Court: Court of Appeals of Kentucky; October 5, 2012; Kentucky; State Appellate Court
Baptist Convalescent Center, Inc. (Baptist) and Boonespring Transitional Care Center, LLC (Boonespring) are involved in multiple appeals concerning Boonespring’s application for a certificate of need to relocate 143 nursing beds from Coldspring Transitional Care Center, LLC to a new facility in Boone County. Boonespring sought a nonsubstantive review status to expedite the approval process, which the Cabinet granted. Baptist, as an affected party, contested this, arguing that the application was inconsistent with the state health plan and that the nonsubstantive review procedure in 900 KAR 6:075 conflicted with KRS 216B.095(4), rendering it invalid. The Cabinet ultimately agreed, determining that its regulation conflicted with the statute and invalidated 900 KAR 6:075, leading to the denial of Boonespring's application.
Boonespring sought judicial review, and the Franklin Circuit Court reversed the Cabinet’s decision, asserting that the Cabinet was bound by its own regulation and lacked authority to invalidate it due to statutory conflict. The court did not address the merits of whether 900 KAR 6:075 conflicted with KRS 216B.095(4), stating that courts lacked the resources and duty to review hearing officers' legal conclusions. The appeals concluded with the court reversing the initial appeal and affirming the cross-appeal, remanding the subsequent appeals with directions to dismiss the declaration of rights petition.
The circuit court determined that Baptist could contest the validity of 900 KAR 6:075 through a petition for declaration of rights. Although the court did not rule on the regulation's validity, it concluded that the Cabinet was obligated to apply 900 KAR 6:075 correctly and found that the Cabinet erred in its application. Consequently, the court reversed the Cabinet's decision and mandated the approval of Boonespring's certificate of need. Baptist and Boonespring subsequently filed notices of appeal and cross-appeal regarding the July 6, 2010, opinion.
Baptist later filed a petition challenging the regulation, asserting a conflict with KRS 216B.095(4). On December 22, 2010, the circuit court recognized this conflict and permanently enjoined the Cabinet from enforcing a specific section of the regulation, also ordering the withdrawal of Boonespring's certificate of need. Boonespring and the Cabinet appealed this December order.
The appellate court will first address the merits of the initial appeals concerning the Cabinet's disapproval of Boonespring's application and the subsequent reversal by the circuit court. The central legal issue revolves around whether 900 KAR 6:075 conflicts with KRS 216B.095(4). Although the circuit court did not assess the regulation's validity, it acknowledged that determining the interpretation and legality of regulations is within the purview of the circuit court and the appellate court during administrative appeals. While judicial deference to agency interpretations is typical, reviewing the validity of regulations is a fundamental role of the courts in this context.
The circuit court is required to adjudicate the validity of statutes or regulations when directly challenged by the parties or an administrative agency's decision, as this is essential to resolving the case at hand. In this instance, Boonespring's certificate of need was disapproved by the Cabinet, which deemed 900 KAR 6:075 invalid due to its conflict with KRS 216B.095(4). The validity of 900 KAR 6:075 was actively contested in both the administrative proceedings and circuit court, which necessitated the circuit court’s adjudication of this legal issue. Even if the Cabinet lacked the authority to declare the regulation invalid, the circuit court was obliged to address it in reviewing the Cabinet's decision. The circuit court's failure to do so constitutes a clear error, and rather than remanding the matter, the reviewing authority will determine the regulation's validity directly.
Boonespring sought nonsubstantive review for its application, a procedure established by the General Assembly to expedite the process by bypassing formal review. KRS 216B.095, which governs nonsubstantive reviews, permits the Cabinet to approve a certificate of need unless specific findings regarding necessity or consistency with the state health plan are made. The Cabinet's regulation 900 KAR 6:075 outlines criteria and procedures for nonsubstantive review, including that applications granted this status are presumed needed and not subject to state health plan consistency reviews. Specific provisions in 900 KAR 6:075 detail the conditions under which applications may be approved or disapproved based on the presumption of need and evidence provided by affected parties.
KRS 216B.095(4) and 900 KAR 6:075 are found to be inconsistent regarding the approval process for certificates of need. KRS 216B.095(4) allows for a presumption favoring approval of such certificates under nonsubstantive review, unless it is shown that the facility or service is unnecessary or inconsistent with the state health plan. In contrast, 900 KAR 6:075 Section 2(6) states that applications for nonsubstantive review are not evaluated for consistency with the state health plan, and only create a presumption regarding the need for the facility. Sections 2(7) and (8) allow for challenging the need presumption but do not address challenges based on state health plan consistency. This discrepancy renders 900 KAR 6:075 Sections 2(6), (7), and (8) invalid as they conflict with KRS 216B.095(4), which is supported by established case law.
The only remaining issue pertains to the definition of 'affected person' for challenging a certificate of need application. The circuit court's interpretation is endorsed, defining 'affected persons' broadly under KRS 216B.015, which includes health facilities in the relevant health service area as defined by the state health plan. This area encompasses the county and contiguous counties. Thus, Baptist qualifies as an affected person and has standing to challenge Boonespring’s application for a certificate of need.
900 KAR 6:075 is deemed invalid due to its inconsistency with KRS 216B.095(4). Boonespring’s application for a certificate of need was properly denied by the Cabinet, as it was incompatible with the state health plan, contrary to the circuit court’s conclusion. Baptist is recognized as an affected person under KRS 216B.015(3) and has standing to contest Boonespring’s application. The appeals stem from a rights declaration action initiated by Baptist, which questioned the validity of 900 KAR 6:075 based on its conflict with KRS 216B.095(4). The circuit court erred by not addressing the regulation's validity when reviewing the Cabinet's decision and advised Baptist to pursue the declaration action despite the absence of a justiciable issue. Consequently, Appeal No. 2011-CA-000049-MR and Cross-Appeal No. 2011-CA-000094-MR are reversed and remanded with instructions for the circuit court to dismiss the declaration petition. Additionally, Boonespring’s assertion that its application complied with the state health plan is weak, as KRS 216B.095(4) requires approval for nonsubstantive reviews only if consistent with the state health plan, which Boonespring's application was not.
