Liberty Dialysis-Hawaii, LLC v. Rainbow Dialysis, LLC

• Decision Date: 27 June 2013
• Docket Number: No. SCAP–12–0000018.,SCAP–12–0000018.
• Citation: 306 P.3d 140,130 Hawai'i 95
• Court: Hawaii Supreme Court
• Parties: LIBERTY DIALYSIS–HAWAII, LLC, a Delaware limited liability company, Petitioner/Appellant–Appellant/Cross–Appellee, v. RAINBOW DIALYSIS, LLC, a Delaware limited liability company, Respondent/Appellee–Appellee/Cross–Appellant, and State Health Planning & Development Agency, Department of Health, State of Hawai‘i, an administrative agency of the State of Hawai‘i, Respondent/Appellee–Appellee.

130 Hawai'i 95

306 P.3d 140

LIBERTY DIALYSIS–HAWAII, LLC, a Delaware limited liability company, Petitioner/Appellant–Appellant/Cross–Appellee,

v. RAINBOW DIALYSIS, LLC, a Delaware limited liability company, Respondent/Appellee–Appellee/Cross–Appellant,andState Health Planning & Development Agency, Department of Health, State of Hawai‘i, an administrative agency of the State of Hawai‘i, Respondent/Appellee–Appellee.

No. SCAP–12–0000018.

Supreme Court of Hawai‘i.

June 27, 2013.

Reconsideration Denied July 16, 2013.

Daniel P. Collins, for petitioner.

Ellen Godbey Carson, Honolulu, for respondent Rainbow Dialysis, LLC.

Ann V. Andreas, Honolulu, for respondent State of Hawaii.

RECKTENWALD, C.J., NAKAYAMA, and McKENNA, JJ., with ACOBA, J., dissenting, with whom POLLACK, J., joins.

Opinion of the Court by RECKTENWALD, C.J.

This appeal requires us to consider whether the Department of Health's general administrative rules concerning disqualification apply to State Health Planning & Development Agency (SHPDA) committees that are established to reconsider the agency's approval of a Certificate of Need. Briefly stated, SHPDA granted Rainbow Dialysis, LLC a conditional Certificate of Need to establish two outpatient dialysis facilities at Kaiser Foundation Health Plan, Inc., facilities on Maui. Another Maui dialysis provider, Liberty Dialysis–Hawaii, LLC, sought reconsideration of SHPDA's decision. Thereafter, a five-member Reconsideration Committee unanimously approved Rainbow's conditional Certificate of Need.

Liberty appealed the Reconsideration Decision to the circuit court, arguing that SHPDA Administrator Ronald E. Terry and another Reconsideration Committee member, Anne Trygstad, should have been disqualified from participating in the Reconsideration Decision under the Department of Health rules. Liberty also argued that the Reconsideration Committee failed to review Rainbow's application de novo, and thereby improperly placed the burden of proof on Liberty. The circuit court affirmed, holding that the SHPDA Administrator should have been disqualified, but that his participation in the Reconsideration Decision was harmless.¹ The circuit court rejected Liberty's remaining points of error.

On appeal to this court, Liberty argues that Administrator Terry's participation was not harmless and, in any event, Rainbow did not timely raise this argument. Liberty also argues that the Reconsideration Committee erred in refusing to disqualify Trygstad. Finally, Liberty argues that, if this court remands for a new reconsideration hearing based on Liberty's disqualification arguments, it also should advise the Reconsideration Committee that Rainbow bears the burden of proof on remand. Rainbow cross-appealed, and argues that the circuit court erred in determining that Administrator Terry should have been disqualified.

We hold that neither Administrator Terry nor Trygstad was disqualified from participating in the Reconsideration Decision. With regard to Administrator Terry, Liberty relies on Hawai‘i Administrative Rules (HAR) § 11–1–25(a)(4), a Department of Health rule that prohibits a hearings officer from hearing or deciding a contested case in which he or she "substantially participated in making the decision or action contested[.]" However, in crafting the reconsideration statute, Hawai‘i Revised Statutes § 323D–47, the legislature clearly intended that the SHPDA administrator participate in both the initial decision on a Certificate of Need, and in any reconsideration of that decision. Because HAR § 11–1–25(a)(4) conflicts with this intent, it would be invalid if applied in the circumstances here. Accordingly, we hold that HAR § 11–1–25(a)(4) is inapplicable.

With regard to Trygstad, Liberty relies on HAR § 11–1–25(a)(2), a Department of Health rule that provides for disqualification where a hearings officer, director or member is "related within the third degree by blood or marriage to any party to the proceeding or any party's representative or attorney [.]" Liberty alleges that Trygstad's brother-in-law is the "Kaiser Permanente physician-in-charge for Maui," and testified as a Kaiser representative in three SHPDA advisory panel hearings prior to the initial decision on Rainbow's application, and that, accordingly, Trygstad should have been disqualified from the Reconsideration Committee. We hold that HAR § 11–1–25 is inapplicable to the SHPDA reconsideration proceedings. SHPDA's more specific rule, HAR § 11–185–32, governs disqualification practices and procedures in these proceedings, and does not require that Trygstad be disqualified.

Because our resolution of these issues is dispositive, we do not address Liberty's remaining points of error. Based on the foregoing, we affirm the circuit court's judgment, which affirmed the Reconsideration Decision.

I. Background

The following factual background is taken from the record on appeal.

A. Rainbow's Certificate of Need application

Rainbow filed a Certificate of Need (CON) application² with SHPDA for the establishment of two outpatient dialysis facilities on Maui. Rainbow is and was a wholly owned affiliate of Kaiser Foundation Health Plan, Inc. (Kaiser). Rainbow's two facilities would be located in or near existing Kaiser clinics in Wailuku and Lahaina. Rainbow asserted that internalizing dialysis services within Kaiser's health care system would improve management of patient care, provide benefits to patients in isolated parts of West Maui, bring competition to the dialysis market and lower prices, create savings over the dialysis services then being provided by Liberty, allow for more robust provision of services for QUEST patients, and allow Kaiser to pass savings on to the community in the form of financial and in-kind donations to community partners.

Liberty opposed Rainbow's CON application, asserting that the application failed to meet several criteria for the grant of a CON. Additionally, Liberty asserted that it has provided dialysis services on Maui since 2006, and that there were several reasons that Kaiser's dialysis expenditures had increased, including an increase in the number of Kaiser patients receiving dialysis, regulatory changes, and inflation. Liberty also asserted that its mission "includes providing a safety net[,]" and that its ability to continue to provide services was dependent on its ability "to spread the real costs across a broad base of commercial patients[.]" Liberty asserted that Rainbow's proposal would jeopardize Liberty's "ability to maintain its current scope of services for persons who are not insured by Kaiser." Specifically, "[i]f the small percentage of patients with commercial insurance declines or disappears, Liberty [ ] will be unable to continue to subsidize operations in more remote regions or care for a substantial portion of the underinsured or uninsured patients who currently receive care from Liberty [ ]."

As required under HRS § 323D–44(a),³ three separate SHPDA advisory panels considered Rainbow's CON application: the Tri–Isle Subarea Health Planning Council, the CON Review Panel, and the Statewide Health Coordinating Council (SHCC). Each advisory panel held public meetings in which they received extensive testimony both for and against the proposal, and each issued non-binding recommendations. By a 4–1 vote, the Tri–Isle Subarea Health Planning Council recommended approval of the application. By a 5–0 vote (with one abstention), the CON Review Panel recommended denial of the application. By a 7–4 vote, the SHCC recommended denial of the application.

On May 3, 2010, SHPDA, through Administrator Terry, filed a Decision on the Merits, approving Rainbow's application and issuing a conditional CON. In so doing, SHPDA imposed three conditions on Rainbow. First, Rainbow was required to submit a "detailed long-term implementation plan" regarding how it and Kaiser would allocate cost reductions to the public and community. Second, Rainbow was required to provide a written acknowledgment that failure to fulfill the implementation plan would constitute a breach of the HAR and could result in withdrawal of the CON. Finally, Rainbow was required to enter into a joint and several written undertaking with Kaiser to provide chronic renal dialysis services to Hana and Molokai, should Liberty cease providing services in those communities within 10 years of the Decision on the Merits. Rainbow subsequently informed SHPDA by letter that it accepted the conditions set forth in the conditional CON and modified its application accordingly.

Liberty sought reconsideration of the Decision on the Merits pursuant to HRS § 323D–47(5)⁴ and HAR § 11–186–82.⁵ Liberty argued that there was good cause for reconsideration because SHPDA's decision differed from the recommendation of the SHCC.

Pursuant to HRS § 323D–47, a five-member Reconsideration Committee was convened, composed of Administrator Terry, and the chairpersons of the SHCC, the CON review panel, the plan development committee of the SHCC, and the Tri–Isle Subarea Health Planning Council. On June 14, 2010, four of the five Reconsideration Committee members convened a public meeting and voted to convene a public hearing for reconsideration of the Decision on the Merits.⁶ SHPDA appointed Andrew Tseu as Hearings Officer "to facilitate pre-hearing conferences and hearing procedures for the Reconsideration Committee."

Prior to the hearing on Liberty's reconsideration request, Liberty filed a motion to disqualify Administrator Terry from the Reconsideration Committee pursuant to HAR § 11–1–25(a)(4) and (5),⁷ on the ground that he could not sit in review of his own decision and had a personal bias or prejudice that would prevent him from rendering a fair and impartial decision. Specifically, Liberty argued:

In the present matter, HAR § 11–1–25 mandates Terry's disqualification from the reconsideration hearing because, not only did Terry substantially participate in the certificate of need review process but, as the

...