Fort Washington Community Hospital, Inc. v. Southern Maryland Hospital Center

Opinion by W. ALBERT MENCHINE, Judge, Specially Assigned. On March 11, 1983, Southern Maryland Hospital Center (Southern), a subsisting general hospital in Prince George’s County, filed an application with the State Health Resources Commission (Commission) for the issuance of a certificate of need for a proposed construction project that would add 120 beds to its existing or authorized 208 beds at a total cost of $14,825,900. Such a project required Commission approval under the provisions of Health General Article § 19-115e, h and k (1985 Cum.Supp.). The Commission on February 14, 1984, issued a “conditional” certification of need, the precise form of which will be stated infra.

An appeal to the Circuit Court for Prince George’s County, pursuant to the provisions of Health General Article § 19-121, was taken by Fort Washington Community Hospital, Inc. (Fort Washington), Greater Southeast Community Hospital (Greater Southeast) and Doctors’ Hospital of Prince George’s County (Doctors). 1 The Circuit Court for Prince George’s County entered judgment affirming the decision of the Commission. Fort Washington, Greater Southeast and Doctors have filed a ⁴⁸³ further appeal to this Court. The appellees are Southern and the Commission. 2 Federal and State statutes and regulations control the issuance of a certificate of need. The necessity for such joint Federal-State action was declared by the Congress in 42 U.S.C. § 300k, which reads as follows: Congressional findings (a) The Congress makes the following findings: (1) The achievement of equal access to quality health care at a reasonable cost is a priority of the Federal Government.

(2) The massive infusion of Federal funds into the existing health care system has contributed to inflationary increases in the cost of health care and failed to produce an adequate supply or distribution of health resources, and consequently has not made possible equal access for everyone to such resources. (3) The many and increasing responses to these problems by the public sector (Federal, State, and local) and the private sector have not resulted in a comprehensive, rational approach to the present— (A) lack of uniformly effective methods of delivering health care; (B) maldistribution of health care facilities and manpower; and (C) increasing cost of health care. (4) Increases in the cost of health care, particularly of hospital stays, have been uncontrollable and inflationary, and there are presently inadequate incentives for the use of appropriate alternative levels of health care, and for the substitution of ambulatory and intermediate care for inpatient hospital care. (5) Since the health care provider is one of the most important participants in any health care delivery system, ⁴⁸⁴ health policy must address the legitimate needs and concerns of the provider if it is to achieve meaningful results; and, thus, it is imperative that the provider be encouraged to play an active role in developing health policy at all levels.

(6) Large segments of the public are lacking in basic knowledge regarding proper personal health care and methods for effective use of available health services. (b) In recognition of the magnitude of the problems described in subsection (a) of this section and the urgency placed on their solution, it is the purpose of this Act to facilitate the development of recommendations for a national health planning policy, to augment areawide and State planning for health services, manpower, and facilities, and to authorize financial assistance for the development of resources to further that policy. (Emphasis added). Congressional implementation of those findings are to be found in 42 U.S.C. §§ 300k through 300n (Federal Act), the pertinent parts of which will be cited or quoted infra.

State implementation of those findings are to be found in Maryland Code, Health General Article §§ 19-101 through 19-125, the pertinent parts of which will be cited or quoted infra. 3 A condition precedent to participation in the financial benefits offered under the Federal Act required the State to provide a “State Program” for the performance within the State by a “State Agency” 4 of the functions prescribed.by § 300m-2, including, inter alia, the duty to administer a State certificate of need program, which applies to the obligation of capital expenditures within the State and the offering within the State of new institution ⁴⁸⁵ al health services and the acquisition of major medical equipment and which is consistent with standards established by the Secretary by regulation. A certificate of need program shall provide for procedures and penalties to enforce the requirements of the program. In performing its functions under this paragraph the State Agency shall consider recommendations made by health systems agencies under section 300 l-2(f) of this title. Under the Federal Act (§ 300m-l) the State agency is required “to perform its functions in accordance with procedures and criteria conforming to the requirements of section 300n-l that in pertinent part provides as follows: Any decision of a State Agency to issue or to not issue a certificate of need or to withdraw a certificate of need shall be based solely (i) on the review of the State Agency conducted in accordance with procedures and criteria it has adopted in accordance with this section and regulations promulgated under this section, and (ii) on the record established in administrative proceedings held with respect to the application for such certificate or the Agency’s proposal to withdraw the certificate, as the case may be.

Any decision of a State Agency to approve or disapprove an application for an exemption under section 300m-6(b) of this title shall be based solely on the record established in the administrative proceedings held with respect to the application. (Emphasis added). The State Act (§ 19-115(c)) requires the Commission to adopt rules and regulations 5 for applying for and issuing certificates of need and provides (§ 19-118(d)) that “the Commission alone shall have final nondelegable authority to act upon an application for a certificate of need....” 6 ⁴⁸⁶ The Federal Act (§ ,300n-l(c)) requires the State Agency (the Commission) to consider at least fourteen criteria in its determination whether a certificate of need should be granted. The Maryland Regulations adopted by the Commission pursuant to § 19-115(c) require the Commission to consider similar criteria in such a determination (COMAR 10.24.01.-06F(1)) and written documentation of other factors where, as here, the certificate of need relates to an application by a hospital (COMAR 10.24.01.06F(a)).

The Federal Act provides that a certificate of need must authorize “[t]he obligation of only those capital expenditures found to be needed by the State Agency,” 300m-6(a)(2), and in subsection 300m-6(a)(4) provides that: In issuing a certificate of need, the State shall specify in the certificate the maximum amount of capital expenditures which may be obligated under such certificate. (Emphasis added). A regulation adopted by the Commission (COMAR 10.24.-01.06K) provides in pertinent part as follows: Notice that the facility or project is certified shall be made in writing by the State Agency to those agencies responsible under the licensure program and other agencies that may have interests or responsibilities related to the project. The notice shall be given at the time the applicant and the HSA are notified.

The notice of certification shall contain at a minimum the following information: (1) The nature and scope of the certified health services or facilities, described in suitable detail; (2) The actual capital costs associated with the certified project, to include construction, equipment acquisition (whether by purchase or lease), architects and .consultants’ fees, and all other costs (other than financing costs) to be incurred by the applicant in order to bring the project to completion; and ⁴⁸⁷ (3) The total principal amount of funds to be borrowed (if any), and a description of the terms of the financing mechanism through which this borrowing will be accomplished. (Emphasis added). Purporting to act in accord with the mandates of the Federal and State Acts and the regulations adopted pursuant thereto, the Commission issued a certificate of need to Southern in the following form: MARYLAND HEALTH RESOURCES PLANNING COMMISSION Certificate of Need TO: Francis P. Chiaramonte, M.D. February 14, 1984 Chief Executive Officer (Date) Southern Maryland Hospital Center 7503 Surratts Road Clinton, Maryland 20735 RE: Expansion of Acute Medical/ 83-16-1114_ Surgical Services (Docket Number) PROJECT DESCRIPTION The project is for the construction of an addition to the existing hospital to house an additional 120 medical/surgical beds, to relocate and expand the ambulatory surgery department, and to purchase some additional major moveable and minor moveable equipment. These project components and the total capital cost of the project will be modified consistent with the conditions imposed below.

Revised capital and operating projections, manpower projections, and architectural plans will be submitted, consistent with these conditions, at which time this Certificate of Need will be administratively modified to include the modified project description and the cost of the project. (Emphasis added). ORDER ⁴⁸⁸ The Maryland Health Resources Planning Commission hereby issues this project a Certificate of Need subject to the following conditions: 1. Within 180 days of the date of issuance of the Certificate of Need, the applicant shall amend the number of beds proposed to reflect the addition of 37 medical/surgical beds and the deletion of an ambulatory surgical program.

Simultaneously, a revised statement indicating revenues, expenses, costs, charges, and capital costs (including source of any loans at the proposed or lower interest rate contained in the application) at the level of 37 additional medical/surgical beds, a revised statement indicating manpower needs at the level of 37 additional medical/ surgical beds, and a revised architectural plan for the 37 additional medical surgical bed addition must be submitted to the Commission for its review. 2. Within 60 days from the date of this Certification, SMHC must revise its policy regarding ability to pay so that it meets the requirements of SHP accessibility standard IA-3; and must, where appropriate, submit written transfer agreements required by SHP continuity standard IA-6. 3. Within 60 days from the date of this Certification, SMHC must document that the current placement of its critical care units constitutes the lowest-cost configuration feasible or provide a proposal for meeting HSP cost standard 5d. 4. If it decides to establish a definitive observation unit, SMHC must supply within 60 days data demonstrating that the higher rate applicable to this unit will not invalidate the overall cost savings claimed to result from shortened lengths of stay in critical care beds, and reduced average medical/surgical rates; and must explore the feasibility and desirability of separate licensure of such a unit and report the results to the Commission. ⁴⁸⁹ In accordance with Section ,07.C(l)(b) of the Regulation COMAR 10.24.01 (effective January 25, 1980), the project is subject to the following performance requirements: 1.

Obligation of not less than 51% of the certified capital expenditure as expenditure as documented by a purchase order, construction contract or other suitable documentation within 30 months of the date of Certification. 2. Initiation of construction within 6 months of the effective date of a binding construction contract. 3. Documentation that the certified project has been licensed or has otherwise met all applicable legal requirements and is providing the certified services within 36 months of the effective date of capital obligation. Failure to meet these performance requirements shall render this Certificate of Need null and void.

(Emphasis added). Certificate of Need is a pre-requirement of licensure. This Certificate of Need is not a license to operate the facility. If it is necessary to make any changes to the certified project before approved first use of the facility, the State Agency must be notified and approval of the change must be received prior to implementation of the change/or obligation of any additional funds in accordance with Section .14 of Regulation 10.24.01.

Your architect or engineer is required to contact the Plans Review and Approval Section of the Department of Health and Mental Hygiene in order to ascertain the information on drawings and specifications which is required by law for submission and approval. Quarterly status reports must be submitted to the Maryland Health Resources Planning Commission beginning three months from the effective date of Certification and continuing through completion of the project. ⁴⁹⁰ Pre-licensing approval must be requested not less than 60 days nor more than 120 days prior to the planned first use of the certified project specifying the anticipated date of first use. The request for pre-license certification will be reviewed in accordance with Section .15 of Regulation 10.24.01. A State license to operate the facility cannot be issued by the licensing agency until the MHRPC has issued pre-licensing certification of the project.

Your acknowledgement of your receipt of this Certification is requested within thirty (30) days. MARYLAND HEALTH RESOURCES PLANNING COMMISSION I. Necessity for Decision on the Merits Several contentions are made by the respective parties that this appeal does not require a decision on the merits. Appellants argue that the hearing before a single commissioner (Commissioner F. Perry Smith) was a nullity, in violation of the Maryland Act § 19-118(d)(2) that reads as follows: “The Commission may delegate to a committee the responsibility for review of an application for a certificate of need, including the holding of an evidentiary hearing.” The contention is without merit. While in some usage the word “committee” well may imply a multiple membership, in the subject statute the same sub-section provides that a Commission hearing shall be held “in accordance with the contested case procedures of the Administrative Procedure Act” (Maryland Code State Government § 10-201 et seq.), which specifically authorize the conduct of hearings before a single officer.

In State v. Loscomb, 291 Md. 424, 432 , 435 A.2d 764, 768 (1981), it was said: It is a general rule of statutory construction that statutes that deal with the same subject matter, share a common ⁴⁹¹ purpose, and form part of the same general system are in pan materia and must be construed harmoniously in order to give full effect to each enactment. We hold that the designation of a single commissioner to act as a committee for the Commission accords with the statutes. Southern contends that the issues presented here were not raised before the Commission, citing the holding in Bulluck v. Pelham Woods Apts., 283 Md. 505, 518 , 390 A.2d 1119, 1127 (1978), that alleged procedural and evidentiary errors not raised before an administrative agency may not be raised for the first time in judicial review proceedings. Examination of the record, however, establishes that all appellants filed exceptions to the single Commissioner’s report prior to the passage of the order of February 14, 1984, from which the appeal in this case was taken, and participated in the hearing before the full Commission prior to the adoption of the report and the issuance of the certificate of need by it.

At the hearing upon the exceptions before the full Commission, counsel for Doctors presented, inter alia, the following explanation for its opposition to the proposed order: I think there is a very dangerous precedent that may be set in the case and that is [to] approve, submit, recommend any application which in many respects doesn’t meet the criteria Health Systems Plan as noted in the recommendation itself.... There was an application submitted for 120 beds which was tailored for 120 beds, the cost analysis, the attendant information necessary for such an application was submitted. An examination of the recommendation will show that this approval is conditioned upon many things. Much information has to be supplied at a later date....

You really don’t know what you’re approving. To say that you can supply this information later on is merely to abdicate your review responsibility as we see it____ I’ve listed on page two of my exceptions, specific areas this application was found not ⁴⁹² to be consistent with the criteria which has been established for review. Counsel for Greater Southeast brought to the attention of the full Commission, inter alia, a contention that it is irregular for an application to be approved prior to an applicant providing financial feasibility____ It seems that an application being brought down from 120 to 37 beds represents a substantial change and therefore should have to be reviewed at the H.S.A. level once again. 7 Counsel for Fort Washington told the full Commission that he shared the prior comments by other counsel as briefly set forth supra, “especially those of the Clinton Community Hospital.” 8 He added, inter alia: [Y]our statute further requires that your Committee can do one of two things, it can approve or it can deny. Your Committee’s proposal does neither____ It recommends a series of changes.

Nowhere in your statute is there any procedural authority for what you are proposing to do. Appeal from a decision of the Commission, authorized by § 19-121, provides, in pertinent part, that “[a]ny aggrieved party ... may take a direct judicial appeal within 30 days of the final decision of the Commission.” § 19-120, in pertinent part, defines an aggrieved party as: A person, including any health care facility ... who (i) ... has presented a position on a health care project to the Commission before the decision of the Commission ⁴⁹³ on that health care project; and (ii) is affected adversely by the decision of the Commission on the project. 9 (Emphasis added). We hold that all appellants presented a position to the Commission on the issues presently before this Court before the decision of the Commission had been made. This Court, accordingly, must consider the merits of the Commission’s action.

II

Decision on the Merits An appeal by a person adversely affected by a final decision of a State Agency (the Commission) is authorized under both the State and Federal Acts. Health General Article § 19-121; 42 U.S.C. § 300n-l(b)(12)(E). The Court’s role in such an appeal is narrow. Under the Federal Act “[t]he decision of the State Agency shall be affirmed upon such judicial review unless it is found to be arbitrary or capricious or not made in compliance with applicable law.” These statutory provisions accord with the standard prescribed for the review of administrative appeals generally by judicial decisions.

See Hoyt v. Police Commissioner, 279 Md. 74, 89 , 367 A.2d 924, 932-33 (1977), and cases cited therein. Despite the statutory complexity of the case, the dichotomy between the appellants and the appellees can be briefly and succinctly stated: Appellants argue that the Commission (a) failed to comply with statutory mandates and (b) in legal effect made no decision upon whether Southern was or will be entitled to a certificate of necessity. ⁴⁹⁴ Appellees argue (a) that the statutory mandates have been met by necessary inferences that may be drawn from the evidence and (b) that the Commission is granted specific statutory authority to grant a certificate of need subject to conditions such as were imposed in the subject case. 10 Southern had applied for a 120-bed addition coupled with an expanded ambulatory surgery department. The Commission, however, issued a contingent certificate of need for a 37-bed addition and denied the ambulatory surgery department expansion. At the outset, we shall reject the contention of the appellants that the Commission lacked authority upon its own motion to reduce the number of beds applied for in the grant of a certificate of need.

The record quite clearly supports the Commission’s finding that the need for additional hospital beds is limited to a maximum of 37 beds in Prince George’s County. The statutes vest in the Commission the non-delegable duty to restrict construction of hospital facilities to those required for implementation of the State health plan by the facility best suited to serve all elements of the population within the area in which it will function at a determined reasonable cost. A necessary corollary to the exercise of that duty is the power to reduce, when necessary, the number of beds sought by an applicant. The record made before the Commission encompassed hearings conducted by Commissioner Smith on December 8, 9 and 16, 1983, and a hearing before the full Commission for consideration of exceptions by the appellants and others on February 14, 1984.

No testimony was taken at the latter hearing. The exceptants were limited to arguments on their behalf by counsel. The order appealed from followed. The transcript of testimony consists of 855 pages, ⁴⁹⁵ in the course of which 40 exhibits were received in evidence.

Nine additional volumes of the record below contain many hundreds of documents filed administratively between the time of the filing of Southern’s application to the time of the trial court’s order affirming the Commission. Eight hundred thirty-six pages of the transcript of testimony and 37 of the exhibits admitted in evidence relate to Southern’s application for the addition of 120 beds. Only 19 pages of the testimony and 3 11 of the exhibits specifically relate to the 37 bed addition conditionally authorized by the Commission. That evidence was brought into the proceedings after protest by counsel for Southern as follows: [By Mr. Alexander]: I would like the record, Mr. Smith, if I could just to state that our application is for 120 beds.

We have applied for that and this testimony should in no way be construed as a modification of our request. We are simply trying to answer the commissioner’s question which you certainly have a right to ask as to how we would handle that or what would be involved. That’s why we are supplying the information. I don’t want the record to think— MR.

SMITH: You made it very clear. Q. Mr. Suriani, have you, in fact, considered the possibility constructionwise of how the hospital would handle 37 beds and how it would be treated if that was, in fact, granted? A. Yes, sir, I have. I, too, am under the understanding Mr. Smith did request of us to throw together some figures regarding 37 beds. ⁴⁹⁶ MR.

SMITH: My request. Let’s get this straight right now. My request was, had you given consideration to it or is it feasible? Q. You say throw together figures.

Have you made some type of analysis? A. Yes, I have, sir. In consequence, there is an extreme paucity