South Carolina              
Administrative Law Court
Edgar A. Brown building 1205 Pendleton St., Suite 224 Columbia, SC 29201 Voice: (803) 734-0550

SC Administrative Law Court Decisions

CAPTION:
Consultants in Gastroenterology, P.A., et al vs. SCDHEC, et al

AGENCY:
South Carolina Department of Health and Environmental Control

PARTIES:
Petitioners:
Consultants in Gastroenterology, P.A., Columbia Gastroenterology Associates,
P.A., Palmetto Gastroenterology, P.A., Midlands Gastroenterology Associates,
P.A., and Nguyen D. Thieu, M.D.

Respondents:
South Carolina Department of Health and Environmental Control and
South Carolina Medical Endoscopy Center, Inc.
 
DOCKET NUMBER:
03-ALJ-07-0409-CC

APPEARANCES:
David B. Summer, Jr, Esquire, and Faye A. Flowers, Esquire, attorneys for Petitioners

Nancy L. Roberts, Esquire, attorney for Respondent South Carolina Department of Health and Environmental Control

Mark W. Hardee, Esquire, attorney for Respondent South Carolina Medical Endoscopy Center
 

ORDERS:

FINAL ORDER AND DECISION
STATE OF SOUTH CAROLINA

STATE OF SOUTH CAROLINA

ADMINISTRATIVE LAW COURT


Consultants in Gastroenterology, P.A.,)

Columbia Gastroenterology Associates,) Docket No. 03-ALJ-07-0409-CC

P.A., Palmetto Gastroenterology, P.A., )

Midlands Gastroenterology Associates,)

P.A., and Nguyen D. Thieu, M.D.,)

)

Petitioners,)

)

vs.) FINAL ORDER AND DECISION

)

South Carolina Department of Health)

and Environmental Control and)

South Carolina Medical Endoscopy Center,)

Inc.,)

)

Respondents.)

____________________________________)


APPEARANCES: David B. Summer, Jr, Esquire, and Faye A. Flowers, Esquire, attorneys for Petitioners


Nancy L. Roberts, Esquire, attorney for Respondent South Carolina Department of Health and Environmental Control


Mark W. Hardee, Esquire, attorney for Respondent South Carolina Medical Endoscopy Center Footnote


STATEMENT OF THE CASE

This matter arises from a request for a contested case hearing by Consultants in Gastroenterology, P.A., Columbia Gastroenterology Associates, P.A., Palmetto Gastroenterology, P.A., Midlands Gastroenterology Associates, P.A., and Nguyen D. Thieu, M.D. (Petitioners or Gastroenterologists), in which they contest a decision by Respondent South Carolina Department of Health and Environmental Control (DHEC or Department) to approve the Certificate of Need application of Respondent South Carolina Medical Endoscopy Center, Inc. (Center), to relocate its ambulatory surgery endoscopy center consisting, of two operating rooms, and to add two new operating rooms at its new location. A hearing was held before me on October 5, 2004 and October 6, 2004, at the offices of the Administrative Law Court.

ISSUES FOR DETERMINATION

In their request for contested case proceedings, Gastroenterologists assert the following as issues for determination by the Court:

1.The proposed project is not consistent with the applicable criteria set forth in The 2001 State Health Plan in that no community need exists for the expansion of the Center’s facility, the expansion will have a material adverse impact on existing facilities, and the expansion will unnecessarily duplicate existing services.

2.The proposed project is not consistent with the project review criteria set forth in the Department’s letter of May 2, 2003, in that the project is not financially feasible, there is no documented community need for the project, the project will result in unnecessary duplication of services, and the project will materially and adversely impact existing facilities.

3.The proposed project is not consistent with 24A S.C. Code Ann. Regs. 61-15 § 101 (Supp. 2003) in that the project will not result in the delivery of quality services to the patients to be served.


FINDINGS OF FACT

Having observed the witnesses and exhibits presented at the hearing and weighing the credibility of each, and considering the burden of proof imposed on the parties, I make the following findings of fact by a preponderance of the evidence:

Background

1.South Carolina Medical Endoscopy, Inc., owns and operates South Carolina Medical Endoscopy Center, which is a licensed, ambulatory surgery center located at 1735 Taylor Street in Richland County, South Carolina. Footnote The Center received Certificate of Need (CON) approval in 1997 and opened for services in 1999. Under the 1997 CON, the Center has two operating rooms and provides endoscopy procedures exclusively. The Center’s primary method of business is to train family practice physicians in the performance of colonoscopy procedures during a ten week, half day per week course and to make its operating suites available to the trained practitioners who thereafter wish to bring their patients to the facility for colonoscopy procedures.

On September 19, 2003, the Department determined that the Center’s new application was consistent with the applicable standards in The 2001 State Health Plan and that the proposed project to relocate its ambulatory surgery endoscopy center consisting of two operating rooms and to add two new operating rooms at its new location appeared to be financially feasible based on the information available. In making its determination, the Department also concluded that the issue of whether the Center’s program to train primary care physicians to perform colonoscopies raised serious quality of care concerns was not within the regulatory jurisdiction of the Department.

After the Department issued its decision, Gastroenterologists filed their request for a contested case hearing before this Court on September 26, 2003. The five Petitioners in this case are individual physicians or group practices composed of gastroenterologists who provide endoscopy services to patients in Richland and Lexington Counties. Gastroenterologists are specialists who have typically received two to three years of training in performing endoscopy procedures above and beyond their medical school training and residency requirements.

2.The location for the proposed project is a tract of approximately one-half acre of land situated at the corner of Hampton and Pulaski Streets in Columbia, South Carolina. In March 2003, the Center applied for a CON to expand its existing ambulatory surgery center to double its capacity to perform endoscopy procedures. The expanded surgery center would continue to be operated as a training facility for primary care physicians who want to learn to perform colonoscopies on patients seen in their family practices. The family physicians could perform the procedures themselves at the Center in lieu of the usual practice of referring these patients to a gastroenterologist. According to its application, the Center’s primary trainer will be Dr. Stephen C. Lloyd, an internal medicine physician, who is the sole owner and operator of the Center.

Need

3.In its Certificate of Need application, the Center set forth that it is currently operating at one hundred and five percent capacity. That operating capacity is based on the Center’s report in its application of performing 3,689 “cases” during the applicable time period. The 2002 Joint Annual Report, filed by the Center for the same time period and available to the Department during review, indicates, however, that a total of 2,373 cases were served. The discrepancy apparently arises because the larger reported number actually represents the number of procedures performed, including multiple procedures performed on a single patient during a single period of operating room time. To the contrary, the Department’s practice is to measure capacity considering the number of surgical cases, that is, the number of patients served by the facility during the applicable time period, regardless of the number of procedures which may have been performed during a single episode of surgery. I find that the Department’s method of measuring capacity is appropriate for these cases. Footnote

Applying the Department’s method of measuring capacity, the number of cases served by the Center during the applicable time period is 2,373. Additionally, for purposes of determining capacity, the approximate time per surgical case is one hour, including turn around and set up time. The average number of cases which can be performed in a single surgery suite in one day ranges from 7 to 10. The average number of days of operation of an ambulatory surgery center is considered to be 250. Nevertheless, in considering the Center’s capacity, I have given consideration to the fact that the family practitioners are less efficient in performing the endoscopic procedures. Based on these factors, the Center has a current utilization rate of between approximately fifty-eight percent and seventy-seven percent. Accordingly, there is no specific need to justify the Center’s expansion of its services to add two new operating rooms. Footnote

Moreover, in addition to the Center, five other endoscopy centers are currently operating in Richland and Lexington Counties. These five centers contain a total of fifteen operating room suites. Based on the number of cases reported by these centers in their 2002 Joint Annual Reports, which were available to the Department during the review process, the current utilization rate for endoscopy services in Richland and Lexington Counties is at only fifty-two percent capacity. With current utilization at fifty-two percent, no community need exists to support expansion of the Center’s capacity.

Duplication of Services

4.The Center seeks to justify expansion of its existing capacity by referencing its status as the sole endoscopy training facility for family practitioners in the State. Footnote Nevertheless, providing family practice physicians with the means to perform endoscopy services themselves rather than referring patients to existing providers, i.e., Gastroenterologists, merely results in a substitution of services that are already available in the service area. Thus, the services being offered by the Center are not unique for purposes of The 2001 State Health Plan and Certificate of Need law.

The Center also argues that its target patient base are those patients who refuse referrals to gastroenterologists, i.e., to the other providers in the service area. However, the evidence did not reflect that those patients are a significant portion of the patient population. Additionally, there are five other providers in the Center’s service area with fifteen endoscopy suites, in addition to the Center’s facility, that offer endoscopy services to patients. The utilization rate for those facilities is approximately fifty-two percent of capacity. In fact, some existing providers have endoscopy suites which are unused. Accordingly, there are numerous providers with capacity for ambivalent patients. Furthermore, although some of the patients served by the Center’s proposed expansion might be patients who would not otherwise see a gastroenterologist, the purpose of the Center’s training program is not just to provide a service for the limited number of people who fear going to a gastroenterologist. Rather, the purpose is to train family practitioners to perform endoscopy procedures on patients they would ordinarily refer to gastroenterologists.

Moreover, at the time of the Department’s approval of the Center’s proposed project, there were seventeen endoscopy suites located in the Center’s primary and secondary service area of Richland, Lexington, Fairfield, and Kershaw Counties, including the two suites currently being operated by the Center. Of the five endoscopy centers located in the Center’s primary and secondary service areas, two had not been in operation for one year at the time the Department recommended approval of the Center’s CON application. Approximately ninety percent of the Center’s target patient population comes from its primary service area of Richland and Lexington Counties and its secondary service area of Fairfield and Kershaw Counties. Petitioner Gastroenterologists are located in Richland and Lexington Counties and serve patients from those counties as well as from Fairfield and Kershaw Counties. Thus, up to ninety percent of the Center’s target patient population consists of patients who are now being served or who could be served by existing resources, including Gastroenterologists. Consequently, given the lack of need for additional endoscopy services for patients and the adverse impact which would result from added unneeded capacity, any expansion of the Center’s current capacity would result in an unnecessary duplication of services.

Impact on Other Facilities

5.If the Center meets the utilization projections set forth in its application, the Center could conservatively divert approximately 1,300 cases from existing resources as a result of the addition of its two new endoscopy suites. The diversion of even a significant portion of those cases would result in a material impact upon the existing providers in the community. Moreover, the adverse impact of such a loss of income would be even greater on those facilities that have been in operation less than two to three years and could compromise their financial viability.

Total Project Cost/Change in Application

6.The application filed by the Center stated a total project cost of $1,840,689. At the time of the application, the Center did not own the land intended for the project. Rather than purchasing the land, the Center obtained an option to purchase. During 2003 and 2004, in exchange for this option, the Center paid a monthly fee of $5,000. At some unknown point in time, the Center allowed the option to lapse. The land was then sold to another buyer.

Upon learning that the site for the project could not be changed without resubmitting the application to DHEC to determine if the change of location was substantial, the Center negotiated with the new owner of the property to obtain another option to purchase. The Center paid approximately $6,000 for this option. The new owner, however, raised the cost of the land from the original price of $220,000 to $391,000. The increase in land cost alone resulted in a nine percent increase in total project cost over that stated in the Center’s Certificate of Need application.

Although Dr. Lloyd testified that the Center would not finance any portion of the cost of the new project, the Center in its application proffered a letter from a lending institution as sole proof of its financial ability to complete the project. The Settlement Statement provided to the Court after the hearing pursuant to agreement of the parties indicates that the endoscopy center is borrowing at least $126,957.28 for the land. If an estimate of capitalized interest and capitalized option payments is included in the total project cost, as is required under Generally Accepted Accounting Principles, the total project cost could be more than ten percent higher than that originally stated by the Center in its application. Nonetheless, the Record shows that the estimated total project cost contains a $245,000 contingency. This contingency amount represents a little over thirteen percent of the estimated total project cost. As such, it is more than enough to cover the 12.4% cost increase which Petitioners’ expert Mr. Knapp testified to, while still providing an additional buffer to cover possible construction cost overruns.

CONCLUSIONS OF LAW

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

1. The Administrative Law Court has jurisdiction over CON contested case proceedings and consequently over this matter pursuant to S.C. Code Ann. § 44-7-210 (2002) and § 1-23-600(B) (Supp. 2003). An Administrative Law Judge’s (ALJ) review of an administrative decision of the Department to grant a CON request is governed by S.C. Code Ann. § 44-7-210(E) (2002), which provides:

The department's proposed decision is not final until the completion of reconsideration or contested case proceedings. The burden of proof in a reconsideration or contested case hearing must be upon the moving party. The contested case hearing before the board or its designee is conducted as a contested case under the Administrative Procedures Act. The issues considered at the contested case hearing are limited to those presented or considered during the staff review and decision process.

In hearing contested case matters, the Administrative Law Judge is the fact finder and does not sit in an appellate capacity. Brown v. S.C. Department of Health and Environmental Control, 348 S.C. 507, 560 S.E.2d 410 (2002). Furthermore, Petitioners bear the burden of proving its case by a preponderance of the evidence. S.C. Code Ann. § 44-7-210(E) (2002); see also Nat’l Health Corp. v. SCDHEC, 298 S.C. 373, 380 S.E.2d 841 (Ct. App. 1989). In the present case, Petitioner Gastroenterologists have the burden of proving by a preponderance of the evidence that the Department’s recommendation to approve the Center’s CON application was in error. Id.

2.As trier of fact, the Administrative Law Judge is not compelled to accept an expert’s testimony, but may give it the weight and credibility the ALJ determines it deserves. Florence County Dep’t. of Social Serv. v. Ward, 310 S.C. 69, 425 S.E.2d 61 (Ct. App. 1992). Nevertheless, it is appropriate to give due consideration to the CON staff’s utilization of its specialized knowledge and expertise in the application of the CON Act and CON regulations. See S.C. Code Ann. § 1-23-330(4) (1986 & Supp. 2003). However, the Department's Board and not the Department's CON staff is the policymaker for the Department and thus possesses the authority to interpret its regulatory and statutory provisions.

3. The Department administers the CON program for South Carolina pursuant to the State Certification of Need and Health Facility Licensure Act (Act), S.C. Code Ann. §§ 44-7-110, et seq. (2002). 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 (2002). The CON program is also administered under the guidelines of 24A S.C. Code Ann. Regs. 61-15 (Supp. 2003). 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 Act 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. S.C. Code Ann. § 44-7-120 (2002). Furthermore, The 2001 State Health Plan provides the applicable criteria or standards for review of the Center’s proposed project as follows:

1. The applicant must define the proposed service area and/or provide patient origin information on the current facility.

2. The applicant must document a need for the expansion of or the addition of an ambulatory surgical facility. The existing resources must be considered and documentation presented as to why the existing resources are not adequate to meet the needs of the community.

3. There must be support from the physicians in the area to be served. An application for an Ambulatory Surgery Center must contain letters of support from physicians other than those affiliated with the proposed facility stating that they will either refer to or use the center.

4. The applicant must discuss the impact that the proposed ambulatory surgical facility or expansion will have upon the existing service providers.

5.The applicant must document where the potential patients for the facility will come from and where they are currently being served.

***

8.Before a new Ambulatory Surgery Center [ASC] can be approved, all existing ASC’s in the county must have been licensed and operational for one year to allow for a determination of the utilization of ASC’s. Endoscopy-only ASC’s are only considered to impact other Endoscopy-only facilities.

4.Regulation 61-15 §311 provides:

The Certificate of Need, if issued, is valid only for the project described in the application including location, beds and services to be offered, physical plant, capital or operating costs, or other factors as set forth in the application, except as may be modified in accordance with these regulations. Implementation of the project or operation of the facility or medical equipment that is not in accordance with the Certificate of Need applications or conditions subsequently agreed to by the applicant and the Department may be considered a violation of this Regulation.

(Emphasis added.) The applicant failed to provide information regarding total project cost until the hearing into this matter. Nevertheless, although certain aspects of the project cost were not included, taking into consideration the contingency amount and based upon the evidence presented at the hearing, it is reasonable that the project can be completed under budget.

5.The Petitioners contend that Standard 8 of The 2001 State Health Plan applies not only to new “Ambulatory Surgery Centers” but also to existing “Ambulatory Surgery Centers” applying to add rooms. “Ambulatory Surgery Center,” as used in the State Health Plan, is a term of art with a specific meaning. Its meaning is not synonymous with the term “additional rooms.”

Standard 8 of The 2001 State Health Plan was rewritten in The 2003 State Health Plan to specifically cover existing ASC’s seeking additional rooms. It is presumed that the Legislature in adopting an amendment to a statute intended to make some change in the existing law. Vernon v. Harleysville Mut. Cas. Co., 244 S.C. 152, 135 S.E.2d 841 (1964). This principle of statutory construction also applies when a court is interpreting a regulation. See Converse Power Corp. v. South Carolina Dept. of Health and Envtl. Control, 350 S.C. 39, 564 S.E.2d 341 (Ct. App. 2002). Therefore, I find that Standard 8 did not apply to this CON application.

6.Neither the Act nor the State Health Plan set forth that a proposed facility is always unnecessary if there are existing facilities which are not presently utilized at full capacity. Then again, the fact that there are under-utilized existing facilities should be considered in the context of all the State Health Plans considerations such as the effect on health care quality and cost. This includes not only whether a facility may duplicate existing facilities, but the relative merit of allowing that duplication to promote cost containment and the establishment of high quality health facilities and services.

Nevertheless, the evidence in this case established that the existing resources are adequate to meet the needs of the community. In fact, the five other endoscopy centers located in the Center’s service area are currently operating at only fifty-two percent capacity. Consequently there is no need for the addition of two new operating rooms at the Center’s proposed new facility based upon the current utilization of its existing facility. Footnote Furthermore, granting the Center a CON would adversely impact the facilities that have been in operation less than two to three years and could compromise their financial viability. Thus, though the need for endoscopic services is expanding in the State of South Carolina, the Center’s current application to expand its capacity does not meet the applicable criteria set forth in The 2001 State Health Plan.

ORDER

IT IS HEREBY ORDERED that application of South Carolina Medical Endoscopy Center, LLC, for its Certificate of Need is hereby denied.

AND IT IS SO ORDERED.

______________________________

Ralph King Anderson, III

Administrative Law Judge



January 24, 2005

Columbia, South Carolina


Brown Bldg.

 

 

 

 

 

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