IN THE COURT OF APPEALS OF NORTH CAROLINA

No. COA17-137

Filed: 19 September 2017

Office of Administrative Hearings, No. 16 DHR 08034

BLUE RIDGE HEALTHCARE HOSPITALS INC. d/b/a CAROLINAS 

HEALTHCARE SYSTEM – BLUE RIDGE, Petitioner,

v.

NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, 

DIVISION OF HEALTH SERVICE REGULATION, HEALTHCARE PLANNING 

AND CERTIFICATE OF NEED SECTION, Respondent,

and

CALDWELL MEMORIAL HOSPITAL, INC. and SCSV, LLC, RespondentIntervenors.

Appeal by petitioner from Final Decision entered 3 October 2016 by 

Administrative Law Judge Selina Malherbe Brooks in the North Carolina Office of 

Administrative Hearings. Heard in the Court of Appeals 23 August 2017.

Smith Moore Leatherwood LLP, by Maureen Demarest Murray, Carrie A. 

Hanger and Matthew Nis Leerberg, for petitioner-appellant Blue Ridge 

Healthcare Hospitals, Inc. d/b/a Carolinas Healthcare System – Blue Ridge.

Attorney General Joshua H. Stein, by Assistant Attorney General Jill A. 

Bryan and Special Deputy Attorney General June Ferrell, for respondentappellee North Carolina Department of Health and Human Services.

Williams Mullen, by Joy Heath and Elizabeth D. Scott, for respondentintervenors-appellees Caldwell Memorial Hospital, Inc. and SCSV, LLC.

TYSON, Judge.
BLUE RIDGE HEALTHCARE HOSPS., INC. V. N.C. DEPT. OF HEALTH & HUMAN SERVS.

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Blue Ridge Healthcare Hospitals, Inc. d/b/a Carolinas Healthcare System –

Blue Ridge (“Blue Ridge”) appeals from a final decision of the Administrative Law 

Judge (“ALJ”), which granted summary judgment in favor of the North Carolina 

Department of Health and Human Services (“DHHS”), Caldwell Memorial Hospital, 

Inc. (“Caldwell Memorial”), and SCSV, LLC. We affirm. 

I. Background

A. Caldwell Memorial

Caldwell Memorial is a not-for-profit community hospital located in Lenoir, 

North Carolina, which became part of the UNC Health Care System in 2013. 

Caldwell Memorial operates and maintains eight operating rooms, which are the 

only operating rooms located in Caldwell County. Three of the operating rooms are 

located at Hancock Surgery Center (“HSC”), which is housed in an older building 

previously used as a shopping center. HSC is located approximately 0.6 miles from 

Caldwell Memorial, and is licensed as part of Caldwell Memorial.

In July 2015, Caldwell Memorial and SCSV, LLC (collectively, “Caldwell 

Memorial”) filed a Certificate of Need (“CON”) application with DHHS’s Division of 

Health Service Regulation, Healthcare Planning and Certificate of Need Section 

(“the Agency”), seeking approval to establish Caldwell Surgery Center (“CSC”), a

new separately-licensed ambulatory surgery center to be located in Granite Falls, 

one to two miles from the southern border of Caldwell County. 
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Caldwell Memorial seeks to create a second point of surgery access within a 

more densely populated area of Caldwell County in addition to the city of Lenoir. 

Ambulatory surgical centers are capable of offering surgical services to patients at a 

purported lower cost than surgeries performed inside of hospitals. Caldwell 

Memorial asserts an ambulatory surgery center is suited to attract and retain 

capable surgeons by offering physician investment opportunities, which are not 

available in hospital operating rooms. The propriety of this investment opportunity 

is not before us. 

The total inventory of currently licensed operating rooms located in Caldwell 

County would not change as a result of Caldwell Memorial’s proposal. Caldwell 

Memorial had sought previous approval in 2014 to relocate the three operating 

rooms from HSC to CSC, but the Agency denied the CON application. 

B. Blue Ridge

Blue Ridge maintains and operates six operating rooms at its Morganton 

hospital campus and four operating rooms at its Valdese hospital campus. It 

submitted written comments in opposition to the application, and participated in 

the public hearing held in September 2015. Blue Ridge had also submitted its 

objections to Caldwell Memorial’s previous CON applications. Two other hospitals 

and an ambulatory surgery center in the extended geographical area also submitted 

comments in opposition to Caldwell Memorial’s applications. 
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The proposed site for CSC is five miles from both Viewmont Surgery Center 

and Frye Medical Center, twelve miles from Catawba Valley Medical Center, and 

eleven miles from Blue Ridge’s Valdese hospital campus. All of these facilities 

possessed surgical capacity during the Agency’s review. Viewmont Surgery Center

in Catawba County is the only multi-specialty ambulatory surgery center in the

area, but does not offer the surgical specialties proposed in Caldwell Memorial’s 

CON application, such as spine and vascular surgery. Blue Ridge notes the 

existence of a significant surplus of operating rooms in Caldwell, Burke, and 

Catawba Counties in support of its opposition to Caldwell Memorial’s application. 

C. Agency and ALJ Decision

By letter dated 28 December 2015, the Agency notified Caldwell Memorial of 

its decision to conditionally approve its application to establish the ambulatory 

surgery center. On 29 January 2016, Blue Ridge filed a petition for a contested case 

hearing in the Office of Administrative Hearings (“OAH”) and challenged the 

Agency’s decision to approve Caldwell Memorial’s CON application. See N.C. Gen. 

Stat. § 131E-188(a) (2015) (providing any “affected person” is entitled to bring a 

contested case challenging the agency’s decision on a CON application); N.C. Gen. 

Stat. § 131E-188(c) (defining “affected person” to include “any person who provides 

services, similar to the services under review, to individuals residing within the 

service area or geographic area proposed to be served by the applicant”). The ALJ 
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permitted Caldwell Memorial and Frye Regional Medical Center, LLC (“Frye”) to 

intervene. 

Caldwell Memorial and the Agency moved for summary judgment before the 

OAH on 9 September 2016. Blue Ridge and Frye opposed the motion. By final 

decision entered on 3 October 2016, the ALJ granted summary judgment in favor of 

Caldwell Memorial and the Agency. Blue Ridge appeals. 

II. Jurisdiction

Jurisdiction lies in this Court from the final decision of the ALJ pursuant to 

N.C. Gen. Stat. §§ 131E-188(b) and 7A-27(a) (2015). 

III. Issues

Blue Ridge argues the Agency erred by ignoring or applying certain criteria 

set forth in N.C. Gen. Stat. § 131E-183 when it approved Caldwell Memorial’s CON 

application and asserts genuine issues of material fact exist regarding the 

conformity of the CON application with the statutory review criteria. 

IV. Standard of Review

The North Carolina Administrative Code governs our review of the ALJ’s 

decision, and provides: 

(b) The court reviewing a final decision may affirm the 

decision or remand the case for further proceedings. It 

may also reverse or modify the decision if the substantial 

rights of the petitioners may have been prejudiced 

because the findings, inferences, conclusions, or decisions 

are:
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(1) In violation of constitutional provisions;

(2) In excess of the statutory authority or 

jurisdiction of the agency or administrative law 

judge;

(3) Made upon unlawful procedure;

(4) Affected by other error of law;

(5) Unsupported by substantial evidence . . . in view 

of the entire record as submitted; or

(6) Arbitrary, capricious, or an abuse of discretion.

(c) In reviewing a final decision in a contested case, the 

court shall determine whether the petitioner is entitled to 

the relief sought in the petition based upon its review of 

the final decision and the official record. . . .

(d) In reviewing a final decision allowing . . . summary 

judgment, the court may enter any order allowed by G.S. 

1A-1, Rule 12(c) or Rule 56. . . .

N.C. Gen. Stat. § 150B-51 (2015). 

“This Court has interpreted subsection (a) to mean that the ALJ in a 

contested case hearing must determine whether the petitioner has met its burden in 

showing that the agency substantially prejudiced the petitioner’s rights. . . . [and] 

that the agency erred in one of the ways described above.” Surgical Care Affiliates, 

LLC v. N.C. Dep’t of Health & Human Servs., 235 N.C. App. 620, 624, 762 S.E.2d 

468, 471 (2014) (citation, quotation marks, and brackets omitted). 
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Here, Blue Ridge appeals from the ALJ’s order granting summary judgment. 

Summary judgment is properly entered “if the pleadings, depositions, answers to 

interrogatories, and admissions on file, together with the affidavits, if any, show 

that there is no genuine issue as to any material fact and that any party is entitled 

to a judgment as a matter of law.” N.C. Gen. Stat. § 1A-1, Rule 56(c) (2015). 

The evidence “must be viewed in a light most favorable to the non-moving 

party.” Patmore v. Town of Chapel Hill, 233 N.C. App. 133, 136, 757 S.E.2d 302, 

304, disc. review denied, 367 N.C. 519, 758 S.E.2d 874 (2014) (citation omitted). 

“The party seeking summary judgment bears the initial burden of demonstrating 

the absence of a genuine issue of material fact. If the movant successfully makes 

such a showing, the burden then shifts to the nonmovant to come forward with 

specific facts establishing the presence of a genuine factual dispute for trial.”

Liberty Mut. Ins. Co. v. Pennington, 356 N.C. 571, 579, 573 S.E.2d 118, 124 (2002) 

(citations omitted).

“We review [the ALJ’s] order granting or denying summary judgment de 

novo. Under a de novo review, the court considers the matter anew and freely 

substitutes its own judgment for that of the lower tribunal.” Craig v. New Hanover 

Cty. Bd. of Educ., 363 N.C. 334, 337, 678 S.E.2d 351, 354 (2009) (citations and 

internal quotation marks omitted). 

V. Agency’s Application of N.C. Gen. Stat. § 131E-183 Criteria
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Our General Assembly recognized that potential and projected profits would 

drive the development of medical facilities and services in the marketplace. The 

General Assembly concluded the public is best served by having access to affordable 

healthcare that is distributed throughout the State based upon certificates of need.

See N.C. Gen. Stat. § 131E-175(1)-(4) (2015). Otherwise, an over-abundance of 

facilities in certain areas would “lead[] to unnecessary use of expensive resources 

and overutilization of health care services” and result in greater costs to the public. 

See N.C. Gen. Stat. § 131E-175(4), (6)-(10). 

The Agency’s decision to approve an applicant’s CON is based upon the 

Agency’s determination of whether the applicant has complied with the list of 

review criteria set forth in N.C. Gen. Stat. § 131E-183(a). “The [Agency] shall 

review all applications utilizing the criteria outlined in this subsection and shall 

determine that an application is either consistent with or not in conflict with these 

criteria before a certificate of need for the proposed project shall be issued.” N.C. 

Gen. Stat. § 131E-183(a) (2015); see also Parkway Urology, P.A., v. N.C. Dep’t of 

Health & Human Servs., 205 N.C. App. 529, 534, 696 S.E.2d 187, 191-92 (2010), 

disc. review denied, 365 N.C. 78, 705 S.E.2d 753 (2011).

A. Geographic Scope of Agency’s Review

Blue Ridge argues the agency incorrectly limited its analysis of Criteria 3, 3a, 

4, and 6 to the circumstances in Caldwell County, and did not consider any 
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facilities, utilization, needs of the population, or circumstances in any of the other 

counties from which Caldwell Memorial is projected to draw patients to the new 

facility. 

Blue Ridge further asserts the Agency failed to assess how the needs of 

patients from other counties would be met by the proposed relocation of operating 

rooms or how they would be impacted by physicians’ plans to perform cases and 

procedures at the new facility, resulting in the reduction of services provided at 

facilities in other counties. 

The four criteria of N.C. Gen. Stat. § 131E-183(a) at issue requires the 

following of the CON applicant: 

(3) The applicant shall identify the population to be served

by the proposed project, and shall demonstrate the need 

that this population has for the services proposed, and the 

extent to which all residents of the area, and, in 

particular, low income persons, racial and ethnic 

minorities, women, handicapped persons, the elderly, and 

other underserved groups are likely to have access to the 

services proposed.

(3a) In the case of a reduction or elimination of a service, 

including the relocation of a facility or a service, the 

applicant shall demonstrate that the needs of the 

population presently served will be met adequately by the 

proposed relocation or by alternative arrangements, and 

the effect of the reduction, elimination or relocation of the 

service on the ability of low income persons, racial and 

ethnic minorities, women, handicapped persons, and 

other underserved groups and the elderly to obtain 

needed health care.
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(4) Where alternative methods of meeting the needs for 

the proposed project exist, the applicant shall 

demonstrate that the least costly or most effective 

alternative has been proposed.

. . . .

(6) The applicant shall demonstrate that the proposed 

project will not result in unnecessary duplication of 

existing or approved health service capabilities or 

facilities. 

N.C. Gen. Stat. § 131E-183(a) (emphasis supplied). 

While Criterion 3 requires identification of the “population to be served” and 

the “need that this population has for the services proposed,” the statute does not 

set forth the precise method by which this analysis is to be performed. Criterion 3 

does not set forth guidance concerning the geographical location of the “population 

to be served” or the “area.” N.C. Gen. Stat. § 131E-183(a)(3). Caldwell Memorial’s 

CON application projected that 50.2% of the new facility’s operating room’s patients 

would come from Caldwell County, and 49.8% would come from outside of Caldwell 

County. For the procedure room, only 38.52% of the patients are projected to come 

from Caldwell County and 61.48% from elsewhere.

Similarly, Criterion 3a requires identification and an analysis of the 

“population presently served,” which includes patients from a multi-county area.

N.C. Gen. Stat. § 131E-183(3a). Blue Ridge argues the Agency limited its analysis 

of the reduction in services to facilities and patients located within Caldwell 
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County, and ignored the impact on medically underserved groups in other counties,

who would be required to travel farther to the new facility. 

Criteria 4 and 6 also do not set forth any geographical scope for the Agency’s 

analysis. With regard to Criterion 4, Blue Ridge asserts the Agency improperly 

limited its analysis of whether Caldwell Memorial “demonstrate[d] that the least 

costly or most effective alternative has been proposed,” where alternative methods 

for meeting the proposed project’s needs exist. N.C. Gen. Stat. § 131E-183(a)(4).

Finally, Blue Ridge asserts the Agency ignored the numerous surgical 

facilities located in Burke County, very near to the proposed site of the Granite 

Falls facility, in applying Criterion 6 to determine whether Caldwell Memorial 

demonstrated the “project will not result in unnecessary duplication of existing or 

approved health service capabilities or facilities.” N.C. Gen. Stat. § 131E-183(a)(6). 

Blue Ridge relies upon this Court’s decision in AH N.C. Owner LLC v. N.C. 

Dep’t of Health & Human Servs., 240 N.C. App. 92, 771 S.E.2d 537 (2015). That 

case dealt with the Agency’s interpretation of Criterion 20 of N.C. Gen. Stat. § 

131E-183(a), which states “[a]n applicant already involved in the provision of health 

services shall provide evidence that quality care has been provided in the past.”

N.C. Gen. Stat. § 131E-183(a)(20). 

This Court recognized, “[b]ecause the General Assembly has not articulated 

with specificity how the Agency should determine an applicant’s conformity with 
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Criterion 20, the Agency was authorized to establish its own standards in assessing 

whether an applicant that was already involved in providing health care services 

had provided quality care in the past.” AH N.C. Owner, 240 N.C. App. at 100, 771 

S.E.2d at 542 (emphasis supplied). 

In AH N.C. Owner, the Agency reviewed multiple competing CON 

applications, which proposed to expand the number of nursing home beds in Wake 

County in response to a determination of need. Id. at 95, 771 S.E.2d at 539. 

Consistent with the Agency’s prior practice, it evaluated each applicant’s conformity 

with Criterion 20 by examining each applicant’s history of quality of care solely 

within Wake County, which resulted in an evaluation of past quality of care for 

those applicant’s who already operated facilities in Wake County. Id. at 101, 771 

S.E.2d at 542-43. The ALJ rejected the Agency’s limit of its review of Criterion 20 to 

only Wake County. Id. 

This Court explained: 

As the ALJ noted, certain review criteria in N.C. Gen. 

Stat. § 131E-183(a) are specifically limited to the service 

area of the proposed project. Criterion 18a, for example, 

requires the applicant to “demonstrate the expected 

effects of the proposed services on competition in the 

proposed service area . . . .” N.C. Gen. Stat. § 131E183(a)(18a) (emphasis added). Criterion 20, on the other 

hand, contains no such geographic limitation.

It is well established that in order to determine the 

legislature’s intent, statutory provisions concerning the 

same subject matter must be construed together and 
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harmonized to give effect to each. Cape Hatteras Elec. 

Membership Corp. v. Lay, 210 N.C. App. 92, 101, 708 

S.E.2d 399, 404 (2011). Furthermore, as this Court has 

previously explained, “[w]hen a legislative body includes 

particular language in one section of a statute but omits it 

in another section of the same [statute], it is generally 

presumed that the legislative body acts intentionally and 

purposely in the disparate inclusion or exclusion.” N.C.

Dep’t of Revenue v. Hudson, 196 N.C. App. 765, 768, 675 

S.E.2d 709, 711 (2009) (citation, quotation marks, and 

brackets omitted).

Id. at 111, 771 S.E.2d at 548-49 (alterations in original).

This Court affirmed the ALJ and held “basic principles of statutory 

construction support the ALJ’s conclusion that the General Assembly did not intend 

for the Agency’s evaluation of an applicant’s past quality of care to be limited to the 

service area of the proposed project.” Id. at 112, 771 S.E.2d at 549. 

As specifically stated in AH N.C. Owner, the Agency is authorized to 

“establish its own standards” to determine whether the applicant met the 

requirements of the statutory criteria. Id. at 100, 771 S.E.2d at 542. “It is well 

settled that when a court reviews an agency’s interpretation of a statute it 

administers, the court should defer to the agency’s interpretation of the statute . . . as 

long as the agency’s interpretation is reasonable and based on a permissible 

construction of the statute.” Craven Reg’l Med. Auth. v. N.C. Dep’t of Health & 

Human Servs., 176 N.C. App. 46, 58, 625 S.E.2d 837, 844 (2006) (citations omitted) 

(emphasis supplied).
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“If the statute is silent or ambiguous with respect to the specific issue, the 

question for the court is whether the agency’s answer is based on a permissible 

construction of the statute.” Cty. of Durham v. N.C. Dep’t of Env’t & Natural Res., 

131 N.C. App. 395, 397, 507 S.E.2d 310, 311 (1998) (citation, quotation marks, and 

brackets omitted), disc. review denied, 350 N.C. 92, 528 S.E.2d 361 (1999).

Our decision in AH N.C. Owner is distinguishable and does not control our 

analysis and outcome here. In that case, in “consider[ing] whether deference should 

be accorded to the Agency’s interpretation of . . . the appropriate geographic scope of 

the quality of care assessment required under Criterion 20,” the Court determined 

the existence of “no logical basis for disregarding such information evidencing 

quality of care on a statewide level[,]” and “such a policy actually contravenes one of 

the primary purposes of the CON laws.” AH N.C. Owner, 240 N.C. App. at 110-13, 

771 S.E.2d at 548-49. The Court further stated, “[s]ignificantly . . . Agency 

employees were unable to identify a plausible justification for its past interpretation 

of the geographic scope element of Criterion 20.” Id. at 113, 771 S.E.2d at 549. 

Here, unlike in AH N.C. Owner, Martha Frisone, Assistant Chief of the 

DHHS’s CON section, testified by deposition that “it has long been Agency practice 

to use the same standards duly promulgated in the [administrative] rules when 

evaluating the statutory criteria, which don’t [sic] contain any standards at all[.]” 

The Agency’s practice is consistent with the law. 
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N.C. Gen. Stat. § 131E-183(b) specifically states the Agency “is authorized to 

adopt rules for the review of particular types of applications that will be used in 

addition to those criteria outlined in subsection (a) . . . and may vary according to 

the purpose for which a particular review is being conducted or the type of health 

service reviewed.” See Craven, 176 N.C. App. at 51, 625 S.E.2d at 841 (recognizing 

“the Agency has adopted rules to be used as regulatory criteria in conjunction with 

Criterion 3” (emphasis supplied)). 

Ms. Frisone further stated:

Where a patient goes and where a surgeon goes is surgeon 

and patient choice. And so the need methodology itself for 

determining a need for additional ORs does not take into 

account surpluses in adjoining counties, and we don’t take 

them into account either in reviewing a – certainly not in 

reviewing a proposal to relocate two existing dedicated 

outpatient ORs and license them separately as an AMSU, 

which would reduce the cost for the patient. 

Ms. Frisone explained the Agency reviewed the statutory criteria in 

conjunction with the provisions of the North Carolina Administrative Code, which 

state the requirements an applicant must meet to establish need for operating 

rooms and ambulatory surgical facilities. See 10A N.C.A.C. 14C.2101 et seq. Title 

10A, Subchapter 14C of the Administrative Code sets forth the “Certificate of Need 

Regulations.” 

Section 2100 states the “criteria and standards for surgical services and 

operating rooms,” and defines “service area” as “the Operating Room Service Area 
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as defined in the applicable State Medical Facilities Plan [‘SMFP’].” 10A N.C.A.C. 

14C.2101(10). In 2015, the SMFP defined “service area” as “the operating room 

planning area in which the operating room is located. The operating room planning 

areas are the single and multicounty groupings shown in Figure 6-1.” Figure 6-1 of 

the SMFP shows Caldwell County as a single county operating room service area. 

Unlike in AH N.C. Owner, the Agency used its articulated and established 

practice of applying the standards and definitions set forth in the Administrative 

Code for determining certificates of need, where N.C. Gen. Stat. § 131E-183(a) is 

silent on the geographic scope of the Agency’s review. Giving deference to the 

Agency’s procedures and practice, we hold Blue Ridge has failed to meet its burden 

to show the Agency’s interpretation and application of N.C. Gen. Stat. § 131E-183(a) 

is unreasonable or based on an impermissible construction of the statute. Craven, 

176 N.C. App. at 58, 625 S.E.2d at 844. Blue Ridge’s argument is overruled. 

B. Application of Criterion 6

Blue Ridge argues the Agency failed to apply Criterion 6 as an independent 

criterion, where the findings under Criterion 6 simply repeat findings under other 

criteria. Blue Ridge bases its claim upon the inclusion of the following language in 

the Agency’s findings for Criterion 6: “The discussions regarding analysis of need, 

alternatives and competition found in Criteri[a] (3), (4) and (18a), respectively, are 

incorporated herein by reference.” The Agency concluded Caldwell Memorial 
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“adequately demonstrate[s] that the proposed project would not result in the 

unnecessary duplication of existing or approved ORs in Caldwell County.” 

Ms. Frisone explained that the Agency evaluates each criterion 

independently, and frequently relies upon the same facts in making its 

determination under each criterion. The Agency is permitted to rely upon the same

facts and evidence in reviewing multiple criteria. Blue Ridge has failed to show the 

Agency failed to undertake an independent review and application of Criterion 6. 

C. Application of Criterion 5

Blue Ridge argues the Agency erred in its application of Criterion 5, which 

requires Caldwell Memorial to show: 

(5) Financial and operational projections for the project 

shall demonstrate the availability of funds for capital and 

operating needs as well as the immediate and long-term 

financial feasibility of the proposal, based upon 

reasonable projections of the costs of and charges for 

providing health services by the person proposing the 

service.

N.C. Gen. Stat. § 131E-183(a)(5). 

Criterion 5 requires an applicant to demonstrate: (1) the availability of funds 

for capital and operating needs, and (2) the financial feasibility of the proposal 

based upon the applicant’s reasonable projections. Id. 

The Agency must “determine the availability of funds for the project from the 

entity responsible for the funding[.]” Retirement Villages, Inc. v. N.C. Dep’t of 
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Human Res., 124 N.C. App. 495, 498, 477 S.E.2d 697, 699 (1996). “[I]n cases where 

the project is to be funded other than by the applicants, the application must 

contain evidence of a commitment to provide the funds by the funding entity.” Id. at 

499, 477 S.E.2d at 699. “Without a commitment, an applicant cannot adequately 

demonstrate availability of funds or the requisite financial feasibility.” Johnston 

Health Care Ctr., L.L.C. v. N.C. Dep’t of Human Res., 136 N.C. App. 307, 313, 524 

S.E.2d 352, 357 (2000). “[T]he above statutory criterion does not require the 

submission of financial statements by the applicants. It merely requires the Agency 

to determine the availability of funds for the project from the entity responsible for 

funding, which may or may not be an applicant.” Retirement Villages, 124 N.C. App. 

at 498-99, 477 S.E.2d at 699. 

In its CON application, Caldwell Memorial asserted the CSC shell building 

would be constructed by Brackett Flagship Properties, LLC (“BFP”). BFP would 

create a limited liability company to serve as the landlord and lease the property to 

Caldwell Memorial. Caldwell Memorial would be responsible for the design and 

upfit of the building. Caldwell Memorial estimated the total cost associated with 

the building to be $4,350,000.00. 

The Agency determined that total capital cost of the project will be 

$3,650,000.00, and the working capital costs will be $700,000.00. Caldwell 

Memorial provided a letter dated 8 July 2015 from a Vice President of First Citizens 
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Bank, which includes two term sheets of the proposed financing for the project. One 

shows the financing for the capital costs of $3,650,000.00 and the other shows the 

financing for the working capital costs of $700,000.00. 

Caldwell Memorial also provided a letter dated 8 July 2015 from appellant 

SCSV, LLC, which stated SCSV was committed to utilizing the funding provided by 

the bank to develop the facility. Caldwell Memorial provided another letter from its 

vice president and chief financial officer, which confirmed that Caldwell Memorial is 

committed to financing a portion of the capital costs in the amount of $150,000.00, 

and the hospital has sufficient funds on hand to cover this cost. The Agency 

concluded Caldwell Memorial “adequately demonstrate[d] that sufficient funds will 

be available for the capital and working capital needs of the project,” and “that the 

financial feasibility of the proposal is based upon reasonable projections of costs and 

charges.” 

Blue Ridge argues the Agency erred in determining Criterion 5 was satisfied 

where Caldwell Memorial’s CON application contained no documentation of BFP’s

finances or funding source. We disagree. 

Our Court has determined similar arrangements to be in conformity with the 

requirements of Criterion 5. In Total Renal Care of N.C., LLC v. N.C. Dep’t of 

Health & Human Servs., 171 N.C. App. 734, 615 S.E.2d 81 (2005), the Agency 

awarded a CON to Bio-Medical Applications (“BMA”) for ten kidney dialysis 
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machines, to be located inside a building to be leased from a lessor, who would 

“upfit, install, and build” the building. Id. at 735-36, 615 S.E.2d at 82. The ALJ 

determined BMA’s application was non-conforming to Criterion 5, because BMA 

had failed to include the future lessor as an applicant. Id. This Court overruled the 

ALJ and upheld the Agency’s determination that BMA was not required to name 

the lessor as an applicant, and BMA’s CON application was in conformity with the 

statutory criteria. Id. at 739, 615 S.E.2d at 84. 

Caldwell Memorial’s costs to lease the building, upfit and house the 

ambulatory surgery center are properly asserted and accounted for. Its application 

separately documented the availability and commitment of funds for the acquisition 

of the specialized medical equipment necessary to develop and improve the 

ambulatory surgery center in the shell building. Caldwell Memorial was not 

required to show a source of funding for BFP’s construction of the shell building. See 

id. Blue Ridge’s argument is overruled.

VI. Substantial Prejudice

As an alternate basis to affirm the ALJ’s decision, it is well-established that 

“when the petitioner alleges [agency error], the petitioner must also prove . . . 

substantial prejudice.” Surgical Care Affiliates, 235 N.C. App. at 628, 762 S.E.2d at 

473-74. Even if the Agency erred in its application of the statutory criteria in 

reviewing Caldwell Memorial’s CON, Blue Ridge has also failed to meet its burden 
BLUE RIDGE HEALTHCARE HOSPS., INC. V. N.C. DEPT. OF HEALTH & HUMAN SERVS.

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of showing prejudice in the Agency’s decision to grant the CON to reverse the ALJ’s 

decision. 

The Agency determined that Caldwell Memorial’s proposed project does not 

involve the addition of any new health service facility beds, services, or equipment. 

The project involves relocating three existing operating rooms from HSC to a 

separately licensed and freestanding ambulatory surgical facility. The Agency 

determined Caldwell Memorial owns and operates all eight operating rooms in 

Caldwell County, and there are no existing ambulatory surgical facilities in 

Caldwell County. The total number of operating rooms currently located in 

Caldwell County will not change. Only how those operating rooms are licensed, and 

where they are located within Caldwell County, will change under the CON. 

Blue Ridge argues it would lose patients and profits due to the approval of 

the CSC facility. Blue Ridge asserts Dr. Jason Zook, a spine surgeon who operates 

at Blue Ridge’s facility, has expressly stated he intends to direct all of his surgeries 

to CSC in Granite Falls. Blue Ridge asserts it has spent significant funds in 

recruiting Dr. Zook and establishing Blue Ridge’s spine surgery program. Blue 

Ridge also argues its other services, specifically the neonatal and emergency 

services, would be compromised by losing the profits provided by Dr. Zook’s 

surgeries. 
BLUE RIDGE HEALTHCARE HOSPS., INC. V. N.C. DEPT. OF HEALTH & HUMAN SERVS.

Opinion of the Court

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Our Court has explained that adopting Blue Ridge’s argument “would have 

us treat any increase in competition resulting from the award of a CON as 

inherently and substantially prejudicial to any pre-existing competing health 

service provider in the same geographic area. This argument would eviscerate the 

substantial prejudice requirement contained in N.C. Gen. Stat. § 150B-23(a).” 

Parkway Urology, 205 N.C. App. at 539, 696 S.E.2d at 195. 

As in the present case, the appellant in CaroMont Health, Inc. v. N.C. Dep’t of 

Health & Human Servs., 231 N.C. App. 1, 8, 751 S.E.2d 244, 249 (2013), asserted 

that specific evidence of financial harm resulting from the award of a CON 

constitutes a showing of substantial prejudice. This Court rejected the argument in 

CaroMont and held that such a physician-directed “shift” of cases is “normal 

competition.” Id. at 8, 751 S.E.2d at 250. 

The Court explained that the claim of harm arose “solely out of the fact that 

competition would be increased by virtue of the authorization of two additional GI 

endoscopy rooms located in Gaston County” so “patients and doctors in Gaston 

County would now have a choice between CaroMont’s facilities and another 

separate facility also located in Gaston County.” Id. at 9, 751 S.E.2d 250. As in 

CaroMont, Blue Ridge has asserted harm from normal competition, which does not 

constitute a showing of substantial prejudice from the Agency’s allowance of the 

CON. Id. 
BLUE RIDGE HEALTHCARE HOSPS., INC. V. N.C. DEPT. OF HEALTH & HUMAN SERVS.

Opinion of the Court

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Blue Ridge’s failure to show substantial prejudice is also fatal to its contested 

case. The ALJ correctly granted summary judgment in favor of the Agency and 

upholding the Agency’s approval of the CON for Caldwell Memorial. 

VII. Conclusion

We review the Agency’s application of the criteria set forth in N.C. Gen. Stat. 

§ 131E-183(a) with deference to the Agency’s interpretation of the statute. Craven 

Reg’l Med. Auth., 176 N.C. App. at 58, 625 S.E.2d at 844. Blue Ridge has failed to 

carry its burden to show the Agency’s interpretation was either unreasonable or not 

based upon a permissible construction of the statute. See id. 

As an alternative and independent basis for our holding, Blue Ridge has also 

failed to show it was substantially prejudiced by the Agency’s approval of Caldwell 

Memorial’s CON application and issuance of the CON. See Caromont, 231 N.C. App. 

at 8-9, 751 S.E.2d at 249-50. The ALJ’s order granting summary judgment in favor 

of Caldwell Memorial is affirmed. It is so ordered. 

AFFIRMED. 

Judges ELMORE and STROUD concur.