Appeals Court to decide whether lack of public hearing could kill a CON

Judges Jefferson Griffin, Fred Gore, and Michael Stading hear oral arguments at the North Carolina Court of Appeals. (Image from North Carolina Court of Appeals YouTube channel)

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  • The state Court of Appeals will decide in the months ahead whether the absence of a public hearing jeopardizes a certificate of need state regulators awarded for an emergency department in Buncombe County.
  • AdventHealth Hendersonville opposes the CON awarded to competitor Mission Health. An administrative law judge ruled in favor of AdventHealth last year.
  • The case could affect other CONs awarded from 2020 to 2022. State regulators conducted no public hearings during that time because of the COVID-19 pandemic.

The outcome of a legal dispute over a new hospital emergency department in Buncombe County could depend on a state law requiring a public hearing. The state Appeals Court will decide in the months ahead whether the absence of a public hearing jeopardizes the certificate of need for a new Mission Health emergency department in Candler.

Healthcare providers must secure a government-mandated CON before building new facilities, adding hospital beds, or purchasing major pieces of medical equipment for use in North Carolina.

A three-judge appellate panel heard an hour of oral arguments Tuesday in the case Fletcher Hospital v. NC Department of Health and Human Services. Fletcher Hospital, also known as AdventHealth Hendersonville, challenges a CON awarded to Mission Health in 2022.

AdventHealth argues that state law required state regulators to hold a public hearing before granting the CON. Much of Tuesday’s court hearing focused on whether that state law requirement is mandatory.

“It is the agency’s position that it is discretionary, not mandatory,” argued Derek Hunter, the state special deputy attorney general representing DHHS.

State health officials canceled all in-person CON public hearings during the COVID-19 pandemic, Hunter explained. That decision was consistent with state officials’ role in protecting health. “It is undisputed that the agency must — even in light of the CON process — maintain the public’s health,” Hunter argued.

“To be clear on that issue, you’re using the overall public policy approach” from other health care laws, “not citing anything from within [the CON law] that would grant that discretion, correct?” Judge Fred Gore asked.

“That is correct. There is nothing specific in [the CON law] that would grant that discretion,” Hunter replied.

Mission Health’s lawyer, Iain Stauffer, noted that the absence of a public hearing did not block  AdventHealth from challenging the CON. “There is no prejudice to AdventHealth from the lack of a public hearing in this review,” Stauffer argued. “AdventHealth was fully aware of the Mission application. It submitted written comments in opposition to the Mission application, which were considered by the agency.”

UNC Health plays no role in the Mission-AdventHealth dispute. But the Appeals Court allowed UNC Health lawyer Noah Huffstetler to take part in the oral arguments.

“It … strains credulity to believe that the General Assembly — in the midst of a worldwide pandemic, an unprecedented healthcare emergency — would have wanted a needed healthcare facility, an emergency room, not to be built because of an inconsequential failure by the agency,” Huffstetler argued.

On the other side of the argument, attorney Frank Kirschbaum made AdventHealth’s argument that Mission Health and DHHS cannot get around clear requirements in state law.

“They are essentially saying that the agency is free not to follow the rule of law as long as they take away some of your rights, but not all,” Kirschbaum argued.

“Assume it is error not to have a public hearing. What’s the substantial prejudice?” asked Judge Jefferson Griffin.

“The error is the failure to have that hearing,” Kirschbaum responded. “The taking away of the right that is granted to all of the public and to AdventHealth is substantial prejudice.”

In March, state Administrative Law Judge David Sutton reversed the state’s CON decision. Sutton cited the lack of a public hearing during the CON process.

A state law — NC Gen. Stat. § 131E-185(a1)(2) — calls on DHHS to “ensure that a public hearing is conducted at a place within the appropriate service area” in a CON case if an affected party requests a hearing or if the CON involves a project of at least $5 million. Mission’s new emergency department is estimated to cost more than $14.7 million.

Mission filed a brief in October 2023 explaining how Sutton’s ruling could impact other CON cases.

“It is undisputed that during the period from February of 2020 through September of 2022, the Agency did not hold public hearings with respect to any CON applications because of the COVID pandemic and out of concern for public safety,” Mission’s lawyers wrote. “During that time period, the Agency conducted eighty-six (86) CON application reviews which, pursuant to the provisions of N.C. Gen. Stat. § 131E-185(a)(2), would have required a public hearing because they were competitive reviews or involved projects costing more than five million dollars ($5,000,000.00).”

“Those eighty-six (86) reviews involved a total of one hundred and fifty-two (152) applicants and proposed projects,” the Mission brief continued. “The vast majority of those reviews resulted in at least one CON application being approved, including Mission’s. The projects involved ranged from new hospitals to the acquisition of major medical equipment such as fixed cath labs, MRIs, PET Scanners, linear accelerators, new diagnostic centers, new facilities such as hospices and home health agencies, new hospitals, and a wide range of other services and facilities.”

Affected providers included “not only Mission, but Pardee Hospital; UNC Hospitals (with multiple projects approved including a new hospital in Durham County and new diagnostic centers); Duke University Health System; Novant Health; Cone Health; Wake Forest Baptist Hospital; Atrium Health; and others.”

Mission reminded the court of public health conditions in April 2020, when state law called for a public hearing on the Candler emergency department CON. “North Carolina and the entire United States were under an ongoing federal and state declared public health emergency due to the COVID pandemic,” according to the brief. “While conditions related to COVID were generally improving at that time, the pandemic was far from over.”

The challenge to state regulators’ decision argued that the “failure to hold a public hearing regarding the Mission Application during the COVID pandemic was Agency error which substantially prejudiced” AdventHealth, according to Mission’s brief.

Sutton’s ruling “was based entirely on his conclusion that the Agency’s failure to hold a public hearing in connection with its review of the Mission … Application was a violation of N.C. Gen. Stat. § 131E-185(a)(2) that substantially prejudiced” AdventHealth’s rights.

Mission is not alone in urging the state Appeals Court to reverse the administrative law judge’s decision. Lawyers for UNC Health filed paperwork last fall seeking permission to file a friend-of-the-court brief.

“UNC submits this brief because of its strong interest in ensuring that a technicality like the one relied upon by the Administrative Law Judge in rendering the decision below, as well as other petitioners dissatisfied with an Agency decision, does not impede the expansion of healthcare services that would benefit North Carolinians,” according to motion from UNC Health. “As a frequent participant in the Certificate of Need process, UNC understands that although public hearings are part of the CON process, they rarely result in public interest or feedback on an application, and typically just offer health care providers a chance to tout their own application and/or critique their competitors.”

“During the COVID-19 pandemic, UNC (and every other CON applicant and interested party) participated in interim public hearing procedures established by the Agency without prejudice to their ability to offer the typical critiques provided to the Agency at a public hearing,” UNC Health argued. “Rather than addressing the MH Mission Hospital, LLP CON application on its merits, the decision by the ALJ below advances a theory that threatens to undo the important work of the Agency and unfairly punish applicants who were subject to the same interim public hearing procedures as all interested parties.”

UNC Health explained how the “theory” advanced by Sutton’s decision could affect its own projects. “This same theory has been advanced against UNC in a contested case hearing in which Duke University Health System, Inc. challenged the Agency’s approval of UNC’s application to expand its already-approved … new community hospital in Durham County, which is also pending appeal in this Court.”

“UNC offers the perspective of another frequent participant in the CON process that would have its growth hampered based on an alleged error that it had no part in causing,” the motion added.

UNC Health urged the Appeals Court to rule that “the public hearing provision should not preclude the issuance of a CON; in fact, whether it is directory … or mandatory, the result here should be issuance of the requested CON. The public hearing provision is merely directory because it does not provide for any consequence in the event it is not followed.”

UNC Health argued Sutton’s decision “runs roughshod” over a “well-established” burden AdventHealth faced to show that the CON decision involved both agency error and substantial prejudice.

There is no deadline for Gore, Griffin, and Judge Michael Stading to issue a ruling.