Title: Infirmary Health System v. Sacred Heart Health System, Inc.
Citation: N/A
Docket Number: 1091788
State: Alabama
Issuer: Alabama Supreme Court
Date: March 2, 2012

REL: 03/02/2012
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334)
229-0649), of any typographical or other errors, in order that corrections may be made
before the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2011-2012
_________________________
1091788
_________________________
Ex parte Sacred Heart Health System, Inc.
PETITION FOR WRIT OF CERTIORARI
TO THE COURT OF CIVIL APPEALS
(In re:  Infirmary Health System and South Baldwin Regional
Medical Center
v.
Sacred Heart Health System, Inc.)
(Montgomery Circuit Court, CV-07-900905;
Court of Civil Appeals, 2090239)
MAIN, Justice.
1091788
It is unclear from the record what type of entity South
1
Baldwin is.  
2
Sacred Heart Health System, Inc. ("Sacred Heart"), the
defendant in a declaratory-judgment action filed by Infirmary
Health System, Inc. ("IHS"), and South Baldwin Regional
Medical Center ("South Baldwin"),  appealed to this Court from
1
one aspect of a final judgment entered by the Montgomery
Circuit Court in favor of IHS and South Baldwin.  IHS and
South Baldwin cross-appealed from another aspect of the trial
court's judgment in favor of Sacred Heart.  This Court
transferred the appeal and cross-appeal to the Court of Civil
Appeals; that court reversed the judgment of the trial court.
Sacred Heart Health Sys., Inc. v. Infirmary Health Sys., [Ms.
2090239, September 24, 2010] ___ So. 3d ___ (Ala. Civ. App.
2010).  Sacred Heart then filed a petition for certiorari
review with this Court, which we granted.  We now reverse and
remand.  
I. Facts and Procedural History
Sacred Heart is an out-of-state, charitable, nonprofit
corporation 
that 
provides health-care services in the
panhandle of Florida and in southern Baldwin County.  Sacred
Heart also owns Sacred Heart Medical Group ("SHMG"),
1091788
3
consisting of 143 multi-specialty physicians who practice in
the area served by Sacred Heart.  SHMG is not a separate legal
entity.  All SHMG physicians have uniform employment contracts
with SHMG; billing for all patients is consolidated and
handled by SHMG employees; third-party providers consider SHMG
a medical group; and its physicians share the same billing
number. 
Six SHMG physicians practice in southern Baldwin County.
When their practices increased and it was not feasible to
expand their existing offices, Sacred Heart executed a
preconstruction contract with Colonial Pinnacle MOB, LLC, the
wholly owned subsidiary of Johnson Development, LLC, a
developer and builder of medical office buildings throughout
Alabama (both entities are hereinafter referred to jointly as
"Johnson Development").  The contract dealt with Sacred
Heart's proposed lease of a portion of a building to be
constructed primarily for medical purposes (hereinafter
referred to as "the medical-building project").  Sacred Heart
has no ownership interest in the medical-building project or
the land on which the medical-building project is located.
Johnson Development's initial plans for the medical-building
1091788
4
project called for a 44,000-square-foot building that would
include an outpatient surgery center, medical office suites
for SHMG physicians, time-share space for use by non-SHMG
physicians, a diagnostic center, a laboratory, and a
rehabilitation center, all of which would be leased to various
entities including Sacred Heart.  Sacred Heart intends for the
SHMG physicians practicing in the medical-building project to
provide a family practice, walk-in care, and laboratory and
diagnostic facilities.  Sacred Heart also plans to recruit an
oncologist to offer services to include mammography and CT
scans who would have an office and diagnostic facilities in
the medical-building project.  
Three SHMG physicians already use the leased space in the
medical-building project as their primary office; there is
space for eight physicians.  The area intended for the surgery
center was to have been leased to and operated by Pleasure
Island Ambulatory Surgery Center, LLC, a group of non-SHMG
physicians.  Pleasure Island applied for a certificate of need
("CON") to operate the surgery center, but the State Health
Planning 
and 
Development 
Agency 
("SHPDA") 
denied 
its
application.  The Court of Civil Appeals affirmed, without
1091788
In examining the medical-building project as a whole,
2
this Court does not refer to the entire building constructed
by Johnson Development, which contains space for medical and
non-medical uses, but to the portion of the building leased by
the specific physicians' practice seeking to apply the
physician's office exemption to the CON requirement.  In this
case, we review the SHMG leased space because that is the only
space to be used by the SHMG practice.  
5
opinion, 
the 
trial 
court's judgment upholding SHPDA's
decision.  Pleasure Island Ambulatory Surgery Ctr., LLC v.
State Health Planning & Dev. Agency (No. 2080953, April 16,
2010), ___ So. 3d ___ (Ala. Civ. App. 2010) (table).
Therefore, the medical-building project will not contain a
surgery center, nor will it contain a rehabilitation center.
The initial plan to lease space for a rehabilitation center
was abandoned before Johnson Development completed the
medical-building project. 
The contested issue between the parties is whether the
portion of the medical-building project Sacred Heart has
leased for its Baldwin County physicians to use ("the SHMG
leased space") is subject to Sacred Heart's first obtaining a
CON from SHPDA.   Section 22-21-260 et seq., Ala. Code 1975,
2
sets out the laws concerning the regulation of health-care
facilities. 
1091788
The "State Health Plan" is defined at § 22-21-260(13),
3
Ala. Code 1975, as "[a] comprehensive plan which is prepared
triennially and reviewed at least annually and revised as
necessary ...."
6
Section 22-21-265, Ala. Code 1975, requires that any
person furnishing a "new institutional health service" must
first obtain a CON from SHPDA:
"(a) On or after July 30, 1979, no person to
which this article applies shall acquire, construct,
or operate a new institutional health service, as
defined in this article, or furnish or offer, or
purport to furnish a new institutional health
service, as defined in this article, or make an
arrangement or commitment for financing the offering
of a new institutional health service, unless the
person 
shall 
first 
obtain 
from 
the 
SHPDA 
a
certificate of need therefor. ... " 
Section 
22-21-263, 
Ala. 
Code 
1975, 
prohibits
institutional health services that are inconsistent with the
"State Health Plan":3
"(a) All new institutional 
health 
services 
which
are subject to this article and which are proposed
to be offered or developed within the state shall be
subject 
to 
review 
under 
this 
article. 
 
No
institutional health services which are subject to
this 
article 
shall 
be 
permitted 
which 
are
inconsistent with the State Health Plan.  For the
purposes of this article, new institutional health
services shall include any of the following:
"(1) The construction, development,
acquisition through lease or purchase, or
other establishment of a new health care
1091788
7
facility 
or 
health 
maintenance
organization."
The term "institutional health services" is defined at §
22-21-260(9), Ala. Code 1975, as "[h]ealth services provided
in or through health care facilities or health maintenance
organizations, including the entities in or through which such
services are provided."
The emphasized language in § 22-21-260(8), Ala. Code
1975, defining "health services," provides an exemption for a
physician's practice:
"(8) Health services. Clinically related (i.e.,
diagnostic, curative, or rehabilitative) services,
including alcohol, drug abuse, and mental health
services 
customarily 
furnished 
on 
either 
an
in-patient or out-patient basis by health care
facilities, but not including the lawful practice of
any profession or vocation conducted independently
of a health care facility and in accordance with
applicable licensing laws of this state."
(Emphasis added.) 
Section 22-21-260(6), Ala. Code 1975, defines a "health
care facility" as follows: 
"(6) 
Health 
care 
facility. 
General 
and
specialized 
hospitals, 
including 
tuberculosis,
psychiatric, long-term care, and other types of
hospitals, 
and 
related 
facilities 
such 
as,
laboratories, 
out-patient 
clinics, 
and 
central
service facilities operated in connection with
hospitals; skilled nursing facilities; intermediate
1091788
8
care facilities; skilled or intermediate care units
operated in veterans' nursing homes and veterans'
homes ...; rehabilitation centers; public health
centers; 
facilities for surgical treatment of
patients 
not 
requiring 
hospitalization; 
kidney
disease treatment centers ...; community mental
health centers and related facilities; alcohol and
drug 
abuse 
facilities; 
facilities 
for 
the
developmentally disabled; 
hospice 
service 
providers;
and home health agencies and health maintenance
organizations.  The term health care facility shall
not include the offices of private physicians or
dentists, whether for individual or group practices
and regardless of ownership ...."
(Emphasis added.)  The language emphasized above is referred
to as the physician's office exemption ("the POE").  
After Sacred Heart contracted to lease a portion of the
medical-building project, South Baldwin filed a petition with
SHPDA in which it requested that SHPDA declare that Sacred
Heart's plans to develop the medical-building project required
that Sacred Heart obtain a CON from SHPDA.  IHS intervened in
support of South Baldwin's petition.  The administrative law
judge ("the ALJ") assigned to hear the petition determined
that SHPDA did not have jurisdiction and remanded the petition
to the Certificate of Need Review Board ("the CONRB").  When
the petition was not ruled on within 45 days, the petition was
deemed denied pursuant to § 41-22-11, Ala. Code 1975.  South
Baldwin and IHS then filed a petition for judicial review in
1091788
The Court of Civil Appeals' opinion was authored by Judge
4
Thomas.  Presiding Judge Thompson and Judge Bryan concurred in
the result; Judge Pittman and Judge Moore dissented.  
9
the Montgomery Circuit Court.  The trial court denied summary-
judgment motions filed by the parties and considered the case
on a joint submission of the evidence.  The trial court held
that the SHMG leased space qualified for the POE available in
§ 22-21-260(6), Ala. Code 1975, and, therefore, that the SHMG
leased space was not a health-care facility requiring CON
review.  South Baldwin and IHS filed a postjudgment motion.
The trial court amended its judgment to hold that the SHMG
leased space qualified for the POE only as to the three SHMG
physicians who had relocated to the medical-building project
from their south Baldwin County offices.  The trial court also
held that adding additional physicians or providing additional
services in the medical-building project would require Sacred
Heart to obtain a CON.  
On appeal, the Court of Civil Appeals reversed the trial
court's judgment and remanded the case for the entry of a
judgment declaring that "the MOB [medical-office-building]
project, as developed a whole," does not qualify for the POE
and requires CON review.   ___ So. 3d at ___.  The Court of
4
1091788
10
Civil Appeals also directed the trial court to enjoin Sacred
Heart from offering health-care services in the medical-
building project until it secures a CON.   
Sacred Heart filed a petition for a writ of certiorari to
this Court and asserted as a ground for review that this case
presents the following material question of first impression:
Whether the SHMG leased space and the health-care services
proposed by Sacred Heart to be offered therein qualify for the
POE so that Sacred Heart is not required to secure a CON.  
II. Standard of Review
"Our standard of review of this case is governed
by statute.  Section 12-2-7(1), Ala. Code 1975,
states:
"'[I]n deciding appeals, no weight shall be
given the decision of the trial judge upon
the facts where the evidence is not taken
orally before the judge, but in such cases
the Supreme Court shall weigh the evidence
and give judgment as it deems just.'  
"In a case in which a trial court has not heard live
testimony, this Court has held that 'a reviewing
court will not apply the presumption of correctness
to a trial court's findings of fact and that the
reviewing court will review the evidence de novo.'
Eubanks v. Hale, 752 So. 2d 1113, 1122 (Ala. 1999).
Our statutory obligation in a case such as this is
to 'weigh the evidence and give judgment as [we]
deem[] just.'" 
1091788
11
Bentley Sys., Inc. v. Intergraph Corp., 922 So. 2d 61, 70-71
(Ala. 2005).  Moreover, we also review de novo a question of
law involving statutory construction.  Whitehurst v. Baker,
959 So. 2d 69, 70 (Ala. 2006).
III. Analysis
Section 22-21-265, Ala. Code 1975, requires that the
provider of any new institutional health service must first
obtain a CON from SHPDA.  By definition, to be considered a
new "institutional health service," the provider of the
service must offer "health services" in or through a "health
care facility."  As defined in the applicable statutes, the
terms "health services" and "health care facility" both
include exemptions for a physician's practice.  "Health
services" do not include "the lawful practice of any
profession or vocation conducted independently of a health
care facility and in accordance with applicable licensing
laws."  § 22-21-260(8).  A "health care facility" does not
include "the offices of private physicians or dentists,
whether for individual or group practices and regardless of
ownership."  § 22-21-260(6).  
1091788
12
The exemption for a physician's practice contained in the
definition of health services is broader than the POE
contained in the definition of a health-care facility.  It
exempts a physician's practice of his or her profession so
long as it is conducted independently of a health-care
facility.  If our inquiry were limited to whether the SHMG
physicians whose offices are located in the medical-building
project are engaged in the lawful practice of their
profession, the exemption in the definition of "health
services" in § 22-21-260(8) would excuse Sacred Heart from
obtaining a CON for the SHMG leased space.  However, the
exemption in § 22-21-260(8) also requires that the practice of
the profession at issue be conducted "independently of a
health care facility," so we must also determine whether the
POE in the definition of "health care facility" in § 22-21-
260(6) for the "offices of private physicians" either
individually 
or 
in 
a 
group 
practice, 
"regardless 
of
ownership," applies to the SHMG leased space.  
Our inquiry is governed by settled principles of
statutory construction.  
"When interpreting a statute, a court must first
give effect to the intent of the legislature. BP
1091788
13
Exploration & Oil, Inc. v. Hopkins, 678 So. 2d 1052
(Ala. 1996).
"'The fundamental rule of statutory
construction is that this Court is to
ascertain and effectuate the legislative
intent as expressed in the statute.  League
of Women Voters v. Renfro, 292 Ala. 128,
290 
So. 
2d 
167 
(1974). 
 
In 
this
ascertainment, we must look to the entire
Act instead of isolated phrases or clauses;
Opinion of the Justices, 264 Ala. 176, 85
So. 2d 391 (1956).'  
"Darks Dairy, Inc. v. Alabama Dairy Comm'n, 367 So.
2d 1378, 1380 (Ala. 1979) (emphasis added).  To
discern the legislative intent, the Court must first
look to the language of the statute.  If, giving the
statutory language its plain and ordinary meaning,
we conclude that the language is unambiguous, there
is no room for judicial construction.  Ex parte
Waddail, 827 So. 2d 789, 794 (Ala. 2001).  If a
literal construction would produce an absurd and
unjust result that is clearly inconsistent with the
purpose 
and 
policy 
of 
the 
statute, 
such 
a
construction is to be avoided.  Ex parte Meeks, 682
So. 2d 423 (Ala. 1996)."  
City of Bessemer v. McClain, 957 So. 2d 1061, 1074-75 (Ala.
2006).   "When a court construes a statute, '[w]ords used in
[the] statute must be given their natural, plain, ordinary,
and commonly understood meaning, and where plain language is
used a court is bound to interpret that language to mean
exactly what it says.'"  Ex parte Berryhill, 801 So. 2d 7, 10
(Ala. 2001) (quoting IMED Corp. v. Systems Eng'g Assocs.
1091788
14
Corp., 602 So. 2d 344, 346 (Ala. 1992)).  As we have
repeatedly stated, the function of this Court is "'to say what
the law is, not to say what it should be.'"  Ex parte
Achenbach, 783 So. 2d 4, 7 (Ala. 2000) (quoting DeKalb Cnty.
LP Gas Co. v. Suburban Gas, Inc., 729 So. 2d 270, 276 (Ala.
1998)). 
"'"'It is settled that courts should give great weight to
any reasonable construction of a regulatory statute adopted by
the agency charged with the enforcement of that statute.'"'"
QCC, Inc. v. Hall, 757 So. 2d 1115, 1119 (Ala. 2000) (quoting
NationsBank of North Carolina, N.A. v. Variable Annuity Life
Ins. Co., 513 U.S. 251, 256 (1995), quoting in turn Clarke v.
Securities Indus. Ass'n, 479 U.S. 388 (1987), quoting in turn
Investment Co. Institute v. Camp, 479 U.S. 388 (1971)).  The
CONRB has formulated a four-part test that it uses to
determine whether the POE is applicable in a given situation.
The test was first stated in CONRB Administrative Ruling Re:
Heart-Lung Associates of America, P.C., DR-100 (August 29,
2001), at p.3, ¶11, n.3, and restated in CONRB Administrative
Ruling Re: East Alabama Health Care Authority d/b/a East
Alabama 
Medical 
Center 
v. 
Institute 
for 
Advanced
1091788
15
Cardiovascular Care & Community Medical Development, LLC, DR-
110 (May 3, 2007), at p.5 ("the Heart-Lung test").  Under the
Heart-Lung test, the POE is applicable when it is shown: 
"1. That the proposed services are to be
provided, and related equipment used, exclusively by
the physicians identified as owners or employees of
the physicians' practice for the care of their
patients.  
"2. That the proposed services are to be
provided, and related equipment used, at the primary
office of such physicians.  
"3. That all patient billings related to such
services are through, or expressly on behalf of, the
physicians' practice, and not on behalf of a third
party.
"4. That the equipment shall not be used for
inpatient care, nor by, through or on behalf of a
health care facility."
Sacred Heart argues that the standard applied by the
Court of Civil Appeals to determine whether the SHMG leased
space qualifies for the POE is arbitrary, subjective, and
unworkable and that that court erred when it held that the
second factor of the Heart-Lung test had not been satisfied.
Sacred Heart further argues that the injunction directed to be
issued by the Court of Civil Appeals was based primarily on
that court's application of a subjective and arbitrary test
that this Court should reject.  The main opinion of the Court
1091788
16
of Civil Appeals stated that the POE did not apply because
"the scope of the MOB [medical-office-building] project, as
originally designed and developed, reaches in our minds, the
point referred to by the CONRB in DR-116, 'where an out-
patient facility, even one developed and owned by physicians,
goes beyond a common sense definition of a "physician's
office," and is subject to review.'"  ___ So. 3d at ___.
Sacred Heart contends that this standard does not provide the
clarity or specificity necessary for predictable health-care
planning and maintains that it should be replaced with the
Heart-Lung test.  Sacred Heart also argues that all four
factors of the Heart-Lung test are met and that therefore the
POE is applicable to the SHMG leased space.
IHS and South Baldwin argue not only that the statutory
requirement for CON review applies to the operation of a new
health-care facility, but also that the statutory scheme
prohibits developing, acquiring, constructing, or obtaining
financing for institutional health services without first
obtaining a CON.  See § 22-21-263(a), Ala. Code 1975.  IHS
argues in its brief that, according to § 22-21-263(a), "Sacred
Heart was obligated to obtain a CON prior to, and in order to,
1091788
17
engage in the construction, development or lease of the new
health care facility."  IHS's brief, at 27.  IHS maintains
that Sacred Heart "executed leases for facilities comprising
a 'health care facility' for which CON review is required."
IHS's brief, at 28.  South Baldwin argues in its brief that
"Sacred Heart, with its three hospitals and various outpatient
clinics all operating as a single legal entity, unquestionably
qualifies as a 'health care facility' under [the Heart-Lung
test]."  South Baldwin's brief, at 28.  Therefore, South
Baldwin argues, Sacred Heart cannot "exempt itself from the
restrictions 
of 
the 
CON 
statute 
simply 
by 
employing
physicians."  Id.  SHPDA adopted the Heart-Lung test, IHS and
South Baldwin say, to analyze whether a project is designed as
the offices of private physicians or is a health-care facility
subject to CON review.  IHS and South Baldwin contend that the
SHMG leased space triggered the CON requirement not only
because it was designed as a new health-care facility, but
also because Sacred Heart proposed new services at the
facility that independently require CON review.  IHS and South
Baldwin argue that the SHMG leased space does not meet all the
criteria to qualify for the POE and that, therefore, Sacred
1091788
18
Heart must obtain a CON before it can use the SHMG leased
space.  
This Court has reviewed the Heart-Lung test and given it
great weight, has considered the problems with the application
of the test that have arisen in this case, and has given the
words in the POE "their natural, plain, ordinary, and commonly
understood meaning."  IMED Corp., 602 So. 2d at 346.  We
conclude that the Heart-Lung test is substantially sound but
that it should be modified to be consistent with the purpose
and policy of the POE and to reflect the legislative intent
expressed in § 22-21-260(6) by adding a fifth criterion.  We
hereby adopt a five-part test to be used to determine whether
a proposed medical facility or project qualifies for the POE
(hereinafter referred to as "the POE application test"):
(1) The proposed services are to be provided,
and related equipment used, exclusively by the
physicians identified as owners or employees of the
physicians' practice for the care of their patients.
(2) The proposed services are to be provided,
and related equipment used, at any office of such
physicians.  
(3) All patient billings related to such
services are through, or expressly on behalf of, the
physicians' practice.
1091788
In addition to adopting the fifth part of the test, we
5
have changed the phrase "the primary office" to "any office"
in the second part and have struck the phrase "and not on
behalf of a third party" in the third part because of a
potential conflict with phrase "regardless of ownership" in
the statutory language of the POE.  Ex parte McLeod, 718 So.
2d 682, 690 (Ala. 1997) ("An administrative agency's
interpretation of a statute will not be given deference if it
is contrary to the legislative intent.").  See also Ex parte
Crestwood Hosp. & Nursing Home, Inc., 670 So. 2d 45, 47 (Ala.
1995) ("It is settled law that the provisions of a statute
will prevail in any case in which there is a conflict between
the statute and a state agency regulation.").
19
(4) The equipment shall not be used for
inpatient care, nor by, through, or on behalf of a
health-care facility.  
(5) The POE shall not be interpreted to allow a
physician to provide any service or to use any
equipment for which the law otherwise requires a
CON.   
5
The POE application test will provide an objective standard
that can be used to determine whether the POE applies to any
medical practice, whether the practice is solo or group, large
or small, specialized or general.  Such an objective test will
not only provide direction to SHPDA, the CONRB, and our
courts, but will also provide the certainty needed by
developers of medical office buildings in this State and its
physicians at times when, for example, they consider
relocating a practice, adding a new physician or specialty to
1091788
20
an existing practice, purchasing a piece of new equipment, or
offering a new service.  
As to the SHMG leased space, the trial court did not have
before it  the POE application test we adopt today; therefore,
we remand this case to the Court of Civil Appeals for it to
remand the case to the trial court for consideration in light
of the POE application test, including any further proceedings
the trial court deems necessary.  Because we today adopt the
POE application test and remand the case, we pretermit
consideration of the other arguments made by the parties. 
IV. Conclusion
We reverse the judgment of the Court of Civil Appeals and
remand this case for that court to remand the case to the
trial court for any further proceedings it deems necessary and
for the trial court to apply the POE application test to the
SHMG leased space in the medical-building project in a manner
consistent with this opinion.  
REVERSED AND REMANDED WITH INSTRUCTIONS.
Malone, C.J., and Woodall, Stuart, Bolin, Parker,* and
Shaw, JJ., concur.  
Murdock, J., concurs in the result.  
Wise, J., recuses herself.
*Although Justice Parker was not present at oral argument
in this case, he has listened to the audiotape of the oral
argument.