Chesapeake Hospital Authority d/b/a, etc. v. State Health Commissioner and Sentara Hospitals ( 2020 )

COURT OF APPEALS OF VIRGINIA
Present: Chief Judge Decker, Judges Malveaux and Athey
UNPUBLISHED
Argued by videoconference
CHESAPEAKE HOSPITAL AUTHORITY
d/b/a CHESAPEAKE REGIONAL MEDICAL
CENTER
MEMORANDUM OPINION* BY
v. Record No. 0116-20-1 JUDGE CLIFFORD L. ATHEY, JR.
OCTOBER 27, 2020
STATE HEALTH COMMISSIONER AND
SENTARA HOSPITALS
FROM THE CIRCUIT COURT OF THE CITY OF CHESAPEAKE
Mary Jane Hall, Judge Designate
Peter M. Mellette (Elizabeth D. Coleman; H. Guy Collier; Mellette, P.C.;
McDermott Will & Emery LLP, on briefs), for appellant.
Vanessa C. MacLeod, Assistant Attorney General (Mark R. Herring,
Attorney General; Keonna C. Austin, Deputy Attorney General;
Allyson K. Tysinger, Senior Assistant Attorney General, on brief),
for appellee State Health Commissioner.
Jamie B. Martin (Jeremy A. Ball; Matthew M. Cobb; Jennifer L.
Ligon; Williams Mullen, on brief), for appellee Sentara Hospitals.
Chesapeake Hospital Authority d/b/a Chesapeake Regional Medical Center (“CRMC”)
appeals from the Circuit Court for the City of Chesapeake’s (“circuit court”) final order which
upheld the decision of the State Health Commissioner (“Commissioner”) denying CRMC a
Certificate of Public Need (“COPN”) for the creation of a new open-heart surgery service and
additional dedicated cardiac catherization equipment. On appeal, CRMC presents four
assignments of error:
*
Pursuant to Code § 17.1-413, this opinion is not designated for publication.
1. Whether the [circuit] court erred in finding that the
Commissioner’s incorrect interpretation and application of the
State Medical Facilities Plan Need Provision in his Case
Decision was harmless error.
2. Whether the [circuit] court erred in finding that the State
Medical Facilities Plan cardiac cath volume requirements for a
new open heart surgery service as written and as applied were
ambiguous and warranted deference to the Commissioner’s
interpretation.
3. Whether the [circuit] court erred in finding that the
Commissioner did not commit reversible errors of law in
excluding the utilization of PD 20 services by North Carolina
residents and by relying on an incomplete data set to assess
utilization of open and closed heart surgery services.
4. Whether the [circuit] court erred in finding that the
Commissioner’s factual findings were supported by substantial
evidence and that a reasonable mind would not necessarily
reach a different conclusion.
For the reasons that follow, we affirm the circuit court.
I. BACKGROUND
A. Statutory and Regulatory Framework
“A comprehensive regulatory system governs nearly every aspect of medical care
facilities in the Commonwealth.” Reston Hosp. Ctr. v. Remley, 63 Va. App. 755, 760 (2014).
“No person shall commence any project without first obtaining a certificate issued by the
Commissioner.” Code § 32.1-102.3(A). Any decision to issue a certificate must be consistent
with the State Medical Facilities Plan (“SMFP”), unless the Commissioner, in his or her
discretion, chooses to set aside the SMFP. Id. “No certificate may be issued unless the
Commissioner has determined that a public need for the project has been demonstrated.” Id.
To determine whether a public need has been demonstrated, the Commissioner must
consider the statutory factors in Code § 32.1-102.3(B). In short, the Commissioner must
consider whether the project meets the following criteria: 1) Increased access to health services
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for residents of the area, 2) the public need for the project, 3) the project’s consistency with the
SMFP, 4) improving access to essential health services for the residents of the area,
5) relationship between the project and the utilization and efficiency of existing services,
6) financial feasibility of the project, and 7) the project provides improvement or innovation in
the delivery of health services. See Code § 32.1-102.3(B).
In determining whether the project is consistent with the SMFP, the Commissioner looks
to the regulations setting out the plan. Code § 32.1-102.1. Relevant here is 12 VAC
5-230-450(A), which establishes certain utilization metrics that must be met to establish a public
need for new open heart services. Under 12 VAC 5-230-450(A):
No new open heart services should be approved unless:
1. The service will be available in an inpatient hospital with
an established cardiac catherization service that has performed an
average of 1,200 DEPs for the relevant reporting period and has
been in operation for at least 30 months;
2. Open heart surgery services located in the health planning
district performed an average of 400 open heart and closed heart
surgical procedures for the relevant reporting period; and
3. The proposed new service will perform at least 150 procedures
per room in the first year of operation and 250 procedures per
room in the second year of operation without significantly
reducing the utilization of existing open heart surgery services in
the health planning district.
B. CRMC’s Application for a Certificate of Public Need1
CRMC submitted an application for a COPN in September 2017. CRMC sought to
introduce open heart surgery services and add cardiac catherization equipment in the form of a
cardiac surgery operating room.
1
As the parties are fully conversant with the record in this case and because this
memorandum opinion carries no precedential value, this opinion recites only those facts and
incidents of the proceedings as are necessary to the parties’ understanding of the disposition of
this appeal.
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CRMC’s application was reviewed by the Virginia Health Department’s Division of
Certificate of Public Need (“DCOPN”). In November 2017, DCOPN recommended to the
Commissioner that CRMC’s project be conditionally approved contingent upon the acceptance
of a charity care condition.
Multiple informal fact-finding hearings were subsequently conducted. At those hearings,
CRMC presented testimony and other evidence that the proposed open heart surgery project
would benefit the entirety of Health Planning District 20 (“PD 20”). The adjudication officer
conducting the various hearings recommended denying CRMC’s application in August 2018.
The Commissioner reviewed the record, adopted the findings of the adjudication officer,
applied the relevant statutes and regulations, and ultimately denied CRMC’s application. The
Commissioner cited the following reasons for denying the issuance of a COPN to CRMC:
1. CRMC’s proposed project is not consistent with the State
Medical Facilities Plan;
2. The proposed project would likely decrease utilization at
existing providers of open heart surgery – a type of surgery that
consists of a highly-specialized, high-acuity, utilization-sensitive
and narrow subset of cardiac surgery procedures;
3. The project is duplicative of existing and accessible open heart
surgery services in PD 20;
4. The project would not significantly improve geographic or
financial access for residents of PD 20 to open heart surgery
services; and
5. Open heart surgery services are fully accessible and available in
PD 20, in a timely manner and within applicable driving time
standards.
CRMC appealed the Commissioner’s decision to the circuit court, arguing that the
Commissioner erred in his application of the relevant factors and further that the decision was
arbitrary and capricious. The circuit court concluded that although the Commissioner had
misinterpreted a single provision of the SMFP related to the establishment of new open heart
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surgery services, this misinterpretation of a single provision was harmless error. The circuit
court found no further error by the Commissioner related to CRMC’s remaining assignments of
error and affirmed the Commissioner’s decision. CRMC appeals from the decision of the circuit
court.
II. ANALYSIS
A. Harmless Error
CRMC alleges that the circuit court erred in finding that the Commissioner’s incorrect
interpretation and application of the SMFP was harmless error. We disagree.
“[U]nder the [Virginia Administrative Process Act], the circuit court’s role in an appeal
from an agency decision is equivalent to an appellate court’s role in an appeal from a trial court.”
LifeCare Med. Transps., Inc. v. Va. Dep’t of Med. Assistance Servs., 63 Va. App. 538, 548
(2014). While pure statutory construction requires de novo review, Reston Hosp., 63 Va. App. at
770, “courts give ‘great deference to an agency’s interpretation of its own regulations,” Bd. of
Supervisors v. State Bldg. Code Tech. Review Bd., 52 Va. App. 460, 466 (2008). A court cannot
“substitute its own judgment for the agency’s on matters committed by statute to the agency’s
discretion.” Reston Hosp., 63 Va. App. at 770. The determination of what is “relevant to
understanding public need lies within an area of [the Commissioner’s] experience and
specialized competence and therefore, is entitled to great deference.” Doctors’ Hosp. of
Williamsburg, LLC v. Stroube, 52 Va. App. 599, 609-10 (2008). On appeal of an administrative
agency’s decision, “[t]he party complaining of an agency action has the burden of demonstrating
an error of law subject to review.” Hilliards v. Jackson, 28 Va. App. 475, 479 (1998).
Here, the circuit court determined that the Commissioner misinterpreted 12 VAC
5-230-450(A)(2) when he determined that the term “services” referred to per operating room.
The circuit court then went on to determine that,
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because the Commissioner misinterpreted one subparagraph of one
regulation that constitutes only one part of the SMFP regulations
regarding the introduction of new open heart surgery services, and
because compliance with the SMFP is but one of eight factors that
Code § 32.1-102.3(B) requires the Commissioner to consider, the
[circuit court] holds that the misinterpretation constituted harmless
error.
In determining if this misinterpretation of the term “services” constitutes error which is
reversible we apply familiar principles.
Error will be presumed prejudicial unless it plainly appears that it
could not have affected the result. A plaintiff in error must always
show not only error . . . , but also error of a substantial nature.
When once he has pointed out an error of a substantial character,
he is entitled to have it corrected if it appears from the record that
there is reasonable probability that it did him any harm.
State Health Comm’r v. Sentara Norfolk Gen. Hosp., 260 Va. 267, 277 (2000).
CRMC alleges that the misinterpretation was prejudicial because it interfered with its
ability to demonstrate that the proposed new open heart surgery service was consistent with the
SMFP. We disagree.
The misinterpreted portion of the single subsection is only one of three factors the
Commissioner must review under 12 VAC 5-230-450(A) in determining whether an application
for a new open heart surgery service is consistent with the SMFP. As noted in the
Commissioner’s decision, the project’s consistency with the SMFP is but one of five reasons the
Commissioner cited in denying CRMC’s application. This error is not substantial in nature and
as such, we find that the circuit court did not err in its determination that the Commissioner’s
misinterpretation of 12 VAC 2-230-450(A)(2) was harmless.
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B. Deference
CRMC alleges that the Commissioner incorrectly applied the open heart surgery standard
when he determined that CRMC had not met the requisite DEP2 volume threshold. We disagree.
It is well settled that “[t]he construction which an administrative agency gives to its
regulations, if reasonable, is entitled to great deference.” Virginia Real Estate Bd. v. Clay, 9
Va. App. 152, 160 (1989). “This deference stems from Code § 2.2-4027, which requires that
reviewing courts ‘take due account’ of the ‘experience and specialized competence of the
agency’ promulgating the regulation.” Bd. of Supervisors of Culpeper Cnty. v. State Bldg. Code
Tech. Review Bd., 52 Va. App. 460, 466 (2008) (quoting Clay, 9 Va. App. at 160-61).
12 VAC 5-230-450(A)(1) requires that a “service . . . performed an average of 1,200
DEPs for the relevant reporting period.” The Commissioner reviewed the DCOPN staff report,
which found CRMC performed an average of 1,374 DEPs in 2015, but the Commissioner noted
that the staff report failed to take into account that CRMC had two cardiac catherization labs.
The Commissioner determined that CRMC performed an average of 687 DEPs per laboratory in
2015, well below the required 1,200. CRMC alleges that it has satisfied this portion of the
application and that the Commissioner erred in determining that it must meet the standard per
lab.
Unlike the portion of the regulations discussed above, the circuit court found that 12
VAC 5-230-450(A)(1) is ambiguous due to the words “on average.” The Commissioner must
therefore “average” the number of procedures completed. We agree with the circuit court that
the term “on average,” in the context of this regulation, is ambiguous because it does not state if
the average to be met is on a per service basis or a per lab basis.
2
“DEP” refers to a diagnostic equivalent procedure which is “a method for weighing the
relative value of various cardiac catherization procedures.” 12 VAC 5-230-10.
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Since this competing interpretation of the meaning of the term “on average” in the
context of the regulation results in a genuine ambiguity, this Court must defer to the agency’s
interpretation of the regulation if it is “reasonable, actually made by the agency, implicates
substantive expertise, and reflects the agency’s fair and considered judgment.” Kisor v. Wilkie,
139 S. Ct. 2400, 2415-16 (2019). “An agency’s interpretation of its governing statutes, as
reflected in its regulations, is entitled to great weight.” Manassas Auto Cars, Inc. v. Couch, 274
Va. 82, 87 (1988).
Because “[a]n agency’s interpretation of its own regulations is controlling unless plainly
erroneous or inconsistent with the regulations being interpreted,” Mathews v. PHH Mortg. Corp.,
283 Va. 723, 724 (2012), the circuit court did not err in deferring to the Commissioner in
determining how to calculate the average number of procedures completed annually and whether
that number complied with the SMFP. Since the Commissioner could have concluded that the
term “on average” required an average of DEPs completed per laboratory, his decision that the
required volume of DEPs performed, averaged by each laboratory, did not meet the threshold
required by the SMFP was not plainly erroneous or inconsistent with the regulations being
interpreted.
C. Relevant Data
CRMC’s third assignment of error contends that the circuit court should have found error
in the Commissioner’s failure to consider certain evidence in denying the COPN. Specifically,
CRMC alleges that the Commissioner should have considered the impact North Carolina
residents would have in the utilization calculation of PD 20 services and that his failure to do so
was arbitrary and capricious. CRMC additionally contends that the Commissioner relied upon
an incomplete data set, specifically the Service Line Data set, in determining the utilization of
open and closed heart surgery services. We disagree.
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1. North Carolina Resident Utilization
Where an “issue concerns an agency decision based on the proper application of its
expert discretion, the reviewing court will not substitute its own independent judgment for that of
the agency but rather will reverse the agency only if that decision was arbitrary and capricious.”
Johnston-Willis, Ltd. v. Kenley, 6 Va. App. 231, 246 (1988). Courts must “consider the
experience and specialized competence of the agency and the purposes of the basic law under
which the agency acted.” Id.CRMC contends that the Commissioner did not consider the needs of North Carolina
residents in making the determination of whether the proposed project warranted the issuance of
a COPN. However, after reviewing the evidence submitted by CRMC on this subject, the
Commissioner acknowledged CRMC’s position before ultimately rejecting it. The circuit court
found that this determination was within the Commissioner’s expert discretion, and we cannot
substitute our judgment for that of the Commissioner. Id.Moreover, the purpose of the COPN application process is to determine whether a
proposed project is needed by the citizens of the Commonwealth who live within a particular
planning district. Although the Commissioner considered evidence presented by CRMC related
to the utilization of their proposed facility by North Carolina residents, he was also presented
evidence that no additional public need had been identified for open heart surgery services in the
area of North Carolina that may have utilized CRMC’s proposed project.
As such, a review of the record shows that the Commissioner’s decision was not arbitrary
and capricious, but rather accounted for the information CRMC provided but found it
unpersuasive. We hold that the Commissioner’s conclusion was within his proper discretion.
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2. Reliable Data Sets
CRMC further contends that the Commissioner relied on incomplete data sets to
determine the volume of open heart surgeries in PD 20. Specifically, CRMC alleges that the
Commissioner erroneously relied on the Service Line Data, instead of the Annual Licensure
Survey Data or Truven data, in determining utilization of open heart surgery services.
In making its ruling, the circuit court stated that “[t]he reliability of these data sets
constitute the Commissioner’s factual findings.” The sole question on factual issues is “whether
there was substantial evidence in the agency record to support the agency decision.” Code
§ 2.2-4027. This Court will reject an agency’s factual finding “only if, considering the record as
a whole, a reasonable mind would necessarily come to a different conclusion.” Doctor’s Hosp.,
52 Va. App. at 607. The reviewing court has no authority to reweigh the facts in the record.
Reston Hosp., 63 Va. App. at 770.
Substantial evidence exists in the record that the Commissioner assessed conflicting
evidence of the historical utilization data of open and closed heart surgery services. This factual
determination is well within the experience and specialized competence of the Commissioner.
CRMC asks us to substitute our judgment for that of the Commissioner; we decline to do so. We
cannot say that a “reasonable mind would necessarily come to a different conclusion.” Doctors’
Hosp., 52 Va. App. at 707. This determination is supported in the record by substantial evidence
and thus we must defer to the Commissioner’s factual finding.
D. Factual Findings
Finally, CRMC contends that the circuit court erred by upholding the Commissioner’s
factual findings on a quality-volume connection, access to open heart surgery services, and the
impact of beneficial competition. CRMC contends that these findings are arbitrary and
capricious and unsupported by substantial evidence. We disagree.
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It is the duty of the reviewing Court “to determine whether there was substantial evidence
in the record to support the agency decision.” Code § 2.2-4027. When issuing the case decision,
the Commissioner is not required to provide detailed findings regarding every statutory factor in
Code § 32.1-102.3(B). Rather, he “needs only to notify the parties briefly and generally in
writing[] of the factual basis for an adverse decision.” Va. Ret. Sys. v. Cirillo, 54 Va. App. 193,
199 (2009). Substantial evidence is “such relevant evidence as a reasonable mind might accept
as adequate to support a conclusion.” State Health Comm’r v. Sentara Norfolk Gen. Hosp., 260
Va. 267, 275 (2000) (quoting Virginia Real Estate Comm’n v. Bias, 226 Va. 264, 268-69
(1983)). “An agency’s factual findings should only be rejected if, ‘considering the record as a
whole, a reasonable mind would necessarily come to a different conclusion.’” Id.
1. Quality-Volume Determination
CRMC challenges the circuit court’s ruling regarding the Commissioner’s finding that
there is a link between quality and volume in open heart surgery services and that CRMC’s
proposed project would have the potential to divert patients from already existing open heart
projects.
CRMC presented evidence to the Commissioner that it claims quality is more tied to the
experience of the surgical team and that an open heart surgery program is able to be successful
regardless of volume.
The Commissioner directly addressed CRMC’s concerns in the case decision, finding
CRMC’s contentions unpersuasive. The Commissioner stated in the case decision, “I do not
believe that the possibility that quality would result from an approval of CRMC’s project is
sufficient to find a public need for it, looking at this point and the administrative record overall.”
We cannot say that “a reasonable mind would necessarily come to a different
conclusion.” Id. As such, the circuit court did not err in relying on the Commissioner’s factual
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determination. The Commissioner’s factual determination regarding the correlation between
quality and volume is based on substantial evidence in the record and should not be disturbed.
2. Geographic Access to Services
CRMC contends that substantial evidence exists in the record that approval of its
proposed open heart surgery service would improve patient access to services. CRMC supports
this contention with alleged wait times for open heart surgeries within PD 20. Additionally,
CRMC contends that the Commissioner erred in his conclusion that residents of PD 20 are
currently well served by existing open heart surgery providers. We disagree.
CRMC conflates the standard of review that we must apply with its preferred review of
the record. This Court must determine if the Commissioner’s factual findings are supported by
the record, not CRMC’s proposed conclusions. See Code § 2.2-4027.
Substantial evidence exists in the record to support the Commissioner’s decision. The
Commissioner determined that “the CRMC project . . . would not meaningfully increase access,
geographic or financial, to needed services for residents of the area.”
In fact, the Commissioner considered the other three open heart services in PD 20 noting
that all of the facilities are located within thirty minutes of CRMC. Of these three service
providers, one is currently operating near capacity while the other two facilities are currently
underutilized.
The SMFP requires that open heart surgery services be located within sixty minutes’
driving time of 95% of the population in a planning district. See 12 VAC 5-230-440. Since that
standard is currently being met, it was neither arbitrary nor capricious for the Commissioner to
determine that the addition of CRMC’s proposed project would not substantially improve the
geographic access for residents of PD 20. As a result, substantial evidence exists in the record to
support the Commissioner’s conclusion.
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3. Beneficial Competition
Finally, CRMC contends that the Commissioner’s factual determination that the addition
of CRMC’s proposed open heart surgery service would not result in beneficial competition was
in error. The circuit court held that the Commissioner reached this conclusion, after considering
and weighing all the evidence in the record. The court therefore declined to substitute its
judgment for that of the Commissioner because a reasonable mind would not necessarily come to
a different conclusion. We agree with the circuit court.
The Commissioner found that 66% of Sentara’s open heart surgery patients are
Medicare-covered patients, thus, Sentara receives non-negotiable reimbursement rates. Based
thereon, the Commissioner determined that the potential for competition was limited by the
structure of the payments open heart surgery services in PD 20 receive.
The Commissioner also noted that “[f]ostering competition has not historically been a
primary objective in regulating highly specialized services such as open heart surgery . . . .”
Since these factual determinations made by the Commissioner were supported in the
record, they are entitled to great deference. The Commissioner provided a very thorough
explanation of the evidence in support of his findings under each of the statutory factors in Code
§ 32.1-102.3(B). His findings addressed each of CRMC’s arguments which he simply did not
find sufficiently persuasive to grant their COPN application. This matter was thoroughly
litigated, and substantial evidence exists in the record in support of the Commissioner’s decision.
Like the circuit court, which determined that a reasonable mind would not necessarily come to a
different conclusion, this Court cannot “reweigh the facts in the record” and reach a different
conclusion. As a result, we find that the circuit court did not err in deferring to the
Commissioner’s factual determinations supported by substantial evidence.
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III. CONCLUSION
The decision of the circuit court is therefore affirmed.
Affirmed.
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