Surgical Care Affiliates, LLC v. N.C. Dep't of Health & Human Servs.

• Citation: 762 S.E.2d 468
• Decision Date: 19 August 2014
• Docket Number: No. COA13–1322.,COA13–1322.
• Court: Court of Appeal of North Carolina (US)
• Parties: SURGICAL CARE AFFILIATES, LLC and Blue Ridge Day Surgery Center, L.P., Petitioners, v. N.C. DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION OF HEALTH SERVICE REGULATION, CERTIFICATE OF NEED SECTION, Respondent, and Wakemed, Respondent–Intervenor.

762 S.E.2d 468

SURGICAL CARE AFFILIATES, LLC and Blue Ridge Day Surgery Center, L.P., Petitioners,

v. N.C. DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION OF HEALTH SERVICE REGULATION, CERTIFICATE OF NEED SECTION, Respondent,andWakemed, Respondent–Intervenor.

No. COA13–1322.

Court of Appeals of North Carolina.

Aug. 19, 2014.

Appeal by Petitioners from Final Decision entered 23 July 2013 by Judge Eugene J. Cella in the Office of Administrative Hearings. Heard in the Court of Appeals 23 April 2014.

Nexsen Pruet, PLLC, Raleigh, by Frank S. Kirschbaum, Robert A. Hamill, and Rachael Lewis Anna, for Petitioners.

Attorney General Roy Cooper, by Special Deputy Attorney General June S. Ferrell, for Respondent.

Smith Moore Leatherwood LLP, Greensboro, by Maureen Demarest Murray, Terrill Johnson Harris, and Carrie A. Hanger for Respondent–Intervenor.

STEPHENS, Judge.

Background

This case involves the proposed relocation of two specialty ambulatory operating rooms from Southern Eye Ophthalmic Surgery Center (“Southern Eye”) ¹ to the WakeMed health care system's Raleigh Campus, where the operating rooms would be used as “shared operating rooms” for inpatients and outpatients. WakeMed is a nonprofit corporation that owns and operates multiple health care facilities in the Triangle region of North Carolina. WakeMed purchased Southern Eye on 10 May 2012 with the intention of relocating its operating rooms to WakeMed Raleigh. Petitioners Surgical Care Affiliates, LLC (“SCA”) and Blue Ridge Day Surgery Center, L.P. (“Blue Ridge”) ² operate a multispecialty ambulatory surgical facility in Raleigh,³ are direct competitors with WakeMed, and contest the proposed relocation of these rooms.

WakeMed filed a certificate of need (“CON”) application with the North Carolina Department of Health and Human Services (“the Agency”) on 16 April 2012, officially proposing to move the two operating rooms to its Raleigh Campus. The Agency conditionally granted that application on 27 September 2012. Following the Agency's decision, SCA and Blue Ridge petitioned for a contested case hearing to challenge the decision.⁴ An administrative law judge with the Office of Administrative Hearings (“the ALJ”) heard the matter beginning 15 April 2013 and affirmed the Agency's decision on 23 July 2013 by final decision. Petitioners appeal from the ALJ's final decision.

Discussion

On appeal, Petitioners argue that the ALJ erred in affirming the Agency's decision because (1) the Agency failed to apply certain agency-created regulations, referred to by Petitioners as “the conversion rules,” to WakeMed's CON application and (2) this failure “substantially prejudice[d] [Petitioners'] rights.” We affirm the decision of the ALJ on the issue of substantial prejudice and, therefore, do not reach the issue of the application of the conversion rules.

I. Standard of Review

“In cases appealed from administrative tribunals, we review questions of law de novo and questions of fact under the whole record test.” Diaz v. Div. of Soc. Servs., 360 N.C. 384, 386, 628 S.E.2d 1, 2 (2006) (citation omitted). Pursuant to section 150B–51 of the North Carolina General Statutes:

(b) The court reviewing a final decision may affirm the decision or remand the case for further proceedings. It may also reverse or modify the decision if the substantial rights of the petitioners may have been prejudiced because the findings, inferences, conclusions, or decisions are:

(1) In violation of constitutional provisions;

(2) In excess of the statutory authority or jurisdiction of the agency or administrative law judge;

(3) Made upon unlawful procedure;

(4) Affected by other error of law;

(5) Unsupported by substantial evidence admissible under [sections] 150B–29(a), 150B–30, or 150B–31 in view of the entire record as submitted; or

(6) Arbitrary, capricious, or an abuse of discretion.

(c) In reviewing a final decision in a contested case, the court shall determine whether the petitioner is entitled to the relief sought in the petition based upon its review of the final decision and the official record. With regard to asserted errors pursuant to subdivisions (1) through (4) of subsection (b) ..., the court shall conduct its review of the final decision using the de novo standard of review. With regard to asserted errors pursuant to subdivisions (5) and (6) of subsection (b) ..., the court shall conduct its review of the final decision using the whole record standard of review.

N.C. Gen.Stat. § 150B–51(b)–(c) (2013) (italics added). “Under de novo review, the court considers the matter anew and freely substitutes its own judgment for that of the trial court.” McMillan v. Ryan Jackson Props., LLC, ––– N.C.App. ––––, ––––, 753 S.E.2d 373, 377 (2014) (citation and internal quotation marks omitted).

In applying the whole record test, the reviewing court is required to examine all competent evidence ... in order to determine whether the [final] decision is supported by “substantial evidence.” Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.

Parkway Urology, P.A. v. N.C. Dep't of Health & Human Servs., 205 N.C.App. 529, 535, 696 S.E.2d 187, 192 (2010) (citations omitted), disc. rev. denied, ––– N.C. ––––, 705 S.E.2d 753 (2011) [hereinafter Parkway Urology ].

II. Substantial Prejudice

After the Agency decides to issue, deny, or withdraw a CON or exemption or to issue a CON pursuant to a settlement agreement, “any affected person [as defined by section 131E–188(c) ] shall be entitled to a contested case hearing under Article 3 of Chapter 150B of the General Statutes.” Id. at 535, 696 S.E.2d at 192 (citation omitted). Subsection (c) defines an “affected person” as, inter alios, “any person who provides services, similar to the services under review, to individuals residing within the service area or the geographic area proposed to be served by the applicant.” N.C. Gen.Stat. § 131E–188(c) (2013). In addition to meeting this “prerequisite[ ] to filing a petition for a contested case hearing regarding CONs,” the petitioner must also satisfy “the actual framework for deciding the contested case [as laid out in section 150B–23(a) of] Article 3 of Chapter 150B of the General Statutes.” Parkway Urology, 205 N.C.App. at 536, 696 S.E.2d at 193 (citation omitted; emphasis in original).

Section 150B–23(a) of the North Carolina General Statutes provides that a petitioner must state facts in its petition which

tend[ ] to establish that the agency named as the respondent has deprived the petitioner of property, has ordered the petitioner to pay a fine or civil penalty, or has otherwise substantially prejudiced the petitioner's rights and that the agency:

(1) Exceeded its authority or jurisdiction;

(2) Acted erroneously;

(3) Failed to use proper procedure;

(4) Acted arbitrarily or capriciously; or

(5) Failed to act as required by law or rule.

N.C. Gen.Stat. § 150B–23(a) (2013) (emphasis added).⁵ This Court has interpreted subsection (a) to mean that the ALJ in a contested case hearing must “determine whether the petitioner has met its burden in showing that the agency substantially prejudiced [the] petitioner's rights.” Parkway Urology, 205 N.C.App. at 536, 696 S.E.2d at 193 (citation and emphasis omitted) (overruling the petitioner's argument that it was not required to show substantial prejudice as long as it could show that it was an affected person). Therefore, under section 150B–23 and our opinion in Parkway Urology, a petitioner in a CON case must show (1) either that the agency (a) has deprived the petitioner of property, (b) ordered the petitioner to pay a fine or civil penalty, or (c) substantially prejudiced the petitioner's rights, and (2) that the agency erred in one of the ways described above. SeeN.C. Gen.Stat. § 150B–23(a); 205 N.C.App. at 536, 696 S.E.2d at 193; see also CaroMont Health, Inc. v. N.C. Dep't of Health & Human Servs., –––N.C.App. ––––, ––––, 751 S.E.2d 244, 248 (2013) (“The administrative law judge must, therefore, determine whether the petitioner has met its burden in showing that the agency substantially prejudiced [the] petitioner's rights, as well as whether the agency also acted outside its authority, acted erroneously, acted arbitrarily and capriciously, used improper procedure, or failed to act as required by law or rule.”) (citation omitted; certain emphasis added).

Here, the ALJ concluded in the final decision that Petitioners were “ ‘affected persons' because they provide surgical services that are similar to services provided by WakeMed,” and the parties do not dispute that conclusion. In addition, Petitioners do not argue that the Agency deprived them of property or ordered them to pay a fine or civil penalty. Rather, Petitioners contend that they were substantially prejudiced by the Agency's decision, which was erroneously and improperly decided. Specifically, Petitioners argue that they were substantially prejudiced either (1) as a matter of law or, in the alternative, (2) because the Agency's decision gives WakeMed an unfair competitive advantage amounting to substantial prejudice. We disagree.

(1) Substantial Prejudice as a Matter of Law

Petitioners contend that the Agency's decision substantially prejudiced their rights as a matter of law because (a) the ALJ had already determined that Petitioners were substantially prejudiced and (b) the Agency's alleged failure to follow its own rules necessarily constitutes substantial prejudice as a matter of law. We are unpersuaded.

(a) The ALJ's Statement

Petitioners assert that the Agency's decision substantially prejudiced their rights as a matter of law because the ALJ made a finding to that effect during the contested case hearing. This argument takes the ALJ's statement out of context. Responding to WakeMed's motion for summary judgment, the ALJ made the following comment at the hearing:

The Court: All right. As far as this particular motion is concerned...