Amisub of South Carolina, Inc. v. South Carolina Department of Health & Environmental Control

Citations: 403 S.C. 576; 743 S.E.2d 786; 2013 WL 2325466; 2013 S.C. LEXIS 119Docket: Appellate Case No. 2011-193828; No. 27257

Court: Supreme Court of South Carolina; May 29, 2013; South Carolina; State Supreme Court

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Amisub of South Carolina, Inc., operating as Piedmont Medical Center, initiated a contested case in the administrative law court (ALC) regarding the necessity of a Certificate of Need (CON) or Non-Applicability Determination (NAD) for an urgent care center run by Carolinas Physicians Network, Inc. (CPN), a subsidiary of Charlotte-Mecklenburg Hospital Authority (d/b/a Carolinas Healthcare System). The ALC granted summary judgment in favor of CHS and CPN, determining that the urgent care center functioned as a licensed private physician’s office and was thus exempt from CON review. However, the Court of Appeals reversed this decision, deeming the summary judgment premature and allowing Piedmont to conduct discovery, while also rejecting DHEC's claim of lack of subject matter jurisdiction. Subsequently, DHEC sought a writ of certiorari regarding the jurisdiction issue, which the Court has now reversed.

Factual background includes CPN’s establishment as a nonprofit in North Carolina, with operations in both states. A request from CHS to DHEC in 2007 confirmed that its planned medical office building in Fort Mill did not require CON review. Piedmont challenged this exemption but was deemed untimely by the DHEC Board, leading to the dismissal of their case in 2008. CPN opened its urgent care center on January 12, 2009, employing medical staff to provide primary care services without the need for appointments. Prior to the center's opening, Piedmont's counsel had engaged with DHEC concerning its operations, requesting action to require CHS to submit a CON application or non-applicability request.

Piedmont’s counsel contended that CHS violated its prior written assurance to DHEC regarding the requirement for a Certificate of Need (CON) or Non-applicability Determination (NAD) before opening an urgent care center, referencing a 2007 letter. Counsel asserted that expenditures over $2 million necessitate a CON, noting that although licensed private practitioner offices are generally exempt, this does not apply to the urgent care center due to its staffing by physicians employed by a public health facility. On January 28, 2009, counsel spoke with DHEC’s CON program director, Beverly Patterson, who indicated no action would be required from CHS regarding the urgent care center. An affidavit summarizing this conversation was prepared on January 30, 2009. On February 2, 2009, Piedmont’s counsel submitted a request for final review to the DHEC Board, seeking a cease and desist order against the center's operation until a CON or NAD was applied for, and requiring CHS to file such applications prior to reopening. The DHEC Clerk responded on February 4, 2009, declining the review request as it was filed 464 days post-DHEC’s initial decision on October 26, 2007, which had approved an exemption for the medical office building construction. Piedmont's counsel acknowledged the untimeliness of challenging the 2007 exemption but clarified that the review sought was regarding a verbal decision communicated in early 2009, which they claimed was erroneous. Ultimately, the Clerk informed Piedmont that the DHEC Board had met on February 12, 2009, and refused to conduct a final review conference.

On March 5, 2009, Piedmont requested a contested case hearing from the ALC, challenging DHEC's decision not to require CHS to obtain a Certificate of Need (CON) or a Notice of Determination (NAD) for its urgent care center. Piedmont argued that the urgent care center was established by CHS, a health care facility, thus necessitating a CON or NAD. Piedmont's submission included an affidavit concerning discussions with DHEC staff and a notice from the DHEC Board declining review. CHS and CPN, added as a respondent, sought dismissal or summary judgment. At the April 16, 2009 hearing, Piedmont claimed further discovery was needed and argued that the center should not be classified as a private physician's office, as it is marketed and controlled by CHS through its subsidiary, CPN.

DHEC contended that a licensed private practitioner’s office is exempt from CON requirements and that urgent care centers do not fall under the statutory definition of health care facilities requiring a CON. The ALC granted summary judgment, determining that the urgent care center qualified as a private physician's office exempt from CON review. The ALC noted that the CON Act and related regulations did not restrict the exemption based on ownership, concluding that further discovery was unnecessary.

Piedmont appealed, and the Court of Appeals reversed the ALC's decision, stating that the ALC erred by granting summary judgment without allowing Piedmont to conduct discovery. The court disagreed with DHEC's argument regarding subject matter jurisdiction, noting that there was a decision by DHEC to exempt the center from review. The Court granted certiorari concerning DHEC's jurisdictional arguments.

The Administrative Procedures Act (APA) establishes the standard of review for appeals from the Administrative Law Court (ALC), allowing appellate courts to reverse or modify ALC decisions if substantial rights are prejudiced due to violations of constitutional or statutory provisions, excess of agency authority, unlawful procedures, errors of law, clear evidentiary errors, or arbitrary actions. The ALC's jurisdiction over contested cases is defined by statute, which grants it authority to hear cases after a written decision from the Department of Health and Environmental Control (DHEC). A contested case is characterized as a proceeding where legal rights or privileges must be determined by an agency or the ALC with a mandated opportunity for a hearing. The definition of a 'license' under the APA encompasses various forms of permissions required by law. The document suggests that understanding the specific provisions regarding Certificates of Need (CONs), Non-Acceptance Decisions (NADs), and exemptions is crucial for analyzing whether Piedmont’s challenge was appropriately brought before the ALC as a contested case.

The State Certification of Need and Health Facility Licensure Act (CON Act) regulates the establishment of medical facilities in South Carolina, aimed at promoting cost containment, preventing unnecessary duplication of health care facilities, guiding the development of health services, and ensuring high-quality care. The Department of Health and Environmental Control (DHEC) is designated as the sole agency to administer the CON program and facility licensure. Entities classified as "health care facilities," such as hospitals, nursing homes, and rehabilitation facilities, must obtain a CON from DHEC prior to certain activities, including construction, changes to bed capacity, significant capital expenditures, or acquiring high-cost medical equipment. Urgent care centers are not included as health care facilities under the CON Act.

To apply for a CON, an applicant must submit their application to DHEC with proof of public notice in a local newspaper. Upon receiving the application and the initial fee, DHEC will notify the public through the State Register and start a review process once the application is deemed complete. Affected persons will be notified, and DHEC may hold a public hearing if requested. A proposed decision to grant or deny the CON will be made by DHEC staff, and this decision becomes final within ten days unless a timely request for reconsideration or a contested case hearing is filed. The final decision is contingent upon the outcome of these proceedings.

Certain institutions and transactions are exempt from Certificate of Need (CON) requirements as outlined in S.C. Code Ann. 44-7-170 and 24A S.C. Code Ann. Regs. 61-15. Specifically, a CON is not needed for licensed private practitioners' offices, either individual or group practices, except as specified in Section 44-7-160. Regulation 61-15 enumerates twelve exempt transactions, with the licensed private practitioner exemption not requiring a written approval from the Department of Health and Environmental Control (DHEC). For other exemptions that do require written approval, a formal request must be submitted to DHEC, including a project description and associated costs. 

Additionally, providers can request a written determination from DHEC to ascertain if the CON Act applies to a proposed project, known as a Nonapplicability Determination (NAD). This is particularly relevant when determining if the project's total cost meets the thresholds for requiring a CON—$2,000,000 for capital expenditures and $600,000 for medical equipment acquisitions. The process for obtaining a NAD involves submitting a detailed project description, and DHEC is obligated to respond within sixty days of receiving the necessary information.

The NAD procedure mandates that DHEC must formally determine whether a Certificate of Need (CON) is necessary for a proposed project. Under Section 44-1-60 of the South Carolina Code, DHEC is required to follow specific procedures for appeals involving the issuance, denial, renewal, suspension, or revocation of permits, licenses, or similar actions. Staff decisions are the initial determinations on these matters, which must consider all relevant public comments before deciding whether to grant or condition a permit or license. 

Once a staff decision is made, DHEC must issue a formal decision based on the administrative record, which includes the application, public comments, and supporting documents. Notice of this decision is sent by certified mail to relevant parties. The decision becomes final fifteen days after notice unless a request for review is made. A final review conference must occur within sixty days of such a request; if it does not, the initial decision stands, and affected parties may request a contested case hearing within thirty days. The DHEC Board or its designee must issue a written final decision after the review conference, explaining the decision and informing parties of their rights.

DHEC argues that the ALC lacked jurisdiction for a contested case hearing because no formal staff decision was made, asserting that informal communications do not qualify as staff decisions under the statute. Asserting that the Court of Appeals misapplied the statute, DHEC emphasizes that only formal staff decisions trigger the right to a contested case hearing.

DHEC contends that CPN and CHS did not require a certificate to establish the urgent care center as a CON was not mandated by law, and that a private physician’s office does not fall under the exemptions necessitating written proof of entitlement from DHEC. Consequently, DHEC argues there was no decision warranting a contested case hearing before the ALC, as no formal approval was required for a licensed private physician’s office. In contrast, Piedmont asserts that the ALC has jurisdiction because DHEC ruled that hospital-owned urgent care facilities are exempt from CON review, adversely affecting Piedmont. Piedmont claims DHEC's failure to document its staff decision led it to use an affidavit for a contested case hearing request. Piedmont argues that this unwritten decision became final when the Board denied its review request in February 2009. If a final review conference is not held within sixty days, the decision becomes final, allowing an affected party like Piedmont to request a contested case hearing within thirty days after the deadline. Piedmont further states that CPN or CHS should have sought a determination from DHEC if there were any uncertainties about the project. The Court of Appeals recognized that a decision by DHEC to exempt the Center from review was present, referencing communications from CHS and DHEC regarding this exemption and the Board's decision not to hold a final review conference.

The December 19, 2007 letter from CHS to DHEC, cited by the Court of Appeals, pertains to an unrelated staff decision regarding a medical office building exemption, not the urgent care center that opened two years later. This letter, originating from a party rather than DHEC, cannot be deemed a formal decision. The Court of Appeals' finding of a staff decision based on DHEC's February 13, 2009 letter, which declined a final review conference, lacks support. Piedmont's argument, referencing section 44-1-60(F) regarding final agency decisions, is insufficient since DHEC's letter included only general review information and did not indicate an original department decision. DHEC maintains that no formal approval was sought or granted for a CON or NAD, and no violations were found against CPN or CHS. Piedmont's assertion of a contradictory stance by DHEC is unfounded, as DHEC clarifies no written decision was necessary due to the statutory exemption for licensed private practitioner offices. Therefore, there was no staff decision subject to ALC review, and allowing Piedmont to challenge the exemption would overwhelm DHEC with contested cases not intended for CON review. The statutes and regulations clearly define the separate procedural paths for these matters.

CON applications require a thorough examination before a formal decision is made. In contrast, the NAD procedure is less stringent and is applicable when an applicant is uncertain if their project costs exceed the CON threshold. Certain exemptions necessitate written approval from DHEC, while others specify if such approval is not required. For any scenario involving a CON, NAD, or exemption needing written approval, DHEC issues a formal decision, which can be subject to a contested case proceeding. However, since DHEC had no obligation to issue a staff decision in this situation, Piedmont is not entitled to a contested case hearing before the ALC. Consequently, the Court of Appeals incorrectly determined that a staff decision by DHEC warranted a contested case hearing and remanded for further proceedings. This ruling is reversed. Additionally, Bennett Thompson of CHS acknowledged receipt of a written exemption from DHEC for a medical building on December 19, 2007. An affidavit from CPN's Senior Vice President indicated that the CON Act was deemed inapplicable to an urgent care center because it was operated by a licensed private practitioner, which did not require a written exemption. Piedmont's challenge to DHEC's decision was based on alleged violations of specific South Carolina codes and regulations related to CON requirements. The Court of Appeals noted that DHEC had decided to exempt the Center from review, referencing correspondence indicating such decisions.

DHEC's letter, dated October 26, 2007, declined a final review conference and included a reference to section 44-1-60(F). The court agreed with DHEC that a December 19, 2007 letter from CHS to DHEC, cited by the Court of Appeals as evidence of a staff decision, pertains to a separate matter involving an exemption for a medical office building construction and does not relate to the urgent care center opening two years later. This letter was not a formal decision by DHEC. The court also found no basis for the Court of Appeals' conclusion that a staff decision regarding the urgent care center was established by a February 13, 2009 letter from DHEC declining a review conference.

Piedmont argued that DHEC's failure to conduct a timely review conference constituted a final agency decision subject to a contested case hearing, based on section 44-1-60(F). However, the court noted that DHEC's reference to this statute in its letter did not equate to a staff decision. There was no original department decision that could have become final under the statute. Additionally, DHEC's assertion that a phone conversation with staff did not count as a formal decision reaffirmed that no required determinations were made regarding licenses or permits. 

Piedmont claimed DHEC's positions were contradictory, arguing that the affidavit from DHEC's CON Director indicated a decision to exempt the urgent care center from CON requirements. The court, however, found no inconsistency, explaining that no formal, written decision was necessary for the exemption under the relevant statutes and regulations. Piedmont's primary contention is its challenge to CPN's exemption status under the CON process as a licensed private practitioner’s office.

Under the CON Act, an exemption does not necessitate a formal written determination or approval from DHEC. Piedmont argues that the absence of a written exemption prevents oversight of DHEC’s decisions. DHEC contends that allowing Piedmont to pursue a contested case would overwhelm the agency with numerous cases regarding routine decisions not intended for CON review. The statutes and regulations delineate distinct procedural paths: CON applications require thorough examination and formal decisions, while the NAD procedure is for applicants uncertain about project costs relative to CON thresholds. Some exemptions mandate written approval from DHEC, explicitly stated in the exemption, while others do not. For any scenario involving a CON, NAD, or written exemption approval, a formal DHEC decision is required, which permits a contested case proceeding. Since DHEC had no legal duty to issue a staff decision in this instance, Piedmont was not entitled to a contested case hearing. Consequently, the Court of Appeals was incorrect in asserting that Piedmont established a staff decision subject to a contested case hearing, leading to a reversal of their ruling. Additionally, a letter from Bennett Thompson acknowledged DHEC's written exemption for a medical building, while CPN determined the CON Act was inapplicable to an urgent care center without seeking a formal exemption. Piedmont challenges DHEC’s decision based on violations of specific South Carolina codes related to CON requirements and the necessity for formal determination requests when applicability questions arise.

The construction of an urgent care center by CHS is not subject to the provisions of 61-15.104. Piedmont alleges that this decision violates due process rights under both the South Carolina and U.S. Constitutions, claiming the staff's decision was arbitrary, capricious, and an abuse of discretion. CPN's motion seeks dismissal due to lack of jurisdiction, arguing there was no DHEC decision to contest, and alternatively requests summary judgment, asserting the urgent care center qualifies for an exemption from CON requirements as a private physician’s office. The urgent care center is identified in the Appendix as “Carolinas Healthcare Urgent Care Center-Fort Mill” and “Carolinas Medical Center-Fort Mill Urgent Care.” Piedmont contends CHS sold its stake in the medical office building, after which CPN leased the space from HR of Carolinas, L.L.C. An affidavit from DHEC's CON Director, Beverly Brandt, outlines that "urgent care center" is undefined in the CON Act and that the ownership identity of the physician’s office does not affect exemption eligibility, as long as it operates as a physician’s office. The ALC raised concerns about the absence of a written DHEC decision at the contested case hearing, but did not address it extensively. However, the ALC's ruling on the merits implies it found sufficient jurisdiction. Amendments to some APA statutes post-proceeding do not impact the case's outcome. Under South Carolina Constitution Art. I, § 22, no individual may be bound by a decision of an administrative agency affecting private rights without due notice and an opportunity to be heard. References are made to the CON Act and its definitions of health care facilities, hospitals, and affected persons, indicating that a CON is mandatory for constructing or establishing new health care facilities.

Section 44-7-160(6) mandates a Certificate of Need (CON) for acquiring medical equipment for diagnosis or treatment if project costs exceed a specified regulatory amount. Specifically, Section 102(l)(f) eliminates exemptions for such acquisitions over $600,000. CPN did not seek approval from DHEC, mistakenly believing it was unnecessary, which precludes it from establishing grounds for a reviewable decision in a contested case. The Administrative Law Court (ALC) lacked jurisdiction for this review but did not err in reasoning. The General Assembly did not categorize "urgent care centers" as "health care facilities," and the center in question does not qualify as a hospital under the CON Act, as it does not provide overnight medical and surgical services. The Court cannot unilaterally redefine "urgent care centers" within the statutory framework. Additionally, treating physicians' offices owned by hospitals differently from independent ones would impose an inappropriate judicial limitation on legislative intent and undermine the private business model intended by the General Assembly. The only restrictions on private physician's offices are those explicitly set by the General Assembly and DHEC, which cannot be altered by Piedmont.