Craven Regional v. Dept. of Health

• Citation: 625 S.E.2d 837
• Decision Date: 21 February 2006
• Docket Number: No. COA05-284.,COA05-284.
• Parties: CRAVEN REGIONAL MEDICAL AUTHORITY d/b/a Craven Regional Medical Center, Petitioner, v. N.C. DEPARTMENT OF HEALTH AND HUMAN SERVICES, Division of Facility Services, Certificate of Need Section, Respondent, and Coastal Carolina Health Care, P.A., d/b/a Coastal Carolina Imaging, Respondent-Intervenor.
• Court: Court of Appeal of North Carolina (US)

625 S.E.2d 837

CRAVEN REGIONAL MEDICAL AUTHORITY d/b/a Craven Regional Medical Center, Petitioner, v. N.C. DEPARTMENT OF HEALTH AND HUMAN SERVICES, Division of Facility Services, Certificate of Need Section, Respondent, and Coastal Carolina Health Care, P.A., d/b/a Coastal Carolina Imaging, Respondent-Intervenor.

No. COA05-284.

Court of Appeals of North Carolina.

February 21, 2006.

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Appeal by petitioner from a final agency decision issued 23 July 2004 by the North Carolina Department of Health and Human Services. Heard in the Court of Appeals 15 November 2005.

Bode Call & Stroupe, L.L.P., by S. Todd Hemphill and Diana Evans Ricketts, and Sumrell, Sugg, Carmichael, Hicks & Hart, P.A., by Fred M. Carmichael, Raleigh, for petitioner-appellant.

Attorney General Roy Cooper, by Special Deputy Attorney General Melissa L. Trippe and Assistant Attorney General June S. Ferrell, for respondent-appellee.

Kirschbaum, Nanney, Keenan & Griffin, P.A., by Frank S. Kirschbaum and Amy Y. Bason, Raleigh, for respondent-intervenor.

Linwood Jones for North Carolina Hospital Association, amicus curiae.

Brook, Pierce, McLendon, Humphrey & Leonard, L.L.P., by Forrest W. Campbell, Jr., Greensboro, for North Carolina Radiological Society, amicus curiae.

Ward and Smith, P.A., by J. Troy Smith, Jr. And Cheryl A. Marteney, New Bern, for North Carolina Medical Society, North Carolina Academy of Family Physicians, North Carolina Obstetrical and Gynecological Society, North Carolina Orthopaedic Association, North Carolina Pediatric Society, North Carolina College of Internal Medicine, and North Carolina Neurological Society, amicus curiae.

Parker Poe Adams & Bernstein, by Renee J. Montgomery and Susan L. Dunathan, Raleigh, for OrthoCarolina, P.A., amicus curiae.

Nelson, Mullins, Riley & Scarborough, L.L.P., by Noah H. Huffstetler, III, Barry D. Alexander and Wallace C. Hollowell, III, for Alliance Imaging, Inc., amicus curiae.

STEELMAN, Judge.

Craven Regional Medical Center (Craven) is a hospital, located in New Bern, North Carolina. Coastal Carolina Health Care, P.A. is a physician practice in New Bern, consisting of approximately thirty-four physicians. Coastal Carolina Imaging (Coastal) is a division of Coastal Carolina Health Care, which operates a diagnostic imaging center. Craven operates the only two magnetic resonance imaging scanners (MRI) in Service Area 23: one in the hospital and one at Craven Diagnostic Center, located five miles from the hospital. In 2002, Craven petitioned for an amendment to the State Medical Facilities Plan (SMFP) to include a need determination for one additional MRI in Service Area 23, a five county region which includes Craven County. The SMFP sets forth the medical need requirements in this state and a Certificate of Need (CON) may not be granted which would allow more medical facilities or equipment than are needed to serve the public. See N.C. Gen.Stat. § 131E-183(a)(1) (2005). In response to Craven's petition, the 2003 SMFP included a need determination for an additional MRI in Service Area 23. Four applicants, including Craven and Coastal, applied for a CON with respondent, the Department of Health and Human Services, Division of Facility Services, Certificate of Need Section (Agency), pursuant to Chapter 131E of the North Carolina General Statutes. The Agency reviewed the four applications. It found both Coastal and Craven's CON applications conformed to all the statutory and regulatory review criteria. Since there existed a need for only one additional MRI in that region, the Agency performed a comparative analysis of the applications to determine which proposal should be approved. The Agency determined Coastal's application was the most effective proposal and awarded the CON to Coastal. Craven filed a petition for contested case hearing with the Office of Administrative Hearings challenging the approval of Coastal's CON application and the disapproval of its application. Coastal intervened as a respondent. Following an evidentiary hearing, the administrative law judge (ALJ) recommended affirming the Agency's decision. Craven filed exceptions with the Division of Facility Services requesting reversal. On 23 July 2004, the Department issued a final agency decision adopting the ALJ's recommended decision, which affirmed the awarding of the CON to Coastal. Craven appeals.

Standard of Review

The substantive nature of each assignment of error controls our review of an appeal from an administrative agency's final decision. North Carolina Dep't of Env't & Natural Res. v. Carroll, 358 N.C. 649, 658, 599 S.E.2d 888, 894 (2004). Where a party asserts an error of law occurred, we apply a de novo standard of review. Id. at 659, 599 S.E.2d at 894. 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. (citations omitted).

Analysis

In its first argument, Craven contends the Agency erred in finding Coastal's application conforming to Criterion 3 for three reasons: (1) Coastal's projections that it would achieve the required 2900 scans by its third year of operation were unreasonable; (2) these projections were erroneously based on physicians' letters; and (3) the Agency's analysis improperly altered Coastal's methodology by using "after the fact" rationales to justify Coastal's projections that it would achieve the required number of scans by its third year. We disagree.

N.C. Gen.Stat. § 131E-183(a)(3) (Criterion 3) provides:

The 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 proposed.

In addition, the Agency has adopted rules to be used as regulatory criteria in conjunction with Criterion 3. The rules in effect at the time Craven and Coastal sought the CON required an applicant proposing to acquire an MRI scanner for which the need determination in the SMFP was based on the utilization of fixed MRI scanners to:

(2) demonstrate annual utilization in the third year of operation is reasonably projected to be an average of 2900 procedures per scanner for all existing, approved and proposed MRI scanners or mobile MRI scanners to be operated by the applicant in the MRI service area(s) in which the proposed equipment will be located; and

(3) document the assumptions and provide data supporting the methodology used for each projection required in this rule.

10 N.C.A.C. 3R.2715(b)(2-3) (recodified as 10A N.C.A.C. 14C.2703).

First, Craven asserts Coastal's CON application was nonconforming with Criterion 3 because the methodologies it utilized to show its MRI scanner will achieve the required 2900 scans by its third year in operation were based on inaccurate assumptions. Craven contends these inaccurate assumptions inflated the average number of projected scans per patient per year from 1.0 to 1.41, thus rendering Coastal's projections unreasonable and its application nonconforming with Criterion 3. It alleges the Agency's finding that Coastal's CON application was conforming to Criterion 3 was not supported by the evidence and was arbitrary and capricious.

Where the appealing party alleges the agency's decision was not supported by the evidence or was arbitrary or capricious, the reviewing court applies the "whole record test." 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 (2000). In applying this test, we must examine the entire record in order to determine whether the agency's decision is supported by substantial evidence. Id.

Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. The "arbitrary or capricious" standard is a difficult one to meet. Administrative agency decisions may be reversed as arbitrary or capricious if they are ... "whimsical" in the sense that they indicate a lack of fair and careful consideration or fail to indicate any course of reasoning and the exercise of judgment....

Blalock v. N.C. Dep't of Health and Human Servs., 143 N.C.App. 470, 475, 546 S.E.2d 177, 181 (2001) (citations and internal quotation marks omitted). When applying the whole record test "[w]e should not replace the agency's judgment as between two reasonably conflicting views, even if we might have reached a different result if the matter were before us de novo." Dialysis Care, 137 N.C.App. at 646, 529 S.E.2d at 261. It is irrelevant that the record may contain evidence which would support findings contrary to those found by the Agency since we cannot substitute our judgment for that of the Agency's. Id. When considering whether Coastal was conforming to Criterion 3, all that is required is that each applicant "reasonably project" it will perform 2900 procedures in its third year of operation. 10 N.C.A.C. 3R.2715. A reasonable projection of something that will occur in the future, by its very nature, cannot be established with absolute certainty.

Craven contends the 1.41 procedure to patient ratio used by Coastal to meet Criterion 3 was improper because not all MRI providers report patients to the Medical Facilities Planning Section in the same manner. Some facilities report each procedure as a new patient, even though that patient may have previously had MRI's that year. Some mobile MRI providers report procedures, but not patients. Respondents concede that the actual procedure to patient ratio is unknown. After reviewing the record, we find there to be substantial evidence supporting the Agency's finding that Coastal's use of a...