Adventist Healthcare Midatlantic, Inc. v. Suburban Hospital, Inc.

WILNER, Judge. This is a battle over administrative procedure. Two Washington metropolitan area hospitals—Suburban Hospital and Holy Cross Hospital—filed applications with the Maryland Health Resources Planning Commission for a certificate of need (CON) to establish and operate open heart surgery (OHS) units at their respective hospitals. A third area hospi ¹⁰⁶ tal, Washington Adventist Hospital, opposed those applications.

Upon the recommendation of its Staff, the Commission summarily denied the applications on the ground that the existing State Health Plan showed an insufficient need for an additional open heart surgery unit in the Washington metropolitan area and that approval of the applications, or either of them, would therefore be inconsistent with that Plan. The Circuit Court for Baltimore City, acting on petitions for judicial review filed by Suburban and Holy Cross, reversed that decision. The court concluded that the Commission erred in rejecting the applications as a matter of law, based solely on their inconsistency with the State Health Plan. The Commission was required, it held, to consider the applications on their merits and to consider the applicants’ evidence of current need for OHS services in the Washington metropolitan area.

Washington Adventist and the Commission noted appeals from the court’s judgment, and we granted certiorari on our own initiative prior to argument in the Court of Special Appeals. We shall reverse. BACKGROUND In response to the National Health Planning and Development Act of 1974, the General Assembly created an apparatus to prepare and implement a comprehensive State Health Plan for Maryland. See S. Md. Hosp. v. Ft.

Wash. Community Hosp., 308 Md. 323 , 519 A.2d 727 (1987). That apparatus has changed over the years; it is now centered principally in the Commission and operates in accordance "with Maryland Code, §§ 19-101 through 19-123 of the Health-General Article, and the regulations adopted pursuant to § 19-107 of that Article (Repl.Vol.1996). The basic goal of the Legislature, expressed in § 19-102(a), was “to promote the development of a health care system that provides, for all citizens, financial and geographic access to quality health care at a reasonable cost.” To meet that goal, the Legislature created the Commission and charged it, among other things, with (1) developing, adopting, and periodi ¹⁰⁷ cally updating a comprehensive State Health Plan, and (2) assisting in the implementation of that plan, in part through the legislatively-established CON program.

Section 19-114(a) requires the Commission to adopt a State Health Plan at least every five years and to include within that plan, among other things, (1) the identification of unmet needs, excess services, and minimum access criteria, (2) an assessment of the financial resources required and available for the health care system, and (3) “[t]he methodologies, standards, and criteria for certificate of need review.” Section 19-114(c) directs that “[a]nnually or upon petition by any person, the Commission shall review the State health plan and publish any changes in the plan that the Commission considers necessary....” Section 19-114(e) requires the Commission to include in the plan standards and policies that relate to the CON program. Those standards must address “the availability, accessibility, cost, and quality of health care,” and are to be “reviewed and revised periodically to reflect new developments in health planning, delivery, and technology.” Id. The CON program is authorized and governed by §§ 19-115 through 19-121 and the regulations adopted by the Commission pursuant to § 19-115(c). Essentially, a CON is required before a person may develop, operate, expand, change, or invest capital in health care facilities or services, including an OHS service. § 19-115.

Section 19—118(c)(1) requires that all decisions of the Commission on an application for a CON, except in emergency situations posing a threat to public health, “shall be consistent with the State health plan and the standards for review established by the Commission.” Although the Commission is given the non-delegable duty to act on CON applications, it is authorized by § 19-118(d) to delegate to a committee of the Commission the responsibility for reviewing an application, holding a hearing on it, and making a recommendation to the Commission. The Commission may approve, approve with conditions, or deny the CON application on the basis of the committee’s recommendation and the whole record before the Commission. Section 19-118(f) provides that, if a party or interested person requests an evidentiary ¹⁰⁸ hearing with respect to a CON application, the Commission or its committee “shall hold the hearing in accordance with the contested case procedures of the Administrative Procedure Act.” The Commission has adopted a State Health Plan in the form of regulations found in COMAR §§ 10.24.07—17. The plan for OHS cardiac surgery and therapeutic catheterization services is incorporated by reference in § 10.24.17.

The Commission has also adopted regulations governing the CON procedure. Each January and July, the Commission publishes in the Maryland Register a schedule for conducting comparative and standard reviews of CON applications for designated services, by health service area. The schedule states the status of applicable need forecasts found in the State Health Plan and the dates for the receipt of letters of intent and applications. COMAR § 10.24.01.08 D. Persons desiring to apply for a CON first submit a letter of intent that must contain a brief description of the project, the quantity and types of beds or health services to be affected, and the jurisdictions in which the services will be provided.

COMAR § 10.24.01.07 C. Upon receipt of a letter of intent, the Commission staff meets with the proposed applicant to discuss, among other things, Commission procedures for reviewing the application and any State Health Plan requirements that may affect the project. COMAR § 10.24.01.07 E. Within 180 days after filing the letter of intent, the person may file a formal application. After Staff review for technical compliance, the application is docketed. COMAR § 10.24.01.08 G sets forth substantive criteria for review of an application.

Subsection G. (3) provides, in relevant part, that “[ajpplications for Certificate of Need shall be evaluated according to all relevant State Health Plan standards, policies, and criteria” and that “[f]or purposes of evaluating an application under this subsection, the Commission shall consider the applicable need analysis in the State Health Plan.” In furtherance of that requirement, COMAR § 10.24.01.10 C provides that, at any time after docketing an application, the Staff may move for summary decision to deny ¹⁰⁹ an application “if the proposed project is inconsistent with one or more standards of the State Health Plan that make the project unapprovable.” As noted, the State Health Plan is, itself, in the form of regulations. The part dealing with OHS services, applicable in this case, became effective October, 1990. It was based on 1988 data, projected through the “target year” of 1993 “to account for the effect of preventive measures, advances in medicine and surgery, and other factors that might impact the need for cardiac surgery.” The OHS plan was supplemented in January, 1996, although the supplement dealt only with exemptions for certain research projects and did not alter the standards, methodologies, or criteria applicable to OHS projects.

Section .07 of the plan (COMAR 10.24.17.07) sets forth a methodology, in both descriptive and mathematical form, for determining the projected need for adult cardiac surgery in the four health service areas of the State. For the Washington metropolitan area, consisting of Washington, D.C., and Calvert, Charles, Montgomery, Prince George’s, and St. Mary’s counties, the plan, using that methodology, showed a projected need for 1993 of 3,497 adult cardiac surgeries and an existing capacity within six hospitals in that area to perform 3,407 of those surgeries, producing a net projected unfilled need of 90. Those figures were set forth in an Appendix to the plan. COMAR 10.24.17 Appendix 3, Table 6.

The plan stated that the need projections calculated by using that methodology “are those applied by the Commission in its Certificate of Need decisions,” that no update of need projections would take place before September, 1992, and that “[published need projections remain in effect until the Commission publishes updated projections.” COMAR 10.24.17.07 E. The plan also contained certain CON “Approval Policies,” among which were: “(1) Identification of Need for Cardiac Surgery Programs. Maximum need for cardiac surgery programs is identified using the need projection methodology in Regulation .07 of ¹¹⁰ this Chapter and is found in the Appendix to this Chapter or in subsequent updates published in the Maryland Register. (2) Minimum Net Need Identified. Net need for cardiac surgery projected in a Regional Service Area is no less than 200 open heart surgery cases for an adult program.... ” (Emphasis added.) Because, for purposes of CON approval, net need was defined as a minimum of 200 cases annually and the projected deficiency in the Washington metropolitan area was only 90 cases, the plan would not allow another OHS program in that area.

On July 21, 1995, the Commission published its 1996 schedule for receiving and reviewing CON applications for various services, including OHS services for all areas of the State. For OHS services, two schedules were published. The first called for letters of intent to be filed by April 1, 1996, with an application deadline of June 7, 1996; the second called for letters of intent by September 9, 1996, with an application deadline of November 15, 1996. See 22 Md. Reg. 1181 .

The notice made clear that the burden of proving that an application meets the criteria for review rested with the applicant, and that: “These review schedules are not solicitations by the Commission for Certificate of Need applications. The schedules do not indicate that the development of the services subject to Certificate of Need review are needed, or that Certificate of Need applications submitted for the services described will be approved by the Commission. The schedules merely provide an opportunity for applications to be submitted on a regularly scheduled basis.” The schedule pertaining to OHS services stated further that “[t]he State Health Plan projected need for Open Heart Surgery through 1993. In the absence of new need projections, the burden of proof that the services are needed rests with the applicant.” ¹¹¹ Suburban and Holy Cross Hospitals had been interested in creating an OHS service for some time and had, on previous occasions, filed letters of intent with the Commission.

When informed, in 1994, that a revision of the OHS chapter of the plan was not contemplated that year, they elected not to proceed with an application at that time. Following the July, 1995 notice, however, letters of intent were filed by three hospitals Suburban, Holy Cross, and Southern Maryland Hospital Center. Washington Adventist Hospital intervened as an interested party. At a pre-application conference held on April 19, discussion was held on the problem presented by the fact that the existing plan (1) showed no need, under the Commission’s approval policies, for additional OHS service in the Washington metropolitan area, but (2) was based on data and a target year that were out of date.

On May 17, 1996, William Dethlefs, the Commission’s Director of Resource Development, wrote to the parties confirming those discussions. Mr. Dethlefs noted, by way of preface, that “important policy decisions, including need projections, should not be made in the context of a certificate of need review” and pointed out the COMAR provision that published need projections remain in effect until updated projections were published. He suggested two alternative approaches. The first, which he termed a “fast-track” approach, called for applying more recent data to the existing need projection methodology in order to generate new need projections, which could then be published in the Maryland Register as a statement of policy.

That process, he estimated, could be completed within 60 days. The second approach was to undertake a comprehensive revision of the OHS chapter of the plan through a formal planning process, which could take up to nine months to complete. Dethlefs said that he preferred the latter: “In the eight years since the cardiac surgery and therapeutic catheterization chapter was written, a number of important technological and structural changes have occurred that impact on these services. For example, therapeutic catheterization and other medical interventions have come ¹¹² into their own.

Operative techniques on the horizon hold promise of revascularization surgery through laparoscopic surgery, and without the need for pump-oxygenators or extensive post-operative care. Changes in reimbursement methods and the emergence of managed care are impacting on how cardiac disease is created. For these reasons, we believe it is important to undertake a complete and thorough analysis of this plan chapter, including an examination of its need methodology.” Notwithstanding his preference for the comprehensive review, which he said he was recommending to the Commission, Mr. Dethlefs apparently intended to proceed on both tracks. Noting that the letters of intent received in April were valid for 180 days and that, using the “fast-track” approach, a revised schedule could be published in the summer, he waived the current deadline of June 7 for the filing of applications and advised that, if revised projections based on applying more recent data to the current methodology showed a projection of unmet need, the Commission could accept applications as a follow-up to the letters of intent already filed.

On July 19, 1996, the Commission published new schedules for CON review, updating and replacing the schedules published in July, 1995. See 23 Md. Reg. 1141 . The 1996 schedule called for letters of intent to be filed by June 6, 1997, and stated, as the reason for the delay: “The State Health Plan projected need for Open Heart Surgery through 1993. The need projections are currently being updated to bring to bear on the consideration of current Letters of Intent.

The next scheduled date for receipt of Letters of Intent is intended to follow the publication of a new State Health Plan chapter governing approval of new Open Heart Surgery services, so these schedules may be revised in the Maryland Register if a new Plan chapter is not available before the first listed date of submission.” The 1996 notice seems somewhat inconsistent with the fast-track alternative suggested by Mr. Dethlefs, which apparently was still being pursued. On June 6, 1996, the Executive ¹¹³ Director of the Commission set a new due date for filing applications of 30 days following the completion of revised estimates, but not later than September 27,1996. On September 16, 1996, Mr. Dethlefs informed the parties that the Commission Staff had analyzed available data on current and expected future utilization patterns of OHS services and that “[tjhis analysis does not indicate sufficient need for a review of certificate of need applications for new open heart surgery services in Montgomery County and in the Southern Maryland region at this time.” He therefore recommended against filing applications in accordance with the September 27 deadline but proposed that they be submitted in accordance with the 1996 published review schedule. That request was repeated at a meeting between the prospective applicants and the staff, held on September 23, at which the importance of obtaining data from hospitals in the District of Columbia was discussed. 1 Southern Maryland Hospital acceded to that request.

It informed the Commission that it would work with the Commission in its review and revision of the need projections and would not file a CON application at that time. Suburban Hospital initially took the same approach, but when advised that Holy Cross intended to file a CON application, it filed one as well. The applications themselves are not in the record before us. From the description of them given by the Commission Staff, it appears that Holy Cross was proposing two dedicated OHS operating rooms and a five-bed cardiovascular intensive care unit.

The total estimated cost of the project would be $4,221,000, including $3,186,000 in capital costs. Suburban’s application proposed a joint program with Johns Hopkins Hospital. Two dedicated operating rooms and a four-bed intensive care unit would be required. The cost of that project was estimated to be $1,805,020, including $1,555,-020 in capital costs. ¹¹⁴ Acting pursuant to COMAR 10.24.01.10 C, supra, the Staff, after preliminary review, moved for a summary decision disapproving the applications on the ground that they were inconsistent with the projected need in the State Health Plan and were therefore unapprovable.

The Staffs argument was simple and direct: the existing plan showed a net need of only 90 cases and, by Commission regulation (Approval Policy 2, codified in COMAR 10.24.17.05 C(2)), a minimum net need of 200 adult cases must be identified to support the establishment of a new program. The Staff called attention to the regulation providing that published need projections remain in effect until the Commission publishes updated projections, which it had not done. Apart from that legal argument, the Staff attempted to respond in its motion to the point made by the hospitals in their applications that the existing projections were out of date and inaccurate and that, if current data were used, the projection would show an unmet need in the year 2000 of 1,105 cases. According to the Staff, the data used by the hospitals to arrive at that projection included pediatric, not just adult, cases and employed a definition of open heart surgery that differed from the definition used in the State Health Plan.

The Staff iterated in its motion that, although the need projection in the existing plan was for a target year of 1993, actual utilization during 1994 and 1995 was below the projected use for 1993 and that, as a result, “it cannot be argued that the adopted SHP projection is no longer valid.... ” It contended that trends in the Washington metropolitan area had stabilized, that Prince George’s Hospital, which began its OHS program in 1990, had not yet performed more than 100 cases annually, and that two hospitals in Alexandria and Arlington, Virginia (which were not in the service area under the Maryland State Health Plan but nonetheless drew patients from that area) had begun OHS programs in 1988-89 and had not achieved 200 cases annually. The Staff observed that cardiac surgery procedures were among the most expensive cases, that the Commission’s policy had been to “develop a small ¹¹⁵ number of high volume programs to ensure optimal patient care,” and that it had “avoided the proliferation of unneeded, low volume programs by approving additional capacity only when projected need, as established through the planning process in the SHP ... is sufficient to ensure that a new program can meet acceptable utilization levels.” More important than its challenge to the hospitals’ data and calculations, according to the Staff, was the fact that the hospitals had not reviewed the underlying assumptions of the methodology used in preparing their estimates. The motion noted that, in updating need projections, the Commission had historically reviewed the underlying assumptions of the methodology employed based on current utilization patterns, advancements in medical practice, refinements in available data, and changes in financing. The methodology used in the current plan, it observed by way of example, relied on rates for coronary artery bypass grafts to project total OHS cases because there were at the time no separate codes for percutaneous transluminal coronary angioplasty.

Those codes had since been refined, making it unnecessary to rely on bypass cases to predict total OHS cases. Both hospitals responded to the Staffs motion for summary decision. Suburban argued (1) that, despite its inclusion of an express statement to the contrary, the July, 1995 published schedule essentially invited CON applications and thereby authorized the applicants to submit their own need projections, (2) that the Commission could not legitimately rely on the provision retaining in place published projections until superseded by new projections because in several other cases it had ignored that provision and granted CON applications in the face of existing projections of no additional need, (3) that it was inappropriate for the Staff to “prevent review of these applications simply because it failed to update the need projections or revise the need methodology on a timely basis,” and (4) that the motion raised significant issues of fact, which required an evidentiary hearing to resolve. Holy Cross also contended that summary decision was inappropriate, for much the same reasons given by Suburban. ¹¹⁶ It too regarded the July, 1995 published schedule as an invitation to submit CON applications, implying thereby a determination that such applications would be considered on their merits.

A summary decision, it argued, was permissible only if the existing plan “absolutely preclude^]” approval of the application, and that was not the case. It regarded the need projections in the plan as outdated and therefore inapplicable, and thus construed the plan as containing no valid need projection. In that circumstance, it argued, the Commission had to consider the need projection proposed by Holy Cross on the merits. It joined Suburban’s argument that, in light of having granted several CON’s for home health care services, notwithstanding that the State Health Plan showed no need for such additional services, the Commission was not entitled to rely on the notion that outdated need projections remained valid until updated by new published projections.

That principle, it urged, applied only to current projections, not outdated ones. Washington Adventist, as an interested party, supported the Staffs motion. Though recognizing that the OHS portion of the State Health Plan needed to be reevaluated and updated, it maintained that the health planning function should not be exercised through the CON procedure. It pointed out that a comparative review would have State-wide ramifications—that reviews of CON applications in other areas would “inevitably be governed by the principles established through the outcome of the CON review and not the health planning process.” Suburban and Holy Cross, it complained, sought to use the CON process “to force the Commission to adopt as policy for the State the position that the current SHP methodology for OHS services must be updated without reevaluation or reexamination, or the publication of updated need projections,” which is directly contrary to the Commission’s regulations.

In accordance with its authorized practice, the Commission referred the applications to a “reviewer”—a Commission member