Administrative – Certificate of Need – Public Hearing

While the ALJ correctly determined the Agency erred in failing to hold a public hearing, it misapplied Hospice at Greensboro, Inc. v. N.C. Dept. of Human Resources, Division of Facility Services in determining that the error substantially prejudiced certain parties.

We affirmed the ALJ’s decision in part; reversed, vacated, and remanded in part.

Under N.C.G.S. §131E-185, the North Carolina Department of Health and Human Services, Division of Health Service Regulation, Health Care Planning and Certificate of Need Section (the Agency) must hold a public hearing when the proponent proposes to spend five million dollars or more on a proposed facility. However, a challenge to the procedure before the Agency under N.C.G.S. §150B-23 requires more than a showing of error; a petitioner must also show that substantial prejudice occurred as a result of that error. Here, where an Administrative Law Judge (ALJ) of the Office of Administrative Hearings reversed the conditional approval of a certificate of need (CON) by the Agency solely based on the reasoning that the failure to hold a public hearing constituted substantial prejudice per se and the final decision is otherwise free of error on review, we reversed and remanded the final decision.

This appeal arose from a CON application filed with the Agency in 2022 by Respondent-Intervenor-Appellant MH Mission Hospital, LLLP for the development of a freestanding emergency department in Arden, Buncombe County, conditionally approved by the Agency in 2022. Purporting to act out of concern arising from the pandemic, the Agency did not hold a public hearing pursuant to N.C.G.S. §131E-185(a1)(2), instead attempting to substitute the required public hearing with an expanded opportunity for written comments. Petitioner-Appellees AdventHealth and Pardee Hospital, two other healthcare providers in the same region as the proposed facility, filed petitions for a contested case hearing in the Office of Administrative Hearings. The ALJ affirmed the Agency on all substantive grounds but reversed the conditional approval on the basis that the Agency failed to conduct a public hearing. Advent, Pardee, Mission, and the Agency appealed.

First, we addressed whether the Agency erred in failing to hold a public hearing concerning the Mission application, whether the absence of such a hearing substantially prejudiced Advent and Pardee, and what remedy, if any, applies. Advent and Pardee did not satisfy their burden to show substantial prejudice occurred. Setting aside the procedural harm done to Advent, Pardee, and the public when the Agency failed to hold a public hearing, the ALJ did not evaluate specific evidence that would indicate whether any concrete harm came to Advent and Pardee that was not the result of generalized market competition. We reversed this portion of the final decision. As we are cognizant that our reversal of the ALJ’s holding with respect to Hospice is likely to have an impact on its overall analysis with respect to substantial prejudice, we remanded to the ALJ for further consideration of whether substantial prejudice existed on a basis other than per se substantial prejudice due to the hearing’s absence.

Next, we addressed Advent and Pardee’s contentions that the ALJ both erred in its own discovery process and in its review of the adequacy of discovery before the Agency, as well as errors in excluding purportedly relevant evidence. All these alleged errors stemmed from the same underlying argument concerning the interpretation of an Agency regulation; namely, that the Agency should have treated two CON applications by third parties in the same timeframe as subject to competitive review alongside the Mission application. While we did not foreclose the possibility that the Agency could abuse this delegation of authority, no such showing was made here. Having so held, we were also satisfied that no further error occurred, as the Agency’s adequate procedure for determining whether competitive review is warranted under 10A NCAC 14C.0202 rendered the denial of discovery and the exclusion of evidence concerning unrelated third-party applications appropriate.

While the ALJ correctly determined the Agency erred in failing to hold a public hearing, it misapplied Hospice in determining that the error substantially prejudiced Advent and Pardee. As the ALJ’s reversal of the Agency’s conditional approval of a CON to Mission was solely predicated on this legal error, we reversed the ALJ’s final decision. However, because we also do not express any opinion on whether the competition-based harm alleged by Advent and Pardee were sufficiently specific to constitute substantial prejudice, we remanded to the ALJ for further proceedings to determine whether Advent and Pardee’s allegations of prejudice were based on the mere fact of competition or a specific, concrete harm.

Affirmed in part; reversed, vacated, and remanded in part.

Henderson County Hospital Corp. v. N.C. Department of Health and Human Services, Division of Health Service Regulation, Health Care Planning & Certificate of Need Section (Lawyers’ Weekly No. 011-199-24, 30 pp.) (Hunter Murphy, J.) Appealed from the Office of Administrative Hearings (David F. Sutton, ALJ) Wyrick Robbins Yates & Ponton LLP, by Charles George, Frank S. Kirschbaum, and Trevor Presler, for petitioner-appellant; Fox Rothschild LLP, by Maureen Demarest Murray, Terrill Johnson Harris, Kip D. Nelson, and Sean Thomas Placey, for petitioner-intervenor-appellant; Attorney General Joshua H. Stein, by Special Deputy Attorney General Derek L. Hunter, for respondent-appellant; Baker, Donelson, Bearman, Caldwell & Berkowitz, a Professional Corporation, by Kenneth L. Burgess, Matthew A. Fisher, Iain M. Stauffer, and William F. Maddrey, for respondent-intervenor-appellant. North Carolina Court of Appeals