Johnston-Willis Ltd. v. Kenley

• Decision Date: 03 May 1988
• Docket Number: LIMITED,JOHNSTON-WILLI,No. 1288-86-2,1288-86-2
• Citation: 6 Va.App. 231,369 S.E.2d 1
• Parties: v. James B. KENLEY, M.D., etc. Record
• Court: Virginia Court of Appeals

Page 1

369 S.E.2d 1

6 Va.App. 231

JOHNSTON-WILLIS, LIMITED v. James B. KENLEY, M.D., etc.

Record No. 1288-86-2.

Court of Appeals of Virginia.

May 3, 1988.

Robert T. Adams (Rosewell Page, III, Julia Krebs-Markrich, McGuire, Woods, Battle & Boothe, Richmond, on brief), for appellant.

John A. Rupp, Sr. Asst. Atty. Gen. (Mary Sue Terry, Atty. Gen., Carol S. Nance, Asst. Atty. Gen., on brief), for appellee.

Present: KOONTZ, C.J., and BAKER and BENTON, JJ.

KOONTZ, Chief Judge.

Johnston-Willis, Limited appeals from a final judgment of the circuit court upholding the State Health Commissioner's (Commissioner) denial of its application for a certificate of public need (CON). Johnston-Willis had sought a CON to add obstetrical beds and to reorganize its outpatient surgery program. The Commissioner denied the CON in its entirety. Johnston-Willis appealed the Commissioner's decision to the Circuit Court of Chesterfield County. That court reversed the Commissioner's decision denying Johnston-Willis a CON to reorganize and consolidate its outpatient surgery program; however, the court affirmed the Commissioner's decision denying Johnston-Willis a CON to add obstetrical services. This appeal followed.

Johnston-Willis raises numerous issues on appeal which, for purposes of this opinion, we summarize as follows:

1. Whether the trial court erred in holding that the Commissioner may rely upon the State Medical Facilities Plan to deny Johnston-Willis' request for a certificate of need in this case.

2. Whether the trial court erred in holding that the Commissioner properly considered state and federal regulations which establish minimum occupancy standards.

3. Whether the trial court erred in holding that the Commissioner may rely upon the State Medical Facilities Plan and the statistical methodologies contained therein, which Johnston-Willis contends are inaccurate, inadequate or outdated.

4. Whether the trial court erred in holding that the Commissioner, consistent with the notice requirements of Code § 9-6.14:11, properly considered extra-record data.

5. Regardless of the projections of surplus beds under the provisions of the State Medical Facilities Plan, whether Johnston-Willis is entitled to a certificate of need under the provisions of the State Health Plan.

6. Whether the trial court erred in holding that the Commissioner's decision to deny a certificate of need in this case was based upon substantial evidence.

Finding no reversible error, we affirm the decision of the circuit court denying a CON to Johnston-Willis for the construction of obstetrical services.

I. Factual and Procedural Background

Johnston-Willis Hospital is a 292 bed community hospital located south of the James River in Chesterfield County, Virginia. On June 14, 1985, Johnston-Willis filed an application for a CON with the Commissioner, pursuant to procedures established by Code § 32.1-102.6. Johnston-Willis proposed to establish new obstetrical services and consolidate and reorganize its outpatient surgery program. The construction entailed an addition of approximately 35,000 square feet, of which approximately 17,500 square feet was to be dedicated to the obstetrical unit. The proposal provided for the removal from service of 20 surgical/medical beds which were to be converted into sixteen private labor, delivery, recovery rooms; four private rooms for gynecological surgery patients; a nursery featuring fourteen full-term bassinets and four continuing-intermediate care bassinets; one delivery room with caesarean section capabilities; a physicians' lounge; and support space including a nurse's station, clean utility, soiled utility, examination room, nurse's locker area and classroom space. The obstetrical suite was to cost an estimated $4.7 million.

Johnston-Willis asserted that the establishment of new obstetrical services and the addition of twenty obstetrical beds were justified because the proposal would substantially improve access to obstetric and new born services for individuals south and west of the hospital, provide an innovative cost efficient service not currently available in the Richmond market, and provide sufficient bed capacity to meet the projected 1989 demand for obstetrical services in Planning District 15. ¹

Johnston-Willis' proposal and application were reviewed by the Central Virginia Health Systems Agency (CVHSA), a regional planning body consisting of health care providers and consumers, as required under Code § 32.1-102.6(B). Following a public hearing on August 26, 1985, the CVHSA staff concluded that Johnston-Willis failed to demonstrate a need for twenty additional beds. Citing the State Medical Facilities' Plan (SMFP), the staff stated that 207 obstetrical beds will be needed in Planning District 15 by 1989, while there are currently 217 obstetrical beds in Planning District 15, resulting in a surplus of ten beds. Further, the staff noted that OB bed utilization was generally low and had been declining in recent years in Planning District 15. The staff recommended that Johnston-Willis' application for a CON be denied because Johnston-Willis failed to demonstrate that sufficient need existed within the patient population for the services, that existing obstetrical beds in Planning District 15 are presently under-utilized and there is a projected excess of OB beds, and that other facilities providing obstetrical services in Planning District 15 would be adversely affected. Nevertheless, the CVHSA Board of Directors recommended that the Commissioner approve Johnston-Willis' proposal because the proposal would purportedly correct maldistribution of obstetrical services in Planning District 15, and improve access to obstetrical services in a high growth area.

The Division of Resources Development staff of the Department of Health contemporaneously prepared an extensive report analyzing Johnston-Willis' application. The staff recommended that the Commissioner deny Johnston-Willis' application because Johnston-Willis failed to demonstrate additional OB beds were necessary to meet current or future needs; that Johnston-Willis' close proximity to Chippenham Hospital, some six miles away, whose OB utilization was 63.7 percent in 1984, made establishment of OB services at Johnston-Willis unnecessary and costly; utilization of existing obstetrical services in Planning District 15 was low; and that the project was not consistent with the State Health Plan or the 1984 State Medical Facilities Plan.

On November 21, 1985, the Commissioner's hearing officer conducted an informal fact-finding conference, pursuant to Code § 9-6.14:11, to determine whether Johnston-Willis' proposal was consistent with the State Health Plan and State Medical Facilities Plan. During the conference, Johnston-Willis presented numerous witnesses, including area practicing physicians, a statistical expert, an architect, and the hospital administrator. Johnston-Willis entered numerous exhibits into the record, including evidence of traffic patterns, density, and congestion in Chesterfield County. Johnston-Willis also presented a report responding to the Commissioner's staff's analysis of its application for a CON.

On January 16, 1986, the Commissioner notified Johnston-Willis that its application for a CON had been denied, based upon the unfavorable recommendation of the hearing officer, Marilyn H. West. Among the more relevant findings of fact contained in the report prepared by the hearing officer were the following:

(1) There are five hospitals in Planning District 15 that now provide obstetrical services. These hospitals according to the size and occupancy of their OB units in 1983 and 1984 follow:

                                                       Occupancy
                                                      1984   1983
                Chippenham Hospital          32 beds  63.6    97.7
                Henrico Doctor's Hospital    34 beds  94.9   102.1
                Medical College of Virginia  74 beds  79.4    66.9
                Richmond Memorial Hospital   42 beds  28.1*   34.2
                St. Mary's Hospital          35 beds  58.7    60.5
                

* Estimated

(2) While studies conducted by the Chesterfield County Planning Department and Highway Department substantiate the impact that population and commercial growth in Chesterfield County has had on increasing the traffic congestion on Midlothian Turnpike and Route 147, the record also contains the following evidence:

(a) While 65.4% of future growth in Chesterfield County will be within its Midlothian and Clover Hill magisterial districts, the population of these areas represents less than 50% of the total area to be served by Johnston-Willis.

(b) The traffic flows from south and west of the hospital in a fairly uninterrupted fashion owing to the relative rural nature of these areas.

(c) There are alternative routes available which may be used by Chesterfield County residents to obtain obstetrical services.

(d) Chesterfield County is ranked third among Virginia localities in terms of traffic congestion by the Highway Department. Such high ranking increases a likelihood that approaches for relieving congestion will be investigated and implemented. The Powhite extension is a result of such study.

(e) The record does not contain evidence to demonstrate that the residents of the areas to be served by Johnston-Willis Hospital have experienced significant delays in obtaining needed services.

(f) The record shows that of the Chesterfield County deliveries to Planning District 15 hospitals in 1984, 54.1 percent [were] in hospitals that were located at a greater distance from Johnston-Willis hospital than Chippenham Hospital. When this same thinking is applied to other residents of the primary service area of Johnston-Willis Hospital, 62.7 percent of Powhatan residents, 59.1 percent of Amelia residents and 69.8 percent of Nottoway residents delivered at Planning District 15 hospitals other than Chippenham Hospital. Chippenham Hospital's occupancy in 1984 was 63.6 percent. It is also noted...