Attala County Board of Supervisors v. Mississippi State Department of Health ( 2002 )

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2002-CA-01957-SCT
ATTALA COUNTY BOARD OF SUPERVISORS d/b/a
ATTALA CARE CENTER
v.
MISSISSIPPI STATE DEPARTMENT OF HEALTH
AND GARRY V. HUGHES d/b/a THE KENNINGTON
DATE OF JUDGMENT: 10/21/2002
TRIAL JUDGE: HON. JOHN C. LOVE, JR.
COURT FROM WHICH APPEALED: ATTALA COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANT: JULIE ANN BOWMAN
ANDY LOWRY
THOMAS L. KIRKLAND, JR.
ATTORNEYS FOR APPELLEES: ROBERT RICHARD CIRILLI, JR.
EDMUND L. BRUNINI, JR.
SARAH E. BERRY
NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES
DISPOSITION: AFFIRMED - 02/26/2004
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
BEFORE PITTMAN, C.J., EASLEY AND DICKINSON, JJ.
EASLEY, JUSTICE, FOR THE COURT:
PROCEDURAL HISTORY
¶1. On June 27, 2002, the Mississippi State Department of Health (MSDH) awarded a certificate of
need (CON) to Garry V. Hughes (Hughes), d/b/a the Kennington for the construction of a 60-bed nursing
home in Attala County, Mississippi. There were four applicants: (1) Hughes d/b/a the Kennington; (2) the
Attala County Board of Supervisors (the Board) d/b/a Attala Care Center; (3) Attala Health Care Center,
Inc.; and (4) Sentry North, L.P. (Sentry) d/b/a Sentry Attala. The Board was the only applicant to timely
appeal the MSDH's decision to the Chancery Court of Attala County pursuant to Miss. Code Ann. § 41-
7-201(2) (Rev. 2001). The chancery court issued its decision affirming the CON award to Hughes and
denied the Board's motion for reconsideration.1 The Board now appeals to this Court.
FACTS
¶2. The Mississippi Legislature authorized MSDH to award a CON to build a 60-bed skilled nursing
facility (nursing home) in Attala County. On June 1, 2001, the MSDH received four CON applications
for the construction of a 60-bed nursing home in Attala County. After finding that all four of the CON
applications were complete, the MSDH's CON division entered the applications into the July 2001 review
cycle.
¶3. The CON review process follows the steps set forth in the Certificate of Need Review
Manual (the Manual) published by the MSDH. Step one is to file a notice of intent to seek a CON.
Step two is to submit the full CON application in accordance with the Manual. If an application is found
to be incomplete by MSDH, supplemental information may be filed within a month after the initial filing
deadline. Step three is for the MSDH staff to analyze those applications which are substantially complete
and compliant and to recommend whether they should be approved or rejected. Where there exists
competing nursing home applicants for the same CON, as in this case, the staff rates the applicants on a
point scale out of ten categories.
1
The hearing officer adopted verbatim Hughes's proposed findings of fact, conclusions of law
and recommendation, and two days later, the State Health Officer (SHO) adopted verbatim the hearing
officer's report. The chancery court stated in its memorandum opinion and judgment that it was aware that
the findings of fact and conclusions of law signed by the hearing officer were adopted verbatim from those
prepared by Hughes's counsel. Therefore, the chancery court applied a "heightened scrutiny" and "analyzed
such findings with greater care," citing Brooks v. Brooks, 652 So. 2d 1113, 1118 (Miss. 1995);
OmniBank v. United S. Bank, 607 So. 2d 76, 83 (Miss. 1992); Greenwood Utils. v. Williams, 801
So. 2d 783, 788 (Miss. Ct. App. 2001).
2
¶4. The MSDH's CON staff (the Staff) determined that all four applications were in substantial
compliance with the applicable policy statements, standards and criteria in the Fiscal Year 1999
Mississippi State Health Plan (the Plan). After finding substantial compliance with the Plan, the
Staff applied the comparative scoring methodology for competing applicants contained in the Manual to
rank the applicants. The Manual established factors that the MSDH must consider in cases where there
exists competing CON applications. The factors are derived from the Plan and designed to promote the
policies contained in the Plan. These factors were considered by the Staff in ranking the applicants:
1. Size of facility; 6. Medicare Utilization;
2. Capital Expenditure; 7. Total Cost to Medicaid;
3. Cost Per Square Foot; 8. Per Diem Cost to Medicaid;
4. Cost Per Bed; 9. Continuum of Care Services;
5. Staffing; 10. Community Support.
¶5. According to the Manual, each of the factors are assigned equal weight. The application receiving
the lowest composite score in the ranking will be considered the most appropriate application. That is, the
winner of a factor will receive a score of 1, and the second place applicant will receive a score or 2, and
so forth.
¶6. In the case at hand, the comparative scoring methodology conducted by the Staff resulted in
composite scores of 16 for Hughes; 17 for Attala Health Care Center; 26 for Sentry; and 34 for the Board.
Based on these results, the Staff recommended approval of Hughes's application and disapproval of the
other three applications. Following the Staff's recommendation, both the Board and Hughes requested a
public hearing during the course of review on the Board's application. Attala County Health Care Center
and Sentry did not request a public hearing on any of the four applications. They also did not participate
in the hearing between the Board and Hughes.
3
¶7. The public hearing was held on June 5, 6 and 7, 2002, before an independent hearing officer who
was appointed by the Attorney General's Office. Hughes and the Board had legal representatives present
throughout the hearing. A total of ten witnesses testified, including Harold Armstrong (Armstrong), Chief
of the Division of Health Planning and Resources Development. A total of fifty-five exhibits were identified
or admitted into evidence.
¶8. After the hearing, the hearing officer asked the parties to submit proposed findings of fact and
conclusions of law by June 21, 2002, to permit a recommendation to the SHO before the June 27, 2002,
monthly CON meeting. Due to a delay by the court reporter in preparing the transcript, the parties
requested that the hearing officer extend the deadline for submitting proposed findings of fact and
conclusions of law to June 24, 2002.
¶9. After considering the parties' written briefs, the hearing officer concluded that the Staff's
comparative scoring methodology was sound and was properly applied by the Staff to the four competing
applications. The hearing officer recommended to the SHO that the MSDH approve Hughes's CON
application for the additional long-term nursing home beds in Attala County. The SHO agreed with the
recommendation of the Staff and the hearing officer and awarded Hughes the CON.2
¶10. The Board appealed the SHO's decision to the Chancery Court of Attala County. The chancery
court issued its memorandum opinion and judgment affirming the MSDH's decision that Hughes presented
the most appropriate CON application. While criticizing certain parts of the MSDH comparative scoring
methodology, the chancery court concluded there was substantial evidence to support the MSDH decision.
The Board's motion for reconsideration was subsequently denied by the chancery court.
2
The hearing officer adopted verbatim Hughes's proposed findings of fact, conclusions of law and
recommendation, and two days later, the SHO adopted verbatim the hearing officer's report.
4
DISCUSSION
¶11. The Court now addresses the following issues raised on appeal by the Board:
I. Whether the chancery court erred in its fundamental approach to
the appellate review of Hughes's CON application.
II. Whether the MSDH's methodology used for its comparative review
of competing CON applications was arbitrary and capricious.
III. Whether the entire selection process was hopelessly tainted by the
publicly posted data on the MSDH's website so as to render the
MSDH's subsequent ruling arbitrary and capricious.
I. Appellate Review
¶12. Miss. Code Ann. § 41-7-201(2)(f) specifies the extent of judicial review when an appeal is taken
from a final order of the MSDH. Miss. Code Ann. § 41-7-201(2)(f) provides that a SHO's CON order
can be subject to judicial review. However, the "Court's standard of review... is quite limited." St.
Dominic-Jackson Mem'l Hosp. v. Miss. State Dep't of Health, 728 So. 2d 81, 83 (Miss. 1998).
Miss. Code Ann. § 41-7-201(2)(f) provides in part:
The order shall not be vacated or set aside, either in whole or in part, except for errors of
law, unless the Court finds that the order of the State Department of Health is not
supported by substantial evidence, is contrary to the manifest weight of the evidence, is in
excess of the statutory authority or jurisdiction of the State Department of Health, or
violates any vested constitutional rights of any party involved in the appeal....
¶13. The decision rendered by the hearing officer and the SHO is "afforded great deference upon judicial
review by the court, even though we review the decision of the chancellor." St. Dominic-Jackson, 728
So. 2d at 83 (citing Miss. State Dep't of Health v. Southwest Miss. Reg'l Med. Ctr., 580 So. 2d
1238, 1240 (Miss. 1991)).
¶14. There is a rebuttable presumption in favor of the decision rendered by an agency. His Way
Homes, Inc. v. Miss. Gaming Com'n, 733 So. 2d 764, 767 (Miss. 1999) (citing Sprouse v. Miss.
5
Employment Sec. Comm'n, 639 So. 2d 901, 902 (Miss. 1994)); Miss. Comm'n on Envtl. Quality
v. Chickasaw County Bd. of Supervisors, 621 So. 2d 1211, 1216 (Miss. 1993). "[T]he burden of
proving to the contrary is on the challenging party." Id. This Court, as well as, chancery and circuit courts,
cannot "substitute its judgment for that of the agency or reweigh the facts of the case." Id.
¶15. Our constitution does not allow for the courts to conduct a de novo retrial of matters on appeal
fromadministrative agencies. Cook v. Mardi Gras Casino Corp., 697 So. 2d 378, 380 (Miss. 1997).
The judiciary is not permitted to make administrative decisions. Id. Therefore, this Court has recognized
the strict limitation set out in Miss. Code Ann. § 41-7-201(2)(f) for appellate review in our courts as to
decisions of the SHO and the MSDH.
¶16. In Miss. Dep't of Health v. Natchez Cmty. Hosp., 743 So. 2d 973, 977 (Miss. 1999), this
Court stated: "It is within the power of the chancellor to reverse the decision to grant the CON if such
decision was not supported by substantial evidence. Substantial evidence means more than a scintilla or
a suspicion."
¶17. To prevail on appeal, the appellant must demonstrate that an administrative agency's decision was
arbitrary and capricious and not based on substantial evidence. See id. See also Cain v. Miss. State
Dep't of Health, 666 So. 2d 506, 510 (Miss. 1995); Delta Med. Ctr. v. Greenwood Leflore Hosp.,
609 So. 2d 1276, 1277 (Miss. 1992). This Court in Miss. State Dep't of Health v. S.W. Miss. Med.
Ctr., 580 So. 2d at 1239, stated that "[t]he terms 'arbitrary' and 'capricious' are open-textured and not
susceptible of precise definition or mechanical application." See HTI Health Servs. of Miss., Inc. v.
Miss. State Dep't of Health, 603 So. 2d 848, 851 (Miss. 1992).
¶18. This Court has adopted helpful definitions that North Carolina had assigned in a similar context:
6
"Arbitrary" means fixed or done capriciously or at pleasure. An act is arbitrary when it is
done without adequately determining principle; not done according to reason or judgment,
but depending upon the will alone, – absolute in power, tyrannical, despotic, non-rational,
– implying either a lack of understanding of or a disregard for the fundamental nature of
things.
"Capricious" means freakish, fickle, or arbitrary. An act is capricious when it is done
without reason, in a whimsical manner, implying either a lack of understanding of or a
disregard for the surrounding facts and settled controlling principles...."
HTI Health Servs., 603 So. 2d at 851 (quoting S.W. Miss. Med. Ctr., 580 So. 2d at 1239).
¶19. This Court must now determine whether the MSDH's decision was arbitrary and capricious, or
unsupported by substantial evidence.
II. MSDH's Methodology
¶20. The Board's argument on appeal focuses on the methodology utilized by the MSDH in its
comparative review of the competing CON applications, and it contends the MSDH's action was arbitrary
and capricious.
¶21. This Court has stated:
The methodology used in any given case should not be carved in granite; instead, some
flexibility is required. It is prudent to utilize a methodology that will accommodate the
various and sundry circumstances found in each individual case.
HTI Health Servs., 603 So. 2d at 853.
¶22. This Court defined both arbitrary and capricious in the context of administrative agencies in
Natchez Cmty. Hosp., 743 So. 2d at 977. An administrative agency's decision is deemed to be arbitrary
"when it is not done according to reason and judgment, but depending on will alone." Id. (citing Burks
v. Amite County Sch. Dist., 708 So. 2d 1366, 1370 (Miss. 1998)). A action is defined as being
capricious when "done without reason, in a whimsical manner." Id.
7
¶23. Under MSDH's ten-factor comparative scoring methodology, Hughes finished in first place with
a composite score of 16. The Board finished in last place with a composite score of 34.3 On appeal, the
Board contests Hughes's projection and statements as to the following: (1) square footage; (2) capital
expenditure; (3) cost per square foot; (4) staffing; (5) medicare utilization; and (6) certification.
1. Square footage
¶24. The Board contends that because the hearing officer found that Hughes's 15,919 square footage
projection was understated, his application was substantially incomplete or noncompliant with the criteria
in the Plan and the Manual. Johnny Wynne (Wynne), Hughes's architect, testified that in calculating the
square footage, the non-heated areas were inadvertently left out of the calculations. Wynne prepared the
preliminary schematic drawings on his computer but failed to take in to account the non-heated areas. The
479 square-foot understatement represented approximately 3% of the total project. The hearing officer
determined that "if there are any modifications to the Kennington [Hughes] floor plan, these modifications
will be only minor and will not result in an appreciable difference from the 15,919 square feet proposed
in the Kennington's application."
¶25. Dale Carr of the MSDH's Licensure Division testified at the CON hearing that it makes absolutely
no sense that anyone would prepare full scale, full blown architectural plans and drawings prior to receiving
a CON. Typically, a basic plan is a projection.
¶26. Wynne rebutted the testimony by the Board's architectural expert witness, Brett Gasaway
(Gasaway), that Hughes's nursing home plan for a 15,919 square foot facility did not comply with the
licensing regulations. Wynne testified that he had been employed as an architect since 1963, with vast
3
Attala Health Care finished in second place and Sentry finished in third place. However, these
two did not appeal.
8
experience in the construction of nursing homes. In 1983, Wynne started his own business. Wynne
estimated that since 1983, he builds 3 to 4 nursing homes a year. Prior to that while employed with
Mediplex, an architectural company which builds nursing homes, he built 47 nursing homes. Based on his
vast experience, Wynne was confident the 15,919 square foot facility would comply with the licensure
regulations. Wynne noted that the areas for the clean linen storage and laundry that Gasaway claimed was
missing was located "at the center court" on the design.
¶27. The Board also raised questions about whether Hughes could provide adult day care, social and
recreational activities, therapy and barber and beauty shop services in a 15,919 square foot facility.
¶28. Armstrong testified that an adult day care center program is not required as part of a skilled nursing
facility. Carr also testified that Mississippi does not license in a category called adult day care. Hughes
stated that unoccupied rooms could be used for adult day care for the first year with future expansion to
accommodate such a program. According to Armstrong, while it may be listed in an application, there is
no requirement that it be done. No points are provided for having adult day care.
¶29. Larry Fortenberry (Fortenberry) is the owner of Southern Health Care, the company designated
to manage and operate the Kennington. Fortenberry testified that he has been a licensed nursing home
administrator for approximately 30 years, managing 3 nursing homes, including Hughes's nursing home,
Willow Creek, located in Byram, Mississippi. Fortenberry is a member of the Independent Nursing Home
Association. Based on his experience, Fortenberry testified that while there is no requirement that a
therapy room be provided, "you do have to meet the needs of the residents and provide therapy as we do
in our facilities. Our therapy is done in the [resident's] room which provides a little more dignity and privacy
to the residents which is a big issue in patient rights and that's where they want most of their therapy
9
provided." Fortenberry noted that the semi-private rooms would be equipped with curtains which can be
drawn and doors that would close in order to provide privacy for the therapy.
¶30. The Board argues that Hughes's plan does not contain a separate activity or recreation room.
Wynne testified that Hughes planned to have a folding curtain in the dining room to be able to hold
assemblies. Wynne observed that his design as opposed to small separate rooms would better
accommodate the trend of residents wanting to have space for an assembly of all the people at Christmas
or family gatherings. According to Wynne, the building would accommodate all of the requirements.
¶31. The Board also argues that Hughes's floor plan does not account for barber/beauty shop services.
However, Carr testified that a barber/beauty shop is not required under the licensing regulations.
Therefore, it does not count against the applicant. Wynne testified that while the service is not required,
the building plan is large enough to accommodate the service. Wynne noted that the barber/beauty shop
service is not offered on an eight hour per day basis but on a contract basis.
¶32. The chancery court did not find that the MSDH erred in considering Hughes's bid. The chancery
court stated:
It is true that Mr. Hughes's bid was not complete when originally submitted and that in the
hearing process, the hearing officer, apparently, treated it as modified in some areas, but
there was substantial evidence to support part of his proposal. The system used by the
Department [MSDH] permits amendments to the proposal, and the system permits
adjustments to be made in the hearing process when deficiencies or errors are discovered.
¶33. This Court finds that the chancery court did not err in finding substantial evidence to support the
decision of the hearing officer and the SHO. The MSDH's decision was not arbitrarily or capriciously
made as to Hughes's ranking in this category.
2. Capital Expenditure/Cost per Square Foot
10
¶34. The Board contends that Hughes cannot build the Kennington for $39.16 per square foot. Hughes
has been a contractor and developer since 1963. Hughes stated that he can be cost efficient when building
because of his years of experience. The Board argues that its expert, Gasaway, testified that Hughes's
figure is contrary to the R/S Means data which sets the minimum cost per square foot at $66.00 for a
compared projection in the South.
¶35. Hughes testified that he built his nursing home, Willow Creek, in Byram, Mississippi, for the actual
cost $41.33 per square foot. Hughes noted that the cost of Willow Creek was higher than the Kennington
because Willow Creek's exterior was brick rather than vinyl siding, the rooms were larger, the commercial
area was larger and the bathrooms, kitchen areas and commercial areas all contained concrete blocks.
Hughes also identified other areas that would save money on the project by doing their own work rather
than subcontracting: finish carpentry, roofing, drywall, earth work and landscaping. Hughes said that these
savings, as well as, the variance in construction fees in different parts of the State are not taken into account
in the R/S Means data.
¶36. The hearing officer stated:
On cross-examination, however, Mr. Gasaway admitted that the R/S Means Index
is only a reference guide and that it has no legal effect. (Gasaway 156). He further
testified he had no personal knowledge of Willow Creek and Mr. Hughes's ability to
construct that facility for $41.13 per square foot. (Gasaway 162, 169). He could not
identify anything wrong with the Willow Creek construction. (Gasaway 162).
Mr. Hughes adequately explained why his projected cost of $39.16 is less than the
figures shown in the R/S Means Index. Because he is the owner and contractor, Mr.
Hughes will not be paying himself a profit. (Hughes 154). According to Mr. Hughes, on
this particular project, the contractor's profit would be approximately $71,000. (Hughes
155). He also explained he would be only operating at about 4% overhead, which would
result in another $28,000 in savings. (Hughes 155). Because he will be on the job every
day, he will not have to pay a superintendent's salary. (Hughes 156). This salary would
be about $32,000. (Hughes 156). He estimates saving $20,000 on the concrete work
because he has his own equipment for the job and therefore will not be required to hire a
subcontractor. (Hughes 156). He projects a savings of $15,000 on the rough carpentry.
11
(Hughes 156). For finish carpentry, Mr. Hughes stated that he would hang his own doors,
do his own base and run his own handrails. (Hughes 157). This would result in a savings
of approximately $10,800. (Hughes 157). He also projects savings on roofing and
drywall due to the fact he will not have to hire subcontractors for this work. (Hughes 157).
In all, Mr. Hughes projects he will save about $206,000 on the Kennington
construction as a result of having his own equipment and manpower. (Hughes 157). If this
figure is added to the $623,388 figure, the total would be $829,388. At 15,919 square
fee, the cost per square foot would be approximately $52.10 per square foot, a figure that
is in line with the data supplied by the R/S Means Index.
With respect to the numbers submitted for the Kennington's new construction, this
Hearing Officer finds that Mr. Hughes's testimony is more reliable and a more accurate
indicator of what the Kennington's actual cost will be. It is undisputed that he has already
built a nursing home in Byram, Mississippi, and that he used the numbers from this
construction as a reference guild for projecting his costs to build the Kennington. While
the R/S Means Index may as a useful resource for builders, the Willow Creek numbers
shown in Exhibit 30 and the backup documentation for those numbers provide a much
more reliable source for projecting the Kennington's new construction costs. Moreover,
even if the Kennington is required to modify its preliminary plans to provide, for example,
16,500 square feet as opposed to the 15,919 it has projected, such an adjustment would
not have the type of impact on new construction costs that would result in the Kennington
not receiving one point for the capital expenditure factor.
¶37. The Board also argues that Hughes's capital expenditure figures are inaccurate because the facility
will actually be larger than the 15,919 square feet projected in the application. As previously discussed,
the facility's projected square footage failed to include 500 additional square feet of non-heated space.
Hughes testified that 500 square feet of non-heated space would only be a minor adjustment in the total
capital expenditure. Hughes further stated that the application contained $30,000 in contingency costs that
probably would cover any additional space.
¶38. Hughes offered competing testimony to that provided by the Board's expert, Gasaway. The
hearing officer heard the testimony of both Hughes and Gasaway, and he determined that substantial
evidence existed to support Hughes's position. In Cain, 767 So. 2d at 213, this Court stated: "A review
of the testimony and evidence in the record supports the conclusion that the present case is largely one of
12
competing testimony, and it is apparent the Health Officer is in a better position than this Court to evaluate
this evidence."
¶39. As to the capital expenditure issue raised by the Board, the chancery court did not find that the
MSDH's decision should be altered as to Hughes's ranking in this category. The chancery court stated:
[The Board] challenges Kennington's [Hughes's] figures. The evidence reveals that
[t]he Kennington had erroneously stated its total square footage and that its facility would,
clearly, have to be larger that the 15,919 square feet its application indicates. There was
also evidence that its site preparation costs would be more than indicated in its application.
However, if its capital expenditures went up 25%, it would still be over 25% lower than
Attala's [the Board's]. Since it is, apparently, the Department's policy to allow
modifications in applications, the Court finds that even with a 25% increase in this
category, it would not change the rankings assigned, for its costs would still be way below
Attala Care Center [the Board] and Attala Healthcare.
The next item is costs per square foot, and though its costs will go up if its square
footage goes up, this should not affect its costs per square foot much since there would be
a larger square footage to spread the costs over. In addition, Attala Care Center's [the
Board's] costs per square foot is about 30% more than [t]he Kennington's, so the change
should not affect the ranking in this category. The Court recognizes that there is not a great
deal of difference between [t]he Kennington figure and the Attala Healthcare figure in this
category, but from the data available, the Court cannot find that any change in square foot
costs would move Kennington from a one ranking to a two in this category.
With extreme difference in costs per bed between Kennington and Attala Care
Center [the Board] and Attala Healthcare, even a 25% increase in costs in order to give
Kennington the required square footage should not change the ratings in this category
either.
¶40. We find that there is no evidence to support the Board's position that the MSDH's decision was
either arbitrary or capricious. Substantial evidence was presented by Hughes as to his plans for the
Kennington. The chancery court did not err in finding that Hughes's ranking for this category should not
be altered.
3. Staffing
¶41. Hughes's application projected that 77 full-time employees would be hired at the Kennington during
its first year. Hughes testified that he relied on Ann Davis (Davis) and Fortenberry for the operational
13
numbers for the facility in the application. Davis, formerly of the Independent Nursing Association, was
recommended to assist in preparation of the CON application. She in turn recommended Fortenberry to
manage the Kennington. Davis, who had been sick, subsequently died before the hearing took place.
Hughes testified that before she got sick, Davis was instrumental in putting the operational numbers
together.
¶42. Fortenberry testified that he provided the numbers to Davis for the number of employees that would
be needed. He testified that at that time he was not aware that the CON application required full-time
employees to be based on a 40-hour week. Fortenberry based his number on his staffing schedule that
he used in his other facilities. He classified some employees as a full-time employee with a 32-hour week.
¶43. After MSDH scored the CON applications, Hughes discovered the 40 hours per week
requirement. At the hearing, Hughes adjusted his projection for full-time employees. Fortenberry never
informed Davis that some of the employees were figured at a 32-hour week. Fortenberry testified that
Davis asked him to submit numbers based on what he does, but she did not tell him it had to be on a 40
hour per week basis.
¶44. Darryl Bueker (Bueker), a CPA who specializes in nursing home financial matters, testified as the
Board's expert that in his opinion the Kennington's actual full-time employees would be 37.1 on a 40-hour
per week basis. However, Tom Barnett (Barnett), Hughes's CPA, disputed Bueker's figure. Barnett
testified it was impossible to operate a 24 hour a day, 7 days a weeks nursing home like the Kennington
with 37.1 full-time employees. According to Barnett, after converting all full-time employees to a 40-hour
per week basis, 66 full-time employees would be needed.
¶45. The hearing officer stated in his findings and conclusions:
14
Mr. Bueker's calculation fails to take into account that 23 employees submitted as part of
the Kennington's 77 FTE [full-time employees]. Projection were on a 40-hour week....
Mr. Barnett's calculations.... are consistent with Mr. Fortenberry's testimony that he will
hire employees on an as-needed basis or "ramping" during the first year... Mr. Barnett's
calculations are based on actual data and factual information, as opposed to flawed
assumptions. As a result, a projection of 66 FTEs is substantially more accurate than 37.1.
On this basis, the Kennington would not lose any points on the conversion, nor would any
of the other applicants' positions change.
¶46. The chancery court also did not accept Bueker's calculation on behalf of the Board and stated:
[T]he [C]ourt recognizes that the witness for Attala [the Board] testified that [t]he
Kennington FTE number should be thirty-seven, but the Court does not understand how
he [Bueker] arrived at that. The Court finds that when you convert a thirty-two hour week
to a forty-hour week, you reduce the required number by 20%.
¶47. Since Hughes did not make clear in his application which full-time employees were calculated at
a 32-hour week, the chancery court required that all of Hughes's full-time personnel be converted to a 40-
hour week. The chancery court found that: “[W]ith the leniency shown by the Department in permitting
adjustments to the application, the Court concludes that the adjustment is in accord with the Department's
procedure." The chancery court stated that with the adjustment the Kennington would moved to be ranked
number 2, but the adjustment resulted in "no change in the ranking between Kennington [Hughes] and
Attala Care Center [the Board].
¶48. This Court finds that there is substantial evidence to support the chancery court's decision that the
MSDH's decision was not arbitrary and capricious.
4. Medicare Utilization
¶49. Hughes submitted in his application a projected Medicare utilization percentage of 35%. The
State's Medicare utilization rate is 5.3 %. Hughes's projection is over six times the State's rate. The Board
argues that it was arbitrary or capricious for the MSDH to accept Hughes's Medicare utilization projection.
However, the Board is silent to the fact that it is also over the State's average Medicare utilization rate. The
15
Board submitted an application that is approximately four times the State's average at a Medicare utilization
rate of 20%. In fact, all four applicants submitted a Medicare utilization rate substantially higher than the
State's average.
¶50. The hearing officer stated that while Hughes's and the Board's "projections seem high, they finished
third and fourth in this category, respectively." That is, Hughes finished in third place, receiving only one
more point than the Board in this category. Rather than find that all four applicants were substantially
noncompliant and could not be considered by the MSDH, the hearing officer placed all the applicants on
an even playing field, awarding each applicant a score of 1 in this category.
¶51. Armstrong testified that it is virtually impossible to accurately project the Medicare utilization rate
for a nursing home before it begins operation. According to Armstrong, the MSDH accepts Medicare
utilization projections as long as the projections are submitted and sworn to by each applicant.
¶52. The chancery court found that "the same fallacy exists with all of the applications, and it appears
that all of the applicants thought the Department would just accept whatever figure they submitted." The
chancery court agreed with the hearing officer that all of the applicants should be treated the same.
¶53. The chancery court found that it was improper for the MSDH to accept the unsupported figures
submitted by Hughes. Based on the fact that both Hughes and the Board submitted Medicare utilization
rates far above the State's average and the fact that both applicants were provided the same score in this
category, this Court finds that the chancery court did not err in agreeing with the hearing officer's decision
to treat each applicant the same. The alternative to giving each applicant the same score would result in
no long-term nursing home being built in Attala County. Since each of the applicants was awarded the
same score, we find this issue to be without merit.
5. Certification and Agreement
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¶54. The Board contests the fact that Hughes did not certify the supplemental information to the original
application that was filed. However, Armstrong's testimony established that the MSDH does not require
that supplemental information have additional certification. Hughes's original application contained a
certification as required for submission of a CON application.4 Armstrong testified that "[t]he additional
information becomes the application in addition to what was originally filed." Armstrong testified that he
had no knowledge of any requirement that a certification be sent with the additional information if the
applicant is later required by the MSDH to submit supplemental information.
¶55. The Board also argues that Hughes's application did not contain a signed agreement that he would
not transfer ownership of the facility for three years. The MSDH reduced Hughes's score by one point for
the agreement even though Hughes's application contained a separate unsigned written agreement not to
transfer. The chancery court found that it was whimsical for the MSDH to deduct this point from Hughes's
score.
¶56. This Court finds that the chancery court did not err in not allowing the deduction of one point from
Hughes's score for failing to sign the agreement. As stated by the chancery court, the minor alterations of
the ranking scores had no effect on the overall ranking of the applicants.
III. Disclosure on MSDH's Website
¶57. The Board argues that Hughes received an unfair advantage because the MSDH disclosed the
Board's capital expenditure on its website. The information was disclosed as part of the MSDH weekly
4
The Board contends that Hughes was not the actual applicant to receive the CON. However,
this argument is devoid of any merit. Armstrong's testimony clearly stated that Hughes would be the owner
of the facility applying for the CON. The record does not reflect this issue was addressed by the chancery
court.
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CON report on June 1, 2001. The Board contends that the MSDH's decision to overlook the disclosure
was arbitrary and capricious.
¶58. Hughes testified that he prepared his projected capital expenditure numbers and gave those
numbers to Davis to be included in the application sometime around the 23rd, 24th or 25th of May [2001].
Hughes testified that he never altered his capital expenditure numbers from the time he turned them over
to Davis. Barnett testified that he did not see any significant discrepancy between the capital expenditure
numbers submitted by Hughes and those used by Davis. The Board failed to prove that the numbers were
altered.
¶59. In addition to the Board's failure to prove that Hughes actually used the disclosed information to
alter his projection, the Board's argument is also contradicted by Armstrong's testimony. When questioned
about what kind of study he conducted after learning that the capital expenditure information had been
disclosed, Armstrong stated that the rankings of the factors that might have been affected by the disclosure
were removed from consideration to see if the end result would have changed. Specifically, Armstrong
stated:
The thought that I had was that, well, we'll do the comparative analysis using all 10
factors and then we'll take out two. We'll exclude the capital expenditure and the cost per
bed and see how that affects the rankings of each of the facilities.
And the conclusion that we reached was that of those people who disclosed their
capital expenditure there was no change whatsoever in the rankings regardless of whether
you used 10 factors or eight factors.
¶60. In upholding the decision of the hearing officer and the SHO, the chancery court stated:
The Department seems to acknowledge that revealing details of Attala Care's bid on its
internet site before Mr. Hughes submitted his full proposal was improper. The evidence
reveals that because of this concern, the Department made a limited reevaluation of the
proposals for the Attala County project as well as other counties and gave consideration
to two of the factors that might have been affected by the data that was put on the website.
Mr. Armstrong testified that even with these factors deleted from the rating process, Mr.
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Hughes still had the best rating and that the elimination of these two factors did not change
the ranking in any other projects that he reevaluated. There was also evidence that Hughes
made no change in the proposal that he planned to submit after Attala County's data was
posted on the website. Whether the action of the Department in posting the data on its
website had sufficient impact on the bidding process to invalidate it is a fact issue. The
hearing officer and the State Health Officer both found it did not sufficiently impact the
process to invalidate it, and there is substantial evidence to support this conclusion. There
is no evidence that the availability of the data caused Hughes to change his data, and
without such evidence, the Court cannot override the decision of the SHO in this area.
¶61. This Court finds that there is no basis to reverse the decision of the chancery court affirming the
decision of the hearing officer and the SHO. This issue is without merit.
CONCLUSION
¶62. We find that the MSDH did not act arbitrarily or capriciously, or outside its authority, or violate
any vested constitutional rights. The record also shows that the decision of the MSDH is supported by
substantial evidence. Therefore, we affirm the judgment of the chancery court affirming the decision of the
hearing officer and the State Health Officer to award of the certificate of need to Garry V. Hughes d/b/a
the Kennington.
¶63. AFFIRMED.
PITTMAN, C.J., SMITH AND WALLER, P.JJ., COBB, CARLSON AND
DICKINSON, JJ., CONCUR. DIAZ AND GRAVES, JJ., NOT PARTICIPATING.
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