1 Hospitals and Other Medical Facilities--certificate of need--final agency decision--
requirements for application
Although Bio-Medical Applications' argument that the Department of Health and Human
Services exceeded its authority and jurisdiction and committed errors of law by awarding a
certificate of need to Dialysis Care on the basis of an application that was never shown to be
conforming to all applicable criteria is technically correct, this argument when applied to the
facts and unusual procedural posture of this case reveals Bio-Medical Applications was not
prejudiced by these alleged mistakes or omissions under a Settlement Agreement between the
Department and Dialysis Care since they were corrected by information supplied before the final
agency decision.
2. Hospitals and Other Medical Facilities--certificate of need--whole record test--
requirements for application
The Department of Health and Human Services' final agency decision concerning an
application for a certificate of need was supported by the evidence because the whole record test
reveals the application was originally rejected because it did not contain some required
information, the evidence of need was provided by the time the parties agreed to a settlement,
additional information was provided during argument before the administrative law judge, and
the Department relied on all of the information before it issued the final agency decision.
3. Hospitals and Other Medical Facilities--certificate of need--size of dialysis unit--
issue not previously addressed
The Department of Health and Human Services' final agency decision concerning an
application for a certificate of need was not erroneous based on a lack of findings regarding the
size of the proposed dialysis facility because there are no specific size requirements for a dialysis
facility, and the issue of size is not properly before the court because it was not addressed by the
Department of Health and Human Services on Dialysis Care's appeal.
4. Hospitals and Other Medical Facilities--certificate of need--whole record test--not
arbitrary and capricious
The Department of Health and Human Services' final agency decision that approved the
application for a certificate of need was not arbitrary and capricious because the whole record
test reveals all the necessary criteria had been met.
5. Hospitals and Other Medical Facilities--certificate of need--final agency decision--
adoption of administrative law judge's prior decision
The Department of Health and Human Services' final agency decision that approved theapplication for a certificate of need was not defective under N.C.G.S. § 150B-51(a) for failure to
state specific reasons why the Department did not adopt multiple portions of the administrative
law judge's recommended decision because the final agency decision essentially adopted the
administrative law judge's recommended decision and the rule does not require a point-by-point
refutation of the judge's findings and conclusions.
6.Administrative Law--final agency decision--recusal of final decision-maker
The Director of the Division of Facility Services did not err in refusing to recuse herself,
upon Bio-Medical Applications' request, from the final agency decision even though she had
previously approved the settlement agreement and was in essence reviewing her own decision to
award a certificate of need to Dialysis Care because the final agency decision-maker in this case
had no personal stake in the outcome of the final agency decision which would require her
disqualification under N.C.G.S. § 150B-36(a).
Moore & Van Allen, PLLC, by Joy Heath Thomas, Dean M. Harris,
and Kelly M. Simeon, for petitioners-appellants.
Michael F. Easley, Attorney General, by Staci Tolliver Meyer,
for respondent-appellee.
Poyner & Spruill, L.L.P., by William R. Shenton, Thomas R.
West, and Michelle L. Frazier, for respondent-intervenor-
appellee.
WYNN, Judge.
Bio-Medical Applications of North Carolina, Inc. appeals from
a final agency decision of the North Carolina Department of Health
and Human Services
(See footnote 1)
awarding a Certificate of Need to Dialysis Care
of North Carolina, L.L.C. Our review of the whole record reveals
substantial evidence to support the Department of Health and Human
Services' award. We, therefore, affirm the award. Dialysis Care of North Carolina, L.L.C. d/b/a DCNC, L.L.C.
(See footnote 2)
provides dialysis and related services to North Carolina patients.
Bio-Medical Applications of North Carolina, Inc. d/b/a BMA of
Concord d/b/a Metrolina Kidney Center of Concord and Concord
Nephrology Associates (collectively referred to in this opinion as
“Bio-Medical Applications”) provide similar services.
The 1995 State Medical Facilities Plan and a Semi-Annual
Dialysis Report identified the need for fourteen additional
dialysis stations in Rowan County. In response, Dialysis Care and
Bio-Medical Applications filed Certificate of Need applications to
establish the new dialysis stations. The Department of Health and
Human Services denied their applications, and the two dialysis
providers appealed the decision.
In settlement of that appeal, Dialysis Care received a
Certificate of Need to add fourteen stations to its already
existing facility in Salisbury, North Carolina. In addition,
Dialysis Care and Bio-Medical Applications agreed not to propose a
new dialysis center in Rowan County until after 1 July 1996.
On 16 July 1996, Dialysis Care applied to the Department of
Health and Human Services to establish a new dialysis center in
Kannapolis, Rowan County, North Carolina. Dialysis Care planned to
transfer ten stations from its existing facility in Salisbury. In
addition to the dialysis services, Dialysis Care also planned to
set up a home-training area to teach patients how to performdialysis themselves.
The Department of Health and Human Services reviewed and
denied Dialysis Care's application for a Certificate of Need,
finding that the application did not conform with statutory and
regulatory review criteria--specifically, N.C. Gen. Stat. §§ 131E-183(a)(3), (4), (5), (6), (12), and (18), and 10 N.C. Admin. Code
3R.2213(a)(7) and (b)(7). In short, the Department of Health and
Human Services found that Dialysis Care (1) failed to show that
there was a need for the new facility, (2) submitted a floor plan
that was inconsistent with its proposal for a home-training area,
and (3) failed to provide data about the number of infected
patients and the number of patients who had become infected in the
past year as required by 10 N.C.A.C. R3.2213(a)(7). Dialysis Care
appealed the denial of the Certificate of Need to the Department of
Health and Human Services. Bio-Medical Applications apparently did
not have notice of that appeal because the Department of Health and
Human Services neglected to publish notice of Dialysis Care's
appeal in its official Monthly Reports.
Upon appeal to the Department of Health and Human Services,
Dialysis Care submitted more data about the need for a new
facility. That information resulted in a Settlement Agreement with
the Department of Health and Human Services to grant a Certificate
of Need to Dialysis Care. The Department of Health and Human
Services approved the settlement through its Director of the
Division of Facility Services on 12 May 1997.
On 3 July 1997, Bio-Medical Applications petitioned for a
contested case hearing with the Office of Administrative Hearings
to contest the award of a Certificate of Need to Dialysis Care by
the Settlement Agreement. An Administrative Law Judge recommended
affirming the award of a Certificate of Need to Dialysis Care.
When the matter came on before the Director of Facility
Services for a final agency decision, Bio-Medical Applicationsmoved to disqualify the Director as the final decision maker for
the Department of Health and Human Services since she had
previously approved the Settlement Agreement. The Director,
however, denied that motion and issued the Department of Health and
Human Services' final agency decision which adopted most of the
Administrative Law Judge's recommendations. This appeal followed.
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On appeal, Bio-Medical Applications offers five arguments as
to why the Department of Health and Human Services' decision to
grant a Certificate of Need should be reversed. In addition, the
Department of Health and Human Services and Dialysis Care assign as
error the Administrative Law Judge's denial of their motion to
dismiss Bio-Medical Applications' petition as untimely. We hold
that the Department of Health and Human Services did not err inawarding a Certificate of Need to Dialysis Care and therefore, we
do not reach the issue of whether the Administrative Law Judge
erred in denying Dialysis Care's motion to dismiss.
The North Carolina Administrative Procedure Act, N.C. Gen.
Stat. § 150B-1 et seq., governs both trial and appellate court
review of administrative agency decisions. See Eury v. North
Carolina Employment Sec. Comm'n, 115 N.C. App. 590, 596, 446 S.E.2d
383, 387 (1994). Under § 150B-51(b),
. . . the court reviewing a final agency
decision may affirm the decision of the agency
or remand the case for further proceedings.
It may also reverse or modify the agency's
decision if the substantial rights of the
petitioners may have been prejudiced because
the agency's findings, inferences,
conclusions, or decision are:
(1) In violation of constitutional provisions;
(2) In excess of the statutory authority or
jurisdiction of the agency;
(3) Made upon lawful procedure;
(4) Affected by other error of law;
(5) Unsupported by substantial evidence
admissible under G.S. 150B-29, 150B-30, 150B-
31 in view of the entire record as submitted;
or
(6) Arbitrary or capricious.
N.C. Gen. Stat. § 150B-51(b) (1995). Although this statute “lists
the grounds upon which the superior court may reverse or modify a
final agency decision, the proper manner of review depends upon the
particular issues presented on appeal.” Amanini v. North Carolina
Dep't of Human Resources, 114 N.C. App. 668, 674, 443 S.E.2d 114,
118, (1994); see also State ex rel. Utilities Comm'n v. Bird OilCo., 302 N.C. 14, 21, 273 S.E.2d 232, 236 (1981) (stating that the
“nature of the contended error dictates the applicable scope of
review”).
We first note the unusual procedural posture of this case.
The Settlement Agreement between the Department of Health and Human
Services and Dialysis Care addressed only those parts of Dialysis
Care's application for a Certificate of Need that the Department of
Health and Human Services initially found did not conform to
various criteria. The Settlement Agreement did not address each
and every criterion because most issues had been resolved in the
initial review. Significantly, while Bio-Medical Applications
challenges the final agency decision affirming the Settlement
Agreement, the initial review of Dialysis Care's application is not
the subject of this appeal. Therefore, we consider only those
matters that the Department of Health and Human Services and
Dialysis Care addressed in the Settlement Agreement and the final
agency decision. This limited and narrow review is important to
note because Bio-Medical Applications offers some arguments
pertaining to issues not addressed by the Department of Health and
Human Services during Dialysis Care's appeal.
[1]Bio-Medical Applications first argues that the Department
of Health and Human Services exceeded its authority and
jurisdiction and committed errors of law by awarding a Certificate
of Need on the basis of an application that was never shown to be
conforming to all applicable criteria. While this argument is
technically correct, we disagree with it as applied to the factsand unusual procedural posture of this case.
The appropriate standard of review for an assertion that a
Department of Health and Human Services decision is based on an
error of law is de novo review. See Hubbard v. State Const.
Office, N.C. Dep't of Admin., 130 N.C. App. 254, 257, 502 S.E.2d
652, 656 (1998); In re Appeal of Ramseur, 120 N.C. App. 521, 524,
463 S.E.2d 254, 256 (1995). Under N.C. Gen. Stat. § 131E-183(a),
the Department of Health and Human Services must review Certificate
of Need applications and determine whether such applications
conform to applicable criteria before issuing a Certificate of
Need. The Department of Health and Human Services' own rules
mandate that the Department either not issue a Certificate of Need
to a non-conforming applicant, or issue a Certificate of Need with
conditions to ensure conformity. 10 N.C.A.C. 3R.0313(a).
Case law also supports the proposition that an application
must be found consistent with the statutory criteria before a
Certificate of Need may be issued. See, e.g., Retirement Villages,
Inc. v. N.C. Dep't of Human Resources, 124 N.C. App. 495, 477
S.E.2d 697 (1996).
Bio-Medical Applications bases its argument on the fact that
prior to the Settlement Agreement, Dialysis Care failed to provide
information regarding the number of infected patients and the
number of patients who had recently converted to infected status,
as required by 10 N.C.A.C. R3.2213(a)(7). After a review of the
record, we find no evidence that Dialysis Care satisfied this
criterion before entering into the Settlement Agreement. In fact,the Department of Health and Human Services' project analyst
admitted that Dialysis Care did not provide the required
information.
But this appeal is not from the Settlement Agreement alone;
rather, Bio-Medical Applications also appeals from the Department
of Health and Human Services' final agency decision which affirmed
the issuance of the Certificate of Need to Dialysis Care. Before
rendering the final agency decision, the Department received and
considered additional information from Dialysis Care, including the
number of infected patients--information that is useful in
determining whether a provider will be able to provide safe and
quality care to its patients. By supplying such information,
Dialysis Care satisfied the Department's concerns as to whether it
would be able to adequately care for its patients. We, therefore,
find that Bio-Medical Applications was not prejudiced by these
alleged mistakes or omissions under the Settlement Agreement
because they were corrected by the final agency decision.
[2] Bio-Medical Applications next argues that the Department
of Health and Human Services' final agency decision failed to make
crucial findings of fact and was unsupported by and contrary to the
evidence of record. We disagree.
When it is alleged that a final agency decision was not
supported by the evidence, this Court must apply the “whole record”
test. See Retirement Villages, 124 N.C. App. at 498, 477 S.E.2d at
699. In applying the whole record test, the reviewing court is
required "to examine all competent evidence (the 'whole record') inorder to determine whether the agency decision is supported by
'substantial evidence'." In re Meads, 349 N.C. 656, 663, 509
S.E.2d 165, 170 (1998) (quoting Amanini, 114 N.C. App. at 674, 443
S.E.2d at 118). “Substantial evidence is such relevant evidence as
a reasonable mind might accept as adequate to support a
conclusion.” In re Meads, 349 N.C. at 663, 509 S.E.2d at 170
(quoting State ex rel. Comm'r of Ins. v. N.C. Fire Ins. Rating
Bureau, 292 N.C. 70, 80, 231 S.E.2d 882, 888 (1977)).
Under the whole record test, “an agency's ruling should only
be reversed if it is not supported by substantial evidence.”
Retirement Villages, 124 N.C. App. at 498, 477 S.E.2d at 699. We
should not replace the Department of Health and Human Services'
judgment as between two reasonably conflicting views, even if we
might have reached a different result if the matter was before us
de novo. See In Re Meads.
Bio-Medical Applications alleges that the Department of Health
and Human Service's final decision “fails to include any Findings
on whether, at the time of settlement, the Department of [Health
and Human Services] had any credible basis to support a
determination of conformity on the need issue, the home
training/square footage issue or on the reporting requirement for
infectious disease patients.” As we noted in our discussion of
Bio-Medical Applications' first argument, we do not look at the
Settlement Agreement only, but also take into consideration the
information supplied to the final agency decision maker. After a
review of the record, we hold that the Department of Health andHuman Services had reasonable grounds to believe that all criteria
were met when it issued the final decision.
As listed in the summary of the facts, Dialysis Care's
application for a Certificate of Need was originally rejected
because it did not contain some required information. However, the
record shows that evidence of need was provided by the time the
parties agreed to the settlement. Information regarding the
location of the home-training area and the number of infected
patients was provided during argument before the Administrative Law
Judge. When the Department of Health and Human Services issued the
final agency decision, it relied on all of the information, not
just that provided before the Settlement. Upon review of this
evidence, we hold that there was ample information upon which the
Department of Health and Human Services could reasonably have based
the final agency decision.
[3] Bio-Medical Applications also finds fault with the lack of
findings regarding the size of the proposed facility. We first
note that there are no specific size requirements for a dialysis
facility. In any case, the issue of size was not a point addressed
by the Department of Health and Human Services on Dialysis Care's
appeal, and therefore is not a proper issue for this Court to
address.
[4] Bio-Medical Applications next argues that the Department
of Health and Human Services' final agency decision that approved
Dialysis Care's application was arbitrary and capricious. We
disagree. A decision by an administrative agency “is arbitrary and
capricious if it clearly evinces a lack of fair and careful
consideration or want of impartial, reasoned decision making.”
Joyce v. Winston-Salem State Univ., 91 N.C. App. 153, 156, 370
S.E.2d 866, 868, cert. denied, 323 N.C. 476, 373 S.E.2d 862 (1988).
As explained by our Supreme Court:
The “arbitrary or capricious” standard is a
difficult one to meet. Administrative agency
decisions may be reversed as arbitrary or
capricious if they are "patently in bad
faith," or "whimsical" in the sense that "they
indicate a lack of fair and careful
consideration" or "fail to indicate 'any
course of reasoning and the exercise of
judgment'. . . .
Act-Up Triangle v. Comm'n for Health Services for the State of
N.C., 354 N.C. 699, 707, 483 S.E.2d 388, 393 (1997). (Citations
omitted.)
To determine whether the Department of Health and Human
Services was arbitrary and capricious, we once again employ the
whole record test. See Retirement Villages, supra. Under this
test, we review all competent evidence to determine whether the
final agency decision is supported by substantial evidence.
Bio-Medical Applications argues that the evidence on record
fails to show that Dialysis Care rectified the non-conforming parts
of its application. However, the trial transcript shows ample
evidence upon which the Administrative Law Judge and the Department
of Health and Human Services could have relied in finding that all
criteria were met. In particular, the testimony of the Department
of Health and Human Services' project analyst addressed the issuesof need, market share, patient support, and utilization. The
Administrative Law Judge also heard evidence concerning the number
of patients with an infectious disease and the number of patients
who had converted to infected status in the past year. Finally,
the Department of Health and Human Services showed that its initial
finding that the proposed site did not include a training room was
in error--the blueprint was smudged, making it partially illegible-
-but this error was rectified during the course of the appeal.
Bio-Medical Applications also argues that the Certificate of
Need award was arbitrary because it “appears that the Department of
[Health and Human Services'] decision-maker did not even carefully
read the Department of [Health and Human Services] Final Agency
Decision before signing it . . ..” Reviewing the evidence under
the whole record test, we find that the final agency decision was
supported by evidence which tended to show that all the necessary
criteria had been met. Such being the case, we cannot find fault
on that ground with the Director of the Division of Facility
Services' approval of the settlement.
[5] Bio-Medical Applications next argues that the Department
of Health and Human Services' final agency decision is defective
under N.C. Gen. Stat. § 150B-51(a) (1995) in that it fails to state
specific reasons why the Department of Health and Human Services
did not adopt multiple portions of the Administrative Law Judge's
Recommended Decision. We disagree.
N.C. Gen. Stat. § 150B-51(a) states:
[I]f the [Department of Human Resources] did not adopt
the recommended decision, the court shall determinewhether the [Department of Human Resources'] decision
states the specific reasons why the Department of Human
Resources did not adopt the recommended decision. If the
court determines that the Department of Human Resources
did not state specific reasons why it did not adopt a
recommended decision, the court shall reverse the
decision or remand the case to the Department of Human
Resources to enter the specific reasons.
However, this rule does not require a point-by-point refutation of
an Administrative Law Judge's findings and conclusions. See Webb
v. N.C. Dep't of Env't, Health and Natural Resources, Coastal
Resources Comm'n, 102 N.C. App. 767, 770, 404 S.E.2d 29, 31 (1991).
We find no error in the fact that the final agency decision
essentially adopted the Administrative Law Judge's Recommended
Decision.
[6] Bio-Medical Applications finally argues that the Director
of the Division of Facility Services erred in refusing to recuse
herself upon its request, and thereby denied the company its due
process rights. We disagree.
The Administrative Procedure Act states that a final decision
maker for the Department of Health and Human Services may be
disqualified due to “personal bias or other reason.” N.C. Gen.
Stat. § 150B-36(a) (1995).
In this case, Bio-Medical Applications does not argue that the
Director was biased--rather, Bio-Medical Applications argues that
the Director should have recused herself because she reviewed her
own decision to award a Certificate of Need to Dialysis Care. A
similar and more compelling issue was presented to our Supreme
Court in Hearne v. Sherman, 350 N.C. 612, 516 S.E.2d 864 (1999).
Our Supreme Court reviewed the facts of Hearne in which a finaldecision maker rejected the findings of both an Administrative Law
Judge and the State Personnel Commission, and instead based his
final decision on his own testimony and credibility from the
earlier proceeding. Our Supreme Court split evenly on the issue of
whether the fairness notions of due process were offended leaving
the matter affirmed without precedential value. Although we do not
rely on Hearne to decide the issue in this case, it is difficult to
escape the fact that the case at bar presents a much less drastic
example of an agency decision maker reviewing her own work. Unlike
the final agency decision maker in Hearne, who reviewed his own
testimony and credibility, the final agency decision maker in this
case had no personal stake in the outcome of the final agency
decision. We, therefore, hold that her failure to recuse herself
did not amount to a violation of Bio-Medical Applications' due
process rights.
Affirmed.
Judges JOHN and EDMUNDS concur.
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