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      "Judges WELLS and COZORT concur."
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    "parties": [
      "LENOIR MEMORIAL HOSPITAL, INC., Petitioner v. NORTH CAROLINA DEPARTMENT OF HUMAN RESOURCES, DIVISION OF FACILITY SERVICES, CERTIFICATE OF NEED SECTION, Respondent"
    ],
    "opinions": [
      {
        "text": "LEWIS, Judge.\nLenoir Memorial Hospital, Inc. (\u201cLenoir\u201d) is a general, acute care hospital located in Kinston, North Carolina. The primary service area for Lenoir is Lenoir County, and its secondary service area includes Greene and Jones Counties. For planning purposes, these three counties are included with twenty-six others in Health Systems Area (\u201cHSA\u201d) VI by the 1987 State Medical Facilities Plan (\u201cSMFP\u201d).\nThe 1987 SMFP showed that HSA VI had a total projected need in 1989 of 354 psychiatric beds, but only 308 existing beds. However, because 42 beds had previously been approved for development within the area, the unmet need for HSA VI was defined in the 1987 SMFP to be 4 beds.\nHSA VI\n1989 Psychiatric Bed Need Determination (Excludes Chemical Dependency)\n1989 Existing Approved Adjusted (Surplus)\nBed Need Inventory Changes Inventory Deficit\n354 308 42 350 4\nIn calculating the inventory of existing psychiatric beds in HSA VI, 26 beds which had been approved for the Community Hospital of Rocky Mount (\u201cCommunity Hospital\u201d) but not yet developed were included in the \u201cAdjusted Inventory\u201d under the category of \u201cApproved Changes.\u201d Community Hospital surrendered its Certificate of Need for those beds. The Respondent then gave notice \u201cthat there are 26 additional psychiatric beds available in Eastern Carolina Health Systems Area (VI)\u201d which \u201cbrings the total needed for . . . HSA (VI) to 30 psychiatric beds.\u201d Six weeks later, the Respondent (\u201cAgency\u201d) sent out a memorandum stating that the 30 beds previously announced were not available. That memorandum stated: \u201cTo: All Interested Parties: This decision is being made in the interest of fairness to all parties who may have wanted to apply for the psychiatric beds relinquished by the Community Hospital of Rocky Mount because ample notice could not be provided to all interested parties in a timely manner for a review this year.\u201d\nAt the time of the announcement, there were no operational psychiatric beds within the three-county area served by Lenoir. In response to the Agency\u2019s first announcement, Lenoir applied for a Certificate of Need to convert 22 of its existing but currently unused beds for use as psychiatric beds. The Agency notified Lenoir that its application had been determined complete, evaluated but disapproved as \u201cnot consistent with need projections in the 1987 SMFP.\u201d The Agency did not adjust the Inventory to reflect the fact that the Certificate of Need for the development of 26 additional beds by Community Hospital had been surrendered.\nPursuant to G.S. \u00a7 131E-188(a), Lenoir appealed for a review by an Administrative Law Judge. After a hearing, the Administrative Law Judge issued a Recommended Decision which concluded, inter alia, that the Agency\u2019s decision was erroneous as a matter of law and recommended that the North Carolina Department of Human Resources (the \u201cDepartment\u201d) grant a Certificate of Need to Lenoir. Under G.S. \u00a7 131E-188(a), this Recommended Decision was subject to further review by the Department. The Department upheld the decision of the Agency to deny a Certificate of Need to Lenoir, rejecting the Administrative Law Judge\u2019s recommendation. The petitioner, Lenoir Memorial Hospital, appeals.\nThe applicable standard of judicial review of a final decision of the Department of Human Resources with respect to an application for a Certificate of Need was set out in G.S. \u00a7 \u00cd50A-51 (1983), amended and recodified at G.S. \u00a7 150B-51 (1985) (effective 1 January 1986). In re Charter Pines Hosp. v. N. C. Dep\u2019t. of Human Resources, 83 N.C. App. 161, 164-65, 349 S.E.2d 639, 642 (1986), cert. denied, 319 N.C. 105, 353 S.E.2d 106 (1987). Relying on that statute, the petitioner argues that the decision of respondent was \u201carbitrary, capricious and erroneous as a matter of law\u201d in the Agency\u2019s determination (1) that Lenoir\u2019s proposal was inconsistent with the 1987 State Medical Facilities Plan (SMFP), and (2) that Lenoir\u2019s proposal is not needed. The decision of an administrative agency may be contested on the grounds that the Agency \u201c[a]cted arbitrarily or capriciously.\u201d G.S. \u00a7 150B-23(a)(4). In State ex rel. Comm\u2019r. of Ins. v. N.C. Rate Bureau, 300 N.C. 381, 269 S.E.2d 547, reh\u2019g denied, 301 N.C. 107, 273 S.E.2d 300 (1980), \u201carbitrary and capricious\u201d is defined as:\nAgency decisions have been found arbitrary and capricious, inter alia, when such decisions are \u201cwhimsical\u201d because they indicate a lack of fair and careful consideration; when they fail to indicate \u201cany course of reasoning and the exercise of judgment,\u201d Board of Education [of Blount County] v. Phillips, 264 Ala. 603, 89 So. 2d 96 (1956). . . . \u201cThe ultimate purpose of rulemaking review is to insure \u2018reasoned decisionmaking\u2019 . . . .\u201d Daye, [North Carolina\u2019s New Administrative Procedure Act: An Interpretive Analysis, 53 N.C.LJEtev. 833 (1975)] at 922, citing Verkuil, Judicial Review of Informal Rulemaking, 60 Va.L.Rev. 185, 230 (1974).\nId. at 420, 269 S.E.2d at 573.\nI: The Agency\u2019s Determination that Lenoir\u2019s Proposal was Inconsistent with the 1987 SMFP.\nIn examining the decision by the Agency that Lenoir\u2019s proposal was inconsistent with the 1987 SMFP, petitioner addresses two assignments of error: (A.) the calculation of the number of beds made available for development under the 1987 SMFP, and (B.) the failure to consider applicable provisions of the SMFP in the Agency\u2019s review of Lenoir\u2019s proposal.\nA. The calculation of the number of beds.\nThe North Carolina Administrative Code describes the procedure for applying for a Certificate of Need in 10 N.C. Admin. Code 3R.0313(b) (Oct. 1981). The 1987 SMFP requires that the Agency have an inventory and that inventory is to be \u201ccontinuously updated\u201d and \u201c[b]ed counts are revised in the state\u2019s inventory as changes are reported and approved.\u201d\nPetitioner contends that when Community Hospital surrendered its certificate to develop 26 psychiatric beds which had been included in the \u201capproved changes\u201d and \u201cadjusted Inventory,\u201d the effect should have been to increase the number of beds available from 4 to 30. Petitioner supports its argument by (1) citing \u201cthe Agency\u2019s own statements\u201d and (2) pointing to the adjustment made by the Agency for the beds at Duplin General Hospital.\n(1) The Agency sent a letter to Community Hospital in which it requested the surrender of its 26 beds because the \u201cneed of 4 beds [as stated in the 1987 SMFP] was determined after placement in the inventory the 26 beds for which you are approved. Thus, the real need in the Service [Eastern Carolina HSA (VI)] Area is 30 beds.\u201d Also, the Agency sent an announcement to area mental health centers and to two newspapers stating the availability of 26 additional beds, \u201c[bringing] the total needed for Eastern Carolina HSA (VI) to 30 psychiatric beds\u201d after the Community Hospital beds were surrendered.\n(2) When eight acute care beds at Duplin General Hospital were converted from acute care beds to psychiatric beds, an adjustment was made decreasing the number of beds available in the HSA VI area. During the deposition of Tim Ford, the Agency employee who was the project analyst for the review of Lenoir\u2019s application, the manner of adding and subtracting beds to the Inventory during the year was discussed.\nQ. Would it be fair to say, Mr. Ford, that the Agency policy would be that, if additional beds became available during the year, they were added to the Inventory, but that, if beds were, for some reason, turned back in, as the Community Hospital did in this case, those beds were not subtracted out of the Inventory?\nA. . . . This situation never came up before, . . . but it was addressed at this time.\nQ. So, prior to this particular decision, to your knowledge, there was no agency policy on what happens when beds are returned?\nA. This is correct, not to my knowledge.\nQ. Would it be fair to say that, in accordance with the policy decision that [the Chief of the Certificate of Need Section] made in this review, that we have discussed, beds could be subtracted from the need figure that is added to the inventory, making less need, but the reverse could not happen; that is, beds would not be subtracted from the inventory and added to the need in the middle of the year?\nA. Not in the middle of the year. . . .\nThe . Respondent contends \u201cpolicy did exist for the downward adjustment of bed need, but not for the upward adjustment\u201d and that \u201cto count the returned 26 beds in the bed need would have been an application of an unpromulgated rule and thus, invalid.\u201d Lenoir argues that \u201cthe Agency\u2019s refusal to adjust the inventory [to reflect the Community Hospital beds] violates the legislative intent underlying the Certificate of Need Law.\u201d Stevenson v. City of Durham, 281 N.C. 300, 303, 188 S.E.2d 281, 283 (1972), held:\nThe primary rule of statutory construction is that the intent of the legislature controls the interpretation of a statute. In seeking to discover this intent, the courts should consider the language of the statute, the spirit of the act, and what the act seeks to accomplish. (Citations omitted.)\n\u201cThe General Assembly of North Carolina makes the following findings: . . . that citizens need assurance of economical and readily available health care.\u201d G.S. \u00a7 131E-175(2). The Agency itself stated, as discussed above, that \u201cthe real need [for psychiatric beds] in the Service [Eastern Carolina HSA (VI)] Area is 30 beds.\u201d The legislative purpose would therefore be contravened by the Agency\u2019s policy decision to refuse to reallocate those needed beds. Professor Charles Daye stated in North Carolina\u2019s New Administrative Procedure Act: An Interpretive Analysis, 53 N.C.L.Rev. 833, 922 n.410 (1975), that \u201c[a]gency decisions have been regarded as arbitrary or capricious . . . when such decisions . . . amount to a willful disregard of statutory purposes.\u201d\nThe Agency has erred in its calculation of the number of beds made available for development under the 1987 SMFP in that it should have included an adjustment for the 26 psychiatric beds which had been approved for development by Community Hospital but were subsequently abandoned.\nB. Failure to consider applicable provisions of the SMFP.\nAccording to N.C. Administrative Code 3R.1003(a)(4), policy statements are to be considered in the review process: The \u201cpolicies related to acute care facilities . . . [and] psychiatric facilities . . . are used with other criteria . . . and need projections to determine whether applications proposing additional beds and services of these types may be approved under the certificate of need program.\u201d 10 N.C. Admin. Code 3R.1003(a)(4) (Jun. 1979). Appellant contends that Lenoir\u2019s proposal \u201cmust be considered as a whole in making Certificate of Need determinations, and that such decisions cannot be made on the basis of need projections alone.\u201d\nLenoir Memorial Hospital states that there are two \u201cpolicy statements\u201d which the Agency did not adequately consider in its review of the Lenoir application. (1) Because the utilization of Lenoir\u2019s acute care beds was less than the target occupancy rates set forth in the 1987 SMFP for two consecutive years, its facility is deemed to be chronically underutilized. The 1987 SMFP includes in its official policy statements an endorsement of the \u201cconversion of underutilized existing facilities to uses for which there is a demonstrated need.\u201d Lenoir contends that its proposal to convert 22 chronically underutilized acute care beds to meet the \u201cdemonstrated need\u201d for psychiatric care in its service area precisely implements these official policy statements. (2) Lenoir provided information in its application that the expected impact of the conversion would be a net decrease in the hospital\u2019s total cost per patient day of 3.1 percent. Appellant states that the proposed conversion of beds at Lenoir which would generate additional revenues is in keeping with the intent of the Certificate of Need Law to provide \u201ceconomical. . . health care\u201d for \u201cthe citizens of this State.\u201d G.S. \u00a7 131E-175\u00cd2).\nThe Agency stated that its reason for disapproving Lenoir\u2019s proposal was based solely on Lenoir\u2019s alleged inconsistency with the numerical projection of need contained in the 1987 SMFP. Since the Agency chose to focus exclusively on the numerical projection of the need for psychiatric beds to the exclusion of other important policy considerations, we remand this case to the Agency so that it can weigh the benefits of Lenoir\u2019s proposal against any alleged detriments in making its Certificate of Need determination.\nII: The Agency\u2019s Determination that Lenoir\u2019s Proposal was Not Needed\nAppellant argues that the Agency was arbitrary, capricious and erroneous as a matter of law in deciding that Lenoir\u2019s proposal was not needed because the Agency relied exclusively on the SMFP projections. The Agency\u2019s project analyst stated on deposition that \u201cwe have to look, first of all, at independent verification of need, and we look to the State\u2019s Medical Facilities Plan for that verification of need.\u201d Since there was no \u201cindependent verification of need\u201d for psychiatric beds in HSA VI according to the' calculations done by the Agency utilizing the SMFP projections, then there was no competitive or comparative review made of Lenoir\u2019s application. Lenoir contends that the Agency\u2019s refusal to consider \u201cthe compelling evidence set forth in Lenoir\u2019s application that there is a need for 22 psychiatric beds to be located in the three-county area which it proposes to serve\u201d is reversible error.\nThe North Carolina Administrative Code states: \u201cThe correctness, adequacy, or appropriateness of criteria, plans, and standards shall not be an issue in a contested case hearing.\u201d 10 N.C. Admin. Code 3R.0420 (Oct. 1984). This regulation would prohibit consideration during appellate review of this contested decision of the adequacy of the 1987 SMFP projections. However, in 1987 the new Administrative Procedure Act allowed administrative law judges to \u201c[determine that a rule as applied in a particular case is void because ... (3) [it] is not reasonably necessary to enable the agency to perform a function assigned to it by statute or to enable or facilitate the implementation of a program or policy in aid of which the rule was adopted.\u201d G.S. \u00a7 150B-33(b)(9).\nNorth Carolina appellate courts have not yet addressed the question of whether or not consideration of the actual need may be made when the applicant for a Certificate of Need appears to violate numerical projections such as those contained in the 1987 SMFP. Other jurisdictions have addressed this question and have concluded that the state plan may not be used as the sole determinant of the need for a proposal, even though consistency with the plan was one of the statutory review criteria. Balsam v. Dep\u2019t of Health and Rehabilitative Services, 486 So.2d 1341 (Fla. Dist. Ct. App. 1986); American Medical Int\u2019l v. Charter Lake Hosp., 186 Ga. App. 204, 366 S.E.2d 795 (1988); Charter Medical of Cook County v. HCA Health Services of Midwest, 185 Ill. App. 3d 983, 542 N.E.2d 82 (1989); Martin County Nursing Center v. Medco Centers, 441 N.E.2d 964 (Ind. Ct. App. 1982); Irvington General Hosp. v. Dep\u2019t of Health, 149 N.J. Super. Ct. App. Div. 461, 374 A.2d 49 (1977); Sturman v. Ingraham, 383 N.Y.S.2d 60, 52 A.D. 2d 882 (1976); Roanoke Memorial Hospitals v. Kenley, 3 Va. App. 599, 352 S.E.2d 525 (1987). The Agency cites two cases in which the courts held that the State did not err in refusing to deviate from its regulatory bed need methodology. Health Quest Realty XII v. Dep\u2019t of Health and Rehabilitative Services, 477 So.2d 576 (Fla. Dist. Ct. App. 1985); Princeton Community Hosp. v. State Health Planning, 328 S.E.2d 164 (W.Va. 1985). In distinguishing two cases on which the appellant relies (Irvington and Sturman), the Agency states: \u201c[Tjhese cases did not address the bed need issue within the context of a statutory mandate of SHP [State Health Plan] consistency.\u201d Appellate review of this issue, however, is allowed in North Carolina under the new Administrative Procedure Act, even when a statutory mandate exists. We hold that the Certificate of Need decision is not bound solely by the bed-need formula in the 1987 SMFP and that other criteria should be considered and weighed when the Agency is making its decision concerning Lenoir Memorial Hospital\u2019s application.\nIII: Conclusion\nGenuine issues of fact exist to preclude the granting of summary judgment in favor of Lenoir. However, we hold that the Agency has acted arbitrarily and capriciously (1) in its calculation of the number of beds made available for development under the 1987 SMFP, and (2) in failing to consider the positive impact on health care costs which would result from Lenoir\u2019s proposed conversion of presently unused beds. Additionally, the Agency\u2019s refusal to consider the alleged need for 22 psychiatric beds to be located in the three-county area which Lenoir serves is reversible error.\nWe remand this case to the Agency to reconsider Lenoir\u2019s application and the recommendations of the Administrative Law Judge.\nReversed and remanded.\nJudges WELLS and COZORT concur.",
        "type": "majority",
        "author": "LEWIS, Judge."
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    "attorneys": [
      "Moore & Van Allen, by Noah H. Huffstetler, III and Margaret A. Nowell, for petitioner-appellant.",
      "Attorney General Lacy H. Thornburg, by Assistant Attorney General Meg Scott Phipps and Assistant Attorney General Richard A. Hinnant, Jr., for respondent-appellee."
    ],
    "corrections": "",
    "head_matter": "LENOIR MEMORIAL HOSPITAL, INC., Petitioner v. NORTH CAROLINA DEPARTMENT OF HUMAN RESOURCES, DIVISION OF FACILITY SERVICES, CERTIFICATE OF NEED SECTION, Respondent\nNo. 8910DHR766\n(Filed 17 April 1990)\n1. Administrative Law \u00a7 8 (NCI3d); Hospitals \u00a7 2.1 (NCI3d) \u2014 allocation of hospital beds \u2014 application denied \u2014 legislative purpose contravened\nThe North Carolina Department of Human Resources erred in its calculation of the number of beds made available for development under the 1987 State Medical Facilities Plan in that it should have included an adjustment for twenty-six psychiatric beds which had been approved for development but subsequently abandoned. The legislative purpose stated in N.C.G.S. \u00a7 131E-175(2) would be contravened by the policy decision to refuse to reallocate those needed beds.\nAm Jur 2d, Administrative Law \u00a7 553.\n2. Hospitals \u00a7 2.1 (NCI3d)\u2014 allocation of hospital beds \u2014 focus on numerical projections \u2014other policy considerations excluded\nAn application for a Certificate of Need to convert twenty-two existing but unused acute care beds to psychiatric beds was remanded where the Department of Human Resources denied the proposal after focusing exclusively on the numerical projection of the need for psychiatric beds to the exclusion of other important policy considerations.\nAm Jur 2d, Administrative Law \u00a7 553.\n3. Hospitals \u00a7 2.1 (NCI3d); Administrative Law \u00a7 8 (NCI3d) \u2014 allocation of hospital beds \u2014 basis of decision\nThe Department of Human Resources erred in deciding that petitioner\u2019s proposal to convert unused acute care beds to psychiatric beds was not needed where the Department of Human Resources relied exclusively on the State Medical Facilities Plan projections. The new Administrative Procedure Act allows administrative law judges to determine that a rule as applied in a particular case is void because it is not reasonably necessary to enable the agency to perform a function assigned to it by statute or to enable or facilitate the implementation of a program or policy in aid of which the rule was adopted. The Certificate of Need decision is not bound solely by the bed-need formula in the State Medical Facilities Plan and other criteria should be considered and weighed when the Agency is making its decision concerning this application. N.C.G.S. \u00a7 150B-33(b)(9).\nAm Jur 2d, Administrative Law \u00a7 553.\nAPPEAL by petitioner from opinion filed 14 February 1989 by the North Carolina Department of Human Resources, the Division of Facility Services. Earlier, Administrative Law Judge Thomas R. West issued a Recommended Decision on 8 November 1988 in favor of the petitioner. Heard in the Court of Appeals 6 February 1990.\nMoore & Van Allen, by Noah H. Huffstetler, III and Margaret A. Nowell, for petitioner-appellant.\nAttorney General Lacy H. Thornburg, by Assistant Attorney General Meg Scott Phipps and Assistant Attorney General Richard A. Hinnant, Jr., for respondent-appellee."
  },
  "file_name": "0178-01",
  "first_page_order": 206,
  "last_page_order": 215
}
