Doctors'hosp. of Prince George's Cty. v. Md. Health Resources Planning Com'n

ADKINS, Judge. Appellant Doctors’ Hospital of Prince George’s County (Doctors’ Hospital) applied to appellee Maryland Health Resources Planning Commission (Commission) for a certificate of need (CON) to permit an increase in its bed capacity. The Commission denied the application, an action affirmed when Doctors’ Hospital appealed to the Circuit Court for Baltimore City. 1 Doctors’ Hospital now appeals to us raising, as we see it, four issues: 1. Whether the Commission’s decision is supported by substantial evidence; 2.

Whether the Commission imposed an illegal moratorium on the issuance of CONs and miscounted bed need; 3. Whether the Commission arbitrarily discriminated against Doctors’ Hospital; and ⁶⁶² 4. Whether the Commission engaged in “review by ambush.” 2 We affirm the judgment of the trial court. Before explaining our reasons for doing so, we summarize the regulatory and factual context within which the issues are presented.

Regulatory and Factual Background In an attempt to stem the rising tide of health care costs across the country, Congress passed the National Health Planning and Resources Development Act of 1974, now codified at 42 U.S.C. § 300k et seq. (1982). This law provided financial incentives for each state to implement its own health plan and fashion the necessary administrative and regulatory machinery. The Act encouraged states to look at the problems of costly maldistribution and excess supply of certain health services and facilities, including hospital beds.

See 42 U.S.C. § 300k-2(a)(12), (b)(1) (1982) and 42 C.F.R. § 121.201 (1985). Maryland’s statutory effort at health care regulation can be found in Md. Health-General Code Ann. § 19-101 et seq. (1982 & Cum.Supp.1985). This legislation provides for a systematic, statewide approach to the planning and development of new health care facilities.

As a general rule, a health care facility (including a hospital) that desires to increase its bed capacity must first obtain a CON from the Commission. Health-General Art. § 19-115(h). The Commission must make certain that its decisions on CON applications are consistent with the State health plan as provided for by § 19-114, and with the COMAR regulation outlining the Commission’s own review criteria. 3 See § 19-118(c)(l). Also relevant to this case is ⁶⁶³ the Southern Maryland Health Systems Plan, 4 which the Commission was obligated to consider.

COMAR 10.24.01.-06B(2)(a). The Commission found that Doctors’ Hospital’s CON application was consistent with all pertinent standards in the State health plan that were not included in the Southern Maryland Health Systems Plan. Thus the field of conflict is narrowed to two documents: the health systems plan and the COMAR list of criteria. At the times pertinent to this case, the applicable Southern Maryland Health Systems Plan identified “a bed need projection for Prince George’s County of 37 additional medical/ surgical beds for 1987.” It also provided that “additional beds should be certified in Prince George’s County only after ... the above analysis has been completed.” The “analysis” referred to was a study to determine “where any additional beds [in Prince George’s County] could be located.” The study had not been completed when the Commission denied the instant application, although it had been finished by the time this case reached the circuit court.

In addition to the 37-bed projection for the Southern Maryland service area, referred to as the availability standard, the Southern Maryland Health Systems Plan contained other area-wide standards with which a CON applicant had to prove itself compatible. Two pertained to the accessibility of medical/surgical units to the majority of the area’s population (the accessibility standard) and the overall occupancy rate of units in the area (the cost standard). The Commission found that appellant had failed to meet the availability standard and that the CON project was not necessary for the Southern Maryland area to satisfy the accessibility and cost standards. ⁶⁶⁴ The second set of regulations pertinent to this case is that which the Commission promulgated in accordance with § 19-115(c) and which is found at COMAR 10.24.01.06B(2). Listed are some 13 criteria that must be considered before a CON is granted.

The Commission found that appellant’s application was inconsistent with seven. These concerned the relationship of the project to the applicable health systems plan; the need for the proposed health service of the population to be served, including the elderly (need criterion); the availability of less costly or more effective alternative methods of providing the proposed health services; the immediate and long-term financial feasibility of the proposal (feasibility criterion); the proposal’s relationship to the existing health care system; the relationship to ancillary or support services; and the proposal’s contribution in meeting the health needs of the medically underserved. 5 ⁶⁶⁵ Appellant’s failures to meet the health systems plan standards and the COMAR criteria collectively brought into dispute the four issues before us and a host of subsidiary questions that will be discussed in their proper places. The procedural history of this case can be sketched as follows: On September 30, 1982, the Commission received Doctors’ Hospital’s application for a CON for 100 additional beds. The application was formally docketed on December 6, 1982. 6 At various subsequent times the number of beds requested was reduced to 63, then to 53, and then (it seems) to 37; that, at least, is how the Commission viewed the matter.

It appears that the Commission wished to “batch” Doctors’ Hospital’s application with one or more other requests for additional hospital beds in Prince George’s County, so it could review all of the applications together. See § 19-118(e). For whatever reasons, that procedure was not acceptable to Doctors’ Hospital. The Commission had not acted on the application within the period prescribed by law 7 and the Hospital sought relief in the Circuit Court for ⁶⁶⁶ Baltimore City. 8 On July 14, 1983, that court ordered the Commission “to act without delay” on the application.

Pursuant to this judicial mandate, the Commission staff on August 5, 1983, filed a report in the form of “Proposed Findings of Fact, Conclusions of Law and Order.” Consistent with all information the Commission had received from outside sources, and with the staffs view of the State health plan and the relevant criteria, the report recommended denial of a CON. Doctors’ Hospital submitted a lengthy response to these recommendations, and addressed the Commission briefly at a public meeting, although it did not request the full evidentiary hearing authorized by § 19-118(f). Its efforts were to no avail; on September 27, 1983, the Commission adopted findings of fact and conclusions of law to the effect that Doctors’ Hospital had failed to meet the requirements in seven different areas. It passed an order rejecting the application. 9 As we have seen, the Circuit Court for Baltimore City (Hammerman, J.) affirmed this decision.

Scope of Review Our power to review the decision of the Commission, a State executive branch agency, emanates from the Administrative Procedure Act, which in pertinent part provides: In a proceeding under this section, the court may: (1) remand the case for further proceedings; (2) affirm the decision of the agency; or (3) reverse or modify the decision if any substantial right of the petitioner may have been prejudiced because a finding, conclusion, or decision of the agency: ⁶⁶⁷ (i) is unconstitutional; (ii) exceeds the statutory authority or jurisdiction of the agency; (iii) results from an unlawful procedure; (iv) is affected by any other error of law; (v) is unsupported by competent, material, and substantial evidence in light of the entire record as submitted; or (vi) is arbitrary or capricious. Code, State Govt. Article, § 10-215(g) (1984). The assignments of error in these cases concern both factual findings and legal determinations of the Commission.

Our scope of review shifts accordingly. When deciding whether any factual finding is in violation of § 10-215(g), Maryland courts have used the substantial evidence test. See Prince George’s Hospital v. Health Services Cost Review Commission, 302 Md. 193 , 486 A.2d 744 (1985) and Secretary of Health and Mental Hygiene v. Crowder, 43 Md.App. 276 , 405 A.2d 279 , cert. denied, 286 Md. 745 (1979). Under this test, our judicial review is narrow in scope and the decision of the administrative agency carries a presumption of validity.

We must examine all inferences and factual conclusions drawn by the agency to make sure that they reasonably follow from facts. We must also examine all facts found by an agency to insure that there was evidence to support them. We may not, however, reweigh the evidence or reject any reasonable or supportable inference, fact or factual conclusion merely because conflicting or questionable evidence exists. See Crowder, 43 Md.App. at 280-82 , 405 A.2d 279 .

This, then, is the scope of review to be used for Issue 1. Much broader, however, is the scope of review to be used for Issues 2, 3, and 4. No factual findings made by the Commission are disputed here; rather the legal principles that it espoused come under challenge. Conclusions of law made by an agency are not presumptively favored, as illegal acts are not based on substantial evidence and must ⁶⁶⁸ be corrected.

See Snowden v. Baltimore, 224 Md. 443 , 168 A.2d 390 (1961). The appropriate standard of review is “substitution of judgment.” See Comptroller of the Treasury v. Shell Oil Co., 65 Md.App. 252 , 500 A.2d 315, 318 (1985) and cases cited therein (review of Tax Court decision). If we have a view as to the applicable legal principle that is different from that of the Commission and the trial judge, we are duty-bound to make the substitution. The Issues 1.

Substantial Evidence We are cognizant of these well-established principles concerning scope of review and with them in mind proceed to examine the hospital’s “substantiality” arguments. a. The “Accessibility” and “Cost” Standards of the Health Systems Plan On two of them we need not pause long. The Commission concedes that the hospital met the “accessibility” and the “cost” standards. 10 This concession, however, does not mandate reversal. As the hospital has admitted, its burden was to demonstrate compliance with all the standards and criteria.

If, therefore, there is substantial evidence to support any one of the Commission’s findings, we must affirm. Cf. Bulluck v. Pelham Wood Apartments, 283 Md. 505 , 390 A.2d 1119 (1978) (where inconsistent inferences from same evidence can be drawn, it is for agency to draw the inferences). As we shall see, the Commission’s order readily passes this test. b.

The Need Criterion: COMAR 10.24.01.06(B)(2)(c) The need criterion states that the Commission should consider “[t]he need for the proposed health services of the population served or to be served, including an analysis of present and future utilization and demographic patterns ____” This is what the Commission considered. Doc ⁶⁶⁹ tors’ Hospital objects that the Commission paid too much attention to present utilization factors. It argues that the Commission’s role merely is to lay the groundwork for determining future need — in this case 37 beds — and then drop out of the analysis once that number is fixed. This reading, however, is not supported by the plain words of the regulation; nothing in COMAR directs how much or how little weight the Commission must give to present utilization.

Further, under the hospital’s interpretation, the words “present ... utilization” become surplusage because such an analysis perforce would be incorporated in an analysis of future utilization. Moreover, the Commission is responsible for promoting an entire health care system in which the efficiency and appropriateness of existing facilities must be considered. See Code, Health-General Art. § 19-102 and COMAR 10.24.-01.06F(l)(a)(i). Among the conclusions in the health systems plan applicable to Doctors’ Hospital’s CON application was that “[B]eds should not be located in areas with underutilized or unused hospital capacity.” Thus, the Commission exercised proper discretion in weighing present utilization factors, including Doctors’ high length of stay rate and the present unused capacity in other facilities in the Southern Maryland area.

It found that four of them in 1982 operated at below the 85% medical/surgical occupancy rate set as the minimal standard by the health systems plan. These facts and others made the proposed expansion unjustified in the mind of the Commission. A more attractive alternative, it stated, would be to increase the utilization of the other facilities. The Commission also sifted through other data, including some concerning the service needs of Prince George’s County residents over 65.

If we understand appellant correctly, it argues that the mere fact that it is located in an area with a high elderly population is sufficient to satisfy this component of the need criterion. But as the Commission pointed out in its decision, Doctors’ Hospital serves a much smaller ⁶⁷⁰ percentage of patient days generated by elderly residents than do surrounding facilities, and the proposed additional beds are not geared specifically to the needs of the elderly. Moreover, there was evidence before the Commission showing that Prince George’s General Hospital could better serve the elderly. In sum, the Commission properly weighed both present and future utilization factors in its need analysis.

Substantial evidence supported its conclusion that the need criterion was not satisfied. c. The Less Costly Alternatives and Relationship to Existing Health Care Systems Criteria: COMAR 10.24.01.06B(2)(d) and (f) Appellant’s arguments regarding these two criteria are merely reprises of the debate concerning need. Doctors’ Hospital avers that because the health systems plan declares a 37-bed need in Prince George’s County, Doctors’ automatically meets these two criteria. This analysis obscures the fact that COMAR 10.24.01.06B(2)(d) and (f) are criteria independent of the need criterion.

The interpretation placed on (d) and (f) by Doctors’ Hospital would render them superfluous. Another jurisdiction has held that a showing of need for a number of beds is insufficient in itself for issuance of a CON; a showing that the proposal is consonant with the State health plan is also necessary. Princeton Community Hospital v. State Health Planning, 328 S.E.2d 164 (W.Va.1985); cf. Irvington General Hospital v. Department of Health, 149 N.J. Super. 461 , 374 A.2d 49 (1977) (CON request for additional beds cannot properly be rejected solely on the basis of bed need statistics). The Commission’s finding that increasing utilization at existing facilities would be a less costly alternative was based on a staff report and comments at a public meeting.

The Commission learned that two neighbors of Doctors’ Hospital, the 152-bed Greater Laurel Beltsville Hospital and ⁶⁷¹ the 340-bed Prince George’s General Hospital had the low occupancy rates of 60% and 78% respectively. The daily room rates of both these facilities, the Commission found, were about $50 below that of Doctors’ Hospital. In addition, the Commission noted that Doctors’ Hospital failed to provide data to demonstrate its future relationship to the health care delivery system. There is substantial evidence to support the Commission’s finding that the criterion was not satisfied. d.

The Financial Feasibility Criterion: COMAR 10.24.01.06B(2)(e) We will elsewhere dispose of Doctors’ Hospital’s argument that the Commission’s review of this criterion was flawed by “review by ambush” and that it engaged in disparate treatment of appellant in this regard. The only remaining contention appellant raises in this category is that there was no substantial evidence to support the Commission’s rejection of appellant’s vague offer to provide investor funding if necessary because appellant’s statement in that regard was “uncontradicted.” Doctors’ Hospital argues that the Commission was required by law to believe the unrebutted statement by Doctors’ Hospital that if necessary, individual investors would raise the cash necessary to finance the project. Doctors’ Hospital cites Blackmer v. Commissioner of Internal Revenue, 70 F.2d 255 (2d Cir.1934) to support its assertion, but Blackmer states that unchallenged testimony may not be arbitrarily disregarded so far as it is factual. A fact is a “thing done; an action performed or an incident transpiring; an event or circumstance, an actual occurrence.” Bonner v. State, 43 Md.App. 518, 524 , 406 A.2d 646 (1979) (quoting Black’s Law Dictionary, 531 (5th ed. 1979)).

The statement that investors will contribute to the project, of course, is a projection. Projections are not factual. Doctors’ Hospital’s projection is not rebutted, but statements foretelling the future can rarely be rebutted conclusively. ⁶⁷² A better rule for our purposes as to the probative value of this unchallenged testimony is found in 5 K. Davis, Administrative Law Treatise, § 29:26 at 456 (2d ed.1984). Surveying the current law, Davis concludes: “Uncontradicted evidence may be rejected for adequate reasons that are sufficiently explained.” The Commission pointed out that Doctors’ assertion was unsupported by descriptions of the availability or the costs of funds provided through the hypothetical investors.

Judge Hammerman also noted that the identity of the investors and the sources of their funds were left open to question. We believe that in this situation the bald projection stated by Doctors’ Hospital could reasonably be seen as lacking credibility. It need not be deemed conclusive. Moreover, the Commission staff reviewed Doctors’ Hospital’s financial statements and operating projections.

That review produced evidence sufficient to support the conclusion that the proposed equity funding by savings accrued through increases in patient rates would result in unreasonably high costs to the entire health care system. e. The Ancillary Services Criterion: COMAR 10.24.01.06B(2)(h) Code, State Government Article 10-208(h) states that an agency “may use its experience, technical competence, and specialized knowledge in the evaluation of evidence.” On this issue, the agency used those skills to find that Doctors’ Hospital’s application was deficient in describing both its proposed volume changes in ancillary services and the effect its project would have upon community ancillary services. A review of Doctors’ application and its response to the Commission’s staff report shows that the Commission’s decision on this issue was a reasonable one. Doctors’ Hospital’s discussion of these topics consists of hardly more than a few conclusory statements.

For example, Doctors’ Hospital declared that although its requested 53-bed addition would require more space and more personnel, the space allotment for ancillary services would not increase “because we are dealing in volume changes rather than in ⁶⁷³ changes which require additional space such as new equipment or new services.” But exactly how these increases would be absorbed without increasing storage space was not explained. Additionally, nowhere did Doctors’ discuss the impact upon support services in the surrounding community. The cursory treatment Doctors’ Hospital gave this criterion is substantial evidence that supports the Commission. f. The Medically Underserved Criterion: COMAR 10.24.01.06B(2)(m) This criterion addresses the question of how well the proposed project will meet the health related needs of groups who historically have been medically underserved, including poor people, minority groups and the handicapped.

Doctors’ Hospital’s argument that it never has refused admission on account of inability to pay may be a necessary factor in satisfying this requirement, but we think the Commission was correct in finding that this alone was insufficient. The State health plan and COMAR 10.24.01.-06B(2)(m) strongly imply that health care facilities are expected by the State to assume substantial responsibility for their communities. An affirmative duty to act is involved here. This means that the Commission was obliged to inquire not only about the number of medically underserved being refused treatment at Doctors’ Hospital but also about how many of them were being treated there.

The question, then, before the Commission was this: What effort was Doctors’ Hospital making in meeting the needs of the underserved in its community, and would that effort be strengthened by its proposed project? Medicaid, charity and bad debt statistics are valuable data for answering this question, especially when they are compared with those from comparable facilities. In such a comparison, Doctors’ Hospital fares poorly. For example, even though during the time pertinent to this case, Southern Maryland Hospital Center treated only those Medicaid patients that it deemed could not safely be ⁶⁷⁴ transported to other hospitals (a policy criticized by the Commission during Southern Maryland’s own CON review), its Medicaid patient revenue percentage was more • than twice as much as that for Doctors’ Hospital.

Additionally, Southern Maryland’s bad debt allowance was 4.3% and 3.8% of total patient services revenues in 1981 and 1982 respectively, while the figures for Doctors’ Hospital were 2.2% and 2.9%. Moreover, the Commission heard a Bowie Health Center board member testify that nearly twice as many indigent, charity, and bad debt patients were served at Prince George’s General Hospital and Medical Center than at Doctors’ Hospital. A reasonable inference from these facts would be that while Doctors’ Hospital does not refuse admission to any indigent patient, it does not have to do so — physicians achieve the desired result by steering indigents away from Doctors’ Hospital in the first place and directing them to other facilities. Deliberating on this information, the Commission concluded that Doctors’ Hospital has been laggard in doing its share to meet the needs of the medically underserved and that its proposed project would do nothing to change this behavior.

This conclusion was supported by substantial evidence. 2. Illegal Moratorium Having dealt with the objections of Doctors’ Hospital collected under the evidentiary issue, we now turn our attention to the issues dealing with the Commission’s conclusions of law, keeping in mind that we proceed under the substitution of judgment standard of review. a. The Availability Standard of the Health Systems Plan As we have noted, one component of the State health plan considered by the Commission was the Southern Maryland Health Systems Plan. It was a provision of that plan that identified a need for 37 additional beds in Prince George’s County by 1987.

As we have also observed, the State ⁶⁷⁵ health plan (incorporating the local health systems plan) contemplated that no additional beds be authorized in Prince George’s County until the completion of a study (the subarea study) pertaining to the appropriate location of the additional beds. Location is an important factor. As the Commission pointed out: The [health systems plan] standard concerning availability of inpatient medical/surgical services states that inpatient medical/surgical services should be available in sufficient but not excessive quantities based on projected medical/surgical utilization and minimum occupancy rates [emphasis supplied]. The underlying concept here is that