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:
Clarendon County Memorial Hospital vs. SCDHEC, et al

AGENCY:
South Carolina Department of Health and Environmental Control

PARTIES:
Petitioner:
Clarendon County Memorial Hospital

Respondents:
South Carolina Department of Health and Environmental Control and Manning Diagnostics, LLC
 
DOCKET NUMBER:
05-ALJ-07-0173-CC

APPEARANCES:
M. Elizabeth Crum, Esquire
Kelly M. Jolley, Esquire
For Petitioner

Nancy S. Layman, Esquire
Ashley C. Biggers, Esquire
For Respondent South Carolina Department of Health and Environmental Control

Daniel J. Westbrook, Esquire
Travis Dayhuff, Esquire
For Respondent Manning Diagnostics, LLC
 

ORDERS:

FINAL ORDER AND DECISION

STATEMENT OF THE CASE

The above-captioned matter is before this Court pursuant to a request for a contested case hearing filed by Petitioner Clarendon County Memorial Hospital (Clarendon). In this matter, Clarendon challenges the decision of Respondent South Carolina Department of Health and Environmental Control (DHEC or Department) to issue a non-applicability determination (NAD), designated NA-05-17, to Respondent Manning Diagnostics, LLC (Manning) to provide part-time magnetic resonance imaging (MRI) services in Manning, South Carolina. In particular, Clarendon contests the Department’s determination that Manning’s MRI project does not require review under the Certificate of Need (CON) statutes and regulations because the total project cost for Manning’s proposed part-time MRI service does not exceed $600,000. Clarendon contends that, because of the close relationship between Manning and two other companies involved in the ownership and use of the MRI machine in question, and because of the length of time Manning intends to use the MRI, the entire cost of the MRI machine should be attributed to Manning, therefore subjecting Manning’s project to CON review because its total project cost exceeds the $600,000 threshold. DHEC and Manning maintain that DHEC appropriately allocated the costs of Manning’s part-time MRI project and appropriately determined that, based upon those cost allocations, the total project cost of Manning’s project fell below the $600,000 CON threshold.

By an Order dated November 15, 2005, this Court addressed several pre-trial motions filed by the parties. The Order denied Clarendon’s motion to join a second company, Pinnacle, LLC, as a necessary party to this case, denied Clarendon’s motion for summary judgment and granted Manning’s summary judgment motion regarding Clarendon’s contention that Pinnacle, rather than Manning, was the appropriate party to request a CON or NAD in this matter, and denied both Clarendon’s and Manning’s motions for summary judgment on the question of whether DHEC properly treated Manning’s project as providing part-time, rather than full-time, MRI services. After timely notice to the parties, a contested case hearing was held in the above-captioned matter on December 13 and 14, 2005, at the South Carolina Administrative Law Court in Columbia, South Carolina. Based upon the evidence and arguments presented at that hearing, and upon the applicable law, I find that the Department properly issued NA-05-17 to Manning because the total project cost of its MRI project does not exceed $600,000.

ISSUE AND BURDEN OF PROOF

Pursuant to S.C. Code Ann. § 44-7-160(6) (2002) and 24A S.C. Code Ann. Regs. 61-15 § 102(1)(f) (Supp. 2005), a person or health care facility seeking to acquire medical equipment that it intends to use for diagnosis or treatment in South Carolina must obtain a Certificate of Need (CON) from the Department for the acquisition if the “total project cost” of the acquisition exceeds $600,000. This “total project cost” is the estimated total capital cost of a project as calculated under generally-accepted accounting principles (GAAP), with the exception that the cost of leased buildings and equipment is calculated based upon the total value of the buildings or equipment, not the value of the leases. 24A S.C. Code Ann. Regs. 61-15 § 103(25) (Supp. 2005). In the case at hand, the Department determined that the total project cost of Manning’s MRI project, as calculated under GAAP, did not exceed $600,000, and, therefore, that the project does not require CON review.

Petitioner Clarendon challenges the Department’s determination regarding the total project cost of Manning’s project. As the moving party in this CON-related matter, Clarendon bears the burden of proof in this contested case. See 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); cf. S.C. Code Ann. § 44-7-210 (E) (2002); 24A S.C. Code Ann. Regs. 61-15 § 403(1) (Supp. 2005). Therefore, Clarendon must prove, by a preponderance of the evidence, that the total project cost for Manning’s MRI project exceeds $600,000, and, therefore, that the Department improperly issued the non-applicability determination to Manning for the project. 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); see also 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).

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, I make the following Findings of Fact by a preponderance of the evidence:

The MRI Project

1. Manning Diagnostics, LLC, is a South Carolina limited liability company that provides MRI services in Manning, South Carolina, from a leased mobile MRI unit on a biweekly basis. That is, Manning has access to the MRI unit and provides MRI services in the town of Manning for five days a week, every other week, for a total of twenty-six weeks of service per year. Manning obtained a non-applicability determination (NAD) from the Department on May 11, 2005, for these MRI services.[1] In the alternate weeks, the MRI machine leased by Manning is operated by Santhill Diagnostics, LLC (Santhill), a South Carolina limited liability company that provides MRI services in Holly Hill, South Carolina. Accordingly, Santhill provides MRI services in Holly Hill for a total of twenty-six weeks per year. Santhill obtained a non-applicability determination, NA-04-27, from the Department on June 23, 2004, regarding its MRI services in Holly Hill.

2. Manning and Santhill sublease the mobile MRI machine in question from Pinnacle, LLC (Pinnacle), a Delaware limited liability company that leases medical diagnostic equipment from manufacturers and then subleases that equipment to other entities, which actually operate the equipment for diagnosis and treatment. In the case at hand, Pinnacle leases the MRI in question from the General Electric Capital Corporation (GE), and has, in turn, entered into separate subleases with Manning and Santhill for the machine. Under these subleases, Manning and Santhill lease the MRI machine for use in alternate weeks, giving each company 50% utilization of the machine, for a total of twenty-six weeks of use per year for each company.

The Relationship between Manning, Santhill, and Pinnacle

3. Manning and Santhill are separate and distinct limited liability companies that do not share a common parent or controlling organization and that do not have any formal relationship with one another. While the two companies have had some common employees in the past, and currently dually employ an MRI technician, the operations of the two firms are distinct, both in form and in practice. Manning and Santhill have separate Medicare provider numbers, billing companies, and utilities, and do not share any supplies or equipment other than the mobile MRI equipment that they use on an alternating basis. Santhill operates in Holly Hill, South Carolina, and principally serves patients from Orangeburg and Dorchester Counties, while Manning operates in Manning, South Carolina, which is approximately thirty to forty miles from Holly Hill, and principally serves patients from Clarendon County.

4. There is some overlap in the ownership of the three companies. Five of Manning’s members are also currently members of Pinnacle, which has fifteen members, each of whom holds a 6.67% ownership share in the company. The only person with an ownership interest in both Manning and Santhill is Dr. Marshall White, who holds a 30% share of Manning and a 19% share of Santhill. Additionally, Dr. White owns a 33.3% share of another entity, MAP Imaging, LLC, which, in turn, holds a 21% interest in Manning.[2] However, Dr. White does not have a majority interest in either Manning or Santhill.

The Department’s Review of Manning’s MRI Project

5. Victoria Tibshrany, an analyst with DHEC’s Division of Planning and Certification of Need in its Bureau of Health Facilities and Services Development, reviewed Manning’s request for a non-applicability determination and issued a non-applicability determination, NA-05-17, to Manning on May 11, 2005. In the determination, Ms. Tibshrany found that the total project cost for Manning’s MRI project was $478,998.30, and consequently concluded that the project did not require CON review, because the total project cost did not exceed $600,000. In calculating the total project cost of Manning’s part-time acquisition of the MRI machine, Ms. Tibshrany apportioned the value of the machine and associated costs, such as the cost of the truck used for transporting the MRI machine, equally between Manning and Santhill, based upon their 50% utilization of the machine. This equal apportionment of the machine’s costs based upon the equal use of the machine by Manning and Santhill comports with generally-accepted accounting principles, with the exception that, as required by Regulation 61-15 § 103(25), the total value of the equipment, rather than the lease value, is used to determine the cost of the equipment.

6. A memorandum issued on January 10, 2000, by Leon Frishman, currently the Department’s Deputy Commissioner for Health Regulation, addresses the determination of total project costs for leased equipment. In addition to recognizing the effect of Regulation 61-15 § 103(25), the memorandum also stated that “[t]he Department considers any mobile equipment to be utilized more than four days per week at a single site or which becomes stationary to be the [full-time] acquisition of medical equipment.” Resp’t Manning Ex. #5C. This memorandum has not been approved by the DHEC Board and is not Department policy; rather, it merely provides Department staff with guidance in reviewing non-applicability determinations for leased equipment. Furthermore, the four-days-per-week test set out in the memorandum for determining whether the acquisition of equipment is for part-time or full-time use was based upon the assumption that the equipment would be used at a single site fifty-two weeks per year, and not, for example, on a biweekly basis at different sites. The test was designed to prevent an entity from claiming that it was only acquiring equipment for part-time use by removing the equipment from the site for one or two days per week; it was not intended to address situations in which mobile equipment is used on a bona fide part-time basis by two distinct entities at two separate locations.

7. In sum, I find that Manning, Santhill, and Pinnacle are separate and distinct entities under the law, that Manning and Santhill operate the MRI machine at issue in this case on a bona fide part-time basis, and that the Department’s determination to equally apportion the costs of the MRI machine between Manning and Santhill based upon the equal usage of the machine comports with generally-accepted accounting principles as modified by Regulation 61-15 § 103(25). Further, I find that, because such an apportionment of costs results in a total project cost for Manning’s MRI project of less than $600,000, the Department’s non-applicability determination in this matter must be sustained.

CONCLUSIONS OF LAW

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

Jurisdiction/Procedure

1. This Court has jurisdiction over this contested case proceeding pursuant to S.C. Const. art. I, § 22, S.C. Code Ann. § 1-23-600(B) (Supp. 2005), and S.C. Code Ann. §§ 1-23-310 et seq. (2005). Cf. S.C. Code Ann. § 44-7-210(E) (2002); 24A S.C. Code Ann. Regs. 61-15 § 403 (Supp. 2005) (providing for contested case hearings regarding Department decisions on CON applications).

2. Pursuant to Regulation 61-15 § 102(3), “when any question exists” as to whether a proposed health care project requires CON review, “a potential applicant shall forward a letter requesting a formal determination by the Department as to the applicability of the certificate of need requirements to [the] particular project.” 24A S.C. Code Ann. Regs. 61-15 § 102(3) (Supp. 2005). A formal decision by the Department that the CON requirements do not apply to a project is known as a “non-applicability determination” or NAD.

3. In the case at hand, Respondent Manning obtained a non-applicability determination from the Department, in which the Department found that Manning was not required to obtain a CON for its project to acquire an MRI machine by sublease and to provide part-time MRI services in Manning, South Carolina. Petitioner Clarendon also offers MRI services in Manning, South Carolina, to persons who reside in Manning’s proposed service area, and, as such, is an “affected person” for the purposes of bringing a contested case to challenge the Department’s decision to issue a non-applicability determination to Manning. See S.C. Code Ann. § 44-7-130(1) (2002); 24A S.C. Code Ann. Regs. 61-15 § 103(1) (Supp. 2005). Clarendon timely filed a request for a contested case to challenge Manning’s non-applicability determination, thereby initiating this matter.

4. The contested case hearing conducted before this Court in a CON matter is a trial de novo, “in which ‘the whole case is tried as if no trial whatsoever had been had in the first instance,’” and the administrative law judge conducting the hearing is the sole fact-finder, who “must make sufficiently detailed findings supporting the denial or grant of a permit application.” Marlboro Park Hosp. v. S.C. Dep’t of Health & Envtl. Control, 358 S.C. 573, 579, 595 S.E.2d 851, 854 (Ct. App. 2004) (quoting from Blizzard v. Miller, 306 S.C. 373, 412 S.E.2d 406 (1991) and Converse Power Corp. v. S.C. Dep’t of Health & Envtl. Control, 350 S.C. 39, 564 S.E.2d 341 (Ct. App. 2002), respectively).

5. Clarendon, as the Petitioner and moving party in this matter, bears the burden of proof in this contested case. See 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); cf. S.C. Code Ann. § 44-7-210 (E) (2002); 24A S.C. Code Ann. Regs. 61-15 § 403(1) (Supp. 2005). Therefore, Clarendon must prove, by a preponderance of the evidence, that the Department improperly issued a non-applicability determination to Manning for its proposed MRI project. 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); see also 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).

Weight and Sufficiency of Evidence

6. The preponderance of the evidence “is evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” Black’s Law Dictionary 1182 (6th ed. 1990). “The preponderance of the evidence means such evidence, as when considered and compared with that opposed to it, has more convincing force and produces in the mind the belief that what is sought to be proved is more likely true than not true.” Alex Sanders & John S. Nichols, Trial Handbook for South Carolina Lawyers § 9.5, at 371 (2d ed. 2001) (citing to Frazier v. Frazier, 228 S.C. 149, 89 S.E.2d 225 (1955)).

7. The test for the sufficiency of a proffer of evidence to warrant a finding is as follows:

A verdict or finding must be based on the evidence and must be based on the facts proved. Under this well established rule, although difficulty of proof does not prevent the assertion of a legal right, the verdict or finding cannot rest on surmise, speculation, or conjecture. Furthermore, a verdict of the jury or a finding of the court cannot be supported only by guesswork. Also, it has been said that the verdict or finding cannot rest on supposition, assumption, imagination, suspicion, arbitrary action, whim, percentage, or conclusions that are in conflict with undisputed fact.

The evidence on which the verdict or finding is based must be competent, legal evidence received in the course of the trial, credible, and of probative force, and must support every material fact. The decision should be against the party having the burden of proof where there is no evidence, or the evidence as to a material issue is insufficient[.]

32A C.J.S. Evidence § 1339, at 757-58 (1996); see also S.C. Code Ann. § 1-23-320(i) (Supp. 2005) (“Findings of fact shall be based exclusively on the evidence and on matters officially noticed.”). Probative evidence is “[e]vidence that tends to prove or disprove a point in issue.” Black’s Law Dictionary 579 (7th ed. 1999).

8. 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).

9. The South Carolina Rules of Evidence are applicable to this contested case proceeding. See S.C. Code Ann. § 1-23-330(1) (Supp. 2005). Under those rules, “[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).

10. “[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).

11. 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).

Total Project Cost

12. Pursuant to the CON Act and its accompanying regulations, a person or health care facility (1) that acquires medical equipment (2) which it intends to use for diagnosis or treatment in South Carolina must obtain a CON from the Department for the acquisition if (3) the “total project cost” of the acquisition exceeds $600,000. See S.C. Code Ann. § 44-7-160(6) (2002); 24A S.C. Code Ann. Regs. 61-15 § 102(1)(f) (Supp. 2005). The regulations define the “total project cost” of a proposed health care project as

the estimated total capital cost of a project including land cost, construction, fixed and moveable equipment, architect’s fee, financing cost, and other capital costs properly charged under generally accepted accounting principals [sic] as a capital cost. The determination of project costs involving leased equipment [or] buildings will be calculated based on the total value (purchase price) of the equipment or building being leased.

24 S.C. Code Ann. Regs. 61-15 § 103(25) (Supp. 2005) (emphasis added). Therefore, in determining the “total project cost” of a proposed health care project, the regulations require the application of generally-accepted accounting principles (or GAAP), with the exception that leased equipment and buildings will be charged at their total value, rather than the value of their leases.

13. The CON regulations provide further guidance on determining whether two or more proposed projects or expenditures should be considered a single project or expenditure for the purpose of CON review:

Common practice and common sense must govern in determining what is considered to be a single expenditure. An applicant should not be allowed to split what is really one expenditure into two or more for the purpose of avoiding review. The Department should not be allowed to lump projects together arbitrarily to bring them under review.

24A S.C. Code Ann. Regs. 61-15 § 102(2) (Supp. 2005). However, neither the CON Act nor its regulations provide a comprehensive definition of the term “project” for the purposes of CON review.

14. In the case at hand, there is no dispute that Manning has, through its sublease of the MRI machine from Pinnacle, acquired medical equipment that it intends to use for the diagnosis and treatment of patients in South Carolina. Therefore, the sole remaining issue in this case is whether the total project cost of Manning’s acquisition of the MRI machine exceeds $600,000, such that the project should be required to undergo CON review. In issuing the non-applicability determination to Manning, the Department found that, when the total value of the MRI machine is properly apportioned between Manning and Santhill based upon their part-time use of the machine, the total project cost of Manning’s acquisition of the MRI machine fell well below the $600,000 threshold, such that the project did not require CON review. Clarendon, however, contends that the full value of the MRI machine should be charged to Manning on two grounds. First, Clarendon contends that, based upon a Departmental memorandum, Manning’s use of the MRI machine for more than four days in a week at a single site should be considered the full-time acquisition of the machine, such that the entire value of the MRI machine should be allocated to Manning’s project, regardless of Santhill’s use of the machine. Second, Clarendon argues that, given the relationships between Manning, Santhill, and Pinnacle, the MRI projects proposed by Manning and Santhill should be considered a single project that cannot be artificially split to avoid CON review. If the full value of the MRI machine is allocated to Manning’s project, either because the project is considered a full-time acquisition of the machine or because the project is joined with Santhill’s project, the total project cost of Manning’s MRI acquisition would exceed the $600,000 threshold and Manning would be required to obtain a CON from the Department for the project.[3] However, I find that Manning has only acquired the MRI machine in question on a part-time basis and that its operations are separate and distinct from those of Santhill. Accordingly, I further find that the Department properly divided the costs of the MRI machine between Manning and Santhill and appropriately concluded that Manning’s MRI project does not require CON review.

Manning’s Part-time Acquisition of the MRI Machine

15. Clarendon contends that, because Manning seeks to use the MRI machine in question for more than four days in a given week, Manning’s lease of the MRI machine should be considered the full-time acquisition of the machine, even though Manning will only use the machine on a biweekly basis, equally splitting use of the machine with Santhill. This contention cannot be sustained.

16. Under the CON regulations, the sole method for allocating the costs of the acquisition of medical equipment to determine the “total project cost” of the acquisition is the application of generally-accepted accounting principles. 24A S.C. Code Ann. Regs. 61-15 § 103(25). Neither the CON Act nor the accompanying regulations distinguish between part-time and full-time use of equipment or between fixed, modular, and mobile equipment to determine how the costs of an acquisition should be allocated. And, neither the Act nor the regulations provide any sort of mechanical, days-per-week test for determining how the costs of equipment used on a part-time basis should be allocated for calculating the total project cost of the acquisition of that equipment. Rather, the appropriate test is simply how such costs would be allocated under generally-accepted accounting principles.[4]

17. Based upon the testimony of the accounting experts in the instant case, I find that the Department’s decision to equally apportion the cost of the MRI machine between Manning and Santhill comports with generally-accepted accounting principles, as modified by Regulation 61-15 § 103(25). [5] Manning and Santhill share equally in their use of the MRI machine, using the machine on a part-time basis in alternating weeks throughout the year. It is therefore not only rational but also agreeable to generally-accepted accounting principles to allocate 50% of the cost of the MRI machine to Manning’s project, based upon its 50% pro rata share of the utilization of the machine. In fact, it would be inconsistent with generally-accepted accounting principles to allocate the full cost of the MRI machine to both Manning and Santhill based upon their biweekly usage of the machine.

18. When the cost of the MRI machine and associated equipment is apportioned equally between Manning and Santhill consistent with generally-accepted accounting principles, the total project cost of Manning’s acquisition of the MRI machine falls well below $600,000, to approximately $478,998.

The Relationship between Manning’s and Santhill’s Projects

19. Clarendon also contends that Manning and Santhill split what should be considered one MRI project into two separate MRI projects to avoid CON review in violation of Regulation 61-15 § 102(2). Specifically, Clarendon argues that, given the relationships between Manning, Santhill, and Pinnacle, the separate MRI projects proposed by Manning and Santhill, in which they will alternate use of a single MRI machine, should be considered one project to which the full cost of the MRI machine should be allocated. This argument must also fail.

20. Regulation 61-15 § 102(2) requires that “common practice and common sense” be used to determine whether two or more expenditures or projects should, in fact, be considered one expenditure or project for the purposes of CON review. 24A S.C. Code Ann. Regs. 61-15 § 102(2). And, while the regulation prohibits an applicant from artificially splitting projects to escape CON review, it also cautions the Department against arbitrarily lumping separate projects together to bring them under CON review. Id.

21. In the case at hand, common practice and common sense weigh in favor of treating Manning’s and Santhill’s MRI services as separate projects. While Manning and Santhill have coordinated leases under which they alternate use of a single MRI machine and while there are certain relationships among the owners of Manning and Santhill, the operations of the two companies are separate and distinct, both under the law and in practice. Manning and Santhill are distinct legal entities with separate ownership and they provide MRI services on a part-time basis at separate facilities in different counties for distinct patient populations. Therefore, the Department appropriate determined that, despite their coordinated lease from Pinnacle, the services provided by Manning and Santhill are separate projects for the purposes of CON review.

22. Further, although Clarendon did not formally seek to pierce the corporate veil in this case, it did rely upon the standards for piercing the corporate veil as support for its contention that Manning’s and Santhill’s MRI projects should be considered one project. Such an argument is unavailing. “It is settled authority that the doctrine of piercing the corporate veil is not to be applied without substantial reflection.” Sturkie v. Sifly, 280 S.C. 453, 457, 313 S.E.2d 316, 318 (Ct. App. 1984). Determining whether the corporate veil has been pierced involves a two-prong analysis. “The first part of the test, an eight-factor analysis, looks to observance of the corporate formalities by the dominant shareholders[;] [t]he second part requires that there be an element of injustice or fundamental unfairness if the acts of the corporation be not regarded as the acts of the individuals.” Id. at 457-58, 313 S.E.2d at 318; see also Dumas v. InfoSafe Corp., 320 S.C. 188, 192, 463 S.E.2d 641, 643-44 (Ct. App. 1995) (same). In the case at hand, Clarendon has not made a showing that Manning and Santhill have failed to observe the requisite corporate formalities or otherwise acted inconsistently with their status as separate legal entities. Moreover, it has not been demonstrated that it would be fundamentally unfair to treat Manning and Santhill as separate corporate entities.

23. In sum, looking to common sense and common practice as required by Regulation 61-15 § 102(2), it is clear that Manning’s acquisition of the MRI machine from Pinnacle for part-time use in Manning, South Carolina, is a separate and distinct project from Santhill’s MRI services in Holly Hill and Pinnacle’s medical equipment leasing business.

Conclusion

24. Therefore, viewing Manning’s acquisition of the MRI machine as a separate and distinct project from Santhill’s project, and allocating 50% of the value of the machine to Manning based upon its pro rata use of the machine under generally-accepted accounting principles, I find that the total project cost for Manning’s MRI project does not exceed the $600,000 threshold for CON review. Accordingly, the Department’s decision to issue a non-applicability determination to Manning for its project must be sustained.

ORDER

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

IT IS HEREBY ORDERED that the Department’s decision to issue non-applicability determination NA-05-17 to Respondent Manning Diagnostics, LLC, for its acquisition of an MRI machine to provide part-time MRI services in Manning, South Carolina, is SUSTAINED.

AND IT IS SO ORDERED.

______________________________

JOHN D. GEATHERS

Administrative Law Judge

1205 Pendleton Street, Suite 224

Columbia, South Carolina 29201-3731

May 3, 2006

Columbia, South Carolina



[1] Manning had earlier obtained a non-applicability determination for its MRI project from the Department, NA-04-26, which Clarendon challenged in a contested case proceeding. However, prior to a hearing on the merits of the determination, the Department requested that the matter be remanded so that it could void the non-applicability determination due to changes that had been made in the proposed project. Manning consented to the remand, and, upon remand, the Department voided the initial NAD. Subsequently, Manning submitted a new request for a non-applicability determination to the Department, which resulted in the issuance of the determination at issue in this case, NA-05-17.

[2] MAP Imaging, LLC, was formed for the purpose of establishing an imaging center in Greenwood County, South Carolina. The company is owned by Dr. White, Jennifer Amram, and Marghuerita Pate, each of whom hold a one-third interest in the company. Neither Ms. Amram nor Ms. Pate has an individual ownership interest in Manning, Santhill, or Pinnacle.

[3] The total value of the MRI machine itself exceeds $600,000. Pinnacle leases the machine from GE for $742,561.70.

[4] Clarendon relies upon an internal DHEC staff memorandum to establish a four-days-per-week test for determining whether the costs of medical equipment used on a part-time basis can be apportioned between one or more projects. This reliance is misplaced. First, the guidelines set forth in the memorandum have not been promulgated as a regulation, or even adopted by the DHEC Board as Departmental policy. Rather, the memorandum simply sets forth non-binding guidelines to assist the staff in making decisions on non-applicability determinations regarding leased equipment. See, e.g., S.C. Coastal Conservation League v. S.C. Dep’t of Health & Envtl. Control, 363 S.C. 67, 75, 610 S.E.2d 482, 486 (2005) (noting that courts should give deference to the policy decisions and regulatory interpretations of the Coastal Zone Management Appellate Panel of the Department’s Office of Ocean and Coastal Resource Management (OCRM), but not to such decisions and interpretations of OCRM staff). Second, the per se test for determining part-time or full-time use of medical equipment set forth in the memorandum is not applicable to this case. The author of the memorandum acknowledged at the hearing of this case that the four-days-per-week test set out in the memorandum was intended to address situations where equipment was used at a single site fifty-two weeks per year, and was not intended to apply to circumstances, such as the instant case, where equipment is used in a true part-time fashion on alternate weeks at separate sites.

[5] While the use of the total value of the MRI machine, rather than the value of Manning’s lease, to conduct this apportionment does not strictly comply with generally-accepted accounting principles, this use of the total value of the leased MRI machine to allocate costs is required by Regulation 61-15 § 103(25).


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