SC Administrative Law Court Decisions

This matter comes before the Administrative Law Judge Division (ALJD or Division) on a Petition for Administrative Review filed by Petitioner Trident Medical Center, LLC, d/b/a Trident Medical Center (Trident), challenging the decision of Respondent South Carolina Department of Health & Environmental Control (DHEC or Department) to issue non-applicability determination (NAD) NA-01-14 to Respondent Tricom Diagnostic Imaging, LLC (Tricom). The scope of NA-01-14 was for Tricom's purchase and installation of a computed tomography (CT) scanner to be located at an imaging center facility located on Tricom Street, North Charleston, South Carolina (Tricom Street Facility).

The Tricom Street Facility is located on property adjacent to Trident's main campus. Prior to March 2001, the Tricom Street Facility was owned by Tricounty Radiology Associates, P.A. (Tricounty), a physicians' practice, and Tiger Management, LLC (Tiger). On January 25, 2001, Tricom Diagnostic Imaging, LLC, and South Carolina Diagnostic Imaging, Inc. (SCDI) were organized and/or incorporated under the laws of the State of South Carolina. MedQuest Associates, Inc. (MedQuest), a Georgia Corporation, wholly owns SCDI, which in turn wholly owns Tricom. On or about March 1, 2001, MedQuest entered into an Asset Purchase Agreement with Tricounty and Tiger, a portion of which provided for the sale of the Tricom Street Facility, mostly all of the assets contained therein, and the real property on which the facility is located. ⁽¹⁾ Neither MedQuest nor its subsidiary entities are physicians' practices that require incorporation under the South Carolina Professional Corporation Supplement. See S.C. Code Ann. §§ 33-19-101 et seq. (1990 & Supp. 2000).

The Tricom Street Facility functions as a comprehensive imaging facility which houses multiple imaging modalities utilized by licensed radiologists for the diagnosis and/or treatment of patients. In addition to a CT scanner, the facility operates Radiographic & Fluoroscopic unit, Dexa unit, Ultrasound unit, X-ray, and nuclear medicine equipment. At the time of the asset purchase transaction, Tricounty owned a Phillips CT scanner which was subject to a previously issued NAD, NA-00-77. MedQuest purchased the Phillips CT scanner, but then relocated it out of South Carolina. Consequently, MedQuest/Tricom sought to purchase a replacement CT scanner for the Tricom Street Facility, and requested a NAD for that acquisition. The request sought a NAD for the acquisition of a less expensive GE CT scanner to be located in the Tricom Street Facility. Tricom claimed that the total project cost of the CT scanner, along with the apportioned cost of shared equipment, did not exceed $600,000, and therefore a NAD was appropriate. Based on DHEC's calculation of the total project cost of the GE CT scanner as an individual modality, DHEC issued NA-01-14 on February 27, 2001.

Less than six (6) weeks later, Tricom applied for a NAD for the purchase of a mobile MRI unit to be operated at the Tricom Street Facility as well as other facilities. In response, DHEC issued NA-01-39 for the operation of the mobile MRI unit. In addition, on June 7, 2001, MedQuest, on behalf of Tricom, submitted a Certificate of Need (CON) application for the purchase and installation of a fixed MRI at the Tricom Street Facility.

On March 27, 2001, the Petitioner filed a Petition for Administrative Review, challenging DHEC's issuance of NA-01-14 on several grounds, including: (1) that DHEC should have considered the cost of the entire facility, including the cost of the other modalities located in the facility, in the total project cost, which would have exceeded $600,000; and (2) that the total project cost of the CT scanner, individually, exceeded $600,000. As a result, the Petitioner claims DHEC should have denied the NAD request and required Tricom to submit its medical equipment acquisition for Certificate of Need review. On June 5, 2002, the Petitioner filed an Amended Pre-Hearing Statement, withdrawing its allegation that the total project cost associated with the acquisition of the CT scanner, individually, exceeded $600,000.

A hearing on the merits was conducted on June 12, 2002, at the offices of the Administrative Law Judge Division in Columbia, South Carolina. After the close of the evidence, the Petitioner moved to amend its Petition to include an Equal Protection claim to conform to the evidence introduced at the hearing. ⁽²⁾

The Petitioner alleges that DHEC's interpretation and application of the CON Act which resulted in the issuance of NA-01-14 to Tricom was arbitrary and capricious and violates the Equal Protection Clause of the Fourteenth Amendment.

Having considered the witness' testimony and exhibits presented at the merits hearing, I make the following findings of fact by a preponderance of the evidence:

1. Tricom is a South Carolina limited liability company which is wholly owned by South Carolina Diagnostic Imaging, Inc., which in turn is wholly owned by MedQuest Associates, Inc. The CT scanner subject to NA-01-14 is located in an imaging center facility located on Tricom Street, North Charleston, South Carolina. The Tricom Street Facility is located on property adjacent to Petitioner Trident's main campus.

2. The Tricom Street Facility functions as a comprehensive imaging facility, which houses multiple imaging modalities utilized by licensed radiologists for the diagnosis and/or treatment of patients. In addition to a CT scanner, the facility operates Radiographic & Fluoroscopic, Dexa, Ultrasound, X-ray, and nuclear medicine equipment.

3. Prior to March 2001, the Tricom Street Facility was owned by Tricounty Radiology Associates, P.A., a physicians' practice, and Tiger Management, LLC. On March 1, 2001, MedQuest/Tricom entered into an Asset Purchase Agreement with Tricounty and Tiger, a portion of which provided for the sale of the Tricom Street Facility, mostly all of the assets contained therein, and the real property on which the facility is located. At the time of the asset purchase transaction, Tricounty owned a Phillips CT scanner which was subject to a previously issued NAD, NA-00-77. MedQuest purchased the Phillips CT scanner, but then relocated it out of South Carolina. Consequently, MedQuest/Tricom sought to purchase a replacement CT scanner for the Tricom Street Facility, and on February 22, 2001, requested a NAD for the acquisition of a remanufactured GE Hi-speed Advantage Z CT scanner to be located in the Tricom Street Facility. ⁽³⁾ In support of its NAD request, Tricom submitted cost information required by the Department. The proposed CT scanner would share support equipment with other imaging modalities located in the Tricom Street Facility, including a laser printer and imaging display station, as part of an integrated network of equipment. ⁽⁴⁾ The proposed CT scanner also would share common physical space and support functions at the Tricom Street Facility. Based on DHEC's calculation of the total project cost of the GE CT scanner, as an individual modality, DHEC issued NA-01-14 on February 27, 2001 stating that the project did not meet the applicability requirements set forth in 24A S.C. Code Ann. Regs. 61-15 § 102 (1) (Supp. 2000) and therefore did not require CON review.

Within weeks of receiving NA-01-14, MedQuest/Tricom submitted a NAD request for the purchase of a mobile MRI unit to be operated at the Tricom Street Facility as well as other facilities. The total project cost of the MRI unit was represented as $479,040. DHEC also issued a NAD (NA-01-39) for this acquisition on May 24, 2001. In addition, on June 7, 2001, MedQuest, on behalf of Tricom, submitted a Certificate of Need for the purchase and installation of a fixed MRI at the Tricom Street Facility. Tricom represented the total project cost of this acquisition to be $1,800,611. 4. When applying the regulation's $600,000 threshold to NAD requests made by a health care facility for the acquisition of medical equipment consisting of more than one modality, DHEC calculates the total project cost to include the aggregate cost of all of the modalities. Furthermore, if DHEC is aware that the health care facility will acquire another modality within a few months, DHEC requires the health care facility to combine the acquisition of both modalities into a single project for purposes of the $600,000 threshold. By contrast, when a non-health care

facility submits a request for the same project, i.e., acquisition of more than one modality, DHEC calculates the total project cost as the cost of each individual modality. Thus, DHEC considered Tricom's acquisition of the GE CT scanner, the mobile MRI unit, and the fixed MRI unit to be three (3) separate projects. However, if the same "project" had been submitted by a health care facility, DHEC would have aggregated the total project costs of all of the modalities to determine whether they exceeded $600,000.

Additionally, in making its NAD determination, DHEC considers whether medical equipment sought to be approved for acquisition is "major" medical equipment. In making that determination, it considers whether the cost of the equipment approaches the $600,000 threshold, and whether it is referenced in the State Health Plan. For instance, DHEC considered the CT scanner and MRI units to constitute "major" medical equipment. On the other hand, DHEC did not consider the R&F unit acquired by Tricom, located in the Tricom Street Facility, to constitute "major" medical equipment.

5. John R. Markel (Markel), an expert in the application of generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS), testified that GAAP requires the calculation of total project cost for a single modality in a non-health care facility. I find that the Department properly applied GAAP in not adding the Tricom modalities together, but rather evaluating the CT scanner individually. Trident did not sufficiently prove that the Department erred in allowing Tricom to split the project into parts. Therefore, Tricom was required to include only the capital costs associated with the acquisition and operation of the CT scanner as a single modality.

Based upon the foregoing Findings of Fact, I conclude the following as a matter of law:

1. The Administrative Law Judge Division has jurisdiction over this matter and is authorized to hear it as a contested case pursuant to S.C. Code Ann. § 1-23-600(B) (1986 & Supp. 2000), §§ 1-23-310 et seq. (1986 & Supp. 2000), § 44-7-210(D)(2) (Supp. 2000), 24A S.C. Code Ann. Regs. 61-15 § 403 (Supp. 2000), and 25 S.C. Code Ann. Regs. 61-72 § 201 (Supp. 2000).

2. The State Certification of Need and Health Facility Licensure Act (the Act) (S.C. Code Ann. §§ 44-7-110 et seq. (Supp. 2000)) was enacted to "promote cost containment, prevent unnecessary duplication of health care facilities and services, guide the establishment of health facilities and services which will best serve public needs, and ensure that high quality services are provided in health facilities" in South Carolina. Section 44-7-120. Under the Act, before an entity can operate certain health care facilities and services in South Carolina, the Department must issue a Certificate of Need to that entity, subject to certain statutory exemptions. See S.C. Code Ann. §§ 44-7-160 & 44-7-180.

A non-applicability determination is a decision regarding Certificates of Need pursuant to 24A S.C. Code Ann. Regs. 61-15 § 102 (3) (Supp. 2000). When any question exists as to whether the CON requirements are applicable to a potential project or a potential applicant (either a person or health care facility), Regulation 61-15 § 102(3) permits the potential applicant to forward a letter requesting a formal determination by the Department as to the applicability of the CON requirements to that project. Such letter shall contain a detailed description of the project including the extent of modifications, changes in services, and total costs. Additional information may be requested as may be reasonably necessary to make such applicability determination.

3. Regulation 61-15 § 104 (2)(e) provides that the regulations regarding CON review do not apply to "[t]he offices of a licensed private practitioner whether for individual or group practice except as provided for in Section 102.1.f." Therefore, the operation of a CT scanner and MRI unit in a private physician's offices does not constitute operation of a "health care facility" as defined under Regulation 61-15 § 103 (13). Furthermore, "freestanding or mobile technology" means "medical equipment owned or operated by a person other than a health care facility for which the total cost is in excess of that prescribed in these regulations and for which specific standards or criteria are prescribed in the State Health Plan." Regulation 61-15 § 103 (11). Tricom meets the definition of "freestanding or mobile technology."

4. In this case, DHEC issued a determination that the CON Act was not applicable to Tricom's CT scanner purchase based upon its interpretation of Section 44-7-160 (6) and Regulation 61-15 §102 (1)(f). Section 44-7-160 of the Act sets forth specific circumstances under which a person or health care facility must obtain a Certificate of Need from the Department prior to undertaking certain types of projects. Subsection (6) requires any person or health care facility to obtain a Certificate of Need before "the acquisition of medical equipment which is to be used for diagnosis or treatment if the total project cost is in excess of that prescribed by regulation." ⁽⁵⁾ By regulation, the total project cost threshold for the acquisition of such equipment is $600,000. Regulation 61-15 §102 (1)(f). Therefore, these provisions collectively prohibit any person or health care facility from acquiring "medical equipment which is to be used for diagnosis or treatment if the total project cost is in excess of $600,000." (Emphasis added). Id.

When applying this $600,000 threshold to NAD requests made by a health care facility (such as Trident) for the acquisition of medical equipment consisting of more than one modality, DHEC calculates the total project cost to include the aggregate cost of all of the modalities. By contrast, when a non-health care facility (such as Tricom) ⁽⁶⁾ submits a request for the same project, i.e., acquisition of more than one modality, DHEC calculates the total project cost as the cost of each individual modality. The result is that non-health care facilities acquiring medical equipment consisting of modalities which, individually, have a total project cost less than $600,000 but in the aggregate would exceed $600,000, are not required to submit to Certificate of Need review. However, similarly situated health care facilities must submit to Certificate of Need review.

Here, Tricom submitted a NAD request for the acquisition of the CT scanner only, although it simultaneously acquired equipment related to other imaging modalities to be located and integrated into the same facility. The aggregate total project cost of these modalities clearly exceeded $600,000. However, because DHEC equates "project" with the acquisition of a single modality by a non-health care facility, only the total project cost of the CT scanner alone was considered. By contrast, if the same "project" had been submitted by a health care facility, DHEC would have aggregated the total project costs of all of the modalities to determine whether they exceeded $600,000.

The Respondents argue that the project submitted by Tricom is distinguishable from a project submitted by a health care facility because under the CON Act, a health care facility must, regardless of Regulation 61-15 § 102(1)(f), submit to CON review based on other provisions of Section 102 (1). Furthermore, the Respondents argue that the non-CT modalities located in the Tricom Street Facility did not consist of "major" medical equipment, and therefore would not even be considered in a NAD request. Those distinctions are not sound.

5. The cardinal rule of statutory interpretation and construction is that courts must ascertain and give effect to the intent of the legislature. Mid-State Auto Auction of Lexington, Inc. v. Altman, 324 S.C. 65, 476 S.E.2d 690 (1996). The intention of the legislature should be ascertained primarily from the plain language of the statute and the words of the statute must be given their plain and ordinary meaning without resorting to forced construction which expands or limits the statute's operation. State v. Hendricks, 318 S.C. 562, 459 S.E.2d 520 (S.C. App. 1995); Rowe v. Hyatt, 321 S.C. 366, 468 S.E.2d 469 (S.C. 1996). The best evidence of legislative intent is the statute's actual language. Hodges v. Rainey, 341 S.C. 79, 533 S.E.2d 578 (2000). Therefore, where a statute's language is clear and unambiguous, conveying a clear and definite meaning, no other meaning may be imposed. Id.

Furthermore, "while the ALJD is an independent entity, it still functions as an arm of the agency for purposes of according the agency deference in interpretation. '[T]he construction of a statute by the agency charged with its administration will be accorded the most respectful consideration and will not be overruled absent compelling reasons.'" Dorman v. Department of Health and Environmental Control, 350 S.C. 159, 167, 565 S.E.2d 119, 124 (Ct. App. 2002) (quoting, in part, Brown v. S.C. Dep't of Health & Envtl. Control, 348 S.C. 507, 560 S.E.2d 410, 413 (2002)). However, the rule of "executive construction is usually and properly restricted to cases in which the meaning of a statute is really doubtful . . . ." Davidson v. Eastern Fire & Casualty Insurance Co., 245 S.C. 472, 141 S.E.2d 135, 136 (1965). An ambiguity arises when the language of a statute is capable of being understood by reasonably well-informed persons in either of two or more senses. Southeastern Fire Ins. Co. v. South Carolina Tax Comm'n, 253 S.C. 407, 171 S.E.2d 355 (1969).

Here, it is appropriate to give due consideration to the Department's CON staff's utilization of its specialized knowledge and expertise in the application of the CON Act and its accompanying regulations. See S.C. Code Ann. § 1-23-330(4) (1986 & Supp. 2000). However, the Department's Board, and not the Department's CON staff, is the policymaker for the Department and thus possesses the authority to establish its interpretation of its regulatory and statutory provisions. Consequently, I find that neither the Department's staff's construction of the Act nor the CON regulations regarding the application of the $600,000 threshold is entitled to "most" respectful consideration.

6. Section 44-7-160 of the Act sets forth nine (9) specific circumstances under which a person or health care facility must obtain a Certificate of Need from the Department. Seven (7) of those subsections include and refer to the term "health care facility." The only subsections which do not refer to a "health care facility" are subsections (6) and (9). However, the beginning of Section 44-7-160 clearly sets forth that: "[a] person or health care facility as defined in this article is required to obtain a Certificate of Need from the department before undertaking any of the [acts described in subsections (1) through (9)]." ⁽⁷⁾ (Emphasis added). The language of the statute is clear and unambiguous. Therefore, all of the subsections apply equally to any person or health care facility. Moreover, the use of the term "health care facility" in the subsections is referring to the very subject matter of the Act for which the CON must be obtained. "Health care facility" is not used to create a distinction as to who must seek a CON. Accordingly, the Department's rationale for treating health care facilities differently from non-health care facilities is based upon an erroneous interpretation of the statute.

Furthermore, the Department's practice of combining previous expenses for health care facilities is inconsistent with the applicable regulations. Regulation 61-15 § 102(2) specifically provides that when the Department makes a CON determination, that "[c]ommon practice and common sense must govern in determining what is considered to be a single expenditure. An applicant should not be allowed to split what is really one expenditure into two or more for the purpose of avoiding review. The Department should not be allowed to lump projects together arbitrarily to bring them under review." This regulation applies with equal force to all CON determinations made by the Department. Thus, the clear import of the regulation is that, whether or not the facility involved is a "health care facility," each expenditure must be reviewed on a case-by-case basis, and the Department must determine whether the expenditure in question should be evaluated on a stand-alone basis or should be combined with other related expenditures for purposes of CON review. Instead of evaluating each expenditure on its own merits and under the individual circumstances of the case, as the regulation requires, the Department engages in the blanket practice of allocating the cost of previous expenditures submitted by health care facilities. This practice results in precisely what the regulation prohibits- the arbitrary "lumping together" of projects to bring them under CON review. Section 44-7-160(6) unambiguously applies equally to health care facilities, as defined by the Act and regulations, and non-health care facilities, i.e., "persons," as also defined by the Act and regulations.

Additionally, neither the statute nor the regulations define "major medical equipment" or "medical equipment," nor is there any mention of the term "major medical equipment" in Section 44-7-160(6). Nevertheless, the DHEC staff utilizes this distinction in making NAD determinations. It considers medical equipment to be "major" depending on whether the cost of the equipment approaches $600,000, and whether the modality is referenced in the South Carolina State Health Plan. However, Ms. Cantwell testified that she considered the CT scanner, which Tricom represented cost $249,150, to be "major" medical equipment, but not the Phillips R&F unit, which Tricom represented cost $231,915. Although the costs of the CT scanner and R&F unit were relatively close in comparison to the $600,000 threshold, Ms. Cantwell stated that she did not believe it was necessary for Tricom to obtain a NAD for the R&F unit only because its purchase price was less than the purchase price of the CT scanner. The facts of this case demonstrate that DHEC did not consistently or rationally apply a definition of "major" medical equipment when it applied § 44-7-160(6) and Regulation 61-15 §102(1)(f) to Tricom's requests for a NAD.

As set forth above in the Findings of Fact, John R. Markel (Markel), an expert in the application of generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS), testified that GAAP requires the calculation of total project cost for a single modality in a non-health care facility. Therefore, I find that the Department properly applied GAAP in not adding the Tricom modalities together and by evaluating the CT scanner individually.

7. I conclude that the determinations by the Department as to the applicability of the CON requirements of a "person or health care facility" should be considered on a case by case basis without regard to the status of the health care provider. In making this determination, I do not find that DHEC should consider the aggregate cost of all of the previously acquired modalities in determining whether to grant a NAD to a "person or health care facility." Rather, DHEC should utilize its experience to determine if the purchase of the CT scanner was a single expenditure or involved two or more expenditures for the purpose of avoiding CON review. In making that determination, the Department should establish a method that consistently considers all NAD requests without regard to the status of the applicant.

Nevertheless, I conclude based upon my evaluation of the evidence that the purchase of the CT scanner was a single expenditure. Furthermore, the Petitioner did not establish that the costs of the non-CT medical equipment, the mobile MRI unit and the fixed MRI unit located and operated in the Tricom Street Facility were expenditures sufficiently associated with the purchase of the CT scanner to warrant calculating those costs in the total project cost for the acquisition of the CT scanner. Therefore, the Petitioner did not prove that DHEC erred in permitting Tricom to split the project into parts.

Based upon the above Findings of Fact and Conclusions of Law, it is hereby:

ORDERED that DHEC non-applicability determination NA-01-14 for the CT scanner located at the Tricom Street Facility is upheld.

AND IT IS SO ORDERED.

____________________________________

Ralph King Anderson III

Administrative Law Judge

January 6, 2003

Columbia, South Carolina

1. Although the Asset Purchase Agreement technically is between Tricounty, Tiger, and Tricom, other documents reflect an identity of interests among MedQuest, SCDI, and Tricom for purposes of this transaction.

2. In this case, I did not Order that the parties submit pleadings. Rather, I issued an Order for Prehearing Statements which, in part, required that the parties state "the issues presented for determination." The Order also required the parties to update that information. Both Trident's original Pre-Hearing Statement and its Amended Pre-Hearing Statement presented the issue of "whether the Department erred in permitting Tricom and/or its predecessor in interest, Tricounty Radiology Associates, P.A., to split the project into parts so as to evade review under the Certificate of Need statute and regulations." (Emphasis added). Furthermore, Trident did not know that DHEC distinguished between health care facilities and non-health care facilities when applying the $600,000 threshold until the Rule 30(b)(6) deposition of DHEC on the day before the merits hearing. Additionally, during the trial, counsel for Trident used explicit language on at least two (2) occasions which should have placed the Respondents on notice of the existence of an Equal Protection claim.

ALJD Rule 68 provides that: "The South Carolina Rules of Civil Procedure may, where practicable, be applied in proceedings before the Division to resolve questions not addressed by these rules." SCRCP 15 (b) provides that: "When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings." Furthermore, court decisions issued pursuant to Rule 15(b) are also instructive. In Woods v. Rabon, 295 SC 343, 368 SE2d 471 (Ct. App. 1988), the Court held that if a party fails to timely object to the evidence raising an issue not pleaded, the party is deemed to have impliedly consented to the trial of such issues. In these instances, the pleadings may be amended to conform to the evidence upon motion of any party even after judgment. Id.

I therefore find that permitting Trident to raise the Equal Protection claim does not substantially prejudice either Respondent. Nevertheless, since I have found in favor of the Petitioner upon other grounds concerning this argument, I have not addressed the Equal Protection claim in this Order.

3. CT scanners are covered in the 1999 State Health Plan. However, there is no need criteria set forth for a CT scanner, only inventory and utilization data.

4. Additionally, the medical equipment acquired by Tricom and located in the Tricom Street Facility at the time NA-01-14 was issued, other than the CT scanner itself, cost as follows: Hologic Dexa unit ($25,000); Phillips Radiographic & Fluoroscopic (R&F) unit ($231,915); Accuson Ultrasound unit ($32,999); Bennet X-ray OB ($5,000); Bennet X-ray TC ($5,000); Kodak 8700 Laser System ($163,832); and Radworks Display System ($49,692). Therefore, at the time of the issuance of NA-01-14, the aggregate cost of all of the equipment located in the Tricom Street Facility exceeded $600,000.

5. "Total project cost" is defined as "the estimated total capital cost of a project including land cost, construction, fixed and moveable equipment, architect's fees, financing costs, and other capital costs properly charged under generally accepted accounting principles as a capital cost." Regulation 61-15 § 103(25).

6. The parties have acknowledged that Respondent Tricom does not fall within the CON Act's definition of "health care facility."

7. The Act and regulations define "health care facility" as "acute care hospitals, psychiatric hospitals, alcohol and substance abuse hospitals, methadone treatment facilities, tuberculosis hospitals, nursing homes, ambulatory surgical facilities, hospice facilities, radiation therapy facilities, rehabilitation facilities, residential treatment facilities for children and adolescents, habilitation centers for mentally retarded persons or persons with related conditions, and any other facility for which Certificate of Need review is required by federal law." § 44-7-130(10); Regulation 61-15 § 103(15).

"Person" is defined as "an individual, a trust or estate, a partnership, a corporation including an association, joint stock company, insurance company, and a health maintenance organization, a state, a political subdivision, or an instrumentality including a municipal corporation of a state, or any legal entity recognized by the State." § 44-7-130(15); Regulation 61-15 §103(19). Therefore, Tricom is a "person" under the CON Act and its accompanying regulations.