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From Health Law Daily, July 14, 2016

Denial of CON for new psych and substance abuse hospital not improper

By Harold Bishop, J.D.

The review of a certificate of need (CON) application to establish a new acute care psychiatric and substance abuse hospital was not performed in an arbitrary and capricious manner by the Georgia Department of Community Health (DCH). After a trial court reversed the DCH decision to deny the CON, the court of appeals reversed the trial court, finding: (1) no statutory or regulatory requirement that the DCH reviewer take notes or perform his own need and adverse impact analysis; (2) no showing that the DCH failed to comply with a requirement to put the applicant on notice of potential problems with architectural and construction costs; and (3) notwithstanding the trial court’s conclusion that Georgia’s service-specific need rule for CON’s is unconstitutional, there were other legitimate grounds for the DCH to deny the CON (Tanner Medical Center, Inc. v. Vest Newnan, LLC, July 12, 2016, Boggs, M.).

Background. In August 2013, Vest Newnan, LLC d/b/a Newnan Behavioral Hospital (Vest) filed a CON application to establish a new freestanding 60-bed acute care psychiatric and substance abuse inpatient hospital in Coweta County, Georgia. After review, the DCH denied the application.

The Georgia CON program establishes a comprehensive system of planning for the orderly development of adequate health care services throughout the state. Under Georgia law, the DCH will issue a CON that is consistent with a list of general considerations, including the establishment of a need for the services. Under DCH regulations, "need" is based on several factors, including area population and the use of existing services.

Administrative hearing. After an administrative hearing, a hearing officer affirmed DCH’s denial of the CON. The hearing officer concluded that Vest did not show a need for a new psychiatric inpatient program, that it had not met its burden of establishing that its proposed project’s costs and methods of construction were reasonable and adequate, and that it had not met its burden of establishing no adverse impact on similar existing and approved programs in the planning region. Vest appealed the hearing officer’s decision to the DCH Commissioner, who affirmed the hearing officer’s decision.

Judicial review. Vest, Coweta County, and the City of Newnan appealed the denial of the CON to the Coweta County Superior Court (trial court). Three other healthcare providers, Tanner Medical Center, Inc. d/b/a Tanner Medical Center-Villa Rica, UHS of Anchor, LP, and RiverWoods Behavioral Health, LLC, who opposed Vest’s CON application (the opposing hospitals) intervened in support of DCH.

The trial court reversed the decision of the DCH, finding that the service-specific need rule is unconstitutional on its face, and that the adverse impact and relationship to the delivery system analysis rests upon the unconstitutional service-specific need rule. The court also concluded that the manner in which DCH reviewed Vest’s application was arbitrary and capricious because the DCH reviewer did not take notes during his review or perform any need or adverse impact analysis, and because Vest had no notice that architectural and construction costs were considered an issue. DCH and the opposing hospitals both appealed the decision of the trial court to the Georgia Court of Appeals.

Court of appeals. As an initial consideration, the court of appeals held that venue was proper in Coweta County, Georgia because this was Vest’s principal place of business in the state. The court made this determination because Vest listed a Coweta County address on its CON application and submitted a letter of intent to purchase property in Coweta County.

Next the court of appeals addressed the argument that the trial court erred in concluding that the DCH reviewed Vest’s application in an arbitrary and capricious manner. The court found that there was no statutory or regulatory requirement that the DCH reviewer take notes or perform his own need and adverse impact analysis. As such, the trial court erred in finding that the review procedure employed by DCH was arbitrary and capricious on this ground.

The court of appeals also noted that DCH regulations require that if the department finds problems with the CON application during the first two months of review it is required to describe those problems and allow the applicant an opportunity to submit additional information. The court found, however, that there was no showing that DCH failed to comply with this notice requirement. But moreover, even if Vest was not put on notice of potential problems with architectural and construction costs until DCH’s initial decision, the court found that Vest had a full opportunity to submit evidence on this issue before the hearing officer. The court concluded that DCH did not act arbitrarily or capriciously on the notice ground.

The court of appeals also found that notwithstanding the trial court’s conclusion that the service-specific need rule is unconstitutional, there were other grounds to deny Vest’s application. In addressing this issue, the court of appeals noted that the trial court relied only on the hearing officer’s decision to conclude that adverse impact and relationship to the delivery system are inextricably tied to need methodologies. Specifically, the trial court relied on the hearing officer’s statement that Vest’s proposed service area population is too small to generate sufficient incremental growth to support a new 60-bed hospital, and its projected patient volume largely is dependent on the redirection of admissions from existing providers. The court of appeals concluded that the fact that Vest’s need calculations may have been considered in evaluating whether there would be an adverse impact on other providers, did not automatically invalidate the adverse impact consideration of the DCH.

The court of appeals further found the even if the conclusion of the hearing officer (and relied on by the trial court) could somehow be construed as an improper incorporation of a need analysis into the analysis of adverse impact, the hearing officer also made other findings in support of the adverse impact conclusion: (1) Vest’s impact analysis was based on an unrealistic projection that all of its patients will originate solely from the proposed service area, (2) an unrealistic projection that the volume of service area psychiatric and substance abuse cases will nearly double in the next few years alone, and (3) an overinflated market share.

In light of its reversal of the trial court’s judgment and affirmance of DCH’s denial of the CON on other grounds, the court of appeals made no decision with regard to the trial court’s ruling that the need rule is unconstitutional.

The case Nos. are A16A0120 and A16A0121.

Attorneys: Kathlynn Butler Polvino (KBP Law, PC) and Robert Michael Rozier (McKenna Long & Aldridge LLP) for Tanner Medical Center, Inc. d/b/a Tanner Medical Center-Villa Rica. Isaac Byrd (Byrd & Associates, PLLC) for Georgia Department of Community Health. John Ryan Hood (Owen Gleaton Egan Jones & Sweeney, LLP) and Jason Edward Bring (Arnall Golden Gregory LLP) for Vest Newnan, LLC d/b/a Newnan Behavioral Hospital.

Companies: Tanner Medical Center, Inc. d/b/a Tanner Medical Center-Villa Rica; Vest Newnan, LLC d/b/a Newnan Behavioral Hospital; UHS of Anchor, LP; RiverWoods Behavioral Health, LLC; Georgia Department of Community Health

MainStory: TopStory CaseDecisions CONNews IPFNews GeorgiaNews

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