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:
Edisto Surgery Center vs. SCDHEC

AGENCY:
South Carolina Department of Health and Environmental Control

PARTIES:
Petitioner:
Edisto Surgery Center

Respondent:
South Carolina Department of Health and Environmental Control

Intervenor:
The Regional Medical Center of Orangeburg and Calhoun Counties
 
DOCKET NUMBER:
97-ALJ-07-0434-CC

APPEARANCES:
Edisto Surgery Center: Michael Molony, Esq.

South Carolina Department of Health and Environmental Control: Nancy S. Layman, Esq. and Beaumont Barre, Esq.

The Regional Medical Center of Orangeburg and Calhoun Counties: Stuart M. Andrews, Jr., Esq. and Daniel J. Westbrook, Esq.

Parties Present: All Parties
 

ORDERS:

FINAL ORDER

I. Statement of the Case


The parties to this contested case action are Petitioner Edisto Surgery Center (ESC), Respondent South Carolina Department of Health and Environmental Control (DHEC), and Respondent/Intervenor The Regional Medical Center of Orangeburg and Calhoun Counties (TRMC). ESC contests DHEC's denial of ESC's application for a Certificate of Need (CON) to construct and provide services at an ambulatory surgery(1) center in Orangeburg, South Carolina. The Administrative Law Judge Division (ALJD) has subject matter jurisdiction over contested cases arising from CON disputes. See S.C. Code Ann. §§ 44-7-210(D)(2), 1-23-310(2), and 1-23-600(B) (Supp. 1997). The hearing of this dispute was held March 10-13, 1998.

ESC filed its CON application on September 26, 1996 for review by DHEC under the 1996 State Health Plan (SHP). During the review process DHEC identified the criteria most important in evaluating the application and applied those criteria, along with the applicable standards set forth in the SHP, before reaching its decision. On July 11, 1997 DHEC notified ESC that it had denied its application, prompting ESC's timely request for a contested case hearing. After consideration of all the evidence and arguments, ESC's application must be denied.

II. Burden of Proof


In reaching a conclusion on the facts of this case, in a CON action before the ALJD, the petitioner bears the burden of proof and does so by the preponderance of the evidence standard. See S.C. Code Regs. 61-15 § 403 (burden on moving party with preponderance of evidence standard implied); Nat'l Health Corp. v. S.C. Dept. of Health and Environmental Control, 298 S.C. 373, 380 S.E.2d 841 (1989) (preponderance of evidence standard used in CON dispute). Thus, ESC must prove it is entitled to the CON it seeks.

III. Applicable Criteria and Standards


DHEC Regulation 61-15, Section 802 lists 33 criteria (many of which contain subsections) by which a CON application may be evaluated. From this master list DHEC selected the following as the most important in evaluating ESC's application, listed in order of priority. See DHEC Record at 216-217:

1. Need-1

2. Community Need Documentation-2a, 2b, 2c, 2e

Distribution (Accessibility)-3a, 3b, 3c, 3d, 3g, 3h

3. Acceptability-4a, 4b

4. Efficiency-17

5. Adverse Effects on other Facilities-23a, 23b

6. Record of the Applicant-14a, 14b

7. Ability to Complete the Project-13a, 13c

8. Financial Feasibility-15

The numbers beside each criterion refer to specific subsections of Regulation 61-15 § 802. DHEC and TRMC contend that ESC failed to demonstrate compliance with the following criteria:

Criterion 1: "The proposal shall not be approved unless it is in compliance with the State Health Plan."

Criterion 2, subsection 2(c): "The proposed project should provide services that meet an identified (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 as judged by the reviewing body. Any deviation from the population projection used in the State Health Plan should be explained."

Criterion 2, subsection 2(e): "Current and/or projected utilization should be sufficient to justify the expansion or implementation of the proposed service."

Criterion 2, subsection 3(a): "Duplication and modernization of services must be justified. Unnecessary duplication of services and unnecessary modernization services will not be approved."

Criterion 2, subsection 3(h): "Potential negative impact of the proposed project upon the ability and/or resources of existing providers to serve medically underserved groups must be considered."

Criterion 4, subsection 17: "The proposed project should improve efficiency by avoiding duplication of services, promoting shared services and fostering economies of scale or size."

Criterion 5, subsection 23(a): "The impact on the current and projected occupancy rates or use rates of existing facilities and services should be weighed against the increased accessibility offered by the proposed services."

Criterion 1 requires compliance with the SHP. The SHP contains six standards applicable to CON applications for ambulatory surgery centers. SHP at II-77. An applicant must demonstrate compliance with all six in order to be granted a CON. Id. In the present case, DHEC and TRMC contend that ESC has failed to demonstrate compliance with two of the six standards. The two standards in dispute are numbers one and four:

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

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



IV. Issues


When examined in the light of the evidence in this case, two issues decide this controversy.

1. Has ESC established a need for its proposed facility consistent with standards 1 and 4 of the State Health Plan and, concomitantly, consistent with S.C. Code Ann. Regs. 61-15 § 802.1?

2. In a manner consistent with subsection 3(h) of criterion 2 and subsection 23(a) of criterion 5, has ESC demonstrated its proposed facility will not result in a substantial adverse impact to TRMC?

V. Analysis


A. Need for the ESC Facility

1. Positions of Parties

As discussed previously, DHEC and TRMC assert that ESC has failed to document need. ESC's physicians identified the following as the primary reasons its proposed facility is needed:

Outmigration: Capture of service area residents who currently outmigrate for outpatient surgery. Trial Record ("R") at 133:9-24.

Out-migration is an issue of special importance from ESC's point of view. One of the principal assumptions upon which ESC relies is that Orangeburg and Calhoun County residents who choose to have surgery in facilities outside the area do so because of dissatisfaction with TRMC. ESC contends that this outmigration evidences a need for a new ambulatory surgery center in Orangeburg. Both DHEC and TRMC dispute ESC's view. DHEC and TRMC argue that the causes of outmigration are physician-related and that ESC's new facility would be able to capture only an insubstantial portion of the outmigration pool.

Utilization: TRMC's outpatient surgery program is over-utilized, to the point it is operating at or near capacity. R. at 187-188; Pre-Filed Testimony of Lynn Bailey (Bailey Pre-Filed) at 4.

Delays, congestion, and scheduling problems. R. at 187-188; Bailey Pre-Filed at 4.

Patient convenience and efficiency. R. at 133:9-24; at 176:21 to 177:3; at 243:14-18; at 546:12-24.

TRMC's indigent policy. R. at 546:12 to 547:12.

Costs to patients. R. at 243:14-18.

Staffing and equipment issues. R. at 243:14-22; Bailey Pre-Filed at 4.

ESC physicians' ability to compete in marketplace. R. at 268:24 to 269: 4.

Surgeon convenience. R. at 176:21 to 177:3; at 546:12-20.

Patient choice. R. at 133:9-24; at 176:21 to 177:3; at 264: 19-24.

DHEC and TRMC assert that, at most, ESC has offered undocumented, anecdotal evidence of correctable management and administrative issues that do not justify construction of a new facility.

Finally, ESC argues that its application is being subjected to review by the use of terms from the State Health Plan and from S.C. Code Ann. Regs. 61-15 that are so vague as to be a violation of due process. ESC then argues the vague terms must be stricken and the remainder of the regulation and plan applied to it. DHEC and TRMC argue the regulation and the State Health Plan do not contain terms so vague as to violate due process.

2. Findings of Fact

I find by a preponderance of the evidence the following facts:

a. General

The general background in this case sets the contextual setting for addressing the issue of need.

ESC is a joint venture among twenty-eight physicians knowledgeable in the area of health care who seek a CON to construct a facility of almost 15,000 square feet. The facility will house four surgery suites and will be built for outpatient surgery services in the Orangeburg area.

However, TRMC already provides outpatient surgery services as a part of its mission. TRMC is a public, not-for-profit hospital located in Orangeburg, South Carolina, governed by a seventeen member Board of Trustees appointed by the county councils of Orangeburg and Calhoun Counties. Orangeburg County provides approximately seventy percent of TRMC's patients with an additional seventeen percent residing in either Calhoun or Bamberg Counties.

Management of TRMC is by Quorum Health Resources, Inc. (Quorum) pursuant to a management agreement. Within the past year, TRMC has renewed its management agreement with Quorum, extending the term until 2003. The agreement provides that TRMC's Chief Executive Officer, Thomas C. Dandridge, will be supplied by Quorum. Under the management agreement, TRMC pays Quorum a flat management fee unaffected by net revenue of TRMC, and TRMC also pays Quorum the cost of Mr. Dandridge's salary. Further, as Chief Executive Officer, Mr. Dandridge is eligible for yearly bonuses if certain criteria are satisfied. However, whether ESC's CON application is granted or denied will have no effect on these criteria or, consequently, upon Mr. Dandridge's bonus or salary.

TRMC's Board of Trustees opposed ESC's present application on the grounds that there was no need for the proposed facility, TRMC had adequate surgical capacity, the proposed facility would not reduce outmigration, and a new facility would have a substantial adverse impact upon TRMC. As for Quorum, it never took a position in regard to ESC's application or attempted to influence TRMC whether to support or oppose ESC. Likewise, neither TRMC's Board of Trustees nor Mr. Dandridge raised as an issue the potential impact of ESC's proposed facility on bonus income.

Having established the general background facts, the facts surrounding the relevant reasons asserted by ESC for the CON are addressed. The facts related to ESC's reasons are categorized as outmigration; operating room use; endoscopy use; delays, congestion, and scheduling; patient convenience and efficiency; TRMC's indigent policy; costs to patients; and staffing and equipment issues.

b. Outmigration

ESC relies upon capturing a portion of the outmigration of patients to establish a need for its facility. Within the area, TRMC is the only facility located in either Orangeburg or Calhoun Counties that provides outpatient surgery services. Notwithstanding such availability, the evidence establishes that approximately 37% of Orangeburg and Calhoun County residents who undergo outpatient surgery choose to have their surgery performed outside the area. A major premise of ESC's argument as to need relies upon capturing a portion of that out-migration of patients.

i. ESC's Assumptions

ESC calculates that its outpatient surgery center will capture some of these patients. Indeed, ESC believes that approximately one-third of its total patient load will be captured from the pool of local patients who currently outmigrate for outpatient surgery. ESC bases its conclusions concerning the number of patients it will capture from the outmigration pool on the following assumptions:

The principal reason for outpatient surgery outmigration from the proposed service area is dissatisfaction with TRMC. DHEC Record at 14.

ESC would draw from a primary and secondary service area of seven counties: Orangeburg, Calhoun, Bamberg, Barnwell, Clarendon, Colleton, and Dorchester. R. at 347:24 to 348:5.

In year 2000 the projected population of ESC's service area will be approximately 143,000 persons. R. at 342:4-14.

In year 2000 the outpatient surgery use rate for South Carolina will be approximately 78.9 outpatient surgeries per 1,000 population. R. at 343:15-19.

Approximately 48.5% of service area residents who undergo outpatient surgery currently choose to have it performed outside Orangeburg. R. at 344:18 to 345:4.

The outmigration rate is constant throughout the primary service area. See DHEC Record at 11-12.

ESC would be able to recapture at least 20% of the outmigration pool. R. at 345:18-21.

ii. Assumptions Unsupported

Based on the facts of this case, ESC's assumptions are not proven by the evidence.

Outmigration from TRMC's service area does not demonstrate a problem with TRMC as the local provider of services. Rather, responses by surgical patients recorded in TRMC's patient satisfaction surveys have been generally positive. Rather than a problem with TRMC, ESC acknowledges the unavoidable reality of outmigration by its view that an outmigration rate of approximately 33% will occur even after its facility is well established. Such an assumption is particularly relevant since the current outmigration rate is approximately 37%.

Contrary to ESC's view, outmigration is significantly related to the patient's distance from TRMC. The evidence shows that outmigration is greatest in the outlying zip codes not contiguous to the zip code 29115 in which the City of Orangeburg and TRMC are located. Indeed, within zip code 29115, the largest zip code in Orangeburg and Calhoun Counties, TRMC captures 78% of the market and captures over two-thirds of the patients from rural areas located immediately east and west of Orangeburg. TRMC's market share drops off considerably for zip codes in close proximity to Interstate 26 and for zip codes that are relatively far away from TRMC.

When considered as a whole the evidence shows that the outmigration throughout Orangeburg and Calhoun Counties reflects historical patterns of travel from rural areas to larger commercial, social, and medical hubs. Beth Schapiro & Associates, a Georgia-based national polling firm, conducted a telephone survey of 400 households in Orangeburg and Calhoun Counties in which a household member had recently undergone outpatient surgery outside of Orangeburg County. The survey represents a statistically reliable sample with a five percent margin of sampling error at the 95% confidence interval.(2)

As supported by the Schapiro poll, 82% of Orangeburg and Calhoun County residents who leave the area for outpatient surgery have the surgery performed in either the Columbia or Charleston areas. Further, Orangeburg-Calhoun residents who leave the local area for outpatient surgery do so for two principal reasons. First, patients are being referred outside the area by their physician.(3) Second, the patients personally choose to have surgery outside the area in hopes of having it performed by a higher quality or more specialized surgeon than is available locally.

On the other hand, ESC presented no persuasive documentation demonstrating that the two principal reasons identified above are incorrect. Rather, ESC's witnesses confirmed that important causes of outmigration are physician referrals to out-of-area surgeons and the perception by patients that they can be provided better care by surgeons from urban areas. See R. at 260:16-20 (testimony of Dr. Sweazy); at 603:14-18 (testimony of Dr. Smoak); R. at 260:5-15 (Dr. Sweazy); and at 609:16-19 (Dr. Smoak).

The persuasiveness of the Schapiro report is not lessened by the fact that seventy-four percent of the households polled by the Schapiro firm were white while a majority of the population of Orangeburg and Calhoun County is African American. On the contrary, ESC's demographics expert, Dr. John Ruoff, testified that African American residents of Orangeburg and Calhoun Counties are more likely to have lower incomes than whites. Dr. Ruoff further testified that people with higher incomes are more likely to have adequate transportation than those with lower incomes. Dr. Ruoff further testified that if the outmigration pool from Orangeburg and Calhoun Counties consists predominately of higher income people, the sample of those surveyed by Dr. Schapiro should be disproportionately white in comparison with the general population of the counties. Further, according to ESC's health planning expert, Ms. Bailey, the principal author of ESC's application, "it is not the poor who are [outmigrating], it is the insured middle class." R. at 368:19 to 369:5; TRMC Exh. 33.

Accordingly, the fact that seventy-four percent of the households polled by the Schapiro firm were white while a majority of the population of Orangeburg and Calhoun County is African American is not a fact inconsistent with the surveys results. Thus, I find that the principal reasons for outpatient surgery outmigration from Orangeburg and Calhoun Counties are related to physicians, rather than dissatisfaction with TRMC facilities. Specifically, the primary causes of outmigration are referrals by local physicians and the perception that higher quality or more specialized surgeons are available in urban areas.





iii. Service Area Utilized By ESC is Too Large

In calculating the service area from which outmigration patients will be drawn, ESC includes Orangeburg, Calhoun, Bamberg, Barnwell, Clarendon, Colleton, and Dorchester Counties. Barnwell, Clarendon, Colleton, and Dorchester Counties each have separate hospitals with outpatient surgery capacity. Colleton also has an ambulatory surgery center.

In the evidence of this case ESC provides no reasonable basis for its assumption that it will attract more than a minimal number of patients from Barnwell, Clarendon, Colleton, and Dorchester Counties. As a result, I find that, should ESC's application be granted, its service area would consist of Orangeburg, Calhoun, and Bamberg Counties. ESC's assumptions that its service area would include four other counties is unreasonable and inaccurately increases the potential outpatient outmigration pool from which ESC could draw patients.

iv. Service Area Population

ESC improperly utilizes an excess service area population. The formula ESC used follows:

a. ESC determined the projected population for year 2000 for each of the seven counties in its proposed service area, relying upon data obtained from the South Carolina Budget and Control Board.

b. ESC multiplied the projected populations of Bamberg, Barnwell, Clarendon, Colleton, and Dorchester Counties by TRMC's percentage of market per county.

c. ESC multiplied the projected populations of Orangeburg and Calhoun Counties by 100%, even though TRMC's market share in Orangeburg County is 60.3% and in Calhoun County only 58%.

ESC's formula is represented by the following table:

County Yr. 2000 Population TRMC Mkt. Share Year 2000 Service Area Pop.
Bamberg 16,900 x 23.4% = 3,955
Barnwell 22,400 x 6.7% = 1,501
Clarendon 30,900 x .6% = 185
Colleton 38,500 x 1.1% = 424
Dorchester 89,700 x 1.4% = 1,256
Orangeburg 89,900 x 100% = 89,900
Calhoun 13,800 x 100% = 13,800
Total 111,021

The table establishes that the projected service area population is actually 111,021 rather than the 143,000 used by ESC.(4)

In addition, ESC's decision to multiply the projected populations of Orangeburg and Calhoun Counties by 100% is inconsistent with its calculations for the other five counties. Rather, a consistent application of ESC's formula would be to multiply the projected population of Orangeburg County times 60.3% and of Calhoun County times 58%. Making these changes results in a service area population for year 2000 of 69,535, which is less than half of ESC's projection of 143,000.

Accordingly, ESC's assumption of 143,000 persons in its year 2000 service area is an unreasonable overestimation. Such a figure is the result of an inflated and unrealistic seven-county service area, a formula that applies inconsistent calculations, and a significant error in addition. Therefore, ESC's service area population projection of 143,000 inaccurately increases the potential outpatient surgery outmigration pool from which ESC could draw patients.

v. Inaccurate Outpatient Surgery Use Rate

For the year 2000, ESC multiplied its service area population projection of 143,000 by 78.9 patients per 1,000 population. The 78.9 figure is the outpatient surgery use rate which ESC projects for the year 2000. ESC's reliance upon an outpatient surgery use rate of 78.9 is not proven by the evidence.

The most recent South Carolina data shows that the outpatient surgery use rate decreased from 58.5 per 1,000 in 1994 to 58.0 per 1,000 in 1995. Further, while technological changes have resulted in surgeries being shifted from an inpatient to an outpatient setting (this would indicate a basis for increasing the outpatient surgery use rate), most of the shift has already occurred. Thus, in the absence of evidence of a new change in technology, the growth in the outpatient surgery rate is not likely to rise rapidly in the near future. In addition, technological advances for many procedures are also allowing a shift away from an ambulatory surgery center to a physician's office. Thus, when the evidence is considered as a whole, the use rate for outpatient surgery is not likely to increase dramatically.

I recognize that ESC's consultant, Ms. Bailey, testified that the current 58.0 per 1,000 use rate may be understated. She relied upon a federal study showing a regional use rate of 101.5 per 1000. The 101.5 use rate, however, represents a combination of surgical and non-surgical procedures and is therefore not persuasive to the determination of the use rate for outpatient surgeries.

Additionally, while outpatient surgery as a percent of total surgery grew dramatically from 14.5% in 1982 to 50% in 1990, the outpatient percentage stabilized and flattened from 1993-1995, showing just a 1.1% increase during this three-year period (61.4% in 1993--62.5% in 1995).

Furthermore, considering all factors, the maximum level of surgery that can be assumed to be performed on an outpatient basis is 70% of total surgery. Additionally, it must be noted that TRMC will reach this 70% maximum by year 2000.

Finally, little population growth is forecast for Orangeburg and Calhoun Counties. Such limited growth is supported by projections from the United States Census Bureau and from the South Carolina Budget and Control Board.

Accordingly, based on the above, I find that ESC's projected outpatient surgery use rate for the year 2000 of 78.9 per 1,000 is not supported by the evidence. Indeed a more realistic forecast is a use rate remaining close to the present 58.0 per 1,000. Thus, ESC's reliance upon an outpatient surgery use rate for the year 2000 of 78.9 per 1,000 inaccurately increases the outpatient surgery outmigration pool from which its new facility could draw patients.

vi. Outmigration Rate

After multiplying its inflated service area projected population (143,000) by its inflated use rate (78.9 per 1,000), ESC multiplied the product by an estimated outmigration rate of 48.5%. The result was a projected 5,500 service-area residents who would outmigrate for outpatient surgery in year 2000. I have already found that the outmigration rate is 37%. Thus the use of 48.5% is improper.(5) Accordingly, I find that ESC's reliance upon a 48.5% outpatient surgery outmigration rate is not established by the evidence and as used by ESC has resulted in an inflated outpatient surgery outmigration pool from which ESC could draw patients.

vii. ESC's Capture of Outmigration

ESC's estimations of the percentage of outmigrating patients it intends to capture vary widely.(6) Consequently, DHEC concluded it was unable to determine a supporting basis for the percentage of capture of outmigrating patients. See R. at 1018:5-9 (Testimony by Mr. Frishman about ESC's projected capture rate: "I even today don't know where those numbers came from.") Accordingly, ESC's estimate that it will capture 20% of the outmigration pool has not been proven by the persuasive evidence of this case.

However, even assuming a 20% capture rate which would yield 1,100 outmigrating patients, ESC's projected outmigration volume of 5,500 persons is the product of multiplying three erroneous factors, each of which has not been proven by the facts of this case. The three erroneous factors are: (1) a service area population of 143,000; (2) a use rate of 78.9 per 1,000; and (3) an outmigration rate of 48.5%. Given the fact that the evidence does not establish these factors, I find that ESC's projected outmigration volume of 5,500 persons is in error. Further, since ESC's projected volume of 1,100 patients captured from the outmigration pool is based on two unreasonable and inflated factors (total outmigration volume of 5,500 and a capture rate of 20%), I find that ESC's projection of 1,100 is not proven and that ESC's likely impact upon outmigration would be insubstantial.

c. Operating Room Use

ESC asserts the high use of TRMC's operating rooms is a primary reasons that a surgery center is needed. However, the use at TRMC is not so great as to warrant a new surgery center.

TRMC has a surgery suite consisting of nine operating rooms. Since TRMC operates a hospital-based outpatient surgery program, the operating rooms, as is the common practice for other hospitals, are used for both inpatient and outpatient surgery. While Operating Rooms 1, 2, 3, 4, and 5 are general operating rooms where any type of surgical procedures can be performed, several of TRMC's operating rooms have primary uses for speciality procedures.

For example, at the request of the surgeons, TRMC's Operating Room 9, referred to as the "Eye Room," is used primarily for ophthalmic surgery. While such use is the primary use, any kind of surgical procedure can be performed in Room 9. In addition, at the request of TRMC urologists, Operating Rooms 7 and 8 are used primarily for cystoscopies. These rooms contain specialized cystoscopy tables and drains that limit the types of surgical procedures that can be performed. However, the specialized tables could be removed and the drains covered is as little as 24 hours after which any kind of surgical procedure could be performed. Finally, at the request of TRMC's orthopedic surgeons, Operating Room 6 is used primarily for orthopedic surgery. Again, however, any type of surgical procedure can be performed in Room 6.

Mondays through Fridays, TRMC staffs its operating rooms in two shifts. During the first shift, from 7:30 a.m. to 3:30 p.m., all nine rooms are staffed and available for surgery. Due to lack of demand, however, surgeries are ordinarily scheduled during first shift in only six to eight operating rooms. Again due to lack of demand, during second shift, from 3:30 p.m. to 7:30 p.m., only two rooms are staffed and available. Although surgeries are ordinarily scheduled only Mondays through Fridays during these two shifts, the operating rooms are available at all other time in case of emergencies.

During the first shift, each of the nine operating rooms is assigned its own team of staff with each team beginning work at 7:00 a.m. A team takes approximately fifteen minutes to set up an operating room. Thus, all nine operating rooms are ready by approximately 7:15 a.m. Monday through Friday. Patients are brought into the operating rooms at 7:30 a.m.

Having established the operating rooms hours and days of availability, the use of the operating rooms must be examined. This factor is a significant determination in this case. A proper means of calculating use relies upon the following formula: Used time ÷ Available Time = Use Percentage. TRMC Exhibit 14.

For the first shift calculation, available time is determined by multiplying eight hours (7:30 a.m. to 3:30 p.m.) by the number of days in a month that the operating rooms are open (excluding weekends and holidays) by 60 minutes per hour by nine rooms. In calculating the second shift use, available time is determined in the same manner except that four hours (3:30 p.m. to 7:30 p.m.) are used instead of eight and two rooms instead of nine.

For both the first and second shift use analyses, used time is calculated by adding the actual times that patients spent in each operating room. Time spent in each operating room is found by use of intra-operative nurses' notes. To this sum is added fifteen minutes per procedure to account for turnover time.

Turnover time is the time elapsed between a patient leaving an operating room and the next patient arriving. For purposes of calculating use, such a definition is more reasonable than a definition based upon the surgeon's arrival and departure from an operating room. Use of a surgeon's arrival and departure from an operating room is not a proper measure of turnover time since an operating room is used to care for a surgical patient both before the surgeon arrives and after the surgeon leaves.

Further, the most persuasive evidence shows that a fifteen minute turnover period is very conservative. Ms. Garcia conducted a study of TRMC's actual turnover time. She reviewed computerized printouts derived from intra-operative nurses' notes showing the actual turnover time for four sample months of December 1995, June 1996, January 1997, and June 1997. The average turnover times derived from Ms. Garcia's review of 100% of the cases from the four sample months were as follows:

December 1995 12.08 minutes
June 1996 12.2 minutes
January 1997 12.1 minutes
June 1997 9.95 minutes


Thus, a fifteen minute average turnover time is both reasonable and conservative.

Having assembled all of the data for a use determination, the final step is making the calculation. When applied to TRMC's operating rooms from April 1996 through March 1997, TRMC's operating room use is 50.9% for the first shift and 37.6% for the second shift. See TRMC Exh. 14-18. Accordingly, under the facts of this case, I find that TRMC's operating room use is 50.9% for the first shift and 37.6% for the second shift.

This conclusion is further supported by testimony from both DHEC and ESC witnesses. DHEC official Jeffrey D. Murrell conducted an analysis of TRMC's use for the first shift that considered operating room and endoscopy room use together. In this study, Mr. Murrell relied upon the reasonable assumption that TRMC could perform six surgical cases per room per day. Mr. Murrell concluded that TRMC's operating room and endoscopy room use for 1996 was 58%. Further, Mr. Mural and his supervisor, Leon B. Frishman, made an on-site visit to TRMC on April 22, 1997, at approximately 1:30 p.m. At that time they observed only one operating room in use. They arranged to have between ten to twenty operating room schedules pulled at random. These schedules indicate that fewer than nine operating rooms are ordinarily scheduled during first shift and that by noon each day all scheduled surgeries for three or four rooms are completed.

Finally, ESC's testimony does not present persuasive evidence sufficient to dismiss the use rates of 50.9% for first shift and 38.7% for second shift. For example, ESC's expert in demography, John Ruoff, conducted an analysis of TRMC's first shift operating room use. Dr. Ruoff estimated that for 1996 TRMC's use was 53.3% and for 1997 58.6%. While slightly higher than the 50.9%, even the use of Dr. Ruoff's conclusion does not demonstrate that the TRMC operating rooms are at or even near capacity. Likewise, ESC's Dr. Scott Sweazy did not present persuasive testimony on the use question. He testified that he had conducted an analysis of his own practices over a three-month period. Dr. Sweazy's study did not, however, analyze or even consider the use of any of TRMC's operating rooms. Instead, it simply compared Dr. Sweazy's weekly reserved block time with the time he personally spent at TRMC, including lunch and break time.

Based upon the persuasive evidence of this case, I find that the present use of TRMC's operating rooms is 50.9% for the first shift and 38.7% for the second shift. Further, expansion of outpatient surgery services is justified when a provider's use reaches 75-80% of its capacity. Accordingly, TRMC's operating room use rate of 50.9% for the first shift and 38.7% for the second shift does not indicate a need for an additional outpatient surgery facility.

d. Endoscopy Use

ESC also argues the endoscopy rooms are used to a high degree at TRMC and thus a new surgery center is warranted. Again the degree of use does not justify a new surgery center.

While endoscopies can be performed in a physician's office or in an inpatient hospital room, such procedures are also performed in a hospital operating room. TRMC now has three rooms specifically designated for endoscopies, but three rooms have not always been in place. From April 1996 through November 1996 TRMC had only two endoscopy rooms. In December 1996 a third endoscopy room was added at the request of the surgeons.

TRMC's Endoscopy Room 3 is 186 square feet. The room is smaller than the other two endoscopy rooms, but larger than a typical inpatient room at TRMC. All three of TRMC's endoscopy rooms have door widths of 48 inches, wide enough to enter the rooms with a "crash cart" containing emergency equipment, and all three are sufficiently large to provide emergency services to patients.

Based upon time periods after the third endoscopy room was added, use of the rooms is expressed in the following table:

December 1996 50.4%
January 1997 49.7%
February 1997 55.6%
March 1997 56.7%


These percentages result from dividing used time by available time. Available time is determined by multiplying the number of days per month the rooms were open (excluding weekends and holidays), times 7.5 hours per day (7:30 a.m. to 3:00 p.m.), times 60 minutes per hour, times the number of rooms (three). Used time is calculated by multiplying the number of endoscopies performed times 60 minutes per procedure. Sixty minutes is a reasonable estimate of the average time for an endoscopy, including turnover time.

Thus, based upon the persuasive evidence in this case, I find that TRMC's current use of endoscopy rooms ranges from 50 to 57% and that such a use rate is far below TRMC's capacity. Such a use rate does not indicate a need for an additional facility.

e. Delays, Congestion, and Scheduling

Delays, congestion, and scheduling difficulties are asserted by ESC as basis for a new facility in Orangeburg. However, the evidence from the records of TRMC demonstrates the level of delay, congestion, or scheduling difficulties is not sufficient to create a cause for a new facility.

The Surgical Services Committee is a committee of TRMC's medical staff whose function is to supply input from surgeons and anesthesiologists relative to operating room issues. The Surgical Services Committee approved for implementation a Quality Assurance Sheet ("QA Sheet") developed by TRMC's then Director of Surgical Services, Sandra Garcia. The QA Sheets were designed to determine where delays occurred within the surgical area and the reasons for the delays. QA Sheets were completed by the circulator, a registered nurse in the operating room during a procedure. Surgeons and anesthesiologists did not routinely sign the QA sheets, although they were encouraged to do so by the Surgical Services Committee.

Here, the evidence shows an examination of QA Sheets from March 1996 through February 1997 in order to calculate the causes of surgical delays. Fifty-one percent of scheduled surgeries went forward "on time"--defined as within five minutes of the scheduled start time. TRMC Exh. 19-20. Twenty-nine percent of surgeries were "early"; i.e., they started more than five minutes ahead of their scheduled start time. Only 20% were "late"; i.e., they started later than five minutes after their scheduled start time. TRMC Exh. 19-20. Of the cases that were "late," only four percent were delayed because of the hospital. Eighty-eight percent of the delays, however, were caused by surgeons. TRMC Exh. 19-20.

The conclusion that of the "late" cases only four percent were delayed because of the hospital and eighty-eight percent were caused by surgeons is not persuasively refuted by ESC. Rather, ESC presented no documentation of the number of surgical delays or their causes. Rather, ESC physician- investors testified that surgical delays at TRMC have many causes. Those causes included surgeon delays, anesthesiologist delays, administrative delays, patient delays, nursing delays, lab delays, equipment delays, and delays caused by patients' families. Indeed, ESC's Dr. Fulton Casper testified that "most of the major problems" with delays "have been 75 or 80% corrected." R. at 180:15-16. Accordingly, the number of delays at TRMC's surgical suite do not indicate that TRMC's surgical program is near capacity or that need exists for a new facility, especially since the great majority of such delays are caused by surgeons.

Likewise, no significant degree of congestion exists to warrant the need for a new facility. TRMC's waiting area for its surgery unit is adequate with its current use of sixty-four chairs. Likewise, TRMC's sixteen-bed Same Day Surgery unit (SDS) is not a significant source of congestion.

The SDS has two purposes. First, it is the area where some patients are prepared for surgery. Second, it functions as a post-operative recovery area for some patients. However, inpatients scheduled for surgery do not go through SDS. Those patients are taken directly to the operating room from their own hospital room or from the emergency room.

Further, ordinarily only after surgery are cystoscopy patients, ophthalmic surgery patients, and other local procedures surgical patients taken to SDS. All other surgical patients are taken to the fifteen-bed Recovery Room. For those outpatients who are received in the Recovery Room, the patient is either discharged or taken to SDS; however, an inpatient received in the Recovery Room is taken directly to a hospital room. When an outpatient leaves the Recovery Room he or she is either discharged or taken to SDS.

Potential congestion can be remedied by existing means in several ways without building additional space. For example, space exists in the vicinity of SDS that could be converted, if necessary, into additional waiting or recovery areas. Surgical start times could be moved to thirty minutes earlier. TRMC could open additional rooms during both of its shifts. Elective surgeries could be scheduled for Saturday mornings. Surgeries could be scheduled later in the day. Pain clinic patients currently served in the SDS area as a convenience to anesthesiologists could be served in other areas of TRMC. Patients scheduled for special non-surgical procedures, such as cardiac catheterizations, that are not performed in the operating rooms, but currently served in SDS, could be served in other areas of TRMC. In short, under all of the above no significant degree of congestion exists to warrant the need for a new facility.

Finally, scheduling of surgery is not a basis for finding a need for a new surgery center. TRMC schedules surgeries in accordance with "block time" and "open time." Block time is time reserved for a particular surgeon or group of surgeons. Open time is non-reserved time. The Surgical Services Committee grants or denies requests by surgeons for block time. Since open time is not reserved for any particular surgeon or group, any surgeon can schedule surgery during open time. Open time use from October 1996 through March 1997 ranged from 5.1 to 13.5%. TRMC Exh. 21. Thus, scheduling of surgery can be coordinated so as to accommodate patients and surgeons.

f. Patient Convenience and Efficiency

While presented as a reason for supporting a need for a new facility, ESC offered no documentation showing patients are inconvenienced by the use of TRMC's existing facilities. In fact, responses by surgical patients recorded in TRMC's patient satisfaction surveys have been generally positive. Accordingly, patient convenience and efficiency is not a basis for justifying ESC's surgery center.

g. TRMC's Indigent Policy

In the past TRMC required financial deposits from indigent patients desiring elective surgery. No deposits were required for any patients desiring urgent or emergent surgery. As conceded by ESC's Dr. Gary Delaney, TRMC's former policy requiring deposits for elective surgery was reasonable and is the policy used by his own practice and by most surgeons. However, due to confusion concerning the distinctions between elective, urgent, and emergent surgeries, TRMC recently changed its indigent policy so that no deposits are required of any patients for any type of surgery. Such a decision is a management choice that is reasonable and appropriate. Accordingly, neither TRMC's past or present indigent policy indicates a need for a new ambulatory surgery center.

h. Costs to Patients

ESC suggest that its facility will provide a lower cost to patients for services rendered. The evidence in this case does not support such a position.

According to ESC's application, its charge (gross revenue) per case during its first year of operation would be $2,260. TRMC's current charge (gross revenue) per case is $1,950, sixteen percent lower than ESC's. Adjusting for a time frame difference of 1.5 years and assuming a five percent annual trend-forward factor, TRMC's charge per case is $2,099, eight percent lower than ESC's. Additionally, according to ESC's application, its net revenue per case during its first year of operation would be $1,269. TRMC's current net revenue per case is $1,053, which is 21% lower than ESC's. Adjusting for a time frame difference of 1.5 years and assuming an annual trend-forward factor of five percent, TRMC's net revenue per case is approximately $1,133, twelve percent lower than ESC's. Finally, ESC's projected cost per procedure in year 2000 is $1,083 while TRMC's estimated cost per procedure in year 2000 is $1,003, eight percent lower than ESC's. I therefore find that ESC's proposed costs and charges are higher than TRMC's and that TRMC's costs and charges do not justify ESC's proposed facility.

i. Staffing and Equipment Issues

ESC suggests that staffing and equipment deficiencies at TRMC support a need for a new surgery center. I cannot agree.

Recent surveys of TRMC by the Joint Commission of Accreditation of Health Care Organizations (JCHCO) found no deficiencies with respect to the operation of TRMC's surgical facilities. During Ms. Garcia's period as TRMC's Director of Surgical Services, TRMC retained approximately forty-one registered nurse FTEs for all SDS, endoscopy, operating room, and recovery rooms. During the same period TRMC employed approximately 13 technicians for the operating rooms and approximately 4 technicians for endoscopy. This represents a sufficient quantity of staff.

The staff is well qualified for the functions they perform. All registered nurses, whether permanent or temporary, hired by TRMC are registered by the State of South Carolina. Of all the areas of nursing at TRMC, surgical services is the area that pays the highest salaries and has the most longevity. As for technicians, two types of surgical technicians are hired by TRMC: certified surgical technicians (CSTs), who are certified; and operating room technicians (ORTs), who are not. ORTs are trained both in the classroom and by on-the-job experience. The quality level between TRMC's CSTs and ORTs is very comparable. The ratio of CSTs to ORTs employed by TRMC is similar to that at other hospitals. Finally, ESC's Dr. Richardson testified that TRMC's technicians "do their job extremely well is the only way to put it." R. at 542:21-22.

As for equipment, during the period that Mr. Dandridge has been Chief Executive Officer, he cannot recall a surgeon having ever requested a piece of equipment that TRMC has not provided. ESC's Dr. Fulton Gasper testified that the ophthalmic equipment provided him by TRMC has been "top notch." Additionally, ESC's Dr. Scott Sweazy also testified that he was satisfied with the equipment provided him by TRMC.

Finally, as to the staffing and equipment matter, ESC's Dr. Sweazy testified that the overall quality of care provided at TRMC was comparable to that provided by other hospitals at which he has practiced. ESC's Dr. Richardson testified, "I think only one thing, that the quality of care is superb." R. at 542:13-14. Thus, ESC has failed to present evidence related to staffing or equipment issues that indicates a need for a new facility.

3. Conclusions of Law

Having established the facts of this issue concerning a need for ESC's facility, ESC is entitled to obtain a CON only if the facts as established above are consistent with the law governing the granting of CONs. In essence ESC argues two positions. First, certain unconstitutionally vague terms must be removed from the State Health Plan. Second, once the vague terms are removed, ESC meets the requirements for need expressed in the State Health Plan.

I cannot agree with ESC's positions. First, the terms relevant to this case which ESC argues are vague are not vague and are not required to be stricken. Second, when the applicable provisions of the State Health Plan are applied, ESC is not entitled to a CON.

a. Vagueness

As to the State Health Plan, only Standards 1 and 4 are in issue. ESC argues the terms "unnecessary duplication," "utilization," "capacity," "need," and "adverse or negative impact" are unconstitutionally vague. Nowhere within Standards 1 and 4 are the terms "unnecessary duplication," "utilization," "adverse or negative impact," or "capacity" employed. Whether these four terms are unconstitutionally vague need not be addressed here since those terms are not within the standards of the State Health Plan relied upon by this order to deny ESC's application for a CON.(7) See Hampton v. Dobson, 240 S.C. 532, 544, 126 S.E.2d 564, 570 (1962) (a court will not pass upon the constitutionality of a matter unless necessary to the decision).

Here, the denial basis as to need is ESC's failure to satisfy Standards 1 and 4 of the State Health Plan (and correspondingly criteria 802.1). The term "need" is found in Standard 1 of the SHP and is attacked by ESC as being unconstitutionally vague.(8) Since that term is utilized as a part of the basis denying ESC's application, "need" is reviewed for vagueness.

Vagueness rests on the constitutional principle that procedural due process requires proper standards for adjudication. City of Beaufort v. Baker, 315 S.C. 146, 152, 432 S.E.2d 470, 473 (1993). In examining whether the State Health Plan and Regs. 61-15's use of the term "need" conveys a proper standard, it is important to recognize that when the persons affected by the language called into question "constitute a select group with a specialized understanding of the subject being regulated, the degree of definiteness required to satisfy due process is measured by the common understanding and knowledge of the group." Huber v. South Carolina State Bd. of Physical Therapy Examiners, 316 S.C. 24, 446 S.E.2d 433 (1994). Here, ESC is composed of twenty-eight physicians who are knowledgeable in the area of health care.

Further, in deciding if the standard employed is vague, a single test is most revealing. That test is the practical criterion of deciding whether fair notice is given to those to whom the law applies. Toussaint v. State Bd. of Medical Examiners, 303 S.C. 316, 400 S.E.2d 488 (1991).

Whether fair notice is given will vary depending upon the circumstance of the language under review. For example, fair notice may be accomplished merely from the face of the language under review. See Home Health Service, Inc. v. South Carolina Tax Com'n, 312 S.C. 324, 440 S.E.2d 375 (1994) (use of term "player" was not unconstitutionally vague since, on its face, the definition of a player was not unclear). On the other hand, fair notice is absent when the standard gives rise to arbitrary conclusions. See Peterson Outdoor Advertising v. City of Myrtle Beach, 327 S.C. 230, 489 S.E.2d 630 (1997) (zoning decision was an arbitrary decision since the standard relied upon was so indistinct as to be "extremely subjective and lack definiteness").

Here, the term "need" is not unconstitutionally vague. The ESC physicians are knowledgeable in health care. Thus, the degree of definiteness need only be one appropriate to informed health care providers such as the ESC physicians. As to fair notice for such a group, common dictionaries define need as "a condition or situation in which something necessary or desirable is required or wanted." The American Heritage College Dictionary 878 (New College Edition 1979). Certainly, that language does not confuse nor allow arbitrary decisions. Such is especially true since the State Health Plan for Standard 1, on its face, informs such knowledgeable parties that need is examined by considering resources already in the community along with a demonstration of why those resources cannot meet the demand being asserted. SHP II-77. The term "need" is not vague.





b. ESC's Compliance With the State Health Plan

Having not stricken any part of the State Health Plan as vague, the issue becomes one of deciding if ESC has met the law governing CON requirements. The beginning point of the law governing CON's is the State Certification of Need and Health Facility Licensure Act (Licensure Act) which provides the framework for obtaining a CON. See S.C. Code Ann. § 44-7-110 et seq. (Supp. 1997). To assure proper compliance with the Licensure Act, DHEC is charged with "control and administration of the granting of [CONs.]"

"Control and administration" by DHEC requires completing at least two tasks. First, DHEC must promulgate Project Review Criteria. S.C. Code Ann. § 44-7-190 (Supp. 1997). The Project Review Criteria are found in S.C. Code Regs. 61-15, Chapter 8, with those criteria used to review all projects seeking a CON. § 801 et. seq.

Second, DHEC is also mandated to prepare a State Health Plan. See S.C. Code Ann. § 44-7-120(3) (Supp. 1997). The State Health Plan, upon approval by the Health Planning Committee and final adoption by the Board of DHEC, must be used "in the administration of the [CON] Program provided for in [Article 3 of Chapter 7 of Title 44]." S.C. Code Ann. § 44-7-180.

Thus, S.C. Code Regs. 61-15 and the State Health Plan provide the basis upon which decisions to grant or deny a CON application are made. See S.C. Code Ann. § 44-7-210 (Supp. 1997) (DHEC may not issue a CON unless an application complies with the State Health Plan, Project Review Criteria, and other regulations). Appropriately, S.C. Code Regs. 61-15 at § 802.1 holds that an application will not be approved unless "it is in compliance with the State Health Plan." Thus, the provisions of S.C. Code Regs. 61-15 are linked to the State Health Plan.

Here, ESC failed to meet the requirements of the State Health Plan in that Standard 1 and Standard 4 were not satisfied. Concomitantly, ESC failed to meet S.C. Code Regs. 61-15 at § 802.1.

As explained in the Findings of Fact, ESC has failed to comply with Standard 1 in that it has failed to document: (a) a need for its proposed facility; and (b) why TRMC's outpatient surgery program is not adequate to meet the needs of the community. Second, as also explained in the Findings of Fact, ESC has failed to comply with Standard 4 in that it has failed to document where the potential patients for the facility will come from. Rather, ESC's undocumented assertion that a third of its patients will come from the current outmigration pool rests on a series of false assumptions which are not proven by the facts of this case. Having failed to satisfy the State Health Plan and S.C. Code Regs. 61-15 at § 802.1, ESC is not entitled to a CON.

B. Adverse Impact Upon TRMC

1. Positions of Parties

The second controlling issue in this case is evaluating the adverse impact upon TRMC from granting ESC's application. First, ESC argues several terms employed in S.C. Code Regs. 61-15 are unconstitutionally vague and should not be applied to ESC's application. Second, ESC contends that its proposed facility would have a minimal impact upon TRMC, in large part, because a third of ESC's patients would be captured from the outmigration pool. DHEC and TRMC contend that ESC would have a substantial adverse impact upon TRMC. They believe ESC would capture a relatively small volume of persons from the outmigration pool. Consequently, most of ESC's patients would be persons who would otherwise undergo outpatient surgery at TRMC. TRMC further contends that ESC has significantly understated the number of cases it would perform in an effort to give the appearance that its impact upon TRMC would be insubstantial.

2. Findings of Fact

I find by a preponderance of evidence the following facts:

a. Outmigration

The impact upon TRMC cannot be judged without considering the extent to which ESC will capture patients who are not currently using the services of TRMC, i.e., those patients who outmigrate. The Findings of Fact identified in the "Need" issue of this case demonstrate that ESC will have an insubstantial effect upon the outmigration. Thus, the great majority of ESC's patients would be persons who otherwise would choose to have outpatient surgery at TRMC.

b. ESC's Volume Projections

In its application, ESC projected it would perform 2,600 cases in year 2000. DHEC Record at 55. However, because of the issue of adverse impact upon TRMC, ESC has a strong incentive to understate volume projections in its application. More revealing data is in ESC's internal forecasts which were made prior to the filing of the application. There ESC projected it would perform well over 2,600 cases. See TRMC Exh. 30 (6,355 cases projected); TRMC Exh. 39 (6,355 cases projected); TRMC Exh. 50 (5,455 cases projected).

A major difference between ESC's pre-application projections and the projection made within its application involves the consideration of endoscopies and cystoscopies. No healthcare planning justification exists for excluding endoscopies or cystoscopies from the types of procedures ESC would perform. Indeed, ESC's new facility would have the capacity and financial incentive to perform endoscopies and cystoscopies since "[e]ndoscopy is normally a profitable procedure so it should add to income." M. Richardson Pre-Filed at 11.

Additionally, endoscopies and cystoscopies comprise a significant portion of the practices of some ESC physician investors. ESC's Dr. Sweazy fully expects ESC to perform cystoscopies. Dr. Sweazy even suggested that he would not be a part of ESC unless cystoscopies were performed. ESC's Dr. Gary Delaney expects ESC will perform endoscopies and cystoscopies.

Further, the project description in ESC's application states unequivocally that it will perform endoscopies. DHEC Record at 15. ESC's application provides for four operating rooms with two of the rooms for general operating while the other two will be used for endoscopies and cystoscopies. DHEC Record at 41-42. Even during the DHEC review period itself, ESC confirmed it would perform endoscopies. DHEC Record at 93. As late as September 16, 1996, one week before filing its application, in a forecast of projected cases, ESC projected it would perform 2,600 endoscopies, 1,000 cystoscopies, and 2,755 other surgical cases, for a total of 6,355. TRMC Exh. 30. Additionally, in its supplemental answer to TRMC's Interrogatory 3, dated January 27, 1998, ESC demonstrated that its 2,600 projected cases is the sum of the projected procedures in different surgical categories (cataracts, septoplasty, etc. but did not include endoscopies or cystoscopies) TRMC Exh. 26.

ESC's consultant, Lynn Bailey, testified that the projections for the individual categories were rough estimates subject to wide fluctuation. Ms. Bailey testified that ESC has not yet determined whether it will perform any endoscopies or cystoscopies. R. at 316:2-25. Obviously, inclusion of endoscopies and cystoscopies would increase ESC's case volume and heighten the adverse impact of the new facility on TRMC.

c. ESC's Impact on TRMC's Use of Facilities

Because most of ESC's patients would be persons who otherwise would receive surgical services from TRMC, the effect of ESC on TRMC's facility use would be to drive that use substantially lower than its present rate of 50.9%. By ESC's third year of operation, TRMC's patient volume loss to ESC would likely range from 2,190 to 3,798 patients annually. M. Richardson Pre-Filed at 15. As a result, TRMC's facility use would fall to between 34 to 43% after three years of operation by ESC. That loss is demonstrated by the following chart showing the decrease in use after three years of operation by ESC:

EFFECT OF ESC ON TRMC FACILITY USE BY

YEAR THREE
TRMC Projected Surgery Volume(9) 10,254 10,254 10,254
TRMC Patient Volume Loss to ESC(10) 2,190 2,980 3,798
TRMC Total 8,064 7,274 6,456
TRMC Capacity(11) 18,720 18,720 18,720
Use Pct. 43% 38% 34%


d. ESC's Financial Impact on TRMC

Two models were presented that evaluated the financial impact the proposed facility would have on TRMC. The first model (the Variable Model) was based on the reasonable assumption that ESC physicians would refer to ESC commercially insured or non-governmental insured patients more frequently than they would refer Medicare and Medicaid patients. All other assumptions upon which the Variable Model is based are reasonable, as well. The Variable Model projects that ESC's new facility would result in an annual reduction in TRMC's net income ranging from $2.15 to $3.77 million with the most reasonable projection of TRMC's annual net income reduction being $3.1 million.

The second model (the Constant Model) assumes that ESC physicians would refer patients to ESC at a constant rate without regard to patient health insurance coverage. All other assumptions upon which the Constant Model is based are reasonable. The Constant Model projects an annual net income reduction for TRMC ranging from $1.6 million to $2.7 million with the most reasonable projection under the Constant Model being $2.7 million.

In opposition to such projections, ESC failed to present any documentation analyzing the financial impact of its proposed facility upon TRMC. Rather, ESC based its assertion that its facility would have a minimal financial impact on TRMC on the incorrect assumption that a significant number of ESC patients would be drawn from the outmigration pool.

Considering the evidence as a whole, the most reasonable estimate of TRMC's annual net income reduction due to the proposed facility falls within a range of between $2.7 million and $3.1 million. Such a reduction would be a substantial negative impact upon TRMC.

3. Conclusions of Law

Having established the facts relevant to the issue of what impact ESC's facility will have upon TRMC, ESC argues (in virtually the same manner as it did in the need issue) that unconstitutionally vague terms must be removed from Regs. 61-15 and that ESC meets the requirements for a CON. I cannot agree with either position.

a. Vagueness

Here, ESC argues the following terms are unconstitutionally vague: "unnecessary duplication," "utilization," "capacity," and "adverse or negative impact." However, not all of these terms are involved in the specific factors used in this decision to deny the CON. This order relies upon 802.3(h) and 802.23(a).(12)

Nowhere within 802.3(h) or 802.23(a) are the terms "unnecessary duplication," "utilization," or "capacity" employed. Again, just as with the need analysis, whether these three terms are unconstitutionally vague need not be addressed here since those terms are not within the criteria relied upon in this decision to deny ESC's application for a CON. See Hampton v. Dobson, 240 S.C. 532, 544, 126 S.E.2d 564, 570 (1962) (a court will not pass upon the constitutionality of a matter unless necessary to the decision). However, "negative impact" is a part of the language of both 802.3(h) and 802.23(a) and both criteria are relied upon in this order. Thus, "negative impact" is examined for vagueness.

The applicable law as to vagueness has been developed in the Conclusions of Law under the need analysis and does not require restatement here. Suffice it to say that the test for unconstitutional vagueness is the practical criterion of whether fair notice is given to those to whom the law applies. Toussaint v. State Bd. of Medical Examiners, 303 S.C. 316, 400 S.E.2d 488 (1991).

Here, fair notice of the meaning of "negative impact" is given to ESC. The phrase is readily understood from normal dictionary language. "Impact" is the effect of one thing on another. The American Heritage College Dictionary 658 (New College Edition 1979). "Negative" means to lack the quality of being positive or affirmative. The American Heritage College Dictionary 879 (New College Edition 1979). Thus, in deciding whether to grant or deny a CON, one is on notice that a factor for consideration is what effect the new facility will have upon the existing facility's ability and resources to serve under served groups. The thrust of that consideration is whether the new facility will have an effect that is not positive. These words are commonly understood and do not lead to confusion of application.

Further, the plain language of 802.3(h) places ESC on fair notice of what is required. The language provides guidance since it explains that the "negative impact" requires consideration of how the new facility will diminish the existing provider's resources or ability to serve medically under served groups. Similar guidance is given in 802.23(a). There, the term "impact" is directed to deciding what effect a new facility will have "on the current and projected occupancy rates or use rates of existing facilities" which (when determined) "should be weighed against the increased accessibility offered by the proposed services." Such guidance is meaningful and prevents decision makers from arriving at arbitrary conclusions. Cf. Peterson Outdoor Advertising v. City of Myrtle Beach, 327 S.C. 230, 489 S.E.2d 630 (1997) (where zoning decision was arbitrary due to standards that were "extremely subjective and lack[ed] definiteness").

The plain language of 802.3(h) and 802.23(a) gives fair notice to ESC of what is required. Accordingly, the term "negative impact" does not violate due process due to vagueness. Toussaint v. State Bd. of Medical Examiners, 303 S.C. 316, 400 S.E.2d 488 (1991).

b. Compliance With Regs. 61-15

Having found no language of 802.3(h) or 802.23(a) vague, the issue is whether ESC's facility is consistent with the law governing the granting of CONs. Obviously, a part of that law requires consistency with the Project Review Criteria found in S.C. Code Regs. 61-15, § 801 et. seq. However, approval does not depend upon satisfying every criteria. S.C. Code Regs. 61-15, § 801.3. Rather, in denying or approving a request, DHEC is authorized to select the relative importance of the criteria to be used, and DHEC often does not employ all criteria. See S.C. Code Regs. 61-15, § 801.2. Satisfying the selected criteria is critical since a project may be denied if it does not sufficiently meet one or more. See § 801.3 (emphasis added).

Here, based upon the facts established under the Findings of Fact, ESC failed to meet the requirements of S.C. Code Regs. 61-15 at § 802.3(h). ESC sought to establish that TRMC would not be impacted in any significant way since (in ESC's view) TRMC was not serving ­ ­ at all ­ ­ the underserved community consisting of patients who outmigrate. However, under the facts proven, ESC's facility would not serve the outmigrating group in any significant degree. Rather, ESC would merely reduce the patients utilizing TRMC. Indeed, TRMC and DHEC established that the negative impact from ESC would be significant. Accordingly, ESC did not satisfy § 802.3(h).

Additionally, ESC failed to satisfy S.C. Code Regs. 61-15 at §802.23(a). ESC failed to show that ESC's substantial negative impact upon TRMC's patient use of its facility outweigh any increased accessibility offered by a new facility. Again, the facts demonstrate a drop in the use of TRMC's facility. Thus, having failed to satisfy these criteria, ESC is not entitled to a CON.

VI. Order


ESC's application for a Certificate of Need is denied.



AND IT IS SO ORDERED.

RAY N. STEVENS

Administrative Law Judge

Dated this 2nd day of July, 1998

Columbia, South Carolina

1. "Ambulatory surgery" and "outpatient surgery" are synonymous terms.

2. In other words, should the same survey be conducted 100 times, on 95 occasions the results would fall within five percent of this survey's results.

3. Of those surveyed 76% identified the reason for choosing outside facilities as physician-related. The 76% consists of thirty-five percent who chose to outmigrate because of a physician referral; nineteen percent because they sought better physicians; fifteen percent because the type of specialist needed was not in Orangeburg; and seven percent because their physician was located out of town. Schapiro Pre-Filed, Exh. D at 5.

4. As conceded by Ms. Bailey on cross examination, ESC incorrectly added the far right column to arrive at 143,000. Further, Ms. Bailey testified that she was uncertain which of two sets of population projections she relied upon in her formula. R. at 349:14 to 352:9. One set is from the United States Census Bureau (the "State Abstracts"), while the second is from the South Carolina Budget and Control Board (the "McFarland Projections"). R. at 349:14 to 350:9; TRMC Exh. 9. Ms. Bailey conceded that at her deposition she had expressed no hesitancy or equivocation in identifying the McFarland Projections as her source. R. at 352:7-9. At trial, however, Ms. Bailey testified that "to the best of my recollection" she relied upon the McFarland Data, but that she was not "100% positive." R. at 352:1-6.

Application of the McFarland Projections in Ms. Bailey's formula results in a year 2000 service area population of 111,021. Application of the State Abstracts results in a population of 115,221. Regardless, therefore, of which set of projections is used, ESC's projected service area population of 143,000 is a significant overstatement.

5. Upon cross examination, Ms. Bailey conceded that the outpatient surgery outmigration rate is not 48.5%, but "probably closer to 40" percent. R. at 363:9-12.

6. Its application estimates a 20% capture rate. R. at 364:8-25. At her February 26, 1998 deposition, Ms. Bailey reaffirmed a 20% capture rate. R. at 365:1-13. In her March 3, 1998 Pre-Filed Testimony, however, Ms. Bailey projected a 30-40% capture rate. Bailey Pre-Filed at 13; R. at 365:16 to 366:6. Three days later, at her March 6, 1998 deposition, Ms. Bailey estimated a capture rate of 20-43%. R. at 366:12 to 367:12.

7. While the term or phrase "adverse or negative impact" is not addressed here, that term is addressed in § 802.3(h) and 23(a) and will be examined for vagueness in the portion of this order identified as "Adverse Impact Upon TRMC"

8. Standard one of the SHP states the following: "The applicant must document a need for the expansion of or the addition of an ambulatory surgical facility. The existing resources must be considered and documentation presented as to why the existing resources are not adequate to meet the needs of the community."(emphasis added).

9. 9 Murrell Pre-Filed at 18, adjusted using 37% outmigration rate.

10. 10 DHEC Record at 322.

11. 11 Murrell Pre-Filed at 17.

12. Sec. 802.3(h) states: "Potential negative impact of the proposed project upon the ability and/or resources of existing providers to serve medically underserved groups must be considered." Sec. 802.23(a) states: "The impact on the current and projected occupancy rates or use rates of existing facilities and services should be weighed against the increased accessibility offered by the proposed services."


Brown Bldg.

 

 

 

 

 

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