Opinion ID: 1706003
Heading Depth: 2
Heading Rank: 1

Heading: Whether Fox Eye's Proposal Required a CON.

Text: The crux of this case concerns the Department's interpretation of Iowa Code § 135.63(2)( o ). This section provides a CON is not required in the event of a change in ownership, licensure, organizational structure, or designation of the type of institutional health facility [as long as] the health services offered by the successor institutional health facility are unchanged. When Fox Eye applied for a CON in 2004, the Department initially determined a CON was not required under section 135.63(2)( o ). However, after St. Luke's pulled out of the facility, the Department notified Fox Eye a CON was necessary. The Department reasoned: In construing section 135.63(2) o in the past, the Department has approved this exemption only in those circumstances in which the change in the designation of type of institutional health facility (from hospital to outpatient surgical facility) was a seamless change in which the cessation of hospital outpatient surgical services occurred simultaneously with the offering of the surgical services by the outpatient surgical facility. In this situation, . . . the hospital has removed this location from its license and is no longer offering these services in this setting. In addition, the providers of these outpatient surgical services are not currently, and will not in the immediate future, be in a position to offer these services at this location [due to the need to purchase equipment and hire support staff]. Hence there will clearly be a significant gap in time during which no outpatient surgical services will be offered by Fox Eye . . . at this location. For this reason, the Department has determined that the exemption previously cited is no longer applicable. (Emphasis added.) The district court found the Department's interpretation of section 135.63(2)( o ) wholly unjustifiable because the [temporal] gap in services relied upon by the agency is not a factor to be considered under the exemption at issue and the defined terms found therein. We agree. Although the statute may contemplate a seamless transition or change in ownership, it does not expressly state or imply any temporal aspect to the change in ownership. The Department may not, under the guise of interpretation, add lack of a significant gap in time between services to the requirements for the exemption. [4] Nevertheless, we find Fox Eye's proposal required a CON for a different reason: there was no change in ownership, licensure, organizational structure, or designation of the type of institutional health facility. Iowa Code § 135.63(2)( o ). Instead, St. Luke's simply moved its surgery center back to the hospital's main campus. It maintained the ownership, licensure, organizational structure, and designation of the type of facility. The only thing that changed was the facility's location. The exemption with its use of the term successor contemplates a transfer of operations between parties. See id. § 135.63(2)( o ); Black's Law Dictionary 1473 (8th ed.2004) (defining successor as [a] corporation that, through amalgamation, consolidation, or other assumption of interests, is vested with the rights and duties of an earlier corporation). Nothing was transferred here. As St. Luke's employee and landlord, Dr. Birchansky did not gain the right to operate a similar surgery center at the H Avenue location without obtaining a CON. See Catonsville Nursing Home, Inc. v. Loveman, 349 Md. 560, 709 A.2d 749 (1998). The Department's confusion on whether a CON was required may have stemmed from the application itself. Fox Eye's application implied the facility was going to be transferred from St. Luke's to Fox Eye. The application indicated Fox Eye planned to purchase St. Luke's equipment and planned to hire any of the support staff St. Luke's did not retain. Neither proposal occurred. After St. Luke's informed the Department it had no intention of transferring its H Avenue operations to Fox Eye, the Department ruled a CON was required based on the temporal gap in services. It never specifically addressed whether it believed Fox Eye's proposal still constituted a change in ownership, licensure, organizational structure, or designation of the type of institutional health facility. We find it does not. Thus, a CON was required.