Opinion
No. COA15-815
04-05-2016
BIO-MEDICAL APPLICATIONS OF NORTH CAROLINA, INC. d/b/a BMA ROCKY MOUNT, Petitioner, v. NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION OF HEALTH SERVICE REGULATION, CERTIFICATE OF NEED SECTION, Respondent, and TOTAL RENAL CARE, INC. d/b/a NASH COUNTY DIALYSIS, Respondent-Intervenor.
Smith Moore Leatherwood LLP, by Marcus C. Hewitt and Elizabeth Sims Hedrick, for Petitioner-Appellant. Attorney General Roy Cooper, by Assistant Attorney General Bethany A. Burgon, for Respondent-Appellee. Wyrick Robbins Yates & Ponton LLP, by Lee M. Whitman, Tobias S. Hampson, and Elizabeth Frock Runyon, for Respondent-Intervenor-Appellee.
An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority.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. Office of Administrative Hearings, No. 14 DHR 5495 Appeal by Petitioner from Final Decision entered 26 March 2015 by Administrative Law Judge Augustus B. Elkins II in the Office of Administrative Hearings. Heard in the Court of Appeals 2 December 2015. Smith Moore Leatherwood LLP, by Marcus C. Hewitt and Elizabeth Sims Hedrick, for Petitioner-Appellant. Attorney General Roy Cooper, by Assistant Attorney General Bethany A. Burgon, for Respondent-Appellee. Wyrick Robbins Yates & Ponton LLP, by Lee M. Whitman, Tobias S. Hampson, and Elizabeth Frock Runyon, for Respondent-Intervenor-Appellee. INMAN, Judge.
In this case, we affirm an administrative agency determination that Petitioner argues was based upon erroneous data because Petitioner has failed to demonstrate that it suffered substantial prejudice as a result of the error.
Petitioner-Appellant Bio-Medical Applications ("BMA") appeals the Final Decision of the Office of Administrative Hearings ("OAH") which affirmed the 27 February 2014 decision of the North Carolina Department of Health and Human Services, Certificate of Need Section, ("CON Section" or the "Agency") to award Respondent-Intervenor-Appellee Total Renal Care, Inc. ("TRC") a Certificate of Need ("CON") to develop a new 12-station dialysis facility in Nash County and limited the CON awarded to BMA to seven stations at its existing facility in Nash County. The CON Section's decision was part of a competitive CON review in which TRC and BMA submitted applications in response to a county need determination in the July 2013 Semiannual Dialysis Report ("SDR") issued by the Medical Facilities Planning Branch (the "Planning Branch") of the State Health Coordinating Council.
On appeal, BMA first contends that the Final Decision erroneously concluded that the Agency properly evaluated the need for TRC's proposal. BMA's argument as to this issue is two-fold. First, BMA argues that the Agency erroneously accepted TRC's representation that 26 Nash County patients were interested in transferring to its new proposed dialysis facility. Second, BMA argues that the Agency's Final Decision was arbitrary and capricious because it approved TRC's use of a projected growth rate of 9.6% which both the Agency and TRC knew was wrong. Instead, BMA contends that the Agency should have used a 2.1% projected growth rate.
Next, BMA argues that the Final Decision's conclusion that BMA did not suffer substantial prejudice was erroneous. BMA contends that the denial of BMA's competitive application to develop four of the eleven dialysis stations for which it had demonstrated need constitutes substantial prejudice.
Finally, BMA argues that Administrative Law Judge Augustus Elkins II ("ALJ Elkins") abused his discretion by excluding evidence offered by BMA to rebut the presumption that the data published in the SDR is always deemed credible and reasonable.
After careful review, because BMA is unable to demonstrate that it suffered substantial prejudice based on the Agency's reliance on the erroneous projected growth rate, we affirm the Final Decision.
Factual and Procedural Background
Each year, the State Coordinating Council prepares and publishes a "State Medical Facilities Plan" (the "State Plan") which inventories the services, facilities, and equipment subject to CON regulation. Dialysis facilities are subject to CON regulation. The State Plan uses historical data to project future need for CON-regulated services and equipment. The Governor signs and approves the State Plan.
The need for new dialysis stations is projected twice a year, in January and July, and is published in the Semiannual Dialysis Report ("SDR"). The Planning Branch collects historical patient information directly from providers and uses it to create an inventory of dialysis facilities, including information regarding the number of patients who receive dialysis services and how each existing dialysis facility is utilized. The SDR calculates an average annual change rate of the dialysis population living in each county over the previous five years ("the AACR") and then, using the AACR, projects the future need for additional dialysis stations for each county based on the county's projected patient population ("the county need determination").
Applicants seeking to add dialysis stations can file either a "county need determination" set out in the SDR or use a "facility need" formula, which permits existing facilities to expand. However, an existing facility may only apply pursuant to the "facility need" formula if there is no "county need determination." Since there was a "county need determination" set out in the July 2013 SDR, BMA could only apply for new dialysis stations using the "county need determination."
The July 2013 SDR projected a county need determination of 19 new dialysis stations in Nash County. At the time, BMA was the only in-center dialysis provider in Nash County. It is undisputed that the AACR stated in that report, a 9.6% increase in patients needing dialysis services in Nash County, was incorrect. As a result, the number of stations identified as being needed in Nash County in the July 2013 SDR was significantly larger than what was actually needed had the correct AACR—2.1%— been used. Had the correct data been reported, it would have reflected a deficit of only two stations in Nash County. It appears that this error in determining the projected growth rate was based, in part, on BMA's self-reported data to the Planning Branch.
Regardless of how the error occurred, after the July 2013 SDR was released, BMA formally notified the Planning Branch and the Agency of its errors and requested the Planning Branch reissue the SDR using an AACR of 2.1%. Although the Director of the Division of Health Services Regulation refused to reissue the SDR, BMA filed a petition with the Planning Branch requesting that an adjustment be made to correct the data reflecting the number of patients receiving dialysis services, which was incorporated by the Agency into the AACR and the need analysis showing a deficit of 19 stations. The Agency claimed that it could not amend the SDR and that it was bound by the figures published in the SDR when reviewing CON applications. According to officials at the Agency, only the Governor had the power to amend the published SDR, and BMA should petition the Governor to change it. BMA did not petition the Governor to amend the need determination for Nash County.
On 16 September 2013, both BMA and TRC submitted CON applications; TRC applied to build a new 12-bed facility, and BMA applied to expand its existing dialysis facility by 11 stations. In order to establish a new dialysis facility, TRC had to comply with 10A NCAC 14C.2203(a), which provides that "[a]n applicant proposing to establish a new End Stage Renal Disease facility shall document the need for at least 10 stations based on utilization of 3.2 patients per station per week as of the end of the first operating year of the facility[.]" Consequently, in order to establish a need for its proposed new dialysis facility with 12 stations, TRC had to be able to reasonably predict to serve 39 patients.
TRC alleged in its CON application that its starting patient population was based on 32 letters of support, 26 Nash County patients and six Wilson County patients. However, only one of the letters identified the patient's county of residence. At the OAH hearing, TRC admitted that it had "incorrectly represented the county of residence of the patients who signed support letters." William Hyland, Director of CON for TRC, testified that the actual breakdown was as follows: 21 patient letters from Nash County residents, nine from Wilson County residents, one from an Edgecombe County resident, and one from an unknown residence. Thus, while there was still a total of 32 patient letters, the actual county breakdown was different than what was stated in TRC's CON application. The breakdown of patient letters by county is important because the 9.6% AACR would only be applied to the number of Nash County patients receiving services. Accordingly, TRC's ability to project that it would be serving 39 patients at the end of its first year of operation is based in large part on where each patient resides.
With regard to the population growth projection, TRC used the erroneous 9.6% AACR published in the SDR. BMA used the actual historical AACR of 2.1% in its application. The Agency began reviewing applications on 1 October 2013. Accepting TRC's projection of a 9.6% AACR and the 32 patient letters (even though the letters did not state the patient's county of residence), the Agency approved TRC's application to build a new 12-station facility. Accepting BMA's use of the 2.1% AACR and patient projections, the Agency approved BMA to develop seven dialysis stations instead of the 11 it requested.
BMA appealed the Agency's decision to OAH. The matter was heard on 8 to 17 October 2014 before ALJ Elkins. On 26 March 2015, ALJ Elkins issued his Final Decision affirming the Agency's Decision. Pertinent findings and conclusions are discussed below.
Analysis
On appeal, BMA challenges various decisions the Agency made in the CON application review process including its use of the incorrect AACR of 9.6% and its acceptance of the patient letters TRC provided to support its application for a new dialysis facility. While this Court finds it troubling that the need for dialysis services was so substantially overstated given the purpose of the CON laws, see AH N.C. Owner LLC v. N.C. Dep't of Health & Human Servs., ___ N.C. App. ___, ___, 771 S.E.2d 537, 549 (2015) ("In addition to controlling health care costs and avoiding the costly and unnecessary duplication of health service facilities, a primary reason for the existence of the CON laws is to protect the health and well-being of the citizens of North Carolina."), in addition to this Court's conclusion that the only remedy to amend a flawed SDR is to petition the Governor, see Bio-Med. Applications of N.C., Inc. v. N.C. Dep't of Health & Human Servs., 179 N.C. App. 483, 490, 634 S.E.2d 572, 577 (2006), BMA's inability to establish substantial prejudice as a result of the CON section's decisions to use the erroneous AACR and the patient letters leaves us no other choice but to affirm the Final Decision.
To be entitled to appellate relief, a petitioner must show not only that the Agency's findings or conclusions were erroneous based on the enumerated grounds in N.C. Gen. Stat. § 150B-51(b) (2015), but the petitioner also must show that the Agency substantially prejudiced its rights. CaroMont Health, Inc. v. N.C. Dep't of Health & Human Servs., 231 N.C. App. 1, 3-5, 751 S.E.2d 244, 247-48 (2013). Substantial prejudice in this context requires more than a showing that a petitioner is an "affected person," as provided in N.C. Gen. Stat. § 131E-188(a). Parkway Urology, P.A. v. N.C. Dep't of Health & Human Servs., 205 N.C. App. 529, 535-36, 696 S.E.2d 187, 192-93 (2010). While there is no bright-line rule as to what constitutes substantial prejudice, our appellate courts have held that to obtain relief, a petitioner must show more than increased competition. Id. at 539, 696 S.E.2d at 195. Moreover, any claim of substantial prejudice must be based on more than conjecture or allegations. See generally CaroMont Health, 231 N.C. App. at 6, 751 S.E.2d at 249 ("CaroMont's alleged loss of volume and revenue, even if considered to show other than the normal effects of competition, was speculative and not supported by a preponderance of the evidence because there was no evidence that such alleged loss of volume and revenue was reasonably certain to result from the Agency's decision to approve the GGC Application rather than other factors."); Ridge Care, Inc. v. N.C. Dep't of Health & Human Servs., 214 N.C. App. 498, 506, 716 S.E.2d 390, 396 (2011) (rejecting the petitioners' claim that they were substantially prejudiced because the Agency's decision would lead to increased costs and a loss of staff and patients when there was no evidence provided in support of those claims).
BMA challenges several of the Agency's findings including its use of an erroneous AACR of 9.6% and its reliance on TRC's patient letters supporting its application to open a new dialysis facility. However, as Judge Elkins found,
The 9.6% growth rate is what led to the need determination and is the growth rate on which the 19 stations depend. Of great importance in this case, without the 9.6% growth rate, there would not have been a 19-station deficit in Nash County nor would there have been a need determination in Nash County. If the July 2013 SDR had been changed by the Governor, then neither BMA's nor TRC's applications would have been before the CON Section.
In fact, Elizabeth Brown ("Ms. Brown"), who has worked for the Planning Branch since 2006, testified that she revised the SDR for Nash County using an AACR of 2.1% and that the revision resulted in only a two-station deficit. Even in a best case scenario, BMA would have been allowed to develop two new dialysis stations instead of the seven stations it was awarded using the erroneous AACR, a fact which BMA concedes in its brief. The fact that TRC may not have been able to open any facility in Nash County to compete with BMA is not enough to establish substantial prejudice. See CaroMont Health, 231 N.C. App. at 3-6, 751 S.E.2d at 247-49. Ironically, but for the Agency's use of incorrect data, BMA would be opening far fewer dialysis stations than the seven it is currently allowed to develop. Consequently, BMA is unable to show that the Agency's decision resulted in substantial prejudice, and we affirm the Final Decision.
Conclusion
Based on BMA's failure to establish that it suffered substantial prejudice, we affirm the Final Decision.
AFFIRMED.
Judges STEPHENS and HUNTER, JR. concur.
Report per Rule 30(e).