Wake Radiology Servs. LLC v. North Carolina Dep't of Health & Human Servs.

• Decision Date: 06 September 2011
• Docket Number: NO. COA10-112 9,No. 09 DHR 3473,COA10-112 9,09 DHR 3473
• Parties: Wake Radiology Services LLC, Wake Radiology Diagnostic Imaging Inc., Wake Radiology Consultants PA, Smithfield Radiology Inc., and Raleigh MR Imaging LP, Petitioners-Appellants, v. North Carolina Department of Health and Human Services, Division of Health Service Regulation, Certificate of Need Section, Respondent-Appellee, and Pinnacle Health Services of North Carolina, LLC, d/b/a Raleigh Radiology at Cedarhurst, Respondent -Intervenor-Appellee.
• Court: North Carolina Court of Appeals

Wake Radiology Services LLC, Wake Radiology Diagnostic Imaging Inc., Wake Radiology Consultants PA, Smithfield Radiology Inc., and Raleigh MR Imaging LP, Petitioners-Appellants, v. North Carolina Department of Health and Human Services,

Division of Health Service Regulation, Certificate of Need Section,

Respondent-Appellee,

and

Pinnacle Health Services of North Carolina, LLC,

d/b/a Raleigh Radiology at Cedarhurst, Respondent -Intervenor-Appellee.

NO. COA10-112 9

No. 09 DHR 3473

NORTH CAROLINA COURT OF APPEALS

Dated: September 6, 2011

An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.

NC Dept. of Health & Human

Services

Appeal by petitioners from a final agency decision entered 3 June 2010 by the North Carolina Department of Health and Human Services. Heard in the Court of Appeals 8 March 2011.

Kirschbaum, Nanney, Keenan & Griffin, P.A., by Frank S. Kirschbaum and Chad Lorenz Halliday, for Petitioner-Appellants.

Attorney General Roy Cooper, by Assistant Attorney General June S. Ferrell, for Respondent-Appellee.

Williams Mullen, by Marcus C. Hewitt and Elizabeth Sims Hedrick, for Respondent-Intervenor-Appellee.

ERVIN, Judge.

Petitioners Wake Radiology Services, LLC; Wake Radiology Diagnostic Imaging, Inc.; Wake Radiology Consultants, P.A.; Smithfield Radiology, Inc.; and Raleigh MR Imaging, LP (collectively "Wake") appeal a final agency decision by the North Carolina Department of Health and Human Services, Division of Health Service Regulation, Certificate of Need Section affirming the award of a Certificate of Need (CON) to Pinnacle Health Services of North Carolina, LLC. On appeal, Wake argues that the Department improperly upheld the decision to award the requested CON to Pinnacle on the grounds that the Department's decision was inconsistent with N.C. Gen. Stat. § 131E-183(a). We do not reach the merits of Wake's challenges to the Department's decision, however, given our conclusion that the Department correctly determined that Wake had failed to establish that it was "substantially prejudiced" by the Department's decision to award the requested CON to Pinnacle. As a result, after careful consideration of Wake's challenges to the Department's decision in light of the record and the applicable law, we conclude that the Department's decision should be affirmed.

I. Factual Background

Pinnacle is a wholly owned subsidiary of Outpatient Imaging Affiliates, LLC, which has provided magnetic resonance imaging (MRI) services at three sites in Wake and Johnston Counties since 2007: Raleigh Radiology at Cedarhurst, Raleigh Radiology at Wake Forest, and Raleigh Radiology at Clayton. In order to provide this service, Pinnacle contracted with Alliance Imaging, Inc., for the use of a mobile MRI scanner. Pinnacle was not required to have a CON in order to provide mobile MRI services using an Alliance scanner and is not subject to any limitations as to the number of locations at which it is entitled to use the Alliance scanner.

On 17 November 2008, Pinnacle submitted an application seeking the issuance of a CON authorizing the purchase and operation of a mobile MRI scanner for use in Wake and Johnston Counties pursuant to N.C. Gen. Stat. § 131E-182. In accordance with N.C. Gen. Stat. § 131E-185, the Department began its review of Pinnacle's application on 1 December 2008. The Department completed its review of Pinnacle's application on 29 April 2009 and issued the required findings on 6 May 2009. In its decision, the Department determined that Pinnacle had satisfied all applicable statutory and regulatory review criteria and approved Pinnacle's application.

On 29 May 2009, Wake appealed the approval of Pinnacle's application by filing a petition for a contested case hearing with the Office of Administrative Hearings in accordance with N.C. Gen. Stat. §§ 131E-188(a) and 150B-23. In its petition, Wake alleged that the Department had erred by concluding that Pinnacle's application satisfied the review criteria listed in N.C. Gen. Stat. § 131E-183(a). On 22 February 2010, Administrative Law Judge Beecher R. Gray entered a recommended decision concluding that the Department's decision to approve Pinnacle's application should be affirmed. The parties filed written exceptions to and arguments addressing the merits of ALJ Gray's recommended decision and submitted proposed final agency decisions to the Department. On 3 June 2010, Jeff Horton, Acting Director of the Division of Health Service Regulation, entered a final agency decision accepting ALJ Gray's recommendation and affirming the Department's decision to approve Pinnacle's application. Wake noted an appeal from the final agency decision to this Court on 2 July 2010.

II. Legal Analysis

A. Applicable Law & Standards of Review

A person seeking to obtain the issuance of a CON must make "application . . . on forms provided by the Department." N.C. Gen. Stat. § 131E-182(b). After compliance with the proceduralrequirements specified in N.C. Gen. Stat. § 131E-185 and utilizing the criteria outlined in N.C. Gen. Stat. § 131E-183(a), "the Department shall issue a decision to 'approve,' 'approve with conditions,' or 'deny,' an application for a new institutional health service." N.C. Gen. Stat. § 131E-186(a). "Within five business days after it makes a decision on an application, the Department shall provide written notice of all the findings and conclusions upon which it based its decision, including the criteria used by the Department in making its decision, to the applicant." N.C. Gen. Stat. § 131E-186(b). The Department's decision to grant or deny a request for the issuance of a CON hinges upon the extent, if any, to which the applicant has complied with the statutory review criteria set out in N.C. Gen. Stat. § 131E-183(a), with the applicant bearing the burden of demonstrating compliance with those review criteria. See Presbyterian-Orthopaedic Hosp. v. N.C. Dept. of Human Resources, 122 N.C. App. 529, 534, 470 S.E.2d 831, 834 (1996), disc. review improvidently allowed, 346 N.C. 267, 485 S.E.2d 294 (1997).

After the issuance of the Department's decision, "any affected person," including:

the applicant; any individual residing within the service area or the geographic area served or to be served by the applicant; any individual who regularly useshealth service facilities within that geographic area or the service area; 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; any person who, prior to receipt by the agency of the proposal being reviewed, has provided written notice to the agency of an intention to provide similar services in the future to individuals residing within the service area or the geographic area to be served by the applicant; third party payers who reimburse health service facilities for services in the service area in which the project is proposed to be located; and any agency which establishes rates for health service facilities or HMOs located in the service area in which the project is proposed to be located,

"shall be entitled to a contested case hearing under Article 3 of Chapter 150B of the General Statutes." N.C. Gen. Stat. § 131E-188. In order to challenge a decision concerning the issuance of a requested CON, an "affected person" must file a petition stating facts

tending 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 liability 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). Any person seeking to challenge a Departmental decision relating to the issuance of a CON has the burden of establishing that the Department's decision substantially prejudiced its rights and is subject to reversal for one of the reasons enunciated in N.C. Gen. Stat. § 150B-23(a). Britthaven, Inc. v. N.C. Dept. of Human Resources, 118 N.C. App. 379, 382, 455 S.E.2d 455, 459, disc. review denied, 341 N.C. 418, 461 S.E.2d 754 (1995). A party seeking to challenge the issuance of a CON is provided with an opportunity to present evidence and cross-examine witnesses during an adjudicatory hearing held before an administrative law judge. Id. (citing N.C. Gen. Stat. § 150B-23(a) and N.C. Gen. Stat. §§ 150B-25(c) and (d)). At the conclusion of the contested case hearing, "the [administrative law judge] shall make a recommended decision or order that contains findings of fact and conclusions of law[,]" N.C. Gen. Stat. § 150B-34(c), determining "whether the petitioner has met its burden in showing that the agency substantially prejudiced petitioner's rights, and that the agency also acted outside its authority, acted erroneously, acted arbitrarily and capriciously, used improper procedure, orfailed to act as required by law or rule." Britthaven, 118 N.C. App. at 382, 455 S.E.2d at 459 (citing N.C. Gen. Stat. § 150B-23(a)) (emphasis omitted). In view of the fact that the purpose of the statutorily-authorized contested case hearing is to review the correctness of the Department's decision under N.C. Gen. Stat. § 150B-23(a), the administrative law judge does not engage in a de novo review of the evidentiary record. Id. (rejecting a litigant's contention that the initiation of a contested case hearing "commenced a de novo proceeding by the [administrative law judge] intended to lead to a formulation of the final decision" and explaining that the role of the administrative law judge under the applicable...