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:
Roper Hospital, Inc. et al. vs. SCDHEC et al.

AGENCY:
South Carolina Department of Health and Environmental Control

PARTIES:
Petitioner:
Roper Hospital, Inc. and Bon Secours-St. Francis Hospital

Respondent:
South Carolina Department of Health and Environmental Control and Palmetto Digestive Disease Endoscopy Center
 
DOCKET NUMBER:
01-ALJ-07-0378-CC

APPEARANCES:
Ralph Barbier, Esquire
Harold Jacobs, Esquire
For Petitioners

Leslie Stidham, Esquire
For Respondent Department of Health and Environmental Control

M. Elizabeth Crum, Esquire
Leigh Watson, Esquire
For Respondent Palmetto Digestive Disease
Endoscopy Center
 

ORDERS:

FINAL ORDER AND DECISION

STATEMENT OF THE CASE

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 Palmetto Digestive Disease Endoscopy Center's ("Palmetto") 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 two 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 Palmetto's proposed service area, brought this contested case to challenge Palmetto'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 May 14 and 15, 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 Palmetto's proposed outpatient endoscopy center fails to meet the criteria for the issuance of a CON and that Palmetto'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) (Supp. 2000); 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) (Supp. 2000). 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, Palmetto's proposed endoscopy center does not meet the criteria for the issuance of a CON.

APPLICABLE CRITERIA

On April 18, 2001, the Department issued its final statement of the project review criteria to be utilized in evaluating Palmetto'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. 2001)).

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, at 358-59.) Of these selected criteria, Petitioners contend that Palmetto'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. 2001).

Under the first criterion, "Need," Palmetto'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 to an ASC. Roper and St. Francis contend that Palmetto 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.

(Resp't Palmetto Ex. #7, at II-108 to II-109.) Further, Roper and St. Francis contend that the Department's approval of Palmetto'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.



(Resp't Palmetto Ex. #7, 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 Palmetto 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. 2001)?

2. Did the Department err in finding that Palmetto 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. 2001)?

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 February 8, 2001, Palmetto 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 two procedure rooms which will be restricted to outpatient gastrointestinal endoscopy services. Palmetto plans to locate its proposed endoscopy center in the Essex Medical Center on Charlie Hall Boulevard in the West Ashley area of Charleston.

2. Palmetto is organized as a limited liability company under the name Palmetto Gastrointestinal Specialists, LLC, which, in turn, is owned in equal parts by two physicians, Dr. Michael Sagatelian and Dr. James Schnell. A third physician, Dr. Jeffery Dorociak, will also have an ownership interest in Palmetto. These three gastroenterologists (the "Palmetto physicians") will be the primary physicians utilizing the proposed endoscopy center. However, three other physicians, Dr. Deborah DeMarta, Dr. Rudolph Rustin, and Dr. Kassamo Dayemo, are listed in Palmetto's CON application as being interested in obtaining medical staff privileges at Palmetto's endoscopy center.

3. Palmetto's proposed facility will contain physicians' offices, six examination rooms, two endoscopy procedure rooms, and four recovery rooms. The Palmetto physicians will provide outpatient upper and lower diagnostic endoscopy (1) procedures to medically appropriate or "healthy" patients at the proposed facility. The types of procedures to be provided include: colonoscopy, esophagogastroduodenoscopy, flexible sigmoidoscopy, and enteroscopy.

4. The service area of Palmetto's proposed endoscopy center will be concentrated on the West Ashley area of Charleston, but will also extend to other portions of Charleston, Berkeley, and Dorchester counties, including the Mount Pleasant, North Charleston, Moncks Corner, and Walterboro areas. Palmetto's CON application identifies this service area by the thirteen specific zip codes that cover the area. (Pet'r Ex. #1, at 16.)

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 Palmetto filed its CON application, three other CON applications for the construction of, or addition to, ambulatory surgery centers in Charleston County restricted to gastroenterology procedures were submitted to the Department. In these applications, the HealthSouth Surgery Center of Charleston sought to add three new endoscopy rooms to its currently existing facility in Charleston, the Charleston Endoscopy Center proposed the construction of a four-room endoscopy center in the Essex Medical Park in the West Ashley area, and the East Cooper Endoscopy Center proposed to establish a freestanding surgery center with two endoscopy rooms in Mount Pleasant. The Department deemed these four CON applications to be "competing" applications for the purposes of its staff review of the proposals. (Pet'r Ex. #1, at 221.)

7. After requesting and receiving additional information regarding the CON application, DHEC deemed Palmetto's application complete by letter dated April 18, 2001. In that letter, DHEC identified the project review criteria that would be considered most important in evaluating Palmetto's application. As noted above, these 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. 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 the construction of additional endoscopy rooms in the area would have on the facilities. (Pet'r Ex. #1, at 246-71.) In response to this survey, those facilities with endoscopy rooms, except the HealthSouth Surgery Center, which was also seeking to add endoscopy rooms, informed the Department 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, at 363-384.) Additionally, on July 31, 2001, at the Department's request, Roper and St. Francis provided the Department with revised Joint Annual Reports (JARs) containing information relating to outpatient endoscopy cases at Roper, St. Francis, and Roper North hospitals for the years 1998, 1999, and 2000. (2)

8. By letter dated August 8, 2001, the Department approved Palmetto's application and issued a CON to Palmetto for the establishment of a freestanding ambulatory surgery center with two 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. Palmetto Digestive Disease Endoscopy Center has an exclusive contract with Tri[C]are and Tri[C]are Prime which serve[] over 60,000 beneficiaries in the service area; without approval of this project, Armed Forces members and their dependents, as well as retirees would remain in the higher cost hospital based system.



(Pet'r Ex. #1, at 410.) On August 17, 2001, Petitioners Roper and St. Francis filed a request for a contested case hearing to challenge the decision to issue the CON to Palmetto with the Department. 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

9. 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.

10. Mr. Balsano prepared a detailed, 43-page analysis of the current and projected utilization of endoscopy capacity in the Charleston area and the impact 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," "CareAlliance Physician Dependency," "CareAlliance Endoscopy Financial Impact Loss of Palmetto Outpatient Cases Calendar Year 2000," "CareAlliance Outpatient Endoscopy Financial Impact Calendar Year 2000," and "CareAlliance and Market Capacity." (Pet'r Ex. #3.) The data in Mr. Balsano's report was gathered from Palmetto's CON application, JARs for Roper and St. Francis, the hospital survey information collected by DHEC during its review of Palmetto's CON, 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 173-74.)

11. 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. (Pet'r Ex. #3, at 17; Hr'g Tr., vol. I, at 189.) Mr. Balsano further concluded that, in 2000, the current endoscopy capacity in the area was only 46% utilized by existing facilities. (3) (Pet'r Ex. #3, at 40; Hr'g Tr., vol. I, at 202-203.) Therefore, given this low rate of utilization, Mr. Balsano found that, despite the significant 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. (Pet'r Ex. #3, at 41; Hr'g Tr., vol. I, at 204-205.) 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). (Pet'r Ex. #3, at 38-39; Hr'g Tr., vol. I, at 198-200.) However, as noted, these capacity figures include data from Roper Hospital North, which closed in May 2001. (Hr'g Tr., vol. I, at 135.) Nevertheless, even disregarding the Roper North figures 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%, even considering the congestion in St. Francis's recovery rooms on certain days. (Hr'g Tr., vol. I, at 199.) Further, Mr. Balsano took the closure of Roper North into account in his determination that the endoscopy capacity in the Charleston area would only be 57% utilized in 2005.

12. In sum, Mr. Balsano concluded that "even with vibrant marke[t] growth, there would be no need between now and 2005 . . . for any additional capacity in the marketplace." (Hr'g Tr., vol. I, at 207.)

13. 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 Palmetto's CON application.

14. 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 221, 263.) However, at the hearing of this matter, Joel Grice testified that, at the time he approved Palmetto's CON application, he had not calculated the capacity of existing endoscopy facilities or the utilization of that capacity. (Hr'g Tr., vol. II, at 245-46, 249.) Rather, Mr. Grice testified that, in approving the CON, he went through a "mental process" to estimate the utilization of existing capacity in the area. (Hr'g Tr., vol. II, at 263-68.) When asked to quantify those mental estimates at the hearing, Mr. Grice determined, on the spot, that St. Francis hospital was using 88.6% of its capacity and that Roper was using 94% percent of its capacity. (Hr'g Tr., vol. II, at 265-66.)

15. Mr. Grice further testified that "it's really kind of difficult to be able to determine what the realistic capacity is of a facility" (Hr'g Tr., vol. II, at 273), and that "it would be very difficult to do a fair calculation of what the real functional existing capacity and utilization of an existing facility in the Charleston area [is]." (Hr'g Tr., vol. II, at 246.) Given these difficulties, Mr. Grice stated that the CON review process in these matters "is kind of an art more than a science." (Hr'g Tr., vol. II, at 250.)

16. Mr. Grice also testified, without a reasonable justification, 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 222, 227, 245, 247-48, 251-52.) Further, in response to the corrected JARs submitted by the hospitals, Mr. Grice noted in Palmetto'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, at 404.) (4) However, at the time the Department's staff reviewed Palmetto'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 and that the Department did not have any quantifiable evidence contrary to the data presented in those reports. (Pet'r Ex. #1, at 402-409.)

17. At the hearing, DHEC introduced two documents calculating utilization rates for endoscopies in the Charleston area. Both documents are revisions of calculations found in the report of Petitioners' expert witness, Mr. Balsano, and were prepared by Mr. Grice after the first day of the hearing of this matter. (Hr'g Tr., vol. II, at 249.) The first document calculates the projected utilization of endoscopy capacity in the Charleston area for the year 2005 to be 68.7%. (Resp't DHEC Ex. #1.) The second document calculates the current utilization of endoscopy capacity in the area to be 56%. (Resp't DHEC Ex. #2.) Both of these figures fall well below the planning threshold of 80% utilization.

18. In addition to these estimates of excess endoscopy capacity, DHEC determined that other factors suggested a need for the proposed endoscopy center. Specifically, Mr. Grice referred to letters of physician support for the facility and customer service issues, such as scheduling delays and overcrowding, facing existing facilities as being relevant to his analysis of the need for Palmetto's facility. (Hr'g Tr., vol. II, at 191-92, 253, 276.) However, as noted above, neither Mr. Grice nor other DHEC staff members had any specific, quantifiable data to support the conclusion that scheduling delays or crowding issues are a significant concern at existing facilities in the area such that the capacity of the facilities is affected.

19. Further, DHEC emphasized Palmetto's exclusive contract with TriCare, the health insurance program for military personnel and their dependents, in determining that a need existed for Palmetto's endoscopy center. (Pet'r Ex. #1, at 410.) However, Palmetto's expert witness, Mr. Dyson Scott, testified at the hearing that both Roper and St. Francis accept individuals insured by TriCare for gastroenterology procedures. (Hr'g Tr., vol. II, at 35-36.)

20. At the hearing, Respondent Palmetto presented Dyson Scott as an expert witness in healthcare planning and business development, including financial analysis. Mr. Scott has worked in the health care field in the Charleston area since 1977 and, during that time, has held planning positions with St. Francis, MUSC, and the Palmetto Low Country Health Systems Agency. Mr. Scott prepared Palmetto's CON application for the endoscopy center. Further, Mr. Scott is brokering the sale of the proposed endoscopy center between E.F. Medical, LLC, and Palmetto and stands to earn a brokerage fee of 5% of the gross sales price of the endoscopy center upon completion of the building. (5) (Pet'r Ex. #1, at 31.)

21. Palmetto cited to six factors in its CON application to demonstrate a need for additional endoscopy rooms in the Charleston area: (1) national and local figures indicating an increased utilization of endoscopy as a diagnostic and treatment tool; (2) a projected increased utilization of endoscopy for cancer screening due to a greater public awareness of the need for such screening from sources such as Katie Couric's television campaign and the recommendations of the American Cancer Society; (3) statistics projecting significant population growth in the proposed service area; (4) a lack of available capacity for endoscopies in the West Ashley area; (5) the greater availability of gastrointestinal endoscopies provided by ambulatory surgery centers because of reduced costs; and (6) statistics indicating a national increase in the incidence of colon and esophageal cancer. (Pet'r Ex. #1, at 12-15.)

22. In conducting this need analysis, Mr. Scott primarily relied upon projections of population growth in the area, internal statistics from physicians regarding the number of procedures performed, and physician interviews. (Hr'g Tr., vol. II, at 29, 32-34.) He did not consider data from the JARs on file with the Department or other hospital reports in reaching his conclusions. (Hr'g Tr., vol. II, at 33.) At the hearing, Mr. Scott testified that, in his opinion, there is a need for Palmetto's endoscopy center because St. Francis hospital is currently over-utilized and that additional growth in the West Ashley area would "put them way beyond the capacity to provide both physician and colonoscopy services in that area." (Hr'g Tr., vol. II, at 40-41.)

23. However, Mr. Scott's testimony and analysis of these capacity issues was largely anecdotal in nature and consisted primarily of generally stated opinions. Mr. Scott did not present any quantifiable data regarding existing capacity for endoscopies in Palmetto's service area, nor did he present a quantitative analysis of any such data. Moreover, while Palmetto's CON application does contain local population growth estimates and national statistics on endoscopy use rates, the only analysis of endoscopy capacity in the service area in the application is the conclusion that St. Francis's endoscopy capacity is over-utilized based on an unsubstantiated estimate of St. Francis's maximum capacity. (6)

Adverse Impact

24. In 2000, the Palmetto physicians accounted for 35% of the endoscopy volume at St. Francis and 18% of the volume at Roper. (7) (Hr'g Tr., vol. I, at 230; Pet'r Ex. #3, at 21.) And, approximately 93% of the endoscopy procedures performed by the Palmetto physicians at Roper and St. Francis are outpatient cases. (Hr'g Tr., vol. I, at 191-92.) For the year 2000, Roper and St. Francis, combined, derived a net income of $1,926,373 from their outpatient endoscopy services. (Pet'r Ex. #3, at 29.)

25. Based upon this data, Mr. Balsano determined that if the Palmetto physicians withdraw their endoscopy cases from Roper and St. Francis to their proposed endoscopy center, Roper and St. Francis's net income from outpatient endoscopy cases would be decreased by $1,031,084, leaving a net income of $895,289. (8) (Hr'g Tr., vol. I, at 243; Resp't Palmetto Ex. #8.) However, this calculation is based upon the worst-case assumption that the Palmetto physicians will transfer 100% of the volume of their outpatient endoscopy cases to the new facility. (9)

26. At the hearing, Mr. Grice testified that he did not believe that the establishment of Palmetto's proposed endoscopy center would have a significant adverse impact upon Roper and St. Francis because growth in the number of endoscopies would compensate for the loss of volume to Palmetto. (Hr'g Tr., vol. II, at 200-201.) However, Mr. Grice did not refer to or present any specific, quantifiable data to support his conclusions. (Hr'g Tr., vol. II, at 201.)

27. Further, Mr. Scott presented projections of the adverse impact Palmetto's proposed facility would have on Roper and St. Francis. Mr. Scott calculated that, while Roper and St. Francis would lose nearly four million dollars by 2005 from the establishment of Palmetto's proposed facility, the endoscopy volume at Roper and St. Francis would grow at such a rate that Roper and St. Francis would not drop below their current level of profitability between 2000 and 2005 (Resp't Palmetto Ex. #9; Hr'g Tr., vol. II, at 58.) On cross-examination, Mr. Scott acknowledged that in order for Roper and St. Francis to make up the lost volumes caused by the transfer of cases to Palmetto's facility and to achieve the projections he calculated, at least four "aggressive, fast endoscopist[s]" would need to be recruited to practice at Roper and St. Francis. (Hr'g Tr., vol. II, at 76-77.) However, there is currently a shortage of gastroenterologists and the recruitment of them is difficult. (Hr'g Tr., vol. II, at 126.)

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 Palmetto'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 Palmetto's endoscopy center would have on Roper and St. Francis. Further, neither DHEC nor Palmetto presented persuasive countervailing evidence to refute Petitioners' conclusions. Mr. Grice testified that, in approving Palmetto's CON application, he favored a more artistic, subjective approach rather than the more common scientific and quantitative methods generally used in making such decisions. And, while Mr. Scott's projections of adverse impact were supported by a quantitative analysis of discrete data, his testimony regarding the need for the proposed facility was general and anecdotal in nature. Similarly, the discussions of need and adverse impact provided by Mr. Scott in Palmetto's CON application are general and underdeveloped. Further, Mr. Scott's financial interest in the outcome of this case must be considered in determining the weight to be placed on his expert testimony.

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) (Supp. 2000) and S.C. Code Ann. §§ 1-23-310 et seq. (1986 & Supp. 2001). 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. The Department'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) (Supp. 2000).

3. Because Roper and St. Francis offer general outpatient endoscopy services to persons who reside in Palmetto'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 Palmetto. See S.C. Code Ann. § 44-7-130(1) (Supp. 2000); 24A S.C. Code Ann. Regs. 61-15 § 103(1) (Supp. 2001). Roper and St. Francis timely filed their request for a contested case hearing regarding the Department's approval of Palmetto' CON application. See S.C. Code Ann. § 44-7-210(D); 24A S.C. Code Ann. Regs. 61-15 § 403(1) (Supp. 2001).

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) (Supp. 2000); 24A S.C. Code Ann. Regs. 61-15 § 403(1) (Supp. 2001); 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 Palmetto'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). (10)

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) (Supp. 2000). 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. 2001). However, this limitation of the issues does not preclude the use of any information pertinent to the issues considered by the Department staff, so long as that information was available to the Department during the project review. See 24A S.C. Code Ann. Regs. 61-15 § 308(1) (Supp. 2001) ("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 the Department 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. (Supp. 2000), 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 (Supp. 2000).

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. 2001). 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. (11) S.C. Code Ann. Regs. 61-15 § 802(1) (Supp. 2001). 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 the Department 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) (Supp. 2000).

12. In conducting this review, the Department 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. 2001). 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 Section 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 Resp't Palmetto Ex. #7, 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).

15. The evidence presented by Petitioners in this case, in the absence of any persuasive countervailing evidence, 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. Accordingly, the Petitioners have satisfied their burden of establishing that Palmetto 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. 2001).

17. The evidence presented by Petitioners in this case, in the absence of any persuasive evidence to the contrary, suggests that it is more likely than not that the volume of endoscopy cases lost to Palmetto's proposed surgery center will materially decrease the present and future use of Roper and St. Francis's endoscopy rooms and that the loss will have a significant adverse financial impact on Roper and St. Francis. Therefore, Petitioners have satisfied their burden of demonstrating that the establishment of Palmetto'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." (Resp't Palmetto Ex. #7, at II-110.) Accordingly, the efforts of DHEC and Palmetto 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 (12)

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

IT IS HEREBY ORDERED that Respondent Palmetto'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





September 5, 2002

Columbia, South Carolina

1. An endoscopy is a visual inspection, through a scope, of a body cavity or system. (Hr'g Tr., vol. I, at 51.)

2. The original information provided by Roper and St. Francis stated the number of "procedures" performed rather than the number of "cases." Each patient is a "case," who may have more than one "procedure" performed on them during their visit. (Hr'g Tr., vol. I, at 68-69.)

3. This 46% utilization figure reduces to 41% utilization of current capacity if the capacity of the three unused but available endoscopy rooms at MUSC is included in the analysis. (Pet'r Ex. #3, at 40.)

4. However, at the hearing, Mr. Grice did state that he believed the staff note should have been amended because subsequent calculations by the hospitals should have provided a similar utilization percentage as previously reported with the incorrect numbers. (Hr'g Tr., vol. II, at 243.)

5. According to a letter of intent from E.F. Medical, LLC, to Palmetto, dated October 30, 2000, the purchase price of the endoscopy facility was set at $658,000. (Pet'r Ex. #1, at 26.)

6. In the application, Palmetto estimates, without elaboration, that if St. Francis performs endoscopies at an 85% utilization rate, St. Francis's maximum capacity would be 6800 endoscopies per year. According to the application, St. Francis performed 7732 endoscopy procedures in 1999. (Pet'r Ex. #1, at 14-15.)

7. If the other three physicians who are "interested" in practicing at Palmetto's proposed endoscopy center are included with the Palmetto physicians, these six physicians accounted for 47% of the endoscopy case volume at St. Francis and 23% of the case volume at Roper in 2000. (Pet'r Ex. #3, at 21.)

8. If the endoscopies performed by the three "interested" physicians are included with those performed by the Palmetto physicians, the removal of the endoscopies performed by these six physicians from Roper and St. Francis would reduce Roper and St. Francis's net income by $1,541,816, leaving a net income of $384,557. (Pet'r Ex. #3, at 29; Hr'g Tr., vol. I, at 194-95.)

9. Dr. Dorociak, a Palmetto physician, testified that a 50% shift of patients from Roper and St. Francis to the new endoscopy center would be a reasonable expectation. (Hr'g Tr., vol. II, at 139.)

10. The preponderance of the evidence is "[t]he greater weight of the evidence" or "superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other." Black's Law Dictionary 1201 (7th ed. 1999). "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 Frazier v. Frazier, 228 S.C. 149, 89 S.E.2d 225 (1955)).

11. The 1999 State Health Plan was in effect when Palmetto's CON application was filed and is, therefore, applicable to this matter.

12. The final decision of an Administrative Law Judge in cases involving an agency that is governed by a board or commission authorized to exercise the sovereignty of the state is initially appealed back to the board or commission of the agency from which the case arose. S.C. Code Ann. § 1-23-610(A) (Supp. 2001). Therefore, a party wishing to file an appeal of this case must do so with the DHEC Board. On appeal, the scope of review is limited as follows:



The [DHEC] Board . . . sits as a quasi-judicial tribunal in reviewing the final decision of the [Administrative Law Judge]. As the "reviewing tribunal," the Board is not entitled to make findings of fact but:



may affirm the decision or remand the case for further proceedings; or it may reverse or modify the decision if the substantive rights of the petitioner ha[ve] been prejudiced because . . . the finding, conclusion, or decision is:



(a) in violation of constitutional or statutory provisions;

(b) in excess of the statutory authority of the agency;

(c) made upon unlawful procedure;

(d) affected by other error of law;

(e) clearly erroneous in view of the reliable, probative and substantial evidence on the whole record; or

(f) arbitrary and capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.



Brown v. S.C. Dep't of Health & Envtl. Control, 348 S.C. 507, 520-21, 560 S.E.2d 410, 417 (2002) (citing to S.C. Code Ann. § 1-23-610(D) (Supp. 2001)) (citations omitted); see also Jean H. Toal et al., Appellate Practice in South Carolina 56-57 (1999).


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