Encompass Health Rehabilitation Hospital of Flowood, LLC and Mississippi State Department of Health v. Mississippi Methodist Hospital and Rehabilitation Center, Inc.

• Court: Mississippi Supreme Court
• Decided: March 28, 2024
• Docket: 2023-SA-00370-SCT
• Status: Published

Opinion

IN THE SUPREME COURT OF MISSISSIPPI

NO. 2023-SA-00370-SCT

ENCOMPASS HEALTH REHABILITATION HOSPITAL OF FLOWOOD, LLC, AND MISSISSIPPI STATE DEPARTMENT OF HEALTH

v.

MISSISSIPPI METHODIST HOSPITAL AND REHABILITATION CENTER, INC.

DATE OF JUDGMENT: 03/21/2023 TRIAL JUDGE: HON. J. DEWAYNE THOMAS TRIAL COURT ATTORNEYS: ALLISON CARTER SIMPSON MATTHEW DAVID SITTON THOMAS L. KIRKLAND, JR. CAROLINE CAMPBELL LOVELESS BRANT JAMES RYAN KATHRYN RUSSELL GILCHRIST MARC JAMES AYERS SHELDON G. ALSTON ROBERT LANE BOBO BETTY TOON COLLINS BARRY K. COCKRELL CASSANDRA S. WALTER COURT FROM WHICH APPEALED: HINDS COUNTY CHANCERY COURT ATTORNEYS FOR APPELLANTS: KATHRYN RUSSELL GILCHRIST CASSANDRA S. WALTER BRANT JAMES RYAN MARC JAMES AYERS ATTORNEYS FOR APPELLEE: THOMAS L. KIRKLAND, JR. ALLISON CARTER SIMPSON MATTHEW DAVID SITTON NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES DISPOSITION: VACATED AND REMANDED - 03/28/2024 MOTION FOR REHEARING FILED: EN BANC.

KING, PRESIDING JUSTICE, FOR THE COURT:

¶1. The Mississippi State Department of Health (MSDH) simultaneously entertained two

certificate of need applications, one from Encompass Health Rehabilitation Hospital and one

from Baptist Memorial Rehabilitation Hospital, for the same category of services. The issue

before this Court is whether the MSDH was required to admit evidence of the Baptist

certificate of need application or the Baptist certificate of need in the Encompass certificate

of need hearing. The MSDH did not admit the Baptist application or certificate, but the

chancery court reversed solely on this issue. Because the chancery court’s ruling was in

error, this Court vacates the chancery court’s judgment and remands the case for further

proceedings.

FACTS AND PROCEDURAL HISTORY

¶2. The MSDH is authorized to administer state health planning and development. Miss.

Code Ann. §§ 41-7-175, -183 (Rev. 2023). As such, MSDH prepares the Mississippi State

Health Plan (SHP). Miss. Code Ann. § 41-7-185(g) (Rev. 2023). The SHP “establishes

standards and criteria for health-related activities which require certificate of need review .

. . .” Miss. Code Ann. § 41-7-173(t) (Rev. 2023). MSDH also implements the state’s

certificate of need (CON) program. Miss. Code Ann. § 41-7-187 (Rev. 2023). One of the

activities that requires a CON is the establishment of a new healthcare facility. Miss. Code

Ann. § 41-7-191(1)(a) (Rev. 2023).

2 ¶3. Comprehensive Medical Rehabilitation (CMR) services consist of “intensive care

service providing a coordinated multidisciplinary approach to patients with severe physical

disabilities that require an organized program of integrated services” and are provided by

distinct CMR facilities. Miss. Dep’t of Health, Div. of Health Plan. & Res. Dev., FY 2022

Miss. State Health Plan § 603.01 (effective May 26, 2022),

https://msdh.ms.gov/page/resources/16691.pdf. CMR services are divided into two types:

Level I , which provides “services for all rehabilitation diagnostic categories[,]” and Level

II, which provides “services for all rehabilitation diagnostic categories except: (1) spinal cord

injuries, (2) congenital deformity, and (3) brain injury.” Id. The 2022 SHP determined that

the State needed seven Level I beds and ninety-four Level II beds. Id. § 603.04. While the

numbers and needs for certain types of healthcare facilities are determined by regions of the

State, CMR facility needs are determined for the State as a whole. Id. § 601 (“The state as

a whole serves as a single service area when determining the need for comprehensive

medical rehabilitation beds/services.”); Id. § 603.01; Id. § 603.02.

¶4. On February 22, 2022, Encompass Health Rehabilitation Hospital of Flowood

(Encompass) submitted a CON application for the establishment of a new CMR facility in

Rankin County that would be comprised of seven Level I beds and forty-three Level II beds.

Baptist Memorial Rehabilitation Hospital - Madison (Baptist) also submitted a CON

application that same day for the establishment of a new CMR facility in Madison County

that would be comprised of five Level I beds and thirty-five Level II beds. The number of

Level I beds requested by each applicant rendered the applications competing in part, because

3 the State needed seven Level I beds, and the total Level I beds requested between the two

CONs was twelve beds. Consequently, Baptist agreed to reduce its Level I request to three

beds, and Encompass agreed to reduce its Level I request to four beds. The MSDH then

found that the applications were not competing or conflicting, and it recommended approval

of both CON applications.

¶5. Mississippi Methodist Hospital and Rehabilitation Center (Methodist) requested a

public hearing on both the Encompass CON application and the Baptist CON application as

an affected party under statutory law and the CON Manual. Methodist filed a motion to

consolidate the two hearings. The hearing officer denied the motion to consolidate because

the applications were not competing and did not share common parties or questions of fact

and law. She also ruled that the Baptist application would not be admissible as evidence in

the Encompass hearing. Encompass’s hearing was scheduled first, and occurred over several

days in July and August 2022. Baptist’s hearing was supposed to occur in September 2022.

¶6. During the Encompass hearing, Methodist was allowed to proffer evidence regarding

the Baptist CON application and its relevance to the Encompass proceeding. It did so

through an expert witness, who testified that the MSDH needed to hear evidence about both

applications because they were offering the same services in the same geographic area. The

witness specifically testified that the two applications should be considered competing

because of this. The hearing officer again excluded the evidence regarding the Baptist CON

application, noting that the CON manual indicates that no evidence regarding other pending

applications should be considered.

4 ¶7. At the end of the proceedings on August 17, 2022, the hearing officer closed the

taking of evidence and the record. She left the record open solely for submission of proposed

findings of fact and conclusions of law.

¶8. After the hearing officer closed the Encompass record, Methodist withdrew its request

for a hearing on and its objection to Baptist’s CON application. As a result, on September

30, 2022, MSDH granted Baptist’s then unopposed CON application for a CMR facility. On

October 3, 2022, Methodist moved to reopen the Encompass hearing or, in the alternative,

to supplement the record, to allow evidence regarding the newly issued Baptist CON. The

hearing officer denied Methodist’s motion. The hearing officer noted that the hearing had

concluded in August and that the hearing and its record were left open solely for the

submission of proposed findings of fact and conclusions of law, but it was closed to

additional evidence. The hearing officer also noted that she had “been presented with the

same argument repeatedly throughout the course of this matter and has ruled consistently

throughout that the Baptist CON application is not relevant to the MSDH’s consideration of

the Encompass-Flowood CON application.” The hearing officer noted that the CON manual

states that evidence on other pending applications should not be admitted if that evidence is

not relevant. The hearing officer found that the Baptist CON application was not relevant

for “at least two reasons,” namely that the number of beds sought by both applications in the

aggregate was still less than the SHP-determined bed need, and that the service area for CMR

is the state as a whole, with the Jackson-Metro area being the medical hub of the state and

5 CMR referrals in the Jackson-Metro area consequently being the most numerous in the state.

In full, the reasons the hearing officer found the Baptist CON application not relevant were:

(1) that the number of beds determined by the [MSDH] to be needed based on the formula in the State Health Plan exceeds the aggregate number of beds sought by Baptist and Encompass-Flowood in their two applications. As the Staff indicated in recommending both applications for approval, there are more than enough beds to grant both CONs and still leave an unmet need for beds in the State.

(2) the service area for CMR beds and services is established in the State Health Plan as the State as a whole, and as Ms. Williams further confirmed, because the State as a whole is the service area, there is no geographic restriction on where CMR beds are placed in the State. What’s more, there was a wealth of evidence presented in the Encompass-Flowood Hearing establishing that the Jackson-Metro area is the State’s “referral center,” and “medical hub” and that the primary source of CMR referrals – short term acute care hospitals – are in the greatest supply here of anywhere in the State. In issuing its simultaneous recommendations of approval for both the Baptist and the Encompass-Flowood applications, the [MSDH] indicated its determination that the placement of the additional CMR beds sought by those applications in Rankin and Madison Counties is appropriate and in substantial compliance with all of the applicable criteria and standards imposed by the CON laws.

The hearing officer concluded that “I do not find that the [MSDH]’s approval of the Baptist

CON subsequent to the end of the Encompass-Flowood Hearing changes my opinion as to

its relevance to this proceeding.”

¶9. On November 10, 2022, the hearing officer issued her findings, recommending that

Encompass’s CON application be approved. In the findings, the hearing officer addressed

the Baptist CON application, noting that the two applications were originally competing, but

then were modified and became noncompeting. At the time of the Encompass hearing,

Baptist’s application was pending, thus the hearing officer ruled that it would not be

considered in the course of Encompass’s hearing in accordance with the CON manual. The

6 findings noted that “it was only through [Methodist’s] withdrawal of its objection to the

Baptist Application that Baptist was granted the CON.” The findings also noted that, even

with the granted Baptist CON, “there is still left an unmet need for additional beds[.]” The

hearing officer concluded that “I therefore find that the Baptist Application and CON have

no bearing on the analysis and consideration of the instant Application.”

¶10. The hearing officer found that the Encompass application was “in substantial

compliance with all the relevant criteria and standards[.]” She also found it

compelling that, unlike many other health services addressed in the SHP, the [MSDH] has deliberately not carved out geographic planning areas around the state for CMR services, but rather has left the entire state as a planning area – evidencing a clear intent not to regulate the location of CMR beds, other than the extent to which the relevant criteria affect location (such as unnecessary duplication, adverse impact on existing providers, etc.).

¶11. The hearing officer further addressed Methodist’s objections to the Encompass

application. Methodist claimed that it has the capacity to address the need for CMR services

in the Jackson area and that Encompass’s facility in Rankin County would adversely impact

it, as well as adversely impact its ability to provide indigent care.

¶12. The hearing officer then detailed the applicable requirements for a CON. She went

into detail regarding the evidence for and against the notion that Methodist has the capacity

to meet the entire CMR need in the area according to both the standards set forth in the SHP

and the factors in the CON manual. In doing so, the hearing officer specifically addressed

Methodist’s objections and arguments regarding each factor on which it made arguments or

presented evidence. The hearing officer concluded her forty-three page report by

recommending that the state health officer approve Encompass’s CON application.

7 ¶13. The state health officer approved Encompass’s CON application, and MSDH issued

the CON. Methodist appealed the decision to the Hinds County Chancery Court. The

chancery court reversed the matter based on its determination that the MSDH erred as a

matter of law, finding that the hearing officer failed to consider whether the Baptist CON

application and the subsequent Baptist CON were relevant to Encompass’s application. The

chancery court did not rule on the substance of the CON application. Specifically, the

chancery court found that the hearing officer “committed a clear error of judgment in

refusing to even consider whether the Baptist Application was ‘relevant to the matter in

issue.’” The chancellor stated that “the record is devoid of any discussion as to whether the

relevance of the Baptist Application was ever considered by the Hearing Officer.” The

chancery court did not find the Baptist application to be relevant, it merely found that the

MSDH did not consider relevance. The chancery court held that

Given the sheer volume of factual determinations necessary for the recommendation of approval or disapproval of a CON application, a consideration of the relevance of a once competing and later concurrent application for CMR services was necessitated. Upon review, the Hearing Officer may have determined that the Baptist Application was not relevant; however, failure to even consider the same constituted an abuse of discretion. Similarly, this Court finds that the refusal to even consider the Baptist CON in regard to the Encompass Application constituted a clear error of judgment and ultimately an abuse of discretion. After consideration, the Hearing Officer may have determined that the Baptist CON did not have significant impact under the SHP Need Criterion, General Purposes/Policies and General Considerations. However, failure to consider the same is a clear error of judgment and constitutes an error of law.

8 ¶14. Encompass and the MSDH appeal. They argue that the hearing officer did consider

the relevance of the Baptist CON application and that the Baptist CON application and CON

were not relevant to the Encompass proceedings; thus, the hearing officer did not err.

ANALYSIS

1. Standard of Review

¶15. This Court reviews a chancellor’s action on a CON de novo, but is constrained by the

same standard of review regarding the MSDH’s action on the CON as was the chancellor.

Miss. State Dep’t of Health v. Baptist Mem’l Hosp.-DeSoto, Inc., 984 So. 2d 967, 974

(Miss. 2008). Courts’ review of CON application decisions is statutorily limited. The

chancery court on appeal shall not vacate MSDH decisions on CONs,

except for errors of law, unless the court finds that the order of the State Department of Health is not supported by substantial evidence, is contrary to the manifest weight of the evidence, is in excess of the statutory authority or jurisdiction of the State Department of Health, or violates any vested constitutional rights of any party involved in the appeal.

Miss. Code Ann. § 41-7-201(2)(f) (Rev. 2023). The standard of review for CON decisions

is very limited. St. Dominic-Jackson Mem’l Hosp. v. Miss. State Dep’t of Health, 728 So.

2d 81, 83 (Miss. 1998). “The decision of the hearing officer and State Health Officer is

afforded great deference upon judicial review by this Court, even though we review the

decision of the chancellor.” Id. Issues of law are reviewed de novo. Miss. Methodist Hosp.

& Rehab. Ctr., Inc. v. Miss. Div. of Medicaid, 319 So. 3d 1049, 1054-55 (Miss. 2021).

However, decisions regarding admission of evidence are usually reviewed for abuse of

discretion. Miss. Transp. Comm’n v. McLemore, 863 So. 2d 31, 34 (Miss. 2003). For

9 administrative agencies, decisions on admission or exclusion of evidence are often in error

only if a violation of due process has occurred. Sherman-Oliver v. Public Emps.’ Ret. Sys.

of Miss., 291 So. 3d 387, 395 (Miss. Ct. App. 2020). Furthermore, courts should give great

deference to the MSDH’s decision regarding whether to reopen a hearing to admit new

evidence. Baptist Mem’l Hosp.-DeSoto, Inc., 984 So. 2d at 984-85.

2. Whether the hearing officer considered relevance.

¶16. The chancery court was plainly erroneous in its determination that the hearing officer

did not at all consider the relevance of the Baptist CON application. While some of the

rulings about the Baptist CON application may be open to interpretation in isolation, the

hearing officer heard a proffer about the relevance of the Baptist application, and several

times ruled that it was not relevant. Even if these rulings were open to an interpretation that

the hearing officer did not consider the substance of the issue of relevance, the hearing

officer’s ruling on Methodist’s last motion regarding the Baptist CON clarified that the

hearing officer considered relevance and found the Baptist application to be irrelevant. The

hearing officer wrote two paragraphs, giving two specific and lengthy reasons, why she

substantively found the Baptist application to be irrelevant to the Encompass application.

The chancery court’s finding that the administrative record contains no considerations of

relevance is clearly incorrect.

3. Whether the hearing officer erred by excluding the pending Baptist CON application.

¶17. Methodist argues that the hearing officer excluded the Baptist CON application

because she misinterpreted the agency rules. Three rules apply. In reviewing CON

10 applications: 1) granted CONs are considered, 2) competing CON applications are

considered, and 3) noncompeting CON applications are generally not considered. From the

outset of the Encompass CON application hearing until well after the hearing was closed to

evidence, the Baptist CON application was deemed by the MSDH and the hearing officer to

be a noncompeting pending CON application. For noncompeting, pending CON

applications, the MSDH rule is that the hearing is for MSDH consider the CON application

on its own merits, therefore parties must “refrain from discussing or offering evidence

concerning any other pending or yet-to-be-offered application that is not relevant to the

matter in issue.” 15 Miss. Admin. Code Pt. 9-91, R. 4.13.2 (effective Nov. 11, 2023)

(internal quotation mark omitted),

https://www.sos.ms.gov/adminsearch/ACCode/00000203c.pdf. MSDH rules determine that

pending applications that are competing are relevant to consider. Miss. Dep’t of Health, Div.

of Health Plan. & Res. Dev., FY 2022 Miss. State Health Plan § 603.01(5) (effective May

26, 2022),

https://msdh.ms.gov/page/resources/16691.pdf. For noncompeting applications, no

interpretation of relevance is given by the rules. Therefore, the rules specify that pending

applications are not to be discussed unless relevant, and the rules establish that pending

competing applications are relevant. The rules do not specifically discuss pending,

noncompeting applications.

¶18. It is clear why competing, pending applications would be considered relevant—

because to be granted, a CON application must comply with the projected need set forth by

11 the SHP. Miss. Dep’t of Health, Div. of Health Plan. & Res. Dev., FY 2022 Miss. State

Health Plan §§ 101, 102 (effective May 26, 2022),

https://msdh.ms.gov/page/resources/16691.pdf. Therefore, if two or more pending

applications would exceed the SHP need if they are both granted, they cannot both be

granted, and the MSDH must choose only one. Consequently, the MSDH is not reviewing

one competing application as evidence regarding the other competing application; rather, the

MSDH is comparing the two applications so that it can choose the best one. If pending

applications are not competing, meaning both or all could be granted without exceeding the

SHP’s projected need, then the MSDH could ostensibly grant both or all of the pending

applications.

¶19. A noncompeting, pending or yet-to-be-offered CON application is of highly

questionable relevance, despite Methodist’s arguments to the contrary, because such

applications are merely a possibility; the hearing officer does not assume a pending

application will be granted. A pending application may be denied and of absolutely no issue.

A yet-to-be-offered application may never be offered and thus of absolutely no issue. They

are both complete uncertainties; thus, it is logical that such would be deemed irrelevant. The

relevancy of something that may or may not actually occur is highly suspect. While the rules

of evidence do not strictly apply to CON hearings,1 the Rules provide that evidence is

relevant if “it has any tendency to make a fact more or less probable than it would be without

1 “[T]he rules of practice, procedure and evidence, formally observed in courts of law, are relaxed in proceedings before administrative agencies.” McGowan v. Miss. State Oil & Gas Bd., 604 So. 2d 312, 317-18 (Miss. 1992).

12 the evidence[.]” MRE 401(a) (emphasis added). Pending applications are speculative

possibilities, and Methodist does not explain how that amounts to any probabilities.

Additionally, the MSDH is considering a list of factors that it balances in determining

whether to grant or deny a CON application, not trying to prove a list of facts. Furthermore,

evidentiary rulings in administrative hearings are typically only reversed for violations of due

process. Sherman-Oliver, 291 So. 3d at 395. Methodist does not argue that due process was

violated. The hearing officer, therefore, did not abuse her discretion or violate due process

by determining that a speculative, pending, noncompeting application was simply not

relevant to the Encompass CON application proceedings.

4. Whether the hearing officer erred by excluding the granted Baptist CON.

¶20. The hearing officer closed the administrative record to evidence and arguments after

the Encompass hearing ended, and Methodist did not object. Then Methodist withdrew its

objection to the Baptist CON application, which caused the Baptist CON application to

quickly be approved. Methodist immediately moved to enter the now-granted Baptist CON

into evidence. In considering CMR CON applications, MSDH is required to consider both

existing CMR services and “the presence of valid CONs for services.” Miss. Dep’t of

Health, Div. of Health Plan. & Res. Dev., FY 2022 Miss. State Health Plan § 603.01(5)

(effective May 26, 2022),

https://msdh.ms.gov/page/resources/16691.pdf. Thus, a CON that has been issued is to be

considered.

13 ¶21. Once a CON hearing is closed, the Hearing Officer, within his or her discretion, may

leave the hearing open for certain documents that he or she requests. 15 Miss. Admin. Code

Pt. 9-91, R. 4.13.4 (effective Nov. 11, 2023),

https://www.sos.ms.gov/adminsearch/ACCode/00000203c.pdf. “No further arguments,

briefs, rebuttals, presentations, or submissions of other documentary material by any person

or organization of any kind pertaining to any matter will be accepted.” Id.

¶22. First, Methodist caused this occurrence. Well after the Encompass hearing was closed

to evidence, to which Methodist did not object, Methodist unilaterally withdrew its objection

to the Baptist CON application, which caused the Baptist CON application to be approved.

Then, Methodist immediately moved to reopen the Encompass record to introduce the newly

granted Baptist CON. The granted Baptist CON was not newly discovered evidence; it was

evidence that changed solely due to Methodist’s own actions. It is difficult to credit

Methodist’s outrage when it knowingly caused this situation.

¶23. Second, the hearing officer thoroughly determined why the Baptist CON was not

relevant to the closed Encompass hearing, and it cannot be said that this determination

violated due process or abused any discretion. Whether to reopen the CON record to

account for new circumstances is a decision for which the MSDH receives great deference.

Baptist Mem’l Hosp.-DeSoto, Inc., 984 So. 2d at 984. Such a decision is generally

reversible only if it violates due process. Id. at 984-85. Methodist does not argue that the

decision violated its due process rights.

5. Disposition

14 ¶24. The chancery court clearly erred by finding error by claiming that the MSDH failed

to determine whether the Baptist CON application was relevant, as the MSDH determined

many times that it was not relevant. Further, the MSDH’s decision on relevance was not

reversible error, nor was its decision not to reopen a closed hearing in error. However, the

chancery court failed to address the substance of Methodist’s appeal regarding the grant of

a CON to Encompass, and the issue is not squarely before this Court, despite Encompass and

the MSDH requesting that this Court approve its CON decision on the merits. Therefore, this

Court vacates the judgment of the chancery court and remands the case to the chancery court

for a decision on the merits.

CONCLUSION

¶25. The chancery court erred in its determination that the MSDH did not consider the

relevance of the Baptist CON application, and the MSDH did not err in its decision on

relevance or its decision not to reopen the closed Encompass hearing. Therefore, this Court

vacates the chancery court’s decision and remands the case to the chancery court for a

decision on the merits of Methodist’s appeal.

¶26. VACATED AND REMANDED.

KITCHENS, P.J., COLEMAN, MAXWELL, BEAM, CHAMBERLIN AND ISHEE, JJ., CONCUR. RANDOLPH, C.J, CONCURS IN PART AND DISSENTS IN PART WITH SEPARATE WRITTEN OPINION. GRIFFIS, J., DISSENTS WITH SEPARATE WRITTEN OPINION.

RANDOLPH, CHIEF JUSTICE, CONCURRING IN PART AND DISSENTING IN PART:

¶27. I concur with the majority opinion except as to the disposition. Rather than remanding

15 the case to the trial court, I would reverse the March 21, 2023, “Final Judgment” by the

Chancery Court of the First Judicial District of Hinds County. I would render a judgment

reinstating the November 23, 2022, Final Order entered by the State Health Officer

approving Encompass’s certificate-of-need application and the issuance of CON No. R-0993

by the Mississippi State Department of Health.

GRIFFIS, JUSTICE, DISSENTING:

¶28. The majority finds “that the hearing officer considered relevance.” Maj. Op. ¶ 16.

I respectfully disagree and find the hearing officer failed to consider whether the certificate

of need application from Baptist Memorial Rehabilitation Hospital - Madison, LLC, was

“relevant to the matter in issue.” Maj. Op. ¶ 17 (internal quotation mark omitted) (quoting

15 Miss. Admin. Code Pt. 9-91, R. 4.13.2 (effective Nov. 11, 2023),

https://www.sos.ms.gov/adminsearch/ACCode/00000203c.pdf). Accordingly, I would affirm

the chancellor’s final judgment, reverse the State Health Officer’s final order, and remand

this case to the Mississippi State Department of Health for further proceedings.

¶29. Comprehensive medical rehabilitation (CMR) services are intensive care services

providing a coordinated multidisciplinary approach that treat patients with severe physical

disabilities; they are provided in a freestanding CMR hospital or a CMR distinct part unit.

In Mississippi, CMR services are divided into Level I and Level II services.

¶30. The need for CMR services is determined by the Mississippi State Department of

Health (MSDH) and is set forth in the MSDH’s State Health Plan (SHP). The 2022

16 Mississippi SHP provides that the state has a need for an additional seven Level I CMR beds

and ninety-four Level II CMR beds. The SHP specifies that, for CMR beds and services, the

planning area is “the state as a whole.” Thus, there are no geographical restrictions imposed

by the SHP on how CMR beds and services should be distributed within the state.

¶31. A certificate of need (CON) is required both to establish a new healthcare facility and

to provide CMR services pursuant to Mississippi Code Sections 41-7-191(1)(a) and

-191(1)(d)(ii) (Rev. 2023). On February 22, 2022, Encompass Health Rehabilitation Hospital

of Flowood, LLC (Encompass), submitted an application for a CON seeking to establish a

new freestanding CMR hospital in Flowood for fifty CMR beds—seven Level I CMR beds

and forty-three Level II CMR beds. That same day, Baptist Memorial Rehabilitation Hospital

- Madison, LLC (Baptist), filed a CON application to establish a new freestanding facility

in Madison for forty CMR beds—five Level I beds and thirty-five Level II beds.

¶32. MSDH determined that the two applications were competing due to the fact that the

combined number of CMR beds sought exceeded the stated seven Level I CMR beds needed

under the SHP. In order to receive approval, both Encompass and Baptist agreed to modify

their CON applications with Encompass requesting only four Level I CMR beds and Baptist

requesting only three Level I CMR beds. Because the applications were no longer

competing, MSDH recommended approval of both applications.

¶33. Mississippi Methodist Hospital and Rehabilitation Center, Inc. (Methodist), which

operates a CMR facility in Jackson, contested both applications and requested a hearing to

consider the impact to the area as to patient need and existing services. According to

17 Methodist, more than 90 percent of its referrals come from hospitals in the Jackson metro

area, including Baptist. Methodist asserts that “[t]he addition of any CMR hospital to the

area will lower [its] patient occupancy rate” and that “[t]his reduction will result in Methodist

losing both patients and reimbursement, significantly affecting its ability to perform

rehabilitation research and care for indigent patients that have no ability to pay for services.”

¶34. A hearing on the Encompass CON application was held first. Pursuant to Section

4.13.2 of the CON Manual, the hearing officer instructed the parties to “please refrain from

discussing or offering evidence concerning any other pending or yet to be offered application

that is not relevant to the matter in issue.” The hearing officer reiterated an earlier pretrial

ruling that “in accordance with the CON Manual’s express instruction . . . no evidence or

discussion would be considered regarding the pending Baptist Application, and that [her]

decision and recommendation to the State Health Officer would be made without

consideration of the pending Baptist Application.”

¶35. Methodist was allowed to proffer evidence regarding the impact that the Baptist CON

application would have, but Encompass maintained a standing objection to the proffer. After

the proffer, the hearing officer stated:

I want to state for the record that the Certificate of Need Manual is clear that no discussions or evidence concerning any other pending or yet to be offered application shall be considered in this hearing. . . . I’ve already ruled, to limit any evidence or exclude any evidence related to the pending Baptist application. And I stand by that ruling.

18 ¶36. After the hearing but before the hearing officer’s decision was issued, Methodist

withdrew its objection to the Baptist CON application. As a result, MSDH issued a CON to

Baptist for its requested CMR beds in Madison.

¶37. Methodist filed a motion to reopen the hearing or, in the alternative, to supplement the

record and accept the proferred testimony so that the impact of the utilization of Baptist’s

CMR beds could be considered regarding the need for additional CMR services in the area.

The hearing officer denied the motion, stating, “the Baptist CON application is not relevant

to the Department’s consideration of the Encompass-Flowood CON application.” The

hearing officer explained:

The basis for my determination at the Hearing that the Baptist application was irrelevant was and is that the Manual makes clear that evidence regarding other “pending or yet to be offered” CON applications is not to be admitted into evidence in a hearing on a CON application if that evidence is not relevant. See [CON] Manual at 38 (§4.13.2). I found that the evidence Methodist seeks to submit is not relevant for at least two reasons:

(1) that the number of beds determined by the Department to be needed based on the formula in the State Health Plan exceeds the aggregate number of beds sought by Baptist and Encompass-Flowood in their two applications. As the Staff indicated in recommending both applications for approval, there are more than enough beds to grant both CONs and still leave an unmet need for beds in the State.

(2) the service area for CMR beds and services is established in the State Health Plan as the State as a whole, and as Ms. Williams further confirmed, because the State as a whole is the service area, there is no geographic restriction on where CMR beds are placed in the State. What’s more, there was a wealth of evidence presented in the Encompass - Flowood Hearing establishing that the Jackson-Metro area is the State’s “referral center,” and “medical hub” and that the primary source of CMR referrals – short term acute care hospitals – are in the greatest

19 supply here of anywhere in the State. In issuing its simultaneous recommendations of approval for both the Baptist and the Encompass - Flowood applications, the Department indicated its determination that the placement of the additional CMR beds sought by those applications in Rankin and Madison Counties is appropriate and in substantial compliance with all of the applicable criteria and standards imposed by the CON laws.

¶38. The hearing officer later entered her findings of fact, conclusions of law, and

recommendation, recommending approval of the Encompass CON. In her findings, the

hearing officer again reiterated as follows:

[A]t the time of th[e] Hearing on Encompass’s application, Baptist’s application was a “pending” application and thus I ruled, in accordance with the CON Manual’s express instruction, that no evidence or discussion would be considered regarding the pending Baptist Application, and that my decision and recommendation to the State Health Officer would be made without consideration of the pending Baptist Application.

....

[W]hile Baptist’s CON increased the number of existing CMR beds, there is still left an unmet need for additional beds, since the applicants had both reduced their requested number of beds. I therefore find that the Baptist Application and CON have no bearing on the analysis and consideration of the instant Application.

¶39. The State Health Officer approved the Encompass CON application and entered a

final order. MSDH then issued Baptist’s CON. Methodist timely appealed to the chancery

court.

¶40. On appeal, the chancellor found that “[t]he issue of whether the Baptist Application

was or was not ‘relevant to the matter in issue’ was never addressed” and that this failure

“constituted a clear error of judgment and ultimately an abuse of discretion.” As a result, the

20 chancellor reversed the final order approving Encompass’s CON application and remanded

the case to the MSDH for further proceedings.

¶41. Encompass and MSDH appealed and argued, among other things, that the hearing

officer did in fact consider the relevance of the Baptist CON application.

DISCUSSION

¶42. Under Section 4.13.2 of the CON Manual, “evidence concerning any other pending

or yet to be offered application that is not relevant to the matter in issue” should not be

considered. Stated differently, under Section 4.13.2, evidence concerning the Baptist CON

application should be considered if “relevant to the matter in issue.”

¶43. Here, the “matter in issue” is the need for an additional facility and CMR services in

the area. Both the CON Manual and the SHP require like facilities and services to be

considered in determining the issue of need. Under Section 603.01(5) of the SHP and

Sections 8.1(5)(c) and 8.1(8) of the CON Manual, the MSDH shall consider the following

criteria: (1) the utilization of existing services and the presence of valid CON’s for services,

(2) the current and projected utilization of like facilities or services within the proposed

service area, and (3) the relationship of the services to the existing healthcare system.

¶44. The majority finds the hearing officer “considered relevance” and “wrote two

paragraphs, giving two specific and lengthy reasons, why she substantively found the Baptist

application to be irrelevant to the Encompass application.” Maj Op. ¶ 16. The hearing

officer’s findings as to relevancy, however, do not address whether the Baptist CON

application is relevant to the matter in issue, i.e., the Baptist CON application’s impact on

21 the need for additional services in the area and whether the approval of that application

would impact the analysis of the Encompass CON application under the applicable CON

criteria. Instead, the hearing officer found the Baptist CON application irrelevant to the

Encompass CON application because (1) the two CON applications were no longer

competing since “there are more than enough beds to grant both CONs and still leave an

unmet need for beds in the State,” and (2) “there is no geographic restriction on where CMR

beds are placed in the State.” But simply because there remains a need for additional beds

does not take into consideration the impact the Baptist CON will have regarding patient need

and existing services in the applicable area. In other words, while there remains “an unmet

need for beds in the State,” are those additional beds needed in the same general area of the

State—Jackson, Madison, and Flowood?

¶45. The majority asserts the chancery court “determin[ed] that the hearing officer did not

at all consider the relevance of the Baptist CON application.” Maj. Op. ¶ 16. But this is not

what the chancellor determined. Instead, the chancellor found that the hearing officer

“committed a clear error of judgment in refusing to even consider whether the Baptist

Application was ‘relevant to the matter in issue.’” Thus, while the hearing officer’s various

orders reflect that she considered relevance, the chancellor was correct when he stated, “[t]he

issue of whether the Baptist Application was or was not ‘relevant to the matter in issue’ was

never addressed.” (Emphasis added.)

¶46. The hearing officer did not consider whether the Baptist CON application was

“relevant to the matter in issue.” In doing so, the hearing officer improperly excluded

22 evidence regarding the Baptist CON application and its impact on the need for a third

rehabilitation hospital in the area—one providing identical services to the same patients and

an almost identical bed component. In essence, the Encompass CON application was

considered in determining the applicable need criteria as though Methodist was the only other

provider in the service area to the exclusion of the third provider, Baptist.

¶47. Because the record reflects that the hearing officer failed to consider whether the

Baptist CON application was relevant to the matter in issue, the chancellor’s decision should

be affirmed, the final order approving Encompass’s CON application should be reversed, and

this case should be remanded to the MSDH for further proceedings.