Administrative – Administrative Law Judge’s Determination – Certificate of Need Award

An ALJ’s decision is final and binding on parties absent reversal or modification through judicial review.

We affirmed the Court of Appeals’ judgment in part and reversed in part.

In 2021, a State Medical Facilities Plan identified a need for one additional fixed magnetic resonance imaging (MRI) scanner in Wake County. Plaintiffs filed separate Certificate of Need (CON) applications with the North Carolina Department of Health and Human Services’ (the Agency) Division of Health Service Regulation, Healthcare Planning and Certificate of Need Section for the lone fixed MRI scanner. Duke University Health System Inc. sought to place the scanner in its diagnostic center in Raleigh, while Plaintiff Pinnacle Health Services of North Carolina LLC proposed to place the scanner in a diagnostic center in Wake Forest. Because the Agency could only approve one application under the distribution formula, the Agency conducted a competitive review of both applications. Pinnacle’s application was denied, and the Agency awarded the MRI scanner to Duke.

Pinnacle filed a contested case hearing in the Office of Administrative Hearings alleging that the decision substantially prejudiced its rights and that the Agency exceeded its authority and jurisdiction, acted erroneously, failed to follow proper procedures, acted arbitrarily and capriciously, and failed to act as required by rule or law. Following a hearing, the administrative law judge agreed, reversing the Agency’s decision, and awarding the CON to Pinnacle. Duke and the Agency appealed, arguing that the ALJ erred in reversing the Agency’s comparative analysis review and that Pinnacle failed to demonstrate substantial prejudice. The Court of Appeals affirmed the decision of the ALJ, holding appellants failed to challenge the ALJ’s findings of fact which precluded review on the merits.

On appeal, appellants argued, among other things, that both the Court of Appeals and the ALJ incorrectly applied the standard of review and that appellants properly challenged the ALJ’s findings of fact regarding the comparative analysis reversal and substantial prejudice determination. Appellants contended the ALJ erroneously substituted her judgment for that of the Agency and that the ALJ and the majority below should have reviewed the Agency’s decision under the whole record test. Deference, they contended, should be afforded to the Agency, not the ALJ’s final decision. This argument, however, ignores the plain language of legislative amendments to the APA in 2011. Specifically, appellants overlook that denied CON applicants are entitled to a contested case hearing under Article 3 of the APA which vests final decision-making authority with the ALJ.

The party seeking judicial review has the burden to show that the ALJ’s decision was not reasonably supported by substantial record evidence by challenging specific findings of fact. Appellants failed to make such a showing regarding the ALJ’s comparative analysis reversal. However, appellants properly challenged the ALJ’s findings on substantial prejudice, and we reversed the Court of Appeals on that score.

Affirmed in part, reversed in part.

Pinnacle Health Services of North Carolina LLC v. NC Department of Health and Human Services (Lawyers’ Weekly No. 010-042-25, 32 pp.) (Phil Berger Jr., J.) Appealed from Office of Administrative Hearings (Melissa Owens Lassiter, ALJ) Fox Rothschild LLP, by Marcus C. Hewitt and Elizabeth Sims Hedrick, for petitioner-appellee. Jeff Jackson, Attorney General, by Derek L. Hunter, Special Deputy Attorney General, for respondent-appellant. Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., by Iain M. Stauffer and William F. Maddrey, for respondent-intervenor-appellant. North Carolina Supreme Court