An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority.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

NO. COA05-820

NORTH CAROLINA COURT OF APPEALS

Filed: 18 April 2006

BIO-MEDICAL APPLICATIONS
OF NORTH CAROLINA, INC.,
    Petitioner-Appellant,
        
v.                    

                            N.C. Department of Health and
                            Human Services
                            04 DHR 0516

N.C. DEPARTMENT OF HEALTH AND
HUMAN SERVICES, DIVISION OF
FACILITY SERVICES, CERTIFICATE
OF NEED SECTION,
    Respondent-Appellee,

    and

HEALTH SYSTEMS MANAGEMENT, INC.
(Lessor) and CLAYTON DIALYSIS
CENTER, INC. (Lessee),
Respondent-Intervenor,
    Appellees.

    Appeal by petitioner from final agency decision dated 9 March 2005 by the North Carolina Department of Health and Human Services, Division of Facility Services. Heard in the Court of Appeals 21 February 2006.

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

    Attorney General Roy Cooper, by Assistant Attorney General June S. Ferrell, for respondent-appellee, N.C. Department of Health and Human Services.

    Bode, Call & Stroupe, L.L.P., by S. Todd Hemphill, for respondent-intervenor-appellees, Health Systems Management, Inc. and Clayton Dialysis Center, Inc.


    McGEE, Judge.    Petitioner-appellant Bio-Medical Applications of North Carolina, Inc. (BMA) appeals from a final decision of the North Carolina Department of Health and Human Services, Division of Facility Services (the agency). The final agency decision awarded a certificate of need to respondent-intervenor-appellees Health Systems Management, Inc. (lessor) and Clayton Dialysis Center, Inc. (lessee) (collectively HSM) to develop a new ten-station dialysis facility in Johnston County.
    The July 2003 North Carolina Semiannual Dialysis Report (dialysis report) established a need for ten new dialysis stations in Johnston County. BMA filed the application at issue in this appeal with the agency's Certificate of Need (CON) Section. In its application, BMA proposed to add five stations to one of its existing dialysis facilities in the Town of Smithfield. BMA also filed two other applications which it ultimately abandoned. HSM also filed an application with the CON section in which it proposed to develop a new facility with ten dialysis stations in the Town of Clayton. The CON section filed its required state agency findings on 27 February 2004, denying BMA's application and conditionally approving HSM's application.
    BMA petitioned for a contested case hearing pursuant to N.C. Gen. Stat. § 131E-188(a), N.C. Gen. Stat. § 150B-23(a), and 26 NCAC 3.0103(a). An administrative law judge (ALJ) allowed HSM to intervene in the contested case on 11 May 2004. In its recommended decision filed 17 December 2004, the ALJ recommended affirming the denial of BMA's application and recommended reversing the CONsection's initial decision to grant a CON to HSM. The agency issued its final agency decision on 9 March 2005. The agency awarded a CON to HSM to develop a new ten-station dialysis facility in Clayton. The agency also affirmed the initial agency decision denying a CON to BMA. BMA appeals.
    "On judicial review of an administrative agency's final decision, the substantive nature of each assignment of error dictates the standard of review." N.C. Dep't of Env't & Natural Res. v. Carroll, 358 N.C. 649, 658, 599 S.E.2d 888, 894 (2004). We review asserted errors of law de novo. Burke Health Investors v. N.C. Dep't of Hum. Res., 135 N.C. App. 568, 571, 522 S.E.2d 96, 98 (1999). However, where an appellant challenges the agency decision as unsupported by the evidence or as arbitrary and capricious, we apply the whole record test. Id. at 571, 522 S.E.2d at 98-99. Under the whole record test, we "examine all competent evidence in order to determine whether the agency decision is supported by substantial evidence." Id. at 571, 522 S.E.2d at 99. "Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Comr. of Insurance v. Rating Bureau, 292 N.C. 70, 80, 231 S.E.2d 882, 888 (1977). An agency's decisions will only be found to be arbitrary and capricious where they are "'whimsical' because they indicate a lack of fair and careful consideration; when they fail to indicate 'any course of reasoning and the exercise of judgment,' or when they impose or omit procedural requirements that result in manifest unfairness in the circumstances though within the letter ofstatutory requirements[.]" Com'r of Insurance v. Rate Bureau, 300 N.C. 381, 420, 269 S.E.2d 547, 573 (1980) (citation omitted).

I.

    BMA first argues the agency erred by approving HSM's application because HSM improperly amended its application during the review process. Because BMA argues the agency decision was made upon unlawful procedure, we apply a de novo standard of review to this issue. See Burke Health Investors, 135 N.C. App. at 571, 522 S.E.2d at 99.
    Pursuant to 10A NCAC 14C.0204 (June 2004), an applicant may not amend a CON application. In support of its argument that HSM improperly amended its application, BMA relies upon Presbyterian- Orthopaedic Hosp. v. N.C. Dept. of Human Resources, 122 N.C. App. 529, 470 S.E.2d 831 (1996), in which the applicant applied for a CON to develop rehabilitation beds at its hospital. Id. at 531, 470 S.E.2d at 832. All of the logistical and financial data in its application was based upon its use of a particular management company. Id. at 537, 470 S.E.2d at 836. However, before its application was approved, the applicant decided not to use the management company listed in its application. Id. Our Court held that the applicant's actions constituted a material amendment to its application. Id.
    In the present case, the CON application required applicants to "[p]rovide documentation that the new or expanded facility will comply with all staffing requirements[.]" A facility is required to have a qualified physician-director. See 42 C.F.R. §§ 405.2102,405.2161. The CON application further asked applicants to "[i]dentify those physicians who have expressed a willingness to serve as Medical Director of the facility." In response to this question, HSM provided curriculum vitae and letters of interest of four physicians who had expressed interest in serving as the medical director of HSM's proposed facility. However, at the CON application hearing, in addition to the original four physicians listed by HSM, HSM introduced Dr. Shahida Khan (Dr. Khan), who spoke and expressed her interest in serving as the medical director of HSM's proposed facility. Dr. Khan also provided a written statement to the CON analyst, indicating her interest in the position. The CON section viewed Dr. Khan's written statement as a potential amendment to HSM's application and therefore did not consider Dr. Khan as a possible medical director. The CON section marked "not considered" on Dr. Khan's written statement.
    Unlike in Presbyterian-Orthopaedic Hospital, HSM did not improperly amend its CON application in the present case. In Presbyterian-Orthopaedic Hospital, the CON applicant's decision to use a different management company affected all of the logistical and financial data contained in its application. Presbyterian- Orthopaedic Hospital, 122 N.C. App. at 537, 470 S.E.2d at 836. In the present case, the introduction of Dr. Khan as a potential medical director had no effect on the other portions of HSM's application. At most, Dr. Khan became the fifth candidate for the position of medical director. More importantly, the CON section did not consider Dr. Khan's statement in making its decision toaward the CON to HSM. Accordingly, the agency did not err in finding that HSM did not improperly amend its CON application.
II.

    BMA next argues the agency erred in approving HSM's application because HSM's application was nonconforming with review criteria 3, 5, 7, 8 and with 10A NCAC 14C.2202(b)(1), 14C.2203(a) and (c), 14C.2204(9), and 14C.2205(a).
A.

    N.C. Gen. Stat. § 131E-183(a)(3) (2005) (criterion 3) provides:
        The applicant shall identify the population to be served by the proposed project, and shall demonstrate the need that this population has for the services proposed, and the extent to which all residents of the area, and, in particular, low income persons, racial and ethnic minorities, women, handicapped persons, the elderly, and other underserved groups are likely to have access to the services proposed.

The agency also adopted performance standards to be used in conjunction with criterion 3. See Craven Regional Medical Authority v. N.C. Dep't of Health and Hum. Ser., ___ N.C. App. ___, ___, ___ S.E.2d ___, ___ (2006). The relevant performance standards applicable to criterion 3 require the following:
        (a) An 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.

        . . . 

        (c) An applicant shall provide all assumptions, including the specificmethodology by which patient utilization is projected.

10A NCAC 14C.2203 (November 2005).
    BMA argues the agency erred by approving HSM's application because HSM's application did not conform to criterion 3 in that HSM's patient projections were unrealistic. Although BMA does not specify the applicable standard of review, it appears that BMA is challenging the agency's decision as unsupported by substantial evidence and as arbitrary and capricious. See Craven Regional Medical Authority, ___ N.C. App. at ___, ___ S.E.2d at ___. We therefore apply the whole record test. "When applying the whole record test '[w]e should not replace the agency's judgment as between two reasonably conflicting views, even if we might have reached a different result if the matter were before us de novo.'" Id. at ___, ___ S.E.2d at ___ (quoting 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 (2000)).
    BMA argues that HSM's patient projections were unrealistic because HSM failed to look at any data trends beyond the July 2003 dialysis report, which contained data from December 2002. BMA contends that HSM should have considered the more recent 30 June 2003 data from the Southeastern Kidney Council. BMA argues this data showed that the dialysis patient population decreased over a six-month period in the Clayton zip code area, where HSM proposed to add its dialysis stations, while the dialysis patient population grew in Smithfield, where BMA proposed to add dialysis stations.
    The CON applications in the present case were due on 15September 2003. Kimberly Walker, who helped prepare HSM's application, testified that HSM knew about the 30 June 2003 data prior to filing its application. However, this data was not verified until after 31 October 2003, when the report was issued, which was after the CON applications were due. Kimberly Walker also testified that HSM chose to rely upon the same Southeastern Kidney Council report that was used by the State Medical Facilities Planning Section to generate the dialysis report which established the need for ten new dialysis stations in Johnston County. This is substantial evidence which supports the agency's final decision that HSM complied with criterion 3.
    Moreover, Kimberly Walker testified as follows:
        Due to normal fluctuations in patient numbers, a six-month fluctuation is not enough change to indicate a definite overall change in the patient population. Within a six-month period the number can go up, the number can go down. You have to look at years' worth of data in order to determine . . . what your growth rate would be.
        
We therefore find that HSM's methodology was reasonable. The agency's determination that HSM conformed with criterion 3 was not arbitrary or capricious.
    BMA further argues that HSM's application did not comply with criterion 3 because: (1) HSM's application did not include support from any physicians practicing in North Carolina, (2) Johnston Memorial Hospital refused to support HSM's application, and (3) HSM could not rely upon referrals from its proposed medical director. First, BMA has not cited, and we do not find, any rule or statute requiring an applicant to submit any particular numberof letters of support with a CON application. Furthermore, Michael McKillip (McKillip), a CON section project analyst, testified there was no "particular quantity of letters of support that are required in order for an application to be found conforming." Secondly, although Johnston Memorial Hospital did not offer a letter of support for HSM's proposed facility, Johnston Memorial Hospital indicated that it would cooperate with HSM in the event that HSM was awarded the CON. Finally, BMA does not cite any authority for its contention that HSM could not rely upon its proposed medical director for referrals. The agency did not err in finding that HSM's CON application complied with criterion 3.
B.

    BMA argues HSM's application did not conform to criterion 5 because (1) HSM failed to demonstrate the availability of funds for its project, and (2) HSM failed to include approximately $70,000.00 in additional costs in its application. Because BMA claims that HSM submitted insufficient financial documentation to comply with criterion 5, we apply the whole record test. See Burke Health Investors, 135 N.C. App. at 574, 522 S.E.2d at 100. N.C. Gen. Stat. § 131E-183(a)(5) (2005) (criterion 5) provides:
        Financial and operational projections for the project shall demonstrate the availability of funds for capital and operating needs as well as the immediate and long-term financial feasibility of the proposal, based upon reasonable projections of the costs of and charges for providing health services by the person proposing the service.
    BMA first argues that because HSM did not provide audited financial statements showing its liabilities, HSM failed todemonstrate the availability of funds. The CON application form requests applicants to:
        Supply copies of the two most recent audited financial reports of the applicant.

            If audited statements are unavailable, please provide unaudited statements. If there are no statements for the subsidiary corporation, please provide parent company's statements, personal financial statements, or any other financial reports which document the financial security of the applicant.

The assistant chief of the agency's CON section testified there was no statute or rule which required an applicant to submit audited financial statements. However, he further testified that an applicant must show the availability of funds. HSM submitted a letter from C. Alex Kemp, the president and CEO of HSM, with its application. The letter stated that C. Alex Kemp had "dedicated unrestricted cash reserves in the amount of $3,000,000 for the development of this project." HSM also submitted a letter from Wachovia Bank stating that C. Alex Kemp had a trust account with "$3 million dollars available for use." These letters are substantial evidence that HSM had funds available to finance its proposed project.
    BMA also argues that HSM failed to include approximately $70,000.00 in costs in its application. However, HSM estimated the total cost of its proposed project to be $2,823,337.00; since HSM had $3,000,000.00 in unrestricted funds available for the project, it had sufficient funds to cover the $70,000.00 in additional costs. The agency did not err by finding that HSM's application conformed with criterion 5.
C.

    BMA next argues that HSM's application was nonconforming with criteria 7 and 8. Because BMA appears to argue that the agency's decision was unsupported by substantial evidence, we apply the whole record test. See Burke Health Investors, 135 N.C. App. at 574, 522 S.E.2d at 100. With respect to criterion 7, BMA specifically argues that HSM's application was nonconforming because HSM failed to properly identify a medical director for its proposed facility. BMA contends that HSM did not identify a physician who was willing to serve as medical director. N.C. Gen. Stat. § 131E-183(a)(7) (2005) (criterion 7) provides that "[t]he applicant shall show evidence of the availability of resources, including health manpower and management personnel, for the provision of the services proposed to be provided." The CON application requested applicants to "[i]dentify those physicians who have expressed a willingness to serve as Medical Director of the facility."
    HSM included curriculum vitae and letters of interest of the top four candidates for the position of medical director of its proposed facility. Each of the letters of interest contained the following statement: "Please accept this letter as my statement of interest for the position of Medical Director for the proposed Clayton Dialysis Center to be located in Johnston County, North Carolina." This was substantial evidence that HSM identified physicians who were willing to serve as medical director of its proposed facility. Accordingly, HSM showed "evidence of theavailability of resources, including health manpower and management personnel" pursuant to criterion 7.
    As to criterion 8, BMA argues that "HSM did not contact any area nephrologists to see if they would agree to provide back-up coverage[.]" N.C. Gen. Stat. § 131E-183(a)(8) (2005) (criterion 8) provides as follows: "The applicant shall demonstrate that the provider of the proposed services will make available, or otherwise make arrangements for, the provision of the necessary ancillary and support services. The applicant shall also demonstrate that the proposed service will be coordinated with the existing health care system."
    In its application, HSM stated:
        Medical coverage for [the facility's] patients will be assigned on a rotation basis by its nephrologist who[,] as a term in his or her contract[,] must obtain admitting privileges and residency at the local hospital as well as establish working relationships with other area physicians. Physician coverage will be provided 7 days per week, 24 hours per day.

We find this was substantial evidence that HSM "will make available, or otherwise make arrangements for, the provision of the necessary ancillary and support services" under criterion 8. For the reasons stated above, the agency did not err by finding HSM's application conforming with criteria 7 and 8.
D.

    BMA next argues that HSM's CON application was nonconforming with 10 NCAC 14C.2202(b)(1), 14C.2204(9), and 14C.2205(a). Because BMA appears to argue that the agency's decision was unsupported by the evidence, we apply the whole record standard of review. SeeMt. Olive Home Health Care Agency, Inc. v. N.C. Dept. of Human Resources, 78 N.C. App. 224, 228-29, 336 S.E.2d 625, 627-28 (1985). 10 NCAC 14C.2202(b)(1) (November 2005) provides:
        An applicant that proposes to develop a new facility, increase the number of dialysis stations in an existing facility, establish a new dialysis station, or relocate existing dialysis stations shall provide the following information requested on the End Stage Renal Disease (ESRD) Treatment application form:

            (1)     For new facilities, a letter of intent to sign a written agreement or a signed written agreement with an acute care hospital that specifies the relationship with the dialysis facility and describes the services that the hospital will provide to patients of the dialysis facility.

    BMA concedes that HSM provided a signed acute care agreement with Baptist Hospital in Winston-Salem. However, BMA argues that HSM's application was not conforming to 10 NCAC 14C.2202(b)(1) because HSM did not intend to send its patients to Baptist Hospital. Rather, HSM intended to enter into an agreement with Johnston Memorial Hospital once it was awarded the CON. The rule requires only that the applicant have a signed written agreement with an acute care hospital. It does not preclude the applicant from entering into an agreement with a different hospital in the future. There is substantial evidence supporting HSM's compliance with 10 NCAC 14C.2202(b)(1).
    10 NCAC 14C.2204(9) (June 2004) directs that an applicant demonstrate the availability of "acute dialysis in an acute care setting[.]" As stated above, HSM had a contract with BaptistHospital, which could provide acute dialysis care. HSM's contract, included in its application, is substantial evidence that HSM's application conformed to 10 NCAC 14C.2204(9).
    10A NCAC 14C.2205(a) (June 2004) provides that "[t]o be approved, the state agency must determine that the proponent can meet all staffing requirements[.]" BMA argues that because HSM did not properly identify a medical director for its proposed facility, HSM failed to conform to this rule. However, as we determined previously, HSM's application conformed to the applicable staffing requirements. Therefore, this argument is without merit.
III.

    BMA argues the agency erred in finding BMA's CON application
nonconforming with criterion 3. BMA also argues the agency erred in finding BMA's application derivatively nonconforming with other applicable review criteria. The agency found that BMA did not explain the source of "new BMA patients aside from normal growth." The agency also stated that BMA "did not demonstrate that it was reasonable to assume that the number of in-center patients [would] increase by 18 percent per year." "[A]n application must be found consistent with the statutory criteria before a Certificate of Need may be issued." Bio-Medical Applications of N.C., Inc. v. N.C. Dep't of Hum. Res., 136 N.C. App. 103, 109, 523 S.E.2d 677, 681 (1999).
    McKillip, the CON section project analyst, testified that BMA's application did not explain the source of its proposed numbers of new patients aside from normal growth. McKillip furthertestified that BMA did not explain the basis for its projection of a growth rate of 18 percent, when the growth rate for Johnston County was 10.8 percent. Craig Smith, the assistant chief of the CON section, also testified that BMA did not explain the basis for its proposed growth rate. This testimony was substantial evidence supporting the agency's denial of BMA's CON application for noncompliance with criterion 3. The agency did not err in finding BMA's application nonconforming with criterion 3.
    The agency also found BMA nonconforming with review criteria 4, 5, 6, and 18a, based upon BMA's nonconformity with criterion 3. Samuel Robinson, who prepared BMA's CON application, and who was accepted as an expert in CON application preparation and analysis, testified that a CON application which was nonconforming with criterion 3 would also be nonconforming with criteria 4, 5, 6, and 18a. No other witness contradicted this testimony. There was substantial evidence supporting the agency's final decision and we overrule this assignment of error.
IV.

    BMA next argues the agency erroneously found HSM's application comparatively superior to BMA's application. BMA also argues the agency erred by failing to reject several of the ALJ's findings of fact dealing with the comparative analysis. However, because we affirm the final agency decision finding that BMA was nonconforming to criterion 3, and derivatively nonconforming with several other review criteria, we do not address BMA's arguments regarding the comparative review. See, e.g., Bio-Medical Applications of N.C.,Inc., 136 N.C. App. at 109, 523 S.E.2d at 681 (holding that "an application must be found consistent with the statutory criteria before a Certificate of Need may be issued"); see also, Retirement Villages, Inc. v. N.C. Dept. of Human Resources, 124 N.C. App. 495, 502, 477 S.E.2d 697, 701 (1996) (declining to address the appellant's remaining arguments upon a finding that the appellant was nonconforming under the applicable review criteria).
V.

    BMA argues the agency erroneously rejected the majority of the ALJ's findings of fact by stating the findings were "not supported by the substantial evidence of the record, [were] erroneous, and [were] contrary to the preponderance of the evidence in the contested case." However, upon a review of the final agency decision, we find that the agency stated a specific reason why it rejected each of the ALJ's findings of fact. See 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, 84 (2005). Moreover, the agency's findings of fact were supported by substantial evidence. This argument is without merit.
    BMA failed to set forth arguments pertaining to its remaining assignments of error and we therefore deem those assignments of error abandoned pursuant to N.C.R. App. P. 28(b)(6).
    Affirmed.
    Judges CALABRIA and GEER concur.
    Report per Rule 30(e).

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