Maryland General Hospital v. Maryland Health Resources Planning Commission

WILNER, Chief Judge. This appeal arises from a competition among three Baltimore-area hospitals—Union Memorial, Maryland General, and St. Agnes—to obtain a Certificate of Need (CON) to establish an Open Heart Surgery/Percutaneous Transluminal Coronary Angiography (OHS/PTCA) unit. When the Health Resources Planning Commission awarded the CON to Union Memorial, Maryland General and St. Agnes sought judicial review of the award in the Circuit Court for Baltimore City. That court affirmed the Commission award, and we now have this appeal, raising both procedural and substantive issues.

We shall affirm. BACKGROUND In an effort to assure an efficient and effective health care system for Maryland, the General Assembly created the Health Resources Planning Commission (the Commission) and charged it with developing, adopting, periodically updating, and implementing a State Health Plan. See, in general, Md.Code, Health-General art., §§ 19-101-19-123. The principal mechanism for implementing the plan is the requirement in § 19-115 that health care facilities obtain a CON from the ⁵²⁹ Commission before commencing any major change in their plant or operation.

The Commission is directed to include in the State Health Plan standards and policies relating to the CON program—standards addressing the availability, accessibility, cost, and quality of health care. § 19-114(e). The Commission has done so. See COMAR, title 10, subt. 24, ch. 01. In October, 1990, the State Health Plan for Cardiac Surgery and Therapeutic Catheterization Services—that part of the State Health Plan at issue here—was amended to project the need for one additional OHS/PTCA program in the Baltimore Metropolitan Planning Region.

In January, 1991, preliminary letters of intent were filed by several metropolitan hospitals. In March, 1991, following preapplication conferences, formal applications for a CON were filed by five hospitals, including the parties to this appeal. After extensive review of the applications, the Commission staff, on March 29, 1992, recommended that Union Memorial be awarded the CON. The Commission then designated Commission-member James T. Estes as a hearing officer to conduct an evidentiary hearing.

The proceeding before the Commission was a “comparative review,” i.e., the review of two or more applications for similar projects serving the same or overlapping service areas. See COMAR 10.24.01.07B(2). At issue was not simply whether a particular applicant satisfied the basic criteria for a CON, but which of the applicants best satisfied the criteria. In that regard, the Commission was obliged to consider the eight criteria set forth in COMAR 10.24.01.07H, a general regulation governing the procedure for considering applications for CONs.

Among those criteria are (1) consistency with the State Health Plan, (2) the availability of less costly or more effective alternatives for addressing the unmet needs identified by the applicants, (3) the immediate and long-term financial viability of the proposal, and (4) a positive impact on the existing health care system of the area. We are informed that the State Health Plan for Cardiac Surgery and Therapeutic Catheterization Services itself con ⁵³⁰ tains 17 standards and eight “approval policies” against which applications were to be judged. The COMAR requirement that applications be examined for consistency with the State Health Plan thus required the Commission to consider those standards and approval policies as well. A complete listing of the applicable standards and approval policies does not appear either in COMAR or in the record extract or any of the briefs. 1 Taking account of these standards and approval policies and the other criteria stated in the regulation, Dr. Estes identified 18 Genuine Issues raised by the applications, some of which pertained to all of the applicants, others to one or more but less than all of them.

Among those issues were: “Issue 12: Which applicant is least costly? The analysis may include costs of any particular program, including existing as well as proposed programs, to the health care system. Issue 13: Are each hospital’s OHS/PTCA financial and operating projections reasonable? Issue 15: What would be the impact of an OHS/PTCA program at each applicant hospital on each applicant’s hospital operations, including the impact of an OHS/PTCA program on the overall financial viability of the provider?” In May, 1992, the applicants each submitted “pre-filed” written testimony supporting their respective applications and addressing the 18 Genuine Issues identified by Dr. Estes.

Hearings were then held in June and July, during which the applicants were allowed to cross-examine the witnesses produced by the other applicants. On August 31, the Commission ⁵³¹ staff and the applicants each filed their rebuttal testimony; the staff confirmed its earlier recommendation that the CON go to Union Memorial. Cross-examination on the rebuttal testimony occurred in September, 1992. On November 9, 1992, following the filing of closing and reply briefs, the record was closed.

The day the record was closed, Maryland General filed a Motion to Reopen the Record and Admit Information of Material Changes in Financial Projections of Union Memorial Hospital. The point of this motion, which we shall discuss in further detail later, was to challenge certain testimony given by Edward Kelly, Union Memorial’s chief financial officer, with respect to (1) Union Memorial’s projected FY 1992 income in light of its later-published audited FY 1992 statement and (2) its request of the Health Services Cost Review Commission for a retroactive rate adjustment. The hearing officer initially referred the issue raised with respect to the retroactive rate adjustment to John Colmers, Executive Director of the Cost Review Commission who, on December 10, 1992, reported that Union Memorial’s request for rate adjustment had no impact on the hospital’s financial viability. Dr. Estes then reopened the record to allow cross-examination of Messrs.

Colmers and Kelly. An additional hearing for that purpose was held on February 8, 1993. On February 16, St. Agnes asked the hearing officer to direct Union Memorial to have its accountants produce certain working papers related to the preparation of the 1992 statement. Three days later, Maryland General insisted that Dr. Estes make additional inquiries of the accountants.

Those requests were denied, as were motions to reconsider the denials. On April 23, 1993, Dr. Estes filed an 83-page opinion in which he recommended that Union Memorial receive the CON. The opinion consisted of a comparative analysis of the applications in terms of program effectiveness, cost, access for the underserved, and impact on the health care system. The entire opinion has not been reproduced in the record extract, presumably because the parties have not thought those parts ⁵³² excluded to be germane.

We shall therefore consider only the portions included in the extract. Among the decisive factors considered by Dr. Estes were approval policies (7) and (8). Approval policies are, in essence, preferences, or tie-breakers; they come into play when all of the applicants otherwise would qualify for the CON because they meet all of the other standards and policies. Approval policies (7) and (8) provide as follows: “Approval Policy (7) Cost Effectiveness (a) In the case of a comparative review of applications in which all policies and standards have been met by all applicants, the Commission will give preference to the applicant which offers the best balance between program, effectiveness and costs to the health care system, as a whole.

(b) In evaluating the costs to the health care system as a whole, the Commission, in consultation with the Health Services Cost Review Commission (HSCRC), will: (i) Determine each applicant’s proposed net revenue per case on a case-mix adjusted and price leveled basis, taking into account any existing rate agreement with the HSCRC; and (ii) Consider the implications of any special cost saving proposal offered by an applicant and the viability of this proposal. Approval Policy (8) Service to Minority and Indigent Populations. In the case of a comparative review of applications in which all policies and standards have been met by all applicants, the Commission will give preference to the applicant with an established cardiovascular disease prevention and early diagnosis program with particular outreach to minority and indigent patients in the hospital’s Regional Service Area. In evaluating the applicant’s implemented program, the Commission will take into consideration: (a) The applicant’s demonstrated record of serving minority and indigent patients with cardiovascular diseases; and ⁵³³ (b) The applicant’s demonstrated record of establishing programs for outreach to the minority and indigent populations with cardiovascular diseases.” (Emphasis added.) In considering “program effectiveness” in light of Approval Policy (7), Dr. Estes found, in relevant part, that: (1) Union Memorial was the only applicant that will offer radio frequency ablation, a transportable intro-aortic balloon pump, and AICD implantation, indicating that the hospital’s cardiology staff has pursued the education and expertise to establish the most advanced programs available for cardiac care; (2) Union Memorial was the only applicant to have come forth with evidence of some form of external quality review concerning care of cardiac patients, this being evidence that the hospital currently offers a high quality cardiology program; (3) The program should be awarded to a hospital that can best provide the support services necessary for a tertiary service such as OHS/PTCA, and that, overall, Union Memorial best demonstrates this support; (4) Union Memorial, as a designated trauma center, offers certain advantages concerning availability of operating room staff and anesthesiology 24 hours per day, 7 days per week, and that that staff would have a different level of experience and advanced training in handling difficult emergency situations; and (5) In summary, “because of the advanced technological benefits offered by the [Union Memorial] proposal, and because of the demonstrated record of high quality cardiac care and professional commitment to excellence ... [Union Memorial] is the most effective alternative with respect to program effectiveness.” Dr. Estes then discussed the element of “cost,” from the point of view of both Approval Policy (7)—the required balance between program effectiveness and cost—and the re ⁵³⁴ quirement in COMAR 10.24.01.07H(2)(d) that the Commission consider the immediate and long-term financial viability of the proposal.

He found, in pertinent part: (1) Union Memorial had substantiated its proposed budget, and that, although the projected operations of the entire hospital generate a loss, with the infusion of non-operating income the loss is offset and the project is financially feasible. (2) Although the financial viability of Union Memorial became a particular issue following the close of the initial round of hearings, based on the evidence received at the February hearing, the Commission “continues to conclude that [Union Memorial] is a financially viable hospital and that the addition of an OHS/PTCA program is financially feasible for this hospital.” and (3) With particular respect to the testimony of Mr. Kelly and the discrepancies regarding the 1992 figures, “[b]ased on the evidence presented, the Commission does not believe that there has been a deliberative attempt on the part of [Union Memorial] or Mr. Kelly to misrepresent the financial condition of [Union Memorial]” and, “while there may have been miscalculations or oversights in the projected FY 1992 financials, based on the testimony regarding changes in the financial management of [Union Memorial], there is no basis to believe that these miscalculations will continue into the future.” In terms of “cost to the system,” Dr. Estes concluded that each of the proposals would result in cost-savings to the system. Dr. Estes’s conclusion from this comparative analysis was that all of the applicants offered financially viable proposals that were consistent with COMAR 10.24.01.07H(2)(d), that the net revenue offers and system cost implications were essentially equal, and that, accordingly, pursuant to its finding that Union Memorial presented the most effective program, that hospital deserved preference under Approval Policy (7). ⁵³⁵ After considerable discussion of the historic efforts made by each of the applicants to serve minority and indigent populations and the extent to which their proposed OHS/PTCA programs would serve those populations, Dr. Estes made a number of subordinate findings—some favoring Union Memorial, some favoring Maryland General, and some favoring St. Agnes—but he ultimately determined that none of the applicants was entitled to a preference under Approval Policy (8). In his summary, Dr. Estes noted that, pursuant to the State Health Plan and COMAR criteria, the Commission was required to certify the provider who offered “the most effective program, who is financially sound, and who will improve access to the minority and indigent.” All three applicants, he found, were approvable.

He concluded, however: “[Union Memorial] was found to warrant preference under Approval Policy 7 as the most effective program proposed. Further, although no particular preference was given under Approval Policy 8, [Union Memorial’s] proposed OHS program will serve more minority and indigent than the proposal from [St. Agnes].... In light of the [State Health Plan] mandate that a new project reach out and serve this population, in view of the negative impact [St. Agnes] will have on [University of Maryland Hospital], in view of the lack of strength of [Maryland General’s] existing cardiology program and anticipated referral network, and in view of the superior clinical and related services program put forth by [Union Memorial], the Commission finds that the Certificate of Need in this review should be granted to [Union Memorial].” Maryland General and St. Agnes filed exceptions. Maryland General filed with its exceptions another motion to reopen the record for further examination of Union Memorial’s accountants.

After a hearing on the exceptions, the Commission voted unanimously to adopt the proposed decision recommended by Dr. Estes. Maryland General and St. Agnes sought judicial review in the Circuit Court for Baltimore City. In that court, both ⁵³⁶ hospitals, through separate motions, asked to have the record reopened to include the additional documents and material sought from Union Memorial’s accountants. St. Agnes asked, in the alternative, to have that evidence presented to the court or for an order requiring the Commission to consider it.

The court denied those requests, finding (1) no procedural error on the part of the Commission in refusing to allow the additional evidence, and (2) that, in light of the credibility determination made by Dr. Estes and the Commission with respect to Mr. Kelly, the additional evidence was essentially irrelevant. It did, however, direct Union Memorial’s accountant, Ernst & Young, to produce the requested documents, which, upon receipt, were marked for identification but not admitted into evidence. THE ISSUES Maryland General makes essentially three complaints: (1) the circuit court erred in refusing to consider the documents received from Ernst & Young and to remand the case for the Commission to consider those documents, (2) the Commission failed to afford due process of law when it refused to allow the additional cross-examination and documents sought by Maryland General, and (3) the court erred in refusing to apply the “substituted judgment” test in reviewing the Commission’s misapplication of Approval Policies 7 and 8. St. Agnes essentially joins in Maryland General’s first two complaints and adds three more—that the court erred in not admitting the Ernst & Young documents into evidence in the judicial review proceeding, that the Commission failed to find facts and articulate its reasoning, and that its decision is not based on substantial evidence.

THE ADDITIONAL EVIDENCE Md.Code, State .Gov’t art., § 10-222(f) provides generally that judicial review of agency decisions in contested cases is confined to the record made before the agency. It permits the reviewing court, upon timely application, to order the agency to take additional evidence if the court is satisfied that ⁵³⁷ the evidence is material and there were good reasons for the failure to offer it at the proceeding before the agency. Section 10-222(g)(2) allows the court itself to take and consider “testimony on alleged irregularities in procedure before the [agency] that do not appear on the record.” (Emphasis added.) Section 10-222(g)(2) We may quickly dispose of St. Agnes’s argument that the court should have considered, under the authority of § 10-222(g)(2), the documents supplied by Union Memorial’s accountants, Ernst and Young, pursuant to court subpoena. We note, first, that § 10~222(g)(2) refers specifically to “testimony” relating to alleged irregularities.

Throughout the rest of that section, the law speaks of “evidence,” not testimony. In Zipus v. United Rwys. & El Co., 135 Md. 297, 305 , 108 A. 884 (1919), the Court, quoting from the then-current edition of Words & Phrases, observed that “the term ‘evidence’ is the more comprehensive word and includes testimony which latter strictly speaking means only the evidence which comes from living witnesses who testify orally, but in common language the two words are frequently used synonymously.” Whether “testimony” is to be given this extended meaning depends on the context of its use. In Zipus , the question arose in the context of a jury instruction defining the burden of proof as preponderance of the “testimony,” and the Court had no difficulty in concluding that the word “testimony,” as so used, meant the same as “evidence.” The context here is quite different. As noted, the Legislature, in 1993, carefully used the word “evidence” everywhere but in this one subsection dealing with procedural irregularities not appearing on the record.

That distinction was in the original adoption of the Administrative Procedure Act in 1957 (1957 Md.Laws, ch. 94, enacting art. 41, § 226, 1957 Md.Code), and it has remained in the law throughout several amendments and recodifications. It is in sharp distinction to the wording of the 1961 revised Model State Administrative Procedure Act proposed by the Uniform Law Commissioners ⁵³⁸ which, in § 15(f) provided that, “[i]n cases of alleged irregularities in procedure before the agency, not shown in the record, proof thereon may be taken in the court.” (Emphasis added.) See also § 5-114 of the 1981 version of the Model Act, permitting the court to “receive evidence” in similar circumstances. Unlike the situation in Zipus , this analysis convinces us that the Legislature intended § 10-222(g)(2) to allow only “testimony” in its more narrow sense of oral evidence. The documents at issue do not qualify as “testimony” in that restricted sense; § 10-222(g)(2) therefore has no application.

Apart from that, and despite the argument of St. Agnes to the contrary, there is no indication of any irregularities in procedure before the agency not appearing on the record. Maryland General and St. Agnes requested Dr. Estes and the Commission to obtain and consider this very evidence. Those requests and their denial were in the agency record; to the extent, therefore, that the denials could, in any sense, be regarded as an irregularity in procedure, the irregularity appeared on the record and no testimony was necessary to establish it. Most conclusively, however, we do not regard as' a procedural irregularity the Commission’s decision not to reopen the record a second time to permit new discovery in an effort to turn up further