COURT OF APPEALS OF VIRGINIA 

Present: Judges Huff, Chafin and Decker 

Argued at Richmond, Virginia 

LEWIS-GALE MEDICAL CENTER, LLC

 MEMORANDUM OPINION* BY 

v. Record No. 1289-13-3 JUDGE MARLA GRAFF DECKER 

 APRIL 29, 2014 

CYNTHIA C. ROMERO, M.D., 

 STATE HEALTH COMMISSIONER, 

 COMMONWEALTH OF VIRGINIA 

FROM THE CIRCUIT COURT OF THE CITY OF SALEM 

J. Michael Gamble, Judge Designate 

 Jeffrey D. McMahan, Jr. (Robert L. Hodges; Nathan A. Kottkamp; 

Thomas J. Stallings; McGuire Woods LLP, on briefs), for appellant. 

 Ishneila G. Moore, Assistant Attorney General (Kenneth T. 

Cuccinelli, II, Attorney General; Rita W. Beale, Deputy Attorney 

General; Allyson K. Tysinger, Senior Assistant Attorney General, on 

brief), for appellee. 

 Lewis-Gale Medical Center, LLC (Lewis-Gale), appeals from the circuit court’s affirmance 

of the decision of the Commissioner of the Department of Health (Department) denying its 

application for a certificate of public need (COPN). Lewis-Gale contends that the circuit court erred 

in upholding the Commissioner’s decision denying the COPN because the Commissioner: 

(1) deviated from prior agency decisions without explanation; (2) applied the wrong legal standard, 

thereby treating Lewis-Gale differently from other Virginia hospitals; (3) applied the public need 

calculation required under the State Medical Facilities Plan (SMFP) in an improper manner; and 

(4) reached a decision that was not supported by substantial evidence in the record. We hold that 

the record does not support these claims. Therefore, we affirm the circuit court’s ruling. 

 *

 Pursuant to Code § 17.1-413, this opinion is not designated for publication. 

UNPUBLISHED 
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I. BACKGROUND 

 Lewis-Gale, a for-profit hospital owned by HCA, Inc., and located in Salem, sought a 

COPN to renovate space in its existing newborn nursery. At the time the July 1, 2010 application 

was filed, Lewis-Gale’s nursery contained five general-level bassinets.1

 It was licensed for 

twenty-three obstetrics beds but was not staffing all of those beds due to low demand. In an effort 

to increase usage rates for its obstetrics beds, Lewis-Gale sought to create a neonatal intensive care 

unit (NICU) by adding eight specialty-level bassinets.2 It indicated, as permitted by the applicable 

regulations, an intent to provide both specialty-level and intermediate-level services within those 

bassinets.3

 Lewis-Gale averred that the only other hospital in the health planning region specifically 

licensed to provide specialty-level newborn care, Centra Virginia Baptist Hospital (CVBH), was 

located sixty miles away in Lynchburg, in a different planning district, and was not a realistic option 

for Lewis-Gale patients. It further noted that Carilion Roanoke Memorial Hospital (Carilion), 

located eight miles from Lewis-Gale in the same planning district, was the only facility in that 

district that was licensed to provide any level of NICU care. Carilion, as a licensed provider of 

subspecialty-level care, was also permitted to provide all lower levels of care in those bassinets, 

 1

 The applicable regulations classify newborn infant bassinet space according to four levels 

of medical need: general, intermediate, specialty, and subspecialty care. See 12 VAC 

5-410-443(B). 

2

 The term “[n]eonatal special care” encompasses care “in one or more of the higher service 

levels”— intermediate, specialty, and subspecialty care. 12 VAC 5-230-10. “[N]eonatal intensive 

care” refers to care at the specialty and subspecialty levels. Compare 12 VAC 5-410-443(B)(1), 

(B)(2) (stating that general-level and intermediate-level services “shall provide care [to newborns]” 

with specified lower-level medical needs), with 12 VAC 5-410-443(B)(3), (B)(4) (stating that 

specialty-level and subspecialty-level services “shall provide intensive care [to] high-risk

[neonates]” with certain “neonatal illnesses” (emphases added)). 

3

 The regulations define the requirements for each level of care as including the ability to 

care for infants requiring all lesser levels of care. See 12 VAC 5-410-443(B)(1) to (4). 
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including specialty-level care. Because Carilion was the only provider of NICU services in the 

local planning district, Lewis-Gale asserted that no real competition existed for such services. 

Lewis-Gale suggested that an increasing need for specialized NICU services existed in the 

geographical area due to increasing maternal age and a high proportion of at-risk patients. Finally, 

Lewis-Gale offered evidence that its proposed project enjoyed significant public support as a means 

to avoid separating infants needing specialized care from their mothers. 

 The only public opposition to Lewis-Gale’s COPN application came from Carilion, which 

was licensed for thirty intermediate-level and thirty subspecialty-level bassinets. Carilion contended 

the geographical market for NICU care was “oversupplied” and that the need for such care was 

“diminishing.” It pointed to statistics showing downward trends in occupancy rates for Carilion’s 

NICU bassinets over a period of years and noted studies showing “a high, positive correlation 

between larger size/volumes of NICU’s and infants having a higher level of overall health and a 

significantly lower level of mortality.” 

 The Department’s Division of Certificate of Public Need (the DCOPN) reviewed 

Lewis-Gale’s application and contacted Carilion for additional NICU occupancy data. Once it 

completed its review, the DCOPN issued a detailed report recommending denial of the application. 

It concluded that “reasonable availability and access to special care nursery services exists in the 

[health planning region], especially within the service areas of both [Lewis-Gale] and Carilion.” 

 At the subsequent informal fact-finding conference, Lewis-Gale presented evidence 

challenging the DCOPN recommendation. The adjudication officer (AO), like the DCOPN, 

recommended denying Lewis-Gale’s COPN application. The AO provided a detailed written 

analysis of the statutory and regulatory factors, including an assessment of the consistency of the 

application with the SMFP. He considered Carilion’s declining occupancy statistics for its 

subspecialty-level bassinets in his analysis of both the SMFP and non-SMFP factors. Additionally, 
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the AO observed that authorizing Lewis-Gale’s requested eight additional specialty-level bassinets 

“pose[d] a risk of further reducing utilization” of existing specialty-level and subspecialty-level 

newborn services. 

 The Commissioner expressly adopted the findings, conclusions, and recommendation of 

the AO and denied the application. In doing so, she analyzed the administrative record 

pertaining to the proposed project and considered all the criteria in Code § 32.1-102.3 required to 

make a determination of public need. The Commissioner noted that she was “mindful of the 

emotional challenge created when a needful infant is separated from its family in order to receive 

special level nursery services at another hospital.” However, she opined that such services 

“should not be allowed to be duplicated when evidence strongly shows that sufficient volume 

would not exist to support proficiency and quality in neonatal care delivery.” She also opined 

that the addition of such services at Lewis-Gale would “stand[] to harm” the quality of care at 

Carilion, the facility then providing those services. The Commissioner further held that the 

proposed project was inconsistent with applicable provisions of the SMFP, including its 85% 

occupancy standard, as well as the “purposes to which that plan is devoted.” She concluded that 

the project would “reduce the frequency and duration of medical transportation for only some 

infants in the Lewis-Gale system of hospitals”—those actually delivered at Lewis-Gale—and 

that the economic viability of the plan was “readily questionable.” As a result, the 

Commissioner denied the COPN application despite her acknowledgement of “many expressions 

of community support for the project.” 

 Lewis-Gale sought circuit court review of the Commissioner’s decision. The circuit court, 

in affirming the decision, found that the Commissioner had “complied with her duty to thoroughly 

consider the factors under Code §32.1-102.3(B)[,] . . . includ[ing] . . . the regulations adopted 

pursuant to the [SMFP].” The circuit court held that Lewis-Gale had not established an error of 
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law subject to review under Code § 2.2-4027. The court further held that the agency record 

contained “substantial evidence . . . with respect to issues of fact upon which the Commissioner 

could deny the COPN.” The court concluded that it could not “find that the Commissioner’s 

factual findings should [have] be[en] rejected.” 

 Lewis-Gale appeals the circuit court’s ruling affirming the denial of the COPN. 

II. ANALYSIS 

A. STATUTORY AND REGULATORY FRAMEWORK 

 Code § 32.1-102.3(A) provides that “[n]o person shall commence any [medical care 

facilities] project without first obtaining a [COPN] issued by the Commissioner.” It further 

provides that “[n]o [COPN] may be issued unless the Commissioner has determined that a public 

need for the project has been demonstrated.” Code § 32.1-102.3(A). That statute also requires 

that “[a]ny decision to issue or approve the issuance of a [COPN] shall be consistent with the 

most recent applicable provisions of the [SMFP].” Id. As relevant to the instant case, the SMFP 

sets out certain size and occupancy standards, based on the level of neonatal care to be provided, 

for use in determining whether a COPN for additional neonatal bassinet space should issue. See 

12 VAC 5-410-443 (levels of care); 12 VAC 5-230-940, -960 to -980 (standards for determining 

additional need). 

 Consistency with the SMFP, however, is only one of eight statutory factors for 

consideration. Code § 32.1-102.3(B). The Commissioner is not required to award a COPN if the 

evidence supports a finding that the applicant has failed to demonstrate a public need based on 

any of the enumerated factors. See State Health Comm’r v. Sentara Norfolk Gen. Hosp., 260 Va. 

267, 273, 534 S.E.2d 325, 329 (2000). The other seven factors are whether the project: 

improves access to needed health care services, enjoys community support, fosters institutional 

competition, improves utilization and efficiency of existing services, is feasible in financial and 
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human resources terms, provides improvements or innovations in health care financing and 

delivery, and positively impacts a teaching hospital or medical school. Code § 32.1-102.3(B). 

 Further, when denying a COPN application, the Commissioner is not required to make 

specific findings with respect to the SMFP and the seven other statutory criteria. See, e.g., Va. 

Ret. Sys. v. Cirillo, 54 Va. App. 193, 199, 676 S.E.2d 368, 371 (2009). She needs only to notify 

the parties “‘briefly and generally in writing[] of the factual basis for an adverse decision.’” Id. 

(quoting Code § 2.2-4019(A)(v)). 

B. STANDARDS OF REVIEW 

 On appeal of an administrative agency’s decision, “the party complaining . . . has the 

burden of demonstrating an error of law subject to review.” Hilliards v. Jackson, 28 Va. App. 

475, 479, 506 S.E.2d 547, 549 (1998). Reviewable issues of law include determining whether 

the agency: (1) acted in accordance with the law; (2) committed a procedural error that was not 

harmless; and (3) had sufficient evidential support for its findings of fact. Johnston-Willis, Ltd. 

v. Kenley, 6 Va. App. 231, 241-42, 369 S.E.2d 1, 6-7 (1988); see Code § 2.2-4027. 

 In the face of a challenge to the Commissioner’s findings of fact, a reviewing court must 

defer to the exercise of her expert discretion as long as substantial evidence supports those 

findings. Loudoun Hosp. Ctr. v. Stroube, 50 Va. App. 478, 491, 650 S.E.2d 879, 885-86 (2007). 

Substantial evidence is “‘more than a mere scintilla.’” Johnson v. Va. Ret. Sys., 30 Va. App. 

104, 110, 515 S.E.2d 784, 787 (1999) (quoting Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 

(1938)). “Under the substantial evidence standard, the reviewing ‘court may reject the agency’s 

findings of fact only if, considering the record as a whole, a reasonable mind would necessarily

come to a different conclusion.’” Loudoun Hosp., 50 Va. App. at 491, 650 S.E.2d at 885-86 

(quoting Va. Real Estate Comm’n v. Bias, 226 Va. 264, 269, 308 S.E.2d 123, 125 (1983)) 

(internal quotation marks omitted). Further, when an agency has accepted witness testimony, a 
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court reviewing the agency’s action may not set aside the hearing officer’s credibility 

determination unless the testimony is “‘inherently incredible.’” Va. Real Est. Bd. v. Kline, 17 

Va. App. 173, 177, 435 S.E.2d 596, 599 (1993) (quoting Gamble-Skogmo, Inc. v. FTC, 211 F.2d 

106, 115 (8th Cir. 1954)); see Comm’r v. Fulton, 55 Va. App. 69, 80, 683 S.E.2d 837, 842 

(2009). 

 Where an issue is purely one of statutory interpretation, this Court, like the circuit court, 

reviews the issue de novo. Va. Dep’t of Health v. NRV Real Estate, LLC, 278 Va. 181, 185, 677 

S.E.2d 276, 278 (2009). However, “an agency’s interpretation of its governing statutes, as 

reflected in its regulations, is entitled to great weight.” Manassas Autocars, Inc. v. Couch, 274 

Va. 82, 87, 645 S.E.2d 443, 445-46 (2007) (emphasis added). “‘[A]n agency’s interpretation of 

its own regulations is controlling unless plainly erroneous or inconsistent with the regulations 

being interpreted.’” Mathews v. PHH Mortg. Corp., 283 Va. 723, 738, 724 S.E.2d 196, 204 

(2012) (alteration in original) (quoting Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 

171 (2007)). “The General Assembly has granted the Commissioner broad discretion in 

rendering case decisions. The Commissioner’s determination [of what is] relevant to 

understanding public need lies within an area of [her] experience and specialized competence 

and[,] therefore, is entitled to great deference.” Doctors’ Hosp. of Williamsburg, LLC v. 

Stroube, 52 Va. App. 599, 609-10, 665 S.E.2d 862, 867 (2008) (citation omitted). When an 

agency decision is challenged as arbitrary, “judicial interference is permissible only for relief 

against arbitrary or capricious action that constitutes a clear abuse of the discretion delegated to 

the agency.” NRV Real Estate, 278 Va. at 188, 677 S.E.2d at 280. “‘The reviewing judicial 

authority may not exercise anew the jurisdiction of the administrative agency and merely 

substitute its own independent judgment for that of the body entrusted by the Legislature with 
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the administrative function.’” Doctors’ Hosp., 52 Va. App. at 607, 665 S.E.2d at 866 (quoting 

Johnston-Willis, 6 Va. App. at 244, 369 S.E.2d at 8) (internal quotation marks omitted). 

 This Court reviews this case under these well-established standards. 

C. DENIAL OF LEWIS-GALE’S COPN APPLICATION 

1. Explanation for Decision and Legal Standard Applied to Lewis-Gale 

 Lewis-Gale contends in its first and second assignments of error that the Commissioner 

erred in deviating from prior agency decisions without explanation and in arbitrarily treating 

Lewis-Gale differently by applying the outdated regionalized model of care to assess its 

application. The record, however, refutes these claims. 

 It is well established that “in its ordinarily accepted meaning, the doctrine of stare decisis

is inapplicable . . . to the decisions of an administrative agency.” Courtesy Motors, Inc. v. Ford 

Motor Co., 9 Va. App. 102, 106, 384 S.E.2d 118, 120 (1989). “Erroneous statutory 

interpretations an administrative agency may have adopted in the past can never cause the 

subsequent adoption of a correct application of the law to be arbitrary and capricious. If an 

agency has acted in error, it has no obligation to continue to err in perpetuity.” NRV Real Estate, 

278 Va. at 188, 677 S.E.2d at 280. Instead, “‘[a]n agency may refuse to follow its own precedent 

[as long as] it [does] not act arbitrarily in doing so.’” Courtesy Motors, 9 Va. App. at 106, 384 

S.E.2d at 120 (quoting 1 Charles H. Koch, Jr., Administrative Law and Practice § 6.57 (1985)). 

The issue, therefore, is “whether [the decision] is a departure and indistinguishable from [prior] 

decisions . . . and, if so, whether the commissioner acted arbitrarily in disregarding the 

precedent.” Id. at 106, 384 S.E.2d at 121. 

 The decision of the Commissioner, viewed in context of the evidence before her and 

applying the appropriate legal standard, is distinguishable from the prior decisions upon which 

Lewis-Gale relies. All but two of those decisions were rendered prior to the amendments to the 
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SMFP that became effective February 15, 2009. Lewis-Gale argues that the regulatory changes 

make no difference here. However, the previous version of the SMFP, in assessing various size, 

volume, and occupancy standards, required the aggregation of statistics for all levels of neonatal 

special care within a health planning region. See 12 VAC 5-250-90 (repealed). The current 

regulations, by contrast, provide for separate consideration of such statistics for bassinets of the 

same classification level. See 12 VAC 5-230-960 to -980. Thus, for example, under the 

previous regulations, high occupancy rates for one level of neonatal care could inflate overall 

bassinet occupancy rates and justify the addition of bassinet space at another level even though 

the occupancy rates for that level were significantly lower than 85%. Such a skewing of 

occupancy rates is less likely to occur under the new regulatory scheme, and this fact provides a 

legitimate basis for distinguishing between pre-amendment and post-amendment case decisions. 

 Only two of the projects relied upon by Lewis-Gale involved review under current SMFP 

standards, and both are readily distinguishable. The first COPN application involved merely 

relocating eight existing specialty-level bassinets by moving them from Sentara Virginia Beach 

General Hospital to Sentara’s new Princess Anne Hospital, located nine miles away in an 

underserved part of the same city.4

 The second application—the request of Stafford Hospital, 

 4

 Lewis-Gale offered the related DCOPN report into evidence. See Sentara Hosps., Inc., 

COPN Applic., No. VA-7787, at 1-2 (Va. Dep’t of Health Oct. 19, 2010). The report noted that 

although Virginia Beach’s population was concentrated in the southern portion of the city, no 

acute care hospital was located there. It concluded that moving these specialty-level bassinets to 

Princess Anne would improve access without harming other facilities. Id. at 1-4, 7-8.

Lewis-Gale contends that an earlier phase of Sentara’s project involved significant 

deviation from current SMFP bassinet standards. The record does not support this claim. 

Sentara’s 2008 COPN for construction of the hospital included authorization for more than one 

hundred beds and four intermediate-level bassinets. See Sentara Hosps. COPN Applic., No. 

VA-7535, at 4, 9 (Va. Dep’t of Health Feb. 18, 2009) (DCOPN staff rep.) (citing COPN No. 

VA-04138 (issued Mar. 21, 2008)). Sentara later sought authorization for a larger number of 

beds and agreed, as part of that proposal, to surrender its 2008 COPN. Id. In reviewing 

Sentara’s second proposal in 2009, the DCOPN applied the amended SMFP. Id. at 4. However, 

Lewis-Gale’s evidence shows that the Department reviewed only the new components of the 

application and does not indicate that it revisited the licensing of the bassinets. Id. at 4, 9, 27. 
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LLC, to introduce intermediate-level services with six bassinets—is also readily distinguishable 

from Lewis-Gale’s application because the regulations as revised in 2009 require the 

Commissioner to evaluate considerations for intermediate-level and specialty-level bassinets that 

overlap but are not identical.5

 The regulations, which suggest a minimum of six bassinets for 

intermediate-level care and a much higher minimum of eighteen bassinets for specialty-level and 

subspecialty-level care, reflect the Department’s recognition that NICU-level treatment is more 

volume sensitive than intermediate-level nursery care. Compare 12 VAC 5-230-960(B), with 12 

VAC 5-230-970(B), and -980(B). As the Department has observed, 

[a] well-trained and experienced staff is critical to the success of 

[specialty-level and subspecialty-level NICU] programs. 

Regionalization of this service concentrates patients at the most 

appropriate sites, which in turn creates the most experienced staff. 

The American Academy of Pediatrics advocates the 

regionalization of neonatal care in order to optimize the care and 

outcomes of all newborn infants. 

Dep’t of Health, Ann. Rep. on the Status of Va.’s Med. Care Facilities COPN Pgm. 17 (2010). 

Further reflecting these principles, the regulations also require that an applicant for 

specialty-level or subspecialty-level care “shall demonstrate that service volumes of existing . . . 

providers” of the same type within the same area will not be “significantly reduced.” See 12 

VAC 5-230-970(D), -980(D). No such requirement applies to applications for intermediate-level 

care. 12 VAC 5-230-960. Thus, for these reasons, we hold the Commissioner did not act 

arbitrarily to the extent that her denial of Lewis-Gale’s application resulted in treating it 

differently from applicants seeking intermediate-level bassinets. 

 Lewis-Gale argues next that the Commissioner has acknowledged that specialty-level 

NICU services are a “safe and reasonable expectation of patients and physicians,” i.e., the 

 5

 Lewis-Gale offered the DCOPN report regarding the Stafford Hospital COPN 

application into evidence. See Stafford Hosp., LLC, COPN Applic., No. VA-7718 (Va. Dep’t of 

Health Apr. 27, 2010) (DCOPN staff rep.). 
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standard of care, for all hospitals that provide obstetrics services. However, as the AO pointed 

out, the Commissioner has not held that such services are the standard of care. Instead, as 

recognized by the Commissioner here, a previous Commissioner, in a case involving Chesapeake 

General Hospital, held only that “[a]ccess to some level of on-site specialty care . . . appears to 

be becoming the standard of care for hospitals providing substantial [volumes of] newborn care

as safety has improved and technology and expectations have evolved.” Chesapeake Gen’l 

Hosp. COPN Applic., No. VA-7376 [hereinafter CGH Applic.], at 8, 10 (Va. Dep’t of Health 

Apr. 2, 2007) (recommended dec. of adjud. officer) (emphases added), adopted by CGH Applic., 

at 1 (Va. Dep’t of Health Apr. 3, 2007) (dec. of comm’r). 

 Further, as the AO held here with regard to that prior case decision: 

Th[at] language does not establish a standard of care[;] it only 

recognizes that, . . . in an appropriate setting where need can be 

observed and volumes can be sustained, special care nursery 

services may be approved while preserving the proficiency and 

quality of care across an area’s hospitals. [Therefore,] [r]eliance 

on this language for determinative effect in the present case is 

misplaced. 

(Emphasis added). The DCOPN also concluded that Lewis-Gale “does not operate a ‘busy’ 

obstetrical service,” one of the factors considered relevant by the Commissioner in the prior case 

decision. 

 Here, after independent review, the AO adopted the findings in the DCOPN report, and 

the Commissioner, after her own review, adopted the findings in the AO’s report. Substantial 

evidence in the record supports these findings. The Chesapeake General proceeding involved 

evidence that the hospital performed over 3,000 deliveries per year, more than any other 

non-military hospital in its perinatal region. CGH Applic., supra, at 7-8 (recommended dec. of 

adjud. officer). Chesapeake General also offered evidence that at the time of its 2007 

application, “‘there [were] no other hospitals in Virginia that deliver[ed] more than 2,500 babies 
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per year that [were] not also authorized to provide at least specialty[-]level care.’” Id. at 8. 

Lewis-Gale, by contrast, delivered 497 babies in 2009; calculated an annualized delivery rate of 

780 babies in 2010 based on figures for nine months of that year; and “conservatively” predicted 

deliveries of 1,035 babies per year by 2013. Although Lewis-Gale’s application demonstrated it 

had experienced some increase in obstetrical cases and hoped to achieve a greater increase, the 

record, viewed under the proper standard, supports a finding that even its projected volume of 

1,035 was not high as compared to Chesapeake General’s 3,000 annual deliveries. Under the 

standard for reviewing an agency’s interpretation and application of its regulations, we defer to 

the Commissioner’s exercise of her specialized competence in this area. See Doctors Hosp., 52 

Va. App. at 609-10, 665 S.E.2d at 867. 

 Lewis-Gale further challenges the Commissioner’s decision, contending that this 

outcome upholds “the [previously favored] regionalized model of neonatal care” in the health 

planning region. Lewis-Gale contends that this finding contradicts circumstances elsewhere in 

Virginia which reflect an effort to move away from the regionalized model. To the contrary, as a 

previous Commissioner recognized in 2007, although “protecting a regionalized model for 

subspecialty-level neonatal care is important,” it must be balanced against the need for 

“specialty-level care . . . [within] a busy obstetrics program.” CGH Applic., supra, at 8 

(recommended dec. of adjud. officer), adopted by CGH Applic., at 1 (dec. of comm’r). Similarly 

here, the Commissioner’s ruling indicates a need to balance these interests rather than to uphold 

the regionalized model at any cost. It is true that the SMFP no longer provides for a single 

regional perinatal center in each geographical area. See 12 VAC 5-250-80 (repealed). 

Nevertheless, for all facilities authorized to provide subspecialty-level NICU care, the 

regulations continue to require staff members with the same qualifications previously required of 

such perinatal centers. Compare 12 VAC 5-410-443(B)(4) (eff. Feb. 14, 2005), with 12 VAC 
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5-410-440(D)(2)(a)(4) (2004) (repealed). Further, as Lewis-Gale concedes, research shows 

better outcomes at the subspecialty level if treatment is provided in a higher-volume setting 

because staff are more experienced in dealing with infants needing such high levels of care. See, 

e.g., Ann. Rep., supra, at 17. This research supports the Commissioner’s effort to achieve a 

balance between these interests, a determination that falls within her expert discretion. 

 Consequently, we hold that Lewis-Gale has failed to prove the Commissioner committed 

an error of law by applying the wrong legal standard to assess its application or abused her 

discretion by arbitrarily or capriciously deviating from prior agency decisions. 

2. Application of the SMFP Need Calculation 

 Lewis-Gale contends in its third assignment of error that its COPN application was 

consistent with the SMFP’s various standards for assessing the need for additional NICU 

bassinets. Evaluating this assignment of error involves interpreting the SMFP, which is 

contained in the Department’s regulations. Therefore, the Department’s interpretation of the 

SMFP “is entitled to great weight.” Couch, 274 Va. at 87, 645 S.E.2d at 445-46; see also 

Roanoke Mem. Hosps. v. Kenley, 3 Va. App. 599, 605-06, 352 S.E.2d 525, 529 (1987) (holding 

that the word “should” as used in the COPN regulations at issue “confer[red] an appropriate 

amount of discretionary authority” on the Commissioner). We hold that the Commissioner’s 

construction of the applicable regulations was not “‘plainly erroneous or inconsistent with the 

regulations being interpreted.’” See Mathews, 283 Va. at 738, 724 S.E.2d at 204 (quoting Coke, 

551 U.S. at 171). 

a. Subsection (A): 85% Minimum Annual Occupancy Standard 

 Lewis-Gale correctly asserts that the only bassinets in the health planning region that are 

formally classified as specialty-level bassinets are the thirteen located at CVBH. Lewis-Gale 

points to CVBH’s reported occupancy level for 2009 of approximately 87%. Because this rate 
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exceeded the SMFP’s recommended minimum occupancy standard of 85%, Lewis-Gale 

contends that it proved its proposed project was consistent with this provision of the SMFP.6 

These facts, standing alone, do not establish that the Commissioner’s application of the 85% 

occupancy guideline was erroneous. The record shows that the Commissioner considered other 

occupancy data in addition to CVBH’s occupancy rate. By adopting the AO’s recommendation, 

the Commissioner interpreted the 85% minimum annual occupancy standard as permitting 

consideration of the occupancy rate for bassinets of the higher subspecialty-level because, 

consistent with the regulations, these bassinets were available to provide lower specialty-level 

NICU care. Lewis-Gale avers that the Commissioner’s consideration of these subspecialty-level 

bassinets in assessing the consistency of the project with the 85% occupancy standard was error. 

We disagree. 

 The Commissioner’s interpretation of the regulations in this fashion is entitled to 

deference. See Couch, 274 Va. at 87, 645 S.E.2d at 445-46. In addition, the evidence supports 

the finding that Carilion was using its subspecialty bassinets to provide specialty-level care and 

still was not achieving an 85% occupancy rate. Data from Carilion, which the evidence 

established was “the primary site for NICU transfers from Lewis-Gale,” showed a 

subspecialty-level bassinet occupancy rate of 61.52% for Carilion’s fiscal year 2010.7 

 6

 Lewis-Gale argues that the Commissioner erred in ruling that the 85% standard was 

“problematic” and in rejecting the project for that reason. The record shows, however, that the 

AO ultimately concluded that “[r]egardless” of any problems with this standard, “reasonable 

availability and access to special care nursery services exists in [the health planning region], 

especially within the service areas of both [Lewis-Gale] and Carilion.” Thus, the record 

demonstrates that no such error occurred. 

7

 Data that Carilion provided on October 1, 2010, covered the period of October 1, 2009, 

to August 31, 2010, eleven-twelfths of Carilion’s fiscal year 2010. Although Carilion had 

reported a 2009 occupancy rate of 93% to Virginia Health Information (VHI), the body charged 

with compiling and disseminating health care data, see Code § 32.1-276.4; 12 VAC 5-230-10, 

Lewis-Gale conceded that this figure was for “staffed” bassinets, and the evidence showed that 

Carilion, due to low occupancy rates, was not staffing all of its bassinets. 
 - 15 - 

Lewis-Gale conceded that Carilion’s NICU was the only realistic option for its newborn patients 

needing special care services. Carilion’s 2010 occupancy figure of 61.52% was more than 

twenty percentage points lower than the 85% regulatory minimum that the SMFP suggested each 

level of existing specialized neonatal care should achieve before new space at the same level 

should be added. It was also the lowest subspecialty-level bassinet occupancy rate that Carilion 

had recorded for the five-year period of 2006 to 2010.8 The report further showed that 2010 was 

the year with the lowest average length of stay over the five-year period. The DCOPN inferred 

from these figures, which did not separately account for specialty-level and subspecialty-level 

use, that Carilion “proportionally provided care to fewer sub[]specialty[-]level newborns and 

provided more care to specialty[-]level newborns [within its subspecialty-level] bassinets than in 

2009.” This evidence supports a finding that the demand for specialty-level NICU bassinet 

space within a reasonable distance from Carilion and Lewis-Gale was well below the 85% 

occupancy level recommended for approving a COPN for new services. 

 Using figures for 2009, the last year for which occupancy rates for both Carilion and 

CVBH are contained in the record, yields similar results. Carilion’s thirty subspecialty bassinets 

 8

 The report showed a rate meeting the 85% regulatory minimum during only two of 

those five years, 86.59% in 2006 and 85.60% in 2008, adjusted downward to compensate for a 

temporary unavailability of NICU bassinet space when Carilion, in 2008, moved its NICU 

services from one location to another. During 2007 and 2009, Carilion’s rates were 78.64% and 

75.21% respectively. The chair of pediatrics at Carilion, Dr. Alice Ackerman, noted recent 

demographic data suggested “that the birth rate within the [health planning region] is falling 

despite the expansion in obstetrics services by hospitals in the region,” pointing to an 11% 

decline in the region’s birth rate from 2007 to 2009. She also noted the fact that the region 

“ha[d] fewer annual live births than any other region in the state.” She further pointed out a 

decrease in the rate of infants born prematurely, a figure considered predictive of the number of 

infants likely to need neonatal special care. Dr. Ackerman posited that these trends “suggest that 

the demand for NICU services in the Health Planning Region will be significantly lower in 

coming years and [that] NICU [bassinets] may be oversupplied even at the levels currently 

licensed.” Finally, she noted the quantity of medical research recognizing a “high, positive 

correlation between larger size/volume NICU’s and infants having a higher level of overall 

health and a significantly lower level of mortality.” 
 - 16 - 

had an occupancy rate of 75.2% which, combined with CVBH’s 2009 rate of 86.8% for its 

thirteen specialty bassinets, yields a functional occupancy rate of 78.7% for the health planning 

region for 2009, also below the 85% floor set out by the SMFP. 

 Lewis-Gale contends that a comparison of the regulations before and after the 2009 

amendments makes clear that the Commissioner erred by considering occupancy rates for 

subspecialty bassinets in applying the SMFP’s 85% standard to its COPN request for 

specialty-level bassinets. The purpose of the 2009 amendment, it argues, was to assure sufficient 

bassinet space for each separate level of care and the Commissioner’s conflation of the data for 

specialty-level and subspecialty-level bassinets defeats that purpose, “effectively . . . undo[ing] 

the amendment” and creating a new regulation. We hold, however, based on the record, that the 

Commissioner’s interpretation of the regulations was not plain error. 

 When reviewing a claim of regulatory interpretive error, the court “‘[must] accept only 

those agency interpretations that are reasonable in light of the principles of [statutory] 

construction courts normally employ.’” Bd. of Supers. v. State Bldg. Code Tech. Rev. Bd., 52 

Va. App. 460, 466, 663 S.E.2d 571, 574 (2008) (quoting EEOC v. Arabian Am. Oil Co., 499 

U.S. 244, 260 (1991) (Scalia, J., concurring)). Consequently, in interpreting the relevant 

regulations, we apply the same principles of construction applied to interpreting ambiguous 

statutes. See Avalon Assisted Living Facilities, Inc. v. Zager, 39 Va. App. 484, 503, 574 S.E.2d 

298, 307 (2002). One of those principles directs that “an amendment to an existing [regulation]” 

carries “a presumption that a substantive change in law was intended.” Dale v. City of Newport 

News, 243 Va. 48, 51, 412 S.E.2d 701, 702 (1992). A second counsels that regulations “on the 

same subject matter, i.e., those standing in pari materia, must be considered together and 

harmonized if possible.” Avalon, 39 Va. App. at 503, 574 S.E.2d at 307. 
 - 17 - 

 Lewis-Gale averred in its COPN application that its specialty-level bassinets would serve 

roughly equal numbers of intermediate-level and specialty-level patients. Inherent in this claim 

is the admission that the SMFP permits a facility to care for infants needing a lower level of 

neonatal care in bassinets officially classified as capable of providing a higher level of such care. 

This practice is supported by the text of the SMFP, which expressly defines each successive level 

of neonatal care space as including equipment and treatment capabilities in addition to the 

equipment and treatment capabilities required of the next lowest level of neonatal care. See 12 

VAC 5-410-443(B). Allowing for such care without also permitting the Department to consider 

that provision of care in the calculation of need would defeat the purposes of the SMFP. Thus, 

the Commissioner’s application of the regulations in a way that permitted her to consider the 

functional use of all existing bassinet space rather than merely its formal classification best 

achieved the SMFP’s purpose. 

 For example, under the pre-2009 regulations, evaluating the need for specialty-level 

bassinets required consideration of occupancy rates not only for existing subspecialty-level 

bassinets but also for intermediate-level bassinets. See 12 VAC 5-250-90 (repealed). Such 

consideration was required in spite of the fact that the regulations do not permit the use of 

intermediate-level bassinets to provide higher specialty-level care. See 12 VAC 5-410-443. 

Under this prior regulatory scheme, the existence of an excess of intermediate-level bassinets 

could make it difficult to remedy a shortage of specialty-level bassinets.9

 The 2009 revisions to 

the regulations provide for separate consideration of the occupancy statistics for 

 9

 If existing intermediate-level bassinets were not achieving the recommended minimum 

occupancy of 85%, this fact could cause aggregate occupancy statistics for all bassinet levels to 

fall below 85%. Under this scenario, even if specialty and subspecialty bassinets had occupancy 

rates significantly in excess of 85%, thereby tending to indicate a need for additional bassinets of 

those classifications, a strict application of the prior regulations would nevertheless have 

counseled against the issuance of a COPN for such bassinets because of the low occupancy rate 

for intermediate-level bassinets. 
 - 18 - 

intermediate-level, specialty-level, and subspecialty-level bassinets, thereby remedying this 

problem. See 12 VAC 5-230-960 to -980. 

 Lewis-Gale concedes that, as a practical matter, patients needing specialty-level care may 

receive that care in subspecialty-level bassinets, but it would simultaneously require the 

Commissioner to ignore this functional capacity of existing subspecialty-level bassinets in 

assessing the need for additional specialty-level bassinets. The regulatory structure and evidence 

in this case support the Commissioner’s conclusion that such an approach is unwise for two 

reasons. First, such an expansion is not necessary to ensure adequate bassinet space because, as 

Lewis-Gale concedes, “[n]eonatal special care bassinets are generally not licensed as beds in 

Virginia . . . . [T]herefore[, existing] capacity can be expanded . . . , within the authorized level 

of care, as needed without [additional] COPN or license authorization.” Ann. Rep., supra, at 19. 

Second, allowing the unnecessary proliferation of specialty-level bassinet space could cause a 

corresponding decrease in the quality of care. Id. at 17. 

 The functional approach applied by the Commissioner did not nullify the change in the 

regulations and was well within the parameters of her authority to exercise her expert discretion. 

The prior regulation allowed occupancy rates of lower levels of care to impact the ability to 

approve the addition of bassinets to provide higher levels of care. Under the functional approach 

applied here, only bassinets capable of providing the level of service for which a COPN is being 

sought may be considered under the SMFP in assessing need for those new bassinets.10 

Requiring the Commissioner to blindly ignore the apparent oversupply of subspecialty-level 

bassinet space at Carilion, which the Commissioner found was available and actually being used 

 10 We need not determine whether the Department could appropriately consider the 

expected functional use of the proposed bassinets, i.e., Lewis-Gale’s estimation that the eight 

specialty-level bassinets it sought would routinely treat a roughly equal number of specialty-level 

and intermediate-level patients. Lewis-Gale has not made this argument. 
 - 19 - 

to care for infants needing specialty-level treatment, would contravene the purposes of the SMFP 

to assure both adequate capacity and quality of care. See id. at 17, 19. Deferring to the 

Commissioner’s interpretation of the regulations, as required by the applicable standard of 

review, we conclude that the Commissioner’s consideration of the functional use of the bassinets 

at issue was not plain error.11 See Mathews, 283 Va. at 738, 724 S.E.2d at 204. 

 Lewis-Gale further contends that the Commissioner erred by considering Carilion’s 2010 

occupancy figures because they were not for the “[r]elevant reporting period,” 12 VAC 

5-230-10, and were received from Carilion rather than Virginia Health Information (VHI), the 

body charged with compiling and disseminating health care data, see Code § 32.1-276.4; 12 

VAC 5-230-10. The regulations, however, do not support Lewis-Gale’s contention. 

 The SMFP defines the “[r]elevant reporting period,” “when used in this chapter,” as “the 

most recent 12-month period, prior to the beginning of the applicable batch review cycle, for 

which data is available from VHI or a demographic entity as determined by the commissioner.” 

12 VAC 5-230-10 (emphasis added). However, no regulation pertaining to determining whether 

a COPN for neonatal bassinet space should be issued requires the Commissioner to use data from 

the “[r]elevant reporting period.”12 Consequently, this definition of “relevant reporting period” 

 11 Lewis-Gale contends this conflation was error with regard to all four SMFP standards 

for specialty-level care in 12 VAC 5-230-970. To the extent this argument is relevant to the 

standards in subsections (B), (C) or (D), we hold the Commissioner did not err in considering the 

functional capacity of Carilion’s subspecialty-level beds under these subsections for the same 

reasons she did not err in considering them under subsection (A). 

12 The neonatal bassinet regulations do not use this term. Compare 12 VAC 5-230-10, 12 

VAC 5-230-940 to -1000, and 12 VAC 5-410-443 (establishing definitions and usage standards 

for issuing COPNs for neonatal special care services without mentioning the “[r]elevant 

reporting period”), with, e.g., 25 Va. Reg. Regs. 1706, 1711, 1714-22, 1724-25, 1727, 1729, 

1736-37 (Jan. 5, 2009) (revising and re-enacting the SMFP) (directing the use of data for the 

“relevant reporting period,” “when used in this chapter,” to provide usage standards for a variety 

of other types of equipment, services, and beds), and 12 VAC 5-230-10 (defining “bed” as 

“includ[ing] cribs and bassinets used for pediatric patients” but expressly “[excluding] cribs and 

bassinets in the newborn nursery or neonatal special care setting”). 
 - 20 - 

does not limit the time period for which the Commissioner may consider occupancy data. It also 

does not limit the Department to considering data only from VHI or a demographic entity as 

determined by the Commissioner. Finally, no other provision of the SMFP relating to neonatal 

special care requires reliance on statistics solely from VHI.13 As a result, the agency had the 

discretion to rely on the statistical evidence received directly from Carilion. See Fulton, 55 

Va. App. at 80, 683 S.E.2d at 842; Loudoun Hosp., 50 Va. App. at 490-91, 650 S.E.2d at 885-86. 

 In sum, based on the deference owed to the agency’s interpretation and application of its 

regulations, here the SMFP, we hold that the Commissioner did not abuse her discretion by 

including in her analysis the occupancy rates for both CVBH’s specialty-level bassinets and 

Carilion’s subspecialty-level bassinets. This interpretation is consistent with the 2009 

amendments to the SMFP because Carilion’s subspecialty bassinets were functionally able to 

provide specialty-level care. Further, we hold that the Commissioner’s consideration of data 

covering multiple years and received from sources other than VHI, some of which was provided 

directly by Carilion, was not plain error. Finally, we hold that substantial evidence supports the 

Commissioner’s finding that these existing bassinets had occupancy rates significantly below the 

recommended level of 85%. 

b. Subsection (B): Eighteen-Bassinet Minimum Standard 

 Lewis-Gale proposed a NICU of eight specialty-level bassinets, despite the fact that the 

SMFP provides that the minimum number of bassinets for specialty-level or subspecialty-level 

care should be eighteen. Lewis-Gale’s justification for asking the Commissioner to disregard 

 13 The only parts of the SMFP requiring the use of VHI statistics relate to: surgical 

operating rooms, 12 VAC 5-230-500; medical/surgical beds, 12 VAC 5-230-540; pediatric beds, 

12 VAC 5-230-550; intensive care beds, 12 VAC 5-230-560; nursing home beds, 12 VAC 

5-230-610, -620; and rehabilitation beds, 12 VAC-230-810. As stated supra in footnote 12, the 

SMFP’s definition of “bed” expressly excludes “cribs and bassinets in the newborn nursery or 

neonatal special care setting.” 12 VAC 5-230-10. 
 - 21 - 

this requirement is that “no specialty-level NICUs in Virginia . . . meet this standard” because 

the Commissioner has not previously enforced it. As already discussed, however, the 

Commissioner’s prior deviation from the SMFP does not require her to deviate in this instance as 

long as that action is not arbitrary or capricious. See NRV Real Estate, 278 Va. at 188, 677 

S.E.2d at 280. As the AO concluded, the creation of “yet another” small specialty-level NICU, 

in close proximity to a subspecialty-level NICU, “would tend to cut against the quality-based 

benefits of a larger, well-utilized service.” The 2009 amendments to the SMFP, which increased 

the recommended minimum number of neonatal bassinets operated by a particular facility from 

fifteen bassinets of all levels combined to eighteen bassinets of either the specialty or 

subspecialty category, follow this same theory that a larger number of NICU bassinets in a single 

facility supports proficiency and quality of care. See Ann. Rep., supra, at 17 (noting that “[a] 

well-trained and experienced staff is critical to the success of [specialty-level and 

subspecialty-level NICU] programs”). The Commissioner opined that “sufficient volume would 

not exist to support proficiency and quality [of care at Lewis-Gale].” She also concluded that 

granting the application would “stand[] to harm” the quality of such care at Carilion, the only 

regional provider of subspecialty care, which was already experiencing a sharp decline in 

occupancy due to a decrease in premature births in the region. Given the demonstrated lack of 

need for additional bassinets and the potential for harm that authorizing such bassinets could 

cause, the record does not support deviation below the eighteen-bassinet minimum. Therefore, 

the Commissioner’s refusal to deviate from this minimum requirement, despite having done so in 

earlier cases, was not arbitrary or capricious. 

c. Subsection (C): Four Specialty-Level Bassinets Per 1,000 Births Standard 

 Subsection (C) of the regulation states that “[n]o more than four bassinets for 

specialty[-]level newborn services . . . per 1,000 live births should be established in each health 
 - 22 - 

planning region.” 12 VAC 5-230-970(C) (emphasis added). The subsection, through its plain 

language, provides a maximum rather than a minimum figure. Therefore, even assuming that 

Lewis-Gale’s COPN application was consistent with this subsection in that it would not result in 

more than four specialty-level bassinets per 1,000 live births, such consistency is only one 

component of the SMFP analysis and does not compel the issuance of the requested COPN. 

 Lewis-Gale argues that if the Commissioner properly considered Carilion’s thirty existing 

subspecialty-level bassinets along with CVBH’s specialty-level bassinets, which we have held 

was not error, these figures still permit the addition of seven specialty-level bassinets. 

Lewis-Gale’s application, however, requested eight bassinets. The request for eight bassinets, 

therefore, is inconsistent not only with the subsection (B) requirement that specialty-level 

newborn services should contain a minimum of eighteen bassinets but also with the capacity of 

seven bassinets under subsection (C). See Mathews, 283 Va. at 738, 724 S.E.2d at 204. 

 Consequently, the finding that Lewis-Gale’s application was inconsistent with subsection 

(C) requirements was not plain error. 

d. Subsection (D): No Significant Reduction in Service Volumes of Existing Providers 

 Subsection (D) of the regulation provides that “[p]roposals to establish specialty[-]level 

services . . . shall demonstrate that service volumes of existing specialty[-]level newborn service 

providers located within [‘90 minutes driving time one way under normal conditions’] will not 

be significantly reduced.” 12 VAC 5-230-970(D); see 12 VAC 5-230-940(B) (ninety-minute 

travel time limit incorporated by reference). This subsection places the burden of proof squarely 

upon the applicant. In addition, it requires that the applicant “shall demonstrate” that no 

significant reduction in existing specialty-level service volumes will result. 12 VAC 

5-230-970(D) (emphasis added). This language stands in marked contrast to the permissive 
 - 23 - 

language “should achieve,” “should contain,” and “should be established,” as used in subsections 

(A), (B), and (C) of the regulation, respectively. 12 VAC 5-230-970. 

 Lewis-Gale avers that the Commissioner “grossly exaggerates the potential impact” of its 

proposed eight NICU bassinets on Carilion. It contends, based on its own occupancy 

projections, that Carilion would continue to be the third-largest provider of NICU services in the 

state “even in the unlikely event that Lewis-Gale’s NICU volume [was] taken entirely from 

Carilion.” It also points to the DCOPN’s statement that it is “unable to quantify the negative 

impact” that granting Lewis-Gale’s application would have on Carilion. 

 Lewis-Gale, in making these claims, fails to acknowledge key facts in the record. The 

vast majority of Lewis-Gale’s patients needing neonatal special care services are transferred to 

Carilion, and no competition exists for Carilion’s specialty-level NICU services because the next 

closest specialty-level provider is located sixty miles away.14 Lewis-Gale’s COPN application 

projects an increase in obstetrical admissions and deliveries. The DCOPN observed, however, 

that “[s]ince the applicant has presented no new source of obstetric admissions, this increase 

could only come at the expense of existing providers.” (Emphasis added). The reasonable 

inference from this evidence is that Lewis-Gale would obtain the specialty-level infants it would 

treat entirely at the expense of Carilion. 

 Lewis-Gale’s claim that Carilion would continue to remain the third largest provider of 

NICU services in Virginia, if accurate, nevertheless is not dispositive of the subsection (D) 

requirement that Lewis-Gale “shall demonstrate” that service volumes at Carilion “will not be 

significantly reduced” by its project. Lewis-Gale posits that its projected numbers would take no 

 14 The DCOPN report indicates that, of the fifty-four infants requiring transfers from 

Lewis-Gale between 2007 and June 2010, fifty-two of them, or 96.3%, were transferred to 

Carilion. During that same period of time, infants from three other HCA network hospitals in the 

same health planning region transferred fifty-seven infants for special care, and fifty-three of 

them, or 93%, were transferred to Carilion. No infants were transferred to Lynchburg’s CVBH. 
 - 24 - 

more than 5% of Carilion’s neonatal special care patients. The evidence in the record, however, 

supports the finding, made by the DCOPN and adopted by the AO and the Commissioner, that 

approving Lewis-Gale’s project would adversely affect Carilion’s “[sub]specialty [and] 

specialty[-]level nursery program.” The DCOPN noted that Carilion’s program “has seen a 

significant decline in census since 2008 (85.6%) to 61.5% projected in 2010.” It also noted that 

Lewis-Gale’s proposed addition of eight specialty-level bassinets of its own “poses a risk of 

further reducing utilization of existing [NICU] services” at Carilion. The DCOPN further opined 

that allowing Lewis-Gale to introduce specialty-level bassinets “at this time would compromise 

[Carilion’s] role and major investment” in being the regional perinatal center or, in post-2009 

amendment language, the sole provider of subspecialty-level services in the health planning 

region. 

 Consequently, because subsection (D) places the burden on Lewis-Gale to demonstrate 

that its project will not significantly reduce the number of patients receiving specialty-level 

services at Carilion, the DCOPN’s inability to quantify the impact on Carilion with precision is 

not determinative of the Commissioner’s assessment of the project for consistency with 

subsection (D). Instead, this evidence supports the Commissioner’s finding that Lewis-Gale 

failed to prove that its proposed NICU would not significantly reduce Carilion’s volume of 

specialty-level care. Thus, the evidence also supports her finding that the COPN application was 

inconsistent with this provision of the SMFP.15

 15 The Commissioner suggested that Lewis-Gale apply instead for a COPN to offer 

intermediate-level neonatal care, for which the regulations permitted a minimum of six bassinets 

and did not require proof of a lack of significant impact on existing area providers of the same 

level of service. See 12 VAC 5-230-960. The Commissioner avers on brief that if Lewis-Gale 

operated a “busy” intermediate-level neonatal program, this fact could provide a reasonable basis 

for her to conclude that an advancement in service level was appropriate. Lewis-Gale concluded 

this suggestion was “not viable” and declined to follow it. 
 - 25 - 

3. Substantial Evidence to Support the Denial 

 Lewis-Gale contends in its final assignment of error that the record contains substantial 

evidence compelling the Commissioner to issue the requested COPN and that the circuit court 

erred in holding to the contrary. Code § 32.1-102.3(B) requires consideration of whether the 

project: (1) increases access to needed services; (2) meets community needs as demonstrated by 

factors such as community support, reasonable alternatives, costs and benefits, and financial 

accessibility to residents; (3) is consistent with the SMFP; (4) fosters institutional competition 

while improving health care access; (5) improves utilization and efficiency of existing services; 

(6) is feasible in financial and human resources terms; (7) provides improvements or innovations 

in financing and delivering health care; and (8) positively impacts a teaching hospital or medical 

school or is positively impacted by the hospital or school in terms of the delivery of health care. 

The Commissioner is not required to award a COPN if the applicant has failed to demonstrate a 

public need based on any of these factors. See Sentara Norfolk Gen. Hosp., 260 Va. at 273, 534 

S.E.2d at 329. Contrary to Lewis-Gale’s assessment, we conclude that the record contains 

substantial evidence to support the Commissioner’s decision to deny the COPN. This conclusion 

is based on the lack of consistency with the SMFP and several of the remaining statutory factors. 

a. Factor (3): Consistency with the SMFP 

 The Commissioner did not err in concluding that the proposed project is not consistent 

with the SMFP. As previously discussed, see supra Part II.C.2, substantial evidence supports the 

finding that “reasonable availability and access to special care nursery services exists in the 

[health planning region], especially within the service areas of both [Lewis-Gale] and Carilion” 

as judged under the standards of 12 VAC 5-230-970(A) to (D). 

 First, despite Lewis-Gale’s claim that existing specialty-level bassinets met the 85% 

minimum occupancy standard which, if substantiated, could support the claim of need for 
 - 26 - 

additional bassinet space, the record supports the finding that the availability of 

subspecialty-level bassinet space met the region’s functional need for specialty-level space. This 

evidence, in turn, supports the finding that granting Lewis-Gale’s application to add 

specialty-level bassinet space would be inconsistent with subsection (A). 

 Second, Lewis-Gale concedes that its application for eight bassinets was inconsistent 

with the subsection (B) requirement that specialty-level newborn services should contain a 

minimum of eighteen bassinets. Although Lewis-Gale contended that “no specialty-level NICUs 

in Virginia . . . meet this standard,” all specialty-level NICUs were licensed prior to the 2009 

amendments.16 Further, the AO concluded that “[r]egardless, the creation of yet another small 

special[ty-]level NICU, in close proximity to a subspecial[ty-]level NICU, would tend to cut 

against the quality-based benefits of a larger, well-utilized service.” The evidence supports this 

finding that Lewis-Gale failed to meet the subsection (B) requirement in both fact and spirit. 

 Third, the evidence supports a finding that Lewis-Gale’s application was also inconsistent 

with the subsection (C) provision that a health planning region should have no more than four 

bassinets per 1,000 live births for each level of care. Lewis-Gale concedes that considering the 

functional use of Carilion’s subspecialty-level bassinets in this calculation supports a need for no 

more than seven additional specialty-level bassinets. Given that Lewis-Gale’s application is for 

eight and that the SMFP suggests a minimum of eighteen bassinets for the creation of a neonatal 

special care nursery, substantial evidence supports a finding that Lewis-Gale’s application was 

also inconsistent with this standard of the SMFP. 

 16 Sentara’s Princess Anne Hospital in Virginia Beach received a COPN for eight 

specialty-level bassinets in 2010. However, this COPN merely permitted the relocation of eight 

existing bassinets from another of Sentara’s hospitals in Virginia Beach. See supra note 4 and 

accompanying text. 
 - 27 - 

 Fourth, the evidence supports a finding that Lewis-Gale failed to prove under subsection 

(D) that no significant reduction in existing specialty-level services would result from its 

proposal. The evidence showed that Carilion provided both specialty-level and 

subspecialty-level care in its subspecialty bassinets. The DCOPN found that the number of 

specialty-level patients at Carilion was increasing in proportion to the subspecialty patients. 

Statistics also showed that virtually all of Lewis-Gale’s patients in need of neonatal special care 

were then being referred to Carilion for treatment. Despite this dual usage of Carilion’s 

subspecialty bassinets and the number of referrals received from Lewis-Gale, occupancy rates 

for Carilion’s subspecialty bassinets had dropped more than twenty percentage points below the 

SMFP’s 85% mark. Lewis-Gale’s plan to retain all but its subspecialty-level infants and to 

attract additional obstetrics patients without identifying any new source for them virtually 

assured a negative impact on Carilion’s already declining statistics. 

b. Factors (1), (2), and (4) to (8): Broader Assessment of the Existence of Public Need 

 In addition to the statutory criterion requiring consistency with the SMFP, the 

Commissioner determined that several of the seven remaining factors in Code § 32.1-102.3(B) 

also weighed against a finding of public need. Substantial evidence in the record supports that 

determination. Although the Commissioner was not required to make specific findings with 

regard to the eight statutory criteria for assessing public need, she adopted the detailed discussion 

and findings of the AO and, in addition, provided a summary of the basis for her decision. 

 The Commissioner found that “[d]espite many expressions of community support,” the 

project would “unnecessarily duplicate existing services, such as those at Carilion.” Although 

this duplication would introduce competition and provide parents with a choice of providers, she 

determined that the negative effects of duplication would outweigh its benefits. She found that 

both services “depend on sufficient volume in order to maintain [the] clinical proficiency” 
 - 28 - 

necessary to provide “exacting clinical care . . . to frail infants.” As a result, she concluded that 

duplication would “exert[] an adverse impact on the utilization and quality” of both the existing 

services at Carilion and the proposed services at Lewis-Gale. These findings are supported by 

evidence in the record. That evidence includes scholarly studies regarding proficiency in 

subspecialty-level care, which the Department has also applied to specialty-level care. See Ann. 

Rep., supra, at 17. It also includes statistics showing a decline in the need for NICU care 

(specialty and subspecialty) in the health planning region. This decline reduced Carilion’s 

subspecialty-level bassinet occupancy by twenty-five percentage points from previous years and 

more than twenty percentage points below the level recommended by the SMFP for introducing 

new special care services. This evidence negates a finding of public need under factors (1), (2), 

(4), and (5). 

 The Commissioner also found that the project would reduce the frequency and duration 

of medical transportation for only some of the infants in the Lewis-Gale system of hospitals—

those actually delivered at Lewis-Gale—and the record shows this would likely be fewer than 

half the total number of infants delivered at HCA hospitals who needed neonatal special care.17 

These findings contribute to the determination of lack of public need under factors (1), (2), and 

(5). 

 Additionally, in keeping with Lewis-Gale’s representations in its application, the 

Commissioner found that the project would result in a financial loss for at least two years. The 

Commissioner also questioned whether it would ever be economically viable or capable of 

 17 The evidence showed that over the forty-two-month period prior to Lewis-Gale’s 

application, it transferred almost exactly the same number of patients to Carilion as HCA’s other 

three regional hospitals did in combination. If Lewis-Gale’s COPN application were granted, the 

infants delivered at the other HCA hospitals would still require transfer, as would all infants 

delivered at Lewis-Gale needing subspecialty-level care. Therefore, the number of infants 

needing transfer would still be greater than half those delivered at HCA’s four area hospitals. 
 - 29 - 

maintaining a sufficiently skilled staff. The evidence in the record supports these concerns. As 

the Commissioner observed, Lewis-Gale provided no evidence of any new source of obstetric 

admissions, and the Commissioner concluded that it was “evident from the applicant’s 

projections . . . of obstetrical discharges . . . that it anticipate[d] that approval of the proposed 

project [would] increase its obstetrical market share, primarily by reallocating admissions from 

Carilion . . . to [Lewis-Gale].” The Commissioner’s concerns regarding economic viability and 

skill proficiency are supported by the record and demonstrate a lack of public need under factors 

(2) and (6). 

 The record shows that the Commissioner, in addition to considering consistency with the 

SMFP as required by subsection (3) of Code § 32.1-102.3(B), also considered the other statutory 

factors. Substantial evidence in the record supports the Commissioner’s determination, made in 

the exercise of her expert discretion, that the application was inconsistent with both the SMFP 

and non-SMFP factors. Accordingly, the Commissioner did not err in her application of the law 

or abuse her discretion in concluding that Lewis-Gale failed to demonstrate a public need for its 

proposed project. 

III. 

 For these reasons, we hold that the circuit court did not err in rejecting Lewis-Gale’s claims 

and concluding that the Commissioner (1) adequately explained her deviations from prior agency 

decisions; (2) applied proper legal standards and did not arbitrarily treat Lewis-Gale differently 

from other hospitals in the Commonwealth; (3) properly applied the SMFP calculations; and 

(4) reached a decision regarding the existence of public need that was supported by substantial 

evidence in the record. Therefore, we affirm the circuit court’s ruling. 

Affirmed.