Certificate of Need Application by Community Psychiatric Centers, Inc., for Development of a Free-Standing Psychiatric Hosp., Matter of, FREE-STANDING

• Court: United States State Supreme Court of Kansas
• Citation: 676 P.2d 107,234 Kan. 802
• Docket Number: 55831,FREE-STANDING,Nos. 55830,s. 55830
• Parties: In the Matter of the CERTIFICATE OF NEED APPLICATION BY COMMUNITY PSYCHIATRIC CENTERS, INC., FOR the DEVELOPMENT OF APSYCHIATRIC HOSPITAL. EXCEPTICON MIDWEST, INC., Appellee, v. KANSAS DEPARTMENT OF HEALTH AND ENVIRONMENT, and Barbara Sabol, Secretary, Kansas Department of Health and Environment, Appellant.
• Decision Date: 13 January 1984

Page 107

676 P.2d 107

234 Kan. 802

In the Matter of the CERTIFICATE OF NEED APPLICATION BY

COMMUNITY PSYCHIATRIC CENTERS, INC., FOR the

DEVELOPMENT OF A FREE-STANDING

PSYCHIATRIC HOSPITAL.

EXCEPTICON MIDWEST, INC., Appellee, v. KANSAS DEPARTMENT OF HEALTH AND ENVIRONMENT, and Barbara Sabol, Secretary, Kansas Department of Health and Environment, Appellant.

Nos. 55830, 55831.

Supreme Court of Kansas.

Jan. 13, 1984.

Syllabus by the Court

1. Agency action will not be upset because of harmless error. Error which does not prejudice the substantial rights of a party affords no basis for reversal of an administrative determination and must be disregarded.

2. Neither the district court nor this court on appeal is permitted to try the case de novo and substitute its judgment for that of an administrative agency. The district court is restricted to considering whether as a matter of law (1) the agency acted fraudulently, arbitrarily, or capriciously, (2) the administrative order is supported by substantial evidence, and (3) the agency acted within the scope of its authority.

3. In reviewing the district court's judgment, this court must make the same review of the administrative tribunal's action as does the district court to determine whether the district court observed the requirements and restrictions placed upon it. Kansas State Board of Healing Arts v. Foote, 200 Kan. 447, 451, 436 P.2d 828 (1968), 28 A.L.R.3d 472.

4. "Substantial evidence" is defined as evidence which possesses both relevance and substance, and which furnishes a substantial basis of fact from which the issues can reasonably be resolved. Jibben v. Post & Brown Well Service, 199 Kan. 793, 433 P.2d 467 (1967).

Emily E. Cameron of Kan. Dept. of Health and Environment, argued the cause, and Wanda J. Wilkinson, also of the KDHE, was with her on brief for appellant.

J. Eugene Balloun of Balloun & Bodinson, Chartered, Olathe, argued the cause, and Ron Bodinson, Olathe, of the same firm, was with him on the brief for appellee Community Psychiatric Centers, Inc.

Larry Winn, III, of Bennett, Lytle, Wetzler, Winn & Martin, Prairie Village, Dennis E. Egan of Gage & Tucker, Kansas City, Mo., argued the cause, and Robert F. Bennett of Bennett, Lytle, Wetzler, Winn & Martin, Prairie Village, and Eugene C. Hall of Gage & Tucker, Kansas City, Mo., were with them on brief for appellee Excepticon Midwest, Inc.

LOCKETT, Justice:

The Kansas Department of Health and Environment (KDHE) appeals from two district court decisions consolidated for appeal in this court. KDHE denied certificates of need to build psychiatric hospitals to Excepticon Midwest, Inc. (Excepticon), and Community Psychiatric Centers, Inc. (CPC). In separate cases two different district court judges reversed the KDHE and granted certificates of need to Excepticon and CPC. KDHE appeals the reversal of its denial of both certificates of need.

This appeal involves the certificate of need provision of the Health Facilities Act, K.S.A. 65-4801 et seq. Under the Act any person undertaking to construct a new hospital to be licensed under the Kansas health laws must first secure a certificate of need. K.S.A. 65-4802. KDHE is the State agency entrusted with the administration of the Kansas Certificate of Need Program established by K.S.A. 65-4701 et seq. and K.S.A. 65-4801 et seq. KDHE, acting through its secretary, is required to consider the evaluation and recommendations of the appropriate health systems agency and make the initial administrative decision as to the need of a proposed new health facility and service.

On June 28, 1982, Excepticon filed an application for a certificate of need pursuant to K.S.A. 65-4801 et seq. to build and operate a free-standing 96 bed psychiatric hospital in Johnson County. Excepticon would provide (1) acute psychiatric services to children, (2) acute psychiatric services and substance abuse treatment to adolescents and adults, and (3) treatment for the elderly. On July 26, 1982, CPC filed an application for a certificate of need to build and operate a 65 bed free-standing psychiatric hospital in Johnson County. CPC would be devoted to (1) psychiatric and substance abuse treatment of adolescents, (2) care of adults, and (3) geriatric care.

The applications of Excepticon and CPC were both set for hearing by KDHE August 20, 1982, pursuant to K.A.R. 28-42-5(d), which provides:

"All completed applications reviewed in the same cycle which pertain to similar types of services, facilities, or equipment affecting the same health service area as determined by the state agency, shall be considered in relation to each other."

Excepticon objected to the concurrent review procedure. Excepticon claimed CPC's application for certification was incomplete under KDHE requirements and, therefore, should not be considered in relation to Excepticon's application for certification. On August 20, 1982, the public hearing authorized by K.S.A. 1982 Supp. 65-4808 was held before Scott Buckley, an employee of KDHE.

September 27, 1982, the secretary of KDHE denied both applications for certificates of need. Excepticon and CPC requested that the secretary reconsider his decision. November 9, 1982, a joint reconsideration hearing of the applications was held by KDHE. December 21, 1982, the secretary issued an order affirming the earlier decision denying the certifications of need to Excepticon and CPC. Excepticon and CPC separately appealed the decision to the Johnson County District Court pursuant to K.S.A. 1982 Supp. 65-4816. The separate appeals were assigned to different divisions of the Johnson County District Court. KDHE filed a motion to consolidate the two cases. KDHE's motion to consolidate was denied by the district court.

The CPC appeal was assigned to Judge Janette Howard. Judge Howard conducted a hearing and subsequently found the KDHE's conclusions in the matter were arbitrary. On April 26, 1983, Judge Howard in a memorandum opinion vacated KDHE's decision and remanded the case to KDHE for reconsideration for certification in light of findings made by the court. KDHE then filed a motion for rehearing in the district court. On May 31, 1983, CPC filed a motion requesting the district judge to issue a certificate of need to CPC. On June 13, 1983, Judge Howard denied the KDHE rehearing request and sustained the CPC motion to enter an order granting the certificate of need.

KDHE appealed the ruling of Judge Howard.

The Excepticon case was assigned to Judge J. Stewart McWilliams. On June 7, 1983, Judge McWilliams issued his memorandum opinion on the Excepticon application, finding KDHE's denial of the application was not supported by substantial evidence. Judge McWilliams ordered that the certificate of need be issued to Excepticon. KDHE appealed this ruling of Judge McWilliams.

First we will consider Excepticon's claim that KDHE acted arbitrarily in having concurrent reviews (batching) where CPC's application for a certificate of need failed to follow the adopted rules and regulations of KDHE. Judge McWilliams found that the secretary had acted arbitrarily in batching the incomplete application of CPC with the completed application of Excepticon at the original hearing conducted by KDHE.

K.S.A. 65-4806(c ) provides:

"An application shall be deemed filed when it contains all required information and is received by the state agency. A filed application shall be a public document and shall be available for inspection at the offices of the health systems agency and the state agency. A copy thereof shall be furnished to any person upon request and payment of a fee established by the state agency or the health systems agency in an amount approved by the director of accounts and reports under K.S.A. 1980 Supp. 45-204. A completed application may be amended or withdrawn by the applicant at any time without prejudice, but any amendment to an application, except as the state agency and the applicant may otherwise agree, shall cause the amended application to be treated as a new application for purposes of the time limits of this act."

KDHE did not receive all the information required by K.S.A. 65-4806(b ) until the public hearing held August 20, 1982.

Rules and regulations adopted by the secretary to implement and administer the provision for hearing applications for certificates of need allows all completed applications affecting the same health service area to be reviewed in the same cycle. Each application must be considered in relation to the other. K.A.R. 28-42-5(d).

The KDHE admits it did not follow its own rules and regulations when it determined that CPC's application had been filed (completed); that CPC's application did not conform to KDHE regulations until the day of the hearing when CPC submitted the final required information on the hearing date, August 20, 1982.

Excepticon presented extensive evidence in support of its application. KDHE did not compare Excepticon's application against CPC's application for a certificate of need. Excepticon and CPC both claimed a need for additional expansion in psychiatric bed space and treatment. KDHE denied both Excepticon's and CPC's requests for certificates of need.

KDHE's concurrent review of Excepticon's complete application with CPC's incomplete application was error, but only harmless error. Agency action will not be upset because of harmless error. McCulloch Interstate Gas Corp. v. F.P.C., 536 F.2d 910, 913 (10th Cir.1976). Error which does not prejudice the substantial rights of Excepticon affords no basis for reversal of an administrative determination and must be disregarded.

Any party specified under K.S.A. 1982 Supp. 65-4811 may appeal the decision of KDHE to the district court having proper venue. K.S.A. 1982 Supp. 65-4816. Excepticon and CPC appealed the adverse administrative decision after a rehearing was conducted by KDHE.

The standard of review by a district court and an appeals court of the KDHE...