Mission Health seeks publication of recent CON court ruling

Mission Health is urging North Carolina’s second-highest court to publish a recent decision in a certificate-of-need dispute. Publication would give the decision authority as a legal precedent.

The state Court of Appeals issued an unpublished opinion on March 19 in Fletcher Hospital v. NC Department of Health and Human Services.

The court ruled that the absence of a public hearing would not force state regulators to throw out a CON issued in 2022. The state had not held a public hearing before awarding a CON for a new Mission Health emergency department in Buncombe County.  

Healthcare providers in North Carolina must secure a CON before building new hospitals and other types of healthcare facilities, adding beds to existing hospitals, or adding some major pieces of medical equipment.

The March 19 ruling amounted to a court win for Mission and a setback for competitor AdventHealth Hendersonville. AdventHealth had challenged Mission’s CON.

AdventHealth can continue to pursue its lawsuit against the CON. But the healthcare provider’s lawyers must prove that the lack of a public hearing led to “substantial prejudice” against AdventHealth.

“The opinion in this case addresses an area of the certificate of need law with little existing case law, provides a current and clear articulation of certain published case law regarding substantial prejudice, and addresses the same issues that are currently pending before this Court in several cases that have yet to be calendared,” Mission Health’s lawyers wrote in a motion Tuesday. “Therefore, this opinion would have precedential value and be important for the CON jurisprudence in this State.”

“The opinion in this case specifically addresses the public hearing requirement set out in N.C.G.S. § 131E-185(a1)(2) and its scope,” the motion continued. “There is relatively little case law that addresses the legal requirement for a public hearing under the CON statutes and the impact resulting from a lack of a public hearing.”

The March 19 decision labeled healthcare regulators’ decision to hold no public hearing “agency error.” But appellate judges refused to rule that the error itself created substantial prejudice.

“Notwithstanding this Court’s precedents, the issue of whether substantial prejudice must be proven separate and apart, and in addition to, Agency error continues to be one of the most litigated issues in CON cases,” Mission lawyers wrote. “The opinion in this matter provides a real-time, current and clear articulation of the principle that Agency error, standing alone, does not constitute substantial prejudice.”

“This core principle, if published in this opinion, would be of great guidance and assistance to CON litigants and the Administrative Law Judges who hear CON appeals at the Office of Administrative Hearings,” Mission’a lawyers argued.

Mission argues that the March 19 decision clarifies the meaning of a 2007 precedent case, Hospice at Greensboro v. NC DHHS Division of Facility Services.

“For some time now, petitioners in CON appeals have cited the Hospice at Greensboro case in support of the wrongful notion that there is ‘regular’ Agency error but also that some Agency errors constitute ‘super error,’ such that the occurrence of these alleged ‘super errors’ constitutes substantial prejudice per se or as a matter of law,” Mission’s lawyers argued. “The alleged ‘super error’ argument is not consistent with this Court’s precedents regarding the separate and distinct requirement that a petitioner prove both agency error and substantial prejudice independent of one another.”

“However, the lack of clarity around the scope of Hospice at Greensboro has permitted CON petitioners to make this argument, apparently even persuading Administrative Law Judges of its worth,” the motion continued. “In response, respondents in CON appeals have been forced to spend inordinate sums of money and time defending against Hospice at Greensboro claims.”

“The Opinion in this matter, and the publication thereof, would put to rest this issue once and for all,” the motion concluded.

An administrative law judge had ruled in favor of AdventHealth in 2023. The Appeals Court overturned that decision.  

Appellate judges determined that AdventHealth needed to prove more than “agency error” to win the case. AdventHealth also needed to show evidence that it suffered “substantial prejudice” tied to the error.

“Here, AdventHealth satisfied its burden of proof in showing Agency error, but it failed to forecast particularized evidence of substantial prejudice,” wrote Judge Fred Gore. “Yet, our determination in this case should not be misconstrued. AdventHealth may ultimately satisfy its burden; it may not.”

Regulators with the state Department of Health and Human Services held no CON public hearings during more than two years of the COVID-19 pandemic.

“[W]e recognize the COVID-19 pandemic presented a wide range of unique and complex challenges, but neither the Agency nor Mission directs this Court to any statute, rule, regulation, or case law that would authorize the Agency to implement its own procedures as a substitute to the public hearing provision, or any other provision mandated by statute,” Gore wrote.

“Respondents may argue that strict compliance with § 131E-185(a1)(2) would have been irresponsible under the circumstances, have undermined the Agency’s statutory duties, or that the public hearing provision in § 131E-185(a1)(2) should yield to broader public policy concerns,” Gore added. “Yet, ‘we must decline’ respondents’ ‘invitation to engage in public policy considerations here in light of the unambiguous and specific language chosen by the General Assembly in drafting and enacting …’ the CON law.”

“[W]e determine that the Agency was required to hold a public hearing under the facts in this case, and its failure to do so was error,” Gore wrote.

Yet AdventHealth must do more to make its case. “[W]e agree with respondents’ position that substantial prejudice must be proven; it is not presumed to exist per se on this record,” Gore wrote. “A mere showing that the Agency’s action was erroneous ‘does not absolve the petitioner of its duty to separately establish the existence of prejudice, i.e., to show how the action caused it to suffer substantial prejudice[ ]’ to satisfy each element of its claim for relief.”

Gore and fellow Judges Jefferson Griffin and Michael Stading held oral arguments in the case in February. Much of the hearing focused on whether the CON public hearing requirement is mandatory.

“It is the agency’s position that it is discretionary, not mandatory,” argued Derek Hunter, the state special deputy attorney general representing DHHS.

State health officials canceled all in-person CON public hearings during the COVID-19 pandemic, Hunter explained. That decision was consistent with state officials’ role in protecting health. “It is undisputed that the agency must — even in light of the CON process — maintain the public’s health,” Hunter argued.

“To be clear on that issue, you’re using the overall public policy approach” from other health care laws, “not citing anything from within [the CON law] that would grant that discretion, correct?” Gore asked.

“That is correct. There is nothing specific in [the CON law] that would grant that discretion,” Hunter replied.

Mission Health’s lawyer, Iain Stauffer, noted that the absence of a public hearing did not block AdventHealth from challenging the CON. “There is no prejudice to AdventHealth from the lack of a public hearing in this review,” Stauffer argued. “AdventHealth was fully aware of the Mission application. It submitted written comments in opposition to the Mission application, which were considered by the agency.”

UNC Health played no direct role in the Mission-AdventHealth dispute. But the Appeals Court allowed UNC Health lawyer Noah Huffstetler to take part in oral arguments.

“It … strains credulity to believe that the General Assembly — in the midst of a worldwide pandemic, an unprecedented healthcare emergency — would have wanted a needed healthcare facility, an emergency room, not to be built because of an inconsequential failure by the agency,” Huffstetler argued.

On the other side of the argument, attorney Frank Kirschbaum made AdventHealth’s argument that Mission Health and DHHS cannot get around clear requirements in state law.

“They are essentially saying that the agency is free not to follow the rule of law as long as they take away some of your rights, but not all,” Kirschbaum argued.

“Assume it is error not to have a public hearing. What’s the substantial prejudice?” Griffin asked.

“The error is the failure to have that hearing,” Kirschbaum responded. “The taking away of the right that is granted to all of the public and to AdventHealth is substantial prejudice.”

In March 2023, Administrative Law Judge David Sutton reversed the state’s CON decision. Sutton cited the lack of a public hearing during the CON process.

A state law — NC Gen. Stat. § 131E-185(a1)(2) — calls on DHHS to “ensure that a public hearing is conducted at a place within the appropriate service area” in a CON case if an affected party requests a hearing or if the CON involves a project of at least $5 million. Mission’s new emergency department is estimated to cost more than $14.7 million.

Mission filed a brief in October 2023 explaining how Sutton’s ruling could impact other CON cases.

“It is undisputed that during the period from February of 2020 through September of 2022, the Agency did not hold public hearings with respect to any CON applications because of the COVID pandemic and out of concern for public safety,” Mission’s lawyers wrote. “During that time period, the Agency conducted eighty-six (86) CON application reviews which, pursuant to the provisions of N.C. Gen. Stat. § 131E-185(a)(2), would have required a public hearing because they were competitive reviews or involved projects costing more than five million dollars ($5,000,000.00).”

“Those eighty-six (86) reviews involved a total of one hundred and fifty-two (152) applicants and proposed projects,” the Mission brief continued. “The vast majority of those reviews resulted in at least one CON application being approved, including Mission’s. The projects involved ranged from new hospitals to the acquisition of major medical equipment such as fixed cath labs, MRIs, PET Scanners, linear accelerators, new diagnostic centers, new facilities such as hospices and home health agencies, new hospitals, and a wide range of other services and facilities.”

Affected providers included “not only Mission, but Pardee Hospital; UNC Hospitals (with multiple projects approved including a new hospital in Durham County and new diagnostic centers); Duke University Health System; Novant Health; Cone Health; Wake Forest Baptist Hospital; Atrium Health; and others.”

Mission reminded the court of public health conditions in April 2020, when state law called for a public hearing on the Candler emergency department CON. “North Carolina and the entire United States were under an ongoing federal and state declared public health emergency due to the COVID pandemic,” according to the brief. “While conditions related to COVID were generally improving at that time, the pandemic was far from over.”

The challenge to state regulators’ decision argued that the “failure to hold a public hearing regarding the Mission Application during the COVID pandemic was Agency error which substantially prejudiced” AdventHealth, according to Mission’s brief.

Sutton’s ruling “was based entirely on his conclusion that the Agency’s failure to hold a public hearing in connection with its review of the Mission … Application was a violation of N.C. Gen. Stat. § 131E-185(a)(2) that substantially prejudiced” AdventHealth’s rights.

UNC Health explained in a friend-of-the-court brief how the “theory” advanced by Sutton’s decision could affect its own projects. “This same theory has been advanced against UNC in a contested case hearing in which Duke University Health System, Inc. challenged the Agency’s approval of UNC’s application to expand its already-approved … new community hospital in Durham County, which is also pending appeal in this Court.”

“UNC offers the perspective of another frequent participant in the CON process that would have its growth hampered based on an alleged error that it had no part in causing,” the motion added.

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