SC Administrative Law Court Decisions

ISSUES PRESENTED FOR DETERMINATION

The issues presented for determination are as follows:

1. Has BHHROC proven that DHEC erred in granting a CON to BMH because BMH’s radiation therapy facility will adversely impact BHHROC’s existing radiation facility under Standard 3(b) of the “Certificate of Need Standards for Linear Accelerators”?

2. Has BHHROC proven that DHEC erred in granting a CON to BMH for the construction and development of a radiation therapy facility because the project was not financial feasibility?

FINDINGS OF FACT

Having observed the witnesses and exhibits presented at the hearing and closely passed upon their credibility, considering the burden of persuasion by the parties, I make the following Findings of Fact by a preponderance of evidence:

General Facts

1. Notice of the date, time, place, and nature of the hearing was timely given to all the parties.

2. BMH is a nonprofit, county-owned hospital located in Beaufort, South Carolina.

3. BHHROC is a South Carolina limited partnership located in Hilton Head, South Carolina. It provides radiation treatment for cancer patients and is managed by Morris B. Geffen, M.D.

4. On May 7, 2001, BMH submitted an application for a Certificate of Need to develop a radiation therapy facility with a linear accelerator for cancer patients. The Radiation Therapy Center of Beaufort will include construction of a 12,690 square foot freestanding facility as part of a medical office building on the BMH campus. Afterwards, BHHROC, an affected party which operates a linear accelerator on Hilton Head Island, requested an opportunity to present comments in opposition to the application.^[2] On October 9, 2001, DHEC held a project review committee meeting. BMH provided written and oral presentations in support of the application while BHHROC provided written and oral presentations in opposition to the application. On October 22, 2001, DHEC approved the Certificate of Need, finding that the application met applicable statutory and regulatory requirements, including compliance with the 1999 State Health Plan.^[3] The Department primarily based this decision on the following facts:

(a) The proposal is consistent with the standards for linear accelerators as outlined in the 1999 State Health Plan;

(b) BMH’s affiliation with Duke University Health System (Duke) will ensure the quality and clinical standards of the program. Additionally, patients will be afforded the expertise of a board certified radiation oncologist from Duke who will relocate to Beaufort and practice at BMH; and

(c) The proposed project appears to be financially feasible based upon the information available.

State Health Plan

5. The Certificate of Need program in South Carolina is administered pursuant to the CON Act and its accompanying regulation (24A S.C. Code Ann. Regs. 61-15 (Supp. 2000)), including Project Review Criteria and the State Health Plan. The 1999 State Health Plan provides that decisions regarding linear accelerators are to be made on the basis of the designated planning areas. Thirteen service areas have been established for linear accelerators according to the 1999 State Health Plan. The service area for the proposed BMH linear accelerator includes the counties of Allendale, Beaufort, Colleton, Hampton, and Jasper. BHHROC is the only facility that has a linear accelerator in this area.

The 1999 State Health Plan also sets forth that: “The following project review criteria are considered to be the most important in evaluating certificate of need applications for [radiation therapy] services:

a. Compliance with the Need Outlined in this Plan;

b. Community Need Documentation;

c. Distribution (Accessibility);

d. Projected Revenues;

e. Projected Expenses;

f. Financial Feasibility; and

g. Cost Containment.”

Furthermore, the benefits of improved accessibility are to be equally weighed with the adverse effects of duplication in evaluating CON applications for this service.

Standard 3 of the 1999 State Health Plan also sets forth that new radiation therapy services shall only be approved if:

a. All existing units in the service area performed at a combined use rate of 80 percent of capacity (5,600 treatments per unit) for the year immediately preceding the filing of the applicant’s CON; and

b. An applicant must project that the proposed service will perform a minimum of 3,400 treatments annually within three years of initiation of services, without reducing the utilization of existing megavoltage therapy machines in the service area below the 80 percent threshold.

The 1999 State Health Plan provides that the Applicant must establish the need for the new radiation therapy services and the evidence that the proposed service will provide a minimum of 3,400 treatments by:

a. [providing] epidemiologic evidence of the incidence and prevalence of conditions for which megavoltage therapy is appropriate within the proposed service area, to include the number of potential patients for these procedures; and

b. [projecting] the utilization of the service and document referral sources for patients within its service area, including letters of support from physicians and health care facilities indicating a willingness to refer patients to the proposed service.

BHHROC argues that though it exceeded its treatment volumes, BMH, nevertheless, cannot achieve a utilization of 3,400 treatments without reducing BHHROC below 5,600 treatments (or 80%).

Need for an Additional Linear Accelerator in the Service Area

6. The majority of the patient population in the five-county service area is located in either Beaufort or Hilton Head. Therefore, placing another linear accelerator in Beaufort would be a logical place in terms of both patient population and need. Furthermore, the community support letters referenced personal experiences with cancer treatment in the service area which indicated a distinct need for a linear accelerator closer to Beaufort. A drive-time study conducted by Wilbur Smith showed that, on average, it takes approximately 50 minutes to travel to Hilton Head from Beaufort. In fact, in some cases of heavy fog or other, more difficult conditions, it may take well over an hour each way. This is even more significant when viewed in the light that the patients are undergoing an average of 25 treatments and the patients needing oncological treatment in the Beaufort area has recently doubled in the past two to three years. Moreover, BHHROC patients are generally required to travel to the corporate Savannah facility for at least one simulation. The difficulties presented by the necessitated travel when using the BHHROC facility has resulted in some patients electing to forego radiation therapy treatment or electing radical surgery in lieu of such treatment. Dr. Chahin characterized the need in the Beaufort area as “dramatic.”

Additionally, BMH’s application is supported by population projections consistent with Budget and Control Board data as required by Regulation 61-15. In particular, BMH used the reasonable numbers of 10% for patients requiring a second course of therapy and 25 as the mean number of treatments per patient. Moreover, a greater need is shown when taking into account age specific and racial characteristics of the projected population. The population statistics show significant population growth in the planning area and specifically in Beaufort County. From 1990 to 1998, Beaufort County had the highest percentage change in population of any South Carolina County. In fact, many of the statistics and estimates used by BMH conservatively projected the needs in the service area. For instance:

·                      BMH used population statistics from the South Carolina Budget and Control Board, which had not yet incorporated higher U.S. Census Bureau figures;

·                      BMH used cancer incidence rates that were lower than the age-adjusted incidence rate for Beaufort County;

·                      BMH used a 51% estimate of cancer patients in South Carolina who require radiation therapy rather than a 55% rate routinely used by other applicants;

·                      BMH projected population figures out to only year 2005 rather than year 2006, which will be the actual third year of operation;

·                      BMH did not account for any “in-migration” of patients from outside the five-county service area, which is common – BHHROC had at least nine such patients in the year 2000; and

·                      BMH conservatively projected inpatient market share for some counties, such as Colleton County.^[4]

Moreover, the number of potential patients available for treatment by both providers was in excess of 16,000 treatments in the five-county service area, and was significantly larger than the more conservative numbers used by BMH, or the projections relied upon in the “market share” analysis by BHHROC.

I, therefore, find that the population projection, incidence, and utilization and treatment rates were reasonable. Furthermore, based on projected population, incidence and utilization, there was sufficient need to justify two linear accelerators in the service area.

Adverse Impact to BHHROC

7. BHHROC contends that because so many patient referrals came from physicians who were either Beaufort-based or who had written letters of support for BMH’s application, virtually all of their future referrals would be redirected to BMH, rather than to BHHROC.^[5] Similarly, BHHROC argues that approximately 32% of BHHROC’s existing client base lived in northern Beaufort County, and that all of these patients would be lost to the new BMH radiation therapy facility. BHHROC further contends that since BHHROC currently has a market share of 91.3% of the Beaufort County patients, it is impossible for another large-market share provider to enter the service area without diminishing BHHROC’s patient volume below the minimum 80% treatment threshold required by Standard 3(b)of the “Certificate of Need Standards for Linear Accelerators.”^[6]

However, there are two distinct sub-markets in Beaufort County, roughly divided by the Broad River. As a hospital, BMH historically enjoys a large market share in northern Beaufort County, but a much smaller market share in southern Beaufort County, while the reverse is true for Hilton Head Hospital, a part-owner of BHHROC, in southern Beaufort County. This inpatient hospital market share is the closest available proxy to a radiation therapy market share because there are not currently two operating linear accelerator programs in the five-county service area. Utilizing the hospital market share as an estimate of the radiation therapy market share, in the year preceding the application, BHHROC had 225 patients from Hilton Head and Bluffton, which if multiplied by the reasonable projection of 25 treatments per patient, would result in 5,625 treatments from patients in the Hilton Head-Bluffton area alone. As such, given its patient volume in the year 2000, BHHROC could lose virtually all of its other patients, including “transient” patients from Hilton Head residing out-of-state, and still maintain the minimal treatment volume needed under Standard 3(b).

Additionally, the patient population has been growing rapidly in Beaufort County and in Hilton Head, in particular. As a result of that growth, in the years 1998 to 2000, BHHROC consistently increased its number of treatments.^[7] Specifically, the 1999 State Health Plan defines 5,600 treatments as a “realistic load,” based upon an average of 22 patients treated per day, five days per week, 51 weeks a year. The use rate for BHHROC’s linear accelerator in 1998 as set forth in the State Health Plan was 6,218. The Joint Annual Reports for BHHROC in1999 and 2000 show treatment volumes of 6,925 and 7,502, respectively.^[8] More importantly, the 1999 State Health Plan provides that the “capacity” for a linear accelerator is 7,000 treatments per year. Therefore, BHHROC exceeded the treatment capacity for its linear accelerator in 2000. In contrast, the 1999 State Health Plan reflects that in 1998, the linear accelerators in the State of South Carolina averaged 5,772 treatments each, and only four units in metropolitan areas operated in excess of 7,000 treatments.

Furthermore, the majority of BHHROC’s patients came from the Hilton Head and Bluffton area. As explained by Dr. Chahin, many of the Hilton Head patients will continue to receive treatment at BHHROC even after the BMH facility is operational. In fact, it is unlikely that physicians would cease referrals to BHHROC, particularly for those patients that reside in the Hilton Head area. Moreover, at least three of the doctors that BHHROC gave as examples of physicians who would refer to BMH (Dr. Vanderslice, Dr. Scionti and Dr. Soares) are physicians whose practices are based primarily in Hilton Head. Dr. Soares is not even on the medical staff at BMH. These three physicians accounted for over 50% of the referrals that BHHROC represented would be lost to them. Moreover, there will be in excess of 16,645 treatments available for both providers by the year 2005. That treatment volume would provide a “realistic load capacity” for both providers (5,600 + 5,600 treatments = 11,200 treatments), and still leave substantial room for the out-migration of patients from the five-county service area to facilities either outside the service area or outside the state (5,445 treatments or 32.7% of total volume).

Therefore, there is a sufficient patient population to justify the existence of two linear accelerators in the service area. While there would be a minimal impact on BHHROC as the result of BMH’s new facility, the impact would be less than 15% to 20% of BHHROC’s year 2000 patient volume, which would meet the threshold required by Standard 3(b) in the 1999 State Health Plan. Moreover, any adverse impact to BHHROC would be counterbalanced by continued patient growth in the Hilton Head-Bluffton area.

Financial Feasibility

8. During the CON application process, there were changes made by BMH to its application relating to the proposed facility. The first modification to the application reflected the decision to locate The Radiation Therapy Center of Beaufort (the Center) across the street from BMH rather than adjacent to the hospital. The modification also indicated that the Center would be owned by a limited liability company which would be a joint venture between BMH and Dr. Chahin. The second modification to the application reflects BMH’s decision not to partner with Dr. Chahin in the development of the Center; rather, BMH would build and own the facility. The proposed radiation therapy program would be a component of the Center to be constructed. The BMH application, as amended by the modifications, provided that the total project cost was $6,521,733.

At the hearing into this case, BHHROC questioned the financial feasibility of the project.^[9] The application describes the Center as a 25,500 square foot facility with the radiation therapy program accounting for 12,690 square feet of the facility. BMH also provided a floor plan which reflected what portions of the building would be attributed to the radiation therapy program for purposes of determining the square footage of the radiation therapy program.

BHHROC argued that the Department’s staff failed to properly review this CON pursuant to the procedures of Regulation 61-15 and its own adopted CON review procedures when it failed to consider the entire 25,500 square foot building in which BMH’s proposed linear accelerator would be placed as part of the facility. BHHROC argued that CON review is required for the entire 25,500 square foot building, not just for the 12,690 square feet in which the radiation therapy program, including the linear accelerator and associated common areas, will be housed. However, the only testimony offered by BHHROC concerning the “financial feasibility” was offered by its expert, Ms. Platt. However, I did not find her testimony persuasive. Though Ms. Platt has experience in health care finance, she is not an accountant. Moreover, BHHROC did not present any analysis to establish whether including the cost of the entire building would have made the project financially unfeasible for BMH.

By contrast, BMH presented ample evidence which established that the CON was not only financially feasible but well within BMH’s cash reserves and donations available at the time, even if all the construction costs of the building were included. While there were changes made in the design, location and proposed ownership of the building throughout the application process, BMH’s projections would not have changed appreciably based on the cost of the entire building. Notably, the underlying land for the entire parcel was donated, and the depreciation for a larger building (which is the bulk of the expense) is a non-cash item and not a direct expense. Therefore, I find that the evidence failed to establish that the project was not financially feasible.

CONCLUSIONS OF LAW

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

General Conclusions

1. The ALJD has subject matter jurisdiction in this action and is authorized to hear it as a contested case pursuant to S.C. Const. Art. I, Sec. 22; S.C. Code Ann. §§ 1-23-310, et seq. (1986 & Supp. 2000); and S.C. Code Ann. § 44-7-210(E) (Supp. 2000).

2. The burden of proof in a contested case hearing is upon the moving party. Section 44-7-210(E) (Supp. 2000); See also 2 Am. Jur. 2d Administrative Law § 360 (1994); Alex Sanders, et al., South Carolina Trial Handbook § 9:3 Party With Burden, Civil Cases (1999) (In civil cases, generally, the burden of proof rests upon the party who asserts the affirmative of an issue.). Therefore, the Petitioner has the burden of proof to establish by a preponderance of the evidence that BMH’s CON application should be denied. National Health Corp. v. S.C. Dep’t. of Health and Environmental Control, 298 S.C. 373, 380 S.E.2d 841 (1989).

Administration of the CON Program

3. The Department administers the Certificate of Need program for South Carolina pursuant to the State Certification of Need and Health Facility Licensure Act, S.C. Code Ann. §§ 44-7-110, et seq. (Supp. 2000). The CON program is also administered under the guidelines of 24A S.C. Code Ann. Regs. 61-15 (Supp. 2000). Additionally, Section 44-7-210(C) provides that, “[t]he Department may not issue a Certificate of Need unless an application complies with the State Health Plan, Project Review Criteria, and other regulations.” In considering the State Health Plan, the Department’s decision must be based on the currently approved State Health Plan in effect at the time such application is accepted. Regulation 61-15 § 504. The 1999 State Health Plan, which became effective June 30, 1999, was the State Health Plan in effect when BMH’s CON application was accepted by the Department and is, consequently, the applicable State Health Plan controlling this contested case.

4. The 1999 State Health Plan sets forth that CON decisions regarding linear accelerators are to be made on the basis of the designated planning areas. A denial of a CON cannot be made on a determination that the planning area approach is incorrect or that the specific planning area designation is incorrect.

5. Standard 1 under the “Certificate of Need Standards for Linear Accelerators” section of the 1999 State Health Plan states that the planning capacity of a linear accelerator shall be 7,000 treatments per year. As set forth above in the Findings of Fact, Standard 3 also sets forth the following conditions that must be met before a new linear accelerator can be approved:

(a) all existing units in the service area have performed at a combined use rate of 80 percent of capacity (5,600 treatments per unit) for the year immediately preceding the filing of the applicant's CON application;

(b) an applicant must project that the proposed service will perform a minimum of 3,500 treatments annually within three years of initiation of services, without reducing the utilization of existing megavoltage therapy machines in the service area below the 80 percent threshold.

Scope of Review

6. At the hearing into this case, BHHROC questioned the financial feasibility of the project because the Department’s staff failed to consider the entire 25,500 square foot building in which BMH’s proposed linear accelerator would be placed as part of the facility. However, neither the issue of the cost to construct the remaining portion of the Center nor the facts supporting that issue were presented to the Department’s staff by any party when it was reviewing the CON decision. While BHHROC did raise the issue of the financial feasibility of the project during the review process and the CON staff did consider the financial feasibility of the project, it did not review the financial feasibility of the entire building. BHHROC argues that because the general issue of financial feasibility was presented and considered by the agency, any new facts effecting that financial feasibility can be raised before the Administrative Law Judge. BMH contends that review of the cost to construct the remaining portion of the Center is barred because such a review is contrary to its established policy and neither BHHROC nor any other person questioned the cost to construct the remaining portion of the Center during the review process.

S.C. Code Ann. § 44-7-210(E) (Supp. 2000) states, in pertinent part, that during a contested case hearing, the ALJD may consider any “issues” that were:

(i) presented to DHEC staff; or

(ii) considered by DHEC staff during the staff review and decision-making process.

Therefore, administrative review of DHEC’s decision is limited to information which was either presented to DHEC or considered by the staff in making its determination. Consequently, since this issue involves new or additional facts for consideration by the ALJD which were not part of DHEC’s administrative record at the time of the initial staff decision, I find that consideration of the issue is barred by Section 44-7-210(E). Nevertheless, even if the construction costs of the entire building were considered, it would not affect the financial feasibility of the project.

Moreover, at the hearing, the Department introduced an internal policy reflecting its staff’s interpretation of the exemption of professional office buildings under Regulation 61-15 § 104.2(f). The Department’s Memorandum (dated October 31, 1997) construes Section 104.2(f) to exempt the cost to construct the remaining portion of a project from the CON process if a majority of the space in the professional office building was designed and allocated for use as medical offices. Pursuant to that policy, the Department determined that the remainder of BMH’s project may be subject to an exemption because the radiation therapy portion of the building (12,690 square feet) was less than 50% of the total square footage of the building (25,550 square feet). However, the Department’s Memorandum is only a guideline and not a regulation. Any policy or guidance relied on by the Department that has not been promulgated pursuant to the regulatory process of the Administrative Procedures Act “does not have the force or effect of law.” S.C. Code Ann. § 1-23-10(4) (1986 & Supp. 2000). Furthermore, the Department’s Board, and not the Department’s staff, is the policymaker for the Department and thus possesses the authority to establish its interpretation of its regulatory and statutory provisions. Consequently, since the guidelines do not carry the force and effect of law and the construction of statutes and regulations by individual members of the Department’s staff is not entitled to “most” respectful consideration, the guidelines are simply evidence to consider in making a determination.

S.C. Code Ann.§ 44‑7‑170 (B)(1) (Supp. 2000) provides, in its entirely, that the Certificate of Need provisions do not apply to:

an expenditure by or on behalf of a health care facility for nonmedical projects for services such as refinancing existing debt, parking garages, laundries, roof replacements, computer systems, telephone systems, heating and air conditioning systems, upgrading facilities which do not involve additional square feet or additional health services, replacement of like equipment with similar capabilities, or similar projects as described in regulations . . . .

See also 24A S.C. Code Ann. Regs. 61-15 § 104(2)(f) (Supp. 2000). I find that Section 44‑7‑170 exempts any “nonmedical” portion of a project, regardless of the percentage the “nonmedical” portion of the project shares with the portion of the project that is subject to a CON.

Conclusion

7. The Petitioner failed to prove by a preponderance of the evidence that BMH’s CON application for a radiation therapy facility was not in accordance with the 1999 State Health Plan, the project review criteria, and the applicable requirements under the CON Act and regulation.

ORDER

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

ORDERED that the application of Beaufort Memorial Hospital for a Certificate of Need to own and operate a radiation therapy facility that will house a linear accelerator be granted.

AND IT IS SO ORDERED.

Ralph King Anderson, III

Administrative Law Judge

March 19, 2003

Columbia, South Carolina