Good Hope Health System, LLC v. N.C. Department of Health & Human Services , 175 N.C. App. 296 ( 2006 )

STEELMAN, Judge.

Petitioner, Good Hope Hospital (Good Hope), is licensed as an acute care hospital. It has been in operation since 1921 in Erwin, North Carolina. Betsy Johnson Regional Hospital, Inc. (Betsy Johnson), is located in Dunn, North Carolina. Both hospitals are located in Harnett County. Due in part to its age, Good Hope’s existing hospital is nearing the end of its useful life and suffers from multiple deficiencies.

2001 CON Application

In 2001, Good Hope applied for a Certificate of Need (CON) with the Department of Health and Human Services, Division of Facility Services, Certificate of Need Section (Agency) pursuant to Chapter 131E of the North Carolina General Statutes to partially replace its existing facility. The 2001 CON application proposed to reduce the number of acute care beds from forty-three to thirty-four, reduce the number of psychiatric beds from twenty-nine to twelve, for a total of forty-six beds, and proposed three operating rooms, at a cost of $16,159,950. The replacement hospital was to be built in Erwin. The Agency conditionally approved Good Hope’s 2001 application, but only for two operating rooms. Good Hope filed a petition for contested case hearing in the Office of Administrative Hearings (OAH). Good Hope and the Agency settled the dispute in a written agreement. On 14 December 2001, the Agency issued a CON to Good Hope for a forty-six bed hospital with three operating rooms.

Good Hope submitted a proposal to the North Carolina Medical Care Commission (MCC) to obtain funding to develop the new facility from the United States Department of Housing and Urban Development. MCC denied the request for funding and Good Hope was unable to procure other financing. Good Hope entered into discussions with Betsy Johnson concerning a possible merger, however, no merger resulted therefrom.

Good Hope later entered into a joint venture with Triad Hospitals, Inc., which agreed to finance the project. The two formed Good Hope Hospital System, L.L.C. (GHHS). GHHS filed a motion for declaratory ruling requesting: (1) it be assigned Good Hope’s 2001 CON, (2) permission to change the site of the new hospital to Lillington or Buies Creek, and (3) permission to increase the size of the hospital from 61,788 square feet to 67,874 square feet. The proposed cost of the new project was $18,523,942. The Agency denied the request for declaratory ruling. GHHS appealed the denial to the Department of Health and Human Services, Division of Facility Services (Department), but obtained a stay of that appeal. Good Hope has not relinquished its 2001 CON.

2003 CON Application

On 14 April 2003, GHHS filed a new application (2003 application) for a CON to build a complete replacement hospital in Lillington, rather than Erwin. The proposed facility was 112,945 square feet, with a total of forty-six acute care beds, ten observation beds, and three operating rooms, at a cost of $33,488,750. Prior to filing the 2003 application, GHHS met with Ms. Hoffman, Chief of the Agency, who advised GHHS to file a new CON application, not just an amended 2001 application because of the difference in location, size, and scope of the proposed new hospital. After review, the Agency denied GHHS’s 2003 application. GHHS appealed to OAH, challenging the Agency’s decision. Betsy Johnson and Central Carolina Hospital (CCH) moved to intervene as respondents in support of the Agency’s decision. The administrative law judge (ALJ) granted the motion to intervene. On 9 July 2004, the AU recommended the Agency’s decision be reversed. Respondents appealed to the Department for final agency review. On 10 September .2004, the Department denied GHHS’s application in a final agency decision. GHHS appealed.

2005 CON Application

While this appeal was pending before this Court, GHHS filed a new CON application (2005 application) on 15 August 2005 in response to a need determination issued by the Governor in the 2005 State Medical Facilities Plan (SMFP). The Governor has final authority to approve or amend the SMFP, which becomes the binding criteria for review of CON applications. Frye Reg’l Med. Ctr., Inc. v. Hunt, 350 N.C. 39, 42-43, 510 S.E.2d 159, 162-63 (1999). In its 2005 application, GHHS resubmitted its 2003 CON application in its entirety, with some supplemental information.

On 26 August 2005, respondents filed a motion to dismiss plaintiffs’ appeal in this case on the grounds the appeal has been rendered moot by GHHS’s 2005 CON application.

Mootness

“ ‘When, pending an appeal to this Court, a development occurs, by reason of which the questions originally in controversy between the parties are no longer at issue, the appeal will be dismissed [as moot] for the reason that this Court will not entertain or proceed with a cause merely to determine abstract propositions of law . . . .” State ex rel. Utilities Com. v. Southern Bell Telephone Co., 289 N.C. 286, 288, 221 S.E.2d 322, 324 (1976) (Southern Bell I) (citations omitted). The mootness doctrine applies in CON cases. See In re Denial of Request by Humana Hospital Corp., 78 N.C. App. 637, 640, 338 S.E.2d 139, 141 (1986).

GHHS’s 2003 application was denied, in part, because under the 2003 SMFP there was no need for a hospital with three operating rooms, as proposed by GHHS. The Department must follow the need requirements as promulgated in the SMFP and cannot grant a CON to a hospital which would allow more facilities than are needed. See N.C. Gen. Stat. § 131E-183(a)(l) (2005). The reason behind such a requirement is to prevent the proliferation of unnecessary health care facilities and equipment, which would result in costly duplication and underuse of facilities. N.C. Gen.. Stat. § 131E-175 (2005). In 2005, recognizing that Good Hope Hospital was nearing the end of its useful life, the Governor amended the 2005 SMFP to include a need for a new hospital in Harnett County with no more than fifty acute care beds and three operating rooms. GHHS filed a 2005 CON application for a new hospital containing forty-six acute care beds and three operating rooms. Respondents contend the case is now moot because the Agency is required to re-review GHHS’s 2003 CON application, which it resubmitted as its 2005 CON application with supplemental information under the more favorable 2005 SMFP need requirements, thus providing GHHS with the relief sought. We agree.

Our holding in Humana, 78 N.C. App. 637, 640, 338 S.E.2d 139, 141 is determinative of this question. In Humana, the hospital filed a 1981 CON application to build a new 160-bed hospital in Wake County. The Agency denied their 1981 application on the grounds that the then current SMFP did not contain a need for additional acute care beds in the area. Humana requested a reconsideration hearing, which the Agency denied. While seeking judicial review of the denial of its 1981 CON application, Humana filed another CON application in 1982. The SMFP in effect for 1982 contained a need for 174 beds in Wake County. The Agency denied Humana’s 1982 CON application.

This Court dismissed Humana’s appeal on grounds of mootness. Because Humana’s 1982 CON application was virtually identical to its 1981 application, with additional, supplemental information, and the 1982 application was reviewed under the more favorable 1982 SMFP requirements, we held this afforded Humana an adequate remedy to have its application reviewed under the more favorable 1982 SMFP need requirements. 78 N.C. App. at 641-42, 338 S.E.2d at 142. This Court found it significant that Humana’s 1981 and 1982 applications were almost identical, with the only difference being that the 1982 application contained supplemental information which was not considered as part of the 1981 application. Id. at 641, 338 S.E.2d at 142.

Although this Court stated in Humana that its decision was based on the unique facts in that case, the facts in the instant case are virtually identical to those in Humana. Therefore, the reasoning in Humana is controlling. GHHS’s 2003 application is virtually identical to its 2005 application, with the addition of supplemental information. The review of its 2005 application, under the more favorable 2005 SMFP need requirements, affords GHHS an adequate remedy of any alleged errors in the 2003 review process, thereby making this appeal moot.

GHHS contends the 2003 CON application and the 2005 application are legally and factually different, in that its 2003 application was for a replacement hospital, which is judged against different criteria than its 2005 application, which is for a new hospital. It asserts that the Agency improperly applied the criteria for a new hospital to its 2003 application for a replacement hospital. Therefore, petitioner alleges the Agency’s review of its 2005 application would not afford it the remedy sought, that is, to have the criteria for awarding a CON for a replacement hospital applied to its 2003 CON application.

We do not find this argument persuasive. GHHS’s 2001 application was for a replacement hospital, which was to be located in Erwin, where Good Hope is currently located. The 2003 application, however, proposed to change the location of the hospital to Lillington and doubled both the proposed square footage and cost of the hospital from the 2001 application. In GHHS’s 2005 CON application, it proposed the same location, size, and scope for its new hospital as contained in its 2003 application. While GHHS did denote its 2003 application as being for a “replacement hospital,” it describes the exact same hospital in the 2005 CON application as a “new hospital.” Regardless of how GHHS characterizes its hospital, both plans are for the exact same hospital. Therefore, the Agency’s review of the resubmitted 2003 CON application during its 2005 review process provides GHHS with an adequate remedy. In addition, if GHHS were awarded a CON based on its 2005 application, it would be required to yield any other CON it may have. The Governor explained in his Clarification Memorandum to 2005 State Medical Facilities Plan, that:

[T]o avoid the proliferation of unnecessary health service facilities as referenced in N.C. Gen. Stat. § 131E-175(4), I have concluded that any successful applicant for a CON to develop the New Hospital shall be required as a condition of its approval to relinquish any other CON which it holds to develop or replace acute care beds or operating rooms in Harnett County and to withdraw any other pending application or litigation concerning the development or replacement of such beds or rooms.

Furthermore, the same reasons Humana was found to be distinguishable from State ex rel. Utilities Comn v. Southern Bell, 307 N.C. 541, 299 S.E.2d 763 (1983) (Southern Bell II), apply here. In Southern Bell II, our Supreme Court held that the grant of a second application for a rate increase did not moot the appeal of the denial of the first application because the second rate increase was not applied retroactively. Id. at 547-48, 299 S.E.2d at 767. By not applying the second rate increase retroactively, the petitioner would not receive the relief sought; therefore, the issue of the first rate application was not moot. Id. at 48, 299 S.E.2d at 767. This case is more akin to Southern Bell I where the two requests were the same. See Humana, 78 N.C. App. at 644, 338 S.E.2d at 143-44 (finding Southern Bell II did not overrule Southern Bell I, but simply distinguished it).

Nor do the facts of this case fit within the exception to the mootness doctrine, that the issues are “capable of repetition yet evading review.” Boney Publishers, Inc. v. Burlington City Council, 151 N.C. App. 651, 654, 566 S.E.2d 701, 703 (2002) (citations and internal quotation marks omitted). To apply this exception GHHS must show the challenged action is “ ‘in its duration too short to be fully litigated prior to its cessation or expiration” and there is a reasonable expectation that the same issue would arise again. Id. at 654, 566 S.E.2d at 703-04 (citations omitted). Regardless of the Agency’s decision concerning GHHS’s 2005 application, its decision will not escape review.

GHHS has been afforded an adequate remedy in having its 2003 application reconsidered under the more favorable 2005 SMFP need requirements. Any allegations regarding errors in the 2003 review process are now moot.

APPEAL DISMISSED.

Judge GEER concurs. Judge TYSON dissents in a separate opinion.