Chesapeake Hosp. Auth. v. State Health Comm'r

• Citation: 872 S.E.2d 440
• Decision Date: 19 May 2022
• Docket Number: Record No. 201510
• Parties: CHESAPEAKE HOSPITAL AUTHORITY, d/b/a Chesapeake Regional Medical Center v. STATE HEALTH COMMISSIONER, et al.
• Court: Supreme Court of Virginia

872 S.E.2d 440

CHESAPEAKE HOSPITAL AUTHORITY, d/b/a Chesapeake Regional Medical Center

v.STATE HEALTH COMMISSIONER, et al.

Record No. 201510

Supreme Court of Virginia.

May 19, 2022

Peter M. Mellette, Williamsburg; L. Steven Emmert, Virginia Beach (Elizabeth D. Coleman; H. Guy Collier ; Mellette PC; Winston & Strawn; Sykes, Bourdon, Ahern & Levy, on briefs), for appellant.

Vanessa C. MacLeod, Assistant Attorney General (Mark R. Herring, Attorney General of Virginia; Sylvia C. Jones, Deputy Attorney General; Allyson K. Tysinger, Senior Assistant Attorney General, on brief), for appellee State Health Commissioner.

Jeremy A. Ball, Richmond (Jamie B. Martin, Richmond; Jennifer L. Ligon, Richmond; Matthew M. Cobb, Richmond; Williams Mullen, on brief), for appellee Sentara Hospitals.

Amici Curiae: City of Chesapeake and the Council of the City of Chesapeake (Jacob P. Stroman, Norfolk; Ellen F. Bergren, on brief), in support of appellant.

PRESENT: Goodwyn, C.J., Powell, Kelsey, McCullough, and Chafin, JJ., and Koontz, S.J.

OPINION BY SENIOR JUSTICE LAWRENCE L. KOONTZ, JR.

Chesapeake Hospital Authority, d/b/a Chesapeake Regional Medical Center ("CRMC") appeals the Court of Appeals’ judgment affirming the circuit court's decision to uphold a denial by the State Health Commissioner ("Commissioner") of its application for a Certificate of Public Need ("COPN") for a new open-heart surgery

service and additional cardiac catheterization equipment. In this appeal, the principal issue we consider is whether the harmless error doctrine applies to an error of law in an administrative agency case under the Virginia Administrative Process Act, Code § 2.2-4000 et seq.

BACKGROUND

The material facts necessary to our resolution of this appeal are not in dispute. CRMC is a 310-bed, acute care general hospital located in the City of Chesapeake within Planning District 20 ("PD 20"). On July 31, 2017, CRMC applied for a COPN with the Virginia Department of Health ("VDH") pursuant to Code § 32.1-102.1 et seq. CRMC sought to develop an open heart surgery

program and offer expanded cardiac catheterization services by creating a "hybrid" operating room at its existing Chesapeake facility. CRMC's application was reviewed by the staff of VDH's Division of Certificate of Public Need. Thereafter, the staff report recommended conditional approval of CRMC's application contingent upon CRMC's acceptance of a charity care condition.¹

On November 27, 2017, Sentara Hospitals ("Sentara"), also located in PD 20, timely filed a petition seeking good cause to be made a party in the review of CRMC's application, pursuant to Code § 32.1-102.6(E)(3).² At Sentara's request, an informal fact-finding conference ("IFFC") was held on Sentara's good cause petition. Following this IFFC, the Commissioner granted Sentara's petition and added Sentara as a party to the review of CRMC's application.

On April 12, 2018, an IFFC on the merits of CRMC's COPN application was convened, with CRMC and Sentara presenting evidence and argument. In a case decision submitted to the Commissioner, the adjudication officer recommended that CRMC's application be denied after evaluating the project in relation to the eight statutory considerations set forth in Code § 32.1-102.3(B).

On August 24, 2018, the Commissioner, after reviewing the project and adopting the recommendation and report of the adjudication officer, denied CRMC's application. The Commissioner cited the following reasons for the denial:

(i) CRMC's proposed project is not consistent with the State Medical Facilities Plan;

(ii) The proposed project would likely decrease utilization at existing providers of open heart surgery

, a type of surgery that consists of a highly-specialized, high-acuity, utilization-sensitive and narrow subset of cardiac surgery procedures;

(iii) The project is duplicative of existing and accessible open heart surgery services in PD 20;

(iv) The project would not significantly improve geographic or financial access for residents of PD 20 to open heart surgery services; and

(v) Open heart surgery services are fully accessible and available in PD 20, in a timely manner and within applicable driving time standards.

The report relied upon by the Commissioner specified that CRMC's proposed project was not consistent with the State Medical Facilities Plan ("SMFP") as defined by VDH's regulations. Citing 12 VAC § 5-230-450(A)(1), the report noted that, with respect to determining a need for a new open heart surgery

service, the SMFP required CRMC to demonstrate that its existing cardiac catheterization service performed an average of 1,200 diagnostic equivalent procedures ("DEPs") annually. During the IFFC, CRMC maintained this standard considered all services performed in its two existing cardiac catheterization laboratories, with the total number of services exceeding 1,200 DEPs during the relevant reporting period. CRMC reported a total of 1,374 DEPs in 2015. Sentara maintained that CRMC's two cardiac catheterization laboratories performed an average of 687 DEPs in 2015, and averaged 830 during the 2016-2017 period. The report concluded CRMC's project did not appear to meet the standard set forth in 12 VAC § 5-230-450(A)(1) with respect to average DEPs, finding that CRMC "conflated various procedures capable of being performed in a cardiac catheterization laboratory to arrive at its figures" and Sentara's "more credible and reliable."

The report also analyzed whether CRMC's application complied with the SMFP provision within 12 VAC § 5-230-450(A)(2), which states that new open heart services would only be approved if "open heart surgery

services located within the health planning district performed an average of 400 open heart and closed heart surgical procedures for the relevant reporting period." CRMC argued that this provision referred to a service located at an acute care hospital, regardless of the number of operating rooms within the hospital. CRMC reported the three existing hospitals with open heart surgery services in PD 20 performed an average of 752 open heart and closed heart procedures in 2015. Sentara argued that "open heart surgery services" referred to individual operating rooms within a hospital, and reported that the hospitals in PD 20 performed an average of 167 procedures per operating room in 2015. Sentara maintained that adopting CRMC's interpretation of analyzing utilization per-service, rather than per-operating room, would be "inconsistent with the remainder of the open heart surgery SMFP" and that "one-high volume program ... would skew the public need analysis to indicate a need for additional services, despite other existing and underutilized services in the PD."

The report concluded that CRMC's project did not meet the SMFP standard under 12 VAC § 5-230-450(A)(2), reasoning that utilization rates were calculated per-operating room, rather than per-service. The report explained that this interpretation of 12 VAC § 5-230-450(A)(2) was "the most reasonable reading of [this regulation]" when read in context with 12 VAC § 5-230-450(A)(3), which requires a proposed new open heart service to estimate utilization rates prospectively on a per-operating room basis.

CRMC filed a petition for appeal in the Circuit Court of the City of Chesapeake, arguing that the Commissioner's decision should be reversed, in part because the Commissioner erred in his interpretation that 12 VAC § 5-230-450(A)(2) required the average number of procedures to be determined on a per operating room basis, rather than per service; and further erred in finding that 12 VAC § 5-230-450(A)(1) required an average of 1,200 DEPs per cardiac catheterization

laboratory, rather than per cardiac catheterization service. The circuit court held that while the Commissioner misinterpreted the provision of the SMFP within 12 VAC § 5-230-450(A)(2), as a matter of law, this misinterpretation constituted harmless error. The circuit court reasoned that this subparagraph of the regulation constituted only one part of the SMFP regarding new open heart surgery services, and compliance with the SMFP was only one of eight statutory factors for the Commissioner to consider under Code § 32.1-102.3(B). The circuit court also held that 12 VAC § 5-230-450(A)(1) was genuinely ambiguous and the Commissioner's interpretation warranted deference. Finding the Commissioner did not err with respect to CRMC's remaining assignments of error, the circuit court affirmed the Commissioner's decision and dismissed CRMC's petition.

On appeal to the Court of Appeals, CRMC challenged the circuit court's determination that the Commissioner's incorrect interpretation and application of the SMFP in his case decision was harmless error. In an unpublished opinion, the Court of Appeals, relying in part on State Health Comm'r v. Sentara Norfolk Gen. Hosp. , 260 Va. 267, 534 S.E.2d 325 (2000), held that the Commissioner's error of law in misinterpreting the SMFP under 12 VAC § 5-230-450(A)(2) was harmless error, because the project's consistency with the SMFP was only one of eight reasons cited by the Commissioner in denying CRMC's application, and thus was not substantial in nature. Accordingly, the Court of Appeals affirmed the circuit court's decision and denied CRMC's petition for a rehearing en banc.

We awarded CRMC this appeal on the following assignments of error:

1. The Court of Appeals erred in applying the harmless error doctrine to an agency's legal error in interpreting and applying its own regulations.

2. The Court of Appeals erred in deferring, without robust analysis, to an agency's interpretation of its own regulations in contravention of recent United States Supreme Court precedent [in Kisor v. Wilkie , ––– U.S. ––––, 139 S.Ct. 2400, 204 L.Ed.2d 841 (2019) ].

By an order dated December 28, 2021, we permitted the City of Chesapeake and the Council of the City of Chesapeake to appear on brief as amici curiae. Both parties supported CRMC's application for a COPN.

DISCUS...