Holly Springs Hosp. II, Inc. v. N.C. Dep't of Health & Human Servs

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An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure. NO. COA13-367 NORTH CAROLINA COURT OF APPEALS Filed: 17 December 2013 HOLLY SPRINGS HOSPITAL II, LLC, Petitioner, v. N.C. DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION OF HEALTH SERVICE REGULATION, CERTIFICATE OF NEED SECTION, Respondent, and From the North Carolina Department of Health and Human Services No. 11 DHR 12727 REX HOSPITAL, INC., HARNETT HEALTH SYSTEM, INC. AND WAKEMED, Intervenors. REX HOSPITAL, INC., Petitioner, v. N.C. DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION OF HEALTH SERVICE REGULATION, CERTIFICATE OF NEED SECTION, Respondent, and WAKE MED, HOLLY SPRINGS HOSPITAL II, LLC, and HARNETT HEALTH SYSTEM, INC., Intervenors. HARNETT HEALTH SYSTEMS, INC., Petitioner, No. 11 DHR 12794 -2v. No. 11 DHR 12795 N.C. DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION OF HEALTH SERVICE REGULATION, CERTIFICATE OF NEED SECTION, Respondent, and REX HOSPITAL, INC., HOLLY SPRINGS HOSPITAL, II, LLC and WAKEMED, Intervenors. WAKE MED, Petitioner, v. No. 11 DHR 12796 N.C. DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION OF HEALTH SERVICE REGULATION, CERTIFICATE OF NEED SECTION, Respondent, and HOLLY SPRINGS HOSPITAL II, LLC, REX HOSPITAL, INC., AND HARNETT HEALTH SYSTEM, INC. Intervenors. Appeal by petitioner from a Final Agency Decision entered 4 September 2012 by North Carolina Department of Health and Human Services, Division of Health Service Regulation. Heard in the Court of Appeals 25 September 2013. Attorney General Roy Cooper, by Special Deputy Attorney General June S. Ferrell, and Assistant Attorney General Scott T. Stroud for respondent-appellee the North Carolina -3Department of Health and Human Resources Division of Health Service Regulation, Certificate of Need Section. K&L GATES LLP, by Gary S. Qualls, Colleen M. Crowley, and William W. Stewart, Jr., for intervenor-appellee Rex Hospital, Inc. SMITH MOORE LEATHERWOOD LLP, by Maureen Demarest Murray, Susan M. Fradenburg, and Allyson Jones Labban, for intervenor-appellee WakeMed. NELSON MULLINS RILEY & SCARBOROUGH LLP, by Noah H. Huffstetler, III, Denise M. Gunter, Candice S. Friel, and J. Blakely Kiefer, for petitioner-appellant Holly Springs Hospital II, LLC. ELMORE, Judge. Petitioner Holly Springs Hospital II, LLC (Novant) assigns error to issued by the findings, inferences, conclusions and decision the North Carolina Department of Health and Human Services (DHR) concerning its application for a Certificate of Need (CON). Novant contends that DHR s decision violated certain statutory provisions, and it now petitions this Court to reverse DHR s decision and grant it a CON. In light of the record on appeal and the applicable law, we conclude that DHR s decision should be affirmed. I. Background In 2011 the State Medical Facilities Plan (SMFP) identified a need for 101 additional acute care beds in Wake County. -4Accordingly, six CON applications were filed, with each applicant seeking a portion of the additional acute care beds. On 15 April 2011, Novant filed its CON application to develop a new 50-bed hospital in Holly Springs, Wake County (the Novant application). also Rex and WakeMed also filed CON applications, each seeking County. a In demonstrate portion their that of the 101 applications, their proposals acute the for care beds applicants the acute in Wake were care to beds conformed or conditionally conformed to the applicable review criteria under N.C. Gen. Stat. § 131E-183 (2009).1 After reviewing the applications, DHR s Certificate of Need Section (CON Section) issued its decision: it conditionally approved the WakeMed Raleigh application for 29 of the 79 beds for which it applied; it conditionally approved the WakeMed Cary application for all 22 beds for which it applied; and it conditionally approved the Rex Holly Springs application for all 50 beds for which it applied. the Novant 1 application However, the CON Section denied on the basis of a determination that In 2011, the Legislature amended certain provisions in the Administrative Procedure Act and the CON Law. However, these amendments apply only to contested cases commenced on or after January 1, 2012. All citations to the amended statutes are to the 2009 versions, which are the versions applicable during this CON review. -5Novant failed to show compliance with the applicable statutory review criteria in its application. Novant appealed the CON Section s decision. On Novant s 19 March 2012 motion for summary judgment, the Administrative Law Judge (ALJ) issued a Recommended Decision, holding that the CON Section erred in nonconforming finding with the N.C. 183(a)(1),(3),(4),(5),(6),(8), Novant Application Gen. and Stat. (18a). § Together Section, WakeMed, and Rex Hospital appealed. to be 131Ethe CON On 4 September 2012, DHR issued its Final Agency Decision, which rejected the ALJ s Recommended decision. Decision and affirmed the CON Section s Novant timely appealed to this Court on 4 October 2012. II. Criterion 3 Novant contends that DHR improperly required it to provide letters of physician support as a part of its CON application. Specifically, Novant argues that DHR acted upon unlawful procedure and exceeded its statutory authority by imposing the requirement of letters of support without first promulgating the requirement as a regulation. We disagree. In the present case, DHR s findings of fact are binding on appeal because Novant has not challenged them as being -6unsupported by substantial evidence. Good Hope Health Sys., LLC v. N.C. Dep't of Health & Human Servs., 188 N.C. App. 68, 72-73, 658 S.E.2d 665, 668 (2008). The substantive nature of each assignment of error controls our review of an appeal from an administrative agency s final decision. Where a party asserts an error of law occurred, we apply a de novo standard of review. If the issue on appeal concerns an allegation that the agency s decision is arbitrary or capricious or fact-intensive issues such as sufficiency of the evidence to support [an agency s] decision we apply the whole-record test. Id. at 71, 658 S.E.2d at 667-68. Under the whole record test, the findings of fact of an administrative agency are conclusive if they are supported by competent, material and substantial evidence when the record is reviewed as a whole. Hospital Group of Western North Carolina, Inc. v. North Carolina Dep't of Human Resources, 76 N.C. App. omitted). 265, mind conclusion. & 332 S.E.2d 748, 751 (1985) (citation Substantial evidence is such relevant evidence as a reasonable Health 268, might accept Parkway Urology, Human Servs., Div. as adequate to support a P.A. v. N. Carolina Dep't of of Health Serv. Regulation, Certificate of Need Section, 205 N.C. App. 529, 535, 696 S.E.2d 187, 192 (2010). -7To obtain a CON, an applicant must satisfy all of the review criteria set forth in N.C. Gen. Stat. § 131E-183(a). If an application fails to conform with any one of the criteria, the applicant is not entitled to a CON for the proposed project as a matter of law. See Presbyterian-Orthopaedic Hospital v. N.C Dept. of Human Resources, 122 N.C. App. 529, 534, 470 S.E.2d 831, 834 (1996)(holding that an application must comply with all review criteria and that the failure to comply with one review criterion supports entry of summary judgment against the applicant). N.C. Gen. Stat. § 131E-183(a)(3) (Criterion 3) requires an applicant to affirmatively demonstrate that its utilization and need projections are reliable and reasonable: An 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 provided. N.C. Gen. Stat. § 131E-183(a)(3) (2009). DHR made the following finding of fact and conclusions of law with respect to this criterion: -892. What the CON Section does require is that an applicant provide some support of its utilization and need projections to demonstrate that those projections are reliable and reasonable. Here, Novant failed to provide adequate documentation of its ability to provide the obstetrics services it proposes. It was not simply that Novant lacked physician support letters, but Novant provided no documentation of its ability to provide the proposed obstetrics services. As admitted by Ms. Bres Martin, the preparer of Novant s need methodology, Novant s utilization projections rely upon obstetricians referring patients to Novant s proposed Holly Springs Hospital. Yet, the Novant Application did not contain any letters or a listing of any Wake County obstetricians. The Novant Application failed to contain any type of recruitment plan to recruit obstetricians. Ultimately, it is not about the number of letters in an application, but what the applicant puts before the Agency in its application to support its proposed project. The information from Novant was lacking to support its projections. Thus, Novant s Application failed to demonstrate the need for the proposed project. 35. [S]ubstantial evidence demonstrates the Agency properly determined the Novant Application was nonconforming with Criterion 3 as well as Criteria 1, 4, 5, 6, 8, and 18a as a result of Novant s failure to demonstrate it could meet its projected utilization projections since it failed to include letters of support from any obstetricians. 36. [U]nder Criterion 3, it is necessary for the Agency to analyze the assertion in an application to determine if an application s utilization projections are -9reasonable. Physician support is a component the Agency should consider when an applicant, such as Novant, is projecting to serve a significant number of obstetrical patients as a new provider of acute care services and will plainly need the support of obstetricians/gynecologists to meet its projections. I conclude it is reasonable and permissible for the Agency to undertake such an analysis and such a statutory criterion analysis does not amount to the Agency utilizing an unpromulgated rule. On appeal, Novant is solely concerned with DHR s conclusion #35, arguing that DHR s reliance on letters of physician support is akin to relying on an unpromulgated rule. argument is without merit. physician support is However, Novant s In conclusion #36, DHR states that merely a consideration of whether an applicant can meet its projections, and such consideration does not amount to the utilization of an unpromulgated rule. agree and have previously held that letters of support We for a proposal constitute evidence of the existence or non-existence of statutory factors determinative of need. See Charter Pines Hospital, Inc. v. North Carolina Dep't of Human Resources, 83 N.C. App. 161, 170, 349 S.E.2d 639, 645 (1986). in Hospital Resources, Group of Western N.C. v. N.C. Specifically, Dept. of Human DHR requested letters from physicians, community mental health centers, schools, churches, the court systems and -10other groups/individuals success. who could affect the projects [sic] 76 N.C. App. 265, 269, 332 S.E.2d 748, 752 (1985) (alteration in original). The petitioner provided eight letters of support, none of which were from schools or from the courts, and all of which were from one county out of the twenty-nine county area. Id. determination Based on those letters, we upheld DHR's that there proposed hospital. entirely was insufficient support for the In the case sub judice, we hold that it was reasonable and within DHR s authority to consider physician support letters as evidence of Novant s ability to meet its utilization and market share projections under Criterion 3. Moreover, the lack of a sufficient number of physician support letters was not the only reason the Novant application was found failed to to be nonconforming. provide adequate DHR also documentation found of its that Novant ability to provide the obstetrics services it proposed, which included the lack of a recruitment plan and no list of any Wake County obstetricians offering support for the project (finding #92). The whole record test does not allow the reviewing court to replace the conflicting views agency s judgment as between two reasonably even if we might have reached a different -11result if the matter were before us de novo. App. at principle 535, and transcript, 696 a and S.E.2d at careful the 192. Based examination exhibits of submitted Parkway, 205 N.C. on the in the foregoing record, this briefs, matter, we conclude that there is substantial evidence to support DHR s Final Agency Decision. We affirm the portion of the final agency decision that denied Novant a CON because Novant failed to satisfy Criterion 3. As such, we need not address Novant s remaining issues on appeal. Affirmed. Judges CALABRIA and STEPHENS concur in result only. Report per Rule 30(e).

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