West Bloomfield Hospital v. Certificate of Need Board

567 N.W.2d 1, 223 Mich. App. 507

• Court: Michigan Court of Appeals
• Decided: August 6, 1997
• Docket: Docket Nos. 197324-197328
• Status: Published

Opinions

Cavanagh, P.J.

This case, in which appellant facilities seek certificates of need from the Department of Public Health to build or alter their facilities, is before us for the second time. Previously, a divided panel of this Court concluded that the department’s failure to adopt and follow a state medical facilities plan, as mandated by law, was error, and therefore remanded the case to the circuit court for issuance of certificates of need to all the parties. West Bloomfield Hosp v Certificate of Need Bd, 208 Mich App 393; 528 NW2d 744 (1995). The Supreme Court reversed, holding that the failure to adopt a state medical facilities plan does not automatically preclude the department from processing applications for certificates of need or require as a remedy that the certificates of need be issued to all applicants. West Bloomfield Hosp v Certificate of Need Bd, 452 Mich 515; 550 NW2d 223 (1996). The Supreme Court then remanded this case to this Court. We now affirm in part and remand.

The facts of this case are set forth in the Supreme Court’s opinion:

In 1983, three hospital facilities applied to the Department of Public Health, pursuant to part 221 of the Public Health Code, for certificates of need that would allow them to undertake construction to add new hospital beds in the Pontiac “subarea” of Oakland County. Huron Valley Hospital sought to add 150 beds to its existing Pontiac area, 153-bed hospital facility. Pontiac Osteopathic Hospital applied for a certificate to build a facility in Clarkston containing 112 beds, while correspondingly decreasing the number of beds in its Pontiac facility. West Bloomfield Hospital applied for permission to construct a new 200-bed facility in the Pontiac region and to delicense the same number of beds in two or more of its other hospitals in other subareas.

The department issued notices to all interested parties to submit proposals for new facilities in the subarea. Four additional interested parties submitted applications. The department conducted a comparative review of the parties’ applications and concluded that there was no need for any new facilities in the Pontiac subarea.

The unsuccessful applicants filed exceptions with the board, claiming that the department committed legal error by denying their applications without assuring that its decision was “consistent with” the state medical facilities plan, as required by part 221 of the Public Health Code. The board rejected this argument, and affirmed the decision of the hearing officer with respect to six of the applicants. The board reversed, on the ground of need, with respect to Pontiac Osteopathic Hospital and granted it alone a certificate.

Five of the original applicants appealed, this time in the Ingham Circuit Court. The court affirmed the denial of the certificate of need to the appellants, and reversed the grant of the certificate of need to Pontiac Osteopathic Hospital. [Id. at 518-519.]

The Supreme Court concluded that, under the circumstances, the department was not required to wait for a state medical facilities plan to be formally promulgated before reviewing the applications. Although § 22132, MCL 333.22132; MSA 14.15(22132), repealed by 1988 PA 332, contemplated that a state medical facilities plan would be promulgated before review of certificate of need (CON) applications are undertaken, the Court determined that the intent of the Legislature should not be frustrated because of the department’s failure to promulgate such a plan. Because a state medical facilities plan had not been formally adopted, the department was obligated to conduct its review employing a methodology that assured that the goals of the statute would be met and its decision was fair and well-reasoned in accordance with the statutory criteria. West Bloomfield Hosp, 452 Mich 523. The Court cautioned that, at a minimum, the granting of a con must be based on “a demonstrated current and future need for the facility.” See id. at 525, quoting § 22132.

I. JOINT ISSUES

Appellants West Bloomfield Hospital (wbh), Huron Valley Hospital (hvh), William Beaumont Hospital, and Sisters of Mercy Health Corporation submitted a joint brief.¹ We now address their remaining issues.

A. EXTENT OF THE DEPARTMENT OF PUBLIC HEALTH’S AUTHORITY

Appellants argue that the trial court’s opinion is based on an erroneous interpretation of the now-repealed part 221 of the Public Health Code, MCL 333.22101 et seq.; MSA 14.15(22101) et seq., which governed the distribution of CONs at the time in question.² Appellants assert that the trial court determined that the statute vests the department with absolute and uncontrolled power and discretion in the administration of the con program. However, we read the trial court’s opinion as holding simply that the department has the discretion to deny an application even' where all the other statutory criteria are satisfied if there is no need for the proposed project. This interpretation is consistent with the opinion of the Supreme Court. See West Bloomfield Hosp, 452 Mich 525. Accordingly, we find no error.

B. UTILIZATION OF ACUTE-CARE-BED-NEED METHODOLOGY TO DETERMINE FUTURE BED NEED

Appellants challenge the propriety of using the acute-care-bed-need methodology (acbnm) to determine future bed need. At the time in question, the department had not promulgated the acbnm as an administrative rule. However, the Supreme Court has stated that this procedural deficiency may be excused “if the rule in question merely assists the agency in the exercise of its discretion and there is no substantial prejudice to the complaining party.” West Bloomfield Hosp, 452 Mich 524, citing American Farm Lines v Black Ball Freight Service, 397 US 532, 539; 90 S Ct 1288; 25 L Ed 2d 547 (1970), and EEOC v Kimberley Clark Corp, 511 F2d 1352, 1360-1361 (CA 6, 1975).

We do not construe this language to abrogate an administrative agency’s duty to promulgate rules and procedures, particularly where, as here, the adoption of a plan has been mandated by statute. See MCL 333.22132; MSA 14.15(22132). Rather, we believe that the Supreme Court meant only that the failure to promulgate a plan in such a case would not necessarily be fatal where the Legislature has provided detailed criteria as a basis for the agency’s consideration, where such criteria were actually taken into account by the agency, and where the applicants are not unfairly surprised by any other method used by the agency.

Under this standard, we find that appellants were not substantially prejudiced. Contrary to appellants’ arguments, the department did not rely solely on the acbnm. The record reveals that the department did in fact analyze all fourteen statutory criteria before reaching its decision.³ In addition, the department considered the effect of the then-unbuilt Huron Valley Hospital, appellants’ proposed market share and population figures, patients’ travel time, and issues concerning the individual applicants. After examining all these factors, the department concluded that there was no need for the proposed projects and that, if any of the applications were granted, there would be an adverse effect on health-care costs in the region.

Furthermore, the use of the acbnm was not patently unfair. As appellant WBH concedes in its brief on appeal, the administrative guidelines in effect at the relevant time referred to the ACBNM as a formula for projecting 1984 bed needs that creates a methodology against which CON review may be conducted. The acbnm was also referenced in the second-cycle plan for the reduction of excess hospital capacity and the 1980-1984 state health plan; the hearing officer found that these documents were well known and readily available in the health-care field. Appellants were on notice that the acbnm could be used to determine whether additional beds were needed. Appellants thus had the opportunity to review the acbnm criteria and respond accordingly in their applications and subsequent responses.

Appellants also contend that the acbnm should not be used to determine future bed need because it measures only the market share of existing hospitals and does not accurately predict subsequent need. The department, however, concluded that the acbnm was better at determining need than appellants’ proposed methods.

The hearing officer noted that the department’s statistician, Stanley Nash, was able to apply projected 1990 population estimates obtained from the state demographer to the acbnm formula to determine future bed need. That the acbnm had originally been used for designing bed reduction plans does not mean that it was not also a reasonably accurate methodology to determine future acute-care bed need; in fact, Nash testified that it was the best methodology available for the latter purpose. Consequently, we agree with the hearing officer and the trial court that appellants have failed to demonstrate that the department’s use of the acbnm to determine future need was improper. Moreover, we note, as did the hearing officer, that in enacting 1988 PA 332, § 22217(1),⁴ the Legislature made the use of the acbnm in con reviews mandatory until other standards are approved, thus implicitly acknowledging that the acbnm is an adequate tool for the purpose.

C. DUAL ROLE OF ATTORNEY TAUBE

Appellants assert that Assistant Attorney General Robert J. Taube’s dual role as the department’s senior attorney and the con board’s legal advisor was prejudicial and unlawful. We disagree.

In the proceedings below, the department was represented by Assistant Attorney General Marvin L. Bromley of the Public Health Division. At that time Taube, Bromley’s supervisor, was the legal advisor to the CON board as the Attorney General’s designee.

The trial court found that the dual representation, per se, constituted a violation of §§ 79 and 82 of the Administrative Procedures Act.⁵ Section 79 provides, in pertinent part, that “[hearings shall be conducted in an impartial manner.” This includes the requirement that an unbiased hearing officer preside over the proceedings. Blue Water Isles Co v Dep’t of Natural Resources, 171 Mich App 526, 532; 431 NW2d 53 (1988). Section 82 restricts ex parte communications in administrative proceedings. The trial court concluded that the error was harmless, however, because the department’s disapproval of the appellants’ applications was lawful and supported by substantial evidence.

We conclude that Assistant Attorney General Taube’s advisory and supervisory roles, per se, did not constitute a violation of §§ 79 and 82. There is no evidence in the record indicating that Taube participated in ex parte communications with Bromley, nor is there evidence that Taube influenced the CON board on the department’s behalf. In fact, the CON board deviated from the department’s decision to deny all the CON applications. Under these circumstances, we find no error.⁶

n. HURON VALLEY HOSPITAL’S ISSUES

Hvh raises three issues in its separate brief.

A. REVIEW UNDER 1972 PA 256

Hvh argues that it was entitled to have its application reviewed under the provisions of 1972 PA 256, which was in effect at the time that hvh filed its original CON application, and which was replaced by 1978 PA 368. Hvh claims that, in agreeing to hold its CON application in abeyance pending the outcome of prior litigation,⁷ the department also promised to review the application under the 1972 PA 256 criteria, which were apparently more favorable to hvh.

We conclude that such an arrangement would have violated legislative intent. Once the prior litigation had been concluded and hvh’s expansion application was reactivated, Pontiac Osteopathic Hospital (poh) filed a CON application relating to the same subarea. The department determined that a comparative review was required, and it solicited additional applications. Because the other applications were filed after the effective date of 1978 PA 368, the department was required to review these applications under the criteria set forth in that statute. In order to conduct a true comparative review, it was essential for the department to review hvh’s application under the same criteria as the other applications.

Moreover, the hearing officer concluded that there had been no meeting of the minds between hvh and the department regarding the applicable criteria. In order to form a valid contract, there must be a meeting of the minds with regard to all material facts. Kamalnath v Mercy Memorial Hosp Corp, 194 Mich App 543, 548; 487 NW2d 499 (1992). The unsigned stipulation to proceed under 1972 PA 256 presented by hvh is not objective evidence of a meeting of the minds. See id.

B. GREAT WEIGHT OF THE EVIDENCE

Hvh contends that the decision to deny its CON application was contrary to the great weight of the evidence and was thus both arbitrary and capricious. We disagree. First, hvh assumes that its application should have been reviewed under the 1972 PA 256 criteria; as discussed in the previous issue, the department properly reviewed its application pursuant to 1978 PA 368. The remainder of HVH’s arguments merely constitute attempts to substitute its inteipretation of the facts and law for the department’s. We find no evidence that the department failed to take seriously its role under the statute, as HVH alleges; rather, we find the opposite to be true. Because hvh has not shown that the decision to deny its CON application was arbitrary, capricious, and contrary to the great weight of the evidence, there is no error requiring reversal.

C. PROPRIETY OF COUNTING BEDS AWARDED TO PONTIAC GENERAL HOSPITAL

Finally, hvh argues that the department erred in counting against it the 350 beds that had been approved for Pontiac General Hospital (pgh) in 1978. Hvh contends that this Court’s opinion in Huron Valley Hosp, Inc v State Health Facilities Comm, 110 Mich App 236; 312 NW2d 422 (1981), implicitly compelled the department to ignore the 350 beds previously granted to PGH in the present need analysis.

We disagree. In Huron Valley Hosp, pgh and hvh each applied for a CON to construct new facilities. The department determined that only one CON could be granted for the area and awarded the CON to pgh. Hvh appealed from the denial of its application, and the circuit court ordered the department to issue a CON to hvh. This Court affirmed. See id. at 244, 252.

We are at a loss to understand how this Court’s decision in the prior litigation has any bearing on whether the 350 beds awarded to pgh should be considered in the need evaluation in the instant case. Furthermore, we concur with the hearing officer’s conclusion that a decision not to count those beds would ignore reality and would be a clear violation of the department’s statutory duty to consider the needs of the population to be served. See MCL 333.22132; MSA 14.15(22132).

III. WEST BLOOMFIELD HOSPITAL’S ISSUE

Wbh argues that the department’s reliance on the acbnm rather than the formula provided by wbh, rendered its decision to deny wbh’s CON application unlawful. Specifically, wbh asserts that the department should have used its formula for determining need instead of the acbnm because the latter does not consider the entire population within a subarea and because wbh’s formula more accurately forecasts market share.

Appellants’ expert, James Lifton, testified at the hearing that market share can be predicted in three different ways, none of which is perfect. In fact, the application of those different methodologies by three of the con applicants resulted in widely varying conclusions with respect to the number of needed beds, ranging from 195 to 349. Furthermore, each applicant’s market share theory assumed that its respective project was completed and then attempted to prove that the facility would have a high occupancy rate. Although wbh asserted that its new facility would not draw patients from existing facilities, the department personnel who reviewed the application quite reasonably concluded otherwise.

Appellant wbh also argues that the acbnm does not adequately account for those patients who were then migrating to hospitals outside the subarea. However, Dr. Harvey Day, who oversaw the review process, testified that the new hvh facility would probably capture some of the migrating patients, and that there was no evidence that the migrating population was not going by choice to large Detroit and Ann Arbor hospitals with good reputations.

IV. PONTIAC OSTEOPATHIC HOSPITAL’S ISSUES

Poh raises three issues relating to the trial court’s reversal of the con board’s grant of a con.

A. AUTHORITY OF CON BOARD TO REVERSE THE DENIAL OF CON

Poh claims that the trial court erred as a matter of law in construing the pertinent statutes as limiting the CON board’s authority to reverse a decision by the department to deny a CON application. Poh asserts that, contrary to the trial court’s ruling, the board has plenary authority to review both the department’s denial and granting of CON applications.

Pursuant to § 22165, a party denied a CON by the department had the following right of appeal:

If an applicant for a certificate of need is aggrieved by the decision of the department or if the recommendation of the health systems agency is not accepted, the applicant or the health systems agency may request a hearing to be conducted pursuant to the administrative procedures act of 1969 by the appeals authority created pursuant to Section 22121(2). The decision of the appeals authority to issue or deny a certificate of need shall be final and is binding on the department. [MCL 333.22165; MSA 14.15(22165), repealed by 1978 PA 368.]

The con board’s review powers were set forth in § 22121(3):

A health facility which is not granted a certificate of need upon application may appeal to the certificate of need board. The certificate of need board shall hold a hearing on the appeal within 30 days after the appeal is filed. The hearing shall be conducted pursuant to the administrative procedures act of 1969. If the certificate of need board finds any of the following, it may grant the certificate of need or modify the bed reduction order for that health facility:

(a) The bed reduction plan or the limitation on the number of beds for the health facility is arbitrary and capricious.

(b) The denial of the certificate of need application was arbitrary or not in accordance with law or the appropriate bed reduction plan.

(c) The denial will cause a significant reduction in services by physicians of a particular school of medicine. [MCL 333.22121(3); MSA 14.15(22121)(3), repealed by 1978 PA 368.]

The trial court concluded that the two sections are inconsistent and that the board has greater discretion in reviewing the approval of a con application than in reviewing its disapproval. We disagree with the trial court’s interpretation of these sections.

The primary goal of statutory interpretation is to ascertain and give effect to the intent of the Legislature in enacting a provision. Farrington v Total Petroleum, Inc, 442 Mich 201, 212; 501 NW2d 76 (1993). Statutory language should be construed reasonably, keeping in mind the purpose of the statute. Barr v Mount Brighton Inc, 215 Mich App 512, 516-517; 546 NW2d 273 (1996). An examination of the plain language of § 22165 does not lead to the conclusion that the Legislature intended to expand the board’s review authority beyond that expressed in § 22121(3)(b). Thus, the board’s review authority is equally circumscribed whether it is reviewing the approval or denial of a con application.

Nonetheless, the trial court was correct in concluding that the board’s review authority in this case was limited by § 22121(3)(b) because it was reviewing the denial of POH’s CON application. The trial court properly considered whether the board erred in finding that the department’s disapproval of the application was arbitrary and not in accordance with the law. Accordingly, appellant POH is not entitled to relief with regard to this issue.

B. APPLICABLE STANDARD OF REVIEW

Appellant POH next asserts that the trial court improperly applied a different standard of review to its application than it did to the other applications when it stated that the board must give deference to the department’s decision to deny its CON application. However, regardless of whether the trial court erred in determining that the board must accord deference to the department’s denial of the application, it is clear that the trial court applied the appropriate standard of review. The trial court stated that the board must determine whether the department’s decision was arbitrary or contrary to law. This is the standard provided in MCL 22121(3)(b); MSA 14.15(22121)(3)(b). Because the trial court did not misstate the applicable standard of review, we find no error requiring reversal.

C. POH’S CON APPLICATION

Finally, appellant POH argues that the board’s decision to grant it a CON was supported by substantial evidence on the record. The board ruled that the department’s decision to deny poh a CON was arbitrary and not in accordance with the law on the basis of the following factors: (1) POH is the eighth largest osteopathic teaching hospital in the United States; (2) POH’s existing facility is cramped for space, which adversely affects patient care and medical instruction and also constitutes license and code violations; (3) the structural foundation of the existing facility would not support additional floors; (4) the existing facility is landlocked and cannot be expanded laterally; (5) the proposed facility would not add beds to the subarea; and (6) the proposed facility would be cost efficient.

The trial court ruled that the board’s decision was contrary to law and arbitrary. We disagree. The Supreme Court has explained that the granting of a CON must be based on “a demonstrated current and future need for the facility.” See West Bloomfield Hosp, 452 Mich 525, quoting MCL 333.22132; MSA 14.15(22132). It is undisputed that POH’s proposal would not add beds to the subarea and that POH’s current facilities suffer from multiple deficiencies that affect both, patient care and its teaching functions. There is record support for the board’s conclusion that the criteria of § 22131 are satisfied. Accordingly, we reverse and remand to the circuit court for issuance of a CON to poh.

V. CONCLUSION

We reverse and remand to the circuit court for issuance of a certificate of need to appellant POH. In all other respects the decision of the trial court is affirmed. We do not retain jurisdiction.

Michael J. Kelly, J., concurred.

1 Some of the issues raised in appellants’ joint brief are also addressed in briefs submitted by the individual appellants.

2 Part 221 of the Public Health Code was repealed and replaced with Part 222, MCL 333.22201 et seq.; MSA 14.15(22201) et seq., by 1988 PA 308.

3 MCL 333.22131(1); MSA 14.15(22131)(1) provided:

In making determinations and conducting reviews for certificates of need, the department and a health systems agency shall apply at least the following criteria:

(a) The relationship of the health care facilities or services being reviewed to the health systems plan and annual implementation plan, if any, for all health services areas to be served.

(b) The relationship of the health care facilities or services being reviewed to the long-range department plan, if any, of the person providing or proposing the facility or service.

(c) The need of the population served or to be served for the health care facilities or services being reviewed.

(d) The feasibility and availability of less costly alternatives or more effective methods of providing the health care facilities or services being reviewed.

(e) The relationship of the health care facilities or services being reviewed to the existing health care system of the health services area in which the facilities or services are provided or proposed, including the probable impact on the costs of providing health services in the areas served.

(f) In the case of health care facilities or services proposed under a certificate of need or other application, the availability or potential availability of resources, including health personnel, management personnel, and funds for capital and operating needs for the provision of the facilities or services, and the potential for alternative uses of those resources for the provision of other health care services.

(g) The special needs and circumstances of institutional health care facilities and other entities which provide a substantial part of their services or resources to individuals not residing in the health service areas in which the facilities or other entities are located or in adjacent areas. The entities may include medical and other health professional schools, multidisciplinary clinics, and specialty centers.

(h) The special needs and circumstances of health maintenance organizations and other comprehensive health care programs. The needs and circumstances include the needs of, and costs to, members and projected members of the health maintenance organization in obtaining health services and the potential for a reduction in the use of inpatient care in a community through an extension of preventative health services and the provision of more systematic and comprehensive health services.

(i) In the case of a construction project proposal, the costs and methods of financing the proposed project; the probable impact of the project reviewed on the costs of providing health services by the applicant; and the specific requirements of law for building, zoning, fire, and safety standards and other permits and inspections applicable to the project.

Q) The degree to which the residents and physicians of the immediate community and region affected are provided access to the services and programs of the health facility applying for the certificate of need.

(lc) The special needs and circumstances of biomedical and behavioral research projects which are designed to meet a state need and for which local conditions offer special advantages.

G) That the health facility does not discriminate because of race, religion, color, national origin, age, or sex in its operations including employment, patient admission and care, room assignment, and professional or nonprofessional selection and training programs, and that the health facility governing body does not discriminate in its selection and appointment of individuals to the physician staff of the health facility or its training programs on the basis of licensure or registration or professional education as doctor of medicine, osteopathic medicine and surgery, or podiatry.

(m) That in the case of a nonprofit health facility, the facility is in fact governed by a body composed of a majority consumer membership broadly representative of the population served.

(n) When an application is made for a certificate of need to construct or expand an osteopathic or allopathic facility, the need for that facility on the basis of the need and availability in the community for services and facilities for osteopathic and allopathic physicians, other licensed health care professionals, and their patients and the impact of the application for a certificate of need on existing and proposed institutional training programs for doctors of medicine and osteopathy and other licensed health care professionals at the student, internship, and residency training level. This subdivision shall not be construed to dictate a departure from good health planning principles or to mandate unnecessary duplication of services or facilities.

4 MCL 333.22217(1); MSA 14.15(22217)(1).

5 MCL 24.279; MSA 3.560(179), MCL 24.282; MSA 3.560(182).

6 Because of our resolution of this issue, we do not address the department’s contention on cross appeal that appellants waived their right to challenge the con board’s legal representation.

7 See Huron Valley Hosp, Inc v State Health Facilities Comm, 110 Mich App 236; 312 NW2d 422 (1981).