Changing Point, Inc. v. Maryland Health Resources Planning Commission

ROSALYN B. BELL, Judge. This case arises from an application for a Certificate of Need (CON) for alcohol abuse and drug abuse treatment beds. Mountain Manor East (Mountain Manor), appellee, and Mediplex of Maryland Inc. (Mediplex) submitted applications for a CON with the Maryland Health Resources Planning Commission (Commission), appellee. The Commission approved Mountain Manor’s application for a CON for a 110-bed facility. ¹⁵⁴ Changing Point, Inc., appellant, an existing treatment facility, appealed to the Circuit Court for Baltimore City.

The circuit court. affirmed the Commission’s determination that a 110-bed facility was needed. The circuit court remanded the case, however, for the Commission to take additional evidence on the separate issue of whether certain individuals had financial or managerial control over Mountain Manor and whether those individuals had engaged in fraud in the past. The Commission held hearings on this issue and again granted Mountain Manor a CON for a 110-bed facility. Changing Point appealed again to the Circuit Court for Baltimore City.

The circuit court affirmed and this appeal followed. On appeal, Changing Point raises the following issues: —Whether the Commission applied the correct State Health Plan in approving Mountain Manor’s CON. —Whether the Commission’s determination that there was a need for a 110-bed adult addiction treatment facility was supported by substantial evidence. —Whether the Commission’s findings regarding the issue remanded to it are supported by substantial evidence! —Whether the Commission admitted hearsay evidence in violation of the recent decision in Kade v. Charles H. Hickey School, 80 Md.App. 721 , 566 A.2d 148 (1989). FACTS In 1987, two applicants, Mountain Manor and Mediplex, each submitted to the Commission applications for a CON to develop an intermediate care facility for the treatment of alcoholism and drug abuse. 1 Changing Point, an existing provider of alcohol and drug abuse treatment, was granted ¹⁵⁵ status as an interested party in the review of those applications. An application for a CON must be consistent with the State Health Plan (SHP).

The purpose of the SHP is to establish an integrated system of care that “assures geographic and financial access to a range of quality health care services at a reasonable cost for all citizens.” COMAR 10.24.14.02A. Specifically, it establishes health care policy to guide the Commission’s actions and to foster specific action in the private sector. COMAR 10.24.14.02A(1). It also serves as the legal foundation for the Commission’s decisions.

The SHP contains policies, standards, and service-specific need projections that the Commission uses in reviewing CON applications. COMAR 10.24.14.02A(2). The Commission accepted pre-filed direct testimony and conducted protracted hearings on the applications. On March 14, 1989, the Commission approved Mountain Man- or’s application for a CON for a 110-bed intermediate care facility over Mediplex’s application.

Changing Point appealed to the circuit court. It contended that the Commission had violated the legally mandated health planning process. Changing Point argued that the Commission relied on an outdated SHP and an informal, unadopted draft of the SHP. 2 Changing Point also argued that the Commission’s determination that there was a need for a 110-bed facility was not supported by the evidence. Finally, Changing Point argued that the Commission erred in excluding relevant “negative evidence” about Mountain Manor, especially in the context of a comparative review process.

The circuit court affirmed the Commission’s decision in all respects except as to Changing Point’s final argument. The circuit court remanded the case for the Commission to accept and consider this “negative evidence” concerning the ¹⁵⁶ convoluted corporate ownership of Mountain Manor and allegations of fraud. 3 In the interest of clarity, we will briefly describe Mountain Manor’s corporate ownership and the allegations of fraud. Mountain Manor is wholly owned by Maryland Treatment Center, Inc. Maryland Treatment Center is wholly owned by American Health Group, Inc., which has two shareholders, Charles Nabit and the Florida Investment Group. The Florida Investment Group is a Maryland limited partnership.

One percent of this limited partnership is owned by the Potomac Investment Group as the general partner. The other 99 percent is owned by the Human Service Trust which is an irrevocable trust set up by Dr. Jacob Fishman for the benefit of his children. Additionally, one-half of the real estate upon which Mountain Manor will be built is owned by the Westport Investment Group. This investment group is owned by Charles Nabit and his father, Merwin Nabit.

During the early 1980s, Merwin Nabit and Dr. Fishman owned Cumberland Psychiatric Hospital through Horizon Health Group Inc. in North Carolina. Dr. Fishman practiced at the hospital through his professional association, Cumberland Psychiatric Associates, P.A. In 1983 and 1984, the hospital and the professional association were investigated for fraud and overbilling under the Civil Health and Medical Program for the Uniform Services (CHAMPUS). In August of 1983, a settlement agreement was signed which required the hospital to pay the government $1,250,-000. Dr. Fishman and Merwin Nabit also agreed that they would not have any interest or control, direct or indirect, in ¹⁵⁷ any medical or psychiatric facility owned by Horizon Health Group and located in North Carolina.

Dr. Fishman and Merwin Nabit then sold the hospital as required by the settlement agreement. In April of 1984, in a separate case, Dr. Fishman, individually and on behalf of his professional association, agreed to the entry of a consent order. Under this order, Dr. Fishman and his professional association agreed to pay the government $700,000. Dr. Fishman also agreed not to treat CHAMPUS patients for whom claims would be filed, and not to supervise personnel submitting claims to CHAMPUS for 10 years.

The consent order specifically stated, however, that Dr. Fishman was not precluded from being an officer, director or shareholder or from having an ownership interest in any hospital to which CHAMPUS beneficiaries might go. On remand, the Commission heard evidence regarding whether Dr. Fishman or Merwin Nabit had any direct control over Mountain Manor. It also accepted evidence regarding the CHAMPUS fraud in North Carolina. On March 15, 1990, the Commission again awarded Mountain Manor a 110-bed CON.

In the interim, however, a new SHP, limiting a CON to 50 beds, had become effective. Changing Point again appealed the award of a CON to Mountain Manor. The circuit court affirmed and Changing Point has appealed. APPLICABLE SHP Changing Point contends that the new SHP, which became effective one week prior to the Commission’s decision, should apply in this case.

It argues that an “adjudicatory body should apply the law in effect at the time of its decision.” It cites O’Donnell v. Bassler, 289 Md. 501, 508 , 425 A.2d 1003 (1981), and Courtney v. Richmond, 55 Md. App. 382, 390 , 462 A.2d 1223 (1983), for this proposition. These cases do indeed stand for that proposition. That ¹⁵⁸ proposition, however, is no longer a correct statement of the law in Maryland. We explain.

In Janda v. General Motors Corp., 237 Md. 161 , 205 A.2d 228 (1964), the Court of Appeals summarized several rules of statutory construction regarding prospective versus retroactive application of statutes. Janda, 237 Md. at 168-69 , 205 A.2d 228 . The fourth rule stated by the Court was that a “statute which affects or controls a matter still in litigation when it became law will be applied by the court reviewing the case at the time the statute takes effect although it was not yet law when the decision appealed from was rendered, even if matters or claims of substance (not constitutionally protected), as distinguished from matters procedural or those affecting the remedy are involved, unless the Legislature intended the contrary.” Janda, 237 Md. at 169 , 205 A.2d 228 . Twenty-three years later, however, in Washington Suburban Sanitary Commission v. Riverdale Heights Volunteer Fire Co., 308 Md. 556 , 520 A.2d 1319 (1987), (hereafter WSSC), the Court of Appeals reconsidered this proposition of law and stated that “[bjecause it is inconsistent with the general body of Maryland law on the subject, the fourth rule in Janda is disapproved.” WSSC, 308 Md. at 565 , 520 A.2d 1319 .

WSSC involved a claim against a fire department for negligence in responding to a fire in January of 1980. WSSC, 308 Md. at 558 , 520 A.2d 1319 . In 1983, the Legislature adopted a statute that immunized fire departments from civil liability for negligence. WSSC, 308 Md. at 557-58 , 520 A.2d 1319 .

The claim against the fire department was filed 14 months after the statute’s effective date. WSSC, 308 Md. at 558 , 520 A.2d 1319 . The Court held that the statute did not apply to tortious conduct occurring before the statute’s effective date. WSSC, 308 Md. at 558 , 520 A.2d 1319 .

The Court noted ¹⁵⁹ that ordinarily statutes are given a prospective application, unless there is a clear legislative intent to the contrary. WSSC, 308 Md. at 568 , 520 A.2d 1319 . Furthermore, the Legislature knows how to express its intent that a statute have a retrospective application. WSSC, 308 Md. at 568 , 520 A.2d 1319 .

In the instant case, because neither the language of the new SHP nor its history indicate that it should be applied retroactively, the new SHP should be applied prospectively only. Therefore, the new SHP should not apply to this application for a CON. Applying the new SHP would clearly give the SHP a retroactive effect. Even if the fourth rule in Janda controlled, Changing Point would not prevail.

That rule clearly states that the law in effect at the time of the decision applies, unless the Legislature intended to the contrary. Janda 237 Md. at 169 , 205 A.2d 228 . In the instant case, the new SHP provides that a CON will be approved only for up to 50 adult intermediate care facility beds. COMAR 10.24.14.05E(3).

This limit was apparently arrived at by using the “Bed Need Projection Methodologies” contained in COMAR 10.24.14.07. The number of intermediate care facility beds needed in the future is calculated by subtracting the existing intermediate care facility beds from the gross number of intermediate care beds needed in the area. COMAR 10.24.14.07B(7)(j). Table 3 of COMAR 10.24.14 sets forth an inventory of existing private intermediate care facility beds which includes Mountain Manor’s CON for 110 beds.

Thus, the bed need projection assumes that the Mountain Manor project would be built based on criteria different from the new SHP. It is apparent that the Commission intended Mountain Manor to be built under the criteria by which it was originally certified. The Commission’s intent clearly contradicts any presumption that the new SHP should apply in this case. ¹⁶⁰ Moreover, an agency is best able to discern its intent in promulgating a regulation. Maryland Comm’n on Human Relations v. Bethlehem Steel Corp., 295 Md. 586, 593 , 457 A.2d 1146 (1983).

Thus, an agency’s interpretation of the meaning and intent of its own regulation is entitled to deference. Maryland Comm’n, 295 Md. at 593 , 457 A.2d 1146 . In the case sub judice, the Commission’s decision not to apply the new SHP was based on its interpretation of the intent of the new regulatory structure. Giving due deference to this interpretation, we hold that the Commission applied the correct SHP. 4 Changing Point argues that to allow the Commission to apply the previous SHP would violate the Commission’s statutory authority.

Maryland Health-Gen.Code Ann. § 19-118(c)(l) (1982, 1990 Repl.Vol.), provides that “[a]ll decisions of the Commission on an application for a certificate of need ... shall be consistent with the State health plan and the standards for review established by the Commission.” Changing Point argues that the Commission’s decision in this case is not consistent with the current SHP. We disagree. Mountain Manor’s 110-bed CON was taken into account in devising that SHP. The new SHP explicitly includes Mountain Manor’s CON.

Thus, the Commission’s decision to reaffirm this award of a CON is not inconsistent with the new SHP. Changing Point further argues that this interpretation of the applicable SHP is, in essence, an advance deter ¹⁶¹ mination to approve Mountain Manor’s CON upon the conclusion of the remand. This is patently untrue. If the evidence had shown that Merwin Nabit and Dr. Fishman had financial or managerial control over Mountain Manor and that they were guilty of fraud, the application for a CON would have been denied, regardless of which SHP applied.

We find no error in the Commission’s application of the previous SHP to the case at bar. Mountain Manor argues that the remand was limited and that the Commission was constrained to comply strictly with the remand instruction. Because the remand was limited to the issues of financial and managerial control and fraud, Mountain Manor argues it would have been improper for the Commission to reevaluate the entire application in light of the new SHP. Because we hold the Commission applied the appropriate SHP, we need not address this argument.

SUBSTANTIAL EVIDENCE Changing Point argues that the Commission erroneously concluded that there was a need for 110 intermediate care facility beds in Southern Maryland. Changing Point also argues that the Commission erroneously concluded (1) that the allegations of fraud against Dr. Fishman and Merwin Nabit were irrelevant to the application and (2) that they were innocent of any wrong doing. We disagree and explain. —Scope of Review— Judicial review of the Commission’s findings of fact is limited to whether its conclusions are supported by substantial evidence. Sinai Hospital v. Maryland Health Resources Planning Comm’n, 306 Md. 472, 478 , 509 A.2d 1202 (1986). “[T]he test is a deferential one, requiring ‘restrained and disciplined judicial judgment so as not to interfere with the agency’s factual conclusions.’ ” State Administration Board of Election Laws v. Billhimer, 314 Md. 46, 58-59 , 548 A.2d 819 (1988), cert. denied, 490 U.S. ¹⁶² 1007, 109 S.Ct. 1644 , 104 L.Ed.2d 159 (1989), quoting Supervisor of Assessments of Montgomery County v. Asbury Methodist Home, 313 Md. 614, 625 , 547 A.2d 190 (1988).

An agency’s decision will be upheld if “a reasoning mind reasonably could have reached the factual conclusion the agency reached.” Bulluck v. Pelham Wood Apartments, 283 Md. 505, 512 , 390 A.2d 1119 (1978). —Finding of Need— Changing Point argues that the Commission erred when it concluded that there was a need for a 110-bed intermediate care facility. Changing Point specifically alleges that the Commission erred by relying solely on mathematical calculations while ignoring market evidence that demonstrated no need for additional beds. We disagree and explain. In its decision, the Commission noted that the Alcoholism and Alcohol Abuse State Health Plan had identified a need for 69 additional beds for alcoholism treatment in Southern Maryland.

The Commission then determined that the SHP alcoholism bed need methodology could be appropriately applied to the drug abusing population. That methodology indicated a need for 63 additional beds for drug treatment in Southern Maryland. 5 Changing Point does not challenge this need methodology. It complains that the validity of the mathematical calculations was not reflected in “market place” evidence. The Commission fully considered that point in its decision.

As the Commission explained, evidence of market place demand for services existed in the record: “[T]here is evidence of excess demand. The evidence shows that occupancy at Greater-Laurel Beltsville Hospital often exceeds its licensed capacity. Changing Point South itself has also experienced high levels of utilization for a facility in its start-up phase. And there is also ¹⁶³ anecdotal evidence.

For example, Michael Fuller, Director of the Addictions Division of the Prince George’s County Health Department, stated: 'I’ve been in this business for 18 years, and I can’t think of a time when it is as bad as it is right now — where the demand for treatment is far outpacing our ability to deliver services.’ The Washington Post, February 26, 1988, A8 (Schwermer Exhibit I).” Additionally, the Commission reviewed reports which analyzed drug and alcohol abuse in Maryland. These reports included: Trends and Patterns in Drug Abuse in Maryland: Fiscal Year 1985; The Extent of Alcohol and Drug Abuse in the State of Maryland (July 2, 1986); a Rand Corporation study titled Drug Use and Drug Programs in the Washington Metropolitan Area: An Assessment (February 1988); the Commission’s draft SHP on Alcoholism and Drug Abuse Treatment Services, November 24, 1987; and 1981/. Survey of Drug Abuse Among Maryland Adolescents — General Report. Each report provided evidence of the prevalence of the substance abuse problem in Maryland.

Of all those studies, Changing Point apparently considers the Rand Corporation study most persuasive. Changing Point asserts that the study found no need for additional residential services. 6 The Commission fully considered Changing Point’s position on the Rand Corporation study in its decision and responded: “[Changing Point] cites a passage in the report which questions residential treatment as the most cost-effective treatment. The Rand Report is a useful source of information about drug abuse problems and the use of public funds in treating the problem in the Washington area. It is not, however, a substitute for the planning and methodological determinations that must be made by this Commission in the Southern Maryland area.” ¹⁶⁴ Moreover, statistics and studies were not the only evidence the Commission relied on to find that a need for services existed.

The Commission listened to the testimony of witnesses who explained that, although the need for services was high, the demand for services could still appear low. Those witnesses testified that demand was governed by several factors. These factors include the existence of inadequate outreach programs; financial constraints to treatment which affect even the insured; and the inability of the medically