SC Administrative Law Court Decisions

This matter comes before me on the Petitions for a contested case hearing filed by Roper Hospital, Inc. (“Roper”) and Bon Secours-St. Francis Hospital (“St. Francis”), the Petitioners, to challenge the decision of the South Carolina Department of Health and Environmental Control (“DHEC” or “Department”) to approve Charleston Endoscopy Center’s (“CEC”) application for a certificate of need (“CON”) to construct a freestanding ambulatory surgery center (“ASC”) in Charleston, South Carolina. The proposed ambulatory surgery center consists of four procedure rooms which will be restricted to outpatient gastrointestinal endoscopy services. Roper and St. Francis, as hospitals offering outpatient gastrointestinal services, including endoscopies, to persons who reside in CEC’s proposed service area, brought this contested case to challenge CEC’s CON on two principal grounds: (1) that there is no need for additional endoscopy rooms in the Charleston area, and thus, no need for the construction of the proposed endoscopy center; and (2) that the construction of such an endoscopy center would have a significant adverse impact on Roper and St. Francis.

After timely notice to the parties, a hearing of this matter was held on September 19, November 18, and November 20, 2002, at the Administrative Law Judge Division in Columbia, South Carolina. Having weighed the evidence and arguments presented at the hearing and having considered the applicable law, I find that CEC’s proposed outpatient endoscopy center fails to meet the criteria for the issuance of a CON and that CEC’s application for a CON must, therefore, be denied.

STANDARD AND BURDEN OF PROOF

In a CON controversy, the petitioner bears the burden of proving its case by a preponderance of the evidence. S.C. Code Ann. § 44-7-210(E) (2002); see also Anonymous v. State Bd. of Med. Exam’rs, 329 S.C. 371, 375, 496 S.E.2d 17, 19 (1998); Nat’l Health Corp. v. S.C. Dep’t of Health & Envtl. Control, 298 S.C. 373, 379, 380 S.E.2d 841, 844 (Ct. App. 1989). Further, the issues that can be raised in a CON contested case proceeding are limited to those which were presented to, or considered by, the Department during its review and decision-making process. S.C. Code Ann. § 44-7-210(E). Thus, Roper and St. Francis bear the burden of proving by a preponderance of the evidence their contention that, considering only the issues before DHEC during the staff review, CEC’s proposed endoscopy center does not meet the criteria for the issuance of a CON.

APPLICABLE CRITERIA

On April 9, 2001, the Department issued its final statement of the project review criteria to be utilized in evaluating CEC’s CON application. The final criteria, ranked in order of importance, were the following:

1. Compliance with the State Health Plan (Need) (citing to Section 802(1) of 24A S.C. Code Ann. Regs. 61-15 (Supp. 2002)).

2. Community Need Documentation (citing to Sections 802(2)(a), (2)(b), (2)(c), and (2)(e) of Regulation 61-15).

Distribution (Accessibility) (citing to Sections 802(3)(a), (3)(c), (3)(d), (3)(e), and (3)(g)).

3. Acceptability (citing to Sections 802(4)(a) and (4)(b)).

4. Adverse Effect on Other Facilities (citing to Section 802(23)(a)).

5. Cost Containment (citing to Section 802(16)(c)).

Projected Revenues (citing to Sections 802(6)(a), (6)(b), and (6)(c)).

Projected Expenses (citing to Section 802(7)).

6. Financial Feasibility (citing to Section 802(15)).

(Pet’r Ex. #1, Vol. I, at 237-38.) Of these selected criteria, Petitioners contend that CEC’s proposed endoscopy center fails to meet the following five criteria:

1. Need under Section 802(1), which provides that a proposal cannot be approved unless it is in compliance with the State Health Plan.

2. Community Need Documentation under Section 802(2)(c), which requires that the proposed project provide services that meet an identified, documented need of the target population. This section further requires that the assumptions and methods used to determine the level of need be specified in the application and based on a reasonable approach.

3. Community Need Documentation under Section 802(2)(e), which requires that current and/or projected utilization be sufficient to justify the expansion or implementation of the proposed service.

4. Distribution (Accessibility) under Section 802(3)(a), which provides that any duplication or modernization must be justified and that any unnecessary duplication or modernization of services will not be approved.

5. Adverse Effect on other Facilities under Section 802(23)(a), which states that the impact on current and projected occupancy or use rates of existing facilities and services should be weighed against the increased accessibility offered by the proposed services.

See 24A S.C. Code Ann. Regs. 61-15 §§ 802(1), (2)(c), (2)(e), (3)(a), (23)(a) (Supp. 2002).

Under the first criterion, “Need,” CEC’s proposed ASC is required to be in compliance with the applicable State Health Plan. The 1999 State Health Plan, which is applicable to the instant application, contains several more criteria for the issuance of a CON for an ASC. Roper and St. Francis contend that CEC also failed to meet two of these additional criteria, specifically:

1. Criterion #1, which provides that an applicant must document a need for the expansion or addition of an ambulatory surgical facility. In this process, the existing resources in the area must be considered and documentation as to why the existing resources are not adequate to meet the need of the community must be presented.

2. Criterion #3, which requires the applicant to discuss the impact that the proposed ambulatory surgical facility or expansion will have on the existing service providers in the area.

(Pet’r Ex. #6, at II-108 to II-109.) Further, Roper and St. Francis contend that the Department’s approval of CEC’s proposed endoscopy center is contrary to the following policy considerations set forth in the 1999 State Health Plan:

There has been a substantial increase in the past five years in both the number and percentage of ambulatory surgeries performed and the number of ambulatory surgery centers approved and licensed. This trend has generally been encouraged because many surgical procedures can be safely performed on an outpatient basis at a lower cost. However, there is now concern that, particularly in the case of specialty facilities, ambulatory surgery centers are being proposed as a method of increasing reimbursement for procedures currently being performed in physician[s’] offices (through the “facility fee” built into the reimbursement mechanisms). The Department will continue to evaluate applications for ambulatory surgery centers on their individual merit. However, it is the determination of the Department that the benefits of improved accessibility will not outweigh the adverse [e]ffects caused by the duplication of existing services or equipment.

(Pet’r Ex. #6, at II-110) (emphasis added).

ISSUES

Petitioners’ contentions concerning the various standards set forth above fall into two general categories, need and adverse impact, and can be summarized as follows:

1. Did the Department err in finding that CEC established a need for its proposed endoscopy center consistent with Criterion 1 of that portion of the 1999 State Health Plan applicable to ASCs and consistent with 24A S.C. Code Ann. Regs. 61-15 §§ 802(1), 802(2)(c), 802(2)(e), and 802(3)(a) (Supp. 2002)?

2. Did the Department err in finding that CEC demonstrated its proposed endoscopy center will not have an adverse impact on Petitioners in a manner consistent with Criterion 3 of that portion of the 1999 State Health Plan applicable to ASCs and consistent with 24A S.C. Code Ann. Regs. 61-15 § 802(23)(a) (Supp. 2002)?

FINDINGS OF FACT

Having carefully considered all testimony, exhibits, and arguments presented at the hearing of this matter, and taking into account the credibility and accuracy of the evidence and the appropriate standard and burden of proof, I make the following Findings of Fact by a preponderance of the evidence:

Background

1. On December 4, 2000, CEC filed with DHEC an application for a CON to construct an ambulatory surgery center in Charleston, South Carolina. The proposed ambulatory surgery center consists of four procedure rooms which will be restricted to outpatient gastrointestinal endoscopy services. CEC plans to locate its proposed endoscopy center in the Essex Medical Park, which is adjacent to St. Francis Hospital on Charlie Hall Boulevard in the West Ashley area of Charleston.

2. CEC is organized as a limited liability company, which is owned in equal parts by three physicians, Dr. Theodore G. Gourdin, Dr. William Brener, and Dr. John K. Corless. A fourth physician, Dr. Neven Hadzijahic, will also participate in the development and operation of the endoscopy center. These four gastroenterologists, who currently practice in the Charleston area as Charleston Gastroenterology Specialists, will be the primary physicians utilizing the proposed endoscopy center. However, CEC will have an open medical staff allowing other gastroenterologists to utilize the center for endoscopy cases.

3. CEC’s proposed facility will contain physicians’ offices, four endoscopy procedure rooms, and fifteen holding and recovery rooms. The CEC physicians will provide outpatient upper and lower diagnostic endoscopy procedures to patients at the proposed facility. The types of procedures to be provided include: colonoscopy, esophagogastroduodenoscopy, and flexible sigmoidoscopy.

4. The primary service area of CEC’s proposed endoscopy center will be concentrated on the Downtown and West Ashley areas of Charleston. However, CEC’s secondary and tertiary service areas will extend to portions of Charleston, Berkeley, Dorchester, and Colleton counties, including the Mount Pleasant, Goose Creek, Summerville, Moncks Corner, and Walterboro areas. These service areas are identified in CEC’s CON application by the 34 specific zip codes that cover the areas. (Pet’r Ex. #1, Vol. I, at 23-24.)

5. Roper and St. Francis are hospitals which are owned and operated by CareAlliance Health Services, a not-for-profit health care organization. Roper is located in downtown Charleston, approximately nine miles from St. Francis, which is located west of the Ashley River in the City of Charleston. Both Roper and St. Francis have established gastroenterology service lines, which include endoscopy rooms for inpatient and outpatient endoscopy cases. Several other facilities in the Charleston area also provide endoscopy services. These facilities include: the Medical University of South Carolina (MUSC), Trident Medical Center, Summerville Medical Center, East Cooper Regional Medical Center, and the HealthSouth Surgery Center of Charleston.

6. On or around the date on which CEC filed its CON application, East Cooper Endoscopy Center filed a CON application for the construction of an ambulatory surgery center with two rooms restricted to gastroenterology procedures to be located in Charleston County in the Mount Pleasant area.

7. After requesting and receiving additional information regarding the CON application, DHEC deemed CEC’s application complete by letter dated January 23, 2001. (Pet’r Ex. #1, Vol. I, at 190). In that letter, DHEC identified the project review criteria that would be considered most important in evaluating CEC’s application. However, shortly after CEC’s application was deemed complete, but before DHEC’s decision was made, two additional CON applications for the construction of, or addition to, two ambulatory surgery centers in Charleston County restricted to gastroenterology procedures were submitted to DHEC. (Pet’r Ex. #1, Vol. I, at 237). In these two additional applications, the HealthSouth Surgery Center of Charleston (“HealthSouth”) sought to add three new endoscopy rooms to its existing facility in Charleston and Palmetto Digestive Disease Endoscopy Center (“Palmetto”) proposed the construction of a two-room endoscopy center in the Essex Medical Park adjacent to CEC’s proposed ASC. While the Department did not technically deem the four CON applications to be “competing” applications as defined by Section 103(6) of Regulation 61-15, the Department did refer to the applications as “competing” applications (Pet’r Ex. #1, Vol. I, at 202, 222, 237) and did review the four applications together. (Hr’g Tr., Vol. II, at 18.) Consequently, the Department notified CEC on April 9, 2001 that its project review criteria had been revised for this joint review of the four CON applications. (Pet’r Ex. #1, Vol. I, at 237.) As noted above, the revised review criteria were: (1) compliance with the State Health Plan, (2) community need documentation and distribution/accessibility, (3) acceptability, (4) adverse effect on other facilities, (5) cost containment, projected revenues, and projected expenses, and (6) financial feasibility.

8. As part of the review process, DHEC contacted the hospitals and surgery centers in Charleston, Dorchester, and Berkeley counties that were offering gastrointestinal endoscopy services and requested certain information regarding those services, including the capacity of those facilities to absorb projected growth and the impact that the construction of additional endoscopy rooms in the area would have on the facilities. (Pet’r Ex. #1, Vol. I, at 208-32.) In response to this survey, those facilities with endoscopy rooms, except HealthSouth, which was also seeking to add endoscopy rooms, informed DHEC that, while significant growth in the volume of endoscopy cases was expected to occur in the next few years, current facilities had sufficient excess capacity to handle the projected increase in endoscopies and that the addition of new endoscopy rooms in the Charleston area would negatively impact existing facilities. (Pet’r Ex. #1, Vol. I, at 271-91.) Additionally, on July 31, 2001, at the Department's request (Hr’g Tr., Vol. II, at 85-86), Roper and St. Francis provided the Department with revised Joint Annual Reports (JARs) containing information relating to outpatient endoscopy cases, rather than procedures, performed at Roper, St. Francis, and Roper North hospitals for the years 1998, 1999, and 2000.^[1] (Pet’r Ex. #2.) DHEC included Roper and St. Francis’ revised JARs in its “Certificate of Need Summary Sheet” which was prepared prior to its decision. (Pet’r. Ex. #1, Vol. I, at 293-99.)

9. By letter dated August 8, 2001, the Department approved CEC’s application and issued a CON to CEC for the establishment of a freestanding ambulatory surgery center with four endoscopy rooms restricted to gastroenterology procedures. The Department primarily based this decision on the following facts:

1. The proposal is consistent with the standards for ambulatory surgery facilities as outlined in the 1999 S.C. Health Plan;

2. The proposed project appears to be financially feasible based on the information available; and

3. The project has substantial community and physician support.

(Pet’r Ex. #1, Vol. I, at 301-02.) On August 17, 2001, Petitioners Roper and St. Francis filed with the Department a request for a contested case hearing to challenge the decision to issue the CON to CEC. In particular, Petitioners contend that there is no need for the construction of additional endoscopy rooms in the Charleston area and that the construction of such rooms would have a significant adverse impact on existing facilities that provide endoscopy services.

Need

10. At the hearing of this matter, Petitioners presented the expert testimony of Mr. Armand Balsano. Mr. Balsano was qualified as an expert in health care planning and financial analysis.

11. Mr. Balsano prepared a detailed, twenty-page analysis of the current and projected utilization of endoscopy capacity in the Charleston area and the impact that the establishment of the proposed endoscopy center would have on Petitioners’ hospitals. (Pet’r Ex. #3.) This report provided detailed information on such topics as the “Service Area and Patient Origin,” “Demographics and Endoscopy Use Rates,” “Projected Endoscopy Cases,” “Roper and St. Francis Physician Dependency,” “Roper and St. Francis Outpatient Endoscopy Financial Impact Calendar Year 2000,” “Roper and St. Francis Endoscopy Financial Impact Loss of 97% of Charleston Outpatient Cases Calendar Year 2000,” and “CareAlliance and Market Capacity.” (Pet’r Ex. #3.) The data in Mr. Balsano’s report was gathered from CEC’s CON application, JARs for Roper and St. Francis, the hospital survey information collected by DHEC during its review of CEC’s CON application, population information from DHEC, use rate information from the South Carolina Budget & Control Board’s Office of Research and Statistics, and internal financial and endoscopy volume information provided by Roper and St. Francis. (Hr’g Tr., Vol. I, at 10-40; Pet’r Ex. # 3.)

12. In his report, Mr. Balsano concluded that the number of endoscopy cases in the Charleston area would grow by nearly 37% between 2000 and 2005, or approximately 5.5% annually. (Pet’r Ex. #3, at 9; Hr’g Tr., Vol. I, at 20-21.) This projection represents 50% of the historical growth rate in endoscopy cases between 1997 and 2000. (Pet’r Ex. #3, at 6.) Mr. Balsano testified that a growth rate of 11% annually “is an exceedingly high use rate growth” and that he was “unaware of other services currently that have similar types of use rate growths.” (Hr’g Tr., Vol. I, at 16.) Accordingly, Mr. Balsano found that the 5.5% growth rate was a more reasonable and realistic rate from which to project future growth in the use of endoscopies. Mr. Balsano further testified that an annual growth in the use rate of 5.5% still indicates vibrant, substantial growth, particularly considering the cumulative effect in the number of projected cases that results when an increased use rate is applied to an increasing population. (Hr’g Tr., Vol. I, at 16-20; Pet’r Ex. #3, at 6.) Moreover, Mr. Balsano’s projected growth rate for endoscopy cases in CEC’s service area is almost identical to the growth rate used by CEC to project its cases through 2005. (Hr’g Tr., Vol. III, at 36-38, Pet’r Ex. #1, Vol. I, at 30.) CEC concluded that an annual growth rate of 6%, roughly 50% of the historical growth rate, was a realistic figure for projecting its future growth because current physician manpower in its practice could not sustain an annual growth rate of 10.2%. (Hr’g Tr., Vol. III, at 36-38.) Given the acknowledged difficulty of recruiting gastroenterologists to the area, this limitation on the growth rate would also affect other providers in the service area. (Hr’g Tr., Vol. II, at 170-71.)

13. Mr. Balsano further concluded that, in 2000, the current endoscopy capacity of existing facilities in the area was only 46% utilized.^[2] (Hr’g Tr., Vol. I, at 35-37; Pet’r Ex. #3, at 19.) Therefore, given this low rate of utilization, Mr. Balsano found that, despite the substantial growth in the number of endoscopy cases projected to occur by 2005, the existing endoscopy capacity in the Charleston area would only be 57% utilized in 2005.^[3] (Hr’g Tr., Vol. I, at 37-39; Pet’r Ex. #3, at 20.) Further, with respect to Petitioners' hospitals, Mr. Balsano determined that the endoscopy capacity of Roper, St. Francis, and Roper Hospital North was 68% utilized in 2000, and that the three facilities had an additional capacity of 47% (i.e., the facilities had sufficient capacity to handle an increase of 47% in the number of endoscopies performed in 2000). (Hr’g Tr., Vol. I, at 34-35; Pet’r Ex. #3, at 17-18.) As noted, however, these capacity figures for the year 2000 include data from Roper Hospital North, which closed in May 2001 (Hr’g Tr., Vol. I, at 33), and a sixth endoscopy room at Roper that, while not currently in use for endoscopies, can be made available for use when necessary.^[4] (Pet’r Ex. #3, at 16; Hr’g Tr., Vol. III, at 150-53.) Nevertheless, even disregarding the Roper North figures and the capacity of the sixth available room at Roper, and looking at functional, not theoretical, capacity, Mr. Balsano testified that Roper had an additional capacity of approximately 30% and St. Francis had an additional capacity of 5%. The 30% capacity at Roper translates into performing endoscopies on 5.5 additional patients per day and the 5% capacity at St. Francis is equivalent to 1 additional endoscopy per day. (Hr’g Tr., Vol. I, at 30-32.) Mr. Balsano’s calculation of functional capacity was derived from meetings with Roper and St. Francis employees who work in the GI Units and from his tours of those GI Units. (Hr’g Tr., Vol. I, at 100-03.)^[5]

14. In sum, Mr. Balsano concluded that even with vibrant market growth, there would be no need through 2005 for any additional endoscopy capacity in the Charleston area. (Hr’g Tr., Vol. I, at 39 (“[T]here is capacity within the system and projected capacity within a reasonable planning horizon to meet any future need[.]”).)

15. At the hearing of this matter, Joel Grice, the Director of the Bureau of Health Facilities and Services Development at DHEC, was designated as an expert in CON review and the State Health Plan. Mr. Grice has worked at DHEC since 1975 and has been involved in the CON review process since 1978. Mr. Grice was the DHEC staff member responsible for deciding whether or not to approve CEC’s CON application.

16. As a matter of general practice, DHEC considers there to be a need for additional capacity for a health care service when 80% of the existing capacity for the service is being utilized. (Hr’g Tr., Vol. II, at 90-91.) At the hearing, however, Mr. Grice stated that the Department did not specifically calculate the capacity of existing endoscopy facilities or the utilization of that capacity in reviewing CEC’s application:

Q: Is there any where in the record where you calculated the capacity?

A: No, sir, it is not. In the summary sheet, what we placed just for information was what providers had given us in their calculations. I did, in looking at the latest utilization data that was given by CareAlliance facilities, d[o] a mental calculation of utilization . . . [and] the utilization was above average. . . . I think it was above 70 or 80 percent.

(Hr’g Tr., Vol. II, at 48-49.)^[6]

17. Mr. Grice further testified that he did not find the data collected from the Charleston hospitals regarding the amount of existing capacity and the utilization of that capacity to be credible and accurate. (Hr’g Tr., Vol. II, at 45-46, 48-49, 94). In particular, Mr. Grice was concerned that some providers reported theoretical, not functional, capacity. (Hr’g Tr., Vol. II, at 44-45.) Mr. Grice did acknowledge, however, that there is nothing in the DHEC file that takes exception to the capacity reported by the hospitals. (Hr’g Tr., Vol. II, at 94 (“[W]e did not make a finding or statement specifically saying that the documentation that was presented to us by the existing providers on our survey was inaccurate, but . . . there indeed were some concerns. I mean, we couldn’t prove that it was inaccurate, but it appeared to be.”).) Further, while noting that DHEC is not required to quantify utilization of existing capacity in the service area when determining need, Mr. Grice also stated that, in reviewing a CON application, DHEC generally relies on existing providers to provide the Department with information relating to their utilization.^[7] (Hr’g Tr., Vol. II, at 39.) In fact, in response to the corrected JARs submitted by the hospitals, Mr. Grice noted in CEC’s CON file that "[i]t appears that the applicant's justification of need may be overstated due to a much lower number of endoscopy procedures actually having been performed." (Pet’r Ex. # 1, Vol. I, at 295.) At the time the Department's staff reviewed CEC’s application, the record indicates that the only data before the Department relating to the issue of the existing capacity for endoscopies in the Charleston area was contained in the survey responses from the hospitals and the JARs. The Department did not have any quantifiable evidence contrary to the data presented in those reports. (Pet’r Ex. # 1, Vol. I, at 293-99.)^[8]

18. In addition to his estimates of endoscopy utilization rates in the service area, Mr. Grice determined that other factors suggested a need for the proposed endoscopy center. Specifically, Mr. Grice referred to letters of physician support for the facility, significant population growth in the area, growth in usage of endoscopy services, and customer service issues, including accessibility issues, as being relevant to his analysis of the need for CEC’s facility. (Hr’g Tr., Vol. II, at 21-22, 50-62.) However, neither Mr. Grice nor other DHEC staff members had any specific, quantifiable data to support the conclusion that population growth, increases in the use of endoscopy services, or parking constraints are a significant concern at existing facilities in the area such that additional facilities need to be established to adequately provide endoscopy services in the Charleston area.

19. At the hearing, Respondent CEC presented Mr. Doyle Williams, a health care consultant with Carolinas Strategic Health Services Corporation, as an expert witness in health care planning and health care finance. Mr. Williams is a certified public accountant and has worked in the field of health care planning for over thirty years. Mr. Williams prepared CEC’s CON application for the endoscopy center.

20. In CEC’s CON application and at the hearing of this matter, Mr. Williams primarily documented the need for CEC’s proposed endoscopy facility with letters of physician support and with population growth statistics and statistics on endoscopy use rates for the Charleston area. (Pet’r Ex. #1, Vol. I, at 18-34; Hr’g Tr., Vol. III, at 17-36.) Specifically, Mr. Williams referred to the 154 letters of physician support received by CEC (Pet’r Ex. #1, Vol. II) and to statistics indicating substantial population growth in the Charleston area and substantial growth in the number of endoscopies performed in the area in recent years. (Pet’r Ex. #1, Vol. I, at 21-22, 26-30.) However, while Mr. Williams established that CEC received a significant number of letters of physician support for its CON application (Hr’g Tr., Vol. II, at 51-52; Hr’g Tr., Vol. III, at 17-19) and that the Charleston-area population has been growing at a considerable rate, he failed to link these trends to existing endoscopy capacity in the area. Mr. Williams did not present any quantifiable data regarding the existing capacity for endoscopies in the Charleston area, nor did he present a quantitative analysis of any such data. Like Mr. Grice, Mr. Williams disregarded the data presented in the DHEC survey responses in reaching his opinion that the service area is in need of CEC’s four endoscopy rooms, and offered no data or other information as to what he believes the real capacity at these facilities to be.^[9] And, while Mr. Williams also disagreed with Roper and St. Francis’ functional capacity calculations, he did not tour either facility nor did he offer an alternative calculation of the functional endoscopy capacity at these two facilities. (Hr’g Tr., Vol. III, at 109-12.) In effect, Mr. Williams demonstrated that the demand for endoscopies in the Charleston area would grow significantly in coming years and that a free-standing endoscopy center could profitably harness that demand. (Hr’g Tr., Vol. III, at 29.) He did not, however, establish that existing endoscopy providers in the area could not meet this increased demand or that additional endoscopy facilities would be necessary to adequately serve the increased demand. (Pet’r Ex. #1, Vol. I, at 33-34.)

21. In addition to Mr. Williams’ expert testimony, one of CEC’s physicians, Dr. Brener, testified regarding the need for the proposed endoscopy center. In his testimony, Dr. Brener described certain scheduling, staffing, equipment, and patient flow problems he has encountered at Roper and St. Francis. (Hr’g Tr., Vol. II, at180-89.) Dr. Brener also testified that he is always able to immediately schedule his emergency cases (Hr’g Tr., Vol. II, at 206), and that most scheduling difficulties affect the hour, not the day or week, of an endoscopy (e.g., scheduling an endoscopy for the afternoon, rather than a preferred morning slot). (Hr’g Tr., Vol. II, at 207-08.) Further, there is no documentation in the DHEC file for CEC’s application indicating that any patient in the service area has been unable to have an endoscopy performed because of capacity constraints at the existing facilities. (Hr’g Tr., Vol. II, at 88-89; Pet’r Ex. #1.) While it is clear that the CEC physicians do face some inconveniences by practicing in a hospital rather than their own facility, the scheduling and other difficulties anecdotally described by Dr. Brener are not sufficient to establish a need for a freestanding facility.

22. Mr. Grice and Mr. Williams both generally testified that the cost to the patient of having an endoscopy would be lower if the endoscopy were performed at a freestanding, outpatient facility rather than a hospital. (Hr’g Tr., Vol. II, at 37; Hr’g Tr., Vol. III, at 48.) However, neither provided any documentation establishing the existence or amount of these lower costs. Further, the charges assessed for endoscopies at Petitioners’ hospitals and proposed charges for endoscopies at CEC’s facility are basically comparable (Hr’g Tr., Vol. II, at 97-100, 126-28), and, in fact, CEC estimated that, for at least its first year of operation, both its charges and its operating costs would be greater than those for Roper and St. Francis. (Pet’r. Ex. #1, Vol. I, at 248.) Documents offered into evidence by CEC at the hearing further indicate that the difference in average fees paid by payors or patients to hospitals compared to the fees CEC projects that it will receive is nominal. (Resp’t CEC, Ex. #4, tab 22, at 3.) Specifically, CEC shows an average $20 difference in its projected reimbursement per case compared to the average reimbursement per case at Roper and St. Francis.

Adverse Impact

23. In 2000, the CEC physicians accounted for 39% of the endoscopy volume at Roper and 15% of the volume at St. Francis, or about 24% of the total number of endoscopy procedures performed at both hospitals. (Hr’g Tr., Vol. I, at 22; Pet’r Ex. #3, at 11.) In its CON application CEC identified 28 types of procedures, by code, that its physicians would perform at the proposed endoscopy facility. (Pet’r Ex. # 1, Vol. I, at 11-12.) Mr. Williams confirmed at the hearing that the 28 procedures outlined in the application will be done at the proposed center rather than in hospital settings; he noted that these codes are “the common procedural codes that[‘re] done in facilities.” (Hr’g Tr., Vol. III, at 69.) Dr. Brener acknowledged that 100% of the procedures that will be performed at the proposed facility are described by the 28 codes referenced in CEC’s application. (Hr’g. Tr., Vol. II, at 192-93.) Petitioners’ records reflect that in 2000, 97% of all the outpatient cases performed by CEC physicians at Roper and St. Francis fall within one of these 28 procedure codes. (Hr’g Tr., Vol. I, at 26.) For 2000, Roper and St. Francis, combined, derived a net income of $2,129,899 from their outpatient endoscopy services. (Pet’r Ex. #3, at 13.)

24. Based upon this data, Mr. Balsano determined that if the CEC physicians withdraw their endoscopy cases from Roper and St. Francis to their proposed endoscopy center, the impact on these hospitals would be a decrease in contribution margin for outpatient endoscopy cases of $1,149,723, a 54% decrease in profitability, leaving a contribution margin of $980,176 for these services. (Hr’g Tr., Vol. I, at 25-28, 134-35; Pet’r Ex. # 3, at 13-15.) This calculation is based upon the worst-case assumption that the CEC physicians will transfer 97% of the volume of their outpatient endoscopy cases to the new facility. However, Dr. Brener did testify that some of these outpatient cases would still be performed at the hospital if, for example, the patient has multiple medical problems, is elderly, or is an anesthesia risk, or if the CEC physician is on call at the hospital. (Hr’g Tr., Vol. II, at 193-94.) But, neither Dr. Brener nor any other CEC representative offered any testimony as to what percentage of the procedures that fall within the 28 procedure codes will continue to be performed at the hospital. It is likely that the four CEC physicians will make every effort to do as many of their outpatient cases in the four endoscopy rooms at their facility given the financial incentives of capturing the facility fee. In fact, CEC’s own projections of the number of cases it anticipates doing in its center by 2005 support the conclusion that the CEC physicians will pull substantially all of their outpatient endoscopy cases out of local hospitals. (Pet’r Ex. # 1, Vol. I, at 30.)

25. In sum, Mr. Balsano testified that a decrease of $1,149,000 in the net income generated by outpatient endoscopy services at Roper and St. Francis, a decrease of some 54% of that income, will have a material adverse effect on Roper and St. Francis, even if this decrease is viewed in light of CareAlliance’s total income (operating and non-operating) for 2000. (Hr’g Tr., Vol. I, at 77-78.)

26. Mr. Williams, CEC’s expert witness, disagreed with Mr. Balsano’s conclusion that the loss of CEC’s volume would result in a material adverse effect on Roper and St. Francis. Mr. Williams testified that an adverse financial impact on an entity such as Petitioners’ hospitals would not be material until it amounted to a 25% to 30% decrease in the budget. (Hr’g Tr., Vol. III, at 73.) And, Mr. Williams determined that the loss of endoscopy revenue at Roper and St. Francis would have a 5.7% adverse impact on the overall bottom line for the entire CareAlliance corporation. Therefore, he concluded that the loss of CEC’s endoscopy volume at Roper and St. Francis would not result in a material adverse financial impact to those hospitals.^[10] (Hr’g Tr., Vol. III, at 74-75.) 27. At the hearing, Mr. Grice testified that he did not believe that the establishment of CEC’s proposed endoscopy center would have a significant adverse impact upon Roper and St. Francis because an increase in population and an increase in the number of potential patients would compensate for the loss of volume to CEC. However, Mr. Grice acknowledged that not only would new gastroenterologists have to be recruited to the area to offer endoscopy services to the growing patient base, but also these new physicians would have to be willing to provide these services at Roper and St. Francis, and not a freestanding facility, to offset the loss of the CEC volume. (Hr’g. Tr., Vol. II, at 110-11.) Mr. Williams, CEC’s expert witness, also acknowledged that in order for Roper and St. Francis to make up the lost volumes caused by the transfer of cases to CEC’s facility, additional physicians would need to be recruited. (Hr’g Tr., Vol. III, at 119-21.) As Dr. Brener testified, however, there is a shortage of gastroenterologists making it difficult to recruit new physicians. (Hr’g Tr., Vol. II, at 169-70, 210.) Mr. Williams further testified that he believes other gastroenterologist groups currently practicing at Roper and St. Francis could do more cases, thereby partially filling any void left by the departure of the CEC physicians. However, Mr. Williams admitted on cross examination that he has never spoken to the physicians in the other GI groups to see if they could handle more cases. (Hr’g Tr., Vol. III, at 128-29.)

28. Expert testimony is essential in cases, such as the instant case, that involve a subject of special technical knowledge. Here, Petitioners, through their expert, Mr. Balsano, presented credible evidence suggesting that the balance of probabilities weighs in favor of the conclusion that there is no need for CEC’s proposed endoscopy center and that the establishment of the facility would have a significant adverse impact on Roper and St. Francis. Relying upon a substantial body of reliable data, Mr. Balsano prepared a very detailed quantitative analysis of the existing and projected endoscopy capacity of the Charleston area and the adverse impact the establishment of CEC’s endoscopy center would have on Roper and St. Francis. While Respondents raised some questions regarding the accuracy of certain data relied upon by Mr. Balsano in reaching his conclusions, these questions did not significantly diminish the credibility and reliability of Mr. Balsano’s testimony. Further, neither DHEC nor CEC presented persuasive countervailing evidence to refute Petitioners' conclusions. Mr. Grice’s analysis of the need for the proposed facility and the adverse impact the facility would have on Petitioners’ hospitals was based upon general assumptions regarding the capacity and utilization of existing providers, rather than upon a quantitative examination of concrete data. And, while Mr. Williams carefully documented his projections of growth in the Charleston population and in the number of endoscopies performed in the Charleston area, he failed to connect these projections of growth to an analysis of the ability of existing endoscopy providers to handle that growth and meet the increased demand for endoscopies. Further, Mr. Williams’ effort to place the loss of CEC’s endoscopy volume and revenue at Roper and St. Francis in the context of the entire CareAlliance budget overlooks the real and material adverse impact that the loss of that volume and revenue will have on the two hospitals and their GI Units. Finally, other testimony regarding the increased convenience a freestanding facility would provide physicians and patients in comparison to the hospital setting was largely general and anecdotal in nature and was insufficient to demonstrate a need for a new, freestanding endoscopy center.

CONCLUSIONS OF LAW

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

1. This tribunal has jurisdiction over this contested case pursuant to S.C. Code Ann. § 44-7-210(E) (2002) and S.C. Code Ann. §§ 1-23-310 et seq. (1986 & Supp. 2002). As a statewide administrative tribunal authorized to hear evidence and adjudicate this contested case, this tribunal is the finder of fact in this matter for purposes of administrative and judicial review. See Lindsey v. S.C. Tax Comm’n, 302 S.C. 504, 397 S.E.2d 95 (1990).

2. DHEC’s initial staff decision on a CON application is a proposed decision that becomes a final agency decision unless a request for reconsideration or a contested case hearing on the proposed staff decision is timely filed by the applicant or by an affected person. S.C. Code Ann. § 44-7-210(D), (E) (2002).

3. Because Roper and St. Francis offer general outpatient endoscopy services to persons who reside in CEC’s proposed service area, they are “affected persons” for the purposes of bringing a contested case to challenge DHEC’s decision to issue a CON to Respondent CEC. See S.C. Code Ann. § 44-7-130(1) (2002); 24A S.C. Code Ann. Regs. 61-15 § 103(1) (Supp. 2002). Roper and St. Francis timely filed their request for a contested case hearing regarding DHEC’s approval of CEC’s CON application. See S.C. Code Ann. § 44-7-210(D); 24A S.C. Code Ann. Regs. 61-15 § 403(1) (Supp. 2002).

4. In bringing such a challenge, Petitioners, as the moving parties, bear the burden of proof in this contested case. See S.C. Code Ann. § 44-7-210(E) (2002); 24A S.C. Code Ann. Regs. 61-15 § 403(1) (Supp. 2002); see also Leventis v. S.C. Dep’t of Health & Envtl. Control, 340 S.C. 118, 132-33, 530 S.E.2d 643, 651 (Ct. App. 2000) (holding that the burden of proof in administrative proceedings generally rests upon the party asserting the affirmative of an issue); 2 Am. Jur. 2d Administrative Law § 360 (1994) (same). Therefore, Petitioners Roper and St. Francis must prove by a preponderance of the evidence that CEC’s proposed endoscopy center does not meet the criteria necessary for approval under the applicable statutes and regulations. See Anonymous v. State Bd. of Med. Exam’rs, 329 S.C. 371, 375, 496 S.E.2d 17, 19 (1998) (holding that the standard of proof in an administrative proceeding is generally the preponderance of the evidence); Nat’l Health Corp. v. S.C. Dep’t of Health & Envtl. Control, 298 S.C. 373, 379, 380 S.E.2d 841, 844 (Ct. App. 1989) (holding that the preponderance of the evidence standard applies in CON disputes).^[11]

5. A contested case hearing on a CON application is conducted as a contested case under the Administrative Procedures Act (APA). S.C. Code Ann. § 44-7-210(E) (2002). The issues to be considered at the contested case hearing are limited to those presented to or considered by DHEC during the staff review and decision-making process. Id.; 24A S.C. Code Ann. Regs. 61-15 § 403(1) (Supp. 2002). This limitation of the issues, however, does not preclude the use of any information pertinent to the issues considered by DHEC staff, so long as that information was available to DHEC during the project review. See 24A S.C. Code Ann. Regs. 61-15 § 308(1) (Supp. 2002) (“On the basis of staff review of the record established by the Department, including but not limited to, the application, comments from affected persons and other persons concerning the application, data, studies, literature, and other information available to the Department, the staff of the Department shall make a proposed decision to grant or deny the Certificate of Need.”) (emphasis added). In this CON case, the applicable statutory scheme contemplates a contested case hearing under the APA to complete the fact-finding process. Therefore, as long as no new issues are considered in this contested case proceeding, any data pertinent to the issues considered by DHEC staff that was available to DHEC during the project review may be considered by this tribunal.

6. The weight and credibility assigned to evidence presented at the hearing of a matter is within the province of the trier of fact. See S.C. Cable Television Ass’n v. S. Bell Tel. & Tel. Co., 308 S.C.216, 222, 417 S.E.2d 586, 589 (1992). Furthermore, a trial judge who observes a witness is in the best position to judge the witness’s demeanor and veracity and to evaluate the credibility of his testimony. See, e.g., Woodall v. Woodall, 322 S.C. 7, 10, 471 S.E.2d 154, 157 (1996); Wallace v. Milliken & Co., 300 S.C. 553, 556, 389 S.E.2d 448, 450 (Ct. App. 1990).

7. Under the South Carolina Rules of Evidence, “[i]f scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.” Rule 702, SCRE. An expert is granted wide latitude in determining the basis of his or her opinion, and where an expert's testimony is based upon facts sufficient to form an opinion, the trier of fact must weigh its probative value. Small v. Pioneer Machinery, Inc., 329 S.C. 448, 470, 494 S.E.2d 835, 846 (Ct. App. 1997).

8. “[E]xpert testimony is essential in cases which involve a subject of special technical science, skill, or occupation of which the members of the jury or the trial court are not presumed to be specially informed.” 32A C.J.S. Evidence § 729, at 85 (1996). For example, the South Carolina Supreme Court has held that, in medical malpractice cases, “the plaintiff must use expert testimony . . . unless the subject matter lies within the ambit of common knowledge and experience, so that no special learning is needed to evaluate the conduct of the defendant.” Pederson v. Gould, 288 S.C. 141, 143, 341 S.E.2d 633, 634 (1986).

9. In general, “expert opinion evidence is to be considered or weighed by the triers of the facts like any other testimony or evidence . . . [;] the triers of fact cannot, and are not required to, arbitrarily or lightly disregard, or capriciously reject, the testimony of experts or skilled witnesses, and make an unsupported finding to the contrary of the opinion.” 32A C.J.S. Evidence § 727, at 82-83 (1996). However, the trier of fact may give an expert’s testimony the weight he or she determines it deserves. Florence County Dep’t of Soc. Servs. v. Ward, 310 S.C. 69, 72-73, 425 S.E.2d 61, 63 (Ct. App. 1992). Further, the trier of fact may accept the testimony of one expert over that of another. See S.C. Cable Television Ass’n v. S. Bell Tel. & Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992).

10. The “State Certification of Need and Health Facility Licensure Act,” S.C. Code Ann. §§ 44-7-110 et seq. (2002), requires DHEC to establish a certificate of need program 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. S.C. Code Ann. § 44-7-120 (2002).

11. CON applications are reviewed by the Department under the thirty-three criteria listed in Section 802 of S.C. Code Ann. Regs. 61-15 (Supp. 2002). The State Health Plan outlines the need for medical facilities and services in the State and compliance with the Plan is a criterion for reviewing projects under the CON program.^[12] S.C. Code Ann. Regs. 61-15 § 802(1) (Supp. 2002). A project does not have to satisfy every review criterion in order to be approved, id. § 801(3), but no project may be approved unless it is consistent with the State Health Plan, and, even if a project complies with the State Health Plan, the project may be denied if DHEC determines that the project does not sufficiently meet one or more of the review criteria. See id. § 307(1), § 801(3); see also S.C. Code Ann. § 44-7-210(C) (2002).

12. In conducting this review, DHEC must determine the relative importance of the project review criteria to be used in evaluating the CON application, and the relative importance of these criteria must be tailored to suit the specific project under review. 24A S.C. Code Ann. Regs. 61-15 § 304, § 801(2) (Supp. 2002). With regard to the instant application, DHEC determined that the most important project review criteria were: compliance with the State Health Plan under Section 802(1) of Regulation 61-15; community need documentation under Sections 802(2)(a), (b), (c), and (e); distribution/accessibility under Sections 802(3)(a), (c), (d), (e), and (g); acceptability under Sections 802(4)(a) and (b); adverse impact on other facilities under Section 802(23)(a); cost containment under Section 802(16)(c); projected revenues under Sections 802(6)(a), (b), and (c); projected expenses under Section 802(7); and financial feasibility under Section 802(15).

13. A determination of “need,” for CON purposes, is generally made by considering existing resources in the community along with documentation suggesting how the existing resources are not adequate to meet the needs of the community. See Pet’r Ex. #6, at II-108; see also Edisto Surgery Ctr. v. S.C. Dep’t of Health & Envtl. Control, No. 97-ALJ-07-0434-CC (S.C. Admin. Law Judge Div. July 2, 1998). Beyond this general statement of need, Section 802(2)(e) of Regulation 61-15, which the Department has identified as an important review criterion in this case, requires a CON applicant to provide documentation establishing that “[c]urrent and/or projected utilization . . . [is] sufficient to justify the expansion or implementation of the proposed service.”

14. For planning purposes, the appropriate utilization threshold is 80%-that is, a need for expanded facilities or services is not generally considered to exist until 80% of the capacity of existing facilities is being used. See Marlboro Park Hospital v. S.C. Dep’t of Health & Envtl. Control, Nos. 98-ALJ-07-0734-CC & 98-ALJ-07-0735-CC (S.C. Admin. Law Judge Div. July 27, 2000). While this 80% threshold is not an explicit requirement of Regulation 61-15 or that portion of the State Health Plan pertaining to ambulatory surgery centers, the 80% utilization figure is commonly used by DHEC as a health planning guideline (Hr’g Tr., Vol. II, at 90-91) and is found in other portions of the State Health Plan as a specific requirement applicable to CONs for other health services. (Hr’g Tr., Vol. II, at 46-48.) As such, consideration of the 80% threshold as a guideline, and not fixed requirement, is appropriate in this case. Further, Respondents are correct that neither the CON statutes and regulations nor the 1999 State Health Plan specifically require a quantitative analysis of need or mathematical calculations of capacity or utilization in reviewing a CON application for an outpatient endoscopy center. Nevertheless, it is clear that a rational and objective discussion of need must address the capacity of existing facilities, the utilization of that capacity, and future projections regarding that capacity and its utilization^[13]; and, it is equally clear that any meaningful analysis of these concepts must involve at least some numerical data and the quantitative analysis of that data. It should be noted, however, that even under such a quantitative analysis, the determination of whether a facility is needed, for CON purposes, cannot be reduced to a mechanical test focused exclusively on existing capacity and ignoring other circumstances that may bear upon the question of need.

15. The evidence presented by Petitioners in this case indicates that it is more likely than not that significantly less than 80% of the existing endoscopy capacity in the Charleston area is currently being utilized and that this utilization rate will remain below 80% through at least 2005. Further, the other evidence of need presented by the Department and CEC, such as evidence of the physician convenience, marginally lower costs, and ease-of-parking that the proposed facility would provide, and evidence of a national trend toward such facilities, is not sufficient to demonstrate a need for the facility in light of the under-utilization of existing capacity and the unnecessary duplication of services that would therefore result from the operation of the facility in the shadows of existing providers. Accordingly, the Petitioners have satisfied their burden of establishing that CEC has not demonstrated a need for its proposed endoscopy center.

16. An "adverse impact," for CON purposes, can generally be construed to mean a material decrease in the present or future use or occupancy rates of existing providers for like procedures. See 24A S.C. Code Ann. Regs. 61-15 § 802(23)(a) (Supp. 2002).

17. The evidence presented by Petitioners in this case suggests that it is more likely than not that the volume of endoscopy cases lost to CEC’s proposed surgery center will materially decrease the present and future use of Roper and St. Francis’s endoscopy rooms and that the loss, by reducing outpatient endoscopy revenue by approximately 50%, will have a significant adverse financial impact on Roper and St. Francis. Therefore, Petitioners have satisfied their burden of demonstrating that the establishment of CEC’s proposed endoscopy center would have a significant adverse impact on Petitioners’ hospitals.

18. Moreover, the 1999 State Health Plan provides that “the benefits of improved accessibility [provided by ambulatory surgery centers] will not outweigh the adverse [e]ffects caused by the duplication of existing services or equipment.” (Pet’r Ex. #6, at II-110.) Accordingly, the efforts of DHEC and CEC to demonstrate the increased accessibility to endoscopy procedures that would be provided by the proposed surgery center cannot outweigh Petitioners’ showing that the proposed endoscopy center is not needed and that, if built, the center would have a significant adverse impact on existing facilities.

ORDER

Based upon the Findings of Fact and Conclusions of Law stated above,

IT IS HEREBY ORDERED that Respondent CEC’s application for a Certificate of Need for a freestanding outpatient endoscopy center in Charleston, South Carolina, is DENIED.

AND IT IS SO ORDERED.

______________________________

JOHN D. GEATHERS

Administrative Law Judge

Post Office Box 11667

Columbia, South Carolina 29211-1667

March 20, 2003

Columbia, South Carolina