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HealthSouth of Alabama, LLC v. Shelby Ridge Acquisition Corp.

Alabama Court of Civil Appeals

June 12, 2015

HealthSouth of Alabama, LLC
v.
Shelby Ridge Acquisition Corporation d/b/a Shelby Ridge Rehabilitation Hospital Alabama State Health Planning and Development Agency
v.
Shelby Ridge Acquisition Corporation d/b/a Shelby Ridge Rehabilitation Hospital Shelby Ridge Acquisition Corporation d/b/a Shelby Ridge Rehabilitation Hospital
v.
HealthSouth of Alabama, LLC, and Alabama State Health Planning and Development Agency Shelby Ridge Acquisition Corporation d/b/a Shelby RidgeRehabilitation Hospital
v.
HealthSouth of Alabama, LLC, and Alabama State Health Planning and Development Agency

Appeal from Montgomery Circuit Court Nos. CV-12-901209, CV-11-474, CV-13-900548

DONALDSON, Judge.

These appeals relate to proceedings arising from requests by health-care providers to build an inpatient physical-rehabilitation hospital in Shelby County. The requests were addressed separately in administrative proceedings and in the Montgomery Circuit Court ("the trial court"). The appeals from the judgments entered by the trial court were consolidated by this court.

The complex, frustrating, and costly procedural histories of these appeals arise from an administrative process required to be followed before a demonstrated health-care need can be met. We are required by current law to conduct a judicial review of the administrative decisions, applying standards provided by the legislature. We cannot change the applicable statutes or rules promulgated pursuant to those statutes, and we must apply the legislatively required standard of review to the facts.

In appeal no. 2120872 and appeal no. 2120907, HealthSouth of Alabama, LLC ("HealthSouth"), and the Alabama State Health Planning and Development Agency("SHPDA"), respectively, appeal from a judgment of the trial court insofar as it reversed SHPDA's decision to grant a Certificate of Need ("CON") to HealthSouth for 17 inpatient physical-rehabilitation beds ("the SHP-adjustment beds") that had been approved for use in Shelby County in the State Health Plan ("SHP"). HealthSouth and SHPDA also appeal from the judgment of the trial court insofar as it reversed SHPDA's denial of a CON to Shelby Ridge Acquisition Corporation d/b/a Shelby Ridge Rehabilitation Hospital ("Shelby Ridge") for the SHP-adjustment beds and ordered SHPDA to issue a CON to Shelby Ridge for those beds.

In appeal no. 2130628, Shelby Ridge appeals from the trial court's judgment denying its challenge to a CON issued to HealthSouth to operate 17 inpatient physical-rehabilitation beds that were formerly operated in Birmingham ("the Carraway beds") under a CON previously issued to Physicians-Carraway Medical Center f/k/a Carraway Methodist Medical Center ("Carraway").

In appeal no. 2130515, Shelby Ridge appeals the trial court's judgment denying its request for a ruling declaring that SHPDA lacked jurisdiction over HealthSouth's CON application to operate the Carraway beds.

Background

A. Legal Framework

In order "to prevent the construction of unnecessary and inappropriate health care facilities, " the Alabama Legislature has determined that the construction and operation of health-care facilities in Alabama should be regulated pursuant to a scheme that provides "a system of mandatory reviews of institutional health services." § 22–21–261, Ala. Code 1975. To accomplish this purpose, the legislature has enacted comprehensive regulatory statutes in Title 22, Chapter 21, Article 9, § 22-21-260 et seq., Ala. Code 1975. Any entity or individual planning to furnish a "new institutional health service" in this state must first obtain a CON from SHPDA's Certificate of Need Review Board ("the CONRB"):[1]

"(a) On or after July 30, 1979, no person to which this article applies shall acquire, construct, or operate a new institutional health service, as defined in this article, or furnish or offer, or purport to furnish a new institutional health service, as defined in this article, or make an arrangement or commitment for financing the offering of a new institutional health service, unless the person shall first obtain from the SHPDA a certificate of need therefor. ... "

§ 22-21-265, Ala. Code 1975.

Pursuant to the regulatory scheme established by the legislature, the Statewide Health Coordinating Council ("SHCC") develops the SHP subject to the approval of the Governor. "The [SHP] is a comprehensive plan prepared by the [SHCC] to provide for the 'development of health programs and resources to assure that quality health services will be available and accessible in a manner which assures continuity of care, at reasonable costs, for all residents of the state.'" Auburn Med. Ctr., Inc. v. East Alabama Health Care Auth., 583 So.2d 1342, 1343 (Ala. Civ. App. 1990)(quoting former § 22-21-260(4), now § 22-21-260(13), Ala. Code 1975). Proposed institutional health services must be consistent with the SHP:

"(a) All new institutional health services which are subject to this article and which are proposed to be offered or developed within the state shall be subject to review under this article. No institutional health services which are subject to this article shall be permitted which are inconsistent with the State Health Plan. For the purposes of this article, new institutional health services shall include any of the following:
"(1) The construction, development, acquisition through lease or purchase, or other establishment of a new health care facility or health maintenance organization. ...
"....
"(3) A change in the existing bed capacity of a health care facility or health maintenance organization through the addition of new beds, the relocation of one or more beds from one physical facility to another...."

§ 22-21-263, Ala. Code 1975.

B. Appeal No. 2130628: Submission of HealthSouth's CON Application to Relocate the Carraway Beds

On July 29, 2009, SHPDA approved HealthSouth's acquisition of the Carraway beds. Carraway had ceased operations on October 31, 2008. Pursuant to Ala. Admin. Code (SHPDA), Rule 410-1-11-.08(2), a CON is considered abandoned if provision of the service for which it was issued -- in this case, the use of the Carraway beds -- is suspended for over a year. On September 11, 2009, HealthSouth submitted to SHPDA a letter of intent to relocate the Carraway beds to a proposed 34-bed, inpatient, physical-rehabilitation hospital to be constructed in Shelby County.

On October 20, 2009, HealthSouth filed a CON application with SHPDA, stating, in part:

"This application seeks to relocate seventeen (17) inpatient rehabilitation beds previously in service at Physicians-Carraway Medical Center f/k/a Carraway Methodist Medical Center in Birmingham, Alabama, and place them in a thirty-four (34) bed facility to be constructed in Shelby County close to Shelby Baptist Medical Center. Approval for an additional seventeen (17) beds will be sought in another CON application to be filed at a later date....
"HealthSouth considers the need for inpatient rehabilitation beds in Alabama's fastest growing county, Shelby County, so great that it justifies this approach to obtaining CON approval, HealthSouth Corporation considers a thirty-four (34) bed facility the minimum number of beds required to make the project economically feasible and clinically efficient and expects to file a subsequent CON application to add another seventeen (17) beds to the proposed facility and bring it to full capacity. ..."

In the application, HealthSouth described some options regarding the separate CON application referenced in the application. One alternative was to seek an adjustment to the SHP to add to the permissible number of inpatient physical-rehabilitation beds in Shelby County and, if the adjustment was approved, "to file a separate CON application for the placement of these beds in [the proposed] facility so that there would be a full complement of thirty-four (34) beds." All the projected data and cost estimates in the application pertained to the operation and construction of a 34-bed facility.

Pursuant to the SHP, Shelby County is located in Region III. According to the SHP, on November 2, 2009, Region III had a total of 289 existing inpatient physical-rehabilitation beds, concentrated in Jefferson County, resulting in an excess of 125 beds for the region. There were no existing inpatient physical-rehabilitation beds located in Shelby County at the time. The statistics in the record show a decline in the occupancy rate for the beds in Region III from 71.3% in 2005 to 58.7% in 2007.

On December 4, 2009, Shelby Ridge filed a notice of intervention and opposition to HealthSouth's project. On December 15, 2009, Shelby Ridge filed a contest of HealthSouth's CON application and a request for a hearing before an administrative-law judge ("ALJ"), pursuant to § 22–21–275(6), Ala. Code 1975, and Ala. Admin. Code (SHPDA), Rules 410-1-8-.01 and -.02.[2] SHPDA granted Shelby Ridge's request and appointed an ALJ on December 21, 2009. Beginning in December 2010, the proceeding before the ALJ was stayed for nearly two years upon motions by both parties.

C. Appeal Nos. 2120872 and 2120907: CON for SHP-Adjustment Beds in Shelby County

Upon petition by HealthSouth, the SHCC and Governor Robert Bentley approved the adjustment of the SHP to indicate the need for the SHP-adjustment beds on September 15, 2011. Columbiana Health & Rehab., LLC v. Statewide Health Coordinating Council, 138 So.3d 305, 308 (Ala. Civ. App. 2013)(affirming the denial of a challenge to the adoption of the SHP adjustment).

HealthSouth and Shelby Ridge both applied to obtain a CON for the available SHP-adjustment beds. HealthSouth sought to build a facility for the SHP-adjustment beds with expansion space in the proposed facility for an additional 17 inpatient physical-rehabilitation beds, for a total of 34 beds. HealthSouth hoped to fill the space for the additional 17 beds with the CON it was seeking in the application to relocate the Carraway beds.

Shelby Ridge's CON application for the SHP-adjustment beds proposed a 17-bed, inpatient, physical-rehabilitation hospital located on the Shelby Ridge Nursing Home campus in Alabaster next to its existing 131-bed skilled-nursing facility. Shelby Ridge's proposed facility would share services, space, and staff with the existing nursing facility. Shelby Ridge's proposed facility did not include planned space for additional inpatient physical-rehabilitation beds beyond the 17 beds approved in the SHP for Shelby County at that time.

Pursuant to § 22–21–275(6) and Rules 410–1–8–.01 and –.02, HealthSouth and Shelby Ridge contested each other's applications, and an ALJ was appointed to hear the issues. The ALJ considered the applications together pursuant to Ala. Admin. Code (SHPDA), Rule 410-1-7-.19, which provides for a comparative review of applications proposing similar types of facilities that affect the same health-service area. Sections 22-21-264 and -266, Ala. Code 1975, provide the required criteria to be considered in reviewing and approving CON applications. Those criteria include, among other factors, an assessment of cost containment, financial feasibility, and quality of patient care. Pursuant to administrative rules, the applicant for a CON has the burden of producing evidence to support an application. Rule 410-1-6-01, Ala. Admin. Code (SHPDA).

The ALJ heard testimony from witnesses presented by both HealthSouth and Shelby Ridge, and various documents were presented. The ALJ produced a 51-page recommended order with detailed findings of fact and conclusions of law. The ALJ recommended that the CONRB grant HealthSouth's application for the 17-bed CON and deny Shelby Ridge's application. Shelby Ridge filed exceptions with the CONRB to the ALJ's recommended order as authorized by administrative rules. The CONRB conducted a hearing on the applications. At the hearing, in response to a question asked by the CONRB, HealthSouth committed to operating the 17 beds in its proposed facility if it received a CON regardless of whether it received approval for any additional beds in the future, including approval for relocating the Carraway beds to Shelby County:

"[CONRB member]: Mr. Chairman, I'm inclined to second [the motion to affirm the ALJ's decision] if I'm allowed a point of order to ask ... a business person from HealthSouth to ... absolutely reassure us that if the shell is built for 34 [beds] and if you're unable to get the 17 transferred, that you would in fact continue to provide the clinical service -- because ultimately it's about what we can offer the people there -- and that you will not cease to operate that facility if, for some reason, you are unable to get the other 17 transferred there....
"[HealthSouth representative]: We're very committed to this project; we have been for four years. We will build this hospital....
"THE CHAIRMAN: Let me make sure I understood you. You're saying irregardless of what happens, you're going to keep this facility open with 17 beds?
"[HealthSouth representative]: We will open it and operate it.
"THE CHAIRMAN: ... [The] motion is to approve the 17 beds, and if the facility is built with 34 and the other 17 beds are not granted in the future, you're still going to operate this for the people of Shelby County.
"[HealthSouth representative]: We will."

Following the hearing, the CONRB issued a brief order on September 12, 2012, adopting the findings of fact and conclusions of law in the ALJ's recommended order. The CONRB denied Shelby Ridge's application and granted HealthSouth's application for a CON to use the SHP-adjustment beds. The CONRB's order and the issued CON recognized HealthSouth's plan to seek a CON to operate the Carraway beds at its proposed facility and its intention to ultimately operate a 34-bed facility. However, the CON specifically states that it "was granted with the stipulation for [HealthSouth] to commence operations of the seventeen (17) approved beds regardless of whether CON approval is obtained for the pending transfer of the [Carraway] beds ... to the same facility."

Pursuant to § 41-22-20(b), Ala. Code 1975, Shelby Ridge petitioned for judicial review of the CONRB's decision to the trial court. After hearing arguments from counsel, the trial court entered a judgment on April 12, 2013, reversing the decision.[3] The trial court found that HealthSouth's CON application was inconsistent with the SHP because, it determined, the evidence showed that HealthSouth was actually seeking to build and operate a 34-bed hospital. According to the trial court, the proposed 34-bed hospital was inconsistent with the SHP because only 17 inpatient physical-rehabilitation beds had been approved for Shelby County. The trial court also found that the proposed facility was located in a region that already had too many inpatient physical-rehabilitation beds and in which similar facilities were being underutilized. Therefore, the trial court reversed the decision of the CONRB to issue a CON to HealthSouth for the SHP-adjustment beds.

The trial court further found that Shelby Ridge's application was consistent with the SHP and ordered the CONRB to approve Shelby Ridge's application for the CON. HealthSouth and SHPDA both filed motions to alter, amend, or vacate the trial court's judgment, which were denied by the trial court. HealthSouth and SHPDA each filed a timely notice of appeal with this court, and those appeals were docketed as appeal nos. 2120872 and 2120907.

D. Appeal No. 2130628: CON to Relocate the Carraway Beds

On August 21, 2012, the ALJ lifted the stay that had been issued in 2010 of the proceeding regarding HealthSouth's CON application to relocate the Carraway beds ("the relocation-bed CON"). The proceeding regarding the relocation-bed CON progressed before SHPDA parallel to the proceeding regarding the CON for the SHP-adjustment beds before the trial court. In October 2012, the ALJ appointed to consider the application for the relocation-bed CON conducted a hearing that lasted six days. On December 17, 2012, the ALJ issued an order recommending that HealthSouth's application be denied. The ALJ found, among other things, that the application, which was based on HealthSouth's intent to build a 34-bed facility, was inconsistent with the SHP and that, pursuant to administrative rules, the application for the relocation-bed CON had been abandoned. The ALJ also found that HealthSouth had failed to show that its proposal was financially feasible because, the ALJ determined, HealthSouth had not presented sufficient information regarding the operation of the 17 Carraway beds because all the construction costs, operating costs, and revenue projections provided by HealthSouth pertained only to a 34-bed facility.

On January 16, 2013, the parties met before the CONRB for consideration of HealthSouth's application for the relocation-bed CON. After the presentation of arguments, the CONRB rejected the recommendation of the ALJ and approved HealthSouth's application for the relocation-bed CON. On January 31, 2013, the CONRB chairman issued a "Ruling of the [CONRB]" finding that the CON application was consistent with the version of the SHP in effect at the time HealthSouth submitted its application, that HealthSouth's acquisition of the initial CON for Carraway beds was valid, that the initial CON for the Carraway beds had not been abandoned, that the proposed facility would be financially viable, and that alternatives to HealthSouth's project had been studied and were found to be not practicable. On March 4, 2013, the relocation-bed CON was issued to HealthSouth.

On March 29, 2013, Shelby Ridge petitioned the trial court for judicial review of SHPDA's order granting HealthSouth the relocation-bed CON. On October 9, 2013, and January 13, 2014, the trial court heard arguments from the parties.[4] On February 10, 2014, the trial court entered a final judgment affirming the CONRB's grant of the relocation-bed CON to HealthSouth. On March 12, 2014, Shelby Ridge filed a motion to alter, amend, or vacate the trial court's judgment, requesting a hearing. On March 18, 2014, the trial court denied Shelby Ridge's postjudgment motion without holding a hearing. On April 29, 2014, Shelby Ridge filed a notice of appeal, and that appeal was docketed as appeal no. 2130628.

E. Appeal No. 2130515: Shelby Ridge's Jurisdictional Challenge

On January 5, 2011, Shelby Ridge petitioned SHPDA for a declaratory ruling pursuant to Rule 410-1-9-.01, Ala. Admin. Code (SHPDA), asserting that SHPDA lacked jurisdiction over HealthSouth's application for the relocation-bed CON. Shelby Ridge asserted that the CON application was inconsistent with the SHP and should have be dismissed. On January 18, 2011, Governor Bentley placed a moratorium on processing CON applications that lasted until February 9, 2011. As a result, SHPDA canceled the hearing scheduled for consideration of Shelby Ridge's petition challenging jurisdiction. Under § 41-22-11(b), Ala. Code 1975, the "[f]ailure of the agency to issue a declaratory ruling on the merits within 45 days of the request for such ruling shall constitute a denial of the request as well as a denial of the merits of the request and shall be subject to judicial review." Because a ruling was not issued within 45 days, the petition of Shelby Ridge was denied pursuant to the statute.

On April 14, 2011, Shelby Ridge filed a complaint for declaratory relief in the trial court, challenging the jurisdiction of SHPDA over the application for the relocation- bed CON, and, in the alternative, for judicial review of SHPDA's denial of its request for a declaratory ruling. Shelby Ridge sought a judgment declaring that the alleged inconsistency of HealthSouth's CON application with the SHP deprived SHPDA of jurisdiction to consider the CON application or to issue the CON. On December 8, 2011, the trial court entered an order appointing a special master ("the special master") to hear all matters in the proceeding and to submit a recommendation to the trial court.

On September 13, 2012, the special master conducted a final hearing. On January 14, 2013, the special master issued his report recommending the entry of a judgment granting Shelby Ridge's request for a ruling specifically declaring that SHPDA lacked jurisdiction over HealthSouth's application on the basis that HealthSouth's application was inconsistent with the SHP. On January 22, 2013, Shelby Ridge filed a motion, pursuant to Rule 53, Ala. R. Civ. P., requesting that the trial ...


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