Court Opinion

ID: 4204368
Source: CourtListenerOpinion
Date Created: 2017-09-19 12:10:41.585577+00
Date Added: 2024-06-11T07:47:37.049754
License: Public Domain

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, Respondent-
Intervenors.

      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 respondent-
      appellee North Carolina Department of Health and Human Services.

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

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

                                Opinion of the Court

      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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                                  Opinion of the Court

      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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                                 Opinion of the Court

      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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                                 Opinion of the Court

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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                                    Opinion of the Court

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

                                  Opinion of the Court

      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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                                  Opinion of the Court

      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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                                   Opinion of the Court

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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                                 Opinion of the Court

            (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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                                   Opinion of the Court

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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                                  Opinion of the Court

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. § 131E-
             183(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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                                   Opinion of the Court

             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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                                  Opinion of the Court

      “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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                                    Opinion of the Court

      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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                                  Opinion of the Court

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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                                    Opinion of the Court

“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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                                    Opinion of the Court

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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                                  Opinion of the Court

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

                                   Opinion of the Court

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

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

                                   Opinion of the Court

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.

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

                                  Opinion of the Court

      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.

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

                                  Opinion of the Court

      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.

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