SC Administrative Law Court Decisions

I. STATEMENT OF THE CASE

This is a contested case proceeding brought by Petitioner Tri-County Hospice ("Tri-County") contesting the staff decision of Respondent South Carolina Department of Health and Environmental Control ("DHEC") to deny Tri-County's applications for Certificates of Need ("CONs") to provide home health services to terminally ill patients in Charleston, Berkeley and Dorchester Counties. For the reasons expressed below, Tri-County's CON applications are denied.

II. FACTUAL BACKGROUND

Hospices provide services to terminally ill patients, while home health agencies serve patients of all types, including the terminally ill. Hospice services typically are palliative in nature, while home health services may be palliative or curative. Tr. at 70:3-11.

Three hospices serve Charleston, Berkeley, and Dorchester Counties. Tr. at 210:1-4. Two of these are parties in this action: Petitioner Tri-County and Respondent/Intervenor Hospice of Charleston, which currently provide identical hospice services. Tr. at 193:19-22. Twelve home health agencies serve Charleston County, the most in any county in the state. Tr. at 107:6-7. Nine home health agencies serve Berkeley County and nine serve Dorchester County. 1994 State Health Plan ("Plan") at II-135, 137.

Hospice of Charleston has been dually licensed as both a hospice and a home health agency since the early 1980s. Tr. at 191:22-24. A home health agency - unlike a hospice - is required to obtain a CON before it begins operations. Tri-County therefore seeks CONs so that it, like Hospice of Charleston, can be dually licensed as both a hospice and a home health agency.

The home health services provided by Hospice of Charleston are strictly palliative. Tr. at 200:3-9. If granted CONs, Tri-County would also limit its home health services to palliative services. Tr. at 74:5-8.

III. DISCUSSION

S.C. Code Regs. 61-15 §§202, 301-312 (Supp. 1995) set forth the CON application form and the procedures for DHEC's disposition of CON applications. Regulation 61-15 also sets forth 33 general project review criteria for CON applications (the "Umbrella Criteria"). Id. §802; see Tr. at 88:5-16. The regulation requires DHEC to notify applicants which of the Umbrella Criteria will be considered the most important in reviewing their applications (the "Priority Criteria"). Id. § 801(2).

S.C. Code Ann. §44-7-110, et seq.(Supp. 1995) (the "CON Act") designates DHEC as the agency responsible for administering South Carolina's CON program. The CON Act requires DHEC to prepare, at least every two years, a CON planning document called the State Health Plan. S.C. Code Ann. §44-7-180. At the time Tri-County's applications were filed, the 1994 State Health Plan was in effect. The CON Act requires that every State Health Plan include standards for CON applicants. Id. The 1994 Plan contained seven standards for home health agencies.⁽¹⁾ Plan at II-123, 124.

According to the CON Act, every CON application "must address all applicable standards and requirements" set forth in both Regs. 61-15 and the State Health Plan. S.C. Code Ann. §44-7-200. In addition, the CON Act mandates compliance with Plan standards, prohibiting DHEC from issuing a CON to any applicant whose application fails to comply with the State Health Plan. Id. §44-7-210(C); Regs. 61-15 §801(3).

On September 5, 1995, DHEC notified Tri-County of the eight Priority Criteria, drawn from the 33 Umbrella Criteria, by which it would evaluate Tri-County's CON applications:

1. Compliance with the need outlined in the Plan - 1

2. Community need documentation - 2a, b, c, e

3. Distribution (Accessibility) - 3a, g

4. Acceptability - 4

5. Operating budget - 6

6. Ability of the applicant to complete the project - 14

7. Resource availability; and

8. Relationship to the health system - 23

DHEC's Exh. 4 at 310.⁽²⁾ The Priority Criteria are listed in their order of importance. DHEC Exh. 1 (Langston Deposition) at 25:10-11. The burden for showing compliance with the Priority Criteria rests on the applicant. Tr. at 95:3-5. DHEC's staff determined that Tri-County failed to satisfy six of the eight Priority Criteria, and therefore denied Tri-County's applications. Tr. at 181:16-24.

A. Criterion One: Compliance with the Plan

The first priority criterion is compliance with the seven standards set forth in the 1994 State Health Plan. Tr. at 90:17 to 91:6; at 143:9-14. Of the seven standards, the fourth is not applicable to the present case. Tr. at 143:15-19. It is uncontested that Tri-County's application satisfied all the remaining standards, except for the fifth.

Standard Five provides that proposed charges should be comparable to existing agencies. Plan at II-123. Tri-County's proposed charges are generally higher than the charges of existing home health agencies in Charleston, Berkeley, and Dorchester counties.⁽³⁾ Tr. at 145:3-7. Since eighty to ninety percent of all home health services are provided by nurses and aides, Tri-County's high rates for those two disciplines are especially significant. Tr. at 151:2-7; DHEC Exh. 1 (Langston Deposition) at 45:8 to 46:1.

A CON application may not be approved unless it complies with all standards set forth in the State Health Plan. S.C. Code Ann. §44-7-210(C); S.C. Code Regs. 61-15 §801(3); see Tr. at 89:18-24. Due to their high proposed charges, especially for nurses and aides, Tri-County's applications fail to comply with Standard Five.

B. Criterion Two: Community Need Documentation

The second criterion requires the proposed project to "meet and identify a documented need of the target population . . . .  The assumptions and methods used to determine the level of need should be specified in the application and based on a reasonable approach. . . . " S.C. Code Regs. 61-15 §802(2)(c).⁽⁴⁾

Tri-County's application attempts to document need by two methods. Tr. at 158:1-7. First, each application contains numerous letters of support. However, only nine of these support letters satisfy the guidelines established by the State Health Plan.⁽⁵⁾ Tr. at 156:14-17. The value of these nine letters is offset by the seventeen physician letters that were submitted in opposition to Tri-County's application. Tr. at 174:3-7. See DHEC Exh. 4 at 271, 315-17, 341, 348-49, 356-57, 359, 361, 376-77, 380, 408, 458, 461.

Tri-County's second method of documenting need is based on a formula developed by a professional hospice association called "Hospice for the Carolinas" ("HFC"). Tr. at 157:17. The record contains a letter, however, submitted by Judi Lund Person, the Executive Director of HFC, that describes the HFC formula as a marketing tool which is inappropriate as a method to identify or project need. DHEC Exh. 4 at 453; see Tr. at 159:4-24; at 160:7-13. Hospice of Charleston's expert witness, Dr. Leiyu Shi, a professor of health planning at the University of South Carolina, offered unrebutted expert testimony that the HFC formula is seriously flawed as a methodology for the determination of need. Tr. at 239-246.

Dr. Shi further testified that, based upon his independent analysis, no need currently exists in the counties in question for an additional home health agency specializing in services for the terminally ill. Tr. at 256:1-8. Dr. Shi's opinion was based upon three elements. First, he conducted a survey of existing agencies, the results of which indicated that the agencies have capacity to serve additional terminally ill patients; furthermore, the results indicated a negative impact upon the agencies should a new CON be granted. Tr. at 247:21 to 252:12. Second, Dr. Shi conducted a trend analysis revealing that the area in question is a mature market in which existing providers would be able to satisfy any additional need. Tr. at 252:13 to 253:22. Third, Dr. Shi relied on convincing anecdotal evidence, including a community needs assessment and 138 letters of opposition to Tri-County, that indicated a lack of need. Tr. at 253:23 to 255:23.

Given the inadequacy of the HFC formula as an indicator of need, the numerous letters of opposition, and the unrebutted expert testimony by Dr. Shi, it is apparent that Tri-County has failed to demonstrate that a need exists for additional services.

C. Criterion Three: Distribution and Accessibility

The third priority criterion requires Tri-County to show that it will not unnecessarily duplicate services already offered by existing agencies. S.C. Code Regs. 61-15 §802(3)(a); Tr. at 162:15 to 163:9. Charleston, Berkeley, and Dorchester counties are currently served by Hospice of Charleston, which exclusively serves terminally ill patients. Tr. at 200:3-9. Hospice of Charleston offers exactly the same services proposed by Tri-County. Tr. at 165:8 to 168:8; at 166:15-22; at 193:15-18. The majority of the other eleven home health agencies in Charleston County, the other eight home health agencies in Berkeley County, and the other eight home health agencies in Dorchester County also offer the same services to terminally ill patients, although they do not focus exclusively on the terminally ill. Tr. at 166:9-14.

It is apparent that Tri-County's applications propose to duplicate services that already are provided in the area. Under Criterion Three, the issue is whether such a duplication is necessary. Tr. at 183:8-11. As discussed above, Tri-County has failed to demonstrate that a need exists for additional services. Therefore, granting CONs to Tri-County would constitute an unnecessary duplication of existing services in violation of Criterion Three.

D. Criterion Four: Acceptability

The fourth priority criterion requires that a proposed CON must have the support of "affected persons, including local providers in the target population." Tr. at 167:18-22. The Tri-County applications prompted 138 letters of opposition. Tr. at 255:14-20. Of these, seventeen were from physicians. Tr. at 174:3-7. One opposition letter came from the Chief Operating Officer of Roper Hospital in Charleston. Tr. at 172:17 to 173:10. Three other opposition letters came from the Chief Executive Officers of three other Charleston Hospitals: Bon Secours/St. Francis, Trident Regional, and the Medical University of South Carolina. Tr. at 169:21 to 172:11. No hospitals submitted support letters for Tri-County. Tr. at 103:18-20.

These letters evidence substantial opposition to Tri-County's application and its failure to comply with Criterion Four.

E. Criterion Five: Operating Budget

Criterion Five requires that an applicant's proposed charges should be comparable to charges by similar facilities. Tr. at 176:1-6. As has already been discussed in the context of Standard Five of the Plan, Tri-County's proposed charges are generally higher than existing area providers'. Therefore, Tri-County's applications fail to comply with Criterion Five.

F. Criteria Six and Seven: Ability to Complete the Project and Resource Availability

It is uncontested that Tri-County satisfies these two criteria.

G. Criterion Eight: Relationship to the Health System

Criterion Eight requires the applicant to show that, if granted a CON, it will not adversely impact existing providers. Tr. at 177:19-21. The reasoning behind this requirement is that in the health care field, which is not driven by price competition, unnecessary duplication drives costs higher. Tr. at 178:2 to 179:22.

Given that Tri-County has failed to establish a need for additional services in the target area, it is logical to assume that, if granted a CON, any patients it serves would be patients taken from existing providers. Tr. at 180:12-19. The State Health Plan requires that home health agencies serving multiple counties must serve at least 25 patients annually per county within two years of operation or risk having their license revoked. Plan at II-124; Tr. at 181:3-15. Tri-County's own applications project that it will be unable to meet this requirement. Tr. at 243:23 to 244:17. Should Tri-County be granted a CON, therefore, the resulting competition for patients could cause it and other agencies to fail to meet the 25-patient requirement, thus placing their licenses in jeopardy. SeeTr. at 220:17 to 221:4. Tri-County has failed to show compliance with Criterion Eight.

IV. FINDINGS OF FACT

By a preponderance of the evidence I make the following findings of fact:

1. Petitioner Tri-County Hospice applied to DHEC for CONs to provide home health services to terminally ill patients in Charleston, Berkeley and Dorchester Counties.

2. Respondent/Intervenor Hospice of Charleston, Inc. is dually licensed as both a hospice and a home health agency.

3. Respondent DHEC is the State agency authorized to administer the Certificate of Need program.

4. Hospices provide services to terminally ill patients, while home health agencies serve patients of all types, including the terminally ill.

5. Hospice services typically are palliative in nature, while home health services may be palliative or curative.

6. Three hospices currently serve Charleston, Berkeley, and Dorchester Counties. Two of these are Petitioner Tri-County and Respondent Hospice of Charleston.

7. Twelve home health agencies serve Charleston County, the most of any county in the state.

8. Nine home health agencies serve Berkeley County and nine serve Dorchester County.

9. A home health agency, unlike a hospice, is required to obtain a CON before it begins operations.

10. The home health services provided by Hospice of Charleston are strictly palliative.

11. Tri-County indicated that if granted CONs, it would also limit its home health services to palliative services.

12. On September 5, 1995, DHEC notified Tri-County of the eight Priority Criteria, drawn from the 33 Umbrella Criteria, by which it would evaluate Tri-County's CON applications:

1. Compliance with the need outlined in the Plan

2. Community need documentation

3. Distribution (Accessibility)

4. Acceptability

5. Operating budget

6. Ability of the applicant to complete the project

7. Resource availability; and

8. Relationship to the health system

13. DHEC's staff determined that Tri-County failed to satisfy six of the eight Priority Criteria.

14. By three letters dated November 21, 1995, DHEC denied Tri-County's applications for CONs to provide home health services in Charleston, Berkeley and Dorchester Counties.

15. The first priority criterion cited by DHEC was compliance with the seven standards set forth in the 1994 State Health Plan.

16. The fourth standard is not applicable in this case.

17. Tri-County's application satisfied all remaining standards, except for the fifth.

18. Standard five, at p. II-123, provides that proposed charges should be comparable to existing agencies.

19. Tri-County's proposed charges are generally higher than the charges of existing home health agencies in Charleston, Berkeley, and Dorchester Counties.

20. The second criterion requires the proposed project to "meet and identify a documented need of the target population . . . . The assumptions and methods used to determine the level of need should be specified in the application and based on a reasonable approach. . . ."

21. Tri-County used support letters and a formula developed by a professional hospice association in an attempt to document need.

22. Only nine of Tri-County's support letters satisfy the guidelines established by the State Health Plan.

23. Seventeen physician letters were submitted in opposition to Tri-County's application.

24. The formula developed by the professional hospice association is a marketing tool which is inappropriate as a method to identify project need.

25. The existing agencies that serve the three counties in question have the capacity to serve additional terminally ill patients.

26. No need currently exists in the counties in question for an additional home health agency specializing in services for the terminally ill.

27. The third priority criterion requires Tri-County to demonstrate that it will not unnecessarily duplicate services already offered by existing agencies.

28. The three counties in question are currently served by Hospice of Charleston, which exclusively serves terminally ill patients.

29. Hospice of Charleston offers exactly the same services proposed by Tri-County.

30. Most of the other home health agencies in the three counties offer the same services to terminally ill patients, although they do not focus exclusively on the terminally ill.

31. Tri-County's applications propose to unnecessarily duplicate services already provided by existing agencies in the area.

32. The fourth priority criterion provides that a proposed CON must have the support of "affected persons, including local providers in the target population."

33. There are 138 letters in opposition to the Tri-County applications, seventeen of which are from physicians.

34. Opposition letters came from four Chief Operating Officers of Charleston hospitals.

35. Tri-County's proposed CON does not have the support of affected persons, including the local providers in the target population.

36. The fifth priority criterion requires that and applicant's proposed charges should be comparable to charges of similar facilities.

37. Tri-County's proposed charges are generally higher than those of the home health services providers in the three counties in question.

38. Tri-County applications demonstrate the ability to complete the project and that Tri-County has the available resources to operate as a home health services provider. Thus, priority criterion six and seven are satisfied.

39. The eighth priority criterion requires the applicant to show that, if granted a CON, it will not adversely impact existing providers.

40. If Tri-County is granted a CON, any patients it serves would be patients taken from existing providers.

41. Tri-County's applications project that it will be unable to serve at least 25 patients annually per county within two years of operation.

42. If granted a CON to provide home health services to the terminally ill, Tri-County's operation will adversely impact existing providers.

V. CONCLUSIONS OF LAW

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

1. The Administrative Law Judge Division has jurisdiction over this matter and is authorized to hear it as a contested case pursuant to S.C. Const. art. I, §22; Chapter 23 of Title 1 of the 1976 Code, as amended; S.C. Code Ann. §1-23-600(B) (Supp. 1995); S.C. Code Ann. §§1-23-310, 320 (Supp. 1995); §44-7-210(D)(2) (Supp. 1995); S.C. Code Regs. 61-15 §403 (Supp. 1995) and S.C. Code Regs. 61-72 §201 (Supp. 1995).

2. The issues considered at the contested case hearing are limited to those presented, or considered, during the staff review and decision process. S.C. Code Ann. §44-7-210(E) (Supp. 1995).

3. Pursuant to ALJD Rule 29(B), issues raised at the hearing not specifically addressed in this Order are deemed denied.

4. As a state-wide administrative tribunal authorized to take evidence and determine contested case hearings, the Administrative Law Judge Division is the fact finder in this matter for purposes of administrative and judicial review. See Lindsey v. S.C. Tax Comm'n, 320 S.C. 504, 397 S.E.2d 95 (1990).

5. Tri-County timely filed a Petition for Administrative Review for a Contested Case hearing regarding DHEC's denial of Tri-County's CON applications. S.C. Code Ann. §44-7-210(D) (Supp. 1995); S.C. Code Regs. 61-15 (Supp. 1995).

6. The burden of proof in weighing the evidence and making a decision on the merits in a contested case hearing is a preponderance of the evidence, with the burden being upon the Petitioner. Tri-County has the burden of proof to establish by a preponderance of the evidence that its CON applications should be granted. S.C. Code Ann. §§44-7-110 through 44-7-340 (Supp. 1995); S.C. Code Regs. 61-15, §403(1) (Supp. 1995); National Health Corp. V. S.C. Dep't of Health and Environmental Control, 298 S.C. 373, 380 S.E.2d 841 (1989).

7. The preponderance of the evidence means evidence which is of greater weight, or is more convincing than that offered in opposition to it. Black's Law Dictionary 1182 (6th ed. 1990).

8. S.C. Code Ann. §§44-7-110, et seq. (Supp. 1995), the State Certification of Need and Health Facility Licensure Act ("CON Act"), grants DHEC the authority to administer the State's CON program.

9. S.C. Code Ann. §§44-7-180, et seq. (Supp. 1995) provides for the application procedures, criteria, and standards for a Certificate of Need.

10. The CON program is administered under the guidelines of S.C. Code Regs. 61-15 (Supp. 1995). Regulation 61-15 also sets forth 33 general project review criteria for CON applications (the "Umbrella Criteria"). Id. §802. The regulation requires DHEC to notify applicants which of the Umbrella Criteria will be considered the most important in reviewing their applications (the "Priority Criteria").

11. A Certificate of Need must not be awarded to an applicant unless the application complies with the State Health Plan, Project Review Criteria, and other regulations. Based on project review criteria and other regulations, which must be identified by the Department, a Certificate of Need may be denied even if an application complies with the State Health Plan. S.C. Code Ann. §44-7-210 (Supp. 1995); S.C. Code Regs. 61-15, §802.1 (Supp. 1995).

12. All CON applications must be consistent with the State Health Plan in effect at the time of application. S.C. Code Regs. 61-15, §504 (Supp. 1995). The 1994 State Health Plan, effective October 14, 1994, is the applicable Plan controlling this matter.

13. The CON Act requires that every State Health Plan include standards for CON applicants. S.C. Code Ann. §44-7-180 (Supp. 1995). The 1994 Plan contained seven standards for home health agencies. Plan at II-123, 124. A CON application may not be approved unless it complies with all standards set forth in the State Health Plan. S.C. Code Ann. §44-7-210(C) (Supp. 1995).

14. On September 5, 1995, DHEC notified Tri-County of the eight Priority Criteria, drawn from the 33 Umbrella Criteria, by which it would evaluate Tri-County's CON applications:

1. Compliance with the need outlined in the Plan

2. Community need documentation

3. Distribution (Accessibility)

4. Acceptability

5. Operating budget

6. Ability of the applicant to complete the project

7. Resource availability; and

8. Relationship to the health system

15. The burden of showing compliance with the Priority Criteria rests on the applicant.

16. Tri-County's applications fail to satisfy the first Priority Criterion, compliance with the seven standards set forth in the 1994 State Health Plan.

17. Tri-County's applications fail to satisfy the second Priority Criterion, the requirement that the applicant submit credible community need documentation.

18. Tri-County's applications fail to satisfy the third Priority Criterion, the criterion requiring the applicant to show that it will not unnecessarily duplicate services already offered by existing agencies.

19. Tri-County's applications fail to satisfy the fourth Priority Criterion, the requirement that a proposed CON must have the support of affected persons, including local providers in the target population.

20. Tri-County's applications fail to satisfy the fifth Priority Criterion, the requirement that an applicant's proposed charges should be comparable to charges by similar facilities.

21. Tri-County's applications satisfy the sixth and seventh Priority Criteria, the requirements regarding the ability to complete the project and resource availability.

22. Tri-County's applications fail to satisfy the eighth Priority Criterion, the requirement that the applicant show, if granted a CON, it will not have an adverse impact on existing providers.

23. Because Tri-County's applications fail to satisfy six of the eight Priority Criteria, and fail to comply with the State Health Plan, they must be denied.

VI. CONCLUSION

Tri-County's applications fail to satisfy six of the eight Priority Criteria, including the first criterion, satisfaction of which is statutorily mandated in order to be awarded a CON. Tri-

County has failed to meet its burden of proving that it should be granted the requested CONs. Tri-County's applications are therefore denied.

ORDER

Based upon the foregoing Findings of Fact, Conclusions of Law and Discussion, IT IS HEREBY ORDERED, that Petitioner Tri-County's applications for Certificates of Need to provide home health services to terminally ill patients in Charleston, Berkeley and Dorchester Counties are denied.

IT IS SO ORDERED.

_______________________________

Marvin F. Kittrell

Chief Judge

Columbia, South Carolina

December 18, 1996

_______________

Fn.1. The 1994 Plan made an exception to one of these standards (the fourth) for home health CON applicants intending to serve only terminally ill patients. Plan at II-123, 124. The exception does not apply to any other standards or criteria. Tr. at 96:19-23; at 144:5-13. DHEC Exh. 1 (Langston Deposition) at 23:15-22.

Fn.2. The numbers beside each criterion refer to subsections of Regs. 61-15 §802 (the Umbrella Criteria). See DHEC Exh. 1 (Langston Deposition) at 25:12-17.

Fn.3. An exception is Tri-County's charges for medical social workers, which are slightly lower than other area agencies. However, medical social workers provide a "very small number" of visits for home health agencies. Tr. at 107:21 to 108:5 (testimony of Leon B. Frishman).

Fn.4. The quoted language is taken from one of the Umbrella Criteria (§802(2)(c)) set forth in Regs. 61-15, which is specifically referenced by and incorporated into Priority Criterion Two.

Fn.5. Standard No. 3 in the 1994 Plan sets forth guidelines for physician support letters.