STATE OF NORTH CAROLINA IN THE OFFICE OF
ADMINISTRATIVE HEARINGS
COUNTY OF WAKE 08 DHR 0540
Philson’s Home Health Care Inc., )
Petitioner )
)
v. ) RECOMMENDED DECISION
)
N. C. Department of Health and Human Services, )
Division Of Health Service Regulation, )
Certificate of Need Section, )
Respondent )
)
Bayada Nurses, Inc., )
Respondent-Intervenors. )
In the above-captioned contested case, Philson’s Home Health Care, Inc. (“Philson”) has challenged the decision of the North Carolina Department of Health and Human Resources, Division of Health Service Regulation, Certificate of Need Section (“Agency” or “CON Section”) to approve Bayada Nurses, Inc.’s (“Bayada”) application for a Certificate of Need for a new Medicare-certified home health agency in Wake County. Bayada has intervened as the prevailing applicant.
Pursuant to N.C.G.S. § 131E-188(a) and 150B-23, a contested case hearing was held in this matter on August 4-6 and final arguments on September 30, 2008, in Raleigh, North Carolina before the Honorable J. Randall May, Administrative Law Judge.
APPEARANCES
Peter J. Sarda For Petitioner Philson
Wallace, Nordan & Sarda, L.L.P.
June S. Ferrell For Respondent CON Section
Assistant Attorney General
North Carolina Department of Justice
Renee J. Montgomery For Respondent-Intervenor Bayada
Jennifer H. Dupuy
Parker Poe Adams & Bernstein, LLP
APPLICABLE LAW
The procedural statutory law applicable to the contested case is Article 3 of the North Carolina Administrative Procedure Act, N.C.G.S. § 150B-22, et seq. and § 131E-188 of the North Carolina Certificate of Need law.
The substantive statutory law applicable to this contested case is the North Carolina Certificate of Need law, N.C.G.S. § 131E-175, et seq.
The administrative regulations applicable to this contested case hearing are the North Carolina Certificate of Need Program Administrative Regulations, 10A N.C.A.C. 14C.0100, et seq., in particular 10A N.C.A.C. 14C.2000, et seq. (Criteria and Standards for Home Health Services).
ISSUES
Petitioner Philson’s List of Issues
1. Whether the Respondent Agency failed to act as required by law or rule when it approved the Bayada application, and disapproved the competing Philson application.
2. Whether the Agency conducted a flawed and inaccurate analysis of the Bayada application and disregarded substantial evidence readily available to it suggesting that the Bayada application did not conform with all applicable statutory and regulatory review criteria and should have been denied.
3. Whether the Agency also committed a serious error of law by noticing the public hearing on these competing applications for a date certain and then changing the date without properly notifying Philson of the revised date of public hearing.
Respondent Agency’s List of Issues
1. Whether the Respondent exceeded its authority or jurisdiction; acted erroneously; failed to use proper procedure; acted arbitrarily or capriciously; or failed to act as required by law or rule, in disapproving the CON application of Philson’s Home Health Inc.
2. Whether the Respondent exceeded its authority or jurisdiction; acted erroneously; failed to use proper procedure; acted arbitrarily or capriciously; or failed to act as required by law or rule, in approving the CON application of Bayada Nurses, Inc.
Respondent-Intervenor Bayada’s List of Issues
1. Whether the Certificate of Need Section violated the standards of N.C.G.S. § 150B-23 when it approved Bayada Nurses’ Certificate of Need application and denied Philson’s Certificate of Need application to develop a new Medicare-certified home health agency in Wake County.
PRELIMINARY MATTERS
The parties filed a Prehearing Order at the outset of this contested case hearing which, among other things, stipulated that notice and jurisdiction over the parties and subject matter were proper.
WITNESSES
At the hearing, the following witness testimony was received:
Vol. No. / Witness / Affiliation / PagesVol. 1 – August 4, 2008 / Clarence R. Philson, Sr. / Philson / 40-82
Vol. 1 – August 4, 2008 / Lee Hoffman / CON Section / 83-113
Vol. 1 – August 4, 2008 / Helen Elaine Alexander / CON Section / 115-126
Vol. 1 – August 4, 2008 / Donald Percy Simmons / Expert witness for Philson / 126-186
Vol. 2 – August 5, 2008 / Newell D. Yarborough, Jr. / Expert witness for Philson / 197-280
Vol. 2 – August 5, 2008 / Clarence R. Philson, Sr. (recalled) / Philson / 287-291
Vol. 2 – August 5, 2008 / Thomas Mylet / Bayada / 295-321
Vol. 2 – August 5, 2008 / David French / Expert witness for Bayada / 322-405
Vol. 3 – August 6, 2008 / David French / Expert witness for Bayada / 412-419
Vol. 3 – August 6, 2008 / Pat Mallee / Expert witness for Bayada / 420-461
Vol. 3 – August 6, 2008 / Helen Elaine Alexander / CON Section / 472-557
Vol. 3 – August 6, 2008 / Clarence R. Philson, Sr. / Philson / 558-578
Vol. 3 – August 6, 2008 / Helen Elaine Alexander / CON Section / 578-583
EXHIBITS
In addition, the following exhibits were admitted into evidence:
STIPULATED EXHIBITS
1. Official State Agency File
2. Certificate of Need Application – Philson
3. Certificate of Need Application – Bayada
BAYADA’S EXHIBITS
Exhibit No. / Description1-3 / Stipulated Exhibits of all parties
4 / Review Criteria for Certificate of Need Applications, Certificate of Need Statute, N.C.G.S. § 131E-183
5 / Definitions of Home Health Agency and Home Health Services, Certificate of Need Statute, N.C.G.S. § 131E-176(12)
6 / Criteria and Standards for Home Health Services, Certificate of Need Regulations, 10A N.C.A.C. 14C.2000 et seq.
10 / Resume of David French
11 / Excerpts of the deposition of Donald Simmons
12 / Excerpts of the deposition of Newell D. Yarborough, Jr.
13 / Excerpts of the deposition of Clarence Philson, Sr.
14a / Notice of Intent to Revoke Home Care Agency License, Philson’s Personal Care Associates, Inc., Division of Facility Services
14b / Statement of Deficiencies dated May 7, 2004, Philson’s Personal Care Associates, Inc., Division of Facility Services
14c / Medicare Home Health Compare Information of Quality Measures for Gentiva Health Services, Inc.
PHILSON’S EXHIBITS
Exhibit No. / Description1-3 / Stipulated Exhibits of all parties
1 / Resume of Donald P. Simmons
2 / Resume of Newell D. Yarborough, Jr.
3 / Letter from Clarence P. Philson to Azzie Conley dated June 24, 2004
PHILSON’S OFFER OF PROOF
Offer of Proof No. / Description4 / Letter from Derether Styles, L.P.N. to Azzie Conley dated July 15, 2004
5 / Letter from Evelyn Tyson, R.N. to Azzie Conley dated July 17, 2004
FINDINGS OF FACT
After examination of the Record and consideration of the evidence presented at the hearing and the Proposed Findings of Fact and Conclusions of Law presented by the parties, the undersigned Administrative Law Judge makes the following Findings of Fact:
PARTIES
1. Petitioner Philson is a North Carolina corporation and currently operates a home care agency in Kinston, Lenoir County, North Carolina. (Philson Appl., Ex. 2, Exhibit 1, p. 84; Philson, Vol. 1, pp. 43-44).
2. Respondent CON Section is the Agency responsible for the administration of North Carolina’s Certificate of Need law, N.C.G.S. Chapter 131E, Article 9.
3. Respondent-Intervenor Bayada is a national corporation that owns and operates twenty-four home care offices in North Carolina and also owns and operates over forty-seven Medicare-certified home health agencies offices across the country. (Bayada Appl., Ex. 3, Exhibit 2, pp. 121-127).
PROCEDURAL BACKGROUND
4. The 2007 State Medical Facilities Plan (“SMFP”) determined that, in 2008, Wake County would have a deficit of 405 home health agency patients. (Agency File, Ex. 1, p. 672; Bayada Appl., Ex. 3, p. 28). The 2007 SMFP thus allocated one new home health agency for development in Wake County in a review beginning on September 1, 2007. (Agency File, Ex. 1., p. 15).
5. Bayada, Philson and three other applicants submitted applications to be considered in this review. (Agency File, Ex. 1, pp. 16-18). These applications were required to be reviewed competitively since only one additional home health agency could be approved in the review. (Hoffman, Vol. 1, p. 90).
6. On October 18, 2008, the Agency held a public hearing in Wake County at which comments from representatives of the applicants and community members were heard concerning the submitted applications. (Agency File, Ex. 1, pp. 207-312).
7. By letter dated January 28, 2008, the CON Section notified all the applicants that Bayada’s application was approved and that the applications of Philson and the other competing applicants were disapproved. (Agency File, Ex. 1, pp. 46-49). On February 4, 2008, the CON Section sent all the applicants written notice of the findings and conclusions on which it based its decision. (Id. at pp. 51-52).
8. Philson filed a Petition for Contested Case Hearing challenging the approval of Bayada’s application and the disapproval of its application. By Order dated March 28, 2008, Bayada was permitted to intervene in this contested case.
THE AGENCY’S DECISION
9. Helen Alexander was the Project Analyst who reviewed the applications at issue. (Alexander, Vol. 1, p. 117).
10. At the time of the review, Ms. Alexander had been a project analyst with the Certificate of Need Section for over 3 ½ years. (Alexander, Vol. 1, p. 116).
11. Ms. Alexander’s educational background includes a bachelor of science degree in nursing, a pharmacy degree and a law degree. (Alexander, Vol. 1, p. 115-116). Prior to her position as Project Analyst with the CON Section, Ms. Alexander assisted clients in drafting Certificate of Need applications in her private law practice. (Alexander, Vol. 3, p. 475).
12. Lee Hoffman, the Chief of the CON Section since 1988, supervised Ms. Alexander’s review of the Certificate of Need applications, and reviewed and approved the Agency’s Findings. (Hoffman, Vol. 1, pp. 83; Alexander, Vol. 3, p. 521).
13. The CON Section found that Bayada was conforming with all statutory and regulatory review criteria. (Agency File, Ex. 1, p. 745; Alexander, Vol. 3, pp. 493-494).
14. The CON Section determined that Philson’s application failed to conform with Criteria 3, 5, 7, 8, 18(a) and regulatory review criteria 10A N.C.A.C. 14C.2002(a)(10) and 14C.2005(a) and (b). (Agency File, Ex. 1, pp. 749-750).
15. The CON Section determined that the remaining three applicants also failed to conform to various statutory and regulatory review criteria. (French, Vol. 2, p. 386).
16. The CON Section determined that both Bayada and Philson had adequately demonstrated quality of care and accordingly were found conforming to Criterion 20. (Agency File, pp. 736-737; Alexander, Vol. 3, p. 502).
17. The CON Section conducted a comparative analysis and determined that Bayada’s application was the only application conforming to all statutory and regulatory review criteria and was superior to the application of Philson. (Agency File, Ex. 1, pp. 745-748; Hoffman, Vol. 1, p. 112; Alexander, Vol. 3, p. 493).
18. A Certificate of Need application must conform or conditionally conform with all statutory and regulatory review criteria to be approved. (Alexander, Vol. 3, pp. 478-479). Certain criteria cannot be conditioned, such as the requirement to demonstrate need in Criterion 3, or the requirement to show the immediate and long-term financial feasibility of a proposal based upon reasonable projections of cost and charges in statutory Criterion 5. (Alexander, Vol. 3, p. 484).
19. Each Certificate of Need application is reviewed independently to determine whether the applicant meets all of the statutory and regulatory review criteria. (Alexander, Vol. 3, pp. 478-479). After each application is reviewed individually, the Agency completes a comparative analysis of all of the competing applications. (Id. at 479).
20. The CON Section includes all applications in its comparative analysis, even if an application cannot be approved because it fails to conform, or conditionally conform, with all statutory and regulatory review criteria. (Alexander, Vol. 3, p. 538). In this review, the Agency determined that Philson’s application could not be approved, regardless of how it compared to the other applicants in the comparative review. (Alexander, Vol. 3, p. 484).
PHILSON’S FAILURE TO CONFORM WITH REVIEW CRITERIA
Philson’s Nonconformity with Criterion 3
21. Philson failed to conform to Criterion 3 based on numerous indicia:
· Philson failed to show a methodology substantiating the unmet need for the proposed services projected in its application;
· Philson inappropriately relied on outdated statistics to project the needs of patients;
· Philson failed to explain the basis for the 25% growth in unduplicated patients to be served in Wake County from 2008 to 2009; and,
· Philson failed to project a reasonable number of duplicated patients to be served and visits per patient.
22. Statutory Criterion 3 requires:
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.
N.C.G.S. § 131E-183(a)(3).
23. In demonstrating conformity with this Criterion, an applicant cannot rely upon the need projection in the State Medical Facilities Plan (“SMFP”), but must demonstrate in its application how its proposal will be able to satisfy the need. (Hoffman, Vol. 1, p. 85-86). An applicant must also demonstrate the need that the population it projects to serve has for the proposed services. (Id.).
24. The 2007 SMFP determined that Wake County would have a deficit of 405 home health agency patients in 2008, and therefore allocated one home health agency for development in Wake County. (Agency File, Ex. 1., p. 15). (Bayada Appl., Ex. 3, p. 28).
25. Philson proposed in its application to serve 405 patients in Year 1 and 507 patients in Year 2. (Philson Appl., Ex. 2, p. 41). Under Criterion 3, Philson was required to show that its proposed home health agency would be able to serve this unmet need. (Hoffman, Vol. 1, p. 90; Philson Appl., Ex. 2, p. 26).
26. Philson failed to demonstrate how its proposal for a new Medicare-certified home health agency would be able to meet this unmet need. (Hoffman, Vol. 1, pp. 90-91). Specifically, Philson failed to demonstrate the need that the population it projected to serve had for the level of home health services it proposed to provide. (Alexander, Vol. 1, pp. 122-123). In fact Mr. Yarborough, the consultant who prepared pertinent portions of Philson’s application, testified that he did not substantiate the unmet need because he thought it unnecessary since it was already provided for in the SMFP. (Yarborough, Vol. 2, p. 209).