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

MURPHY, Chief Judge. The Maryland Health Resources Planning Commission (Commission) granted a certificate of need to Southern Maryland Hospital Center (Southern) to add thirty-seven medical/surgical beds to its existing 308-bed hospital. The ³²⁵ certificate contained four “conditions” that required the hospital to submit additional information to the Commission. We must decide whether the Commission exceeded its authority in this case by granting a certificate of need subject to the stated conditions.

I. A. Regulatory Framework The National Health Planning and Development Act of 1974 (Federal Act), as amended, 42 U.S.C. §§ 300k — 300n (1982), required the states to establish a health planning system as a prerequisite to receiving federal funds. See 42 U.S.C. § 300m. 1 Under the Federal Act, a state had to designate a state agency to conduct the state’s health planning activities, prepare state health plans, and administer a certificate of need program. 42 U.S.C. § 300m-2(a). The Federal Act also specified minimum procedures and review criteria to be used by the state agency in conducting certificate of need programs. 42 U.S.C. § 300n-l. By ch. 383 of the Acts of 1975, the Maryland General Assembly authorized the Governor to implement the provisions of the Federal Act.

Subsequent legislation created the Maryland Health Planning and Development Agency and the Maryland Health Resources Planning Commission to administer the federal and state health planning legislation. See ch. 911 of the Acts of 1978; ch. 108 of the Acts of ³²⁶ 1982. Sections 19-101 to -123 of the Maryland Code (Cum. Supp.1986) Health-General Article now govern health planning activities in Maryland. 2 Section 19-102(c) recognizes the Federal Act and any amendments not requiring state legislation to be effective; § 19-107(a)(l) authorizes the Commission to adopt rules and regulations; § 19-114 requires the adoption of a state health plan, and §§ 19-115 to -118 govern the certificate of need program.

The regulations governing the certificate of need program appear at COMAR 10.24.01. For a discussion of Maryland’s health planning law, see Sinai Hosp. v. Md. Health Resources Com’n, 306 Md. 472 , 509 A.2d 1202 (1986). Section 19 — 118(j) authorizes the Commission to assume responsibility for certificate of need decisions on January 1, 1983. New regulations governing such decisions did not take effect until March 18, 1983; thus, applications docketed for review before that date were considered under CO-MAR 10.24.01 (1980).

Because § 19-118(f) allowed evidentiary hearings while the predecessor statute did not, the new regulations taking effect March 18, 1983 governed those hearings. 3 The regulations applicable to the Commission’s review of Southern’s proposed project required that it consider thirteen factors in determining whether to issue a certificate of need (CON). COMAR 10.24.01.06B(2)(a)-(m) (1980). These factors included the relationship of the project to the applicable health systems plan, state health plan, the applicant’s long-range plan, the need for and financial feasibility of the project, the availability of resources to fund and staff the project, and the existence of less costly or more effective alternatives to the proposed project. ³²⁷ COMAR 10.24.01.07C-E govern evidentiary hearings requested pursuant to § 19-118(f). The Commission must publish notice of an evidentiary hearing in a newspaper of general circulation in the appropriate health service area.

COMAR 10.24.01.070(3). At a prehearing conference, interested persons who wish to participate in the hearing will be identified. COMAR 10.24.01.07D(2)(a). Finally, COMAR 10.24.01.07E contains the procedures governing the hearing itself.

Participants in the hearing may present oral or written testimony and may cross-examine witnesses. CO-MAR 10.24.01.07E(10). B. Factual Background Southern, a 308-bed hospital in southern Prince George’s County, submitted an application on March 11, 1983 for a certificate of need (CON) to add 120 medical/surgical beds, to relocate and expand its ambulatory surgery program, and to consolidate and expand its critical care services. Southern estimated that the project would cost $14.9 million, including financing costs.

The Commission docketed the application for review on March 17, 1983, and Southern requested an evidentiary hearing on May 4, 1983. The Southern Maryland Health Systems Agency (SMHSA), the regional health planning agency for Prince George’s County, reviewed the project for compliance with the Southern Maryland Health Systems Plan (SMHSP) and recommended withdrawal of the project until SMHSA completed its analysis of the need for and recommended location of any additional medical/surgical beds in Prince George’s County. The Commission staff reviewed the project for compliance with the SMHSP and the State Health Plan and recommended disapproval. The staff concluded that Southern had not demonstrated need for its proposal or consistency with the guidelines and standards in the applicable plans.

Staff modified its findings in some respects after the first two days of the evidentiary hearing, but did not change its recommendation that the CON be denied. The modification ³²⁸ did note that the SMHSP now showed a need for thirty-seven additional medical/surgical beds in southern Prince George’s County. The Commission designated one of its members to preside at the evidentiary hearing held on November 18 and 21 and December 8 and 9, 1983. In accordance with Commission regulations, notice of this hearing was published in newspapers of general circulation in the health services area.

The appellees, Greater Southeast Community Hospital, Fort Washington Community Hospital, and Doctors’ Hospital of Prince George’s County, did not receive personal notice of or participate in the hearing. At the hearing, Southern presented extensive testimony in support of its application. Although it responded to the hearing officer’s questions about the feasibility of a thirty-seven bed addition and presented some cost and construction information, it emphasized that this testimony should not be construed as a modification of its request for 120 additional beds. The hearing officer recommended approval of Southern’s project 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. ³²⁹ “2. Within 60 days from the date of this Certification, [Southern] must revise its policy regarding ability to pay so that it meets the requirements of SHP accessibility standard 1A-3; and must, where appropriate, submit written transfer agreements required by SHP continuity standard 1A-6. “3. Within 60 days from the date of this Certification, [Southern] 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, [Southern] 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.” The appellees filed exceptions to this recommendation and participated in an exceptions hearing before the full Commission. On February 14, 1984, the Commission adopted the hearing officer’s recommendation and granted Southern a CON subject to the listed conditions. The appellees filed timely appeals, and the Circuit Court for Prince George’s County affirmed the Commission. The Court of Special Appeals, in an extensive opinion written for the court by Judge Menchine, reversed the Commission’s grant of a CON to Southern and remanded for further proceedings.

Ft. Wash. Community Hosp. v. S. Md. Hosp., 66 Md.App. 480 , 505 A.2d 117 (1986). We subsequently granted certiorari to consider the issues of public importance presented in the case.

In its opinion, the intermediate appellate court first determined that the Maryland health planning law, Maryland Code (Cum.Supp.1986) §§ 19-101 to -123 of the Health-General Article, required compliance with both Maryland and ³³⁰ federal law. According to the court, the CON granted to Southern violated provisions of both the federal health planning law, 42 U.S.C. §§ 300k — 300n (1982) and the Commission’s regulations, COMAR 10.24.01 (1980). Specifically, it said that the CON did not include the costs associated with the project or the financing terms as required by COMAR 10.24.01.06K. Ft.

Wash., supra, 66 Md.App. at 496-98 , 505 A.2d 117 . In addition, the court determined that the hearing officer’s report was not complete, as required by § 19-118(d)(4) of the Health-General Article. It also noted that the additional information required by the conditions related to six criteria that the statute directed the Commission to consider before issuing a CON. Ft.

Wash., supra, 66 Md.App. at 498-505 , 505 A.2d 117 . The Court of Special Appeals also rejected the Commission’s argument that its power to approve a project with conditions, pursuant to § 19-118(d)(4), authorized the conditions attached to Southern’s CON. The court interpreted the term “condition” in § 19-118(d)(4) to mean “a specific requirement or restriction within the unilateral capacity of the applicant to achieve or to prevent.” 66 Md.App. at 505 , 505 A.2d 117 . The court noted that Southern might not be able to satisfy these conditions.

Because this information was indispensable to a determination of need for the project, it found that the Commission could not issue a valid CON subject to the listed conditions. Id. at 505-06 , 505 A.2d 117 .

II

A. Applicability of Federal Law The Commission and Southern