Lenoir Memorial Hosp., Inc. v. North Carolina Dept. of Human Resources, Div. of Facility Services, Certificate of Need Section

• Decision Date: 17 April 1990
• Docket Number: No. 8910DHR766,8910DHR766
• Citation: 390 S.E.2d 448,98 N.C.App. 178
• Court: North Carolina Court of Appeals
• Parties: LENOIR MEMORIAL HOSPITAL, INC., Petitioner, v. NORTH CAROLINA DEPARTMENT OF HUMAN RESOURCES, DIVISION OF FACILITY SERVICES, CERTIFICATE OF NEED SECTION, Respondent.

Page 448

390 S.E.2d 448

98 N.C.App. 178

LENOIR MEMORIAL HOSPITAL, INC., Petitioner, v. NORTH CAROLINA DEPARTMENT OF HUMAN RESOURCES, DIVISION OF FACILITY SERVICES, CERTIFICATE OF NEED SECTION, Respondent.

No. 8910DHR766.

Court of Appeals of North Carolina.

April 17, 1990.

Moore & Van Allen by Noah H. Huffstetler, III and Margaret A. Nowell, Raleigh, for petitioner-appellant.

Attorney Gen. Lacy H. Thornburg by Asst. Attys. Gen. Meg Scott Phipps and Richard A. Hinnant, Jr., Raleigh, for respondent-appellee.

LEWIS, Judge.

Lenoir Memorial Hospital, Inc. ("Lenoir") is a general, acute care hospital located in Kinston, North Carolina. The primary service area for Lenoir is Lenoir County, and its secondary service area includes Greene and Jones Counties. For planning purposes, these three counties are included with twenty-six others in Health Systems Area ("HSA") VI by the 1987 State Medical Facilities Plan ("SMFP").

The 1987 SMFP showed that HSA VI had a total projected need in 1989 of 354 psychiatric beds, but only 308 existing beds. However, because 42 beds had previously been approved for development within the area, the unmet need for HSA VI was defined in the 1987 SMFP to be 4 beds.

HSA VI

1989 PSYCHIATRIC BED NEED DETERMINATION

(Excludes Chemical Dependency)

                  1989    Existing   Approved   Adjusted   (Surplus)
                Bed Need  Inventory   Changes   Inventory   Deficit
                  354        308        42         350         4
                

In calculating the inventory of existing psychiatric beds in HSA VI, 26 beds which had been approved for the Community Hospital of Rocky Mount ("Community Hospital") but not yet developed were included in the "Adjusted Inventory" under the category of "Approved Changes." Community Hospital surrendered its Certificate of Need for those beds. The Respondent then gave notice "that there are 26 additional psychiatric beds available in Eastern Carolina Health Systems Area (VI)" which "brings the total needed for ... HSA (VI) to 30 psychiatric beds." Six weeks later, the Respondent ("Agency") sent out a memorandum stating that the 30 beds previously announced were not available. That memorandum stated: "To: All Interested Parties: This decision is being made in the interest of fairness to all parties who may have wanted to apply for the psychiatric beds relinquished by the Community Hospital of Rocky Mount because ample notice could not be provided to all interested parties in a timely manner for a review this year."

At the time of the announcement, there were no operational psychiatric beds within the three-county area served by Lenoir. In response to the Agency's first announcement, Lenoir applied for a Certificate of Need to convert 22 of its existing but currently unused beds for use as psychiatric beds. The Agency notified Lenoir that its application had been determined complete, evaluated but disapproved as "not consistent with need projections in the 1987 SMFP." The Agency did not adjust the Inventory to reflect the fact that the Certificate of Need for the development of 26 additional beds by Community Hospital had been surrendered.

Pursuant to G.S. § 131E-188(a), Lenoir appealed for a review by an Administrative Law Judge. After a hearing, the Administrative Law Judge issued a Recommended Decision which concluded, inter alia, that the Agency's decision was erroneous as a matter of law and recommended that the North Carolina Department of Human Resources (the "Department") grant a Certificate of Need to Lenoir. Under G.S. § 131E-188(a), this Recommended Decision was subject to further review by the Department. The Department upheld the decision of the Agency to deny a Certificate of Need to Lenoir, rejecting the Administrative Law Judge's recommendation. The petitioner, Lenoir Memorial Hospital, appeals.

The applicable standard of judicial review of a final decision of the Department of Human Resources with respect to an application for a Certificate of Need was set out in G.S. § 150A-51 (1983), amended and recodified at G.S. § 150B-51 (1985) (effective 1 January 1986). In re Charter Pines Hosp. v. N.C. Dep't. of Human Resources, 83 N.C.App. 161, 164-65, 349 S.E.2d 639, 642 (1986), cert. denied, 319 N.C. 105, 353 S.E.2d 106 (1987). Relying on that statute, the petitioner argues that the decision of respondent was "arbitrary, capricious and erroneous as a matter of law" in the Agency's determination (1) that Lenoir's proposal was inconsistent with the 1987 State Medical Facilities Plan (SMFP), and (2) that Lenoir's proposal is not needed. The decision of an administrative agency may be contested on the grounds that the Agency "[a]cted arbitrarily or capriciously." G.S. § 150B-23(a)(4). In State ex rel. Comm'r of Ins. v. N.C. Rate Bureau, 300 N.C. 381, 269 S.E.2d 547, reh'g denied, 301 N.C. 107, 273 S.E.2d 300 (1980), "arbitrary and capricious" is defined as:

Agency decisions have been found arbitrary and capricious, inter alia, when such decisions are "whimsical" because they indicate a lack of fair and careful consideration; when they fail to indicate "any course of reasoning and the exercise of judgment," Board of Education [of Blount County] v. Phillips, 264 Ala. 603, 89 So.2d 96 (1956).... "The ultimate purpose of rulemaking review is to insure 'reasoned decisionmaking'...." Daye, [North Carolina's New Administrative Procedure Act: An Interpretive Analysis, 53 N.C.L.Rev. 833 (1975) ] at 922, citing Verkuil, Judicial Review of Informal Rulemaking, 60 Va.L.Rev. 185, 230 (1974).

Id. at 420, 269 S.E.2d at 573.

I: The Agency's Determination that Lenoir's Proposal was Inconsistent with the 1987 SMFP.

In examining the decision by the Agency that Lenoir's proposal was inconsistent with the 1987 SMFP, petitioner addresses two assignments of error: (A.) the calculation of the number of beds made available for development under the 1987 SMFP, and (B.) the failure to consider applicable provisions of the SMFP in the Agency's review of Lenoir's proposal.

A. The calculation of the number of beds.

The North Carolina Administrative Code describes the procedure for applying for a Certificate of Need in 10 N.C.Admin.Code 3R.0313(b) (Oct. 1981). The 1987 SMFP requires that the Agency have an inventory and that inventory is to be "continuously updated" and "[b]ed counts are revised in the state's inventory as changes are reported and approved."

Petitioner contends that when Community Hospital surrendered its certificate to develop 26 psychiatric beds which had been included in the "approved changes" and "adjusted Inventory," the effect should have been to increase the number of beds available from 4 to 30. Petitioner supports its argument by (1) citing "the Agency's own statements" and (2) pointing to the adjustment made by the Agency for the beds at Duplin General Hospital.

(1) The Agency sent a letter to Community Hospital in which it requested the surrender of its 26 beds because the "need of 4 beds [as stated in the 1987 SMFP] was determined after placement in the inventory the 26 beds for which you are approved. Thus, the real need in the Service [Eastern Carolina HSA (VI) ] Area is 30 beds." Also, the Agency sent an announcement to area mental health centers and to two newspapers stating the availability of 26 additional beds, "[bringing] the total needed for Eastern Carolina HSA (VI) to 30 psychiatric beds" after the Community Hospital beds were surrendered.

(2) When eight acute care beds at Duplin General Hospital were converted from acute care beds to psychiatric beds, an adjustment was made decreasing the number of beds available in the HSA VI area. During the deposition of Tim Ford, the Agency employee who was the project analyst for the review of Lenoir's application, the manner of adding and subtracting beds to the Inventory during the year was discussed.

Q. Would it be fair to say, Mr. Ford, that the Agency policy would be that, if additional beds became available during the year, they were added to the Inventory, but that, if beds were, for some reason, turned back in, as the Community Hospital did in this case, those beds were not subtracted out of the Inventory?

A. ... This situation never came up before, ... but it was addressed at this time.

Q. So, prior to this particular decision, to your knowledge, there was no agency policy on what happens when beds are returned?

A. This is correct, not to my knowledge.

Q. Would it be fair to say that, in accordance with the policy decision that [the Chief of the Certificate of Need Section] made in this review, that we have discussed, beds could be subtracted from the need figure that is added to the inventory, making less need, but the reverse could not happen; that is, beds would not be subtracted from the inventory and added to the need in the middle of the year?

A. Not in the middle of the year....

The Respondent contends "policy did exist for the downward adjustment of bed need, but not for the upward adjustment" and that "to count the returned 26 beds in the bed need would have been an application of an unpromulgated rule and thus, invalid." Lenoir argues that "the Agency's refusal to adjust the inventory [to reflect the Community Hospital beds] violates the legislative intent underlying the Certificate of Need Law." Stevenson v. City of Durham, 281 N.C. 300, 303, 188 S.E.2d 281, 283 (1972), held:

The primary rule of statutory construction is that the intent of the legislature controls the interpretation of a statute. In seeking to discover this intent, the courts should consider the language of the statute, the spirit of the act, and what the act seeks to accomplish. (Citations omitted.)

"The General Assembly of North Carolina makes the following findings: ... that citizens need assurance of economical and readily available health care." G.S. § 131E-175(2). The Agency itself stated, as discussed above, that "the real need [for psychiatric beds] in the Service [Eastern Carolina HSA (VI) ] Area is 30 beds." The...