Mobile Imaging Partners of N.C.

• Court: Court of Appeals of North Carolina
• Decided: July 6, 2021
• Docket: 20-605
• Status: Published

Opinion

IN THE COURT OF APPEALS OF NORTH CAROLINA

2021-NCCOA-302

No. COA20-605

Filed 6 July 2021

Office of Administrative Hearings, No. 19 DHR 03066

MOBILE IMAGING PARTNERS OF NORTH CAROLINA, LLC, Petitioner,

v.

NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION OF HEALTH SERVICE REGULATION, HEALTHCARE PLANNING AND CERTIFICATE OF NEED SECTION, Respondent,

and

INSIGHT HEALTH CORP., Respondent-Intervenor.

Appeal by petitioner from final decision entered 20 February 2020 by

Administrative Law Judge William T. Culpepper, III in the Office of Administrative

Hearings. Heard in the Court of Appeals 9 June 2021.

Wyrick Robbins Yates & Ponton LLP, by Lee M. Whitman and J. Blakely Kiefer, for petitioner-appellant.

Attorney General Joshua H. Stein, by Assistant Attorney General Derek L. Hunter, for respondent-appellee.

Fox Rothschild LLP, by Marcus C. Hewitt and Elizabeth Sims Hedrick, for respondent-intervenor.

TYSON, Judge.

¶1 Mobile Imaging Partners of North Carolina (“Petitioner”) appeals from a Final MOBILE IMAGING PARTNERS V. NCDHHS

Opinion of the Court

Decision by an Administrative Law Judge (“ALJ”) affirming the decision of the North

Carolina Department of Health and Human Services, Division of Health Service

Regulation, Healthcare Planning and Certificate of Need Section’s (“DHHS”) decision

to approve InSight Health Corps’ (“InSight”) (together, “Respondents”) application for

a certificate of need (“CON”) for a mobile PET/CT (“PET”) scanner. This machine

combines a positron emission tomography scan and a computerized tomography scan.

¶2 Petitioner appealed DHHS’ decision to the Office of Administrative Hearings.

In February 2020, the ALJ affirmed and entered a Final Decision for Respondents.

Petitioner appeals. We affirm.

I. Background

¶3 Petitioner is a joint venture between Alliance HealthCare Services Inc.

(“Alliance”) and University of North Carolina Rockingham Health Care, Inc. (“UNC-

Rockingham”), a UNC-owned affiliate of the UNC Health Care System. Alliance

operates two mobile PET scanners in North Carolina. InSight is a national provider

of imaging services and offers mobile PET services in other states. Providers who

desire to offer PET services within North Carolina must obtain a CON from DHHS.

See N.C. Gen. Stat. §§ 131E-175 and -176(16)(f1)(8)(2019).

¶4 The 2018 State Medical Facilities Plan (“SMFP”) identified a statewide need

for one additional mobile PET scanner to operate within North Carolina. InSight,

Petitioner, and two other organizations each submitted CON applications to be issued MOBILE IMAGING PARTNERS V. NCDHHS

the certificate for the additional mobile PET scanner pursuant to the SMFP.

¶5 Petitioner proposed to serve nine host sites across five of the six health service

areas (“HSAs”) established across North Carolina. InSight proposed to initially serve

two host sites located in only one of the six HSAs. The last date to submit applications

to DHHS was 1 December 2018. DHHS reviewed timely submitted applications.

¶6 Both Petitioner’s and InSight’s applications included a letter of support from

the Caldwell Memorial Hospital (“Caldwell”) signed by President/CEO Laura Easton.

After applicants timely submitting their applications, Petitioner submitted written

comments to DHHS within the form of another letter signed by Easton on 28

December 2018. This subsequent letter purportedly rescinded Caldwell’s previous

letter of support for InSight and advised DHHS that Caldwell was now fully

supporting Petitioner’s application. Without Easton’s letter of support for Caldwell

to host, InSight had only one remaining host site, Harris Regional Hospital, in

Jackson County.

¶7 DHHS issued its decision approving InSight’s application and disapproving the

remaining applications in April 2019. DHHS found and concluded InSight, Petitioner

and Novant each conformed with all applicable statutory review criteria and

performance standards, but it awarded the CON to InSight based upon the

comparative review.

II. Jurisdiction MOBILE IMAGING PARTNERS V. NCDHHS

¶8 Petitioner’s appeal is proper pursuant to N.C. Gen. Stat. §§ 131E-188(b) and

7A-29(a) (2019).

III. Issues

¶9 Petitioner challenges whether InSight’s application conformed with statutory

criteria for the issuance of a CON. Petitioner argues InSight failed to meet Criterion

1 and did not satisfy the statewide need determination. Petitioner also argues the

ALJ erred in concluding InSight’s application conformed with Criterion 3 and 5 and

concluding Petitioner’s rights were not substantially prejudiced.

IV. Standard of Review

¶ 10 This Court reviews a decision by the ALJ, and may reverse or modify the

decision if:

[T]he substantial rights of the petitioners may have been prejudiced because the findings, inferences, conclusions, or decisions are:

(1) In violation of constitutional provisions;

(2) In excess of the statutory authority or jurisdiction of the agency or administrative law judge;

(3) Made upon unlawful procedure;

(4) Affected by other error of law;

(5) Unsupported by substantial evidence admissible under G.S. 150B-29(a), 150B-30, or 150B-31 in view of the entire record as submitted; or

(6) Arbitrary, capricious, or an abuse of discretion. MOBILE IMAGING PARTNERS V. NCDHHS

N.C. Gen. Stat. § 150B-51(b) (2019).

¶ 11 Alleged errors in the ALJ’s decision in categories one through four are reviewed

by this Court de novo. N.C. Gen. Stat. §150B-51(c) (2019). Under de novo review,

this Court “considers the matter anew and freely substitutes its own judgment for

that of the lower tribunal.” Cumberland Cnty. Hosp. Sys., Inc. v. N.C. Dep’t Health &

Hum. Servs., 237 N.C. App. 113, 117, 764 S.E.2d 491, 494 (2014) (citations and

internal quotations omitted). Categories five and six of N.C. Gen. Stat. § 150B-51(b)

are reviewed under the “whole record” test. N.C. Gen. Stat. § 150B-51(c). Petitioner

argues the issues before this Court are errors of law and subject to de novo review.

V. Conforming with Criterion 1 and Statewide Need Determination

A. Criterion 1

¶ 12 DHHS’ review criteria are statutory and the first is referred to as “Criterion 1”

throughout the record. Criterion 1 requires:

The proposed project shall be consistent with applicable policies and need determinations in the State Medical Facilities Plan, the need determination of which constitutes a determinative limitation on the provision of any health service, health service facility, health service facility beds, dialysis stations, operating rooms, or home health offices that may be approved.

N.C. Gen. Stat. § 131E-183(a)(1) (2019).

¶ 13 “The Department shall review all applications utilizing the criteria outlined in

this subsection and shall determine that an application is either consistent with or MOBILE IMAGING PARTNERS V. NCDHHS

not in conflict with these criteria before a certificate of need for the proposed project

shall be issued.” N.C. Gen. Stat. § 131E-183(a).

¶ 14 The 2018 SMFP included a need determination for one additional mobile PET

scanner statewide. We combine the analysis of Petitioner’s first two issues in this

section, because the answer to one will also necessarily answer the other.

¶ 15 Criterion 1 requires an applicant to demonstrate its application is “consistent

with applicable policies and need determinations in the [SMFP].” N.C. Gen. Stat.

§131E-183(a)(1). “Mobile PET Scanner” is defined as “a PET scanner and

transporting equipment that is moved, at least weekly, to provide services at two or

more host facilities.” 10A N.C. Admin. Code 14C.3701.(5) (2019) (emphasis supplied).

¶ 16 All CON applications, including InSight’s application, must demonstrate

conformity with all statutory and regulatory review criteria. See Presbyterian-

Orthopaedic Hosp. v. N.C. Dep’t Hum. Res., 122 N.C. App. 529, 534, 470 S.E.2d

831,834 (1996) (holding “an application must comply with all review criteria” and the

failure to comply with one review criterion supports entry of summary judgment

against the applicant) (emphasis in original).

¶ 17 “It is well settled that when a court reviews an agency’s interpretation of a

statute it administers, the court should defer to the agency’s interpretation of the

statute . . . as long as the agency’s interpretation is reasonable and based on a

permissible construction of the statute.” AH N.C. Owner LLC v. N.C. Dep’t of Health MOBILE IMAGING PARTNERS V. NCDHHS

& Human Servs., 240 N.C. App. 92, 102, 771 S.E.2d 537, 543 (2015) (citation omitted).

“It is proper to presume that an administrative agency has properly performed its

official duties.” In re Broad & Gales Creek Cmty. Ass’n, 300 N.C. 267, 280, 266 S.E.2d

645, 654 (1980).

¶ 18 “[The ALJ] is properly limited to consideration of evidence which was before

the CON Section when making its initial decision.” Robinson v. N.C. Dep’t of Health

& Human Servs., 215 N.C. App. 372, 376, 715 S.E.2d 569, 571 (2011).

¶ 19 InSight pointed to Petitioner’s effective monopoly on mobile PET services

outside of Novant’s services and facilities. InSight also described Petitioner’s history

of opposing opportunities to allow additional providers to introduce services to North

Carolina’s health care market. InSight predicted new providers would find it difficult

to obtain public support for their applications, based upon feedback it had received

from potential host sites, who were wary of taking action to put their current service

with Petitioner at risk.

¶ 20 InSight proposed a statewide mobile PET route with the scanner moving

weekly between six potential host sites in eastern, central, and western North

Carolina. At least three potential host sites told InSight they would not provide

documentation to support its CON application due to their concerns about

Petitioner’s reaction.

¶ 21 Petitioner undertook efforts to encourage InSight’s two host sites to rescind MOBILE IMAGING PARTNERS V. NCDHHS

their support for InSight’s CON application. Petitioner prepared draft rescission

letters for both of InSight’s host sites: Caldwell and Harris Regional. Caldwell’s

president signed the letter. Harris’ did not.

¶ 22 Respondents set forth ample evidence before the DHHS and the ALJ showing

any recission of support was the result of Petitioner’s anti-competitive behavior to

ensure it was awarded the CON.

¶ 23 Additional evidence led both DHHS and the ALJ to conclude that InSight’s

application met the two-host-site requirements notwithstanding Caldwell’s recission

letter. DHHS evaluated the recission letter, wrote two pages in its findings

addressing the recission drafted by the Petitioner and explained why it did not affect

InSight’s conformity with Criterion 1. DHHS recognized Caldwell’s recission letter

did not indicate that Caldwell was no longer interested in a contract with InSight to

the extent InSight was awarded the CON. The letter merely expressed a preference

that Petitioner be awarded the CON. The ALJ was limited to the record evidence

before the agency’s hearing. Robinson, 215 N.C. App. at 375-76, 715 S.E.2d at 571

(citation omitted). Caldwell’s president testified that if InSight had contacted her,

she would have confirmed she would still consider contracting with InSight if it

received the CON.

¶ 24 It cannot be said the ALJ’s review and interpretation of DHHS’ findings and

conclusion that InSight met Criterion 1 is either unsupported or unreasonable. MOBILE IMAGING PARTNERS V. NCDHHS

Substantial evidence supports the conclusion that InSight’s application complied

with the host site requirement. Petitioner’s argument is overruled.

B. Statewide

¶ 25 Petitioner contends the term “statewide” in the SMFP means “throughout the

State,” while Respondents argue the term “statewide” means “anywhere in the State.”

1. Standard of Review

¶ 26 Petitioner asserts the determination of whether an agency erred in its

interpretation of a statutory term is entitled to de novo review. Cashwell v. Dep’t

State Treasurer, 196 N.C. App. 81, 89, 675 S.E.2d 73, 78 (2009); N.C. Gen. Stat. §

150B-51(b)(3). “When the issue on appeal is whether a state agency erred in

interpreting a statutory term, an appellate court may freely substitute its judgment

for that of the agency and employ de novo review.” Britthaven, Inc. v. N.C. Dept. of

Human Resources, 118 N.C. App. 379, 384, 455 S.E.2d 455, 460 (1995) (citation

omitted). The SMFP created by DHHS uses the word “statewide” in the need

determination, but the word “statewide” is not included in the statute, Respondent’s

administrative rules, or statutorily defined. N.C. Gen. Stat. § 150B-2(8a)(k) (2019).

2. Interpretation

¶ 27 Petitioner argues the ALJ failed to conduct any analysis of the evidence

demonstrating Respondent’s interpretation of “statewide” was contrary to: (1) the

plain language of the need determination; (2) the rationale for the North Carolina MOBILE IMAGING PARTNERS V. NCDHHS

State Health Coordinating Council’s inclusion of the need determination in the

SMFP; (3) the CON statute; and (4) the policies in the CON Act.

¶ 28 The 2018 SMFP expressly concludes there is a “need for one additional mobile

dedicated PET scanner statewide” and “the service areas listed in the table below

need additional mobile dedicated PET scanners.”

¶ 29 DHHS prepared the need determination pursuant to its discretionary

authority granted by the General Assembly as part of the CON Act. See N.C. Gen.

Stat. § 131E-177(4) (2019). Petitioner’s argument, asserting the ALJ and DHHS

misinterpreted its own meaning of “statewide,” would require us to conclude DHHS

abused its own discretion by determining InSight’s application met DHHS’ own

meaning of “statewide.” We conclude the ALJ properly upheld and concluded DHHS’

interpretation of the term “statewide” was supported by substantial evidence. N.C.

Gen. Stat. § 150B-51(b).

C. Letter as Amendment

¶ 30 DHHS asserts Caldwell’s purported rescission letter was properly disregarded

because it was an improper attempt by Petitioner to amend InSight’s submitted

application. “An applicant may not amend an application.” 10A N.C. Admin. Code

14C.0204 (2019). Caldwell was not an applicant in this CON review. Rule .0204 does

not apply as a matter of law because, here, a CON applicant was not seeking to amend

its own application. See In re Application of Wake Kidney Clinic, 85 N.C. App. 639, MOBILE IMAGING PARTNERS V. NCDHHS

643, 355 S.E.2d 788, 790–91 (1987) (“The rules adopted by the Department of Human

Resources to govern contested certificates of need hearings prevent a party from

amending his application once it is deemed completed”). It stands to reason that if

pursuant to Rule .0204 an applicant cannot “amend an application,” then another

applicant cannot amend a competitor’s application. 10A N.C. Admin. Code 14C.0204;

see In re Application of Wake Kidney Clinic, 85 N.C. at 643, 355 S.E.2d at 791.

Petitioner’s argument is without merit.

VI. Criterion 3 and 5

A. Criterion 3

¶ 31 Petitioner argues InSight’s utilization and revenue projections were not

reasonable nor adequately supported. “[F]indings of fact made by the agency are

conclusive on appeal if they are supported by substantial evidence in the record

reviewed as a whole.” Id. at 644, 355 S.E.2d at 791. The ALJ reviewed DHHS’

decision to determine if, based upon the information available to it, it was supported

by evidence in the record and was reasonable. Britthaven, 118 N.C. App. at 382, 455

S.E. 2d at 459.

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. MOBILE IMAGING PARTNERS V. NCDHHS

N.C. Gen. Stat. § 131E-183(a)(3).

¶ 32 The president of Strategic Healthcare Consultants, who was charged with

“prepar[ing] certificate of need applications, provid[ing] healthcare consulting, and

strategic planning services,” testified the projections made in the application must be

“reasonable and adequately supported” to conform with Criterion 3. To receive the

CON in question, this Criterion required InSight to meet the performance standard,

pursuant to 10A N.C. Admin. Code 14C.3703(a)(3), “of projecting of at least 2,080

PET” scans in the third operating “year following completion of the project.”

¶ 33 “To fulfill its obligation of determining whether applications are consistent

with statutory review criteria, [DHHS] must perform a meaningful analysis.” AH

N.C. Owner, 240 N.C. App. at 108, 771 S.E.2d at 547. DHHS performs a meaningful

analysis by determining “whether an applicant conforms to [the criterion], [DHHS]

must analyze and give due regard to the information available to it that is reasonably

related to an applicant’s history of providing quality care.” Id. at 109, 771 S.E.2d at

547.

¶ 34 The ALJ made twenty-one findings of fact regarding Criterion 3 in the Final

Decision. These findings of fact include:

56. . . . [P]hysicians are using PET for an increasing number of indications, [InSight] assumed that the demand for PET services will continue to increase in the future. MOBILE IMAGING PARTNERS V. NCDHHS

....

62. [InSight] projected that annual utilization of the proposed mobile PET scanner would exceed 2,080 procedures withing the first three years of operation based on assumptions described in its application.

63. [InSight’s] projections relied on a “need-based” or “use rate” methodology to project demand based on application of the use rate to the population to be served. A need-based methodology is just one of many accepted metrologies used by healthcare planners. [DHHS] deemed [InSight’s] used to a use rate/need-based methodology to be reasonable.

64. . . . [InSight] began by using data from the North Carolina Office of State Budget and Management to project the population in the counties to be served . . .

65. . . . [InSight’s] calculation was based on historical use of both mobile and fixed PET scanners . . .

67. . . . [InSight] projected its anticipated market shares in the various counties that it proposed to serve. . . .

InSight incorporated these presumptions into its methodology to project the number

of scans it would provide in the first three operating years, by applying the projected

market share to the projected demand in each county. Petitioner’s arguments were

raised, responded to by InSight, and considered by DHHS. DHHS addressed these

presumptions and found them to be reasonable and adequately supported.

¶ 35 DHHS and the ALJ’s Final Decision addressed the bases for InSight’s

projections in detail and both determined that its demonstration of need and MOBILE IMAGING PARTNERS V. NCDHHS

projected utilization were reasonable and adequately supported. Substantial

evidence supports the reasonableness and adequacy of InSight’s projections.

Petitioner’s argument is overruled.

B. Criterion 5

¶ 36 Petitioner argues the ALJ’s findings on Criterion 5 are unreasonable and not

adequately supported.

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.

N.C. Gen. Stat. § 131E-183(a)(5).

¶ 37 During the hearing, Martha Frisone, chief of the Health Care Planning and

CON Section of DHHS, offered testimony. Her duties include directing and managing

a team of twenty individuals in the implementation of North Carolina CON law.

When asked about the requirements for Criterion 5, Frisone responded:

There are several components. First, the financial and operational projections have to 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 cost of and charges for providing health services by the person proposing the service.

¶ 38 When asked why InSight’s application was found to conform with Criterion 5,

Frisone replied, “they provided what the capital cost was. We were satisfied that it MOBILE IMAGING PARTNERS V. NCDHHS

was based on reasonable assumptions which were provided.” The exchange between

Frisone and counsel continued:

[Frisone]: We were satisfied that they had adequately documented the availability of those funds, and we were satisfied that the projected utilization and projected cost and charges were reasonable and adequately supported.

[Counsel]: Okay. And as you sit here today, do you have any reason to disagree with the [DHHS’] determination that InSight was conforming with Criterion (5)?

[Frisone]: I do not.

¶ 39 Petitioner further argues Caldwell’s President Easton, demonstrated InSight’s

projections were unreasonable. Petitioner relies upon Easton’s testimony she “[did

not] think” Caldwell needed twelve times its current service, she had “no reason to

believe” that Caldwell could support 1,046 scans on a mobile PET per year, and

Caldwell had not achieved a 95 percent market share in another service.

¶ 40 Easton did not share any concerns about InSight’s projections with DHHS in

the rescission letter or otherwise during testimony. Easton acknowledged Caldwell

was losing volume to other health care providers because its access to mobile PET

scanners is limited. She also conceded it was reasonable to expect Caldwell’s volume

to increase if it provided more services. Easton was unaware that InSight proposed

to charge Caldwell a fee per scan and Caldwell would only have to pay the amounts

InSight projected if it achieved the projected volumes to support it.

¶ 41 Evidence proffered at the ALJ hearing showed InSight anticipated helping MOBILE IMAGING PARTNERS V. NCDHHS

Caldwell increase its market share. Through increased access and resources, InSight

would help Caldwell leverage existing and new referral relationships.

¶ 42 The ALJ stated DHHS’ analysis relied upon four factors. “Of those four factors,

Petitioner was found most effective on one factor and least effective on two factors.

Novant was found most effective on one factor and least effective on one factor.”

Petitioner was found lacking in two areas, and InSight was found lacking only in one.

¶ 43 Substantial evidence supports the ALJ’s conclusion DHHS acted reasonably

and did not commit reversible error regarding review of InSight’s projections. The

ALJ’s findings and conclusion that DHHS correctly determined InSight met the

requirements of Criterion 5 is affirmed.

VII. Petitioner’s Substantial Rights

¶ 44 “[A] petitioner in a CON case must show (1) either that the agency (a) has

deprived the petitioner of property, (b) ordered the petitioner to pay a fine or civil

penalty, or (c) substantially prejudiced the petitioner’s rights, and (2) that the agency

erred.” Surgical Care Affiliates, LLC v. N.C. Dep’t of Health & Human Servs., 235

N.C. App. 620, 624, 762 S.E.2d 468, 471 (2014) (emphasis in original).

¶ 45 Petitioner contends both DHHS and the ALJ erred by concluding Petitioner’s

rights were not substantially prejudiced. Without error in the underlying decisions,

we need not reach this analysis. For the reasons described previously herein, we

affirm the ALJ’s Final Decision and decline to address Petitioner’s argument on MOBILE IMAGING PARTNERS V. NCDHHS

prejudice.

VIII. Conclusion

¶ 46 The ALJ reviewed DHHS’ evidence and findings and heard arguments from

DHHS and Petitioner. Substantial evidence supported DHHS’ finding InSight

complied with Criterion 1 and met the meaning of statewide in the ALJ’s Final

Decision to grant them the CON for the additional mobile PET scanner.

¶ 47 The ALJ also affirmed DHHS’ finding InSight had complied with both

Criterion 3 and 5 based upon DHHS’ analysis of the evidence and requirements in

InSight’s application.

¶ 48 The ALJ Final Decision to affirm DHHS’ CON designation as properly

complying with the statutory CON requirements is affirmed. It is so ordered.

AFFIRMED.

Judges INMAN and ARROWOOD concur.