COURT OF APPEALS OF VIRGINIA
Present: Judges Benton, Bray and Senior Judge Overton
Argued at Norfolk, Virginia
SENTARA NORFOLK GENERAL HOSPITAL
OPINION BY
v. Record No. 1798-98-1 JUDGE NELSON T. OVERTON
JULY 27, 1999
STATE HEALTH COMMISSIONER
and
EASTERN VIRGINIA HEALTH SYSTEMS AGENCY, INC.
FROM THE CIRCUIT COURT OF THE CITY OF NORFOLK
Theodore J. Markow, Judge Designate
Thomas W. McCandlish (Laura G. Aaron; Mary
Jane Hall; Mezzullo & McCandlish, on
briefs), for appellant.
Carol S. Nance, Assistant Attorney General
(Mark L. Earley, Attorney General; Ashley L.
Taylor, Jr., Deputy Attorney General;
Jane D. Hickey, Senior Assistant Attorney
General, on brief), for appellee State
Health Commissioner.
No brief or argument for appellee Eastern
Virginia Health Systems Agency, Inc.
Sentara Norfolk General Hospital (Sentara) appeals from a
decision of the Circuit Court of the City of Norfolk that
affirmed a ruling of the State Health Commissioner
(Commissioner). The Commissioner denied Sentara a Certificate
of Public Need (COPN) to initiate a liver transplant service at
its hospital in Norfolk, Virginia. Sentara contends the
Commissioner committed reversible error when he denied Sentara's
application, despite the fact that the application satisfied all
the existing criteria for issuing a COPN. Sentara also argues
that the Commissioner's decision was based upon evidence not
contained in the record and upon a material mistake of fact. We
agree and reverse the trial court.
I.
On July 31, 1996, Sentara filed an application for a COPN
seeking authorization to perform liver transplants. Following a
public hearing, the Eastern Virginia Health Systems Agency Board
voted to recommend approval of the COPN. On February 28, 1997,
however, the Department of Health's Division of Certificate of
Public Need (DCOPN) recommended that the application be denied.
The matter was then referred to an adjudication officer.
Following an informal hearing, the adjudication officer
issued a report recommending that the COPN be approved. The
adjudication officer concluded that Sentara's plan satisfied all
the applicable statutory factors, including all applicable
factors listed in the State Medical Facilities Plan (SMFP). 1
With regard to the SMFP's minimum requirement that a facility
perform twelve transplants per year, he found that Sentara would
perform six transplants in the first year of its program, twelve
in the second year, and fifteen in the third year. The
adjudication officer further found that "it may be anticipated"
1
The version of the SMFP in effect at the time this petition
was filed was adopted in 1992.
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that Sentara eventually would be able to substantially exceed
the regulatory minimum.
The evidence before the adjudication officer proved that in
1996, facilities able to perform liver transplants nationwide
averaged thirty-six such procedures for the year. Medical
College of Virginia Hospital (MCVH) performed sixty-six liver
transplants in 1996, the University of Virginia Hospital (UVAH)
performed thirty-seven, and Fairfax Hospital performed
fifty-three. From 1992 through 1995, MCVH performed,
respectively, thirty-one, thirty-seven, thirty-three, and
thirty-nine liver transplants.
In 1994, eighteen residents of Sentara's primary service
area received liver transplants. This figure rose to twenty-one
in 1995, and twenty-eight in 1996. 2 The adjudication officer
noted that forty to fifty percent of liver transplant patients
at MCVH, and ten to twenty percent of liver transplant patients
at UVAH originated from Sentara's potential service area. 3
2
Dr. Michael Ryan testified that, of the twenty-eight
persons from Sentara's potential service area who received liver
transplants in 1996, MCVH performed twenty-four of those
procedures.
3
In another section of his report, the adjudication officer
indicated that "[b]ased upon the analysis performed by the staff
of DCOPN, [Sentara] service area residents make up about 30% of
the utilization of the MCVH liver transplant program." It is
not clear from the record how these apparently inconsistent
figures were calculated. Based on Dr. Ryan's testimony, 36% of
MCVH's transplant patients in 1996 came from Sentara's potential
service area.
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Nevertheless, he found that "the development of a liver
transplant service at [Sentara] should only marginally alter the
volume of liver transplants at MCVH, which is located in Health
Planning Region (HPR) IV, 4 where a fully accredited fellowship
training program for liver transplant surgeons exists." The
adjudication officer explained that "the number of liver
transplant patients from eastern Virginia appears to be
increasing and, coupled with the projected slow start-up of the
[Sentara] liver transplant service, no significant impact on
liver transplant volume at the MCVH transplant center should
occur in the first three years."
The Commissioner rejected the adjudication officer's
recommendation and denied the COPN. Citing the average numbers
of transplants performed in Virginia and nationwide in 1996, the
Commissioner found that the SMFP minimum transplant requirement
was too low and out of date. The Commissioner stated:
I find that the provisions of the State
Medical Facilities Plan as they relate to
liver transplantation services are
inaccurate, outdated, inadequate or
otherwise inapplicable. Because they fail
to reflect current standards, they should
not be applied here, and I will direct that
procedures be initiated to make appropriate
amendments to such plan.
4
The Commonwealth is divided into five Health Planning
Regions (HPRs). MCVH is in region IV, while Sentara is in
region V.
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The Commissioner further found that "[i]ndications in the
healthcare system are that the numbers of available organs may
be reaching a plateau." This fact would limit the number of
procedures that could be performed each year, regardless of
whether the demand for liver transplants continued to grow. The
Commissioner expressed concern that adding a liver transplant
program at Sentara could adversely affect other Virginia
facilities, especially MCVH and UVAH. He cited the adjudication
officer's finding that forty to fifty percent of MCVH's liver
transplant volume, and ten to twenty percent of UVAH's volume
came from Sentara's potential service area. The Commissioner
also expressed concern that spreading patients over four
programs would significantly reduce the average number of liver
transplants performed at each facility and that this overall
per-facility decrease in volume could adversely affect the
quality of care each facility provided.
The Commissioner continued that, even if Sentara's
transplant numbers remained around fifteen per year, the SMFP
contemplates that "successful
transplantation programs are expected to
perform substantially larger numbers of
transplants annually. Performance of
minimum transplantation volumes does not
necessarily indicate a need for additional
transplantation capacity or programs."
Thus, even the unamended State Medical
Facilities Plan governing liver
transplantation services is not binding as
to minimum acceptable volumes.
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The Commissioner suggested that, by performing twelve to fifteen
transplants per year, Sentara might not be able to develop and
maintain "essential technical expertise."
Finally, the Commissioner found that granting the COPN to
Sentara could, by lowering the number of transplants performed
at MCVH, adversely impact MCVH's liver transplant fellowship
program. In what he now concedes was a mistake of fact, the
Commissioner noted that the American College of Surgeons
requires training facilities to perform forty-five transplants
per year. The standard had been recently amended, however, by
requiring transplant fellows to perform forty-five liver
transplants during the course of their two-year fellowships.
Sentara appealed the Commissioner's ruling to the trial
court, which affirmed the Commissioner. The trial court found
that the Commissioner did not abuse his discretion in rejecting
the COPN, even though Sentara met all the minimum SMFP
requirements. The court held that the Commissioner's reliance
on extra-record evidence and "institutional knowledge" regarding
organ donation rates did not result in substantial prejudice to
Sentara. Similarly, the trial court also ruled that the
Commissioner's mistake of fact regarding fellowship requirements
constituted harmless error.
II.
"Under Code § 32.1-24, the provisions of the Virginia
Administrative Process Act . . . govern the procedures for
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rendering case decisions and issuing orders and regulations by
the Commissioner." Johnston-Willis, Ltd. v. Kenley, 6 Va. App.
231, 241, 369 S.E.2d 1, 6 (1988). "[T]he party complaining of
an agency action has the burden of demonstrating an error of law
subject to review." Hilliards v. Jackson, 28 Va. App. 475, 479,
506 S.E.2d 547, 549 (1998).
Errors of law fall into two categories:
first, whether the agency decisionmaker
acted within the scope of his authority, and
second, whether the decision itself was
supported by the evidence. Where the agency
has the statutory authorization to make the
kind of decision it did and it did so within
the statutory limits of its discretion and
with the intent of the statute in mind, it
has not committed an error of law in the
first category.
Johnston-Willis, 6 Va. App. at 242, 369 S.E.2d at 7.
The level of deference accorded to an agency decision
depends upon the nature of the legal question involved.
"[W]here the question involves an interpretation which is within
the specialized competence of the agency and the agency has been
entrusted with wide discretion by the General Assembly, the
agency's decision is entitled to special weight in the courts."
Id. at 244, 369 S.E.2d at 8. Such deference is not in order,
however, where the issue is one in which the courts have a
special competence. See id. at 243-44, 369 S.E.2d at 7-8.
"Thus, where the legal issues require a determination by the
reviewing court whether an agency has, for example, accorded
constitutional rights, failed to comply with statutory
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authority, or failed to observe required procedures, less
deference is required . . . ." Id. at 243, 369 S.E.2d at 7-8.
III.
Code § 32.1-102.3 provides that no hospital can commence
any project without first obtaining a COPN from the
Commissioner.
Any decision to issue or approve the
issuance of a certificate shall be
consistent with the most recent applicable
provisions of the State Medical Facilities
Plan; however, if the Commissioner finds,
upon presentation of appropriate evidence,
that the provisions of such plan are
inaccurate, outdated, inadequate or
otherwise inapplicable, the Commissioner,
consistent with such finding, may issue or
approve the issuance of a certificate and
shall initiate procedures to make
appropriate amendments to such plan.
Code § 32.1-102.3(A) (emphasis added).
Sentara contends that while Code § 32.1-102.3(A) allows the
Commissioner to grant a COPN if there is a need therefor and the
Commissioner finds that the SMFP is outdated, the Commissioner
cannot deny a COPN based on a finding that the existing SMFP is
outdated. The Commissioner asserts that the statutory language
"may issue or approve the issuance" of a COPN means that he may
grant or deny a certificate on the ground that the SMFP is
inaccurate or outdated. We agree with Sentara.
"[A]dministrative agencies, in the exercise of their
powers, may validly act only within the authority conferred upon
them by statutes vesting power in them." Sydnor Pump & Well Co.
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v. Taylor, 201 Va. 311, 316, 110 S.E.2d 525, 529 (1959). And
appellate courts "'must construe the law as it is written. An
erroneous construction by those charged with its administration
cannot be permitted to overrule the clear mandates of a
statute.'" Richmond v. County of Henrico, 185 Va. 176, 189, 37
S.E.2d 873, 879 (1946) (citation omitted), modified on other
grounds, 185 Va. 859, 41 S.E.2d 35 (1947).
"A primary rule of statutory construction is that courts
must look first to the language of the statute. If a statute is
clear and unambiguous, a court will give the statute its plain
meaning." Loudoun County Dep't of Social Servs. v. Etzold, 245
Va. 80, 85, 425 S.E.2d 800, 802 (1993). "Generally, the words
and phrases used in a statute should be given their ordinary and
usually accepted meaning unless a different intention is fairly
manifest." Woolfolk v. Commonwealth, 18 Va. App. 840, 847, 447
S.E.2d 530, 534 (1994). "[W]e must assume that 'the legislature
chose, with care, the words it used when it enacted the relevant
statute, and we are bound by those words as we interpret the
statute.'" City of Virginia Beach v. ESG Enters., Inc., 243 Va.
149, 153, 413 S.E.2d 642, 644 (1992) (citation omitted).
Because this is an issue of statutory construction, we owe
less deference to the Commissioner's interpretation. We
interpret Code § 32.1-102.3(A) as providing that the
Commissioner may, but is not required to, issue a COPN where a
public need has been demonstrated for a project, but where the
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petition does not satisfy an outdated or inaccurate SMFP. We
reject the Commissioner's assertion, however, that the General
Assembly intended to grant the Commissioner the authority to
deny a COPN on the ground that the SMFP is outdated or
inaccurate. The plain language of the statute provides that the
Commissioner "may issue or approve" a petition that does not
comply with an outdated or inaccurate SMFP. (Emphasis added.)
It does not provide that he may deny or disapprove a petition on
this basis. Accordingly, to the extent the Commissioner denied
this application on the ground that the SMFP standards were
outdated, inaccurate, inadequate or otherwise inapplicable, he
exceeded his statutory authority.
IV.
Sentara further contends the circuit court erred in holding
that the Commissioner's reliance on extra-record evidence of
liver donation rates did not result in substantial prejudice to
Sentara and that the court erred when it found that the
Commissioner's mistake of fact regarding fellowship requirements
was not material.
The adjudication officer did not make a finding regarding
organ donation rates, although the record contains evidence
concerning those rates. In a September 17, 1996 letter to the
executive director of the Eastern Virginia Health Systems
Agency, MCVH's Dr. Marc Posner wrote that in the three years
through 1995, the number of liver transplants performed in
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Virginia had reached a plateau, "indicating the driving force is
now only the numbers of available donor organs." At the May 20,
1997 hearing conducted by the adjudication officer, Dr. John
Colonna testified that "[w]e have all seen, at least in D.C., a
great slowing on our organ donation since the recent 60 minute
thing on non heartbeat donors." (Emphasis added.) There was
also evidence that MCVH has to "import" livers from out of state
and that liver transplants generally have always been limited by
the supply of donated organs.
Also contained in the record is a chart titled "MCV Liver
Transplant Program--Liver Donations in Virginia." The chart
reflects that liver donations in Virginia increased every year
from 1991 through 1994, but declined in 1995. Despite this
decline, however, the number of liver transplants performed in
Virginia in 1995 was fourteen percent higher than the number
performed in 1994. And the 156 liver transplants performed in
Virginia in 1996 was twenty-one percent higher than the 1994
figure. Statistics in the record reflect that the number of
liver transplants in Virginia grew from twenty-two in 1988 to
156 in 1996.
We addressed the issue of extra-record evidence in
Johnston-Willis: "Members of an administrative body cannot
decide issues on personal knowledge, but must rely upon the
evidence produced before them." Id. at 258, 369 S.E.2d at 16.
Accordingly, as a preliminary matter, we must determine whether
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evidence in the record proved that organ donation rates had
reached a plateau, or whether the Commissioner relied on
extra-record evidence in reaching this conclusion.
"The standard of review of an agency's factual findings on
appeal to a circuit court is limited to determining whether
substantial evidence in the agency record supports its
decision." Avante at Lynchburg, Inc. v. Teefey, 28 Va. App.
156, 160, 502 S.E.2d 708, 710 (1998) (emphasis added). Under
the "substantial evidence" standard, an agency's factual
findings should be rejected "'only if, considering the record as
a whole, a reasonable mind would necessarily come to a different
conclusion.'" Tidewater Psychiatric Inst. v. Buttery, 8 Va.
App. 380, 386, 382 S.E.2d 288, 291 (1989) (quoting Virginia Real
Estate Comm'n v. Bias, 226 Va. 264, 269, 308 S.E.2d 123, 125
(1983)). "The phrase 'substantial evidence' refers to 'such
relevant evidence as a reasonable mind might accept as adequate
to support a conclusion.'" Bias, 226 Va. at 269, 308 S.E.2d at
125 (citation omitted). Additionally, "the court must review
the facts in the light most favorable to sustaining the
[Commissioner's] action and 'take due account of the presumption
of official regularity, the experience and specialized
competence of the [Commissioner], and the purposes of the basic
law under which the [Commissioner] has acted.'" Bio-Medical
Applications of Arlington, Inc. v. Kenley, 4 Va. App. 414, 427,
358 S.E.2d 722, 729 (1987) (quoting Code § 9-6.14:17).
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Having reviewed the record, including those specific
portions cited by the Commissioner, we find as a matter of law
that the evidence contained in the record is insufficient to
support the Commissioner's finding that organ donation rates
have reached a plateau. 5 At best, the evidence in the record on
trends in organ donation rates is inconclusive. We cannot
conclude, for example, that a one year decline in organ donation
rates reflects a trend. This faulty logic is demonstrated by
the evidence on liver transplant rates. The number of liver
transplants performed in Virginia declined in 1992 and 1994, but
increased in 1993 and in 1995 and 1996. We conclude, therefore,
that the Commissioner relied on extra-record evidence in making
his factual finding on organ donation rates.
The Commissioner asserts that information on organ donation
rates constituted part of his "institutional knowledge," upon
which he could rely in making such a determination. While we do
not reach the issue of whether the Commissioner can ever rely on
institutional knowledge in making a decision on a COPN
application, we hold that statistical evidence such as trends in
organ donation rates does not constitute institutional
knowledge. Similarly, the Commissioner has failed to establish
5
The Joint Appendix contains a photocopy of a 1998 newspaper
article reporting that "the number of cadaver donors has
remained at 5,400 a year for three years." In addition to the
fact that this figure does not specifically address the level of
liver donations, the article was published after the
Commissioner rendered his decision.
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that this empirical evidence could be classified as a "public
statistic." Cf. Johnston-Willis, 6 Va. App. at 259, 369 S.E.2d
at 16 (finding that data regarding birth and fertility rates
received from the Virginia Center for Health Statistics
constituted "public statistics" upon which the Commissioner
could rely even though the statistics were not part of the
record).
Having concluded that the Commissioner improperly relied
upon extra-record evidence, we must determine whether this
reliance constituted reversible error.
[T]he rules of evidence are relaxed in an
administrative proceeding and the findings
will not be reversed solely because the
Commissioner considered evidence not in the
record. "[T]he mere fact that the [agency]
has looked beyond the record does not
invalidate its action unless substantial
prejudice is shown to result." "No
reversible error will be found . . . unless
there is a clear showing of prejudice
arising from the admission of such evidence,
or unless it is plain that the agency's
conclusions were determined by the improper
evidence, and that a contrary result would
have been reached in its absence."
Johnston-Willis, 6 Va. App. at 258, 369 S.E.2d at 16 (citations
omitted).
If the record contains sufficient evidence to sustain the
Commissioner's ruling, then Sentara's claim that it was
prejudiced by the Commissioner's consideration of extra-record
evidence regarding organ donation rates must fail. In reviewing
the record, we owe "deference to [the agency's] findings of
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fact, [and] where substantial evidence in the record exists to
support the agency's conclusions, we may not substitute our own
judgment for that of the agency." Smith v. Dept. of Mines,
Minerals & Energy, 28 Va. App. 677, 687, 508 S.E.2d 342, 347
(1998). Nevertheless, "the reviewing courts should not abdicate
their judicial function and merely rubber-stamp an agency
determination." Johnston-Willis, 6 Va. App. at 243, 369 S.E.2d
at 7-8. We will overturn the Commissioner's decision if it is
arbitrary and capricious. See Tidewater Psychiatric Inst., 8
Va. App. at 386, 382 S.E.2d at 291.
The evidence proved, and the Commissioner did not dispute,
that Sentara's petition satisfied all the pertinent statutory
factors and the minimum requirements in the SMFP. See Code
§ 32.1-102.3(B). The Commissioner expressed two concerns: 1)
the negative effect Sentara's program might have on the liver
transplant programs at MCVH and UVAH, and 2) whether Sentara
would be performing a sufficient number of transplants each year
to maintain the requisite level of surgical expertise.
The Commissioner's concern that Sentara's program would
adversely affect MCVH was speculative at best. By its third
year, Sentara would be performing only fifteen transplants per
year. Even if we assumed that all these patients would have
been treated by MCVH, the number of transplants performed at
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MCVH would be fifty-one. 6 This number is still significantly
higher than the national average and is substantially more than
MCVH performed in the years before 1996. Moreover, there is no
evidence that this reduction would adversely affect MCVH's
fellowship program.
The Commissioner found that an additional facility
performing liver transplants would place the Commonwealth's
programs below the national average of thirty-six transplants
per center per year. This conclusion is erroneous. If liver
transplants in Virginia remained static at the 1996 level of 156
per year, adding a fourth facility would drop Virginia's
per-facility average to thirty-nine, three above the national
average. Accordingly, the Commissioner's finding that Sentara's
program would have an adverse affect on the quality of other
transplant programs in Virginia is not supported by the
evidence.
There is likewise no evidence that Sentara would not be
performing enough transplants each year to maintain a
satisfactory level of technical expertise. Sentara projected
that by the third year of its program, it would be performing
fifteen transplants per year, which is twenty-five percent above
the SMFP minimum. Other than the SMFP's minimum requirements,
there is no evidence in the record on the minimum number of
6
This conclusion assumes that the number of liver
transplants performed at MCVH remains at sixty-six per year.
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transplants a facility must perform each year to maintain its
expertise in the field. The Commissioner's finding that Sentara
would not be performing a sufficient number of transplants to
maintain technical expertise is also not supported by the
evidence.
When Sentara's petition is viewed in conjunction with the
current SMFP and the other evidence in the record, it is
apparent that the Commissioner's decision denying the COPN was
arbitrary and capricious. Since the evidence contained in the
record was insufficient to support the Commissioner's denial of
the petition, we must find that Sentara was substantially
prejudiced by the Commissioner's consideration of extra-record
evidence regarding organ donation rates. Accordingly, the
Commissioner's reliance on this evidence constituted reversible
error.
Likewise, we cannot say the Commissioner's mistake of fact
regarding fellowship requirements was harmless error. In the
absence of substantial credible evidence supporting the
Commissioner's decision to deny the COPN, we must assume that
Sentara was also prejudiced by this mistake of fact.
For the reasons stated above, we hold that the Commissioner
exceeded his statutory authority when he denied Sentara's
petition for a COPN on the ground that the SMFP was out of date.
Based on our review of the record, we hold that the
Commissioner's denial of the petition was arbitrary and
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capricious. And, in the absence of substantial evidence
otherwise supporting the Commissioner's decision, his reliance
on extra-record evidence and his mistake of fact regarding
fellowship program certification requirements constituted
reversible error. Accordingly, the judgment of the trial court
is reversed and the case is remanded to the trial court for
remand to the Commissioner, who is instructed to issue the COPN
to Sentara and to conduct any further proceedings consistent
with this decision. Sentara's request for costs and fees is
denied.
Reversed and remanded.
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