Ah N.C. Owner LLC v. N.C. Dep't of Health & Human Servs.

Decision Date07 April 2015
Docket NumberNo. COA13–1126.,COA13–1126.
Citation240 N.C.App. 92,771 S.E.2d 537
Parties AH NORTH CAROLINA OWNER LLC d/b/a The Heritage of Raleigh, Petitioner, v. N.C. DEPARTMENT OF HEALTH AND HUMAN SERVICES, Division of Health Service Regulation, Certificate of Need Section, Respondent, and Hillcrest Convalescent Center, Inc.; E.N.W., LLC and BellaRose Nursing and Rehab Center, Inc.; Liberty Healthcare Properties of West Wake County, LLC, Liberty Commons Nursing and Rehabilitation Center of West Wake County, LLC, Liberty Healthcare Properties of Wake County LLC, and Liberty Commons Nursing and Rehabilitation Center of Wake County, LLC; and Britthaven, Inc. and Spruce LTC Group, LLC, Respondent–Intervenors. Hillcrest Convalescent Center, Inc., Petitioner, v. N.C. Department of Health and Human Services, Division of Health Service Regulation, Certificate of Need Section, Respondent, and E.N.W., LLC and BellaRose Nursing and Rehab Center, Inc.; Liberty Healthcare Properties of West Wake County, LLC, Liberty Commons Nursing and Rehabilitation Center of West Wake County, LLC, Liberty Healthcare Properties of Wake County LLC, and Liberty Commons Nursing and Rehabilitation Center of Wake County, LLC; Britthaven, Inc. and Spruce Ltc Group, LLC; and Ah North Carolina Owner LLC d/b/a The Heritage of Raleigh, Respondent–Intervenors. Liberty Healthcare Properties of West Wake County, LLC, Liberty Commons Nursing and Rehabilitation Center of West Wake County, LLC, Liberty Healthcare Properties of Wake County LLC, and Liberty Commons Nursing and Rehabilitation Center of Wake County, LLC, Petitioner, v. N.C. Department of Health and Human Services, Division of Health Service Regulation, Certificate of Need Section, Respondent, and Hillcrest Convalescent Center, Inc.; E.N.W., LLC and BellaRose Nursing and Rehab Center, Inc.; Britthaven, Inc. and Spruce Ltc Group, LLC; and AH North Carolina Owner LLC d/b/a The Heritage of Raleigh, Respondent–Intervenors.
CourtNorth Carolina Court of Appeals

Parker Poe Adams & Bernstein LLP, by Renee J. Montgomery, Robert A. Leandro, Raleigh, and Dac Cannon, for petitioner The Heritage.

Wyrick Robbins Yates & Ponton LLP, Raleigh, by K. Edward Greene, Lee M. Whitman, and Tobias S. Hampson, for petitioner Liberty.

Roy Cooper, Attorney General, by June S. Ferrell, Special Deputy Attorney General, for respondent DHHS.

Smith Moore Leatherwood LLP, by Marcus C. Hewitt and Elizabeth Sims Hedrick, Raleigh, for respondent-intervenor Britthaven.

DAVIS, Judge.

North Carolina Department of Health and Human Services, Division of Health Service Regulation, Certificate of Need Section ("the Agency"); AH North Carolina Owner LLC d/b/a The Heritage of Raleigh ("The Heritage"); and Britthaven, Inc. and Spruce LTC Group, LLC (collectively "Britthaven") appeal from the Final Decision of the administrative law judge awarding a certificate of need ("CON") to Liberty Healthcare Properties of West Wake County, LLC, Liberty Commons Nursing and Rehabilitation Center of West Wake County, LLC, Liberty Healthcare Properties of Wake County LLC, and Liberty Commons Nursing and Rehabilitation Center of Wake County, LLC (collectively "Liberty") and denying Britthaven's and The Heritage's applications for a CON. After careful review, we vacate and remand for further proceedings consistent with this opinion.

Factual Background

In the 2011 State Medical Facilities Plan ("SMFP"), the North Carolina State Health Coordinating Council identified a need for 240 additional nursing facility beds in Wake County. In response to this need determination, The Heritage, Britthaven, Liberty, Hillcrest Convalescent Center, Inc. ("Hillcrest"), E.N.W., LLC and BellaRose Nursing and Rehab Center (collectively "BellaRose"), and 11 other applicants1 applied for a CON with the Agency to either expand their existing facilities or build new facilities in order to provide the additional beds.

The Heritage submitted an application to expand the campus of its existing senior living community to add a 90–bed nursing facility.

Britthaven filed an application that proposed the development of a new 120–bed nursing facility in the Brier Creek area. Hillcrest also sought in its CON application to develop a new 120–bed nursing facility. Liberty's application proposed the development of a 130–bed nursing facility in North Raleigh, comprised of 120 new nursing care beds and 10 beds relocated from its Capital Nursing Rehabilitation Center location. BellaRose's application entailed the development of a 100–bed nursing facility on Rock Quarry Road in Raleigh.

In September 2011, the Agency began conducting a competitive review of each of the applications, and on 3 February 2012, it issued its findings and conclusions. The Agency determined that the applications of The Heritage, Hillcrest, and Liberty failed to conform to all applicable statutory review criteria and, therefore, could not be approved. The Agency approved the applications of Britthaven and BellaRose and awarded certificates of need to them for 120 and 100 nursing care beds, respectively.2

The Heritage, Hillcrest, and Liberty each filed a petition for a contested case hearing challenging the Agency's decision. The Heritage's petition challenged the Agency's decision to disapprove its application and to approve the applications of Britthaven and BellaRose. Hillcrest's petition challenged the disapproval of its application and the approval of the applications of Britthaven and BellaRose. Liberty's petition challenged the disapproval of its application and the approval of Britthaven's application but did not challenge the approval of BellaRose's application.

Britthaven and BellaRose both intervened in the contested cases of The Heritage, Hillcrest, and Liberty. The Heritage, Hillcrest, and Liberty each intervened in the contested cases of the other petitioners. The parties filed a joint motion to consolidate the contested cases, and on 2 July 2012, Administrative Law Judge Augustus B. Elkins, II ("the ALJ") entered an order consolidating the cases for hearing.

The ALJ heard the matter beginning on 1 October 2012. On 20 June 2013, the ALJ entered a final decision ("the Final Decision") affirming the Agency's award of a CON to BellaRose, reversing the Agency's award of a CON to Britthaven, and reversing the Agency's denial of a CON to Liberty. The Final Decision also upheld the Agency's denial of a CON to The Heritage and Hillcrest. The Agency, The Heritage, and Britthaven filed timely notices of appeal to this Court.3

Analysis

"The fundamental purpose of the certificate of need law is to limit the construction of health care facilities in this state to those that the public needs and that can be operated efficiently and economically for their benefit." Hope–A Women's Cancer Ctr., P.A. v. N.C. Dep't of Health & Human Servs., 203 N.C.App. 276, 281, 691 S.E.2d 421, 424 (2010) (citation and quotation marks omitted), disc. review denied, 365 N.C. 87, 706 S.E.2d 254 (2011). Accordingly, health care providers seeking to offer new nursing facility beds must submit an application to the Agency describing the proposed project and receive authorization from it to proceed with the development of such a project. See N.C. Gen.Stat. §§ 131E–176(3), 131E–178 (2013).

When deciding whether to issue a CON, a two-step process is generally applied. First, the Agency must determine whether the applications submitted meet the criteria set forth in N.C. Gen.Stat. § 131E–183(a). Craven Reg'l Med. Auth. v. N.C. Dep't of Health and Human Servs., 176 N.C.App. 46, 57, 625 S.E.2d 837, 844 (2006). Second, "where the Agency finds more than one applicant conforming to the applicable review criteria, it may [then] conduct a comparison of the conforming applications to determine which applicant should be awarded the CON." Id. at 58, 625 S.E.2d at 845.

Following the Agency's decision to issue a certificate of need to a particular applicant, the remaining applicants that were not selected are entitled to a contested case hearing in the OAH for a review of the Agency's decision. See Surgical Care Affiliates, LLC v. N.C. Dep't of Health & Human Servs., –––N.C.App. ––––, ––––, 762 S.E.2d 468, 471 (2014) ("After the Agency decides to issue, deny, or withdraw a CON ... any affected person as defined by section 131E–188(c) shall be entitled to a contested case hearing under Article 3 of Chapter 150B of the General Statutes." (citation, quotation marks, and brackets omitted)), disc. review denied,–– N.C. ––––, 768 S.E.2d 564 (2015). N.C. Gen.Stat. § 150B–23 requires the party seeking a contested case hearing to file a petition stating facts which tend to establish that

the agency named as the respondent has deprived the petitioner of property, has ordered the petitioner to pay a fine or civil penalty, or has otherwise substantially prejudiced the petitioner's rights and that the agency:
(1) Exceeded its authority or jurisdiction;
(2) Acted erroneously;
(3) Failed to use proper procedure;
(4) Acted arbitrarily or capriciously; or
(5) Failed to act as required by law or rule.

N.C. Gen.Stat. § 150B–23(a) (2013).

Accordingly, in a contested case hearing, "[t]he administrative law judge must ... determine whether the petitioner has met its burden in showing that the agency substantially prejudiced petitioner's rights, as well as whether the agency also acted outside its authority, acted erroneously, acted arbitrarily and capriciously, used improper procedure, or failed to act as required by law or rule." CaroMont Health, Inc. v. N.C. Dep't of Health & Human Servs., –––N.C.App. ––––, ––––, 751 S.E.2d 244, 248 (2013) (citation, quotation marks, and emphasis omitted); see also Surgical Care Affiliates, ––– N.C.App. at ––––, 762 S.E.2d at 471 (explaining that "[t]his Court has interpreted subsection (a) to mean that the ALJ in a contested case hearing must determine whether the petitioner has met its burden in showing that the agency substantially prejudiced the petitioner's rights.... [and] that the agency...

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