Court Opinion

ID: 9657261
Source: CourtListenerOpinion
Date Created: 2023-08-23 20:18:26.276513+00
Date Added: 2024-06-11T18:13:42.605482
License: Public Domain

SABERS, Justice.
Heritage of Yankton (Heritage) appeals a circuit court order affirming the South Dakota Department of Health’s (Department) denial of an application for a certificate of need (CON).

Facts

Heritage filed a CON application with the Department on October 81, 1984, to construct an addition for thirty intermediate care beds and renovate its existing nursing home facility in Yankton, South Dakota. Following a public hearing held December 12, 1984, Department’s staff recommended denial of the application. Heritage subsequently submitted additional information, but on March 13, 1985, Department denied the application.
Heritage filed a request for reconsideration pursuant to ARSD 44:01:14:01. The Department approved the request and held a second public hearing on May 14, 1985. At the hearing, Heritage presented additional information in support of its CON application. On June 12, 1985, the Department denied the application again. The circuit court affirmed the Department’s decision on September 21, 1987.
1. Whether finding of no bed need was clearly erroneous.
The Department denied Heritage’s CON application based on its determination that there was a lack of need for additional beds. Heritage contends that this finding was clearly erroneous. This issue is factual in nature, and should be given deference *70by this court under the clearly erroneous standard. Permann v. South Dakota Dept. of Labor, 411 N.W.2d 113 (S.D.1987). The Department’s role as a fact finder, as well as its expertise in the subject matter, places it in a better position than this court to determine the merits of the CON application. Thus, we should not reverse the decision of the Department unless we are left with a definite and firm conviction that a mistake has been made in light of the entire record. Id.
The South Dakota CON law is set out in SDCL chapter 34-7A and implemented through ARSD 44:01. Further guidance is provided to the Department by the State Medical Facilities Plan (MFP).1 The Department relied upon the bed need limitations set out in ARSD 44:01:09:07 and the MFP. These provisions limit the number of long-term nursing beds according to age and population of the area served by the facility.2 These provisions also make a distinction between urban and rural areas.3 Based on these computations, the Department determined that a surplus of beds existed in the Heritage service area, that a surplus would continue, and that the proposed addition would add to this surplus. The Department also noted that a surplus of beds would exist if the determination were based solely on the population of the city of Yankton, rather than the population of the facility’s service area. The Department did determine that a significant bed shortage would exist if the determination were based solely on the population of Yankton County.4
Despite this latter determination, the Department asserted that county borders were an improper measure of bed need. The Department held that the Heritage service area was the true indicator of bed need and justified rejection of the CON application. The Department also found that Heritage’s application failed to suggest other alternatives to institutionalization as required by ARSD 44:01:10:15. The Department did not find any problems with the actual project, acknowledging that the proposal was well planned and financed. The Department also noted that the proposal would improve the overall care and service of Heritage’s facility.
At the reconsideration hearing, Heritage submitted three additional items for the Department’s consideration. First, Heritage submitted data which projected a population increase in Yankton County, in contrast to the projections relied upon by the Department. Second, Heritage produced statistics on in-migration and out-migration of patients between Nebraska and South Dakota. This data showed that twenty Heritage beds were occupied by Nebraska residents, while very few South Dakota residents out-migrated to Nebraska. Third, Heritage submitted that alternatives, such as home health care, had been developed and used in the Yankton area for more than seventeen years, but did not eliminate the need for additional beds.
On reconsideration, the Department affirmed its decision, again relying upon the lack of need for additional beds. The De*71partment rejected the population figures submitted by Heritage stating that it used standard figures in each CON decision which could not be varied. Further, the Department considered the in-migration and out-migration between Nebraska and South Dakota in determining the service area of Heritage.
Heritage cites Department of Health v. Grand Island Health Care, Inc., 223 Neb. 587, 391 N.W.2d 582 (1986), to support its contention that the Department’s decision was clearly erroneous. The factual situations are similar with respect to the determinations that surplus beds existed in the service area of the facility, while a shortage existed in the actual county of the facility. The Grand Island court rejected the Nebraska Department of Health’s argument that beds from other counties could be used to meet this shortage. The court also considered the occupancy rates and vacancies of the various rest homes in the area and determined there was a high demand for additional beds. The Grand Island court rejected the department’s calculations for need based on an exception under the Nebraska law where special circumstances exist. The court found by a preponderance of the evidence that these special circumstances existed and did not rely upon the department’s calculations. A similar exception to the calculations for bed need exists under South Dakota law in ARSD 44:01:09:07 which provides, “An exception may be made if a project is to serve a special population or if special problems of access or availability exist.”
In Grand Island, the court reviewed the entire decision de novo, including the availability of the exception. In contrast, this court is limited by the clearly erroneous standard of review for the Department’s factual findings. Permann, supra. The availability of the exception, though a mixed question of law and fact, is “essentially factual” and must be reviewed under the clearly erroneous standard. Id., supra at 119. The Department found that the Heritage service area did not present special circumstances warranting the exception. We are not left with a definite and firm conviction that a mistake was made by the Department in determining that the exception was inapplicable. Thus, unlike Grand Island, the Department could properly rely upon the bed need calculations.
The bed need formula, relied upon by the Department, showed a lack of need for additional beds in the service area. However, the question remains whether there is sufficient other evidence to make the Department’s finding of lack of need clearly erroneous. Heritage contends that the actual demand for additional beds is high.5 Further, Heritage argues that the need for additional beds is shown by the Department’s own figures, which indicate a bed shortage in Yankton County. Finally, Heritage questions the validity of the formula used to determine need.
The Department considered current demand for additional beds in the area. The Department found a sufficient number of area vacancies to satisfy this demand. Further, the Department claims its calculations show need over the long run, which it claims is a better and more reliable indicator than current demand statistics.
The Department also rejected the bed shortage in Yankton County to show need. The Department argues it has never considered county boundaries in determining bed need, and that the population of the facility’s service area is the proper area for consideration. In view of its policy to maintain high occupancy rates in all facilities, the Department also rejected Heritage’s claim that the Department’s formula forces the elderly to be separated from their families and home communities.
The Department’s bed need formulas have previously been used to determine bed need. Nehlich v. South Dakota Comprehensive Health, 290 N.W.2d 477 (S.D.1980). These formulas are not subject to easy manipulation as they are based on statistics of a facility’s occupancy over several years. *72Further, Heritage has not presented authority to seriously question the validity of these calculations.
Unlike the court in Grand Island, we are not permitted to make independent findings of fact without reference to the Department’s findings. Grand Island, supra 391 N.W.2d at 584. Under this limitation and in view of all the above, we cannot say the Department’s determination of a lack of bed need was clearly erroneous. Per-mann, supra.
2. Whether the Department’s decision was arbitrary and capricious.
Heritage contends that Department’s actions were “Arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion,” under SDCL 1-26-36, because its decision was based solely upon the formulas for determining need and not upon any of the evidence submitted by Heritage, or the other evidence in the record. SDCL 34-7A-38 provides, “the department of health shall consider at least the following items when reviewing an application” for a CON. Generally, these factors include need, conformance with health plans, cost, availability of alternative services, impact on affected persons and services, possible economies and improvement of service (if joint), financing, financial resources, the time required to implement the plan, effect on other area health services, availability of personnel, management capabilities, and special circumstances, if any. These factors are similar to those in ARSD 44:01:10. It is evident that the Department must consider all these factors.
Heritage relies on Oak Park Manor v. State Certificate of Need Review Bd., 27 Ohio App.3d 216, 500 N.E.2d 895 (1985). The court in Oak Park found that the administrative review board placed too much emphasis on the formula for calculating need. The court noted that under Ohio law, the formula is to be used as a guideline and not as a determinative factor in the CON process. The Oak Park court stated that:
Although the consultant found in favor of appellant on many factors, albeit vaguely at times, the report clearly suggests that the formula, indicating a surplus of beds, was the primary and overriding factor. Thus, the consultant balanced each and every other factor against the sole criterion of an excess in beds, rather than balancing all the factors.
Id. 500 N.E.2d at 898.
ARSD 44:01:10:01 provides that “Failure to comply with one or more [of the considerations in ARSD 44:01:10] is grounds for rejection of the application” for a CON. One of these considerations is bed need. Thus, unlike the situation in Oak Park, under South Dakota CON law, bed need may be a determinative factor and it may be proper for the Department to balance it against the other factors. This would not eliminate the obligation of the Department to consider all the factors.
Heritage claims the Department acted arbitrarily by solely relying on the bed need formulas and failing to consider other evidence of bed need. The administrative rules require the Department’s use of the bed need formulas to determine actual need. However, the Department must consider other evidence of bed need. Finding of Fact IV of the Department decision sets out the occupancy and vacancy rates of area nursing homes over a three year period. Further, Finding of Fact V states that bed need formulas indicate a need for additional beds in Yankton County, but that the service area indicates a surplus of beds, indicating that area “facilities ... have been meeting the needs of Yankton County residents.” These findings indicate that the Department did consider the evidence of high demand and shortage of beds in Yankton County in addition to the bed need formulas. The arbitrary and capricious standard of review:
[C]onveys the sense that the decision is totally intolerable; it rejects only those decisions which are outside any conceivable rational alternative. ... Arbitrariness allows a decision to pass despite a much lower probability that the administrative judgment is correct than either *73reasonableness or agreement review. .. .6
Evidence that the agency might have ignored facts, or had not made a good faith effort to gather or consider significant information, may lead to a finding of arbitrariness.
C. Koch, Administrative Law and Practice § 9.6 at 100-01 (1985). We cannot say the Department acted arbitrarily and capriciously in its decision.
3. Failure to consider new evidence at the reconsideration hearing.
ARSD 44:01:14 deals with the Department’s reconsideration of applications for a CON. ARSD 44:01:14:01 states that the Department may hold a hearing to reconsider a decision upon a showing of good cause. In this case, the rehearing was granted to consider additional information by Heritage. Heritage contends that the Department failed to consider the additional material submitted at the rehearing, which, if true, would violate SDCL 1-26-36.
Heritage equates consideration of the additional items with acceptance. While the Department refused to accept the new information, there is no indication that it did not consider the information. The Department provided valid reasons for rejecting the new information, including the fact that it had already considered some of it. In light of the record, the Department did not act arbitrary and capricious, nor abuse its discretion under SDCL 1-26-36.
AFFIRMED.
WUEST, C.J., and MORGAN, J., concur.
MILLER, J., concurs in result.
HENDERSON, J., dissents.

. The MFP is referred to in ARSD 44:01:06:01(15). It is prepared by the State Health Planning and Development Agency as the basis for assistance under Title XVI of the Public Health Service Act.

. The "relevance index method" is used to determine the population of the area served by a facility. This method involves a computation of the percentage of patients drawn from the total population of each county from which the facility in question draws its patients.

. The guidelines provide that there is less need for beds in urban areas than in rural areas. The rationale for this distinction is that more alternative forms of elderly care are available or should be made available in urban areas.
Heritage challenges the Department's use of different figures for rural and urban areas, since ARSD 44:01:09:07 did not provide for such a distinction at the time of the Department's decisions. However, the Department could have relied upon the rural and urban distinctions provided for in the 1984 MFP.

.In contrast to this determination, the Department later determined in May findings of fact and conclusions of law, that a bed shortage did not exist in Yankton County. This determination was made by including in its calculations 50% of the beds from two rest homes just outside the borders of Yankton County.

. This evidence was based on the occupancy rates, vacancies, and waiting lists of rest homes in the area. These statistics indicated high occupancy rates and low vacancy rates in all of the area facilities.

. Reasonableness review is defined in Koch as substantial evidence review and agreement review is defined as de novo or substitution of judgment review. See Koch, supra §§ 9.3, 9.4.