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From Health Law Daily, September 16, 2016

Hearing officer not entitled to do-over, should defer to state agency

By Harold Bishop, J.D.

In an administrative hearing reviewing the decision by a state agency to deny a certificate of need application for a new kidney and pancreas transplant facility, the administrative law judge (ALJ) failed to limit herself to the administrative record developed by the state agency. Instead, the ALJ review was de novo; i.e., it incorporated new and repackaged evidence regarding the merits of the application. As such, rather than deferring to the state agency’s decision, the ALJ made her own determination that the applicant had "presented substantial evidence of need" for a new transplant facility and thus should receive a certificate of need. Because the ALJ exceeded her reviewing authority, the D.C. Court of Appeals reversed her decision (Medstar Health, Inc. v. District of Columbia Department of Health, September 15, 2016, Easterly, C.).

Background. District Hospital Partners (DHP) applied to the Statewide Health Planning and Development Agency (SHPDA) for a certificate of need to build a new kidney and pancreas transplant facility in the District of Columbia (District). SHPDA denied the application and DHP appealed to the Office of Administrative Hearings (OAH).

At the OAH hearing, the ALJ allowed DHP to present a variety of evidence not previously presented to SHPDA. This included both documentary evidence and testimonial evidence from some witnesses who were testifying anew and others who had not previously testified. The OAH overturned SHPDA’s denial and ordered it to issue a certificate of need to DHP.

MedStar Health, Inc., a competing kidney and pancreas transplant provider, and SHPDA both challenged the OAH’s decision in the D.C. Court of Appeals. They argued that the OAH overstepped its statutory authority by failing to give deference to SHPDA’s fact finding and conclusions. DHP countered that the OAH acted lawfully by taking new evidence and assessing the propriety of SHPDA’s decision-making in light of the augmented record.

Applicable law. The D.C health services planning statute, D.C. Code §§ 44-401 to 44-421, regulates the volume and distribution of health services in the District. The statute requires any entity seeking to offer a new health service in the District to first obtain a certificate of need from SHPDA. The statute directs appeals of SHPDA’s certificate of need decisions to the OAH. The court was required to determine the scope of the OAH’s authority to take new evidence and to overturn a decision made by SHPDA.

Court’s analysis. According to the court, the state health planning statute does not clearly specify the standard of review the OAH should employ when reviewing SHPDA’s certificate of need decisions. Instead, the pertinent provision, D.C. Code § 44-413, contains seemingly conflicting language regarding the amount of deference, if any, the OAH owes to SHPDA. Interpreting this ambiguous provision, the court concluded that the OAH was not empowered to do what it did in this case, i.e., conduct an evidentiary do-over and effectively assume new decision-making authority over the issuance of certificates of need.

Because OAH exceeded its authority in reviewing SHPDA’s decision to deny DHP a certificate of need, the court reversed the OAH. The court, however, declined MedStar’s request that it reinstate SHPDA’s order denying DHP a certificate of need. Instead, the court remanded the case to the OAH with instructions to remand to SHPDA so that it may determine, in light of current circumstances, whether it should adhere to its prior denial or allow DHP’s certificate of need to remain in place.

The case is No. 14-AA-328.

Attorneys: Daniel W. Wolff (Crowell & Moring LLP) for Medstar Health, Inc.; Mary L. Wilson (Law Office of Mary L. Wilson) for District of Columbia Department of Health and State Health Planning and Development Agency.

Companies: Medstar Health, Inc.; District Hospital Partners; District of Columbia Department of Health; State Health Planning and Development Agency

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