Perini Services, Inc. v. Maryland Health Resources Planning Commission

ROSALYN B. BELL, Judge. Appellant Perini Services, Inc. applied to appellee Maryland Health Resources Planning Commission 1 for a certificate of need (CON) to construct a 144 bed comprehensive care nursing home and a twenty person adult day care center in Hagerstown, Washington County. The Commission denied the application and the Circuit Court for Washington County affirmed. Perini appeals that order alleging: A. “The Decision of the Maryland Health Resources Planning Commission ... was erroneous as a matter of law because it was not consistent with the effective State Health Plan.

B. “The Commission exceeded its statutory authority and abused its discretion by basing its Decision on a proposed regulation which had not yet become effective under Maryland law. a. “The Commission’s characterization of its proposed regulation as ‘important and relevant information’ in order to incorporate the proposed regulation for decision making purposes was erroneous as a matter of law. b. “Proposed policy changes which alter the bed need methodology, in contrast to mere statistical updating, must have become effective as rules or regulations before being used for adjudicative purposes by the Commission. C. “The Commission’s failure to interpret and apply its regulatory review criteria in a manner consistent with established Commission precedent in similar cases was an ¹⁹⁴ arbitrary and capricious action denying Appellant due process and equal protection of the law. D. “The Commission erred in denying Appellant a Certificate of Need when Appellant was consistent with review criteria, often in a superior way, and when, under the legally binding regulation, there remained significant unmet need for nursing home beds in Washington County- a. “Because the questions presented are legal rather than factual in nature, this Court should apply the substituted judgment standard. b. “Because the decisions below are based on errors of law, this Court should reverse the Commission’s Decision as to Appellant and grant Appellant a Certificate of Need for its project.” In March 1983, Perini Services, Reeders Memorial Home and Hagerstown Medical Services filed with the Commission letters of intent stating that each desired to construct or expand nursing home projects in Washington County. A staff report was issued.

The Commission conducted an evidentiary hearing and rendered a decision, albeit late, 2 on the CON applications. After hearings on three separate days, the Commission concluded that Perini’s proposal was not consistent with the applicable standards and awarded a CON for fifty beds to the Reeders project on the condition that it make 31% of its beds available to Frederick County residents. The State Health Plan (SHP) in force at the time said 233 comprehen ¹⁹⁵ sive care nursing beds were needed in Washington County while none were needed in Frederick County. Perini concluded that the Commission ignored the current SHP’s bed need projections and instead illegally applied the bed need projections contained in the proposed SHP that had been adopted by the Commission but was not yet an effective regulation. 3 That new plan projected a zero need for beds in Washington County and a 148 bed need for the entire health systems area of Western Maryland.

All parties agreed the proposed SHP was not a binding regulation at the time the Commission denied Perini’s application. Asserting the Commission erred as a matter of law in applying the proposed SHP, Perini appealed to the circuit court which affirmed. I. REGULATORY CONTEXT We need not discuss the history behind the Commission and instead invite the reader to this Court’s explanation of its regulatory origin in Doctors’ Hospital of Prince George’s County v. Maryland Health Resources Planning Commission, et al., 65 Md.App. 656 , 501 A.2d 1324 (1986). We will, however, set out the regulatory framework as it relates to the instant appeal.

The Commission has final authority to act upon CON applications. Md. Health—Gen’l. Code Ann. § 19-118(d), (1982, 1984 Cum.Supp.). The Code requires that the Commission make certain that its decisions in this regard are consistent with the SHP under § 19-114, supra and with the COMAR regulations outlining the Commission’s own review criteria. 4 ¹⁹⁶ Health Plan Under § 19-114(a), supra the Commission is charged with adopting an SHP at least every five years.

The SHP is an officially promulgated regulation of the Commission. It represents a broad policy document outlining Maryland’s current and future health care system. The SHP must include standards and policies for evaluating CON applications which assess the availability, accessibility, cost and quality of health care. Included in these standards are methodologies developed by state and local planning personnel which quantify the number and types of health care services needed for an area.

The Long Term Care portion of the SHP addresses issues pertinent to the development of nursing homes. This section also incorporates local health systems plans (HSP) which address specific local or regional issues. While the Commission is a State agency, Maryland established five local health systems agencies (HSA) 5 which not only develop their own HSPs, but review CON applications for projects in their HSA locale. Since each HSA faces concerns unique to it, each HSP’s formula and standards have been tailored to solve perceived area-specific problems.

This appeal concerns only the HSA for Western Maryland and its HSP (WMHSP). The 1980 WMHSP contains a bed need methodology as well as general policies, criteria and standards for nursing home services in the four counties of Western Maryland: Allegany, Frederick, Garrett, and Washington. As stated, the SHP applicable to the projects involved in the case sub judice was the 1981 Revised SHP. The proposed SHP, which embodied health planning through 1988, was adopted as a final regulation by the Commission on August 14, 1984 and was published in the Maryland ¹⁹⁷ Register on the same date.

The proposed SHP became effective approximately three weeks later. This new plan, inter alia, revised the blueprint for determining bed need under the SHP. Under this new formula, zero bed need was projected for Washington County and only 148 beds were projected as needed for the entire Western Maryland area with priority given to Frederick County. Thus, since the proposed SHP was not the governing document, all parties concede that Perini’s application had to be evaluated for consistency with both the 1981 SHP and the 1980 WMHSP.

Regulations A CON application must also be evaluated for compliance with the review criteria codified in COMAR. § 19-118(c)(l), supra. The regulations embody thirteen criteria and standards against which all certificate requests must be reviewed including, inter alia, need for the project, contribution to reducing out-migration, and proximity to a patient’s support group. COMAR 10.24.01.07D(2)(a)-(m).

II

COMMISSION DECISION The Commission’s decision denying Perini’s CON rested on two grounds: 1) inconsistency with the 1981 SHP and 1980 WMHSP and 2) inconsistency with the COMAR regulatory criteria. 1981 State Plan/1980 Local Plan The Commission found Perini violated five standards identified under the State and local health care plans. —Availability— WMHSP criterion 1, standard 1 provides: “The number of comprehensive long-term care beds should be based on the long-term care bed need methodology.” 6 ¹⁹⁸ The discussion in the WMHSP following this standard outlined a historic pattern of maldistribution of nursing home beds in Western Maryland. The Commission determined Perini’s project was not consistent with the intent of the standard. In so doing, the agency concluded that the Hagerstown location of its proposed facility would not further the WMHSP goal of retarding out-migration of Frederick County residents to Washington County for nursing home care. Further, the Commission stated that under this standard, it “peered over the wall” at the information contained in the proposed SHP.

Noting that under the new plan Frederick County was allocated beds on a priority basis, the Commission determined that approval of the Perini project would have preempted the awarding of beds to applicants in Frederick County, thus exacerbating the maldistribution problem identified in the 1980 WMHSP and reaffirmed in the proposed SHP. 7 The Commission also found Perini violated SHP standard LT 2b mandating that “[proposals involving [nursing home] beds which reduce the need for patients to migrate out of their area of residence shall be preferred over those which do not.” Since the Commission defined “area of residence” as the county wherein the patient resides, it concluded that approval of additional beds in Hagerstown would increase the need for Frederick countians to migrate for care. The Commission acknowledged that the Reeders facility was located in Washington County, but recognized that it ¹⁹⁹ was situated only two miles from the Frederick County border and approval of its project would make additional resources available to rural Southern Washington and Frederick Counties. —Accessibility— The Perini application was also deemed inconsistent with WMHSP criterion 4, standard 1, “Access to long-term care facilities for all residents.” Standard 1 provides: “Reasonable access will be considered to be within 60 minutes normal driving time from the patient’s regular physician and relatives.” The agency viewed this standard from the perspective of the Frederick County resident out-migrating to Perini’s facility in Hagerstown to secure nursing home care, rather than from the point of view of a Washington County citizen. Accordingly, it concluded that Perini’s proposal violated the “intent” of the standard. —Miscellaneous WMHSP Requirements— The Commission also concluded Perini was not in compliance with a WMHSP criterion requiring that facilities demonstrate conformance with all safety regulations. It noted that while Perini did not present sufficient evidence to show compliance, this deficiency could be corrected by submission of additional evidence.

Similarly, the agency also found that Perini did not present documentation of transfer and referral agreements with other less and more intensive care facilities as required under the WMHSP. It recognized, however, the difficulty new hospitals face in attempting to comply with this standard and provided that if Perini met all other criteria, it ²⁰⁰ could conditionally grant a certificate upon provision of this evidence. 8 COMAR Regulations The second basis for denying Perini’s CON was its inconsistency with the COMAR regulatory criteria. —10.24.01.07D(2)(c) Need— Perini’s application was found inconsistent with the regulatory criterion relating to need. This regulation requires the agency to assess: “[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 ____” The Commission stated it examined present and future utilization statistics of nursing homes in Western Maryland and demographic data using the 1981 Nursing Home Survey and concluded that there was no need for another nursing home in Hagerstown. It also examined this standard in conjunction with WMHSP criterion 1, standard 1, SHP standard LT 2b and the information contained in the proposed SHP. —10.24.01.07D(2)(d) Less Costly Alternative and (g) Alternative Uses of Resources— Based on the lack of need under COMAR criteria, the Commission also determined that Perini’s application was inconsistent with the above two regulations.

III

SCOPE OF REVIEW Before we turn to an examination of the disputed issues, we must determine the appropriate scope of review to be employed. This Court is empowered to review the decision of the Commission under Maryland’s Administrative Proce ²⁰¹ dure Act, codified at Md.State Gov’tCode Ann. § 10-215 et seq. (1984). Although Perini labels the assignments of error as purely legal, the thrust of its contentions are both factual and legal.

When determining whether a factual finding is in violation of § 10-215, supra, the substantial evidence test is the appropriate standard of review. Doctors’ Hospital of Prince George’s County, supra at 667, 501 A.2d 1324 . Under the substantial evidence test, the decision of the administrative agency is presumed valid, and all inferences and factual conclusions made by the agency must be affirmed if there is evidence to support them. Our scope of review changes, however, when we consider whether the Commission erred as a matter of law.

Where Perini does not challenge the factual findings made by the agency, but rather the legal principles or regulatory interpretations utilized by the agency, the substituted judgment standard is to be used. We may substitute our judgment for that of the agency, because “illegal acts are not based on substantial evidence and must be corrected.” Doctors’ Hospital of Prince George’s County, supra at 667-68, 501 A.2d 1324 . When the issues in an action primarily involve questions of law, this Court must substitute its judgment for that of the agency if our interpretation of the applicable legal principles is different. Ramsay, Scarlett & Co., Inc. v. Comptroller of the Treasury, 302 Md. 825 , 490 A.2d 1296 (1985).

Perini’s first contention is that the Commission erred in finding that the CON application was not consistent with SHP/WMHSP standards and COMAR regulations. This challenge presents this Court with both legal and factual questions. The substituted judgment test is the analysis employed when we interpret the requirements of the SHP/WMHSP and COMAR. The substantial evidence standard is the review we will engage in when determining whether the Commission erred in finding that Perini’s appli ²⁰² cation was not consistent with those regulations as so interpreted.

Perini’s second contention encompasses whether the Commission erred as a matter of law in utilizing policies and information contained in a regulation not yet legally effective. To resolve this issue our scope of review is the substituted judgment test. We need not consider the appropriate standard of review with respect to Perini’s third assertion that the Commission’s decision was arbitrary and capricious for the reasons set forth, infra. Finally, Perini’s fourth challenge is merely a summation of its position and a directive that we order the Commission to grant it a CON.

In light of our holding, we need not consider the question of the power of this Court to order the agency to grant a CON. Having set out the appropriate review standards we will use to examine Perini’s challenges, we now turn to the merits of this controversy. 9 IV. INCONSISTENCY WITH SHP/WMHSP Perini suggests to this Court that the Commission’s decision granting a CON to Reeders was “justifiable only under the policies and bed need determinations contained in the Proposed SHP (which ... contained policy changes which eliminated Washington County bed need and established a bed need in Frederick County.)” Perini thus concludes that the Commission’s decision was inconsistent with the current SHP violating Md. Health-Gen’l. Code Ann. § 19-118(c)(l), supra.

This section mandates that ²⁰³ “all decisions of the Commission on an application for a certificate of need, except in emergency circumstances ... shall be consistent with the State health plan and the standards for review established by the [Commission].” 10 As we stated, under the “availability” standard, the SHP/WMHSP bed need methodology projected that 233 long-term care beds were projected for Washington County while none were projected for Frederick County. Perini, in effect, asserts that this bed need figure is the determining calculation in granting a CON, and since the Commission did not grant it a certificate, but instead granted one to Reeders with the condition that it make a percentage of its services available to Frederick County residents, the Commission’s decision is in error. Initially, we observe that Perini’s argument ignores two important considerations. First, while the CON awarded to Reeders was approved subject to the condition that it “continue to utilize 31% of its total beds to serve Frederick County residents ...,” Reeders is located in and serves Washington County residents as well.

The Commission clearly did not ignore the Washington County bed need calculation as Perini suggests. In addition, Perini’s contention seems to overlook the requirement that not only must the Commission’s action be consistent with the governing health plans and regulations, but the application under review itself must be consistent with the health laws as well. COMAR 10.24.01.07D(1). Perini cannot obscure the fact that its application was not consistent with the SHP/WMHSP and COMAR by merely claiming the Commission’s decision failed to abide by the statutory mandates.

Bed Need Figure The Commission did not ignore the SHP/WMHSP bed need determination as challenged by Perini, but instead ²⁰⁴ considered that, figure in relation to the policies, recognized in both the 1981 SHP and 1980 WMHSP, discouraging maldistribution of facilities and out-migration. The 1980 WMHSP contains the following statements to this effect: “As can be seen, a definite trend of out-migration for care has developed due to the fact that a disproportionate number of beds were in the past placed in Washington County. As a result, residents of Frederick and Allegany Counties went to Washington County for care. 1980 WMHSP at V-20, 721. * sjs * * * SjC “Theoretically, the ideal situation would exist when every person requiring care could be serviced in his/her county of residence. [I]n a case such as in Western Maryland, where it is projected that additional beds will be needed in the future and where unbalanced migration patterns exist due to mislocation of facilities, it behooves health planners to encourage more optimal migration patterns. Id. at V-19, 720. * Hi * * * * “Improved geographical distribution of facilities would increase access to long-term care services by consumers and would permit patients to maintain relationships and contacts with friends and relatives.” Id. at V-27, 728.

Using data from the 1981 Nursing Home Survey, the Commission concluded that the above goals would not be met by approval of the Perini facility even though the bed availability figure would allow for approval. The data reviewed by the Commission indicated that: 1. While eleven nursing homes are located in Washington County, only five are located in Allegany County, four in Frederick County and three in Garrett County. 2. Since the approval of one facility in Allegany County and one in Frederick County after the Nursing Home Survey was conducted, forty-four percent of all approved nursing homes in the WMHSA are located in Washington ²⁰⁵ County, while only thirty-five percent of the population aged 65 and older resides in that county. 3.

As of July, 1984, seven of the eleven Washington County facilities were located in Hagerstown. 4. Sixty percent of the total bed inventory of Washington County is located in Hagerstown. 5. Ninety-two percent of the total patient days of Washington County residents in nursing homes were spent in Washington County nursing homes in 1981 while only sixty-eight percent of the total patient days of Frederick County residents in nursing homes were spent in Frederick County nursing homes that year. 6. Approximately half of the Frederick County residents that received care in another county were served in Washington County nursing facilities. 7.

The 1988 projected percentage of Washington County residents receiving nursing home care who will receive care in their home county, is the highest of all Maryland counties. 8. The relative numbers of Frederick County residents leaving their resident county to secure nursing home care elsewhere has increased since 1976 despite the goal in the WMHSP of a 0.95 migration factor (only 5% of residents would have to leave the county for nursing home care). Our review of this data convinces us that there was substantial evidence before the agency to support its decision that the Perini proposal was not consistent with the SHP/WMHSP standards. Further, the 1981 SHP makes it pellucid that the HSP bed need determinations are not static, and provides for consideration of the most current data in evaluating bed need: “The [Commission] recognize[s] that data by its very nature is time-specific, and for this reason it will require updating from time-to-time. “[W]hen the SHP and its Revision are used for review or regulatory decisions, the [Commission] will check the data ²⁰⁶ as presented in the SHP ... against the most current available data—as applicable to the situation.

If a significant difference exists, the more current data will be used.” Md. State Health Plan, 1981 Revision at 1-13. Thus, it is clear the bed need number itself in the SHP is not fixed and may be adjusted if recent demographic evidence suggests such an alteration. Moreover, in In the Matter of Paint Branch Centre, Docket No. 82-16-1017 (Dec. 29, 1982), the Commission observed that “[n]eed for services is not based solely on the number derived under availability ... Only when all Plan standards, policies, and objectives are considered together can a determination of need be made.” Id. at 8.

COMAR Need Figure Perini next argues that the Commission erred in justifying its disregard of the SHP/WMHSP bed need methodology by claiming that under COMAR need regulation 10.-24.01.07D(2)(c), the need for the proposed facility must be determined apart from any alloted bed need figure in the SHP/WMHSP. COMAR 10.24.01.07D(2)(c) requires the agency to consider the need of the population to be served or presently being served after examining current demographic and utilization data. Perini insists that the resulting figure under this regulation must be identical to the SHP/WMHSP need figure. We do not agree.

Perini’s interpretation is contrary to the rules of statutory construction, past Commission interpretation and the interpretation given to similar statutes by other courts. —Statutory Interpretation— A cardinal rule of statutory interpretation provides that where the meaning of a provision is plain, a reviewing court need look no further for explanation. Blue Cross of Md., Inc. v. Franklin Square Hospital, 277 Md. 93, 105 , 352 A.2d 798 (1976), remanded for modification; further mod ²⁰⁷ ified and aff'd as modified, Health Services Cost Review Commission v. Franklin Square Hospital, 280 Md. 233 , 372 A.2d 1051 (1977). Section 19-118(c)(l), supra, mandates that except in emergencies, all CON decisions must be consistent with the SHP and the standards for review established by the agency. The use of the conjunctive “and” implicates separate need determinations.

If the two need determinations were synonomous, there would be no rational explanation as to why the statute directs the Commission to make CON decisions consistent with both the health plans and COMAR. In Fort Washington Community Hospital, et al. v. Southern Maryland Hospital Center, et al., 66 Md.App. 480 , 490-91 505 A.2d 117 (1986), quoting State v. Loscomb, 291 Md. 424, 432 , 435 A.2d 764 (1981), this Court reiterated that “[i]t is a general rule of statutory construction that statutes that deal with the same subject matter, share a common purpose, and form part of the same general system are in pari materia and must be construed harmoniously in order to give full effect to each enactment.” As we will explain, in order to give full effect to COMAR, COMAR need must mean something other than SHP/WMHSP need. Perini suggests that the COMAR need determination “is intended to be used to consider special needs not addressed by the SHP (Medicaid, minority groups, the handicapped, etc.), and to permit a need analysis to be made where the SHP provides none." (Emphasis in original.) Perini’s interpretation renders both the language of § 19-118(c)(1) and COMAR 10.24.01.07D(2)(m) (dealing with the contribution of the project to meeting the needs of the medically underserved groups) superfluous. Although COMAR need includes consideration of the needs of underserved groups, criterion (c) must focus on another aspect besides that of criterion (m).

These two regulations deal with the same subject matter and share the common purpose of reasoned health planning. Thus, they “must be construed harmoniously in order to give full effect to each enactment.” Fort ²⁰⁸ Washington Community Hospital, supra [66 Md.App.], at 491, 505 A.2d 117 , quoting State v. Loscomb, supra [291 Md.] at 432, 435 A.2d 764 . The purpose behind the need analysis under COMAR 10.24.01.07D(2)(c) is to determine whether the alloted SHP/WMHSP bed figure best meets the needs of the specific area and population to be served based on the available data. The SHP is time-specific.

While it is promulgated every five years and updated periodically, it is not always timely. COMAR criterion (c) takes into account this problem by consideration of present and future statistics. Accordingly, in view of the statutory mandate, mere consistency with the SHP alone is not sufficient to meet an applicant’s burden of proving that its project is needed. If the SHP bed availability methodology projects a need for additional resources, but other factors substantially indicate no such need under COMAR, we hold the Commission must not ignore that information.

Perini’s argument eliminates the Commission’s discretion, judgment and expertise, and instead advocates a mechanical approach to allocating critical health care services. This pure mathematical formula produces a sterile bed projection without regard to changing events in health care delivery. —Commission Interpretation— Our interpretation of COMAR need is also consistent with past Commission interpretation. Although the Commission does not routinely come to a decision regarding need which is in conflict with state or local plans, in those cases where the evidence demonstrates that real need does not exist, the Commission has found no need. In In the Matter of North Charles General Hospital, Docket No. 83-24-1171 and Sinai Hospital of Baltimore, Docket No. 83-24-1172 (November 26, 1984), the Commission denied a proposed program as not needed under criterion (c) even though the SHP methodology would have al ²⁰⁹ lowed the program. 11 Perini attempts to distinguish this case based on the different facility requested, namely an open heart surgery program.

We find the distinction without significance. —Other Jurisdictions— Likewise, other courts have held that proposed projects must be consistent with not only the state plans, but also with other criteria; see Princeton Community Hospital v. State Health Planning Agency, 328 S.E.2d 164, 170-71 (W.Va.1985); and that health planning agencies cannot solely rely upon a statistical bed projection formula. See Anderson v. Blum, 80 A.D.2d 674 , 436 N.Y.S.2d 378, 379 (1981); Irvington General Hospital v. Department of Health of State of New Jersey, 149 N.J.Super. 461 , 374 A.2d 49, 52 (1977); Fairfield Nursing Home v. Whalen, 64 A.D.2d 802 , 407 N.Y.S.2d 923 (1978). Turning to the evidence presented relative to COMAR need, the Commission found the population to be served ²¹⁰ needed fifty additional beds located in Washington County near the jurisdictional boundary with Frederick County. Utilizing the most recent available data, the Commission concluded that the expressed policy in COMAR of striving to keep nursing home patients as close as possible to their families and friends would be thwarted by the addition of 144 beds in Washington County.

Based on this data, the Commission properly determined that the population to be served—Frederick and Washington County residents—would best be served if only fifty beds in Boonsboro were approved. No need was found for the Perini proposal notwithstanding one of the factors considered was the availability figure of 233. “To authorize additional beds, even though there is a projected need for them, would be counter productive if the new beds would be placed in a location already well-served with available beds.” Doctors’ Hospital of Prince George’s County, supra [65 Md.App.] at 675, 501 A.2d 1324 . In conclusion, we hold there was substantial evidence presented to the Commission to support its finding that Perini’s proposal was inconsistent with both the SHP/WMHSP and the COMAR need criteria, and the