Caromont Health, Inc. v. N.C. Dep't of Health & Human Servs. Div. of Health Serv. Regulation

• Decision Date: 03 December 2013
• Docket Number: No. COA12–1044.,COA12–1044.
• Citation: 751 S.E.2d 244
• Parties: CAROMONT HEALTH, INC., Gaston Memorial Hospital, Inc. and Caromont Ambulatory Services, LLC d/b/a Caromont Endoscopy Center, Petitioners, v. NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES DIVISION OF HEALTH SERVICE REGULATION, Certificate of Need Section, Respondent, and Greater Gaston Center LLC, Respondent–Intervenor.
• Court: North Carolina Court of Appeals

751 S.E.2d 244

CAROMONT HEALTH, INC., Gaston Memorial Hospital, Inc. and Caromont Ambulatory Services, LLC d/b/a Caromont Endoscopy Center, Petitioners,

v. NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES DIVISION OF HEALTH SERVICE REGULATION, Certificate of Need Section, Respondent,andGreater Gaston Center LLC, Respondent–Intervenor.

No. COA12–1044.

Court of Appeals of North Carolina.

Dec. 3, 2013.

Appeal by petitioners from final agency decision entered 22 March 2012 by the North Carolina Department of Health and Human Services, Division of Health Service Regulation. Heard in the Court of Appeals 13 February 2013.

Bode, Call & Stroupe, L.L.P., Raleigh, by S. Todd Hemphill and Matthew A. Fisher, for petitioners-appellants.

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

Smith Moore Leatherwood, LLP, Greensboro, by Maureen Demarest Murray and Carrie A. Hanger, for respondent-intervenor-appellee.

GEER, Judge.

Petitioners CaroMont Health, Inc., Gaston Memorial Hospital, Inc., and CaroMont Ambulatory Services, LLC, d/b/a CaroMont Endoscopy Center (collectively “CaroMont”) appeal from the final agency decision of the N.C. Department of Health and Human Services, Division of Health Service Regulation, Certificate of Need Section (“the Agency”), dismissing their petition under Rule 41(b) of the Rules of Civil Procedure. We hold that the Agency properly concluded that CaroMont failed to prove that it suffered substantial prejudice from the granting of a certificate of need to Greater Gaston Center LLC (“GGC”) for development of two gastrointestinal endoscopy rooms. We, therefore, affirm.

Facts

Our legislature has specifically found “[t]hat demand for gastrointestinal endoscopy services is increasing at a substantially faster rate than the general population given the procedure is recognized as a highly effective means to diagnose and prevent cancer.” N.C. Gen.Stat. § 131E–175(12) (2011). For that reason, although “persons proposing to obtain a license to establish an ambulatory surgical facility for the provision of gastrointestinal endoscopy procedures” must obtain a certificate of need (“CON”), the legislature has provided that “[t]he annual State Medical Facilities Plan shall not include policies or need determinations that limit the number of gastrointestinal endoscopy rooms that may be approved.” N.C. Gen.Stat. § 131E–178(a)(4) (2011).

In addition, a physician may open a gastrointestinal (“GI”) endoscopy room in his or her office at any time without a CON or a license. However, only certain payors will reimburse providers for procedures performed in unlicensed GI endoscopy rooms located in physicians' offices. For example, Medicaid and, in certain circumstances, Medicare will not provide reimbursement for such procedures.

As of 2011, petitioner Gaston Memorial Hospital, an acute care hospital in Gastonia, was the only licensed provider of GI endoscopy rooms in Gaston County, North Carolina. It operated eight GI endoscopy rooms. Petitioner CaroMont Health is the parent corporation of Gaston Memorial Hospital and petitioner CaroMont Ambulatory Services, LLC, d/b/a CaroMont Endoscopy Center (“CAS”). In 2007, because petitioners perceived a need for a freestanding ambulatory surgery center, CaroMont Health and CAS applied for a CON authorizing CaroMont to move two of the eight licensed GI endoscopy rooms from Gaston Memorial Hospital to a freestanding GI clinic to be called CaroMont Endoscopy Center. Although petitioners were granted the CON on 23 December 2008, the CaroMont Endoscopy Center was still only in development and not yet operational by 2011.

GGC was started by Physicians Endoscopy, LLC, a national endoscopy center development and management company, and five Gaston County gastroenterologists with independent practices who have practiced in Gaston County for a number of years, including Dr. Samuel Drake, Dr. Khaled Elraie, Dr. Nelson Forbes, Dr. Austin Osemeka, and Dr. William Watkins. On or about 15 October 2010, GGC filed an application for a CON to develop a freestanding ambulatory surgery center with two GI endoscopy procedure rooms in Gaston County. The Agency conditionally approved GGC's application on 30 March 2011.

CaroMont filed a petition for a contested case hearing on 29 April 2011, challenging the approval of GGC's CON application. GGC intervened by consent on 16 May 2011. Administrative Law Judge Joe L. Webster held a three-day contested case hearing. At the close of CaroMont's evidence, the Agency and GGC moved for dismissal of CaroMont's petition pursuant to Rule 41(b) of the Rules of Civil Procedure.

Judge Webster issued a recommended decision on 19 January 2012 dismissing CaroMont's petition on the basis that CaroMont had failed to demonstrate, as required by N.C. Gen.Stat. § 150B–23(a) (2011), either that its rights were “substantially prejudiced” by the Agency's decision or that the Agency committed error. CaroMont then submitted written exceptions to Judge Webster's recommended decision to the Agency. On 22 March 2012, Mr. Drexel Pratt, Director of the Department of Health and Human Services' Division of Health Service Regulation, issued the final agency decision adopting Judge Webster's decision as the final decision of the Agency. CaroMont timely appealed to this Court.

Discussion

In reviewing a CON determination:

“[m]odification or reversal of the Agency decision is controlled by the grounds enumerated in [N.C. Gen.Stat. § ] 150B–51(b); the decision, findings, or conclusions must be:

(1) In violation of constitutional provisions;

(2) In excess of the statutory authority or jurisdiction of the agency;

(3) Made upon unlawful procedure;

(4) Affected by other error of law;

(5) Unsupported by substantial evidence admissible under [N.C. Gen.Stat. §§ ] 150B–29(a), 150B–30, or 150B–31 in view of the entire record as submitted; or

(6) Arbitrary and capricious.”

Parkway Urology, P.A. v. N.C. Dep't of Health & Human Servs., 205 N.C.App. 529, 534, 696 S.E.2d 187, 192 (2010) (quoting Total Renal Care of N.C., LLC v. N.C. Dep't of Health & Human Servs., 171 N.C.App. 734, 739, 615 S.E.2d 81, 84 (2005)), disc. review denied,365 N.C. 78, 705 S.E.2d 739, 753 (2011).

“ ‘The first four grounds for reversing or modifying an agency's decision ... are law-based inquiries' ” that we review de novo. Id. at 535, 696 S.E.2d at 192 (quoting N.C. Dep't of Revenue v. Bill Davis Racing, 201 N.C.App. 35, 42, 684 S.E.2d 914, 920 (2009)). The final two grounds, however, “ ‘involve fact-based inquiries' ” that “ ‘are reviewed under the whole-record test.’ ” Id. (quoting N.C. Dep't of Revenue, 201 N.C.App. at 42, 684 S.E.2d at 920). Under the “whole record” test, “ ‘the reviewing court is required to examine all competent evidence (the whole record) in order to determine whether the agency decision is supported by substantial evidence[, with s]ubstantial evidence [consisting of] such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.’ ” Id. (quoting Dialysis Care of N.C., LLC v. N.C. Dep't of Health & Human Servs., 137 N.C.App. 638, 646, 529 S.E.2d 257, 261,aff'd per curiam,353 N.C. 258, 538 S.E.2d 566 (2000)).

The final agency decision dismissing CaroMont's contested case petition first concluded that CaroMont failed to meet its burden of proving that it was substantially prejudiced by the Agency's approval of GGC's CON application. CaroMont initially argues, however, that the Agency erred in requiring it to show that it was substantially prejudiced. It contends that it met its burden simply by showing that it was an “affected person” under N.C. Gen.Stat. § 131E–188(a) (2011).

This Court, however, specifically held in Parkway Urology that N.C. Gen.Stat. § 131E–188 and its requirement that a petitioner be an affected person “provides only the statutory grounds for and prerequisites to filing a petition for a contested case hearing regarding CONs.” 205 N.C.App. at 536, 696 S.E.2d at 193. The Court pointed out that “in order for a petitioner to be entitled to relief,” it must comply with N.C. Gen.Stat. § 150B–23(a), which requires that the petitioner allege that an agency has “ ‘ordered the petitioner to pay a fine or civil penalty, or has otherwise substantially prejudiced the petitioner's rights.’ ” 205 N.C.App. at 536, 696 S.E.2d at 193 (quoting N.C. Gen.Stat. § 150B–23(a) (2009)). The administrative law judge must, therefore, “ ‘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.’ ” Id. (quoting Britthaven, Inc. v. N.C. Dep't of Human Res., 118 N.C.App. 379, 382, 455 S.E.2d 455, 459 (1995)). Consequently, the Court concluded, the appellant's “contention that it was unnecessary for it to show substantial prejudice to be entitled to relief is contrary to our case law and is without merit.” Id. at 536–37, 696 S.E.2d at 193.

Parkway Urology is controlling. CaroMont was, therefore, required to prove that it was substantially prejudiced by the Agency's decision to grant GGC a CON. See also Wake Radiology Servs. LLC v. N.C. Dep't of Health & Human Servs., 215 N.C.App. 393, 716 S.E.2d 87, 2011 WL 3891026, at *5, 2011 N.C.App. LEXIS 1924, at *14 (2011) (unpublished) (“In light of our decision in Parkway Urology, which we find to be controlling, we conclude that Wake's status as an ‘affected person’ pursuant to N.C. Gen.Stat. § 131E–188(c) in no way obviated the necessity for Wake to demonstrate that it was ‘substantially prejudiced’ by the Department's decision as required by N.C. Gen.Stat. § 150B–23(a).”), disc. review denied,366 N.C. 229, 726 S.E.2d 838 (2012).

CaroMont next contends that it presented sufficient evidence of substantial...