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All opinions are subject to modification and technical correction prior to official publication in the North Carolina Reports and North Carolina Court of Appeals Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the North Carolina Reports and North Carolina Court of Appeals Reports, the latest print version is to be considered authoritative.
GOOD HOPE HOSPITAL, INC. and GOOD HOPE HEALTH SYSTEM, L.L.C.,
Petitioners, and TOWN OF LILLINGTON, Petitioner-Intervenor, v.
NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION
OF FACILITY SERVICES, CERTIFICATE OF NEED SECTION, Respondent,
and BETSY JOHNSON REGIONAL HOSPITAL, INC., and AMISUB OF NORTH
CAROLINA, INC. d/b/a CENTRAL CAROLINA HOSPITAL, Respondent-
Filed: 03 January 2006
Hospitals_certificate of need_total replacement of facility
The legislature's intent in enacting the certificate of need (CON) law allows the total
replacement of a health service facility without certificate of need review in only one instance,
where the facility is destroyed or damaged by natural disaster or accident. That instance did not
apply here, and the Department of Health and Human Services did not err by determining that
Good Hope Hospital System (GHHS) was not exempt from CON review. N.C.G.S. § 131E-184.
Judge TYSON dissenting.
Appeal by petitioners and petitioner-intervenor from a Final
Agency Decision issued 1 November 2004 by the North Carolina
Department of Health and Human Services. Heard in the Court of
Appeals 14 September 2005.
Smith Moore, LLP, by Maureen Demarest Murray, Susan
Frandenburg, and William Stewart, Jr., for petitioner-
appellant, Good Hope Health System, LLC.
Morgan, Reeves and Gilchrist, by C. Winston Gilchrist, for
petitioner-intervenor appellant, Town of Lillington.
Attorney General Roy Cooper, by Special Deputy Attorney
General Melissa L. Trippe, for respondent-appellee N.C.
Department of Health and Human Services.
Wyrick Robbins Yates & Ponton, LLP, by K. Edward Greene and
Kathleen A. Naggs, and Nelson Mullins Riley & Scarborough,
LLP, by Noah H. Huffstetler, III and Denise M. Gunter, for
respondent-intervenor appellee Betsy Johnson Regional
Bode Call & Stroupe, L.L.P., by Robert V. Bode, S. Todd
Hemphill, and Diana Evans Ricketts, for respondent-intervenor
appellee Amisub of North Carolina, Inc. d/b/a Central Carolina
Petitioner, Good Hope Hospital (Good Hope), is licensed as an
acute care hospital. It has been in operation since 1921 in Erwin,
North Carolina. Betsy Johnson Regional Hospital, Inc. (Betsy
Johnson), is located in Dunn, North Carolina. Both hospitals are
located in Harnett County. Due in part to its age, Good Hope's
existing hospital is nearing the end of its useful life and suffers
from multiple deficiencies.
Certificate of Need Applications
In 2001, Good Hope applied for a Certificate of Need (CON)
with the Department of Health and Human Services, Division of
Facility Services, Certificate of Need Section (Agency) pursuant to
Chapter 131E of the North Carolina General Statutes to partially
replace its existing facility. The Agency conditionally approved
Good Hope's 2001 application, but only for two operating rooms.
Good Hope filed a petition for contested case hearing in the Office
of Administrative Hearings (OAH). Good Hope and the Agency settled
the dispute in a written agreement. On 14 December 2001, the
Agency issued a CON to Good Hope for a forty-six bed hospital with
three operating rooms.
Good Hope was unable to obtain funding for its hospital
through HUD. As a result, Good Hope entered into a joint venture
with Triad Hospital, Inc., who agreed to finance the project, and
the two formed Good Hope Hospital System, L.L.C. (GHHS). GHHS
filed a motion for declaratory ruling requesting it be assignedGood Hope's 2001 CON. The Agency denied this request. GHHS
appealed the denial to the Department of Health and Human Services,
Division of Facility Services (Department), but obtained a stay of
this appeal. Good Hope has not relinquished its 2001 CON.
On 14 April 2003, GHHS filed a new application for a CON to
build what it characterized as a complete replacement hospital in
Lillington. The Agency denied this application. On 10 September
2004, the Department denied GHHS's application in a final agency
decision. GHHS appealed this decision in a separate appeal. See
Good Hope Hospital, Inc. v. N.C. Dept. of Health and Human
Services, 175 N.C. App. ___, ___ S.E.2d ___ (COA05-123).
By letter dated 21 August 2003, GHHS notified the Agency that
it proposed to acquire Good Hope Hospital and develop a replacement
hospital in Lillington. GHHS asserted it was exempt from CON
review pursuant to N.C. Gen. Stat. § 131E-184. GHHS gave its
notice of exemption while its second application for a CON was
pending. On 11 December 2003, the Agency denied GHHS's exemption
request. GHHS filed a petition for contested case hearing on 12
January 2004 with OAH. In its petition, GHHS alleged the Agency
erred in refusing to recognize its proposal to replace its existing
hospital as exempt from CON review under N.C. Gen. Stat. § 131E-
184. The administrative law judge (ALJ) allowed motions to
intervene by the Town of Lillington, Betsy Johnson, and Amisub of
North Carolina, Inc. On 2 August 2004, the ALJ issued a
recommended decision to grant summary judgment against GHHS. On 1November 2004, the Department issued its Final Agency Decision,
determining GHHS's proposal was not exempt under N.C. Gen. Stat. §
131E-184. GHHS appealed.
In GHHS's first argument, it contends the Department
improperly granted summary judgment against it because it erred in
applying N.C. Gen. Stat. § 131E-184. We disagree.
Standard of Review
In determining whether an agency erred in interpreting a
statute, this Court employs a de novo standard of review.
Chesapeake Microfilm v. N.C. Dept. Of E.H.N.R., 111 N.C. App. 737,
744, 434 S.E.2d 218, 221 (1993). We also review the grant of
summary judgment de novo. Stafford v. County of Bladen, 163 N.C.
App. 149, 151, 592 S.E.2d 711, 713, disc. review denied, 358 N.C.
545, 599 S.E.2d 409 (2004).
A certificate of need (CON) is required before an entity can
develop a new institutional health service as defined in N.C.
Gen. Stat. § 131E-176(16). This includes building a new hospital.
However, the CON law exempts certain projects that would otherwise
be subject to CON review if they fit within any of the listed
grounds contained in N.C. Gen. Stat. § 131E-184. Any part of the
project which does not fit within an exempt purpose remains subject
to the statutory prerequisite of CON review and approval. N.C.
Gen. Stat. § 131E-184(b). When interpreting a statute, we must apply the rules of
statutory construction. Campbell v. Church
, 298 N.C. 476, 484, 259
S.E.2d 558, 564 (1979). The principal rule of statutory
construction is that the legislature's intent controls. Id
intent may be inferred from the nature and purpose of the statute,
and the consequences which would follow, respectively, from various
constructions. Alberti v. Manufactured Homes, Inc.
, 329 N.C. 727,
732, 407 S.E.2d 819, 822 (1991). A court should always construe
the provisions of a statute in a manner which will tend to prevent
it from being circumvented, otherwise, the problems which prompted
the statute's passage would not be corrected. Campbell
, 298 N.C.
at 484, 259 S.E.2d at 564. In addition, statutory exceptions must
be narrowly construed. Publishing Co. v. Board of Education
N.C. App. 37, 47, 223 S.E.2d 580, 586 (1976). The party seeking
the benefit of the exception bears the burden of establishing that
they fit squarely within the exception. Id
. In addition, the
interpretation of a statute given by the agency charged with
carrying it out is entitled to great weight. Frye Reg'l Med. Ctr.
, 350 N.C. 39, 45, 510 S.E.2d 159, 163 (1999) (citations and
internal quotation marks omitted).
[T]he overriding legislative intent behind the CON process,
[is the] regulation of major capital expenditures which may
adversely impact the cost of health care services to the patient.
Cape Fear Mem. Hosp. v. N.C. Dept. of Human Resources,
App. 492, 494, 466 S.E.2d 299, 301 (1996) (citing N.C. Gen. Stat.
§§ 131E-175(1)-(2), (4) and (6)-(7)). See also In re Denial ofRequest by Humana Hosp. Corp.
, 78 N.C. App. 637, 646, 338 S.E.2d
139, 145 (1986).
To achieve this goal, the CON law was enacted to
limit the construction of health care facilities in this state to
those that the public needs and that can be operated efficiently
and economically for [the public's] benefit. In re Humana Hosp.
Corp. v. N.C. Dept. of Human Resources
, 81 N.C. App. 628, 632, 345
S.E.2d 235, 237 (1986). Thus, any entity proposing any new
institutional health services within this state is subject to
review as to need, cost of service, accessibility to services,
quality of care, feasibility, and other criteria . . . . N.C.
Gen. Stat. § 131E-175(7).
In its notice of exemption, GHHS asserted it was entitled to
an exemption from CON review pursuant to N.C. Gen. Stat. § 131E-
184(a)(1) to eliminate or prevent imminent safety hazards and under
(1a) to comply with state licensure standards. However, in
applying the above stated principles of statutory construction, we
find there is only one provision in the exemption statute, N.C.
Gen. Stat. § 131E-184(a)(5), that allows the replacement of an
entire facility, and then only [t]o replace or repair facilities
destroyed or damaged by accident or natural disaster.
Under the doctrine of expressio unius est exclusio alterius
the mention of specific exceptions implies the exclusion of
, 298 N.C. at 482, 259 S.E.2d at 563. Thus, the
legislature's specific reference to replacement of a facility in
section (a)(5) demonstrates its intent that replacement of an
entire facility is not available under any other exemptioncontained in the statute. This interpretation is further supported
by the rule of statutory construction that exemptions must be
construed narrowly. Notably, another provision, section (a)(7), in
the exemption statute allows for replacement, but of medical
N.C. Gen. Stat. § 131E-184(a)(7). However, the
replacement of such equipment is not conditioned on its destruction
or damage due to accident or natural disaster, as is required in
section (a)(5). This inclusion of limiting language for
replacement facilities and the omission of any such language for
replacement equipment further supports that the legislature meant
to impose an express limitation on circumstances when replacement
facilities are exempt from CON review.
As noted previously, legislative intent may also be inferred
from the consequences which would follow, respectively, from
various constructions. Alberti
, 329 N.C. at 732, 407 S.E.2d at
822. [W]here a literal interpretation of the language of a
statute will lead to absurd results, or contravene the manifest
purpose of the Legislature, as otherwise expressed, the reason and
purpose of the law shall control and the strict letter thereof
shall be disregarded. Frye
, 350 N.C. at 45, 510 S.E.2d at 163.
If this Court were to interpret this statute as broadly as
appellants suggest, the exception would swallow the rule. In
addition, the SMFP, while recognizing what an important resource
hospitals are in this state - not only for healthcare, but also for
employment and economic development in their communities, states
[e]ven so, it is not the State's policy to guarantee the survivaland continued operation of all the State's hospitals or even any
one of them. To allow Good Hope to build a entirely new facility
without requiring it to comply with CON review simply because it
has reached the end of its useful life would in effect grant it a
franchise right to perpetual operation. Our legislature has
expressly declined to allow such a result.
Most importantly, if this Court were to interpret section
(a)(1), (a)(1a), or any other provision contained in N.C. Gen.
Stat. § 131E-184 as allowing the replacement of an entire facility,
this would contravene the legislature's purpose in enacting the CON
law. Undoubtedly, the total replacement of a facility involves
substantial capital expenditures. The primary purpose of the CON
law is to regulate major capital expenditures to prevent an adverse
impact on the cost of health care services to patients. Cape Fear
121 N.C. App. at 494, 466 S.E.2d at 301.
Our decision is in accord with the legislature's purpose and
intent in enacting the CON law. We interpret N.C. Gen. Stat. §
131E-184 to allow for the total replacement of a health service
facility in only one instance, where the facility is destroyed or
damaged by natural disaster or accident. This interpretation
adheres to the purpose of the CON law, to control the cost,
utilization, and distribution of health services and to assure that
the less costly and more effective alternatives are made
, 78 N.C. App. at 646, 338 S.E.2d at 145 (citing
N.C. Gen. Stat. § 131E-175(1)-(7) and § 131E-181(a)(4)). Good Hope was not destroyed or damaged by accident or natural
disaster. Thus, the Department did not err in determining GHHS was
not exempt from CON review. As a result, we need not review GHHS's
Judge GEER concurs.
Judge TYSON dissents in separate opinion.
TYSON, Judge dissenting.
The majority's opinion cites to Campbell v. Church and argues
the principal rule of statutory construction is the legislature's
purpose and intent controls. 298 N.C. 476, 484, 259 S.E.2d 558,
564 (1979). The majority's opinion also cites to Cape Fear Mem.
Hospital v. N.C. Dept. of Human Resources and contends the
legislative intent behind the CON review process is the regulation
of major capital expenditures which may adversely impact the cost
of health care services to the patient. 121 N.C. App. 492, 494,
466 S.E.2d 299, 301 (1996) (citing N.C. Gen. Stat. §§ 131E-174(1)-
(2), (4), and (6)-(7)). While I certainly agree that the
legislature's purpose and intent controls our interpretation of the
statute, the majority's opinion misapplies the statute and ignores
others. By limiting the right to an exemption from CON review to
solely one provision in the exemption statute, N.C. Gen. Stat. §
131E-184(a)(5), the Department and the majority's opinion overlook
the plain language of Section (1), (1a), and (1b). I respectfully
GHHS argues the Department: (1) improperly granted summary
judgment against it because N.C. Gen. Stat. § 131E-184 grants an
exemption for their replacement hospital, which was proposed to
eliminate imminent safety hazards as defined in life safety
codes, comply with state and federal licensure standards, and
comply with medicare certification standards; (2) erred in
determining that its written notice and explanation were not
sufficient to warrant an exemption; and (3) unconstitutionally
applied the exemption statute to deprive it of its right to use its
II. Standard of Review
N.C. Gen. Stat. § 131E-188(b) (2003) provides:
Any affected person who was a party in a
contested case hearing shall be entitled to
judicial review of all or any portion of any
final decision of the Department in the
following manner. The appeal shall be to the
Court of Appeals as provided in G.S. 7A-29(a).
On judicial review of an administrative agency's final
decision, the substantive nature of each assignment of error
dictates the standard of review. North Carolina Dep't of Env't
and Natural Res. v. Carroll, 358 N.C. 649, 658, 599 S.E.2d 888, 894
(2004) (citation omitted). If the party asserts the agency's
decision was affected by a legal error, de novo review is required;
if the party seeking review contends the agency decision was not
supported by the evidence, or was arbitrary or capricious, the
whole record test is applied. Christenbury Surgery Ctr. v. N.C.
Dep't of Health and Human Servs., 138 N.C. App. 309, 312, 531S.E.2d 219, 221 (2000). [T]his Court reviews the agency's
findings and conclusions de novo when considering alleged errors of
law. Cape Fear Mem. Hosp. v. N.C. Dept. of Human Resources, 121
N.C. App. 492, 493, 466 S.E.2d 299, 300 (1996) (citing Walker v.
N.C. Dept. of Human Resources, 100 N.C. App. 498, 502, 397 S.E.2d
350, 354 (1990), disc. review denied, 328 N.C. 98, 402 S.E.2d 430
III. Summary Judgment and Exemption from CON Review
GHHS argues the Department improperly granted summary judgment
against it because N.C. Gen. Stat. § 131E-184 grants an exemption
for their replacement hospital, which was proposed to eliminate
imminent safety hazards as defined in life safety codes, to
comply with state licensure standards, and to comply with federal
medicare certification standards. I agree.
In a motion for summary judgment, the movant
has the burden of establishing that there are
no genuine issues of material fact. The
movant can meet the burden by either: 1)
Proving that an essential element of the
opposing party's claim is nonexistent; or 2)
Showing through discovery that the opposing
party cannot produce evidence sufficient to
support an essential element of his claim nor
[evidence] sufficient to surmount an
affirmative defense to his claim.
When a motion for summary judgment is made and
supported as provided in this rule, an adverse
party may not rest upon the mere allegations
or denials of his pleading, but his response,
by affidavits or as otherwise provided in this
rule, must set forth specific facts showing
that there is a genuine issue for trial. If
he does not so respond, summary judgment, if
appropriate, shall be entered against him.
Hines v. Yates, 171 N.C. App. 150, 157, 614 S.E.2d 385, 389 (2005)
(internal quotation and citation omitted).
The ALJ reversed the Agency's decision disapproving GHHS's
2003 application and ruled that a CON be issued for the
construction of a replacement hospital in Lillington, NC as
proposed in the application. Following the ALJ's decision, Good
Hope wrote a letter to the Agency and explained that GHHS planned
to acquire Good Hope and develop a replacement hospital in
Lillington. In the letter, Good Hope contended the project was
exempt from CON review pursuant to N.C. Gen. Stat. § 131E-
184(a)(1), (a)(1a), and (a)(1b) which provide:
(a) Except as provided in subsection (b), the
Department shall exempt from certificate of
need review a new institutional health service
if it receives prior written notice from the
entity proposing the new institutional health
service, which notice includes an explanation
of why the new institutional health service is
required, for any of the following:
(1) To eliminate or prevent imminent
safety hazards as defined in
federal, State, or local fire,
building, or life safety codes or
(1a) To comply with State licensure
(1b) To comply with accreditation or
certification standards which must
be met to receive reimbursement
under Title XVII of the Social
Security Act or payments under a
State plan for medical assistance
approved under Title XIX of that
(Emphasis supplied). The Agency informed GHHS that its project was not exempt from
CON review. The Department's final agency decision reversed the
ALJ's recommended decision and affirmed the Agency's decision
disapproving GHHS's CON application.
Following the final agency decision, GHHS moved for summary
judgment based on N.C. Gen. Stat. § 131E-184(a)(1b), which states,
[t]o comply with accreditation or certification standards which
must be met to receive reimbursement under Title XVIII of the
Social Security Act or payments under a State plan for medical
assistance approved under Title XIX of that act. The chief ALJ
entered summary judgment against GHHS. The final agency decision
affirmed summary judgment in favor of the Department. The final
agency decision concluded, now that it has been adjudicated that
GHHS should receive a CON to develop a replacement hospital, Good
Hope cannot now show that its proposed project is required.
GHHS appeals from the Department's final agency decision
granting summary judgment in favor of the Agency. GHHS argues it
submitted uncontradicted evidence that is sufficient to prove GHHS
is exempt from CON review and is entitled to summary judgment.
N.C. Gen. Stat. § 1A-1, Rule 56 (2005). The Agency does not
dispute the fact that the facility must be replaced, must comply
with health and safety codes, and must maintain its certifications
and licenses in order to continue to operate. GHHS contends
summary judgment should be reversed because it provided evidence of
an exempt purpose. GHHS presented undisputed evidence acknowledging the
dilapidated condition of Good Hope Hospital, as well as photographs
and inspections documenting the deficiencies. GHHS's evidence
included findings of state and federal agencies that identified the
major categories of physical and environmental deficiencies
throughout the facility. The evidence included a letter from the
Centers for Medicare and Medicaid Services to Good Hope that
we have determined that your facility does not
comply with the provisions of the National
Fire Protection Association's Life Safety
Code. These deficiencies form the basis for
our determination of noncompliance with the
Condition of Participation pertaining to
Physical Environment (reference: 42 CFR
482.41) and Medicare Health Safety regulations
GHHS submitted with its notice of exemption a letter from the
Director of Harnett County Emergency Services Department. The
letter stated, It is our opinion that the report prepared by C.
Ross Architecture L.L.C. and L.C. Thomasson Associates, Inc.
accurately summarizes the imminent safety hazards at Good Hope
Hospital as defined by Federal, State, and Local fire and safety
codes. (Emphasis supplied). N.C. Gen. Stat. § 131E-184(a)(1)
provides GHHS with an exemption from CON review. The facility
suffers imminent safety hazards and must be replaced. N.C. Gen.
Stat. § 131E-184(a)(1).
The majority's opinion interprets N.C. Gen. Stat. § 131E-184
narrowly and limits exemptions for replacement of a facility solely
to Section (5), [t]o replace or repair facilities destroyed ordamaged by accident or natural disaster. N.C. Gen. Stat. § 131E-
184(a)(5). The majority's opinion cites to Alberti v. Manufactured
Homes, Inc. and argues legislative intent may be inferred from the
consequences which would follow, respectively, from various
constructions. 329 N.C. 727, 732, 407 S.E.2d 819, 822 (1991).
In Alberti, the plaintiffs sought to revoke their acceptance
of goods from a remote manufacturer with whom they had no
contractual relationship. 329 N.C. at 732, 407 S.E.2d at 822. Our
Supreme Court relied on Article 2 of the Uniform Commercial Code to
define buyer and seller. Id. The Court stated, [i]n
determining whether remote manufacturers are generally 'sellers'
against whom a consumer may revoke acceptance, the legislature's
inclusions and omissions in its definition of 'seller' are
instructive as to its intent. Id. at 734, 407 S.E.2d at 823. The
Court held that the manufacturer was not a seller. Id.
Here, N.C. Gen. Stat. § 131E-184, entitled, Exemptions from
review, provides in Section (a)(1) the Department shall exempt
from certificate of need review . . . . and lists nine separate
and distinct exemptions from CON review. (Emphasis supplied). The
first exemption is to eliminate or prevent imminent safety
hazards. N.C. Gen. Stat. § 131E-184(a)(1). If the new
institutional health service must be renovated or replaced to
eliminate or prevent imminent safety hazards, the statute
provides an exemption from CON review. Id. N.C. Gen. Stat. §
131E-184(a)(5) identifies a separate and distinct exemption for
when a facility must be replaced due to damage from a naturaldisaster or accident. All parties agree, and the undisputed
evidence shows, Good Hope suffers from imminent safety hazards.
Good Hope is a ninety-year old facility that originated in a
residential structure. Undisputed evidence also shows that
renovation of the existing structure to comply with present local,
state, and federal safety and licensure requirements, cannot be
accomplished without demolishing the existing structure. N.C. Gen.
Stat. § 131E-184(a)(1) expressly provides GHHS an exemption from
GHHS presented substantial and undisputed evidence to prove
its right to an exemption from CON review in order to eliminate or
prevent imminent safety hazards, or to maintain licensure
standards, or comply with accreditation, or certification standards
to receive entitlement reimbursements. N.C. Gen. Stat. § 131E-
184(a)(1), (1a), and (1b). The language of the statute is
mandatory on the Agency. [T]he legislature clearly did not intend
to impose unreasonable limitations on maintaining, or expanding,
presently offered health services. Cape Fear Mem. Hosp., 121 N.C.
App. at 494, 466 S.E.2d at 301 (citations omitted).
The final agency decision erroneously granted summary judgment
for the Department and against GHHS. GHHS provided substantial and
undisputed evidence of its right to statutory exemption(s) to
survive the Department's motion. The exemptions for replacement of
a facility under N.C. Gen. Stat. § 131E-184(5) are not limited
solely to replace or repair facilities destroyed or damaged byaccident or natural disaster. Deterioration and demolition of an
aged facility with an 100 year old residential structure at its
core, together with evolving standards required of health care
facilities, are no less destructive than a fire, flood, or tornado.
Summary judgment in favor of the Agency should be reversed, and
remanded for issuance of the CON in accordance with the decision of
the ALJ. I respectfully dissent.
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