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Blue Ridge Healthcare Hospitals Inc. v. North Carolina Department of Health and Human Services

Court of Appeals of North Carolina

September 19, 2017


          Heard in the Court of Appeals 23 August 2017.

          Appeal by petitioner from Final Decision entered 3 October 2016 by Administrative Law Judge Selina Malherbe Brooks in the North Carolina Office of Administrative Hearings No. 16 DHR 08034.

          Smith Moore Leatherwood LLP, by Maureen Demarest Murray, Carrie A. Hanger and Matthew Nis Leerberg, for petitioner-appellant Blue Ridge Healthcare Hospitals, Inc. d/b/a Carolinas Healthcare System - Blue Ridge.

          Attorney General Joshua H. Stein, by Assistant Attorney General Jill A. Bryan and Special Deputy Attorney General June Ferrell, for respondent-appellee North Carolina Department of Health and Human Services.

          Williams Mullen, by Joy Heath and Elizabeth D. Scott, for respondent-intervenors-appellees Caldwell Memorial Hospital, Inc. and SCSV, LLC.

          TYSON, Judge.

          Blue Ridge Healthcare Hospitals, Inc. d/b/a Carolinas Healthcare System - Blue Ridge ("Blue Ridge") appeals from a final decision of the Administrative Law Judge ("ALJ"), which granted summary judgment in favor of the North Carolina Department of Health and Human Services ("DHHS"), Caldwell Memorial Hospital, Inc. ("Caldwell Memorial"), and SCSV, LLC. We affirm.

         I. Background

         A. Caldwell Memorial

         Caldwell Memorial is a not-for-profit community hospital located in Lenoir, North Carolina, which became part of the UNC Health Care System in 2013. Caldwell Memorial operates and maintains eight operating rooms, which are the only operating rooms located in Caldwell County. Three of the operating rooms are located at Hancock Surgery Center ("HSC"), which is housed in an older building previously used as a shopping center. HSC is located approximately 0.6 miles from Caldwell Memorial, and is licensed as part of Caldwell Memorial.

         In July 2015, Caldwell Memorial and SCSV, LLC (collectively, "Caldwell Memorial") filed a Certificate of Need ("CON") application with DHHS's Division of Health Service Regulation, Healthcare Planning and Certificate of Need Section ("the Agency"), seeking approval to establish Caldwell Surgery Center ("CSC"), a new separately-licensed ambulatory surgery center to be located in Granite Falls, one to two miles from the southern border of Caldwell County.

         Caldwell Memorial seeks to create a second point of surgery access within a more densely populated area of Caldwell County in addition to the city of Lenoir. Ambulatory surgical centers are capable of offering surgical services to patients at a purported lower cost than surgeries performed inside of hospitals. Caldwell Memorial asserts an ambulatory surgery center is suited to attract and retain capable surgeons by offering physician investment opportunities, which are not available in hospital operating rooms. The propriety of this investment opportunity is not before us.

         The total inventory of currently licensed operating rooms located in Caldwell County would not change as a result of Caldwell Memorial's proposal. Caldwell Memorial had sought previous approval in 2014 to relocate the three operating rooms from HSC to CSC, but the Agency denied the CON application.

         B. Blue Ridge

         Blue Ridge maintains and operates six operating rooms at its Morganton hospital campus and four operating rooms at its Valdese hospital campus. It submitted written comments in opposition to the application, and participated in the public hearing held in September 2015. Blue Ridge had also submitted its objections to Caldwell Memorial's previous CON applications. Two other hospitals and an ambulatory surgery center in the extended geographical area also submitted comments in opposition to Caldwell Memorial's applications.

          The proposed site for CSC is five miles from both Viewmont Surgery Center and Frye Medical Center, twelve miles from Catawba Valley Medical Center, and eleven miles from Blue Ridge's Valdese hospital campus. All of these facilities possessed surgical capacity during the Agency's review. Viewmont Surgery Center in Catawba County is the only multi-specialty ambulatory surgery center in the area, but does not offer the surgical specialties proposed in Caldwell Memorial's CON application, such as spine and vascular surgery. Blue Ridge notes the existence of a significant surplus of operating rooms in Caldwell, Burke, and Catawba Counties in support of its opposition to Caldwell Memorial's application.

         C. Agency and ALJ Decision

         By letter dated 28 December 2015, the Agency notified Caldwell Memorial of its decision to conditionally approve its application to establish the ambulatory surgery center. On 29 January 2016, Blue Ridge filed a petition for a contested case hearing in the Office of Administrative Hearings ("OAH") and challenged the Agency's decision to approve Caldwell Memorial's CON application. See N.C. Gen. Stat. § 131E-188(a) (2015) (providing any "affected person" is entitled to bring a contested case challenging the agency's decision on a CON application); N.C. Gen. Stat. § 131E-188(c) (defining "affected person" to include "any person who provides services, similar to the services under review, to individuals residing within the service area or geographic area proposed to be served by the applicant"). The ALJ permitted Caldwell Memorial and Frye Regional Medical Center, LLC ("Frye") to intervene.

         Caldwell Memorial and the Agency moved for summary judgment before the OAH on 9 September 2016. Blue Ridge and Frye opposed the motion. By final decision entered on 3 October 2016, the ALJ granted summary judgment in favor of Caldwell Memorial and the Agency. Blue Ridge appeals.

         II. Jurisdiction

         Jurisdiction lies in this Court from the final decision of the ALJ pursuant to N.C. Gen. Stat. §§ 131E-188(b) and 7A-27(a) (2015).

         III. Issues

         Blue Ridge argues the Agency erred by ignoring or applying certain criteria set forth in N.C. Gen. Stat. § 131E-183 when it approved Caldwell Memorial's CON application and asserts genuine issues of material fact exist regarding the conformity of the CON application with the statutory review criteria.

         IV. Standard of Review

         The North Carolina Administrative Code governs our review of the ALJ's decision, and provides:

(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 ...

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