DAVIS, Judge.
North Carolina Department of Health and Human Services, Division of Health Service Regulation, Certificate of Need Section ("the Agency"); AH North Carolina Owner LLC d/b/a The Heritage of Raleigh ("The Heritage"); and Britthaven, Inc. and Spruce LTC Group, LLC (collectively "Britthaven") appeal from the Final Decision of the administrative law judge awarding a certificate of need ("CON") to Liberty Healthcare Properties of West Wake County, LLC, Liberty Commons Nursing and Rehabilitation Center of West Wake County, LLC, Liberty Healthcare Properties of Wake County LLC, and Liberty Commons Nursing and Rehabilitation Center of Wake County, LLC (collectively "Liberty") and denying Britthaven's and The Heritage's applications for a CON. After careful review, we vacate and remand for further proceedings consistent with this opinion.
In the 2011 State Medical Facilities Plan ("SMFP"), the North Carolina State Health Coordinating Council identified a need for 240 additional nursing facility beds in Wake County. In response to this need determination, The Heritage, Britthaven, Liberty, Hillcrest Convalescent Center, Inc. ("Hillcrest"), E.N.W., LLC and BellaRose Nursing and Rehab Center (collectively "BellaRose"), and 11 other applicants
The Heritage submitted an application to expand the campus of its existing senior living community to add a 90-bed nursing facility.
In September 2011, the Agency began conducting a competitive review of each of the applications, and on 3 February 2012, it issued its findings and conclusions. The Agency determined that the applications of The Heritage, Hillcrest, and Liberty failed to conform to all applicable statutory review criteria and, therefore, could not be approved. The Agency approved the applications of Britthaven and BellaRose and awarded certificates of need to them for 120 and 100 nursing care beds, respectively.
The Heritage, Hillcrest, and Liberty each filed a petition for a contested case hearing challenging the Agency's decision. The Heritage's petition challenged the Agency's decision to disapprove its application and to approve the applications of Britthaven and BellaRose. Hillcrest's petition challenged the disapproval of its application and the approval of the applications of Britthaven and BellaRose. Liberty's petition challenged the disapproval of its application and the approval of Britthaven's application but did not challenge the approval of BellaRose's application.
Britthaven and BellaRose both intervened in the contested cases of The Heritage, Hillcrest, and Liberty. The Heritage, Hillcrest, and Liberty each intervened in the contested cases of the other petitioners. The parties filed a joint motion to consolidate the contested cases, and on 2 July 2012, Administrative Law Judge Augustus B. Elkins, II ("the ALJ") entered an order consolidating the cases for hearing.
The ALJ heard the matter beginning on 1 October 2012. On 20 June 2013, the ALJ entered a final decision ("the Final Decision") affirming the Agency's award of a CON to BellaRose, reversing the Agency's award of a CON to Britthaven, and reversing the Agency's denial of a CON to Liberty. The Final Decision also upheld the Agency's denial of a CON to The Heritage and Hillcrest. The Agency, The Heritage, and Britthaven filed timely notices of appeal to this Court.
"The fundamental purpose of the certificate of need law is to limit the construction of health care facilities in this state to those that the public needs and that can be operated efficiently and economically for their benefit." Hope-A Women's Cancer Ctr., P.A. v. N.C. Dep't of Health & Human Servs., 203 N.C. App. 276, 281, 691 S.E.2d 421, 424 (2010) (citation and quotation marks omitted), disc. review denied, 365 N.C. 87, 706 S.E.2d 254 (2011). Accordingly, health care providers seeking to offer new nursing facility beds must submit an application to the Agency describing the proposed project and receive authorization from it to proceed with the development of such a project. See N.C. Gen.Stat. §§ 131E-176(3), 131E-178 (2013).
When deciding whether to issue a CON, a two-step process is generally applied. First, the Agency must determine whether the applications submitted meet the criteria set forth in N.C. Gen.Stat. § 131E-183(a). Craven Reg'l Med. Auth. v. N.C. Dep't of Health and Human Servs., 176 N.C. App. 46, 57, 625 S.E.2d 837, 844 (2006). Second, "where the Agency finds more than one applicant conforming to the applicable review criteria, it may [then] conduct a comparison of the conforming
Following the Agency's decision to issue a certificate of need to a particular applicant, the remaining applicants that were not selected are entitled to a contested case hearing in the OAH for a review of the Agency's decision. See Surgical Care Affiliates, LLC v. N.C. Dep't of Health & Human Servs., ___ N.C.App. ___, ___, 762 S.E.2d 468, 471 (2014) ("After the Agency decides to issue, deny, or withdraw a CON ... any affected person as defined by section 131E-188(c) shall be entitled to a contested case hearing under Article 3 of Chapter 150B of the General Statutes." (citation, quotation marks, and brackets omitted)), disc. review denied, ___ N.C. ___, 768 S.E.2d 564 (2015). N.C. Gen. Stat. § 150B-23 requires the party seeking a contested case hearing to file a petition stating facts which tend to establish that
N.C. Gen.Stat. § 150B-23(a) (2013).
Accordingly, in a contested case hearing, "[t]he administrative law judge must ... determine whether the petitioner has met its burden in showing that the agency substantially prejudiced petitioner's rights, as well as whether the agency also acted outside its authority, acted erroneously, acted arbitrarily and capriciously, used improper procedure, or failed to act as required by law or rule." CaroMont Health, Inc. v. N.C. Dep't of Health & Human Servs., ___ N.C.App. ___, ___, 751 S.E.2d 244, 248 (2013) (citation, quotation marks, and emphasis omitted); see also Surgical Care Affiliates, ___ N.C.App. at ___, 762 S.E.2d at 471 (explaining that "[t]his 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" (citation, quotation marks, and brackets omitted)).
In 2011, the General Assembly amended the Administrative Procedure Act ("APA"), conferring upon administrative law judges the authority to render final decisions in challenges to agency actions, a power that had previously been held by the agencies themselves. See 2011 N.C. Sess. Laws 1678, 1685-97, ch. 398, §§ 15-55. Prior to the enactment of the 2011 amendments, an ALJ hearing a contested case would issue a recommended decision to the agency, and the agency would then issue a final decision. In its final decision, the agency could adopt the ALJ's recommended decision in toto, reject certain portions of the decision if it specifically set forth its reasons for doing so, or reject the ALJ's recommended decision in full if it was clearly contrary to the preponderance of the evidence. See N.C. Gen.Stat. § 150B36, repealed by 2011 N.C. Sess. Laws 1678, 1687, ch. 398, § 20. As a result of the 2011 amendments, however, the ALJ's decision is no longer a recommendation to the agency but is instead the final decision in the contested case. N.C. Gen.Stat. § 150B-34(a).
Under this new statutory framework, an ALJ must "make a final decision ... that contains findings of fact and conclusions of law" and "decide the case based upon the preponderance of the evidence, giving due regard to the demonstrated knowledge and expertise of the agency with respect to facts and inferences within the specialized knowledge of the agency." Id.
Our review of an ALJ's final decision is governed by N.C. Gen.Stat. § 150B-51, which provides, in pertinent part, as follows:
N.C. Gen.Stat. § 150B-51(b)-(c) (2013).
In the present case, the ALJ determined that the Agency erred by incorrectly applying Criterion 20 and Criterion 13(c) of N.C. Gen.Stat. § 131E-183(a) in its review of the applications for the nursing facility beds at issue. The ALJ concluded that as a result of the Agency's erroneous application of these two criteria, the Agency improperly determined that (1) The Heritage's and Liberty's applications were nonconforming with the review criteria; and (2) Britthaven's application was conforming with the review criteria. The ALJ also found that Liberty had met its burden of showing that it was substantially prejudiced by the Agency's errors.
Consequently, the ALJ reversed the Agency's award of a CON for 120 nursing facility beds to Britthaven and ordered that the CON instead be issued to Liberty. With respect to The Heritage, the ALJ concluded that it had failed to demonstrate that it was substantially prejudiced by the Agency's erroneous disapproval of its application because it was "not one of the three most effective applications in the Review" and, therefore, would not have been approved even if the Agency had found it to be conforming. We address each of these determinations by the ALJ in turn.
Criterion 20 states that "[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) (2013). Because the General Assembly has not articulated with specificity how the Agency should determine an applicant's conformity with 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. See N.C. Gen.Stat. § 131E-177(1) (2013) (explaining that Agency is empowered to "establish standards and criteria or plans required to carry out the provisions and purposes of [the certificate of need statutes]").
Historically, in determining an applicant's conformity with Criterion 20, the Agency has confined its review to the applicant's facilities within the proposed service area — which, in nursing home reviews, is the county where the proposed facility is to be located. The Agency would then ascertain whether the applicant's facility (or facilities) within that county, if any, had received any citations for substandard quality of care during the 18-month
In its petition for a contested case and during the contested case hearing, Liberty contended that the Agency "exceeded its authority and jurisdiction, acted erroneously, failed to use proper procedure, acted arbitrarily and capriciously, and failed to act as required by law or rule" in determining that its application did not conform to Criterion 20 and that Britthaven's application was, conversely, in conformity with Criterion 20. In making these assertions, Liberty argued that (1) the Agency arbitrarily limited its analysis of whether quality care had been provided in the past solely to the applicants' facilities within Wake County; and (2) Britthaven's application failed to "adequately evidence that quality care had been provided in the past as required by Criterion 20." Liberty also contended in the contested case hearing that the Agency used an incorrect "look back period" for assessing an applicant's quality of care history.
The ALJ agreed with Liberty's contentions and concluded in his Final Decision that (1) Criterion 20 requires an examination of the quality of care record of the applicant's facilities statewide; (2) the relevant time period when assessing an applicant's past quality of care is the 18 months prior to the submission of the applicant's application through the date on which the Agency renders its decision; and (3) Britthaven failed to show conformity with Criterion 20 because the portion of its application addressing quality of care issues at its existing facilities was incomplete and misleading. For these reasons, the ALJ concluded that Britthaven's application was nonconforming with Criterion 20.
In their appeal to this Court, the Agency and Britthaven contend that in making these determinations, the ALJ exceeded his statutory authority and made an error of law by substituting his interpretation of Criterion 20 for the Agency's interpretation. Specifically, they contend that the ALJ failed to give any deference to the Agency's interpretation of this criterion and improperly conducted a de novo review in excess of his limited authority pursuant to N.C. Gen.Stat. § 150B-23(a) as interpreted by this Court in Britthaven, Inc. v. N.C. Dep't of Human Res., 118 N.C. App. 379, 382-83, 455 S.E.2d 455, 459, disc. review denied, 341 N.C. 418, 461 S.E.2d 754 (1995). Because the Agency and Britthaven assert errors under subsections (2) and (4) of N.C. Gen.Stat. § 150B-51(b), we review the ALJ's determinations regarding the scope of Criterion 20 de novo. N.C. Gen.Stat. § 150B-51(c) ("With regard to asserted errors pursuant to subdivisions (1) through (4) of subsection (b) of this section, the court shall conduct its review of the final decision using the de novo standard of review.").
"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, 176 N.C.App. at 58, 625 S.E.2d at 844; see also Hospice At Greensboro, Inc. v. N.C. Dep't of Health and Human Servs., 185 N.C. App. 1, 13, 647 S.E.2d 651, 659 (explaining that "an agency's interpretation of a statutory term is entitled to deference when the term is ambiguous and the agency's interpretation is based on a permissible construction of the statute" (citation and quotation marks omitted)), disc. review denied, 361 N.C. 692, 654 S.E.2d 477 (2007).
Here, the statute at issue — N.C. Gen.Stat. § 131E-183(a)(20) — charges the Agency with determining whether an applicant already involved in the provision of health services has "provide[d] evidence that quality care has been provided in the past" but does not provide guidance for how the Agency is to assess compliance with this criterion. As such, in order to evaluate whether Liberty had met its burden of demonstrating that the Agency's application of Criterion 20 constituted error as defined in N.C. Gen.Stat. § 150B-23(a) that substantially prejudiced Liberty's rights, the ALJ was required to determine whether the process used by the Agency in assessing compliance with Criterion 20 was based on a permissible construction of the statute. See Cty. of Durham v.
In his Final Decision, the ALJ concluded that the geographic scope chosen by the Agency to assess compliance with Criterion 20 was not based upon a permissible interpretation of N.C. Gen.Stat. § 131E-183(a)(20). The ALJ made the following findings of fact on this issue:
(Certain citations omitted.)
Based on these findings, the ALJ made the following pertinent conclusions of law:
The ALJ also concluded that the Agency had utilized the incorrect time frame in its assessment of the applicants' conformity with Criterion 20. Specifically, the ALJ found that while the application form developed by the Agency required applicants to provide quality of care information for the 18 months immediately preceding the submittal of the application, it was the Agency's practice "to only consider substandard quality of care occurring eighteen (18) months prior to the issuance of the CON Section's decision." (Emphasis added.)
The ALJ determined that the Agency's policy of ignoring approximately four months of quality of care data contained in the applications was contrary to N.C. Gen.Stat. § 131E-182(b), which provides that an application form shall require such information as the Agency "deems necessary to conduct the review" and that "[a]n applicant shall be required to furnish only that information necessary to determine whether the proposed new institutional health service is consistent with the review criteria implemented under G.S. 131E-183 and with duly adopted standards, plans and criteria." N.C. Gen.Stat. § 131E-182(b) (2013). As such, the ALJ concluded that the appropriate look back period for assessing an applicant's compliance with Criterion 20 extended from 18 months prior to the submission of the application up to the date that the Agency issued its decision.
As discussed above and as the ALJ noted in his Final Decision, an agency's interpretation of a statute that it is tasked with administering should be accorded some deference by the reviewing tribunal. Good Hope Health Sys., LLC v. N.C. Dep't of Health & Human Servs., 189 N.C. App. 534, 544, 659 S.E.2d 456, 463, aff'd per curiam, 362 N.C. 504, 666 S.E.2d 749 (2008). The agency's interpretation is only entitled to such deference, however, if it is both reasonable and based on a permissible construction of the
With regard to the geographic scope of the quality of care evaluation, we agree with the ALJ's conclusion that the Agency's interpretation of Criterion 20 was not based on a permissible construction of N.C. Gen. Stat. § 131E-183(a). "The cardinal principle of statutory construction is that the intent of the legislature is controlling. In ascertaining the legislative intent, courts should consider the language of the statute, the spirit of the statute, and what it seeks to accomplish." State ex rel. Utils. Comm'n v. Pub. Staff, 309 N.C. 195, 210, 306 S.E.2d 435, 443-44 (1983) (internal citations omitted); see also Martin v. N.C. Dep't of Health & Human Servs., 194 N.C. App. 716, 719, 670 S.E.2d 629, 632 ("The primary rule of construction of a statute is to ascertain the intent of the legislature and to carry out such intention to the fullest extent." (citation and quotation marks omitted)), disc. review denied, 363 N.C. 374, 678 S.E.2d 665 (2009).
It is clear from the testimony offered at the contested case hearing that the Agency's practice of only examining an applicant's quality of care record within the service area of the proposed project is longstanding. Assistant Chief of the CON Section Martha Frisone ("Frisone") testified that evaluating the applicant's quality of care "track record" for only those facilities within the proposed service area had been the practice of the Agency for at least the 18 years she had been employed by the Agency and that she was trained to follow this practice upon her hiring. She explained that when the Agency is "doing a review and we're looking at Criterion 20, the first question we ask is does this project involve an existing facility. And if so, we will inquire about the quality of care track record at that facility, and then we will look at affiliated facilities in the same county." Frisone further testified that under this method of assessing conformity with Criterion 20, if an applicant does not have any existing facilities within the proposed service area, the Agency will find that Criterion 20 is "not applicable" to that applicant.
A longstanding and consistent interpretation of a statute by an administrative agency warrants greater deference than an inconsistent or novel interpretation. See Martin, 194 N.C.App. at 724, 670 S.E.2d at 635 (explaining that "consistently held agency view" was entitled to significantly more deference than an interpretation that conflicts with an earlier agency interpretation). However, courts will not defer to an agency's interpretation of a statute that is an impermissible construction of the statute. Craven Reg'l, 176 N.C.App. at 58, 625 S.E.2d at 844.
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 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."
Consequently, it is legally significant that the General Assembly made no mention of the service area of the proposed project in Criterion 20. As such, 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.
In addition, "under no circumstances will the courts follow an administrative interpretation in direct conflict with the clear intent and purpose of the act under consideration." High Rock Lake Partners, LLC v. N.C. Dep't of Transp., 366 N.C. 315, 319, 735 S.E.2d 300, 303 (2012) (citation, quotation marks, and alteration omitted). In addition to controlling health care costs and avoiding the costly and unnecessary duplication of health service facilities, a primary reason for the existence of the CON laws is to protect the health and well-being of the citizens of North Carolina. N.C. Gen.Stat. § 131E-175(7). Indeed, the General Assembly made specific findings explaining the underlying purpose of requiring health care entities to obtain CONs and how the CON laws promote the general welfare of the public. In particular, the General Assembly stated
Id. Thus, the clear intent of the General Assembly was to ensure that the quality of care history of an existing health care provider be subject to meaningful evaluation before that provider is allowed to offer additional services within North Carolina that are subject to the CON laws.
Here, the Agency's interpretation of Criterion 20 resulted in its determination that Criterion 20 was "not applicable" to several of the applicants simply because they did not have existing facilities in Wake County. Thus, the quality of care history of applicants such as The Heritage, which were already providing nursing care services within North Carolina but did not have any facilities in Wake County, was not assessed despite Criterion 20's mandate for the Agency to determine whether an applicant already involved in the provision of health services has shown that quality care has been provided in the past. N.C. Gen.Stat. § 131E-183(a)(20).
We see no logical basis for disregarding such information evidencing quality of care on a statewide level. Indeed, we believe that such a policy actually contravenes one of the primary purposes of the CON laws. See O & M Indus. v. Smith Eng'g Co., 360 N.C. 263, 268, 624 S.E.2d 345, 348 (2006) (stating that construction of statute which impairs or defeats purpose of statute should be avoided).
Significantly, the testimony from the contested case hearing demonstrates that Agency employees were unable to identify a plausible justification for its past interpretation of the geographic scope element of Criterion 20. Michael McKillip ("McKillip"), a project analyst for the Agency, admitted that he did not know why the Agency limited its analysis to the service area at issue, simply stating that it was just "how we review applications under Criterion 20." Likewise, Frisone testified that she did not know how the Agency initially formulated this interpretation of Criterion 20 but that it had been used for at least the past 18 years and "in that period of time, it has never been questioned that we should look statewide, nationwide, [or] worldwide when we're evaluating Criterion 20."
The inability of the Agency's own employees to provide a coherent rationale for its interpretation of the geographic scope of Criterion 20 provides additional support for our conclusion that no deference is owed to the Agency on this issue. See Cashwell v. Dep't of State Treasurer, 196 N.C. App. 81, 89, 675 S.E.2d 73, 78 (2009) (explaining that deference
With regard to the look back period applicable to Criterion 20, we likewise conclude that the ALJ correctly determined that the Agency's interpretation was not entitled to deference. On this issue (unlike the issue of the appropriate geographic scope of Criterion 20), application of principles of statutory construction to N.C. Gen.Stat. § 131E-183(a) do not provide an answer. However, it is clear that the look back period the Agency utilizes in assessing an applicant's conformity with Criterion 20 differs from the temporal scope of the quality of care information it requires an applicant to provide in its application. By looking solely at the 18 month-period prior to its decision rather than to the 18 months preceding the submission of the application, the Agency disregarded several months of quality of care data — information that it specifically required the applicants to report.
The ALJ found that the Agency's practice of ignoring this information was improper because N.C. Gen.Stat. § 131E-182(b) "prohibits the Agency from creating an application form that requires the applicant to furnish anything more than that which is necessary to a determination of whether the application is consistent with the applicable standards, plans and criteria." N.C. Gen.Stat. § 131E-182(b) states as follows:
The Agency's response to this finding is that N.C. Gen.Stat. § 131E-182(b) merely requires it to limit the information sought from applicants to that which "might be useful" in a review so as to prevent the Agency from engaging in a "fishing expedition." We agree with the ALJ's determination on this issue. Although the statute affords the Agency a measure of discretion in formulating the appropriate look back period, the Agency used that discretion by creating an application that requests information for the 18-month period preceding the submission of the application. The record is devoid of any explanation from the Agency of the basis for its practice of deviating from the time period referenced in its own application when applying Criterion 20. As such, we cannot say that the ALJ erred in his determination that the Agency is bound to utilize a look back period of 18 months preceding the date of the application's submission through the date of the Agency's decision.
Having determined that the ALJ's conclusions as to the proper geographic and temporal parameters of Criterion 20 were not erroneous, we must now examine the ALJ's specific application of Criterion 20 to Britthaven and Liberty.
In his Final Decision, the ALJ reversed the Agency's determination that Britthaven had demonstrated a history of quality care in conformity with Criterion 20, making the following findings of fact:
(Internal citations omitted.)
Based on these findings of fact, the ALJ made the following conclusions of law concerning the issue of whether Britthaven had complied with Criterion 20:
On appeal, Britthaven argues that (1) the ALJ's characterization of the omissions from its application as intentional is not supported by the evidence; and (2) the ALJ erred as a matter of law in concluding that the omissions from its application necessarily rendered Britthaven nonconforming with Criterion 20. We agree.
At the contested case hearing, Maxwell Mason ("Mason") — who was responsible for overseeing CON-related matters for Britthaven, including the preparation of Britthaven's CON applications — testified that an employee, Martha McMillan ("McMillan"), prepared Table 6 in Britthaven's application. Mason stated that the table completed by McMillan appeared correct when he reviewed it but that he did not "go figure out where all the survey findings are and letters from Licensure and Certification and try to recreate the table" because McMillan was more familiar than he was with that data.
Mason further testified that he attempts to verify the accuracy of information provided to him in connection with CON applications "to the extent feasible." He further stated, however, that in light of the Agency's historical practice of examining only the facilities located in the service area of the proposed new project in its Criterion 20 review, he would personally conduct an inquiry into the quality of care history solely as to any facilities located within the particular service area at issue.
When specifically asked about whether Britthaven's omission of the "Xs" that should have been included in Table 6 to denote that a facility had been cited for substandard quality of care was deliberate, Mason responded that it was Britthaven's intention for its application to be both complete and accurate and that the omissions were inadvertent.
Liberty asserts that the ALJ's determination that Britthaven intentionally omitted
In our view, this testimony falls short of supporting a conclusion that Britthaven intentionally omitted key information from its application. Rather, it merely shows that Britthaven's answers in that section were not comprehensive explanations but rather general responses based on its assessment of "the extent of the response that's required."
We have carefully reviewed the record and have failed to identify evidence that would warrant a finding that Britthaven "purposefully" excluded information concerning the quality of care record of its facilities outside of Wake County.
(Emphasis added.)
We next turn to the ALJ's ultimate conclusion that Britthaven's application was nonconforming with Criterion 20. As evidenced by the conclusions of law quoted above, the ALJ's determination that Britthaven failed to conform to Criterion 20 was based solely on Britthaven's incomplete responses in Table 6 of its application. On appeal, Britthaven and the Agency argue that the ALJ's failure to make findings and conclusions concerning Britthaven's actual record of providing care based on the information available to the Agency and the evidence offered at the contested case hearing was an error of law, rendering his conclusion of nonconformity arbitrary and capricious. Once again, we agree.
While the ALJ noted in his Final Decision that Britthaven had received 23 substandard quality of care citations from 12 surveys that were conducted at Britthaven's facilities during the relevant time period, the ALJ did not make any findings discussing the significance of these citations nor did he expressly base his finding of nonconformity on their existence or on any other aspect of Britthaven's actual survey history. Instead, the ALJ concluded that Britthaven's inaccuracies in its completion of Table 6 "necessarily prevent[ed]" the Agency from conducting its evaluation of past quality of care, and as a result, Britthaven could not meet its burden of demonstrating pursuant to Criterion 20 that it had provided quality care in the past.
We believe this conclusion is contradicted both by the testimony of Agency officials and by the ALJ's own determinations that (1) the Agency had "substantial information" before it concerning Britthaven's statewide quality of care record; and (2) the Agency is empowered
At the hearing, Frisone explained that the Agency could find an application nonconforming based on an applicant's omissions or misrepresentations in the application if the information at issue could not be found elsewhere in the submitted materials or was not publicly available. She testified that the Agency is not confined to the information contained in an application and instead may use whatever evidence is available to it in assessing an applicant's conformity with the review criteria. She further testified that in this particular case "the omission is in section II(6)(a), and that is an area where we are going to corroborate or document that quality of care track record for those facilities that we're going to look at by contacting the Licensure and Certification Section for publicly available information." She stated that, for this reason, Britthaven's failure to fully complete Table 6 would not have prevented the Agency from assessing its conformity with Criterion 20 and should not be grounds for finding the Britthaven application nonconforming with Criterion 20.
Similarly, Craig Smith ("Smith"), Chief of the CON Section, testified that the Agency will examine the information provided by an applicant as well as any additional information it obtains from other sources to determine the applicant's conformity with the review criteria. He also stated that he could not envision the Agency "being so draconian that we would disqualify somebody for omitting a response" when the Agency was nevertheless able to assess the applicant's conformity through other sources.
Moreover, in spite of his conclusion that Britthaven's omissions had prevented the Agency from meaningfully reviewing its quality of care record statewide, the ALJ specifically noted that other applicants had made the Agency aware of a number of the substandard quality of care citations at Britthaven facilities during the Agency's initial review of the applications. The ALJ also found that the Agency should have analyzed such information in performing its review of Criterion 20. This Court has previously recognized that the Agency may take into account information beyond that contained within the application itself in making its decision. See In re Wake Kidney Clinic, P.A., 85 N.C. App. 639, 643-44, 355 S.E.2d 788, 790-91 (explaining that Agency can consider information not contained in CON application but otherwise made available to it in making determination of conformity with review criteria), disc. review denied, 320 N.C. 793, 361 S.E.2d 89 (1987).
Notably, Frisone testified that the reason she did not look into these citations was because they did not occur in Wake County and the information the Agency had received during the public comment period did not "lead me to believe that we should vary from our practice of looking only at the facilities in Wake County." Thus, while the evidence supports a finding that the Agency did not examine Britthaven's record of quality of care outside of Wake County, it does not support the ALJ's conclusion that the Agency could not examine Britthaven's history of quality of care because of the omitted information on its application. To the contrary, the Agency's failure to conduct such an examination resulted from the Agency's own practice of confining its review of Criterion 20 to the service area of the proposed project.
Our conclusion that the ALJ erred in determining that Britthaven must be found nonconforming because its omissions prevented a meaningful analysis of Criterion 20 is not a departure from the well-established principle that "[t]he burden rests with the applicant to demonstrate that the CON review criteria are met." Good Hope, 189 N.C.App. at 549, 659 S.E.2d at 466. Rather, our holding is simply that the record does not support the ALJ's findings that (1) Britthaven intentionally submitted an application with misrepresentations and omissions; or (2) these misrepresentations and omissions precluded the Agency from conducting a meaningful review of Britthaven's application to assess conformity with Criterion 20.
For these reasons, we hold that the ALJ erred in summarily concluding that Britthaven was nonconforming without actually examining the quality of care provided by it in
The ALJ next concluded that the Agency erred — and, in so doing, substantially prejudiced Liberty's rights — by finding that Liberty's application was nonconforming with Criterion 20. The Agency had determined that Liberty was nonconforming and therefore unapprovable because its Wake County facility, Capital Nursing and Rehabilitation Center, "had certification deficiencies constituting substandard quality of care, including immediate jeopardy to resident health or safety." For this reason, pursuant to the Agency's historical practice of assessing conformity, it concluded that Liberty was non-conforming with Criterion 20.
In his findings, the ALJ noted that Liberty operated 17 facilities in North Carolina and had received 8 citations statewide for substandard quality of care from 4 surveys conducted during the pertinent look back period. Without addressing the particular circumstances surrounding Liberty's substandard quality of care citations or explaining his reasoning, the ALJ summarily concluded as a matter of law that "Liberty met its burden at the hearing of establishing that it had provided quality care in the past in its existing North Carolina facilities." Britthaven, The Heritage, and the Agency argue that this conclusion was erroneous and unsupported by adequate findings of fact.
As discussed above, the ALJ's Final Decision rejected the Agency's historical approach to assessing conformity with Criterion 20, concluding that the Agency's restriction of its analysis to facilities within the county of the proposed project and utilization of a look back period consisting of only the 18 months immediately preceding the Agency's decision were incorrect. While we agree with the ALJ's analysis of the proper geographic and temporal scope of Criterion 20 in the abstract, the Final Decision is unclear as to how the ALJ actually applied these principles to Liberty and the particular information he relied upon in determining that Liberty's application was consistent with Criterion 20. Indeed, the only discernible support the Final Decision attempted to offer for its determination that Liberty met its burden of demonstrating conformity with Criterion 20 was the bare conclusion that
Fundamental to this Court's ability to review a final decision and analyze whether "the findings, inferences, conclusions, or decisions" of the ALJ are affected by errors of law or are arbitrary, capricious, or an abuse of discretion is the existence of adequate findings of fact. N.C. Gen.Stat. § 150B-51; see generally, Mann Media, Inc. v. Randolph Cty. Planning Bd., 356 N.C. 1, 13, 565 S.E.2d 9, 17 (2002) (explaining that lower tribunal must provide appellate court with "sufficient information in its order to reveal... the application of [its] review" (citation and quotation marks omitted)).
Here, we are presently unable to determine whether the ALJ erred in concluding that Liberty's application was in conformity with Criterion 20 because the Final Decision provides no substantive explanation of how it reached this conclusion. The ALJ made multiple findings suggesting that the Agency should expand the data sources it considers in assessing an applicant's quality of care track record, noting that the Agency "failed to consider any matters of positive quality of care." The ALJ also noted the Nursing
Throughout the hearing, the parties raised various possible methods of assessing an applicant's conformity with Criterion 20. The Heritage advocated for a "zero tolerance" policy, whereby an applicant would be found nonconforming if it had received even one single substandard quality of care citation at any of its facilities within North Carolina during the relevant look back period.
Thus, while the ALJ clearly rejected a zero tolerance policy for assessing compliance with Criterion 20, he also specifically "decline[d] to offer specific methods for the Agency" to utilize in determining conformity with Criterion 20, stating that "find[ing] another way or ways of evaluating Criterion 20.... is not the role of the Office of Administrative Hearings ... or the purpose[ ] of a contested case hearing." The problem with the ALJ's reasoning is that the Final Decision simultaneously (1) stated the ALJ's belief that it was up to the Agency to formulate a standard for assessing compliance with Criterion 20; yet (2) nevertheless proceeded to conclude that Liberty had somehow met this unarticulated standard. In reaching these logically inconsistent conclusions, we believe the ALJ erred. It cannot be determined whether either Liberty or Britthaven conformed with Criterion 20 without a prior understanding of the appropriate standard for assessing such conformity.
The ALJ's Final Decision implicitly recognized that the Agency — as the entity possessing institutional expertise as to CON-related issues and tasked by the General Assembly with administering the CON statutes — is ultimately responsible for developing an appropriate standard for assessing conformity with Criterion 20 (albeit one that is consistent with the CON Laws). See N.C. Gen.Stat. § 131E-177(1) (giving Agency authority to "establish standards and criteria or plans ... and to adopt rules pursuant to Chapter 150B of the General Statutes, to carry out the purposes and provisions of [the CON statutes]").
However, as a result of the General Assembly's 2011 statutory amendments to the APA, the ALJ — rather than the Agency — is entrusted with the duty of making a final decision in any CON matter that becomes the subject of a contested case, and the APA does not provide ALJs with the authority to remand an action back to the Agency for further proceedings. N.C. Gen.Stat. § 150B-34. Accordingly, in cases where, as here, an ALJ has determined that the Agency erred, it is his responsibility to explain why the Agency's decision was erroneous and why the Final Decision he renders is a correct application of the law to the facts of the case. See id. ("In each contested case the administrative law judge shall make a final decision or order that contains findings of fact and conclusions of law.").
Therefore, the ALJ, on remand, must make findings of fact and conclusions of law
The last issue presented on appeal concerns the ALJ's finding that (1) The Heritage's application was conforming to Criterion 13(c) but that (2) the denial of a CON to The Heritage did not constitute error because its application was comparatively less effective than the applications of BellaRose, Liberty, and Britthaven (such that The Heritage would not ultimately have been selected even if the Agency had found The Heritage to be conforming with Criterion 13(c)).
The ALJ's determination that The Heritage's application was comparatively less effective than the applications of Liberty and Britthaven is unchallenged by the parties. However, because we are vacating the ALJ's determination regarding the conformity of Liberty's and Britthaven's applications to Criterion 20 and remanding for new findings and conclusions on that issue, we are required to also review the ALJ's determination that The Heritage conformed with the review criteria and was, in fact, an approvable applicant. This is so because if, on remand, the ALJ determines that neither Liberty nor Britthaven was in conformity with Criterion 20, then The Heritage — if it satisfied Criterion 13(c) — would be entitled to the CON.
Criterion 13(c) provides as follows:
N.C. Gen.Stat. § 131E-183(a)(13)(c).
In its decision, the Agency found that The Heritage's projection that 55.4% of its total patient days
In his Final Decision, the ALJ concluded that the manner in which the Agency computed the Wake County average for services provided to Medicaid recipients was improper. Specifically, the ALJ determined that the Agency "acted erroneously and arbitrarily in excluding nursing facility beds in hospital-affiliated nursing facilities to calculate the county average and using that average to find The Heritage nonconforming with [Criterion 13(c)]." (Emphasis added.) The ALJ found that The Heritage's projection, which
The Agency argues on appeal that the ALJ acted in excess of his statutory authority and erred as a matter of law by affording no deference to the Agency's process for determining conformity with Criterion 13(c) despite the explanation offered by the Agency to support its practice. We agree.
As we previously noted, an agency's interpretation of the statutes it is charged with administering is due deference when its interpretation is reasonable, and the amount of deference given to the agency interpretation depends upon "the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade...." Good Hope, 189 N.C.App. at 544, 659 S.E.2d at 463 (citation and quotation marks omitted). Indeed, the 2011 legislative amendments to the APA preserve this concept, specifically instructing the ALJ to consider the specialized knowledge of the Agency when deciding a contested case.
N.C. Gen.Stat. § 150B-34(a) (emphasis added).
Here, Agency employees testified as to the reasoning behind its exclusion of hospital-affiliated facilities from its calculation of the county average. Frisone testified that hospital-affiliated nursing facility beds typically
She further explained that the Agency was particularly concerned with achieving access to nursing facilities for Medicaid recipients because "Medicaid patients have greater access problems in 2011" and have "historically had more trouble with access to nursing facility services." McKillip, the Agency employee who analyzed and reviewed each of the applications, likewise testified that the hospital-affiliated facilities were excluded from the calculation "because they have a different payor mix pattern that is not typical or not really comparable to the types of facilities that are being proposed in this review, which were all non-hospital affiliated freestanding facilities."
The ALJ rejected this rationale in his Final Decision. He noted that the Agency did not conduct an analysis of the admission patterns in Wake County or of the percentage of Medicaid recipients served by hospital-affiliated facilities as compared to other facilities before deciding to exclude hospital-affiliated nursing facilities from its calculation.
We believe the ALJ's implication that the Agency was required to specifically analyze the admission patterns of all Wake County nursing facilities — both hospital-affiliated and non-hospital-affiliated — disregards the specialized knowledge and expertise of the Agency concerning the typical payor mixes of particular facilities. The evidence presented at the hearing corroborated the Agency's assertion that hospital-affiliated facilities typically have significantly fewer Medicaid patients than other skilled nursing facilities within Wake County with an average 31.6% of the total patient days provided to Medicaid recipients at hospital-affiliated facilities compared to 61.8% at non-hospital-affiliated facilities. As such, we believe that the ALJ erred in failing to give deference to the Agency's reasonable explanation for its decision to exclude hospital-affiliated facilities from its calculation of the county average.
The ALJ further based his conclusion that the Agency's calculation of the county average was arbitrary and capricious on (1) testimony
Based on our examination of the record and the testimony of Agency employees, it appears that a number of factors are considered by the Agency when deciding whether hospital-affiliated facilities should be included in the calculation of the county average. For example, in smaller counties with fewer overall facilities, hospital-affiliated facilities are generally included in order to achieve a more balanced analysis while, conversely, in larger, more populated counties — which have many skilled nursing facilities — hospital-affiliated facilities are typically excluded as their different payor mix tends to artificially depress the county average.
The ALJ cited Smith's testimony that if hospital-affiliated nursing facilities apply for a CON, such facilities may be added "to the mix for a more balanced comparison." Frisone noted that this would likely not be the case in Wake County, however, because of its large population and the fact that "there are enough facilities to where you can look at the distribution" without including hospitals and artificially skewing the county average.
Given the Agency's explanation of its methodology and its purpose in assessing the county average in this manner, we reject the ALJ's conclusion that the Agency was unreasonable and arbitrary simply because it might have altered its calculation if the group of applicants included one or more hospital-affiliated nursing facilities. Indeed, we find it logical for the Agency to utilize an approach allowing for some degree of flexibility in striving to capture the most accurate picture of the services provided to Medicaid recipients within a county in accordance with the specialized knowledge and expertise of the Agency.
We also disagree with the ALJ's determination that the Agency acted erroneously and arbitrarily in excluding hospital-affiliated facilities from its calculations in light of evidence pointing to two prior occasions in which the Agency apparently accepted a calculation of the Medicaid average in Wake County that included hospital-affiliated nursing facilities. Based on our review of this evidence, it appears that these two incidents stemmed from non-competitive reviews where an individual applicant was awarded a CON to add or relocate nursing beds from existing facilities after proposing that over 70% of its total patient days would be provided to Medicaid recipients. The record does not reflect precisely why hospital-affiliated facilities were included in the county average in these two cases. However, we cannot conclude based on the mere existence of these two past cases — without more — that the Agency is no longer entitled to the deference that it would otherwise be due in its interpretation of Criterion 13(c). Indeed, the record also contains evidence of numerous decisions in which the Agency utilized the same method of determining conformity with Criterion 13(c) that it used here.
In sum, we conclude that the Agency's method of assessing conformity with Criterion 13(c) was reasonable, based on facts and inferences within the specialized knowledge of the Agency, and therefore entitled to deference. Accordingly, we reverse the ALJ's determination that The Heritage conformed with Criterion 13(c).
For the reasons stated above, we vacate the ALJ's Final Decision and remand this case for further proceedings not inconsistent with this opinion.
VACATED AND REMANDED.
Judges ELMORE and McCULLOUGH concur.
