Wake Radiology Diagnostic Imaging LLC v. N.C. Dep't of Health & Human Servs.

• Decision Date: 05 October 2021
• Docket Number: No. COA20-759,COA20-759
• Citation: 279 N.C.App. 673,866 S.E.2d 489
• Parties: WAKE RADIOLOGY DIAGNOSTIC IMAGING LLC, Petitioner, v. NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, Division of Health Service Regulation, Health Care Planning and Certificate of Need, Respondent, and the Bone and Joint Surgery Clinic, LLP, Respondent-Intervenor.
• Court: North Carolina Court of Appeals

279 N.C.App. 673

866 S.E.2d 489

WAKE RADIOLOGY DIAGNOSTIC IMAGING LLC, Petitioner,

v.NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, Division of Health Service Regulation, Health Care Planning and Certificate of Need, Respondent, and the Bone and Joint Surgery Clinic, LLP, Respondent-Intervenor.

No. COA20-759

Court of Appeals of North Carolina.

Filed October 5, 2021

Wyrick Robbins Yates & Ponton LLP, Raleigh, by Frank Kirschbaum and Charles George, for petitioner-appellant.

Attorney General Joshua H. Stein, by Assistant Attorney General Bethany A. Burgon, for respondent-appellee.

Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., Greensboro, by James C. Adams, II, and Forrest W. Campbell, Jr., for intervenor-appellee.

DIETZ, Judge.

¶ 1 In North Carolina, health care providers cannot acquire a new MRI scanner (or most other types of medical equipment) without permission from the State in the form of a "certificate of need." In the typical scenario, State health experts would first determine that there is a need for another MRI scanner in a particular community, and then interested providers would apply to the State and fight over whose application should be accepted, with the winner ultimately getting the new piece of equipment.

¶ 2 This case is not the typical scenario. Fifteen years ago, State health experts identified a need for a "demonstration project" in Wake County. That project required a provider to acquire an MRI scanner solely for extremity scans, not whole-body scans. State health officials wanted to use the demonstration project to assess whether this type of limited-use MRI scanner would save patients money.

¶ 3 Bone and Joint Surgery Clinic received a certificate of need for use with this demonstration project and acquired an MRI scanner. The certificate of need stated that the MRI machine would create a "diagnostic center" at Bone and Joint's location to carry out the demonstration project. Many years later, during an office move, the MRI scanner was destroyed. Bone and Joint got permission to replace it with a more advanced MRI machine, but only if it used the new machine for the limited functions in the existing certificate of need.

¶ 4 The following year, State health experts ended the demonstration project and recategorized Bone and Joint's MRI scanner as just another scanner of the many located in Wake County. Bone and Joint then applied for a new certificate of need that removed the existing restrictions, so it could use its current MRI scanner to its full capabilities. The agency approved that request.

¶ 5 As a result, Bone and Joint acquired a whole-body MRI scanner without having to compete with other health care providers to get it. Wake Radiology Diagnostic Imaging

, one of those potential competitors, challenged the agency's decision. An administrative law judge ruled against Wake Radiology and this appeal followed.

¶ 6 We affirm. By law, State regulators can change the scope of an existing certificate of need if the change was proposed "within one year after the project was completed" and the change concerned "the addition of a health service that is to be located in the facility ... that was ... developed in the project." N.C. Gen. Stat. § 131E-176(16)(e).

¶ 7 Here, within one year after the demonstration project ended, Bone and Joint applied for a change to offer additional MRI services at the diagnostic center created when it initially acquired its limited-use MRI scanner. That application falls squarely within the plain language of N.C. Gen. Stat. § 131E-176(16)(e) and we therefore hold that the agency properly issued the challenged certificate of need. Wake Radiology contends that this plain reading of the statute creates a loophole, allowing an end-run around the intended need determination and competitive review process. That is not a concern for this Court. We interpret the law as it is written. If that interpretation results in an unintended loophole, it is the legislature's role to address it.

Facts and Procedural History

¶ 8 In 2006, Bone and Joint Surgery Clinic applied for a certificate of need (CON) to obtain a .23T fixed extremity MRI scanner to be used for a "demonstration project" under the State Medical Facilities Plan. The Department of Health and Human Services awarded Bone and Joint the requested CON in March 2007.

¶ 9 The designated scope of this CON was to "[a]cquire a fixed extremity MRI scanner resulting in the establishment of a diagnostic center."

The CON imposed a number of conditions on Bone and Joint designed to achieve the goals of the demonstration project.

¶ 10 First, it limited the use of the .23T MRI scanner to extremity scans and not "whole body scans

." Second, it required Bone and Joint to conduct a "research study" meant to provide insight into the "convenience, cost effectiveness and improved access" provided by this limited-use MRI machine. The ultimate goal was to "demonstrate any cost savings to the patient or third party payer" from this sort of use of an MRI scanner.

¶ 11 Finally, the CON required Bone and Joint to submit annual reporting to both DHHS and the State Health Coordinating Council for three years. Although this reporting requirement lasted only for three years, the demonstration project continued, and Bone and Joint continued to use the .23T MRI scanner for many years after the reporting requirement ended.

¶ 12 In 2016, nearly a decade after receiving the initial CON, Bone and Joint applied for an exemption from CON review to purchase a replacement .23T MRI scanner machine for the same purpose and use as the existing machine. DHHS granted this exemption with no appeal.

¶ 13 Then, in 2018, Bone and Joint's existing .23T MRI machine was destroyed during an office move. Bone and Joint again applied for a CON exemption to obtain replacement equipment. This time, Bone and Joint asked to purchase a 3.0T MRI scanner—a machine with greater imaging functionality than its existing .23T MRI scanner—but only for the same use and purpose as its existing machine. DHHS granted this exemption as well.

¶ 14 Wake Radiology appealed this agency decision as an "affected person" under N.C. Gen. Stat. § 131E-188(b). In 2019, an administrative law judge concluded that, although the 3.0T MRI scanner had greater capabilities than the .23T MRI scanner it would replace, it still constituted "replacement equipment under N.C. Gen. Stat. § 131E-176(22a)." But the ALJ also ruled that "operation of the replacement MRI is conditioned on conformance with the March 28, 2007 Certificate of Need"; that the new 3.0T "MRI must be used for the same diagnostic or treatment purposes"; and that Bone and Joint "is entitled to use the 3.0 Tesla to perform only the types of studies previously done with the extremity scanner it replaces, unless and until the certificate of need is modified or replaced." Again, there was no appeal of this decision.

¶ 15 Several months later, on 29 May 2019, the State Health Coordinating Council declared that the 2007 demonstration project concerning Bone and Joint's MRI scanner was now complete. As a result, Bone and Joint's 3.0T MRI machine moved from the demonstration project category into the State's regular MRI inventory category in the 2020 State Medical Facilities Plan. This decision was approved by the Governor.

¶ 16 On 15 August 2019, Bone and Joint applied to DHHS for a new CON so that it could use the 3.0T MRI scanner to its full capability, consistent with its designation in the State Medical Facilities Plan.

¶ 17 The agency reviewed the application and determined that a need assessment and full competitive review process were not required. But the agency chose to solicit public comment and hold a public hearing on the matter under N.C. Gen. Stat. § 131E-185, although the agency believed it was not legally required to do so. Wake Radiology submitted public comment opposing the application.

¶ 18 On 7 January 2020, the agency approved Bone and Joint's application. Wake Radiology timely filed a contested case petition in the Office of Administrative Hearings. An ALJ rejected Wake Radiology's argument and entered summary judgment for the agency, determining that the agency had the authority to issue the CON under either N.C. Gen. Stat. § 131E-176(16)(b) as an "expansion of use" or N.C. Gen. Stat. § 131E-176(16)(e) as a "change in project" for a "new institutional health service." Wake Radiology timely appealed the ALJ's decision to this Court.

Analysis

¶ 19 The parties in this case concede that there are no genuine issues of material fact and Wake Radiology's arguments on appeal all assert that the ALJ made errors of law. We review the agency's determination of these legal questions, at the summary judgment stage, under a de novo standard of review. Blue Ridge Healthcare Hosps. Inc. v. North Carolina Dep't of Health & Hum. Servs., 255 N.C. App. 451, 456, 808 S.E.2d 271, 274 (2017) ; N.C. Gen. Stat. § 150B-51(b).

¶ 20 We begin with the ALJ's determination that the agency had the authority to expand the scope of use for Bone and Joint's MRI scanner through a CON under N.C. Gen. Stat. § 131E-176(16)(e). Wake Radiology concedes that, if Bone and Joint's application falls under this statutory provision, the agency was permitted to issue a CON with the expanded scope of use—essentially a modification of the earlier CON—without a traditional need determination or competitive review process. But Wake Radiology argues that this statutory provision does not apply, and that the General Assembly could not have intended for this provision to apply, in a case like this one. We therefore begin our analysis by examining N.C. Gen. Stat. § 131E-176(16)(e) and its place in this complex series of statutes governing certificates of need.

¶ 21 In North Carolina, health care providers cannot acquire or replace most of their medical equipment and facilities without permission from State regulators. That permission comes in the form of a certificate of need...