ORDERS:
(ii).InMed engaged E.F. Hucks & Associates, Inc. to do an appraisal on Unit C,
and the firm submitted an appraisal of the property to InMed on September 20, 2002. Hucks
determined the market value of Unit C as of September 18, 2002, to be $115,000. Hucks calculated
the market value using the sales comparison approach to be $115,000 and the market value under the
income approach, with a capitalization rate of 10%, to be $120,000. Pet’r Ex. #7.
(iii).On August 27, 2003, Cox, Beall & Associates, LLC, submitted an appraisal
to InMed, in which the firm determined that the market value of Unit C, as of August 18, 2003, was
$110,000. DHEC Ex. #3, at 24. Cox, Beall calculated the market value using the sales comparison
approach to be $115,000 and the market value using the income approach, with a capitalization rate
of 11%, to be $105,000. DHEC Ex. #3, at 52.
26.On October 1, 2002, InMed submitted its NAD application to DHEC using the Poster
appraisal that had been conducted for Grand Strand. InMed did not submit the September 20, 2002
Hucks appraisal to DHEC. On October 2, 2002, DHEC informed InMed that the Poster appraisal
was too old and required InMed to provide an updated appraisal on Unit C. DHEC Ex. #2, at 12.
27.On October 14, 2002, Mr. Poster provided InMed with a second appraisal, in which
he opined that the market value of Unit C, as of October 7, 2002, was $65,000. DHEC Ex. #2, at
34. In the appraisal, Mr. Poster calculated the market value using the sales comparison approach to
be $70,000 and the market value under the income approach to be $62,000. DHEC Ex. #2, at 33.
This appraisal was $500 less than his appraisal in July 2000. On November 22, 2002, InMed
submitted the second Poster appraisal to DHEC. DHEC Ex. #2, at 28-49.
28.InMed did not provide DHEC with the Hucks appraisal dated September 20, 2002,
or otherwise inform DHEC prior to the issuance of NA-02-53 that Hucks appraised the market value
of the property at $115,000. Hr’g Tr., Vol. II, at 155. In fact, InMed never submitted the Hucks
appraisal to DHEC, and the Department only became aware of the Hucks appraisal during the NA-02-53 contested case proceedings. DHEC Ex. #2; DHEC Ex. #3.
29.Petitioner MedQuest engaged the Beckham Appraisal Service, LLC, to appraise the
InMed property, and Mr. Beckham submitted a limited appraisal of the property to MedQuest on July
18, 2003. In the appraisal, Mr. Beckham opined that the market value of Unit C, as of July 17, 2003,
was $122,500. Mr. Beckham calculated the market value using the sales comparison approach to be
$122,500. Mr. Beckham only used the sales comparison approach because he considered it to be the
best method of valuation based on the nature of the property as a professional office condominium
unit, as well as the availability of comparable sales within the market. Pet’r Ex. #5. Mr. Beckham
was qualified as an expert and was the only expert to testify regarding the valuation of the unit in
question. I find this testimony to be more credible and persuasive than the purely documentary
evidence presented on the valuation of the property by the opposing parties.
30.DHEC used the Cox, Beall appraisal value of $110,000 in calculating the total project
cost for the MRI facility in NA-03-36. Hr’g Tr., Vol. II, at 34; DHEC Ex. #3, at 116-18.
31.The Cox, Beall appraisal misapplied the square footage in two comparable sales and
used the wrong sales price in one of the comparable sales. Hr’g Tr., Vol. I, at 95-96, 97-98.
32.The Cox, Beall appraisal did not make any adjustment of the value based on the time
lapse between the sale date of comparable units and the date of the appraisal. Hr’g Tr., Vol. I, at
101.
33.Hucks used a 10% capitalization rate on its estimate of income and expenses to arrive
at a fair market value of $120,000 under the income approach in September 2002. Hr’g Tr., Vol. I,
at 107; Pet’r Ex. #7, at 15. The Cox, Beall appraisal used an 11% capitalization rate to arrive at a
valuation of $105,000 under the income approach. The appropriate capitalization rate for income-producing property in Myrtle Beach is 10%. Hr’g Tr., Vol. I, at 104. Using the 10% capitalization
rate raises the Cox, Beall valuation under the income approach to $115,000. Hr’g Tr., Vol. I, at 104-105.
34.The errors in the Cox, Beall appraisal caused the appraised value of $110,000 to be
lower than it should have been. Hr’g Tr., Vol. I, at 97-105.
35.The E.F. Hucks Appraisal Company in Myrtle Beach appraised the subject property
to be valued at $95 per square foot in September 2002. Hr’g Tr., Vol. I, at 107; Pet’r Ex. #7, at 14.
36.The Hucks appraisal opined that the value of the property was $115,000 in September
2002. Pet’r Ex. #7, at 15. Using a 6% appreciation rate, a typical rate of appreciation for Myrtle
Beach, the appraised value of the property would increase to $121,900 for the year 2003. Hr’g Tr.,
Vol. I, at 107.
37.The real estate market in Myrtle Beach supports a valuation of $100 per square foot
for office condominium properties. Hr’g Tr., Vol. I, at 91.
38.The subject property contains 1225 square feet and, at a valuation of $100 per square
foot, the total value of the property is $122,500. Hr’g Tr., Vol. I, at 92.
MRI Equipment Costs
39.The evidence preponderates a finding that the project cost of the Hitachi AIRIS MRI
equipment, including sales tax, is $420,000. Quite simply, the evidence put forth to establish the
value of the machine at $400,000, excluding sales tax, far exceeds the meager evidence introduced
to support a lesser valuation. It is particularly compelling that both Hitachi, the corporation that
manufactured and maintained the MRI machine in question, and Mr. Adams, a sophisticated
businessman with extensive knowledge and experience with MRI machines and the medical imaging
industry, valued the MRI machine at $400,000 in written documents: Hitachi through a quote
prepared for DVI, and Mr. Adams through an offer to purchase the machine and a document
submitted to DHEC. In fact, Mr. Adams testified that he had relied upon a similar quote from Hitachi
in the past and had submitted the quote to DHEC to establish the value of an MRI machine in another
CON matter. Hr’g Tr., Vol. II, at 171-72. Mr. Burkett, MedQuest’s expert accountant, also found
this documentation compelling under GAAP and assigned a value of $400,000 to the MRI machine
in his report. Further, the sole valuation of the MRI machine contrary to the $400,000 figure was the
value assigned to the machine by Mr. Pietras in his accounting report, in which he had relied
exclusively upon an estimate of the machine’s value produced by an individual who had not examined
the machine in question and whose only source of knowledge regarding the machine was a description
provided by Mr. Adams. As such, Mr. Pietras’ valuation is substantially less compelling than the
$400,000 valuation supported by the Hitachi quote, Mr. Adams’ offer, and Mr. Burkett’s expert
analysis.
40.The AIRIS was manufactured by Hitachi Medical Corporation and was maintained
by Hitachi Medical Systems America, Inc., since its installation at the facility in October 2000. Hr’g
Tr., Vol. I, at 33, Vol. II, at 89; DHEC Ex. #2, at 29. Curiously, however, no witness at the hearing
testified to the date of manufacture of the AIRIS or to its original purchase price.
41.On October 1, 2002, InMed informed DHEC that it intended to offer $400,000 for
the assets of Grand Strand Imaging and advised DHEC the cost of the AIRIS and related equipment,
not including sales tax, was $400,000. DHEC Ex. #2, at 2.
42.On October 2, 2002, the Department requested that InMed provide a vendor quote
for the current value of the AIRIS. Hr’g Tr., Vol. I, at 30. InMed, in turn, requested that DVI
obtain the vender quote for the AIRIS, which it did. Hr’g Tr., Vol. I, at 170-71, Vol. II, at 169.
43.On November 13, 2002, the Vice President of Service for Hitachi Medical Systems
America provided InMed with an opinion that the approximate fair market value of the AIRIS as of
that date was between $350,000 and $400,000. Hr’g Tr., Vol. I, at 147; DHEC Ex. #2, at 29.
44.Prior to November 13, 2002, InMed relied upon a Hitachi quote for MRI equipment
in an InMed facility in Florence, South Carolina, to establish the fair market value of that equipment
for the Department. Hr’g Tr., Vol. II, at 171-72.
45.On November 22, 2002, InMed sent a letter to DHEC with the November 13, 2002
Hitachi quote attached. The InMed letter included a table of Total Project Costs/Value that
represented the value of the AIRIS machine to be $400,000, the same value InMed reported to
DHEC on October 1, 2002. DHEC Ex. #2, at 28-29, 69.
46.On December 13, 2002, DHEC issued NA-02-53 to InMed, in which the AIRIS was
valued at $400,000, plus 6% sales tax of $24,000.
Hr’g Tr., Vol. I, at 154; DHEC Ex. #2, at 84-86.
47.On December 20, 2002, Robert Adams, the President of InMed, and DVI Financial
Services agreed to an Equipment Schedule to be attached to a Master Equipment Lease dated June
6, 2001. Rider A to the Equipment Schedule was a payment schedule under which InMed agreed to
lease the AIRIS from DVI for thirty-six monthly payments of $13,381.45, commencing on January
15, 2003. The total amount of the lease payments is $481,732.20. Hr’g Tr., Vol. II, at 191. The
payment schedule indicated that $81,732.20 of the total amount would be for interest. Hr’g Tr., Vol.
I, at 148; DHEC Ex. #3, at 18. The difference between the total lease payments and the total amount
of interest is $400,000.
48.Mr. Adams testified that he wanted to negotiate the lowest price for the AIRIS that
he could get from DVI. Hr’g Tr., Vol. II, at 167. Mr. Adams originally offered DVI $400,000 to
purchase the AIRIS from DVI. Hr’g Tr., Vol. II, at 150, 167.
49.Prior to entering into the lease for the AIRIS, Mr. Adams had negotiated the purchase
of MRI equipment for other InMed facilities. Hr’g Tr., Vol. II, at 203. In fact, Mr. Adams has
operated in the medical imaging industry for thirty-two years. Hr’g Tr., Vol. II, at 202. He is a
sophisticated businessman not unaware of the market for and the reasonable values of MRI machines
and equipment.
50.On September 2, 2003, in his report, Mr. Pietras, InMed’s accountant, accepted
InMed’s use of an affidavit by Patricia M. LaRussa to support InMed’s valuing of the AIRIS at
$285,000. DHEC Ex. #3, at 3. In its September 5, 2003 request for an NAD, InMed listed the fair
market value of the AIRIS at $285,000, not including sales tax. DHEC Ex. #3, at 5.
51.The lease between DVI and InMed was an arm’s-length transaction. Hr’g Tr., Vol.
II, at 173-74; Hr’g Tr., Vol. III, at 101.
Other Equipment
52.DHEC requires applicants for NADs for free-standing imaging centers to capitalize
business office equipment, such as computers, office practice software, building equipment, printers,
and telephone equipment. Hr’g Tr., Vol. I, at 26.
53.DHEC also requires applicants for such NADs to capitalize medical record
transcription equipment, dictating equipment, office furniture, and office fixtures. Hr’g Tr., Vol. I,
at 26-27.
54.The evidence preponderates a finding that the project cost of the office equipment for
the facility, including sales tax, is $61,259.
55.The amount of local sales taxes is part of the capital cost of equipment. Hr’g Tr., Vol.
I, at 37.
56.The project cost of the facility’s Konica Laser Printer, including sales tax, was
$49,350. Hr’g Tr., Vol. I, at 156; DHEC Ex. #3, at 75.
57.The project cost for the computer system to be used at the facility was $1371. Hr’g
Tr., Vol. I, at 161; DHEC Ex. #3, at 95.
58.The project cost for the AT&T telephone system was $1000. Hr’g Tr., Vol. I, at 161;
DHEC Ex. #3, at 94-95.
59.The project cost of the two telephone units for the facility was $680. Hr’g Tr., Vol.
I, at 162; DHEC Ex. #3, at 77.
60.The project cost of the facility’s Office Jet printer was $315. Hr’g Tr., Vol. I, at 162;
DHEC Ex. #3, at 92, 98.
61.The cost of the billing equipment used jointly by six of InMed’s facilities, including
the Myrtle Beach facility, was $25,787. Pet’r Ex. #10, at Tab R; Hr’g Tr., Vol. I, at 165; Hr’g Tr.,
Vol. II, at 146. Eight InMed facilities currently share the use of the company’s billing software;
however, two of those facilities were not using the software at the time NA-02-53 was issued. The
MRI facility could not become operational without the use of the billing equipment. Under GAAP,
one-sixth of the total project cost of the billing equipment, or $4298, should be allocated toward the
project cost of the instant MRI facility. Hr’g Tr., Vol. I, at 163-65.
62.The cost of the transcription equipment shared by six of InMed’s facilities, including
the Myrtle Beach facility, was $4200. Under GAAP, one-sixth of the cost of the transcription
equipment, or $700, should be allocated toward the project cost of the MRI facility in question. Hr’g
Tr., Vol. I, at 163-65; Hr’g Tr., Vol. II, at 148-49; Hr’g Tr., Vol. III, at 82-84.
63.The cost of the billing and transcription systems was not included by DHEC in the
calculations for NA-03-36 because it was not included in the application or cost report submitted by
InMed. Hr’g Tr., Vol. II, at 99.
64.InMed allocates the cost of corporate billing and transcription personnel to its
facilities, but has not yet allocated the cost of billing and dictation equipment to its facilities. Hr’g
Tr., Vol. II, at 148-49.
65.InMed’s transcription equipment is not billed to the individual facilities. Hr’g Tr., Vol.
II, at 149. InMed made no allocation among its facilities for the cost of the transcription equipment.
It only allocated the cost of billing personnel among its facilities. Hr’g Tr., Vol. I, at 175.
66.The cost of miscellaneous furniture and fixtures purchased for the facility was $2072.
Hr’g Tr., Vol. I, at 158.
67.The capital cost of certain non-purchased assets, including additional furniture and
fixtures, was $1473. Hr’g Tr., Vol. I, at 194; Pet’r Ex. #10, at Tab S.
Miscellaneous Capital Costs
68.The evidence indicates that it is more likely than not that the total miscellaneous costs
for the instant facility are $10,925.
69.The cost of the two signs at the facility was $2744, including a sign from Carolina
Custom Signs for $2690 and a sign from Sign-It-Quick for $54. Hr’g Tr., Vol. I, at 158; DHEC Ex.
#3, at 5, 111.
70.CPA fees related to the MRI project were $2500. Hr’g Tr., Vol. I, at 158.
71.The cost of obtaining an appraisal for an NAD is a capital cost. Hr’g Tr., Vol. I, at
161. The total costs for appraisals of real and personal property for the project were $4200, including
$2000 for the Cox, Beall appraisal, $1000 for the Poster appraisal used by InMed to obtain NA-02-53, $1000 for the Hucks appraisal, and $200 for the furniture and equipment appraisals by Pat-Mor
Salvage. Hr’g Tr., Vol. I, at 160.
72.The project cost of the alarm system installed in the facility was $710. Hr’g Tr., Vol.
I, at 161; DHEC Ex. #3, at 96.
73.The project cost of the installation of the telephone system was $321. Hr’g Tr., Vol.
I, at 162; DHEC Ex. #3, at 97.
74.The project cost of electrical receptacles for the Konica Processor was $283. Hr’g
Tr., Vol. I, at 162; DHEC Ex. #3, at 99.
75.The project cost of the computer cables for the facility’s equipment was $97. Hr’g
Tr., Vol. I, at 162; DHEC Ex. #3, at 101.
76.The project cost for the paint used in the facility was $70. Hr’g Tr., Vol. I, at 162;
DHEC Ex. #3, at 83.
Attorney’s Fees
77.DHEC considers attorney’s fees incurred in bringing a project, such as the MRI facility
in question, into operation to be capital costs. Hr’g Tr., Vol. I, at 41; Hr’g Tr., Vol. II, at 97-98.
78.Attorney’s fees related to the project totaled $4597, including $2537 to the law firm
of Haynsworth Sinkler Boyd, P.A., and $2060 to Schlossberg and Associates, P.C. Hr’g Tr., Vol.
I, at 158-59; Pet’r Ex. #10, at Tab G.
CONCLUSIONS OF LAW
Based upon the foregoing Findings of Fact, I conclude the following as a matter of law:
Jurisdiction/Procedure
1.This tribunal has jurisdiction over this matter pursuant to S.C. Const. art. I, § 22, S.C.
Code Ann. § 1-23-600(B) (Supp. 2003), and S.C. Code Ann. §§ 1-23-310 et seq. (1986 & Supp.
2003). Cf. S.C. Code Ann. § 44-7-210(E) (2002); 24A S.C. Code Ann. Regs. 61-15, § 403 (Supp.
2003) (providing for contested case hearings regarding Department decisions on CON applications).
2.Under S.C. Code Ann. § 44-7-160(6) (2002) and 24A S.C. Code Ann. Regs. 61-15
§ 102(1)(f) (Supp. 2003), a person or health care facility seeking to acquire medical equipment for
diagnosis or treatment must obtain a Certificate of Need (CON) from the Department authorizing the
project if the total project cost for the acquisition is in excess of $600,000. Further, “when any
question exists” as to whether this $600,000 threshold has been crossed, “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.” 24A S.C. Code Ann. Regs. 61-15 § 102(3)
(Supp. 2003). A formal decision by the Department that the CON requirements do not apply to a
project is known as a “non-applicability determination” or NAD.
3.In the case at hand, Respondent InMed obtained an NAD from DHEC for its
acquisition of an MRI machine and operation of an MRI facility in Myrtle Beach, South Carolina.
Petitioner MedQuest offers MRI services similar to InMed’s proposed service to persons who reside
in InMed’s proposed service area, and, as such, is an “affected person” for the purposes of bringing
a contested case to challenge the Department’s decision to issue an NAD to InMed. See S.C. Code
Ann. § 44-7-130(1) (2002); 24A S.C. Code Ann. Regs. 61-15 § 103(1) (Supp. 2003). Petitioner
MedQuest timely filed such a challenge to InMed’s NAD, thereby initiating this matter. Cf. S.C.
Code Ann. § 44-7-210(D) (2002); 24A S.C. Code Ann. Regs. 61-15 § 403(1) (Supp. 2003).
4.The contested case hearing conducted before this tribunal in a CON matter is a trial
de novo, “in which ‘the whole case is tried as if no trial whatsoever had been had in the first
instance,’” and the administrative law judge conducting the hearing is the sole fact-finder, who “must
make sufficiently detailed findings supporting the denial or grant of a permit application.” Marlboro
Park Hosp. v. S.C. Dep’t of Health & Envtl. Control, 358 S.C. 573, 579, 595 S.E.2d 851, 854 (Ct.
App. 2004) (quoting from Blizzard v. Miller, 306 S.C. 373, 412 S.E.2d 406 (1991) and Converse
Power Corp. v. S.C. Dep’t of Health & Envtl. Control, 350 S.C. 39, 564 S.E.2d 341 (Ct. App. 2002),
respectively).
5.Petitioner MedQuest, as the moving party, bears the burden of proof in this contested
case. See Leventis v. S.C. Dep’t of Health & Envtl. Control, 340 S.C. 118, 132-33, 530 S.E.2d 643,
651 (Ct. App. 2000) (holding that the burden of proof in administrative proceedings generally rests
upon the party asserting the affirmative of an issue); 2 Am. Jur. 2d Administrative Law § 360 (1994)
(same); cf. S.C. Code Ann. § 44-7-210 (E) (2002); 24A S.C. Code Ann. Regs. 61-15 § 403(1) (Supp.
2003). Therefore, Petitioner must prove, by a preponderance of the evidence, that the total project
cost for InMed’s proposed MRI facility exceeds $600,000, and therefore, that the Department
improperly issued an NAD to InMed for the acquisition of the facility. See Anonymous v. State Bd.
of Med. Exam’rs, 329 S.C. 371, 375, 496 S.E.2d 17, 19 (1998) (holding that the standard of proof
in an administrative proceeding is generally the preponderance of the evidence); see also Nat’l Health
Corp. v. S.C. Dep’t of Health & Envtl. Control, 298 S.C. 373, 379, 380 S.E.2d 841, 844 (Ct. App.
1989) (holding that the preponderance of the evidence standard applies in CON disputes).
Weight and Sufficiency of Evidence
6.The preponderance of the evidence “is evidence which is of greater weight or more
convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole
shows that the fact sought to be proved is more probable than not.” Black’s Law Dictionary 1182
(6th ed. 1990). “The preponderance of the evidence means such evidence, as when considered and
compared with that opposed to it, has more convincing force and produces in the mind the belief that
what is sought to be proved is more likely true than not true.” Alex Sanders & John S. Nichols, Trial
Handbook for South Carolina Lawyers § 9.5, at 371 (2d ed. 2001) (citing to Frazier v. Frazier, 228
S.C. 149, 89 S.E.2d 225 (1955)).
7.The test for the sufficiency of a proffer of evidence to warrant a finding is as follows:
A verdict or finding must be based on the evidence and must be based on the facts
proved. Under this well established rule, although difficulty of proof does not prevent
the assertion of a legal right, the verdict or finding cannot rest on surmise,
speculation, or conjecture. Furthermore, a verdict of the jury or a finding of the court
cannot be supported only by guesswork. Also, it has been said that the verdict or
finding cannot rest on supposition, assumption, imagination, suspicion, arbitrary
action, whim, percentage, or conclusions that are in conflict with undisputed fact.
The evidence on which the verdict or finding is based must be competent, legal
evidence received in the course of the trial, credible, and of probative force, and must
support every material fact. The decision should be against the party having the
burden of proof where there is no evidence, or the evidence as to a material issue is
insufficient[.]
32A C.J.S. Evidence § 1339, at 757-58 (1996); see also S.C. Code Ann. § 1-23-320(i) (Supp. 2003)
(“Findings of fact shall be based exclusively on the evidence and on matters officially noticed.”).
Probative evidence is “[e]vidence that tends to prove or disprove a point in issue.” Black’s Law
Dictionary 579 (7th ed. 1999).
8.The weight and credibility assigned to evidence presented at the hearing of a matter
is within the province of the trier of fact. See S.C. Cable Television Ass’n v. S. Bell Tel. & Tel. Co.,
308 S.C. 216, 222, 417 S.E.2d 586, 589 (1992). Furthermore, a trial judge who observes a witness
is in the best position to judge the witness’s demeanor and veracity and to evaluate the credibility of
his testimony. See, e.g., Woodall v. Woodall, 322 S.C. 7, 10, 471 S.E.2d 154, 157 (1996); Wallace
v. Milliken & Co., 300 S.C. 553, 556, 389 S.E.2d 448, 450 (Ct. App. 1990).
9.The South Carolina Rules of Evidence are applicable to this contested case
proceeding. See S.C. Code Ann. § 1-23-330(1) (Supp. 2003). Under those rules, “[i]f scientific,
technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to
determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training,
or education, may testify thereto in the form of an opinion or otherwise.” Rule 702, SCRE. An
expert is granted wide latitude in determining the basis of his or her opinion, and where an expert’s
testimony is based upon facts sufficient to form an opinion, the trier of fact must weigh its probative
value. Small v. Pioneer Machinery, Inc., 329 S.C. 448, 470, 494 S.E.2d 835, 846 (Ct. App. 1997).
10.“[E]xpert testimony is essential in cases which involve a subject of special technical
science, skill, or occupation of which the members of the jury or the trial court are not presumed to
be specially informed.” 32A C.J.S. Evidence § 729, at 85 (1996). For example, the South Carolina
Supreme Court has held that, in medical malpractice cases, “the plaintiff must use expert testimony
. . . unless the subject matter lies within the ambit of common knowledge and experience, so that no
special learning is needed to evaluate the conduct of the defendant.” Pederson v. Gould, 288 S.C.
141, 143, 341 S.E.2d 633, 634 (1986).
11.In general, “expert opinion evidence is to be considered or weighed by the triers of
the facts like any other testimony or evidence . . . [;] the triers of fact cannot, and are not required
to, arbitrarily or lightly disregard, or capriciously reject, the testimony of experts or skilled witnesses,
and make an unsupported finding to the contrary of the opinion.” 32A C.J.S. Evidence § 727, at 82-83 (1996). However, the trier of fact may give an expert’s testimony the weight he or she determines
it deserves. Florence County Dep’t of Soc. Servs. v. Ward, 310 S.C. 69, 72-73, 425 S.E.2d 61, 63
(Ct. App. 1992). Further, the trier of fact may accept the testimony of one expert over that of
another. See S.C. Cable Television Ass’n v. S. Bell Tel. & Tel. Co., 308 S.C. 216, 417 S.E.2d 586
(1992).
12.Rule 803(8) of the South Carolina Rules of Evidence creates an exception to the
general inadmissability of hearsay and allows certain public records and reports to be introduced into
evidence for the truth of the matters asserted therein, even though those assertions were made as out-of-court, unsworn statements. Rule 803(8), SCRE. However, this exception “applies only to
documents prepared by public officials or employees under their supervision in the performance of
their official duties.” 32A C.J.S. Evidence § 836, at 228 (1996); see also Rule 803(8), SCRE
(exempting “[r]ecords, reports, statements, or data compilations, in any form, of public offices or
agencies, setting forth (A) the activities of the office or agency, or (B) matters observed pursuant to
duty imposed by law as to which matters there was a duty to report” from the prohibition upon
hearsay evidence) (emphasis added). Therefore, “[l]etters written by private persons to public
officials do not become public documents admissible in evidence as such because they are retained
in the official files.” 32A C.J.S. Evidence § 836, at 228; see also, e.g., State v. Scurti, 792 N.E.2d
224, 228 (Ohio Ct. App. 2003) (holding that “[i]nformation created by a secondary source, a
nonpublic source, and placed in a public agency’s file will not be automatically converted into a public
record for the purposes of [the public-records hearsay exception]” and noting that the presumption
of the reliability of agency statements underlying the exception does not “exist[] for the actions of
nonpublic servants providing information to the agency”). Accordingly, the LaRussa affidavit, as
hearsay, cannot be admitted into evidence in this de novo hearing for the truth of the matter asserted
therein under the public-records exception in Rule 803(8), SCRE, even though the document was
included in DHEC’s file on InMed’s NAD application.
13.A finder of fact is free to determine the value of real property within the range of the
evidence presented at trial. See Smith v. Newberry County Assessor, 350 S.C. 572, 578-79, 567
S.E.2d 501, 504 (Ct. App. 2002) (citing to City of Folly Beach v. Atlantic House Props., Ltd., 318
S.C. 450, 458 S.E.2d 426 (1995)).
Total Project Cost
14.The crux of the instant matter is whether the total project cost for Respondent
InMed’s MRI facility exceeds $600,000, and thus requires authorization by a CON issued by the
Department before being placed in operation. The CON regulations define “total project cost” as
the estimated total capital cost of a project including land cost, construction, fixed and
movable equipment, architect’s fee, financing cost, and other capital costs properly
charged under generally accepted accounting principles [or GAAP] as a capital cost.
The determination of project costs involving leased equipment o[r] buildings will be
calculated based on the total value (purchase price) of the equipment or building being
leased.
24A S.C. Code Ann. Regs. 61-15 § 103(25) (Supp. 2003).
15.Fixed assets are “tangible property used in a productive capacity that will benefit the
enterprise for a period of more than one year.” Patrick R. Delaney et al., Wiley GAAP 2004, at 315
(2003). Accordingly, the reasonable costs involved in bringing such assets into production are
capitalized under GAAP.
Id. In contrast, “when an asset either is consumed in an entity’s central
operations or is no longer expected to provide the level of future benefits expected when that asset
was recognized,” the cost of acquiring the asset is treated as an operating expense, not a capital cost.
Id. at 64.
16.In the case at hand, I find that the testimony of Petitioner’s accounting expert, Mr.
Burkett, regarding the capital cost of InMed’s MRI project deserves greater weight than that of
DHEC’s employees or InMed’s accountant, Mr. Pietras, concerning that cost. This credibility gap
is exemplified in the manner in which the two sides evaluated the two largest costs for the project:
the lease for the MRI machine and the lease for the office condominium. Mr. Burkett valued the MRI
machine at $400,000, before taxes, by relying principally upon a vendor quote from Hitachi, the
company that manufactured and maintained the machine, and InMed’s offer to purchase the machine
from DVI Financial; both the vender quote and the offer to purchase valued the MRI machine at
$400,000. In contrast, Mr. Pietras disregarded this credible evidence of the value of the machine, and
instead relied exclusively upon the affidavit produced by Ms. LaRussa in valuing the MRI machine
at a mere $285,000; likewise, DHEC relied solely upon Ms. LaRussa’s affidavit in determining the
value of the machine, despite the fact that InMed had, in prior documentary submissions, represented
to the Department that the value of the machine was $400,000. Similarly, Mr. Burkett relied upon
a recent, credible appraisal conducted on the facility’s property by Mr. Beckham to conclude that the
value of the real estate was $122,500. In reaching their conclusions as to the land value, Mr. Pietras
and DHEC relied upon appraisals that, although more credible than InMed’s initial appraisal of
$65,000, were affected by certain factual and procedural errors that reduced the appraisal value of
the property. When these errors are accounted for, e.g., by adjusting the 2002 Hucks appraisal for
appreciation between 2002 and 2003, these appraisals arrive at values comparable to that determined
by Mr. Beckham. Given the fact that DHEC’s employees and InMed’s expert relied upon markedly
less probative evidence when calculating the costs for these two critical purchases, I am compelled
to accept and rely upon the testimony and valuations of MedQuest’s CPA, Mr. Burkett, over the
testimony presented by the witnesses for InMed and the Department.
17.Accordingly, I find that the preponderance of the evidence presented in this matter
indicates that the total project cost for InMed’s MRI project in Myrtle Beach is $619,281. Therefore,
I further find that DHEC erroneously issued NA-03-36 to InMed for that project, and that InMed’s
proposed facility should be subject to review under the CON Act, S.C. Code Ann. § 44-7-110 et seq.
(2002), and the accompanying regulations, 24A S.C. Code Ann. Regs. 61-15 (Supp. 2003).
ORDER
Based upon the Findings of Fact and Conclusions of Law stated above,
IT IS HEREBY ORDERED that, because the Department’s decision to issue non-applicability determination NA-03-36 to Respondent InMed was in error, InMed must cease and
desist operation of its MRI facility in Myrtle Beach, South Carolina, unless and until such time as it
obtains a Certificate of Need from the Department for the acquisition and operation of the MRI
facility.
AND IT IS SO ORDERED.
______________________________
JOHN D. GEATHERS
Administrative Law Judge
Post Office Box 11667
Columbia, South Carolina 29211-1667
August 2, 2004
Columbia, South Carolina (ii). InMed engaged E.F. Hucks & Associates, Inc. to do an appraisal on Unit C,
and the firm submitted an appraisal of the property to InMed on September 20, 2002. Hucks
determined the market value of Unit C as of September 18, 2002, to be $115,000. Hucks calculated
the market value using the sales comparison approach to be $115,000 and the market value under the
income approach, with a capitalization rate of 10%, to be $120,000. Pet’r Ex. #7.
(iii). On August 27, 2003, Cox, Beall & Associates, LLC, submitted an appraisal
to InMed, in which the firm determined that the market value of Unit C, as of August 18, 2003, was
$110,000. DHEC Ex. #3, at 24. Cox, Beall calculated the market value using the sales comparison
approach to be $115,000 and the market value using the income approach, with a capitalization rate
of 11%, to be $105,000. DHEC Ex. #3, at 52.
26. On October 1, 2002, InMed submitted its NAD application to DHEC using the Poster
appraisal that had been conducted for Grand Strand. InMed did not submit the September 20, 2002
Hucks appraisal to DHEC. On October 2, 2002, DHEC informed InMed that the Poster appraisal
was too old and required InMed to provide an updated appraisal on Unit C. DHEC Ex. #2, at 12.
27. On October 14, 2002, Mr. Poster provided InMed with a second appraisal, in which
he opined that the market value of Unit C, as of October 7, 2002, was $65,000. DHEC Ex. #2, at
34. In the appraisal, Mr. Poster calculated the market value using the sales comparison approach to
be $70,000 and the market value under the income approach to be $62,000. DHEC Ex. #2, at 33.
This appraisal was $500 less than his appraisal in July 2000. On November 22, 2002, InMed
submitted the second Poster appraisal to DHEC. DHEC Ex. #2, at 28-49.
28. InMed did not provide DHEC with the Hucks appraisal dated September 20, 2002,
or otherwise inform DHEC prior to the issuance of NA-02-53 that Hucks appraised the market value
of the property at $115,000. Hr’g Tr., Vol. II, at 155. In fact, InMed never submitted the Hucks
appraisal to DHEC, and the Department only became aware of the Hucks appraisal during the NA-02-53 contested case proceedings. DHEC Ex. #2; DHEC Ex. #3.
29. Petitioner MedQuest engaged the Beckham Appraisal Service, LLC, to appraise the
InMed property, and Mr. Beckham submitted a limited appraisal of the property to MedQuest on July
18, 2003. In the appraisal, Mr. Beckham opined that the market value of Unit C, as of July 17, 2003,
was $122,500. Mr. Beckham calculated the market value using the sales comparison approach to be
$122,500. Mr. Beckham only used the sales comparison approach because he considered it to be the
best method of valuation based on the nature of the property as a professional office condominium
unit, as well as the availability of comparable sales within the market. Pet’r Ex. #5. Mr. Beckham
was qualified as an expert and was the only expert to testify regarding the valuation of the unit in
question. I find this testimony to be more credible and persuasive than the purely documentary
evidence presented on the valuation of the property by the opposing parties.
30. DHEC used the Cox, Beall appraisal value of $110,000 in calculating the total project
cost for the MRI facility in NA-03-36. Hr’g Tr., Vol. II, at 34; DHEC Ex. #3, at 116-18.
31. The Cox, Beall appraisal misapplied the square footage in two comparable sales and
used the wrong sales price in one of the comparable sales. Hr’g Tr., Vol. I, at 95-96, 97-98.
32. The Cox, Beall appraisal did not make any adjustment of the value based on the time
lapse between the sale date of comparable units and the date of the appraisal. Hr’g Tr., Vol. I, at
101.
33. Hucks used a 10% capitalization rate on its estimate of income and expenses to arrive
at a fair market value of $120,000 under the income approach in September 2002. Hr’g Tr., Vol. I,
at 107; Pet’r Ex. #7, at 15. The Cox, Beall appraisal used an 11% capitalization rate to arrive at a
valuation of $105,000 under the income approach. The appropriate capitalization rate for income-producing property in Myrtle Beach is 10%. Hr’g Tr., Vol. I, at 104. Using the 10% capitalization
rate raises the Cox, Beall valuation under the income approach to $115,000. Hr’g Tr., Vol. I, at 104-105.
34. The errors in the Cox, Beall appraisal caused the appraised value of $110,000 to be
lower than it should have been. Hr’g Tr., Vol. I, at 97-105.
35. The E.F. Hucks Appraisal Company in Myrtle Beach appraised the subject property
to be valued at $95 per square foot in September 2002. Hr’g Tr., Vol. I, at 107; Pet’r Ex. #7, at 14.
36. The Hucks appraisal opined that the value of the property was $115,000 in September
2002. Pet’r Ex. #7, at 15. Using a 6% appreciation rate, a typical rate of appreciation for Myrtle
Beach, the appraised value of the property would increase to $121,900 for the year 2003. Hr’g Tr.,
Vol. I, at 107.
37. The real estate market in Myrtle Beach supports a valuation of $100 per square foot
for office condominium properties. Hr’g Tr., Vol. I, at 91.
38. The subject property contains 1225 square feet and, at a valuation of $100 per square
foot, the total value of the property is $122,500. Hr’g Tr., Vol. I, at 92.
MRI Equipment Costs
39. The evidence preponderates a finding that the project cost of the Hitachi AIRIS MRI
equipment, including sales tax, is $420,000. Quite simply, the evidence put forth to establish the
value of the machine at $400,000, excluding sales tax, far exceeds the meager evidence introduced
to support a lesser valuation. It is particularly compelling that both Hitachi, the corporation that
manufactured and maintained the MRI machine in question, and Mr. Adams, a sophisticated
businessman with extensive knowledge and experience with MRI machines and the medical imaging
industry, valued the MRI machine at $400,000 in written documents: Hitachi through a quote
prepared for DVI, and Mr. Adams through an offer to purchase the machine and a document
submitted to DHEC. In fact, Mr. Adams testified that he had relied upon a similar quote from Hitachi
in the past and had submitted the quote to DHEC to establish the value of an MRI machine in another
CON matter. Hr’g Tr., Vol. II, at 171-72. Mr. Burkett, MedQuest’s expert accountant, also found
this documentation compelling under GAAP and assigned a value of $400,000 to the MRI machine
in his report. Further, the sole valuation of the MRI machine contrary to the $400,000 figure was the
value assigned to the machine by Mr. Pietras in his accounting report, in which he had relied
exclusively upon an estimate of the machine’s value produced by an individual who had not examined
the machine in question and whose only source of knowledge regarding the machine was a description
provided by Mr. Adams. As such, Mr. Pietras’ valuation is substantially less compelling than the
$400,000 valuation supported by the Hitachi quote, Mr. Adams’ offer, and Mr. Burkett’s expert
analysis.
40. The AIRIS was manufactured by Hitachi Medical Corporation and was maintained
by Hitachi Medical Systems America, Inc., since its installation at the facility in October 2000. Hr’g
Tr., Vol. I, at 33, Vol. II, at 89; DHEC Ex. #2, at 29. Curiously, however, no witness at the hearing
testified to the date of manufacture of the AIRIS or to its original purchase price.
41. On October 1, 2002, InMed informed DHEC that it intended to offer $400,000 for
the assets of Grand Strand Imaging and advised DHEC the cost of the AIRIS and related equipment,
not including sales tax, was $400,000. DHEC Ex. #2, at 2.
42. On October 2, 2002, the Department requested that InMed provide a vendor quote
for the current value of the AIRIS. Hr’g Tr., Vol. I, at 30. InMed, in turn, requested that DVI
obtain the vender quote for the AIRIS, which it did. Hr’g Tr., Vol. I, at 170-71, Vol. II, at 169.
43. On November 13, 2002, the Vice President of Service for Hitachi Medical Systems
America provided InMed with an opinion that the approximate fair market value of the AIRIS as of
that date was between $350,000 and $400,000. Hr’g Tr., Vol. I, at 147; DHEC Ex. #2, at 29.
44. Prior to November 13, 2002, InMed relied upon a Hitachi quote for MRI equipment
in an InMed facility in Florence, South Carolina, to establish the fair market value of that equipment
for the Department. Hr’g Tr., Vol. II, at 171-72.
45. On November 22, 2002, InMed sent a letter to DHEC with the November 13, 2002
Hitachi quote attached. The InMed letter included a table of Total Project Costs/Value that
represented the value of the AIRIS machine to be $400,000, the same value InMed reported to
DHEC on October 1, 2002. DHEC Ex. #2, at 28-29, 69.
46. On December 13, 2002, DHEC issued NA-02-53 to InMed, in which the AIRIS was
valued at $400,000, plus 6% sales tax of $24,000.
Hr’g Tr., Vol. I, at 154; DHEC Ex. #2, at 84-86.
47. On December 20, 2002, Robert Adams, the President of InMed, and DVI Financial
Services agreed to an Equipment Schedule to be attached to a Master Equipment Lease dated June
6, 2001. Rider A to the Equipment Schedule was a payment schedule under which InMed agreed to
lease the AIRIS from DVI for thirty-six monthly payments of $13,381.45, commencing on January
15, 2003. The total amount of the lease payments is $481,732.20. Hr’g Tr., Vol. II, at 191. The
payment schedule indicated that $81,732.20 of the total amount would be for interest. Hr’g Tr., Vol.
I, at 148; DHEC Ex. #3, at 18. The difference between the total lease payments and the total amount
of interest is $400,000.
48. Mr. Adams testified that he wanted to negotiate the lowest price for the AIRIS that
he could get from DVI. Hr’g Tr., Vol. II, at 167. Mr. Adams originally offered DVI $400,000 to
purchase the AIRIS from DVI. Hr’g Tr., Vol. II, at 150, 167.
49. Prior to entering into the lease for the AIRIS, Mr. Adams had negotiated the purchase
of MRI equipment for other InMed facilities. Hr’g Tr., Vol. II, at 203. In fact, Mr. Adams has
operated in the medical imaging industry for thirty-two years. Hr’g Tr., Vol. II, at 202. He is a
sophisticated businessman not unaware of the market for and the reasonable values of MRI machines
and equipment.
50. On September 2, 2003, in his report, Mr. Pietras, InMed’s accountant, accepted
InMed’s use of an affidavit by Patricia M. LaRussa to support InMed’s valuing of the AIRIS at
$285,000. DHEC Ex. #3, at 3. In its September 5, 2003 request for an NAD, InMed listed the fair
market value of the AIRIS at $285,000, not including sales tax. DHEC Ex. #3, at 5.
51. The lease between DVI and InMed was an arm’s-length transaction. Hr’g Tr., Vol.
II, at 173-74; Hr’g Tr., Vol. III, at 101.
Other Equipment
52. DHEC requires applicants for NADs for free-standing imaging centers to capitalize
business office equipment, such as computers, office practice software, building equipment, printers,
and telephone equipment. Hr’g Tr., Vol. I, at 26.
53. DHEC also requires applicants for such NADs to capitalize medical record
transcription equipment, dictating equipment, office furniture, and office fixtures. Hr’g Tr., Vol. I,
at 26-27.
54. The evidence preponderates a finding that the project cost of the office equipment for
the facility, including sales tax, is $61,259.
55. The amount of local sales taxes is part of the capital cost of equipment. Hr’g Tr., Vol.
I, at 37.
56. The project cost of the facility’s Konica Laser Printer, including sales tax, was
$49,350. Hr’g Tr., Vol. I, at 156; DHEC Ex. #3, at 75.
57. The project cost for the computer system to be used at the facility was $1371. Hr’g
Tr., Vol. I, at 161; DHEC Ex. #3, at 95.
58. The project cost for the AT&T telephone system was $1000. Hr’g Tr., Vol. I, at 161;
DHEC Ex. #3, at 94-95.
59. The project cost of the two telephone units for the facility was $680. Hr’g Tr., Vol.
I, at 162; DHEC Ex. #3, at 77.
60. The project cost of the facility’s Office Jet printer was $315. Hr’g Tr., Vol. I, at 162;
DHEC Ex. #3, at 92, 98.
61. The cost of the billing equipment used jointly by six of InMed’s facilities, including
the Myrtle Beach facility, was $25,787. Pet’r Ex. #10, at Tab R; Hr’g Tr., Vol. I, at 165; Hr’g Tr.,
Vol. II, at 146. Eight InMed facilities currently share the use of the company’s billing software;
however, two of those facilities were not using the software at the time NA-02-53 was issued. The
MRI facility could not become operational without the use of the billing equipment. Under GAAP,
one-sixth of the total project cost of the billing equipment, or $4298, should be allocated toward the
project cost of the instant MRI facility. Hr’g Tr., Vol. I, at 163-65.
62. The cost of the transcription equipment shared by six of InMed’s facilities, including
the Myrtle Beach facility, was $4200. Under GAAP, one-sixth of the cost of the transcription
equipment, or $700, should be allocated toward the project cost of the MRI facility in question. Hr’g
Tr., Vol. I, at 163-65; Hr’g Tr., Vol. II, at 148-49; Hr’g Tr., Vol. III, at 82-84.
63. The cost of the billing and transcription systems was not included by DHEC in the
calculations for NA-03-36 because it was not included in the application or cost report submitted by
InMed. Hr’g Tr., Vol. II, at 99.
64. InMed allocates the cost of corporate billing and transcription personnel to its
facilities, but has not yet allocated the cost of billing and dictation equipment to its facilities. Hr’g
Tr., Vol. II, at 148-49.
65. InMed’s transcription equipment is not billed to the individual facilities. Hr’g Tr., Vol.
II, at 149. InMed made no allocation among its facilities for the cost of the transcription equipment.
It only allocated the cost of billing personnel among its facilities. Hr’g Tr., Vol. I, at 175.
66. The cost of miscellaneous furniture and fixtures purchased for the facility was $2072.
Hr’g Tr., Vol. I, at 158.
67. The capital cost of certain non-purchased assets, including additional furniture and
fixtures, was $1473. Hr’g Tr., Vol. I, at 194; Pet’r Ex. #10, at Tab S.
Miscellaneous Capital Costs
68. The evidence indicates that it is more likely than not that the total miscellaneous costs
for the instant facility are $10,925.
69. The cost of the two signs at the facility was $2744, including a sign from Carolina
Custom Signs for $2690 and a sign from Sign-It-Quick for $54. Hr’g Tr., Vol. I, at 158; DHEC Ex.
#3, at 5, 111.
70. CPA fees related to the MRI project were $2500. Hr’g Tr., Vol. I, at 158.
71. The cost of obtaining an appraisal for an NAD is a capital cost. Hr’g Tr., Vol. I, at
161. The total costs for appraisals of real and personal property for the project were $4200, including
$2000 for the Cox, Beall appraisal, $1000 for the Poster appraisal used by InMed to obtain NA-02-53, $1000 for the Hucks appraisal, and $200 for the furniture and equipment appraisals by Pat-Mor
Salvage. Hr’g Tr., Vol. I, at 160.
72. The project cost of the alarm system installed in the facility was $710. Hr’g Tr., Vol.
I, at 161; DHEC Ex. #3, at 96.
73. The project cost of the installation of the telephone system was $321. Hr’g Tr., Vol.
I, at 162; DHEC Ex. #3, at 97.
74. The project cost of electrical receptacles for the Konica Processor was $283. Hr’g
Tr., Vol. I, at 162; DHEC Ex. #3, at 99.
75. The project cost of the computer cables for the facility’s equipment was $97. Hr’g
Tr., Vol. I, at 162; DHEC Ex. #3, at 101.
76. The project cost for the paint used in the facility was $70. Hr’g Tr., Vol. I, at 162;
DHEC Ex. #3, at 83.
Attorney’s Fees
77. DHEC considers attorney’s fees incurred in bringing a project, such as the MRI facility
in question, into operation to be capital costs. Hr’g Tr., Vol. I, at 41; Hr’g Tr., Vol. II, at 97-98.
78. Attorney’s fees related to the project totaled $4597, including $2537 to the law firm
of Haynsworth Sinkler Boyd, P.A., and $2060 to Schlossberg and Associates, P.C. Hr’g Tr., Vol.
I, at 158-59; Pet’r Ex. #10, at Tab G.
CONCLUSIONS OF LAW
Based upon the foregoing Findings of Fact, I conclude the following as a matter of law:
Jurisdiction/Procedure
1. This tribunal has jurisdiction over this matter pursuant to S.C. Const. art. I, § 22, S.C.
Code Ann. § 1-23-600(B) (Supp. 2003), and S.C. Code Ann. §§ 1-23-310 et seq. (1986 & Supp.
2003). Cf. S.C. Code Ann. § 44-7-210(E) (2002); 24A S.C. Code Ann. Regs. 61-15, § 403 (Supp.
2003) (providing for contested case hearings regarding Department decisions on CON applications).
2. Under S.C. Code Ann. § 44-7-160(6) (2002) and 24A S.C. Code Ann. Regs. 61-15
§ 102(1)(f) (Supp. 2003), a person or health care facility seeking to acquire medical equipment for
diagnosis or treatment must obtain a Certificate of Need (CON) from the Department authorizing the
project if the total project cost for the acquisition is in excess of $600,000. Further, “when any
question exists” as to whether this $600,000 threshold has been crossed, “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.” 24A S.C. Code Ann. Regs. 61-15 § 102(3)
(Supp. 2003). A formal decision by the Department that the CON requirements do not apply to a
project is known as a “non-applicability determination” or NAD.
3. In the case at hand, Respondent InMed obtained an NAD from DHEC for its
acquisition of an MRI machine and operation of an MRI facility in Myrtle Beach, South Carolina.
Petitioner MedQuest offers MRI services similar to InMed’s proposed service to persons who reside
in InMed’s proposed service area, and, as such, is an “affected person” for the purposes of bringing
a contested case to challenge the Department’s decision to issue an NAD to InMed. See S.C. Code
Ann. § 44-7-130(1) (2002); 24A S.C. Code Ann. Regs. 61-15 § 103(1) (Supp. 2003). Petitioner
MedQuest timely filed such a challenge to InMed’s NAD, thereby initiating this matter. Cf. S.C.
Code Ann. § 44-7-210(D) (2002); 24A S.C. Code Ann. Regs. 61-15 § 403(1) (Supp. 2003).
4. The contested case hearing conducted before this tribunal in a CON matter is a trial
de novo, “in which ‘the whole case is tried as if no trial whatsoever had been had in the first
instance,’” and the administrative law judge conducting the hearing is the sole fact-finder, who “must
make sufficiently detailed findings supporting the denial or grant of a permit application.” Marlboro
Park Hosp. v. S.C. Dep’t of Health & Envtl. Control, 358 S.C. 573, 579, 595 S.E.2d 851, 854 (Ct.
App. 2004) (quoting from Blizzard v. Miller, 306 S.C. 373, 412 S.E.2d 406 (1991) and Converse
Power Corp. v. S.C. Dep’t of Health & Envtl. Control, 350 S.C. 39, 564 S.E.2d 341 (Ct. App. 2002),
respectively).
5. Petitioner MedQuest, as the moving party, bears the burden of proof in this contested
case. See Leventis v. S.C. Dep’t of Health & Envtl. Control, 340 S.C. 118, 132-33, 530 S.E.2d 643,
651 (Ct. App. 2000) (holding that the burden of proof in administrative proceedings generally rests
upon the party asserting the affirmative of an issue); 2 Am. Jur. 2d Administrative Law § 360 (1994)
(same); cf. S.C. Code Ann. § 44-7-210 (E) (2002); 24A S.C. Code Ann. Regs. 61-15 § 403(1) (Supp.
2003). Therefore, Petitioner must prove, by a preponderance of the evidence, that the total project
cost for InMed’s proposed MRI facility exceeds $600,000, and therefore, that the Department
improperly issued an NAD to InMed for the acquisition of the facility. See Anonymous v. State Bd.
of Med. Exam’rs, 329 S.C. 371, 375, 496 S.E.2d 17, 19 (1998) (holding that the standard of proof
in an administrative proceeding is generally the preponderance of the evidence); see also Nat’l Health
Corp. v. S.C. Dep’t of Health & Envtl. Control, 298 S.C. 373, 379, 380 S.E.2d 841, 844 (Ct. App.
1989) (holding that the preponderance of the evidence standard applies in CON disputes).
Weight and Sufficiency of Evidence
6. The preponderance of the evidence “is evidence which is of greater weight or more
convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole
shows that the fact sought to be proved is more probable than not.” Black’s Law Dictionary 1182
(6th ed. 1990). “The preponderance of the evidence means such evidence, as when considered and
compared with that opposed to it, has more convincing force and produces in the mind the belief that
what is sought to be proved is more likely true than not true.” Alex Sanders & John S. Nichols, Trial
Handbook for South Carolina Lawyers § 9.5, at 371 (2d ed. 2001) (citing to Frazier v. Frazier, 228
S.C. 149, 89 S.E.2d 225 (1955)).
7. The test for the sufficiency of a proffer of evidence to warrant a finding is as follows:
A verdict or finding must be based on the evidence and must be based on the facts
proved. Under this well established rule, although difficulty of proof does not prevent
the assertion of a legal right, the verdict or finding cannot rest on surmise,
speculation, or conjecture. Furthermore, a verdict of the jury or a finding of the court
cannot be supported only by guesswork. Also, it has been said that the verdict or
finding cannot rest on supposition, assumption, imagination, suspicion, arbitrary
action, whim, percentage, or conclusions that are in conflict with undisputed fact.
The evidence on which the verdict or finding is based must be competent, legal
evidence received in the course of the trial, credible, and of probative force, and must
support every material fact. The decision should be against the party having the
burden of proof where there is no evidence, or the evidence as to a material issue is
insufficient[.]
32A C.J.S. Evidence § 1339, at 757-58 (1996); see also S.C. Code Ann. § 1-23-320(i) (Supp. 2003)
(“Findings of fact shall be based exclusively on the evidence and on matters officially noticed.”).
Probative evidence is “[e]vidence that tends to prove or disprove a point in issue.” Black’s Law
Dictionary 579 (7th ed. 1999).
8. The weight and credibility assigned to evidence presented at the hearing of a matter
is within the province of the trier of fact. See S.C. Cable Television Ass’n v. S. Bell Tel. & Tel. Co.,
308 S.C. 216, 222, 417 S.E.2d 586, 589 (1992). Furthermore, a trial judge who observes a witness
is in the best position to judge the witness’s demeanor and veracity and to evaluate the credibility of
his testimony. See, e.g., Woodall v. Woodall, 322 S.C. 7, 10, 471 S.E.2d 154, 157 (1996); Wallace
v. Milliken & Co., 300 S.C. 553, 556, 389 S.E.2d 448, 450 (Ct. App. 1990).
9. The South Carolina Rules of Evidence are applicable to this contested case
proceeding. See S.C. Code Ann. § 1-23-330(1) (Supp. 2003). Under those rules, “[i]f scientific,
technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to
determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training,
or education, may testify thereto in the form of an opinion or otherwise.” Rule 702, SCRE. An
expert is granted wide latitude in determining the basis of his or her opinion, and where an expert’s
testimony is based upon facts sufficient to form an opinion, the trier of fact must weigh its probative
value. Small v. Pioneer Machinery, Inc., 329 S.C. 448, 470, 494 S.E.2d 835, 846 (Ct. App. 1997).
10. “[E]xpert testimony is essential in cases which involve a subject of special technical
science, skill, or occupation of which the members of the jury or the trial court are not presumed to
be specially informed.” 32A C.J.S. Evidence § 729, at 85 (1996). For example, the South Carolina
Supreme Court has held that, in medical malpractice cases, “the plaintiff must use expert testimony
. . . unless the subject matter lies within the ambit of common knowledge and experience, so that no
special learning is needed to evaluate the conduct of the defendant.” Pederson v. Gould, 288 S.C.
141, 143, 341 S.E.2d 633, 634 (1986).
11. In general, “expert opinion evidence is to be considered or weighed by the triers of
the facts like any other testimony or evidence . . . [;] the triers of fact cannot, and are not required
to, arbitrarily or lightly disregard, or capriciously reject, the testimony of experts or skilled witnesses,
and make an unsupported finding to the contrary of the opinion.” 32A C.J.S. Evidence § 727, at 82-83 (1996). However, the trier of fact may give an expert’s testimony the weight he or she determines
it deserves. Florence County Dep’t of Soc. Servs. v. Ward, 310 S.C. 69, 72-73, 425 S.E.2d 61, 63
(Ct. App. 1992). Further, the trier of fact may accept the testimony of one expert over that of
another. See S.C. Cable Television Ass’n v. S. Bell Tel. & Tel. Co., 308 S.C. 216, 417 S.E.2d 586
(1992).
12. Rule 803(8) of the South Carolina Rules of Evidence creates an exception to the
general inadmissability of hearsay and allows certain public records and reports to be introduced into
evidence for the truth of the matters asserted therein, even though those assertions were made as out-of-court, unsworn statements. Rule 803(8), SCRE. However, this exception “applies only to
documents prepared by public officials or employees under their supervision in the performance of
their official duties.” 32A C.J.S. Evidence § 836, at 228 (1996); see also Rule 803(8), SCRE
(exempting “[r]ecords, reports, statements, or data compilations, in any form, of public offices or
agencies, setting forth (A) the activities of the office or agency, or (B) matters observed pursuant to
duty imposed by law as to which matters there was a duty to report” from the prohibition upon
hearsay evidence) (emphasis added). Therefore, “[l]etters written by private persons to public
officials do not become public documents admissible in evidence as such because they are retained
in the official files.” 32A C.J.S. Evidence § 836, at 228; see also, e.g., State v. Scurti, 792 N.E.2d
224, 228 (Ohio Ct. App. 2003) (holding that “[i]nformation created by a secondary source, a
nonpublic source, and placed in a public agency’s file will not be automatically converted into a public
record for the purposes of [the public-records hearsay exception]” and noting that the presumption
of the reliability of agency statements underlying the exception does not “exist[] for the actions of
nonpublic servants providing information to the agency”). Accordingly, the LaRussa affidavit, as
hearsay, cannot be admitted into evidence in this de novo hearing for the truth of the matter asserted
therein under the public-records exception in Rule 803(8), SCRE, even though the document was
included in DHEC’s file on InMed’s NAD application.
13. A finder of fact is free to determine the value of real property within the range of the
evidence presented at trial. See Smith v. Newberry County Assessor, 350 S.C. 572, 578-79, 567
S.E.2d 501, 504 (Ct. App. 2002) (citing to City of Folly Beach v. Atlantic House Props., Ltd., 318
S.C. 450, 458 S.E.2d 426 (1995)).
Total Project Cost
14. The crux of the instant matter is whether the total project cost for Respondent
InMed’s MRI facility exceeds $600,000, and thus requires authorization by a CON issued by the
Department before being placed in operation. The CON regulations define “total project cost” as
the estimated total capital cost of a project including land cost, construction, fixed and
movable equipment, architect’s fee, financing cost, and other capital costs properly
charged under generally accepted accounting principles [or GAAP] as a capital cost.
The determination of project costs involving leased equipment o[r] buildings will be
calculated based on the total value (purchase price) of the equipment or building being
leased.
24A S.C. Code Ann. Regs. 61-15 § 103(25) (Supp. 2003).
15. Fixed assets are “tangible property used in a productive capacity that will benefit the
enterprise for a period of more than one year.” Patrick R. Delaney et al., Wiley GAAP 2004, at 315
(2003). Accordingly, the reasonable costs involved in bringing such assets into production are
capitalized under GAAP.
Id. In contrast, “when an asset either is consumed in an entity’s central
operations or is no longer expected to provide the level of future benefits expected when that asset
was recognized,” the cost of acquiring the asset is treated as an operating expense, not a capital cost.
Id. at 64.
16. In the case at hand, I find that the testimony of Petitioner’s accounting expert, Mr.
Burkett, regarding the capital cost of InMed’s MRI project deserves greater weight than that of
DHEC’s employees or InMed’s accountant, Mr. Pietras, concerning that cost. This credibility gap
is exemplified in the manner in which the two sides evaluated the two largest costs for the project:
the lease for the MRI machine and the lease for the office condominium. Mr. Burkett valued the MRI
machine at $400,000, before taxes, by relying principally upon a vendor quote from Hitachi, the
company that manufactured and maintained the machine, and InMed’s offer to purchase the machine
from DVI Financial; both the vender quote and the offer to purchase valued the MRI machine at
$400,000. In contrast, Mr. Pietras disregarded this credible evidence of the value of the machine, and
instead relied exclusively upon the affidavit produced by Ms. LaRussa in valuing the MRI machine
at a mere $285,000; likewise, DHEC relied solely upon Ms. LaRussa’s affidavit in determining the
value of the machine, despite the fact that InMed had, in prior documentary submissions, represented
to the Department that the value of the machine was $400,000. Similarly, Mr. Burkett relied upon
a recent, credible appraisal conducted on the facility’s property by Mr. Beckham to conclude that the
value of the real estate was $122,500. In reaching their conclusions as to the land value, Mr. Pietras
and DHEC relied upon appraisals that, although more credible than InMed’s initial appraisal of
$65,000, were affected by certain factual and procedural errors that reduced the appraisal value of
the property. When these errors are accounted for, e.g., by adjusting the 2002 Hucks appraisal for
appreciation between 2002 and 2003, these appraisals arrive at values comparable to that determined
by Mr. Beckham. Given the fact that DHEC’s employees and InMed’s expert relied upon markedly
less probative evidence when calculating the costs for these two critical purchases, I am compelled
to accept and rely upon the testimony and valuations of MedQuest’s CPA, Mr. Burkett, over the
testimony presented by the witnesses for InMed and the Department.
17. Accordingly, I find that the preponderance of the evidence presented in this matter
indicates that the total project cost for InMed’s MRI project in Myrtle Beach is $619,281. Therefore,
I further find that DHEC erroneously issued NA-03-36 to InMed for that project, and that InMed’s
proposed facility should be subject to review under the CON Act, S.C. Code Ann. § 44-7-110 et seq.
(2002), and the accompanying regulations, 24A S.C. Code Ann. Regs. 61-15 (Supp. 2003).
ORDER
Based upon the Findings of Fact and Conclusions of Law stated above,
IT IS HEREBY ORDERED that, because the Department’s decision to issue non-applicability determination NA-03-36 to Respondent InMed was in error, InMed must cease and
desist operation of its MRI facility in Myrtle Beach, South Carolina, unless and until such time as it
obtains a Certificate of Need from the Department for the acquisition and operation of the MRI
facility.
AND IT IS SO ORDERED.
______________________________
JOHN D. GEATHERS
Administrative Law Judge
Post Office Box 11667
Columbia, South Carolina 29211-1667
August 2, 2004
Columbia, South Carolina |
