An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority.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.

NO. COA04-1644


Filed: 4 October 2005



v .                         Final Agency Decision of the
                            N.C. Dept. Of Health and Human
                            No. 03 DHR 1553





    Appeal by petitioner from the final decision entered 20 August 2004 by Robert J. Fitzgerald, Director of the Facilities Services Division of the North Carolina Department of Health and Human Services. Heard in the Court of Appeals 17 August 2005.

    Kennedy Covington Lobdell & Hickman, LLP, by Gary S. Qualls and Colleen M. Crowley, for petitioner-appellant.

    Attorney General Roy Cooper, by Assistant Attorney General Thomas M. Woodward, for respondent-appellee.

    Poyner & Spruill, LLP, by William R. Shenton and Thomas R. West, for respondent-intervenor-appellee.

    ELMORE, Judge.
    This appeal arises from the determination of the North Carolina Department of Health and Human Services (NCDHHS) that Total Renal Care (TRC) be awarded a certificate of need that would allow it to transfer ten existing dialysis stations from its Hoke County facility to a new facility in Robeson County planned for Saint Pauls. For the reasons stated herein, we affirm the final Agency decision.
    After the January 2003 Semi-Dialysis Report (SDR) issued by NCDHHS indicated 1) that a large number of Robeson County patients were leaving their home county to get dialysis and 2) that there was a need for 19 additional dialysis stations in Robeson County, TRC submitted an application to the Certificate of Need Section (CON Section) of NCDHHS. TRC proposed to meet the needs indicated in the SDR by transferring 10 dialysis stations from adjacent Hoke County pursuant to “Policy ESRD-2”: a policy of the NCDHHS that allows a provider to relocate stations to a contiguous county currently served by the provider if the relocation will not result in a deficit of stations in the county from which they will be transferred, or a surplus of stations in the county to which they will be moved. See N.C. Admin. Code tit. 10A, r. 14B.0341 (June 2004). These applications are non-competitive.
    After the CON Section approved TRC's application, Bio-Medical Applications (BMA) filed a petition for a contested case hearing, arguing that the CON Section erred in determining that TRC's application was conforming to the criteria necessary for a CON award. See, e.g., N.C. Gen. Stat. § 131E-183 (2003). BMA alsoargued that its rights would be substantially prejudiced by the Agency's decision to allow TRC to place ten dialysis stations in Saint Pauls because one of its facilities, Red Springs, was underutilized and would likely lose additional patients and revenue.
    Following the contested case hearing, Administrative Law Judge (ALJ) Samuel Chess issued a recommended decision in which he determined that the CON Section had erred in approving TRC's application because it was non-conforming to several review criteria. TRC gave notice of its exceptions to the recommended decision, and the matter was heard before Robert Fitzgerald, Director of the Division of Facility Services, who issued the final Agency decision. The Agency's decision rejected the ALJ's recommended decision, including a majority of his findings, and concluded that TRC's application was conforming or conditionally conforming to the criteria. The Agency also determined that BMA had failed to prove its rights would be substantially prejudiced by the approval of TRC's application. BMA appealed the Agency's decision to this Court.
    Section 131E-188 of our General Statutes authorizes BMA, as an “affected person,” to petition for a contested case hearing. See N.C. Gen. Stat. § 131E-188(a) (2003). There is no dispute that BMA qualifies as an affected person under section 131E-188(c). However, section 131E-188 merely provides the statutory grounds for and prerequisites to filing a petition for a contested case hearing regarding certificates of need; it does not provide the frameworkfor deciding the petition or the contested case.   (See footnote 1)  See N.C. Gen. Stat. § 131E-188 (2003). That is governed by Article 3 of Chapter 150B of the General Statutes. N.C. Gen. Stat. §§ 131E-188 and 150B et seq. (2003). Section 150B-23(a) states:
        A contested case shall be commenced by filing a petition with the Office of Administrative Hearings . . . . A petition shall . . . state 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 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) (2003).
    In this case, BMA argues that it showed substantial prejudice to its rights and that the Agency decision was error. We disagree. It is the petitioner's burden to prove the facts required by section 150B-23(a) by a preponderance of the evidence. N.C. Gen. Stat. § 150B-29(a) (2003); 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). In its petition for a contested case, BMA stated that due to the CONSection's decision its “rights and property have been substantially and adversely affected, and have been unfairly prejudiced by the approval of TRC's CON application.” At the contested case hearing, BMA offered the testimony of Janice Lindsay (Lindsay), a regional vice president with BMA's parent company. She testified that although she thought BMA would retain its current patients due to BMA's superior care, BMA's Red Springs facility could potentially lose patients nonetheless. She testified that BMA's Red Springs facility was currently operating at about a 65% utilization rate when it should be operating at at least 80%. If Red Springs lost ten patients to TRC's facility in Saint Pauls, then the Red Springs facility could lose up to $72,000.00 a year. The ALJ reflected Lindsay's testimony in his findings, noting that her testimony proved BMA's rights would be substantially prejudiced by the approval of TRC's application.
    The Agency rejected the ALJ's findings on this point, stating that the ALJ's findings were an inaccurate and incomplete description of TRC's impact on BMA. Instead, the Agency found in part that:
        144. In analyzing the underutilization of the Red Springs facility as part of her review of the TRC Application, the Agency project analyst correctly determined that BMA only needed 10 additional patients to bring that facility up to a 80% utilization rate. . . . Therefore, even after the development and operation of TRC's St. Pauls facility, there would be a large number of Robeson County patients remaining that BMA's Red Springs facility could serve to reach the target utilization rate of 80 percent.
        145. BMA offered no evidence that it is likely to lose any patients from Red Springs to any of its other Robeson County facilities as a result of the development and operation of TRC's St. Pauls facility. While it may be possible to calculate how much revenue BMA would lose for every patient it might lose to TRC's St. Pauls facility, BMA, itself, does not believe its existing patients will choose to transfer to TRC's St. Pauls facility if it is built. Ms. Lindsay repeatedly testified that it was not likely that BMA's existing patients would want to transfer to TRC's St. Pauls facility.

        146. Ms. Lindsay's calculation of potential revenue loss resulting from any patients lost to TRC's St. Pauls facility does not prove harm or substantial prejudice without some credible additional evidence that BMA is likely to lose patients to the St. Pauls facility. BMA's unsupported speculation regarding its potential loss of patients to TRC's St. Pauls facility is not sufficient to demonstrate that the Agency's award of a certificate of need to TRC to develop this new facility has or will substantially prejudice BMA in any way.

        151. The fact that BMA's Red Springs facility has been underutilized for more than two years and might continue to be underutilized does not in any way demonstrate that the CON Section's approval of the TRC Application would substantially prejudice BMA.

As a result of these findings, the Agency concluded that:
        4. No property right of Petitioner BMA is at issue in this contested case.

        5. The CON Law does not protect existing health care providers from economic competition where there is a demonstrated need for additional services in the geographic area.

        6. The Agency has not ordered Petitioner BMA to pay a fine or civil penalty.
        7. There is no credible evidence of prejudice to BMA's rights, including evidence of harm to its Red Springs facility.

        8. BMA has failed to prove, by a preponderance of the evidence, that it will be substantially prejudiced by the development and operation of TRC's St. Pauls facility.

    BMA assigns error to all the Agency findings and conclusions concerning a substantial prejudice determination. As recently applied in Total Renal Care of N.C., LLC v. N.C. Dep't. Of Health and Human Servs., ___ N.C. App. ___, 615 S.E.2d 81 (2005), and Mooresville Hosp. Mgmt. Assocs. v. N.C. Dep't. Of Health and Human Servs., ___ N.C. App. ___, 611 S.E.2d 431, writ of certiorari allowed, ___ N.C. ___, ___ S.E.2d ___ (30 June 2005) (No. 404A03- 2), our standard of review of an Agency decision regarding a certificate of need does not incorporate the 2001 amendments to the APA. In accordance with those cases, and the fact that no party argues new evidence was reviewed by the Agency on the determination of prejudice or alleges that the Agency failed to state specifically why it was rejecting the ALJ's findings, we move forward to an assessment of the substantive nature of the assignments of error. See id.; see also N.C. Dep't of Env't & Natural Res. v. Carroll, 358 N.C. 649, 658, 599 S.E.2d 888, 894 (2004) (“On judicial review of an administrative agency's final decision, the substantive nature of each assignment of error dictates the standard of review.”). BMA's assignments of error regarding prejudice are all very similar, alleging that each fact or conclusion is a violation of all the grounds in section 150B- 51(b). Essentially, the Agency determined that BMA had not shown,by a preponderance of the evidence, that its rights were substantially prejudiced by the approval of TRC's application. Assigning error to this determination presents both factual and legal issues. Thus, we will apply the whole record test to determine whether the Agency's decision was supported by substantial evidence and not arbitrary or capricious; to the extent that BMA asserts that the Agency's decision is based on an error of law, we will apply de novo review. See Dialysis Care of N.C., LLC v. N.C. Dep't of Health & Human Servs., 137 N.C. App. 638, 646, 529 S.E.2d 257, 261, aff'd per curiam, 353 N.C. 258, 538 S.E.2d 566 (2000).
    In its brief, BMA does not argue that there was additional evidence in the record that the Agency ignored in determining it had not shown the appropriate degree of prejudice under section 150B-23. Rather, it argues that Lindsay's testimony was sufficient, and to require more would place BMA in the awkward position of proving TRC's application conforming. In other words, if BMA had to specifically show which or how many patients it would lose to TRC, it is in effect proving portions of TRC's utilization rate for them. We find these arguments unpersuasive.
    Whatever position BMA might be placed into, as the petitioner in a contested case, it bears the burden of proving substantial prejudice to its rights in order to recover. See N.C. Gen. Stat. § 150B-29 (2003). BMA chose to prove that its rights were substantially prejudiced on the basis that it would lose patients. We can discern no reason why proving the loss of patients would bethe sole way for BMA to conform to section 150B-23;   (See footnote 2)  nonetheless, BMA set out to prove that it would lose patients and profit due to the approval of TRC's Saint Pauls facility. BMA relied entirely on the testimony of Janice Lindsay to meet its burden of proof. A review of the whole record supports the Agency's findings that Lindsay's testimony was speculative at best. While her mathematical calculations of lost revenue per patient may be accurate, she was unable to say that BMA would lose any certain number of patients. In fact, she testified BMA would likely lose none of its current patients. Her own testimony, coupled with the SDR that showed a need of at least 19 new stations, provides substantial evidence that BMA would not be harmed by TRC's Saint Pauls facility. We further find no error of law in the Agency's determination that Lindsay's speculative testimony did not outweigh the evidence of the CON Section's analysis and the SDR, both of which showed BMA's utilization rate at the Red Springs facility would not suffer any additional loss when Saint Pauls came online.
    Accordingly, we affirm the Agency's decision in approving TRC's CON application to transfer stations to Robeson County. TheAgency rejected the ALJ's determination that BMA had proven one of its required elements under section 150B-23, that being the manner in which the Agency substantially prejudiced BMA's rights. See Britthaven, 118 N.C. App. at 382, 455 S.E.2d at 459. The failure to prove this aspect of section 150B-23 by a preponderance of the evidence is fatal to the petitioner's contested case. Thus, it is unnecessary to reach the question whether the Agency erred in determining TRC's application was conforming, nor is it necessary to address TRC's cross-assignments of error.
    Judges CALABRIA and GEER concur.
    Report per Rule 30(e).

Footnote: 1
     An “affected person” as defined in N.C. Gen. Stat. § 131A- 188(c) is entitled to bring a contested case, but N.C. Gen. Stat. § 150B-23(a) (2003) states that “[a]ny person aggrieved may commence a contested case . . . .” We do not decide whether these two classifications of persons are completely synonymous.
Footnote: 2
     Despite being part of each petitioner's burden in a contested case, there is little case law interpreting what a party must plead and prove to adequately show substantial prejudice to its rights. TRC, BMA, and NCDHHS have all discussed this issue, but failed to assert exactly what right of BMA's was being “otherwise substantially prejudiced” by the Agency. In a competitive application process where one provider's conforming application is chosen by the CON Section over another, the “right” that is prejudiced is seemingly more clear. However, in a noncompetitive application process, such as the transfer of stations in the instant case, the Agency's infringement on the rights of another provider are not as clear.

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