- The latest court filing in a certificate-of-need dispute at the North Carolina Supreme Court criticizes state regulators and Duke Health for their legal strategy.
- Duke and the state Department of Health and Human Services challenge the state Appeals Court's 2-1 decision in September 2023. That decision affirmed a lower court's ruling granting a CON to Pinnacle Health Services.
- Pinnacle's brief, filed Friday, argues that a 2011 change in the state Administrative Procedure Act means courts should defer to an administrative law judge's decision in the case.
A medical imaging company has filed paperwork in North Carolina’s highest court criticizing state regulators and Duke Health for their legal strategy in a certificate-of-need dispute.
Duke and the state Department of Health and Human Services challenge the state Court of Appeals’ September 2023 decision to affirm a CON ruling favoring Pinnacle Health Services. Pinnacle needed the CON to operate a magnetic resonance imaging scanner in Wake Forest.
“Here, an executive agency told Pinnacle that it could not install a fixed MRI scanner in Wake Forest, even though that geographic area is currently served by zero such scanners and even though Pinnacle demonstrated that it could provide the service at lower cost than other providers,” Pinnacle’s lawyers wrote in a brief filed Friday. “The agency instead let Duke add a fixed MRI scanner to its facility in the heart of Raleigh, where Duke and other providers already have a bevy of scanners available for the public.”
“Pinnacle brought a contested case against the agency, and Duke intervened,” the brief continued. “As required by statute, an Administrative Law Judge held an evidentiary hearing over several days. The Agency could not defend its decisionmaking process. Its decision was riddled with logical fallacies and math errors. It deviated from its usual practice in several respects but could not explain why.”
”Again as required by statute, the ALJ issued a detailed ruling, including findings of fact supported by record evidence and conclusions of law that followed therefrom,” Pinnacle’a lawyers wrote.
The administrative law judge reversed the state agency decision and awarded the CON to Pinnacle. A split 2-1 Court of Appeals panel upheld that decision.
Pinnacle argues that a 2011 change in the state Administrative Procedure Act requires courts to defer to the ALJ, not the DHHS regulators. “Should the courts ignore the 2011 amendments to the Administrative Procedure Act?”
“Because of … litigation choices made by appellants, the issues squarely presented to this Court are now greatly simplified,” Pinnacle’s lawyers wrote.
The legal action started when Pinnacle challenged the state’s 2021 decision to award a CON to Duke. Pinnacle and Duke were competing for state approval of a single new MRI scanner for either Raleigh or Wake Forest.
Administrative Law Judge Melissa Owens Lassiter reversed the state’s decision in July 2022. Lassiter determined that Pinnacle should have won the CON from the state Department of Health and Human Services.
“ALJ Lassiter concluded the Agency’s decision was based on material errors in the geographic accessibility analysis that led to the erroneous decision that Duke’s application would be more effective,” wrote Judge Julee Flood for the Appeals Court majority that upheld Lassiter’s decision. “ALJ Lassiter further concluded the Agency erroneously failed to follow principles used to determine historical utilization, which would have revealed Pinnacle’s as the more effective application. Finally, ALJ Lassiter concluded Pinnacle met its burden of demonstrating the Agency’s decision substantially prejudiced its rights.”
Flood wrote that a change in state law in 2011 influenced the decision in the Pinnacle case.
“Duke implores this Court to review this case by giving deference to the Agency’s decision, and not to the Final Decision of the ALJ,” she wrote. “To support this argument, Duke cites several of this Court’s precedents that did, in fact, analyze agency decisions by giving deference to the agency’s expertise and experience in the particular field.”
“While this review would have been correct in the cases preceding the 2011 legislative session, it is not a correct application of current law,” Flood added. “What Duke failed to note, either fortuitously or conveniently, is that our legislature amended the Administrative Procedure Act (the ‘APA’) in 2011, ‘conferring upon [ALJs] the authority to render final decisions in challenges to agency actions, a power that had previously been held by the agencies themselves.’”
“Before the legislature amended the APA, an ALJ would issue a recommended decision to the respective agency, which the agency was then free to adopt in full or in part, or reject in full,” Flood explained. “Since the 2011 amendment, however, the ALJ decision is no longer a recommendation but rather is the final decision binding on parties. In reviewing an agency decision, the ALJ ‘shall decide the case based upon the preponderance of the evidence, giving due regard to the demonstrated knowledge and expertise of the agency with respect to facts and inferences within the specialized knowledge of the agency.’”
“Most of Duke’s brief is dedicated to showing why the Agency decision was correct, while failing to specifically show this Court where the ALJ’s Final Decision was incorrect,” the majority opinion explained.
Flood also critiqued the state’s arguments. “The Agency argues this Court’s role is to review whether Pinnacle met its burden of showing substantial prejudice,” she wrote. “The question before this Court, however, is ‘whether the whole record contains relevant evidence that a reasonable mind might accept as adequate to support the [ALJ’s] decision’ that Pinnacle showed it suffered substantial prejudice from the Agency’s granting of the CON to Duke.”
“Our review is not conducted with an eye towards whether Pinnacle met its burden of proof to the ALJ; instead, our review is focused on whether the ALJ’s Final Decision concluding Pinnacle did meet its burden is supported by substantial evidence,” Flood explained.
Judge Jeff Carpenter joined Flood’s opinion. Judge John Tyson dissented.
Tyson emphasized that the CON process originates with state health regulators, not an administrative law judge in the state Office of Administrative Hearings.
“The ALJ is not writing on a clean slate and is statutorily constrained and mandated to “giv[e] due regard to the demonstrated knowledge and expertise of the agency with respect to facts and inferences within the specialized knowledge of the agency,’” he wrote. “While the OAH and the ALJ, since the 2011 amendments to the statute, can issue a Final instead of a Recommended Decision, those amendments and the standards and constraints in the NCAPA do not allow an ALJ to merely disagree with and substitute its judgment for that of ‘the specialized knowledge of the agency.’”
“Here, both applicants, Pinnacle and Duke, submitted conforming applications,” Tyson added. “NC DHHS could approve only one application, as only one CON was authorized. There was necessarily going to be a winner and a loser, as in all competitive environments and contests. The Agency conducted an extensive and competitive review of the applications within its expertise to determine which was more effective for the purposes of awarding the CON.”
State regulators chose Duke, and Lassiter “was not free to substitute her personal preferences for the record, expertise, and knowledge of the agency merely to reach a contrary result,” Tyson wrote.
He specifically targeted Lassiter’s finding that the state’s decision would cost Pinnacle $400,000 in annual savings and $97,000 in additional net income. “While both may be true, as between two admittedly qualified applicants and only one CON available, those findings will be equally true no matter which party is not awarded the CON,” Tyson wrote. “It is not up to the ALJ under the statute to make that determination, but only to review ‘whether the whole record contains relevant evidence that a reasonable mind might accept as adequate to support the Agency’s conclusion[.]’”
The state Supreme Court has not scheduled Pinnacle Health Services v. NC Department of Health and Human Services for oral argument.