SC Administrative Law Court Decisions

This matter is before me on a Motion to Dismiss (Motion) filed by the Department of Health and Environmental Control ("DHEC" or "Department") and joined in by Imaging Center of Aiken, L.L.C. ("ICA"). Aiken Regional Medical Center ("ARMC") opposes the Motion. The Motion was argued before me on February 25, 2000. Appearing on behalf of the parties were: (1) Nancy S. Layman, Esquire, for DHEC; (2) David A. Brown, Esquire, for ICA; (3) M. Elizabeth Crum, Esquire, for ARMC; and (4) Sara S. Rogers, Esquire, for ARMC. For the reasons set forth below, the Motion is denied.

I. FACTUAL BACKGROUND

In this proceeding, ARMC seeks administrative review by the Administrative Law Judge Division ("ALJD") of issuance by DHEC of a non-applicability determination (NA-99-37) to ICA for the development, construction and operation of an imaging center ("Imaging Project") providing, among other things, open magnetic resonance imaging (MRI) and spiral computed tomography scanning (CT) services in Aiken, South Carolina. ARMC is a corporation organized and existing pursuant to the laws of the State of South Carolina. ARMC operates an acute care hospital facility in Aiken and provides, among other things, full radiological services expressly including MRI and CT services to patients in its service area. ARMC and ICA operate in the same service area.

Prior to acquiring diagnostic or therapeutic medical equipment necessary to provide radiological services, a person or health care facility typically must submit to Certificate of Need ("CON") review by DHEC. S.C. Code Ann § 44-7-160(6) (Supp. 1999); 24A S.C. Code Regs. 61-15 § 102(1)(f) (Supp. 1999). Exceptions to this rule exist, however, that make the State's CON laws inapplicable to the proposed project of a person or health care facility. An example of an exception is a proposal of a person or health care facility to acquire its equipment for a total project cost of less than $600,000. On such occasions, DHEC will release a person or health care facility from CON review via a letter of non-applicability.

On March 8, 1999, ICA, asserting that it could acquire an open MRI and spiral CT scanner and construct a facility housing these machines for less than $600,000 for each machine, submitted a "Letter of Exemption" to DHEC requesting an exemption from the provisions of the State Certification of Need and Health Facility Licensure Act, S.C. Code Ann. §§ 44-7-110, et seq. (Supp. 1999) ("CON Act") for the Imaging Project in Aiken County. As part of its March 8, 1999 exemption request package for "a MRI and CT project," ICA wrote: "Jackson Radiology Associates will be opening an Outpatient Imaging Center to include Open MRI and Spiral CT Technology in Aiken, S.C. to enhance the group's presence in the area." As required by 24A S.C. Code Regs. 61-15 § 105 (Supp. 1999), ICA submitted certain cost information to DHEC in support of its request.

On April 8, 1999, DHEC issued NA-99-37 stating that the Imaging Center project did not meet the applicability requirements as stated in § 102(1) of R. 61-15, Certification of Need for Health Facilities and Services Development.

DHEC's NA-99-37 provided for ongoing oversight of the project. NA-99-37 required ICA to notify DHEC when the proposed project was begun and provided for continued DHEC project oversight until it was fully implemented. NA-99-37 further required ICA to submit to DHEC the following information upon implementation of the project: (1) an audited cost report that shows all expenditures on the approved project; (2) a registered architect's or engineer's signed statement of final construction costs; (3) an equipment listing and inventory for the project; (4) a program and/or service narrative describing the final project configuration; and (5) an explanation of any deviation from the approved application with justification, or a signed statement from the applicant that the project was implemented as outlined in the exemption request. NA-99-37 also set a six-month time period in which the proposed project had to be implemented or the non-applicability determination was void, and ICA would have to apply for another determination.

On December 17, 1999, ARMC filed its Petition for Administrative Review with the Clerk of the Board of DHEC. On December 21, 1999, DHEC transmitted the petition to the ALJD. On January 11, 2000, the Order for Prehearing Statements was issued, and Prehearing Statements were filed by ARMC on February 4, 2000; by DHEC on January 31, 2000; and by ICA on January 31, 2000. DHEC filed a Motion to Dismiss on January 18, 2000 on the following grounds:

1. Nothing in the Certificate of Need Law, the Administrative Procedures

Act or the South Carolina Constitution creates the right to appeal non-

applicability determinations made under 24A S.C. Code Ann. Regs. 61-15

§ 102(3) (Supp. 1999);

2. The ALJD's creation of a right to appeal a determination of non-applicability

also requires a determination of the constitutionality of 24A S.C. Code Ann.

Regs. 61-15 (Supp. 1999), and the ALJD has no authority to determine

issues of statutory constitutionality;

3. The Petitioner's appeal is untimely.

II. DISCUSSION

The provision of health care, specifically including medical equipment used for diagnosis and treatment, is a regulated industry in South Carolina. The CON Act is the comprehensive statutory scheme for regulation of designated health care services through the issuance of Certificates of Need and licensure of health facilities. The purpose of the CON Act is to "promote cost containment, prevent unnecessary duplication of health care facilities and services, guide the establishment of health facilities and services which will best serve public needs, and ensure that high quality services are provided in health facilities in this State." S.C. Code Ann. § 44-7-120 (Supp. 1999). "The department is designated the sole state agency for control and administration of the granting of Certificates of Need . . . and other activities necessary to be carried out under this article." S.C. Code Ann. § 44-7-140 (Supp. 1999) (emphasis added). DHEC decides whether CON applications should be granted or denied based on all applicable standards set forth in DHEC regulations, which include the Project Review Criteria and the State Health Plan. See S.C. Code Ann. § 44-7-210 (Supp. 1999).

DHEC has adopted regulations under the Administrative Procedures Act ("APA") to carry out its duties under the CON Act. The applicable regulations are found at 24A S.C. Code Ann. Regs. 61-15 (Supp. 1999) and 25 S.C. Code Ann. Regs. 61-72 (Supp. 1999). DHEC is required to make determinations as to whether the CON Act is applicable to the Imaging Project. With regard to applicability issues, R. 61-15, § 102(3) provides:

When any question exists, a potential applicant shall forward a letter requesting a formal determination by the Department as to the applicability of the certificate of need requirements to a particular project. Such a letter shall contain a detailed description of the project including the extent of modifications, changes in services and total costs. Additional information may be requested as may be reasonably necessary to make such applicability determination. The Department shall respond within sixty days of receipt of the necessary information.

24A S.C. Code Ann. Regs. 61-15, § 102(3) (Supp. 1999) (emphasis added).

The CON Act and its implementing regulations provide for administrative review of DHEC decisions regarding Certificates of Need, allowing an "affected person" to file an administrative appeal pursuant to the APA, S.C. Code Ann. §§ 1-23-10, et seq. (Supp. 1999), with review by the DHEC Board. See S.C. Code Ann. § 44-7-210 (Supp. 1999). An "affected person" is defined, among other things, as "persons located in the health service area in which the project is to be located and who provide similar services to the proposed project . . . ." S.C. Code Ann. § 44-7-130(1) (Supp. 1999). ARMC is an affected person under the CON Act.

DHEC's "Contested Case Procedures" apply to all DHEC proceedings in which the right to a hearing "(a) is provided by the Administrative Procedures Act; (b) is specifically required by other statutes or regulations; or (c) is required by due process under the South Carolina or United States Constitutions." 25 S.C. Code Ann. Regs. 61-72, § 102 (Supp. 1999).

A. The ALJD has Subject Matter Jurisdiction to Review

Non-applicability Determinations by DHEC

The ALJD has subject matter jurisdiction to review DHEC non-applicability determinations. Subject matter jurisdiction refers to the power of the ALJD to hear and determine cases of the general class to which the proceedings in question belong. See, e.g., Bardoon Properties, NV v. Eidolon, 326 S.C. 166, 485 S.E.2d 371 (1997). The question of subject matter jurisdiction is a question of law of the court. Woodard v. Westvaco Corp., 315 S.C. 329, 433 S.E.2d 890 (Ct. App. 1993), vacated on other grounds, 319 S.C. 240, 460 S.E.2d 392 (1995). Previously, in each of the times that this has been before it, the ALJD has ruled that it has subject matter jurisdiction to hear appeals from DHEC non-applicability determinations. See East Cooper Regional Medical Ctr. v. South Carolina Dep't. of Health and Envtl. Control, Docket No. 99-ALJ-07-0415-CC, Order dated December 21, 1999 (motions based on lack of standing because there was no private right injured, no right of appeal because the determination was not a decision and determination was ministerial and not judicial or quasi-judicial); ImageTrust Florence v. South Carolina Dep't. of Health and Envtl. Control, Docket No. 95-ALJ-07-0539-CC, Order dated October 12, 1995, (motion based on no right of appeal under the CON laws and DHEC regulations, lack of subject matter jurisdiction and standing); Physician Imaging Centers, Inc. v. South Carolina Dep't. of Health and Envtl. Control, Docket No. 95-ALJ-07-0540-CC, Interlocutory Order dated September 13, 1995, (motion based on lack of standing, failure to state a claim and lack of subject matter jurisdiction).

1. Jurisdiction Pursuant to S.C. Const. art. I, § 22

In denying the Motions to Dismiss in the three earlier non-applicability/exemption appeals, the ALJD has previously held, among other things:

Non-applicability decisions are subject to R. 61-72, which applies

to proceedings in which the right to a hearing is required by due process.

Appeals from R. 61-72 are governed by the APA and are to the ALJD.

Petitioners are entitled to due process under Art. 1, § 22 pursuant

to the South Carolina Supreme Court decisions in Stono River

Envtl. Protection Ass'n. v. South Carolina Dep't. of Health

and Envtl. Control, 305 S.C. 90, 406 S.E.2d 340 (1991),

and League of Women Voters v. Litchfield-by-the-Sea and S.C.

Coastal Council, 305 S.C. 424, 409 S.E.2d 378 (1991).

Petitioners had standing because their private rights were clearly

affected by the Department's non-applicability determination.

R. 61-15, § 102.3 requires the Department to make a specific

determination on non-applicability. The decision was quasi-

judicial and not ministerial.

"The South Carolina Supreme Court has determined that in certain

administrative agency matters, parties must be afforded due process

rights to review agency decisions that affect private rights whether or

not the decisions fell within the scope of R. 61-72 or the APA definition

of a contested case." ImageTrust, Order dated October 12, 1995, at 3.

Each of the above holdings is adopted herein.

The ALJD has subject matter jurisdiction pursuant to S.C. Const. art. I, § 22 and

the APA.

S.C. Const. art. I, § 22 provides, in relevant part, that "[n]o person shall be finally bound by a judicial or quasi-judicial decision of an administrative agency affecting private rights except on due notice and an opportunity to be heard . . . and he shall have in all instances the right to judicial review." Our Supreme Court found in both Stono River and League of Women Voters that public interest had sufficient private rights affected by the DHEC and Coastal Council decisions, respectively, to have standing to appeal the decisions and had the right to notice and an opportunity to be heard. ARMC has an even more direct private right than does a public interest group. DHEC argued that ARMC has no constitutional right to be free from competition. This might be a more relevant point if ARMC and ICA were operating in an unregulated market, but they are not. ARMC is a direct competitor of ICA. The State, through the CON Act and CON regulations, and the State Health Plan, determines whether certain facilities or services are needed, and absent DHEC approval, those facilities or services cannot legally be offered in this State. Having complied with these statutory and regulatory requirements in order to be allowed to provide imaging services in the Aiken area, ARMC clearly has an economic or property interest in being able to provide these services without competition from an entity that has not similarly complied with applicable requirements. ARMC's right to operate its MRI and CT equipment in South Carolina's regulated health care market is a private right affected by DHEC non-applicability determination that the Imaging Center is not subject to the requirements and public scrutiny of the CON Act.

Further, as the ALJD found in Physician Imaging, absent a review process for exemption determinations, there is the potential for injustice where by mistake, inadvertence, surprise, neglect, fraud, or misrepresentation, DHEC makes an erroneous and/or inequitable determination. The same is true for non-applicability determinations. Such a determination could prejudice not only the private rights of applicant (if a non-applicability determination is wrongfully or erroneously denied)

but also of other affected persons. As the Court of Appeals held in Smith v. South Carolina Department of Mental Health, 329 S.C. 485, 494 S.E.2d 630 (Ct. App. 1997):

Administrative agencies are required to meet minimum standards of due

process. S.C. Const. art. 1, Section 3; Stono River Envtl. Protection

Ass'n v. South Carolina Dep't of Health & Envtl. Control, 305 S.C. 90,

406 S.E.2d 340 (1991). In cases where important decisions turn on

questions of fact, due process at least requires an opportunity to

present favorable witnesses. See, e.g., Brown v. South Carolina State

Bd. of Educ., 301 S.C. 326, 391S.E.2d 866 (1990); Tall Tower, Inc.

v. South Carolina Procurement Review Panel, 294 S.C. 225, 363 S.E.2d

683 (1987).

Id., at 500, 363 S.E.2d at 638.

As discussed below, DHEC's decision whether to issue a non-applicability determination is totally dependent upon questions of fact. Petitioner has a due process right to be heard prior to the final agency determination.

DHEC's argument that ARMC must be "bound" in the sense of being directly subjected to a legal duty or obligation is not consistent with case law interpreting S.C. Const. art. I, § 22. In Stono River, the South Carolina Supreme Court held that two environmental organizations, the Stono River Environmental Protection Association and the Sierra Club, were entitled under S.C. Const. art. I, § 22 to due process protections in the issuance of a water quality certification for a marina located on the Stono River. These environmental organizations were not "bound" by the water quality certification in the narrow sense that DHEC is arguing in the present case. Similarly, in League of Women Voters, the Supreme Court held that the League of Women Voters was entitled to due process protections under S.C. Const. art. I, § 22 in a determination by the South Carolina Coastal Council regarding whether a sanitary sewer system to be constructed by a real estate development project was consistent with the South Carolina Coastal Zone Management Program. Again, the League of Women Voters was not "bound" by the consistency determination in the sense presently argued by DHEC. DHEC's narrow interpretation of S.C. Const. art. I, § 22 is contrary to case law interpreting this provision. The Supreme Court has adopted a much broader view of the applicability of S.C. Const. art. I, § 22, which comports with the purpose of the provision to ensure due process protections for the private rights of the citizens of this State.

As indicated in Stono River, a person is entitled to due process of either a judicial or quasi- judicial decision by an administrative agency. DHEC's non-applicability decision is quasi-judicial and not ministerial. In Redmond v. Lexington County Sch. Dist. No. Four, 314 S.C. 431, 445 S.E.2d 441, (1994), the Supreme Court ruled on which functions are ministerial and which functions are quasi-judicial and held:

The duty is ministerial when it is absolute, certain, and imperative, involving merely the execution of a specific duty arising from fixed and designated facts. It is ministerial if it is defined by law with such precision as to leaving nothing to the exercise of discretion. In contrast, a quasi-judicial duty requires the exercise of reason in the adaptation of means to an end, and discretion in determining how or whether the act shall be done or the course pursued.

Id. at 437-38, 445 S.E.2d at 445 (citations omitted).

DHEC's argument that its actions are merely ministerial is not supported by the wording of R. 61-15, § 102(3). The clear and unambiguous language of § 102(3) authorizes DHEC to use its discretion in applying the regulation because it provides that "[w]hen any question exists, a potential applicant shall forward a letter requesting a formal determination by the Department . . . ." (emphasis added). "Determination" is defined as the "act of making or arriving at a decision." The American Heritage Dictionary, (2d. College Ed. 1985). "Decision" is defined as "the passing of judgment on an issue under consideration."American Heritage Dictionary, (2d. College Ed. 1985). Words in a statute or regulation are interpreted in their common and ordinary meaning. Santee Cooper Resort v. South Carolina Pub. Serv. Comm'n., 298 S.C. 179, 379 S.E.2d 119 (1989).

Regulation 61-15, § 102(3) also requires the potential applicant to make a written request regarding applicability when any questions exist and requires the Department to make a formal determination. The applicant's request must contain a "detailed description of the project including the extent of modification, changes in services and total costs" and DHEC is authorized to request additional information. In order to make its formal determination, DHEC must exercise reason in applying the requirements of the CON Act to the non-applicability request to determine the course to pursue, i.e., to grant or not grant the request. The Department's "formal determination" is a quasi-judicial determination.

The superseding constitutional due process provisions or S.C. Const. art. I, § 22 confer the right on ARMC to some form of notice, an opportunity to be heard in a meaningful way and the right to judicial review.

2. Jurisdiction pursuant to the APA and

the CON Act and Regulations

In a case involving the interpretation of South Carolina law, the federal courts have said that "the general rule of administrative law [is] that a duly promulgated regulation has the force and effect of law and becomes an integral part of the enabling statute." Pritchett v. Lanier, 766 F. Supp. 442, 447 (D.S.C. 1991), aff'd. sub nom Pritchett v. Alford, 973 F.2d 307 (4th Cir. 1992) (citation omitted). DHEC's Contested Case Regulations "apply to all proceedings . . . in which the right to hearing . . . (c) is required by due process under the South Carolina or United States Constitutions." 25 S.C. Code Ann. Regs. 61-72, § 102. Regulation 61-72, § 101(A) defines an adjudicatory hearing as a "trial-type proceeding held before the Board of Health and Environmental Control or its designee as part of administrative review of a staff decision . . . ." The regulation does not restrict hearings under R. 61-72 to "contested case" hearings but requires the Board to hear "trial-type proceedings." The CON Act provides that the Board or its designee is authorized to hear a review from a Department decision. S.C. Code Ann. § 44-7-210(E) (Supp. 1999); see also R. 61-15, § 403. The statutory provisions establishing the Department provide that "[t]he board may conduct such hearings as may be required by law, as considered necessary by the board, and as necessary to hear appeals from decisions of administrative law judges pursuant to Chapter 23 of Title 1." S.C. Code Ann. § 44-1-50 (Supp. 1999). Section 44-1-50 authorized the Board to conduct such "hearings" as required by law and to hear "appeals from decisions" of the ALJD. There is no statutory limitation that these hearings be "contested case" hearings. The CON Act and R. 61-72 provide for an appeal of the DHEC non-applicability determination herein.

The ALJD has been statutorily authorized to preside over this appeal. Section 1-23-600(B) provides that "[a]n administrative law judge of the division shall preside over all hearings of contested cases as defined in Section 1-23-310 involving the departments of the executive branch of government in which a single hearing officer is authorized or permitted by law or regulation to hear and decide such cases . . . ." ALJD Rule 1 recognizes the jurisdiction of the ALJD to hear cases in which the right to a hearing "is required by due process under the South Carolina or United States Constitutions." ALJD Rule 1 was promulgated by the ALJD and approved by the legislature pursuant to S.C. Code 1-23-650 (Supp. 1999). The rule became effective April 28, 1998. As the note to the rule change states: "[t]he purpose of this amendment is to make these rules applicable to matters within the jurisdiction of the Division that are not contested cases under the Administrative Procedures Act but which are heard pursuant to a constitutional command for a hearing." The note cites Stono River, and League of Women Voters. This rule clearly establishes the ALJD's jurisdictional authority as applied in East Cooper, ImageTrust and Physician Imaging.

B. The ALJD has not Created a Right of Appeal nor Made

A Determination of Statutory Constitutionality

Duly promulgated regulations have the force and effect of law. The constitutionality of R. 61-15 is not at issue in this proceeding. ARMC is not arguing that R. 61-15 is unconstitutional because of lack of due process protections. See Brown v. South Carolina State Board of Education, 301 S.C. 326, 391 S.E.2d 866 (1990) (Supreme Court held unconstitutional a regulation of the State Board of Education because it did not provide for notice and an opportunity to be heard).

ARMC's argument is that it is entitled to due process under S.C. Const. art. I, § 22 with regard to the Department's non-applicability determinations. Respondents, ICA and DHEC, argue that by granting the right to appeal non-applicability determination cases pursuant to S.C. Const. art. I, § 22, the ALJD has created a due process right of appeal where the General Assembly did not create it. In fact, South Carolina Constitution and R. 61-72 have granted this due process right, not the ALJD. In Ross v. Medical Univ. of South Carolina, 328 S.C. 51, 492 S.E.2d 62 (1997), the Supreme Court held that S.C. Const. art. I, § 22 specifically guarantees the right to notice and an opportunity to be heard by an administrative agency prior to a final determination, even when a contested case under the APA is not involved. Then, in 1998 the Supreme Court reiterated its decision regarding the effect of S.C. Const. art. I, § 22.

While Withrow v. Larkin established the parameters of due process safeguards in administrative proceedings under the federal constitution, Article I, Section 22 of our constitution explicitly addresses procedural due process in such proceedings. Section 22 provides for notice, an opportunity to be heard, an impartial adjudicator, and judicial review. We have recognized that Section 22 is an additional guarantee of important due process rights, enacted in 1970 as legislators and judges noticed the increasing prevalence and influence of administrative agencies in daily life. See Ross v. Medical Univ. of South Carolina, 328 S.C. 51, 492 S.E.2d 62 (1997).

Garris v. Governing Board of the South Carolina Reinsurance Facility, 333 S.C. 432,

511 S.E.2d 48, 54 (1998) (emphasis added).

Section 102(3) of R. 61-15 requires a formal determination by DHEC, following submission by a potential CON applicant of detailed information, of the applicability of CON requirements to a particular project. R. 61-72 sets forth the procedural means for providing due process because it applies "to all proceedings . . . in which the right to hearing . . . (c) is required by due process under the South Carolina or United States Constitutions." 25 S.C. Code Ann. Regs. 61-72, § 102 (Supp. 1999). ALJD Rule 1 provides that the ALJD Rules apply to proceedings in which the right to a hearing is required by due process under the State or Federal Constitutions. The determination as to whether ARMC is being bound and its private rights affected by DHEC's non-applicability decision without due process is a matter of interpretation of law, not of making or creating a right of appeal that does not exist.

C. Timeliness of ARMC's Appeal

DHEC and ICA moved to dismiss ARMC's appeal as untimely. This determination involves factual issues outside the scope of the pleadings and may not be resolved on a Motion to Dismiss at this time.

ORDERIT IS THEREFORE ORDERED that the respective Motions to Dismiss of DHEC and ICA are denied.

IT IS FURTHER ORDERED that the parties may agree, without the intervention of this tribunal, to expand the scope of discovery beyond the boundaries of ALJD Rule 21, and in doing so, the parties shall endeavor in good faith to resolve all discovery disputes.

AND IT IS SO ORDERED.

_____________________________

C. DUKES SCOTT

ADMINISTRATIVE LAW JUDGE

May 9, 2000

Columbia, South Carolina