Full state Appeals Court asked to rehear recent CON case

NC Court Of Appeals Building Sign Source: Jacob Emmons, Carolina Journal

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  • A hospital involved in a certificate-of-need legal dispute is asking the full 15-member North Carolina Court of Appeals to rehear a case tied to a planned emergency department in Buncombe County.
  • On the other side of the argument, a competitor hospital and state regulators urge the Appeals Court to publish its original opinion. Publication would give the decision greater weight as a legal precedent.
  • The dispute involves state regulators' decision to hold no public hearings in CON cases during the COVID-19 pandemic. Critics have asked courts to throw out CONs awarded without the required hearing.

A hospital involved in a certificate-of-need legal dispute is asking the full North Carolina Court of Appeals to rehear a case involving a proposed emergency department in Buncombe County.

But a competitor and the state Department of Health and Human Services are seeking a different result. They have asked the Appeals Court to publish its March 19 decision in the case. Publication would give the decision authority as a precedent for future cases.

The now-unpublished decision in Fletcher Hospital v. NC DHHS determined that state regulators should have held a public hearing before awarding a CON to Mission Health in 2022 for the emergency department in Candler. Not holding a hearing amounted to “agency error” in legal terms.

But that error by itself did not lead to “substantial prejudice” against a Mission competitor, AdventHealth. Appellate judges ruled that AdventHealth would have to prove that the absence of a public hearing caused a legal violation that would force state regulators to revoke the CON.

Healthcare providers in North Carolina must secure a CON from state government before they can build new facilities, add hospital beds, or purchase major pieces of medical equipment.

In seeking a rare “en banc” from the full 15-member Appeals Court, AdventHealth’s lawyers argued Tuesday that the Fletcher decision “potentially decides the substantial prejudice issue on two other cases pending before this Court that are either at different stages of the proceedings and/or involve different parties, without the parties having the opportunity to exhaust their arguments on appeal.”

The Appeals Court panel also “misinterpreted and misapplied the petitioner’s burden” in case, according to AdventHealth. The March 19 decision “conflicts with prior decisions in this Court and overrules this Court’s long-standing precedent concerning a petitioner’s burden to establish substantial prejudice under circumstances where the Agency fails to follow the certificate of need law,” according to the petition.

On the other side of the argument, lawyers for Mission Health and DHHS have urged the Appeals Court to stand by its decision. Publication of the unpublished opinion would give the case greater weight as legal precedent in North Carolina.

“[T]his opinion clearly articulates the burden of proof imposed upon a petitioner by [state law},” DHHS lawyers wrote. “Specifically, the opinion affirms that a petitioner must independently establish substantial prejudice in addition to any alleged Agency error, which continues to be one of the most litigated issues in CON cases. The publishing of this opinion would provide further clarity and guidance to CON litigants and the Administrative Law Judges who hear and decide CON cases.”

“In addition, this opinion provides clarity on the issue that Agency error cannot establish substantial prejudice as a matter of law,” DHHS lawyers wrote.

An administrative law judge ruled in favor of AdventHealth in 2023. The Appeals Court overturned that decision in March.  

“Here, AdventHealth satisfied its burden of proof in showing Agency error, but it failed to forecast particularized evidence of substantial prejudice,” wrote Judge Fred Gore. “Yet, our determination in this case should not be misconstrued. AdventHealth may ultimately satisfy its burden; it may not.”

Regulators with the state Department of Health and Human Services held no CON public hearings during more than two years of the COVID-19 pandemic.

“[W]e recognize the COVID-19 pandemic presented a wide range of unique and complex challenges, but neither the Agency nor Mission directs this Court to any statute, rule, regulation, or case law that would authorize the Agency to implement its own procedures as a substitute to the public hearing provision, or any other provision mandated by statute,” Gore wrote.

“Respondents may argue that strict compliance with § 131E-185(a1)(2) would have been irresponsible under the circumstances, have undermined the Agency’s statutory duties, or that the public hearing provision in § 131E-185(a1)(2) should yield to broader public policy concerns,” Gore added. “Yet, ‘we must decline’ respondents’ ‘invitation to engage in public policy considerations here in light of the unambiguous and specific language chosen by the General Assembly in drafting and enacting …’ the CON law.”

“[W]e determine that the Agency was required to hold a public hearing under the facts in this case, and its failure to do so was error,” Gore wrote.

Yet AdventHealth must do more to make its case. “[W]e agree with respondents’ position that substantial prejudice must be proven; it is not presumed to exist per se on this record,” Gore wrote. “A mere showing that the Agency’s action was erroneous ‘does not absolve the petitioner of its duty to separately establish the existence of prejudice, i.e., to show how the action caused it to suffer substantial prejudice[ ]’ to satisfy each element of its claim for relief.”

Gore and fellow Judges Jefferson Griffin and Michael Stading held oral arguments in the case in February. Much of the hearing focused on whether the CON public hearing 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?” 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 played no direct role in the Mission-AdventHealth dispute. But the Appeals Court allowed UNC Health lawyer Noah Huffstetler to take part in 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?” Griffin asked.

“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 2023, 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.

UNC Health explained in a friend-of-the-court brief 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.