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01/30/91 DISTRICT COLUMBIA HOSPITAL ASSOCIATION v.

January 30, 1991

DISTRICT OF COLUMBIA HOSPITAL ASSOCIATION, ET AL., APPELLANTS
v.
MARION S. BARRY, JR., MAYOR OF THE DISTRICT OF COLUMBIA, ET AL., APPELLEES



Appeal from the Superior Court of the District of Columbia; Hon. George H. Revercomb, Trial Judge

Newman and Terry, Associate Judges, and Pryor, Senior Judge.

The opinion of the court was delivered by: Terry

In this case the District of Columbia Hospital Association (DCHA) and the thirteen hospitals it represents challenge three regulations promulgated by the District of Columbia State Health Planning and Development Agency (SHPDA). These regulations were part of a scheme designed to implement a District of Columbia statute, the Certificate of Need Act of 1980. *fn1 Briefly stated, they permit the SHPDA to impose conditions on the use of medical equipment and services, to require medical institutions to report expenditures over specified amounts, and to prohibit expenditures "related to" medical services unless a Certificate of Need (CON) has been obtained. The present appeal is taken from a trial court judgment upholding the validity of the three regulations at issue. DCHA argues on appeal that the scope of these regulations exceeds the authority granted by the Certificate of Need Act, and that they are arbitrary and capricious. We disagree and affirm the judgment. *fn2

I

The District of Columbia Council enacted the Certificate of Need Act ("the CON Act") in 1980 to ensure that health care facilities in the District qualified for federal health care planning grants and other funds under the National Health Planning and Resources Development Act, *fn3 and "to promote effective and equitable health planning and regulation of new institutional health services and capital expenditures proposed for the District of Columbia." *fn4 To achieve these goals, the CON Act required all persons or organizations proposing new medical services or major medical capital expenditures to obtain a CON from the SHPDA before the service could be offered or the expenditure made. *fn5

In 1982 the SHPDA promulgated regulations to implement the CON Act. These regulations, which also establish requirements for obtaining a CON, contain more than 400 provisions and affect virtually every aspect of health care service in the District of Columbia. *fn6 Three regulations are challenged by DCHA: 22 DCMR § 4102 (1986), which requires health facilities to obtain a CON whenever capital expenditures "related to" health services or facilities rise above specified limits; 22 DCMR § 4005 (1986), which authorizes the SHPDA to attach enforceable conditions to CONs to ensure that authorized health services, facilities, and equipment will be used for the purposes for which they were originally intended; and 22 DCMR § 4030 (1986), which requires health facilities to notify the SHPDA of capital expenditures greater than $100,000.

A. The "Capital Expenditures" Regulation

This regulation requires District of Columbia health facilities to obtain a CON whenever capital expenditures "related to" health services or facilities exceed certain limits. *fn7 In the CON Act, "capital expenditure" is defined as "any expenditure by or on behalf of a health care facility. . . ." D.C. Code § 32-302(3)(A) (1988) (emphasis added). The regulation, however, states in relevant part: "Unless a Certificate of Need has been obtained, no person shall make or obligate [a capital expenditure] . . . related to a health service or facility." 22 DCMR § 4102.1 (1986) (emphasis added). The issue before the trial court was whether the SHPDA exceeded the scope of its authority by issuing a regulation addressing an expenditure "related to a health service or facility" when the statutory language provided for "an expenditure by or on behalf of a health care facility."

The trial court ruled that the SHPDA did not exceed the scope of its authority, stating that the "linguistic change" embodied in the regulation "does not expand the definition of capital expenditure, but is addressed to CON requirements. Thus, it does not expand SHPDA's review authority." Furthermore, the court concluded that the regulation was not arbitrary and capricious because the SHPDA had "supported this change [in language] with a rational basis."

B. The "Perpetual Conditions" Regulation

Another regulation authorizes the SHPDA to attach enforceable conditions to CONs to ensure that authorized health services, facilities, and equipment will be used for the purposes for which they were originally intended. *fn8 Such conditions, moreover, may be permanent or of any duration, in the discretion of the SHPDA, even though the CON Act provides that a CON is not valid for more than one year (although it may be renewed). See D.C. Code § 32-307 (a) (1988). The trial court concluded that this regulation was authorized by the CON Act because applicable federal regulations permit a state agency to impose conditions upon CONs and because D.C. Code § 32-305 (a) "refers directly to these federal regulations" and authorizes the SHPDA to require, at a minimum, that these federal standards be met. The court also held that the regulation was authorized by D.C. Code § 32-316 (1988), which permits the SHPDA to adopt "any other regulation necessary to carry out the purposes of [the CON Act]."

The trial court ruled, in addition, that the regulation was not arbitrary because SHPDA based it on federal findings and its own research. The court concluded that the regulation followed federal requirements and refused to "substitute its judgment for an agency's rational choice."

C. The "Threshold Expenditures" Regulation

The third regulation challenged by the DCHA requires health facilities to notify the SHPDA of (1) any capital expenditure of $100,000 or more for any construction activity which requires a permit from the District of Columbia government, and (2) any expenditure of $100,000 or more to acquire major medical equipment. Such notice must provide a full description of the equipment, including its price or fair market value, and must also describe any related expenditures which the facility may be considering within the next two years. Health facilities may not go ahead with ...


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