an
infill connector area, relocation of the Emergency Services Department,
renovation and expansion of Radiology and Imaging, and relocation of Physical
and Occupational Therapy, Admissions, Main Lobby and Medical Records.

Construction of Medical Office Building. This is a prime component of the
project which requires construction of approximately 127,000 square feet of
new space in a building directly connected with the existing hospital and the
Suites. The construction of this facility will allow River Oaks to accommodate
physicians desiring to establish an office practice in a facility immediately
accessibly to an acute care hospital. The additional space will also allow River

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 Oaks to recruit new physicians to the facility’s medical staff, and will free up
space for the addition of acute care beds, which the applicant addresses in its
application for “Vision 2003 Addition of 90 Acute Care Beds”, also pending
before the Department.

Relocation of the Emergency Services Department. As a result of the
construction of the new medical office building, applicant states that sufficient
space will be available for River Oaks to lease space from the MOB developer
for the relocation of its existing emergency services department. Applicant
documents in the application that River Oaks has experienced a steady and
continued growth in the utilization of its emergency services, increasing the
total visits per year from 15,715 in FY 2000 to 17,470 in FY 2002. If this same
growth were to continue, River Oaks anticipates serving approximately 20,979
patients by FY 2006.

River Oaks Hospital expects to continue participating in the Mississippi State
Trauma Network as a Level IV provider.

Renovation and Expansion of Radiology and Imaging. Applicant submits that
following the relocation of the emergency services department, it will have
sufficient space available for the renovation and expansion of the radiology and
imaging department. The utilization of the services offered by this department
has increased by 49 percent since FY 2000. If this growth continues, River
Oaks expects to perform in excess of 99,173 imaging services by FY 2006.

Relocation of Physical and Occupational Therapy, Admissions, Main Lobby and
Medical Records. After relocating the above referenced services, applicant
expects that there will be space available to consolidate and expand other
services such as radiology and imaging into a more central and efficient area of
the facility.

The applicant states that this project encompasses the hospital’s long range plan
to expand its ability to offer needed services to its service area.

¶30. An analysis based upon the Certificate of Need Review Manual was also performed. The

Staff’s experts’ analysis of the General Review (GR) Criteria provided:

GR Criterion 3 - Availability of Alternatives

Applicant believes that the project, as proposed, is the most efficient and cost
effective method of meeting the needs of the health care community served by
River Oaks Hospital. Applicant states that the hospital thoroughly considered

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a number of alternatives, including (1) the construction of a freestanding
medical office building and imaging center, (2) renovation of existing facilities
without construction of a new medical office building, and (3) maintain the
status quo.

The alternative to construct a freestanding MOB was rejected because additional
space was needed for physicians, such as OB/Gyns, who need immediate access
to acute care patients and services; and a freestanding imaging center would be
less accessible to acute care patients or could potentially result in the
duplication of equipment.

The alternative to renovate existing facilities without construction of a new
MOB was rejected due to the physical space constraints faced by departments
in the current configurations. Applicant states that only through the relocation
of the emergency department is sufficient space gained to expand the imaging
department to appropriately meet current utilization requirements. In addition,
the construction of the MOB will make available needed space for expanded
acute care services. (Applicant also has pending before the Department an
application for the addition of 90 acute care beds and renovation).

Applicant rejected the alternative to maintain the status quo due to the rapid
growth in the provision of services at the hospital.
***

GR Criterion 5 - Need for Service

River Oaks submits that the proposed services will be accessible to all residents
of the area including low income persons, racial and ethnic minorities, elderly,
women, handicapped persons, or any other underserved groups.

The proposed project is designed and intended to accommodate current and
projected utilization of services for patients of the River Oaks Hospital service
area. No adverse impact is anticipated on any other facilities or services.

The application included five letters of support for the project.

Written comments were received from St. Dominic-Jackson Memorial Hospital
indicating that River Oaks did not provide adequate information in its application
to demonstrate that there exists any need for the expansion. It also questions the
need for another MOB when the applicant currently has a MOB under
construction (said MOB was CON approved in 2000). However, according to
River Oaks, phase one of the already approved MOB is currently under
construction and is specifically designed for physicians who desire office space

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 on a hospital campus, without requiring immediate and direct access to an
inpatient facility. In addition, applicant states that this building has smaller
contiguous office configurations designed for smaller practices.

Applicant submits that the MOB requested in this application will have more
contiguous space available for larger practices, which could not be
accommodated in the smaller building currently under construction. In contrast,
to the types of practices desiring space in a freestanding building, many
physician specialities, such as obstetrics and gynecology, vascular surgery and
neurology, prefer medical office space located directly adjacent to the acute
care patients, labor and delivery suites, and surgical operating rooms.

St. Dominic also questions the applicant’s use of the diagnostic cardiac
catheterization service as justification for the project. The diagnostic cardiac
catheterization service is a joint venture between River Oaks Hospital, Woman’s
Hospital and Rankin Medical Center, and is housed at River Oaks Hospital.

***
GR Criterion 8 - Relationship to Existing Health Care System

The applicant submits that the CON proposal involves an enhancement to the
existing facilities and delivery of services River Oaks Hospital already provides
to the community. Therefore, the proposed project is expected to have no
adverse impact on existing facilities. Applicant believes that the project is vital
for the delivery of these health care services to patients of the River Oaks
Hospital.

***
¶31. St. Dominic opposed the application and requested a public hearing pursuant to Miss.

Code Ann. § 41-7-197(2). Following the hearing, the Hearing Officer recommended approval

of the CON, which the State Health Officer adopted. In the Hearing Officer’s finding of facts

and conclusion of law and recommendation, the Hearing Officer found that the four goals

underlying the General Certificate of Need Policies were met in accordance with the State

Health Plan.

The State Health Plan provides that CON applications are to be judged against
four General Certificate of Need Policies: to prevent unnecessary duplication
of health resources, to provide cost containment, to improve the health of

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 Mississippi residents, and to increase accessibility, acceptability, continuity and
quality of health services. Of these, the primary purposes are cost containment
and the prevention of unnecessary duplication of health resources, and these two
purposes shall be given primary emphasis in the Certificate of Need process.
I find that both Applications meet the four general goals of the State Health
Plan.

Also, a review of the sixteen general requirement criteria was performed.

¶32. After this CON application for the expansion/renovation and MOB was granted, St.

Dominic appealed the decision to the Chancery Court of Hinds County. Chancellor Wise

reviewed the case and affirmed the State Health Officer’s final order granting the CON

application approving the expansion, renovation and MOB in the River Oaks Facility Expansion

Application. The chancery court found that the overwhelming weight of the evidence presented

demonstrated a need for the project.

¶33. The chancery court set forth the applicable standard for hospital expansion projects and

MOB’s. The Mississippi State Health Plan Need Criterion 1(a) for hospital expansion projects

provides:

The applicant shall document the need for the proposed project. Documentation
may consist of, but is not limited to, citing of licensure or regulatory code
deficiencies, institutional long term plans (duly adopted by the governing board),
recommendations made by consulting firms, and deficiencies cited by
accreditation agencies (JCAHO, CAP, etc). In addition, for projects which
involve construction, renovation, or expansion of emergency department
facilities, the applicant shall include a statement indicating whether the Hospital
will participate in the statewide trauma system and describe the level of
participation, if any.

¶34. The chancery court found that there was substantial evidence of need of expansion for

the three areas, those being the Emergency Department; the Diagnostic Imaging Department,

and the MOB. The chancery court provided lengthy detailed facts to substantiate the need for

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these three expansions in its opinion. Further, the chancery court found that there was

substantial evidence to support the MSDH’s finding that the project complied with the State

Health Plan. As part of the reasoning to affirm the CON, the chancery court also relied upon

Jackson HMA, Inc. v. Miss. State Dep’t of Health, 822 So.2d 968 (Miss. 2002). Jackson

HMA, Inc., dealt with St. Dominic’s CON to a $35 million MOB. In Jackson HMA, Inc., this

Court held:

As previously indicated, it is not the responsibility of this Court to determine
whether St. Dominic has proven a need for a $35 million MOB. Instead, it is the
responsibility of this Court to determine whether MSDH’s decision that St.
Dominic has proven a need for the $35 million MOB is reversible under
Mississippi law. The 1999 State Health Plan provides that the four primary
goals underlying Mississippi’s Certificate of Need laws are: (1) to improve the
health of Mississippi residents, (2) to increase the accessibility, acceptability,
continuity and quality of health services, (3) to prevent unnecessary duplication
of health resources, and (4) to provide some cost containment. MSDH’s order
approving the CON addressed all of these above-stated goals. MSDH determined
that St. Dominic demonstrated that a new MOB would allow for ease of traffic
and parking congestion at the current location. Furthermore, MSDH found it to
be cost effective to plan to build a facility larger than what was required to
satisfy the immediate known need for additional space. This was supported by
evidence that St. Dominic is landlocked and following construction of the
proposed MOB, no additional space will be available that allows for direct
access to the existing facilities. Testimony was also presented that constructing
a smaller facility to meet current demands and subsequently adding to it to meet
future demands for space runs contrary to the goal of cost containment.
Inasmuch as the proposed project is based on long-range need projections,
MSDH determined that the projected cost is justified.

Since MSDH weighed and considered all factors under the 1999 State Health
Plan and the CON Review Manual general criteria, MSDH’s decision was not
arbitrary or capricious, and it was supported by substantial evidence. Thus, this
argument is without merit.

The MSDH decision, finding that the proposed medical office building is needed
and the CON application satisfies all applicable general review considerations,
was not arbitrary or capricious. Furthermore, this Court finds that the MSDH
order was supported by substantial evidence, was not contrary to the manifest

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 weight of the evidence, was not in excess of the statutory authority or
jurisdiction of the MSDH, and did not violate any vested constitutional rights of
any party involved in the appeal. Therefore, the judgment of the chancery court
upholding the decision of the MSDH is affirmed.

Id. at 972-73.

¶35. Very similar to Jackson HMA, Inc., ROH has proposed an expansion project to meet

its current and future patient needs and demands. We find that ROH’s CON application was

supported by substantial evidence and that the Department’s decision to grant the CON was not

arbitrary or capricious. Accordingly, the chancery court did not err in affirming the

Department’s decision.

CONCLUSION

¶36. Therefore, for the reasons stated above, the judgments of the Hinds County Chancery

Court upholding the Department’s decisions are affirmed.

¶37. AFFIRMED.

SMITH, C.J., WALLER, P.J., CARLSON, GRAVES, DICKINSON AND
RANDOLPH, JJ., CONCUR. COBB, P.J., CONCURS IN RESULT ONLY. DIAZ, J., NOT
PARTICIPATING.

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