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Medstar Health, Inc. v. District of Columbia Department of Health

Court of Appeals of Columbia District

September 15, 2016


          Argued February 4, 2016

         Petition for Review of a Decision of the Office of Administrative Hearings (DOH-14-13)

          Daniel W. Wolff, with whom Kathleen M. Stratton and Laurel Pyke Malson were on the briefs, for petitioner, MedStar Health, Inc.

          Mary L. Wilson, Senior Assistant Attorney General, with whom Karl A. Racine, Attorney General, Todd S. Kim, Solicitor General, and Loren L. AliKhan, Deputy Solicitor General, were on the brief, for respondent, District of Columbia Department of Health, State Health Planning and Development Agency.

          Amandeep S. Sidhu, with whom H. Guy Collier and Mary D. Hallerman were on the briefs, for respondent, District Hospital Partners, LP. [1]

          BEFORE: Easterly and McLeese, Associate Judges; and King, Senior Judge.


         This case came to be heard on the administrative record, a certified copy of the agency hearing transcript and the briefs filed, and was argued by counsel. On consideration whereof, and as set forth in the opinion filed this date, it is now hereby

         ORDERED and ADJUDGED that the order issued by the Office of Administrative Hearings ("OAH") Administrative Law Judge, directing the State Health Planning and Development Agency ("SHPDA") to issue the District Hospital Partners ("DHP") a certificate of need, is reversed. The matter is remanded to OAH with instructions to remand to SHPDA to determine whether to modify or retract the certificate of need that it issued to DHP.


          Catharine Easterly Associate Judge

         This case requires us to interpret the health services planning statute, D.C. Code §§ 44-401 to -421 (2013 Repl.), which regulates the volume and distribution of health services in the District. The statute requires any entity seeking to offer a new health service in the District to first obtain a certificate of need from the Statewide Health Planning and Development Agency (SHPDA). The statute directs appeals of SHPDA's certificate of need decisions to the Office of Administrative Hearings (OAH). But the nature of this appellate review is unclear. In this case, we must determine the scope of OAH's authority to take new evidence and to overturn a decision made by SHPDA.

         District Hospital Partners (DHP) applied for a certificate of need to build a new kidney and pancreas transplant facility in the District. SHPDA denied its application and DHP appealed to OAH. OAH overturned SHPDA's denial and ordered it to issue a certificate of need to DHP. In this court, MedStar Health, Inc., [2] a competing kidney and pancreas transplant provider, and SHPDA both challenge OAH's decision. They argue that OAH "overstepped its [statutory] authority" by failing to give deference to SHPDA's fact finding and conclusions. DHP counters that OAH acted lawfully by taking new evidence and assessing the propriety of SHPDA's decision-making in light of the augmented record.

         The state health planning statute does not clearly specify the standard of review OAH should employ when reviewing SHPDA's certificate of need decisions. Instead, the pertinent provision, D.C. Code § 44-413, contains seemingly conflicting language regarding the amount of deference, if any, OAH owes to SHPDA. Interpreting this ambiguous provision, we conclude that OAH is not empowered to do what it did in this case, i.e., conduct an evidentiary do-over and effectively assume de novo decision-making authority over the issuance of certificates of need.

         Because OAH exceeded these bounds in reviewing SHPDA's decision to deny DHP a certificate of need, we reverse. But we decline MedStar's request that we reinstate SHPDA's order denying DHP a certificate of need. Instead, consistent with SHPDA's request to this court, we remand to OAH with instructions to remand to SHPDA so that it may determine, in light of current circumstances, whether it should adhere to its prior denial or allow DHP's certificate of need to remain in place.

         I. Overview of Certificate of Need Application and Review Process

         The Council of the District of Columbia created SHPDA to be "responsible for health systems development in the District." D.C. Code § 44-401 (19); see also id. § 44-402 (b). SHPDA is statutorily required to establish, update, and administer a Health Systems Plan, D.C. Code §§ 44-402 (b)(1), -404 (a), (e), which is the "planning and development blueprint" for provision of health services in the District, Bio-Medical Applications v. District of Columbia Bd. of Appeals & Review, 829 A.2d 208, 210 (D.C. 2003). In the Plan, SHPDA identifies health services needs in the District and sets priorities for limitation or expansion of these services, D.C. Code § 44-404 (a)(1)-(5), in order to "ensure that health care resources are allocated appropriately."[3] Bio-Medical, 829 A.2d at 210 (citing D.C. Code § 44-404 (a)). The certificate of need program, administered by SHPDA, [4] is essential to its implementation of the Plan. "[A]ll persons proposing to offer or develop . . . a new institutional health service" must obtain a certificate of need "prior to proceeding with that offering, development, or obligation." D.C. Code § 44-406 (a).

         Pursuant to its statutory authority, SHPDA promulgated regulations setting forth the comprehensive procedure by which applications for a certificate of need are vetted.[5] See 22-B DCMR §§ 4000.1-4599.1 (2014). First, when an entity is planning to submit a certificate of need application, it must give notice to SHPDA, [6] 22-B DCMR § 4003.4, at which point SHPDA must assign a staff member to provide the prospective applicant with "technical assistance" in preparing its application, 22-B DCMR § 4003.6, 4003.10. Once an entity submits an application, SHPDA staff reviews it along with any evidence presented at a public hearing.[7] SHPDA staff then issues a "staff analysis"-a preliminary recommendation on whether to grant a certificate of need-and transmits this analysis, along with the application, to the Statewide Health Coordinating Council (SHCC), an independent body of health industry stakeholders.[8] 22-B DCMR § 4303.1. Next, SHCC, pursuant to its own statutory obligations, makes a recommendation regarding whether to approve or deny a certificate of need. D.C. Code § 44-403 (b)(3); see 22-B DCMR § 4303.3, 4303.7. Finally, the application, the SHPDA staff analysis, and the recommendation of SHCC are submitted to the SHPDA Director for his consideration. See 22-B DCMR §§ 4303.8, 4308.1 (b). Pursuant to statutory requirements and criteria set forth in the Health Systems Plan[9]and SHPDA's regulations, [10] the Director makes a decision to grant or deny the application for a certificate of need. D.C. Code § 44-410 (c).

         The Director is required by statute to "provide . . . a detailed explanation of any decision" in writing. D.C. Code §§ 44-409 (e), -410 (a).[11] "[A]ny person" dissatisfied with the Director's decision may, "for good cause shown, " seek reconsideration at a public hearing. D.C. Code § 44-412 (a). "Good cause" is limited to:

(1) Presentation of significant and relevant information not previously considered by the SHPDA;
(2) Demonstration of a significant change in a factor or circumstance relied upon in reaching the decision;
(3) Demonstration of a material failure to follow SHPDA review procedures; or
(4) Presentation of another basis for a public hearing such as when the SHPDA determines that a hearing is in the public interest.

D.C. Code § 44-412 (b); see also 22-B DCMR § 4310.3 (interpreting the good cause factors and explaining that "information not previously considered by SHPDA" under D.C. Code § 44-412 (b)(1) does not include "[i]nformation that could have been presented during the course of review with reasonable diligence").

         If SHPDA grants reconsideration, it must hold a public hearing, D.C. Code § 44-412 (c); see also 22-B DCMR § 4310.4, after which SHPDA must issue a new decision in writing "affirm[ing], modify[ing], or revers[ing]" and "giving the basis for its decision, " D.C. Code § 44-412 (d); see also 22-B DCMR § 4310.21 (requiring the Director's written decision after reconsideration to include "findings of fact and conclusions of law"). This "final decision shall not be reconsidered." D.C. Code § 44-412 (d); see also 22-B DCMR § 4310.23 ("[This] decision shall constitute the final decision of SHPDA for all purposes."). But this decision does not conclude administrative proceedings.

         The health services planning statute authorizes an "[a]dministrative appeal" to OAH after reconsideration or if SHPDA denies or fails to timely respond to a request for reconsideration. D.C. Code § 44-413 (a); see also 22-B DCMR § 4311.1. OAH "shall review the record and any additional evidence presented on behalf of the parties to the appeal." D.C. Code § 44-413 (b). In so doing, OAH "shall take due account of the presumption of official regularity, [and] the experience[] and specialized competence of the SHPDA." Id. OAH is also directed to conduct "[a]ny contested case hearing required by § 2-509" of the District's Administrative Procedure Act (APA).[12] D.C. Code § 44-413 (c). Upon completing its review, OAH must issue a "written decision, " which "shall be considered the final decision of the SHPDA." D.C. Code § 44-413 (b). "Any person who contests the final decision on an application for a certificate of need . . . is entitled to judicial review" by this court "upon filing . . . a written petition for review pursuant to § 2-510" of the APA. D.C. Code § 44-414; see also 22-B DCMR § 4311.2 (acknowledging that "after exhausting all administrative remedies including an appeal to [OAH], " "[a] person adversely affected by a SHPDA decision may appeal" to this court).

         II. Facts and Procedural History

         In late 2012, DHP submitted a lengthy application for a certificate of need to allow it to establish a new kidney and pancreas transplant facility.[13] In early 2013, SHPDA held a public hearing on the application. DHP presented testimony from nine witnesses in an effort to demonstrate that there was a need for a new transplant facility, and in particular, that its proposed transplant program would increase the number of donors (and thus available organs) and expand access to transplant services in the District. After DHP concluded its presentation, affiliates of petitioner MedStar, which was the District's only provider of kidney and pancreas transplants to "non-military, non-pediatric" patients, voiced its opposition.[14] MedStar's witnesses explained that, although there was unquestionably a high demand for kidney and pancreas transplants in the District, the impediment to meeting that demand was a shortage of organs, rather than a shortage of transplant services. They further questioned whether DHP could increase organ donation rates locally, contrary to national trends, and indicated that even if the supply of organs available for transplant increased, MedStar could meet the corresponding demand for services.

         SHPDA staff concluded that DHP had failed to demonstrate a need for a new kidney and pancreas transplant facility in the District, particularly in light of the shortage of transplantable organs, and issued a twenty-seven-page report that recommended denying DHP a certificate of need. Subsequently, a committee of SHCC reviewed the application and held its own public hearing, at which a central focus was on DHP's ability to enlarge the pool of organ donors through community outreach. At the conclusion of the hearing, a majority of the committee voted to conditionally recommend granting DHP a certificate of need; SHCC, without discussion, orally voted to adopt the committee's conditional recommendation. SHCC did not issue a written report.

         The SHPDA Director then reviewed DHP's application for a certificate of need (including supplemental materials submitted after the SHPDA staff and SHCC hearings[15]), SHPDA's staff analysis, and SHCC's recommendation, and he issued his findings in May 2013. In a thirty-page decision, he concluded that DHP had met all but one of SHPDA's criteria[16] for grant of a certificate of need for its proposed facility: DHP had not demonstrated that the already-available facilities in the District were inadequate to meet the demand for transplant services as limited by the supply of organs. He explained that DHP had failed to demonstrate that it could sufficiently increase the number of organ donations, particularly from living donors, so as to justify the establishment of a new transplant facility. Thus, the Director denied DHP's application for a certificate of need.

         DHP requested reconsideration of the Director's decision, asserting that there was "good cause" under all four permissible grounds listed in D.C. Code § 44-412 (b). DHP attached a number of exhibits to support its request, including a 2011 research report, a community outreach plan for 2014-15, and a letter of commitment by a managed care business that promised to direct its patients to DHP for transplant services.[17] The Director denied DHP's request, concluding that it had failed to show good cause and reiterating his assessment that DHP had not "demonstrated how it will be able to obtain the organs." He noted that ...

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