Infirmary Health System, Inc., et al.
v.
State Health Planning and Development Agency and USA Baldwin County ASC, LLC, d/b/a USA Health Baldwin ASC
No. 2200890
Alabama Court of Civil Appeals
June 17, 2022
Appeal from the Certificate of Need Review Board of the State Health Planning and Development Agency (AL 2020-030)
EDWARDS, JUDGE
Infirmary Health System, Inc. ("IHS"); Gulf Health Hospitals, Inc. d/b/a Thomas Hospital ("Thomas Hospital"); Thomas Medical Center
("Thomas ASC"); North Baldwin Infirmary; Mobile Infirmary Association d/b/a Mobile Infirmary Medical Center and Infirmary Eastern Shore Ambulatory Surgical Center ("Eastern Shore ASC"); and Thomas Hospital Ambulatory Surgery Center f/k/a Bay Eyes Surgery Center, Inc. ("Bay Eyes ASC") (hereinafter referred to collectively as "the IHS intervenors") appeal from an order issued by the Certificate of Need Review Board ("the Board"), on behalf of the Alabama State Health Planning and Development Agency ("SHPDA"), approving a certificate-of-need ("CON") application that was filed by USA Baldwin County ASC, LLC, d/b/a USA Health Baldwin ASC ("University ASC"). IHS owns and operates the other IHS intervenors; University ASC is owned by a holding company, which is in turn owned by the University of South Alabama Health Care Authority ("USAHCA"), as majority owner, and by a subsidiary of Surgery Partners, Inc., which manages over 130 surgical facilities in 32 states, such subsidiary being the minority owner of the holding company. According to University ASC, eventually physicians will own a 49% interest in University ASC, with the remaining 51% interest being owned by the aforementioned holding company.
On June 8, 2020, University ASC filed a CON application seeking SHPDA's approval to build a $29, 467, 992 freestanding (i.e., non-hospital-based), multispecialty ambulatory surgery center in Fairhope ("the proposed ASC"). Ambulatory surgery centers ("ASCs")
"are health care facilities, licensed by the Alabama Department of Public Health, with the primary purpose of providing medically necessary or elective surgical care on an outpatient basis and in which the patient stays less than twenty-four (24) hours. ... [E]xcluded from this definition are health care facilities licensed as hospitals. Ambulatory surgery centers may be multi-specialty in which more than one surgical specialty is represented or a specialized ambulatory surgery center in which a single, exclusive surgical specialty is provided."
Ala. Admin. Code (SHPDA), r. 410-2-4-.12(2). It is undisputed that an ASC provides patients and payors with, among other benefits, a lower-cost alternative to hospital-based outpatient facilities and that a long-term trend exists toward having surgeries performed in an ASC, when appropriate.
The proposed ASC would be part of larger health-care campus ("the Mapp campus") that USAHCA is developing in Baldwin County. In addition to the proposed ASC, the Mapp campus will also include a medical-office building for primary-care and specialty-care professionals,
space for educational and research services, preventative-medicine resources, and ancillary-support services. USAHCA is also developing plans to relocate the University of South Alabama's Baldwin County campus for its College of Nursing to a parcel adjacent to the Mapp campus. The development of the Mapp campus apparently is not dependent on the approval of University ASC's CON application.
The proposed ASC would be located within 10 driving miles of the location of Thomas Hospital, which is in Fairhope, and three existing ASCs in Baldwin County, specifically, Thomas ASC and Eastern Shore ASC, which are located in Daphne, and the recently approved Bay Eyes ASC, which is located in Fairhope. The proposed ASC would have six operating rooms and two procedure rooms and would initially provide surgeries associated with gastroenterology and urology, including pediatric gastroenterology and urology; neurology, including pediatric neurology; orthopedics; ear, nose, and throat practice; and other general surgery procedures not requiring hospitalization.[1] According to
University ASC, the proposed ASC would offer new surgical specialties in Baldwin County and would provide training for medical residents. At least 37 physicians are expected to perform surgeries at the proposed ASC, including several orthopedic surgeons who practice medicine in Baldwin County and certain surgeons who have numerous Baldwin County patients but practice medicine in Mobile County.
The IHS intervenors timely filed a notice of intervention to contest University ASC's CON application. Thereafter, University ASC requested that the Board treat its CON application as a contested case. The Board granted that request, and the contested case was assigned to an administrative law judge ("ALJ"). See Ala. Code 1975, § 22-21-275(6).
The ALJ held evidentiary hearings over a total of 15 days between October 19, 2020, and November 20, 2020, and received testimony from over 50 witnesses and thousands of pages of documentary exhibits, including numerous statistical reports on file with SHPDA from the medical facilities of the IHS intervenors and the administrative record
relating to Bay Eyes ASC's recently approved CON application.[2] See discussion, infra. After the hearing, the parties submitted proposed recommendation orders to the ALJ. On May 7, 2021, the ALJ issued a 42-page order that included proposed findings of fact and conclusions of law and recommended that the Board deny University ASC's CON application ("the ALJ's May 2021 recommendation"). See Ala. Code 1975, § 22-21-275(6); Ala. Admin. Code (SHPDA), r. 410-1-8-.02(1); see also Ala. Code 1975, § 41-22-16(a)(2) (describing the rendering of "[t]he final order in a proceeding" "[a]fter a recommended order, or findings and conclusions are submitted to the agency ..., if the hearing is conducted by a hearing officer"); Ala. Admin. Code (SHPDA), r. 410-1-8-.07(1)(b) (stating that the Board shall issue its final order within 15 days "after the recommended findings of fact and conclusions of law [are] submitted to and voted upon by ... Board, if the public hearing is conducted by an [ALJ]").
The ALJ's May 2021 recommendation noted that both University ASC and the IHS intervenors had presented testimony and evidence regarding the pertinent criteria that are used in evaluating a CON application and that that evidence was in conflict as to some issues. See Ala. Code 1975, § 22-21-264; Ala. Admin. Code (SHPDA), r. 41-1-6-.01 et seq. The ALJ determined that the proposed ASC was "consistent with the purposes and objectives of the State Health Plan" and
"that the proposed ASC would provide quality care and provide for multi-specialty ambulatory surgical services in a variety of specialties, in a convenient, low-cost ASC setting. Many witnesses provided credible testimony of the benefits [the proposed ASC] would provide to the Baldwin County health care community, including, without limitation, the fact that it would be a freestanding multispecialty ASC offering a lower cost setting for patients in need of surgical specialties contemplated at the ASC."
The ALJ concluded that University ASC had satisfied most of the pertinent CON criteria as to the proposed ASC. Further the ALJ stated that, "[t]o the extent that any one (or more) of the criteria and standards [applicable to the proposed ASC] are not addressed herein, then the [ALJ] finds that [the proposed ASC] is in compliance with that standard and criteria." Nevertheless, the ALJ concluded that "there [were] less costly,
more efficient, more appropriate, and more effective alternatives to the proposed [ASC]," particularly in light of "the available alternatives that are in existence" (citing Ala. Admin. Code (SHPDA), r. 41-1-6-.04; see also § 22-21-264(3)); that there was no "substantially unmet public need for the proposed ASC" (citing Ala. Admin. Code (SHPDA), r. 41-1-6-.05 (tracking the statutory-need criteria in § 22-21-264(4)) and r. 41-1-6-.06 (listing additional criteria as to need)); and that the proposed ASC would have an adverse effect on the existing Baldwin County health-care system and that "[t]he relationship of the services to be provided by th[e] proposed ASC would not be complimentary to and supportive of the existing health care system" (citing Ala. Admin. Code (SHPDA), r. 41-1-6-.08).
In making the adverse determinations as to University ASC's CON application, the ALJ relied substantially, but not exclusively, on the existence of Bay Eyes ASC, which had recently been through the CON-approval process. We note that the predecessor to Bay Eyes ASC, Bay Eyes Surgery Center, Inc. ("BESCI"), began operating as a single-specialty ASC (ophthalmology) in 2004. In November 2017, BESCI filed
a CON application, proposing to add two operating rooms to its existing operating room and to convert an existing procedure room to an operating room, for a total of four operating rooms. BESCI also proposed to convert from a single-specialty ASC to a multispecialty ASC, specifically, to offer orthopedic and plastic surgery at its ASC in addition to the ophthalmic surgeries already being performed at its ASC.
Thomas Hospital, Thomas ASC, North Baldwin Infirmary, and Eastern Shore ASC (hereinafter referred to collectively as "the Bay Eyes intervenors") contested BESCI's CON application, and the BESCI CON application was assigned to an ALJ for the purpose of conducting a contested-case hearing. We note that the ALJ who was assigned BESCI's CON application was a different ALJ than the ALJ who was assigned University ASC's CON application. Following a contested-case hearing, the ALJ who was assigned BESCI's CON application entered, on July 27, 2018, an order recommending that the Board approve that application ("the July 2018 Bay Eyes recommendation"). The July 2018...
