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St. Dominic-Jackson Memorial Hospital and Mississippi Baptist Medical Center v. Mississippi State Department of Health

October 08, 1998

ST. DOMINIC-JACKSON MEMORIAL HOSPITAL AND MISSISSIPPI BAPTIST MEDICAL CENTER
v.
MISSISSIPPI STATE DEPARTMENT OF HEALTH AND METHODIST MEDICAL CENTER, INC.



The opinion of the court was delivered by: Prather, Chief Justice,

DATE OF JUDGMENT: Decmeber 8, 1994

TRIAL JUDGE: HON. PATRICIA WISE

COURT FROM WHICH APPEALED: HINDS COUNTY CHANCERY COURT

NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES

MOTION FOR REHEARING FILED:

MANDATE ISSUED:

EN BANC.

STATEMENT OF THE CASE

¶1. On November 17, 1992, Methodist Medical Center (hereinafter "MMC") filed a Certificate of Need Application (CON) with the Mississippi State Department of Health (hereinafter "the Department") to establish what it called a Primary Care Center (also referred to as the "North Campus") in northeast Jackson. MMC's CON application was followed by public hearings requested by St. Dominic-Jackson Memorial hospital (hereinafter St. Dominic), Mississippi Baptist Medical Center (hereinafter MBMC), and Woman's Hospital, all of which opposed MMC's application.*fn1

¶2. During the first CON hearing, the Department conducted a review of MMC's application and determined that the CON should be granted. The Staff of the Health Planning Division of the Department subsequently issued a seventeen page report recommending approval. Thereafter, an eight-day hearing was held with regard to MMC's CON application. At the Conclusion of the hearing, the hearing officer endorsed the proposal and recommended that the CON application be granted, subject to MMC agreeing to minimum conditions relating to indigent and medicare care. State Health Officer, Dr. F. E. Thompson, then reviewed the entire record and concurred in the Staff's and hearing officer's recommendation by approving MMC's application by Final Order dated December 16, 1993. The Final Order was appealed by the opponents to the Chancery Court of Hinds County.

¶3. Chancellor Patricia Wise reviewed the appellate record and concluded that she was uncertain about the Department's determination on two questions. Chancellor Wise was not sure whether the record adequately reflected the Department's determination that the project constituted a relocation rather than a new facility, and whether the proposed MMC north campus project was needed. Therefore, Chancellor Wise remanded the case to the Department for another hearing to determine: (1) "whether the project was a relocation or the establishment of a new entity; (2) once that determination is made, whether or not the project is needed, as need is determined pursuant to the applicable service specific requirements of the State Health Plan and/or the relevant General Review Considerations of the Certificate of Need Manual."

¶4. Upon remand to the Department, the State Health Officer conducted a second public hearing on the matter, following which he granted MMC's CON application once again. Aggrieved by the second ruling as well, opponents appealed again to the Hinds County Chancery Court presided over by Chancellor Wise. Chancellor Wise again reviewed the record and the second findings of the Department. Chancellor Wise concluded that the granting of the CON was not an abuse of discretion, and she accordingly affirmed the decision via a thirty-two page Memorandum Opinion and Order.

¶5. Aggrieved by the chancellor's affirmance, opponents perfected their appeal and request review of the following issues:

"I. CAN A PROPOSED NEW HOSPITAL BE DESIGNATED A RELOCATION WHEN NOTHING OF SUBSTANCE, i.e., NO BEDS, NO SERVICES, NO EQUIPMENT AND NO STAFF IS BEING RELOCATED? "II. CAN THE DESIGNATION OF A PROJECT AS A "RELOCATION" ELIMINATE THE STATUTORY REQUIREMENT OF PROOF OF NEED FOR THE PROJECT? "III. IS THERE SUBSTANTIAL OBJECTIVE EVIDENCE IN THE RECORD OF NEED FOR A NEW HOSPITAL IN JACKSON?"

¶6. This Court finds the points of error to be closely related and we will accordingly address them collectively.

¶7. Concerned with the overbuilding of hospitals caused by the federal Hill-Burton Act, Congress in 1974 passed the National Health Care Planning Resource Development Act. The Act required the states to adopt Certificate of Need statutes in order to prevent the unnecessary duplication of health care facilities. Under the CON laws, a new hospital or major capital expenditure cannot commence without filing an application and proving need.

¶8. In Mississippi, the Department is charged with reviewing applications for Certificates of Need, in accordance with the health care policies and priorities of this State. In an effort to have uniformity in its decisions, the legislature promulgated by statute that these policies be set forth annually in the State Health Plan. Miss. Code Ann. § 41-7-173(s) (Supp. 1998). The 1992 State Health Plan at page I-1-2 lists the following general certificate of need policies:

"General Certificate of Need Policies: The general purposes of health planning in Mississippi are to: (1)Improve the health of Mississippi residents; (2)Increase the accessability, acceptability, continuity, and quality of health services; (3)Prevent unnecessary duplication of health resources; and (4)Provide some cost containment."

In the present case, the opponents appeal the decision of the Department, through the ruling of the Health Officer, approving the CON application of MMC for the 64 bed North Campus project. The Health Officer found the project to constitute a "relocation" rather than the building of a new hospital, and he accordingly applied a much less stringent standard for determining whether the project was needed. Based on this lessened standard, the Health Officer determined that the relocation was "advantageous," and he accordingly granted the CON. ¶9. It must first be acknowledged that this Court's standard of review in the present case is quite limited. As stated in Mississippi State Department of Health v. Southwest Mississippi Regional Medical Center, 580 So. 2d 1238, 1239 (Miss. 1991):

"This is a proceeding for judicial review of administrative action, and it is important that we understand and accept what this fact implies. The Legislature has directed that an S[tate] H[earing] O[fficer]'s CON order be subject to judicial review, but that it ... "shall not be vacated or set aside, either in whole or in part, except for errors of law, unless the Court finds that the order ... is not supported by substantial evidence, is contrary to the manifest weight of the evidence, is in excess of the statutory authority or jurisdiction of the ... Department ..., or violates any vested constitutional rights of any part involved in the appeal. Miss. Code Ann. § 41-7-201(4) (Supp.1990). "This is nothing more than a statutory restatement of familiar limitations upon the scope of judicial review of administrative agency decisions." Magnolia Hospital v. Mississippi State Department of Health, 559 So.2d 1042, 1044 (Miss.1990).

See also Mississippi State Dep't of Health v. Mississippi Baptist Med. Ctr., 663 So. 2d 563, 573 (Miss. 1995). The decision of the hearing officer and State Health Officer is afforded great deference upon judicial review by this Court, even though we review the decision of the chancellor. Mississippi State Dep't of Health v. Southwest Mississippi Reg'l Med. Ctr., 580 So. 2d 1238, 1240 (Miss. 1991).

¶10. In the present case, the Chancellor initially found the ruling of the Health Officer in approving the North Campus project to be arbitrary and capricious. The Chancellor was particularly skeptical of language in the Health Officer's original ruling expressing the view that, in proposing the North Campus project, MMC was primarily interested in entering the lucrative northeast Jackson market. The Chancellor wrote that:

"The Court finds that the Methodist Medical Center Application was not reviewed in accordance with the statutory requirement that there be substantial compliance with the projection of need contained in the State Health Plan in the following comment by the State Health Officer: "We are accepting the argument of the opponents to this Application that MMC is primarily interested in increasing its market share and getting into a market of affluent population in the Northeast Jackson/South Madison County area." The Court finds this statement is antithetical to a Conclusion that there is true need for this project. A primary purpose of increasing market share does not rise to the level of substantial evidence of need. "The Court notes the State Health Officer's Conclusion that by imposing certain conditions with respect to the provision of care to certain underprivileged groups, that he believed would guarantee compliance with one of the goals of the State Health Plan, namely improvement of health care for the indigent and uninsured. The Court finds, however, that compliance with one of the goals of the State Health Plan does not relieve the Department of Health or the State Health Officer from its duty under the statute to review the project for need pursuant to any applicable service specific requirements of the State Health Plan and the relevant general considerations of the Certificate of Need Review Manual."

The Chancellor concluded that:

"With these principles in mind, the Court concludes, in accordance with the arguments advanced in the briefs of the opponents as well as their oral arguments that the decision of the State Health Officer is arbitrary and capricious. The Court specifically finds the proper statutory review procedure was not follow(ed) by the Department in the present case."

The Chancellor accordingly reversed the Health Officer's first ruling and remanded for additional hearings and findings of fact and law. On remand, the Health Officer heard testimony from two additional witnesses and submitted a written ruling approving the North Campus project once again. The opponents once again appealed. The Chancellor's ruling affirming the Department's second ruling concludes that:

"When this case first came to this Court, the Conclusions of the State Health Officer were too tainted to pass muster. After all, judicial deference has some limits. The case was remanded for another hearing. The Court has again read the record in the case, which now includes a record of the proceedings in the remand hearing. The question whether on the evidence we would have arrived at the same Conclusion is not at issue. Rather, the cardinal question is: does the Conclusion of the State Health Officer issued on August 12, 1994 have a `warrant in the record' and a `reasonable basis in law' ? The answer is yes."

This Court agrees with the Chancellor that the Health Officer's initial ruling was arbitrary and capricious but, unlike the Chancellor, we find no basis for reaching a differing Conclusion with regard to the second ruling. In the view of this Court, the Health Officer's second ruling, from which the present appeal is taken, contains serious errors which render the opinion erroneous as a matter of law.

¶11. In his second ruling, the Health Officer concluded that the proposed North Campus project constituted a "relocation" rather than the building of a new facility, and he applied a much less stringent standard of review based on this distinction. The Health Officer ruled that the project constituted a relocation mainly because of the fact that MMC, like many other area hospitals, is licensed to utilize more beds than it actually puts into operation. Specifically, MMC had a licensed capacity of 474 beds at the time of the CON application, but, due to lack of demand, only operated 280 beds. MMC thus proposed to "relocate" 64 of the 196 beds which it was licensed to utilize but did not have in actual operation. In his ruling, the Health Officer defined the term "relocation" as "the moving of authority to provide a service from one location to another," thus granting MMC's proposal the status of a relocation in spite of the fact that there was no corresponding reduction of services at MMC's main south Jackson campus.

¶12. The term "relocation" is not defined in the Health Plan nor in statute, and the Health Officer was within his authority in making his own interpretation of this term. This Court should not disturb this interpretation of the term absent a finding that this interpretation is arbitrary and capricious. This Court has held that the Department has the authority to define terms in a manner inconsistent with their generally accepted definition. Mississippi State Dep't of Health v. Golden Triangle Reg'l Med. Ctr., 603 So. 2d 854, 857 (Miss. 1992).

¶13. This Court finds the Health Officer's interpretation of the term "relocation" to be highly suspect legally. The North Campus project does not constitute a "relocation" in any ordinary sense of the word. The record is clear that a completely new building was constructed in northeast Jackson, and this building has been staffed with new medical workers and new equipment. There was no corresponding decrease in services at the main hospital in south Jackson, and, although the North Campus facility lacks an emergency room, the facility is, for all practical purposes, a new hospital.

¶14. While this Court finds the Health Officer's definition of "relocation" to be suspect, we consider it unnecessary to determine whether this definition is arbitrary and capricious. This Court concludes that the most serious error committed by the Health Officer, and the error requiring reversal, was not in defining "relocation," but rather in electing to apply a severely lessened standard of need to the North Campus project based upon a Conclusion that a relocation was taking place. Regardless of the interpretation of the term "relocation," there is nothing in statute or case law which indicates that a lessened standard of need applies to determine if a "relocation" should be approved. To the contrary, Miss. Code Ann. § 41-7-191 requires CON approval for "the relocation of a health care facility or portion thereof, or major medical equipment" as well as for capital expenditures of over one million dollars. Under the Health Officer's definition of "relocation," the North Campus project should have qualified on both grounds.

¶15. The Health Officer not only failed to apply a full scale CON review of the North Campus project; he also elected to promulgate a new standard applicable to relocations: the "any specific advantage" test. The Health Officer wrote in his ruling that:

"Since this is a relocation of already licensed bed authority within the same Hospital Service Area, the issue of need doesn't revolve around whether or not there is a need for additional beds in this Hospital Service Area, because the proposed relocation won't increase the number of licensed beds. The true issue is whether or not there is any specific advantage in having the beds at a North Campus, as opposed to leaving that authority where it is. The overwhelming weight of the substantial, credible evidence in the records and exhibits of both hearings indicates that there is such an advantage."

The MMC, like many other hospitals, has a large surplus in licensed bed capacity. Under the precedent set by the Health Officer, the MMC, or any other hospital with surplus bed capacity, would be able to build a new hospital wherever it desired under the guise of a "relocation," as long as there is "any specific advantage" to their doing so. It is difficult to conceive of a more permissive standard for the building of a major new facility such as the North Campus than the "any specific advantage" standard formulated by the Health Officer.

¶16. Apparently recognizing the lack of legal foundation for the "any specific advantage" standard, the MMC appears to assert that this language was not the standard which the Health Officer actually used in the present case:

"Opponents latch onto one phrase in the opinion - - `any specific advantage' - - and assert this as the `new subjective standard' utilized by the Department. Such myopic analysis of the State Health Officer's opinion is telling and constitutes a gross distortion of the opinion."

The "any specific advantage" standard is not, as the MMC would seem to suggest, merely surplus language in the Health Officer's ruling. This language is, to the contrary, the standard which the Health Officer expressly set forth and applied in his ruling approving the North Campus project. After setting forth the "any specific advantage" test in his ruling, the Health Officer immediately proceeded to apply the newly-created standard:

"The most persuasive information to indicate that there are advantages to relocating comes from the testimony of Dr. Robert Smith and Dr. Geraldine Chaney during the course of the second hearing. Dr. Smith and Dr. Chaney, both primary care physicians currently practicing in the area in question, and both with substantial experience practicing medicine in the population to be served by Methodist at its current location and at its proposed North Campus, were the only two physicians to testify for any party on any matter at the remand hearing. When asked if the project had the effect of increasing access to primary care and access for low income and minority populations, both physicians testified that the relocation would have a beneficial effect."

While there is no apparent basis in law for the application of the "any specific advantage" standard set forth by the Health Officer at all, this Court finds it particularly ironic that the most "persuasive" advantage mentioned by the Health Officer was the increase in services which the hospital would provide to the "low income and minority population." The record demonstrates the demographics of the northeast Jackson area in which the North Campus was built, and this Court finds it difficult to accept that increasing services to the "low income and minority population" was a significant motivating factor in the hospital's construction.

¶17. A more likely motivation for the building of the new hospital in the affluent northeast Jackson area was mentioned by the Health Officer in his first ruling:

"We are accepting the argument of the opponents to this Application that Methodist Medical Center is primarily interested in increasing its market share and getting into a market of affluent population in the northeast Jackson/south Madison County area."

This Court agrees with the Health Officer that the construction of the new hospital in northeast Jackson was motivated by a desire to expand into this affluent area of Jackson, but this Conclusion does not lend itself to confidence in the Health Officer's finding that the primary "advantage" of the new hospital is the benefits which it will provide to indigent patients.

¶18. In addition to promulgating the erroneous "any specific advantage" standard, the Health Officer made other erroneous Conclusions of law in his second ruling. The Health Officer wrote in this ruling that:

"Mississippi has recognized that cost containment is not one of its primary objectives in health planning. It is illogical to disapprove this application on the basis that it may not achieve the goal of cost containment, when it does go far in achieving the other stated goals within the State Health Plan."

In stating that "cost containment is not one of [the] primary objectives in health planning" in this State, the Health Officer is clearly in error. This Court specifically held in Mississippi State Department of Health and River Oaks Hospital, Inc. v. Mississippi Baptist Medical Center, 663 So.2d 563, 575 (Miss. 1995) that "[c]ost containment has thus been recognized by this Court as a primary purpose supporting the CON laws." This Court reversed in River Oaks, based in large part upon the negative effect which the proposed project in that case would have on cost containment. In the instant case, the Health Officer seriously misinterpreted the law in this area when he concluded that cost containment was not a primary objective in health care planning.

¶19. MMC argues that, in spite of any errors in the "any specific advantage" standard employed by the Health Officer, the fact remains that the Health Officer made detailed findings of need in a proper legal context. The language of the ruling indicates otherwise. Prior to selectively addressing 8 of the 20 CON general considerations, the Health Officer made it clear that his analysis of these factors was in the context of a relocation rather than the building of a new hospital. The Health Officer stated in his ruling that:

"The second issue which the Court directed further exploration of was the issue of whether or not there is a need for the proposed relocation. The criteria under which the need for this project must be evaluated are different for the relocation of existing capacity than it would be for the establishment of new hospital beds."

After making the above qualification, the Health Officer went on to discuss 8 of the 20 CON factors. However, after discussing these factors, the Health Officer emphasizes once again in his ruling that:

"Since this is a relocation of already licensed bed authority within the same Hospital Service Area, the issue of need doesn't revolve around whether or not there is a need for additional beds in the Hospital Service Area, because the proposed relocation won't increase the number of licensed beds."

It is thus apparent that the Health Officer's selective Discussion of some of the CON factors was, like the rest of his ruling, tainted by his erroneous Conclusion that the "issue of need does not revolve around whether or not there is a need for additional beds in the Hospital Service Area." This Conclusion by the Health Officer is the central error of the present appeal, and this Court would be doing a disservice to the citizens of this State by ignoring this error based on notions of deference to administrative agencies.

ΒΆ20. An analysis of the Health Officer's findings with regard to the 8 factors which he chose to address casts further doubt on his decision to approve MMC's application. In the view of this Court, many of the Health Officer's findings are very vague and of ...


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