NOTICE OF COURT ACTION

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1 AlaFile E-Notice To: MCRAE CAREY BENNETT 03-CV Judge: JIMMY B POOL NOTICE OF COURT ACTION IN THE CIRCUIT COURT OF MONTGOMERY COUNTY, ALABAMA ST. VINCENT'S HEALTH SYSTEM V. AFFINITY HOSPITAL, LLC D/B/A TRINITY ME 03-CV A court action was entered in the above case on 7/13/ :39:20 AM ORDER [Filer: ] Disposition: Judge: Notice Date: DISPOSED BY SEPARATE JBP ORDER 7/13/ :39:20 AM FLORENCE CAUTHEN CIRCUIT COURT CLERK MONTGOMERY COUNTY, ALABAMA 251 S. LAWRENCE STREET MONTGOMERY, AL

2 ELECTRONICALLY FILED 7/13/ :39 AM CV CIRCUIT COURT OF MONTGOMERY COUNTY, ALABAMA FLORENCE CAUTHEN, CLERK IN THE CIRCUIT COURT OF MONTGOMERY COUNTY, ALABAMA ST. VINCENT'S HEALTH SYSTEM, ) Plaintiff, ) ) V. ) Case No.: CV ) AFFINITY HOSPITAL, LLC D/B/A TRINITY MEDICAL CENTE, ) ALABAMA STATE HEALTH PLANNING ) & DEVELOPMENT AGENCY, BROOKWOOD HEALTH SERVICES, ) INC., Defendants. ) ORDER This matter is before the Court on the Petitions for Judicial Review filed by St. Vincent s Health System ( St. Vincent s ) and Brookwood Medical Center ( Brookwood ) challenging the final decision of the Alabama State Health Planning and Development Agency ( SHPDA ) to approve the Certificate of Need ( CON ) application filed by Affinity Hospital, LLC d/b/a Trinity Medical Center of Birmingham ( Trinity ) to relocate its existing hospital to a new site in southern Jefferson County. The parties have fully briefed the issues and the Court held a hearing on the Petitions for Judicial Review on May 9, After considering the briefs, the arguments of counsel, and the relevant law, this Court finds, for the reasons set forth below, that SHPDA s decision to approve Trinity s CON application to relocate its existing hospital is due to be REVERSED. Procedural background On December 1, 2008, Trinity filed a CON application with SHPDA seeking approval to relocate its existing hospital to the site of the so-called digital hospital building on U.S. Highway 280 in southern Jefferson County. St. Vincent s and Brookwood opposed Trinity s CON application, and a contested case hearing was held on the CON application during the Fall of On August 24, 2010, the administrative law judge assigned to conduct the contested case hearing issued a recommended order proposing that Trinity s CON application be granted. On September 15, 2010, SHPDA s CON Board voted to accept the administrative law judge s recommendation and approve Trinity s CON application. On December 16, 2010, Brookwood and St. Vincent s filed the Petitions for Judicial Review challenging SHPDA s final decision to approve Trinity s CON application that are currently before this Court.

3 Standard of review Judicial review of a final decision of an administrative agency is governed by the Alabama Administrative Procedure Act, Ala. Code et seq. ( AAPA ). Pursuant to the AAPA, an administrative agency s decision is due to be reversed if it is: (1) In violation of constitutional or statutory provisions; (2) In excess of the statutory authority of the agency; (3) In violation of any pertinent agency rule; (4) Made upon unlawful procedure; (5) Affected by other error of law; (6) Clearly erroneous in view of the reliable, probative and substantial evidence on the whole record; or (7) Unreasonable, arbitrary, or capricious, or characterized by an abuse of discretion or a clearly unwarranted exercise of discretion. Ala. Code (k). See also Alabama Medicaid Agency v. Beverly Enterprises, 521 So. 2d 1329, 1331 (Ala. Civ. App. 1987). As a general rule, a presumption of correctness attaches to an administrative agency s decision because of its recognized expertise in a specific, specialized area. State Health Planning and Resource Development Administration v. Rivendell of Alabama, Inc., 469 So. 2d 613 (Ala. Civ. App. 1985). An administrative agency s factual findings are due to be upheld if they are supported by substantial evidence. State Health Planning and Development Agency v. Baptist Health System, Inc., 766 So. 2d 176, 178 (Ala. Civ. App. 1999). The appropriate standard of review for an administrative agency s conclusions of law or application of law to the facts is de novo. Ex parte Wilbanks Health Care Services, 986 So. 2d 422, 425 (Ala. 2007). Compliance with the Alabama State Health Plan An administrative agency must strictly comply with all statutes governing the agency s operation. Ex parte Jones Manufacturing Co., Inc., 589 So. 2d 208, 210 (Ala. 1991). Alabama law specifically requires SHPDA to make five findings before it can approve a CON application: No certificate of need for new inpatient facilities or services shall be issued unless the SHPDA makes each of the following findings:

4 (1) That the proposed facility or service is consistent with the latest approved revision of the appropriate state health plan effective at the time the application was received by the state agency; (2) That less costly, more efficient or more appropriate alternatives to such inpatient services are not available, and that the development of such alternatives has been studied and found not practicable; (3) That existing inpatient facilities providing inpatient services similar to those proposed are being used in an appropriate and efficient manner consistent with community demands for services; (4) That in the case of new construction, alternatives to new construction (e.g. modernization and sharing arrangement) have been considered and have been implemented to the maximum extent practicable; and (5) That patients will experience serious problems in obtaining inpatient care of the type proposed in the absence of the proposed new service. Ala. Code If SHPDA is unable to make any one of these five findings, then a CON application cannot be approved, as a matter of law. An administrative agency is also required to vigorously comply with its own regulations. Hand v. State Dept. of Human Resources, 548 So. 2d 171, 173 (Ala. Civ. App. 1988). See also Ex parte Wilbanks Health Care Services, 986 So. 2d 422, 426 (Ala. 2007) (explaining that Hand stands for the unremarkable proposition that state agencies are bound to comply with their own regulations. ). SHPDA s own regulations plainly state that a CON application cannot be approved if the application is inconsistent with the Alabama State Health Plan. Section of SHPDA s regulations provides that a proposed new institutional health service shall be consistent with the appropriate state health facility and services plans effective at the time the application was received by [SHPDA], which shall include the most recent Alabama State Health Plan. Ala. Admin. Code (1)(a). Similarly, of SHPDA s regulations provides that no CON shall be issued unless SHPDA can first determine that the proposed facility or service is consistent with the latest approved revision of the appropriate state plan effective at the time the application was received by [SHPDA]. Ala. Admin. Code (1)(a). This second regulation takes its language directly from Ala. Code (1), which contains an identical requirement. The SHPDA regulations cited above and Ala. Code (1) make it clear that compliance with the State Health Plan is mandatory. The State Health Plan is a comprehensive plan drafted by the Alabama Statewide Health Coordinating Council that is designed 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

5 all residents of this state. Ala. Code (13). Of particular importance to this case, the State Health Plan contains a detailed need methodology for hospital beds and other specific requirements for the replacement of a hospital. See Ala. Admin. Code and.14. If a CON application is not consistent with the State Health Plan, then the CON cannot be issued. Nursing Home of Dothan, Inc. v. Ala. State Health Planning and Dev. Agency, 542 So. 2d 935, 939 (Ala. Civ. App. 1988) (citing Ala. Code (1)). According to the State Health Plan, Alabama has 6,764 more hospital beds than are needed. In an effort to reduce the number of excess hospital beds in Alabama, the State Health Plan contains a specific requirement - known as the 60% occupancy rule - that is applicable to certain CON applications, such as the CON application filed by Trinity proposing to replace its existing hospital. The State Health Plan s 60% occupancy rule requires a hospital with an occupancy rate below sixty percent to reduce the number of its licensed beds to the point where the hospital s occupancy rate is at least sixty percent before it can replace its existing hospital: For replacement of hospitals, the occupancy rate for the most recent annual reporting period should have been at least 60 percent. If this occupancy level was not met, the hospital should agree to a reduction in bed capacity that will increase its occupancy rate to 60 percent. For example, if a 90-bed hospital had an average daily census (ADC) of 45 patients, its occupancy rate was 50 percent (The ADC of 45 patients divided by 90 beds equals 50 percent). To determine a new bed capacity that would increase the hospital s occupancy rate to 60 percent, simply divide the ADC of 45 patients by.60 (a fraction of a bed should be rounded upward to the next whole bed). The hospital s new capacity should be 75 beds, a 15 bed reduction to its original capacity of 90 beds. Ala. Admin. Code This 60% occupancy rule is specifically designed to force hospitals in over-bedded counties to de-license a specific number of excess beds before a replacement hospital can be built. There is no dispute that the State Health Plan s 60% occupancy rule applies to Trinity s CON application. Trinity proposes to relocate and replace its existing hospital and has an occupancy rate of 44.8% - far lower than 60%. Trinity is also located in Jefferson County, which is the most over-bedded county in the state by far, with 1,510 more hospital beds than are needed, according to the State Health Plan. In its final decision, SHPDA specifically found that Trinity s CON application did not comply with the State Health Plan s 60% occupancy rule: It is clear that the Applicant does not meet the 60 percent occupancy rule by its application for relocation. SHPDA based its finding that Trinity s CON application did not comply with the State Health Plan s 60% occupancy rule on the following undisputed facts: (1) Trinity is currently

6 licensed for 496 hospital beds; and (2) Trinity s average daily census ( ADC ) for the most recent annual reporting period prior to filing its CON application was only 223. Therefore, the State Health Plan s 60% occupancy rule requires that this ADC of 223 be divided by.6 to determine the number of beds that Trinity may propose to relocate to its replacement hospital. Performing this calculation reveals that the State Health Plan s 60% occupancy rule only permits Trinity to relocate 372 of the 496 hospital beds for which it is currently licensed. In its CON application, however, Trinity proposed to relocate 398 beds to its new location. This is 26 more beds than are permitted by the State Health Plan s 60% occupancy rule. SHPDA s final decision goes on to state, in no uncertain terms, that the Applicant s proposal misses its mark by 26 beds, the burden of the 60 percent rule is not met by the Applicant, and this requirement is not met. SHPDA s determination that Trinity s CON application did not comply with the State Health Plan s 60% occupancy rule required SHPDA to deny Trinity s CON application. Alabama Code (1) and (1)(a) and of SHPDA s own regulations plainly state that SHPDA cannot approve a CON application that is not consistent with the State Health Plan. Instead of denying Trinity s CON application, however, SHPDA attempted to cure the deficiency in Trinity s CON application. Specifically, SHPDA conditioned its approval of Trinity s CON application on a further reduction in the number of beds that Trinity could relocate to the number of beds permitted by the State Health Plan s 60% occupancy rule. Thus, in its final decision approving Trinity s CON application, SHPDA approved the application subject to the stipulation that the number of acute care beds be further reduced by another twenty-six (26) beds. In so doing, SHPDA ignored the plain language of its own regulations and Alabama Code (1). The plain language of Alabama Code (1) prohibits SHPDA from curing a deficiency in a CON application by revising the CON application on its own motion so that it complies with the State Health Plan. This statute prohibits SHPDA from approving a CON application unless SHPDA can make the finding that the proposed facility or service is consistent with the [State Health Plan]. Alabama Code (1) (emphasis added). SHPDA cannot simply ignore the plain language of this statute (and SHPDA s own regulations) requiring that what the applicant proposes be consistent with the State Health Plan by approving something other than what the applicant proposes. Language used in a statute or an administrative regulation must be given its natural, plain, ordinary, and commonly understood meaning. Alacare Home Health Services v. Ala. State Health Planning and Dev. Agency, 27 So. 3d 1267, 1280 (Ala. Civ. App. 2009). Proposed means proposed, not as revised by SHPDA. Trinity proposed to relocate 398 beds in its CON application, not 372 beds. In fact, Trinity specifically states in its CON application: Trinity now proposes to construct a replacement hospital with a total inpatient complement of 398 acute care beds. SHPDA s finding that Trinity s proposed relocation of 398 beds is not consistent with the State Health Plan s 60% occupancy rule required the denial of Trinity s CON application.

7 SHPDA regulations giving SHPDA the authority to approve a CON application in whole or in part do not somehow permit SHPDA to ignore Alabama Code (1) and approve a CON application that is inconsistent with the State Health Plan. Administrative regulations cannot be interpreted or applied in such a way as to conflict with the plain language of a statute. Ex parte Jones Manufacturing Co., Inc., 589 So. 2d 208, 210 (Ala. 1991). See also The Kids Klub, Inc. v. State Dept. of Human Resources, 874 So. 2d 1075, 1090 (Ala. Civ. App. 2003)( It is settled law that the provisions of a statute will prevail in any case in which there is a conflict between the statute and a state agency regulation. ). Instead, regulations must be interpreted in a manner that is consistent with the statutes pursuant to which they were promulgated. Ex parte Jones Manufacturing Co., Inc., 589 So.2d at 210. Thus, the SHPDA regulation permitting SHPDA to approve a CON application in whole or in part cannot trump the requirement under Alabama Code (1) that the CON application itself be consistent with the State Health Plan. Instead, this regulation must be interpreted to allow SHPDA to approve a CON application in whole or in part, but only if the CON application is consistent with the State Health Plan, as required by Alabama Code (1). In addition to being in direct conflict with Alabama Code (1), SHPDA s attempt to cure the deficiency in Trinity s CON application by approving the relocation of fewer beds than Trinity proposed to relocate in its CON application also runs afoul of the requirement under SHPDA regulations that an applicant demonstrate compliance with all of the applicable CON review criteria. Ala. Admin. Code (1) ( each application and proposal must be found in conformity with the criteria and standards established herein ). An applicant bears the burden of producing evidence demonstrating that its CON application complies with all of the applicable CON review criteria. Id. ( the burden of producing evidence is on the applicant ). Trinity introduced volumes of evidence in support of its proposal to relocate 398 beds, but it introduced no evidence of any kind regarding a 372-bed hospital. Trinity introduced no evidence of the cost of a 372-bed project, no utilization and financial projections for a 372-bed project, and no architectural drawing for a 372-bed project. There is not even any evidence in the record as to what type of hospital beds will make up the 372 beds for which Trinity is approved. Trinity proposed in its CON application to relocate 317 general acute care beds, 64 psychiatric beds, and 17 inpatient rehabilitation beds, for a total of 398 beds. There is no evidence in the record, however, as to what type of beds (general acute, psychiatric, or inpatient rehabilitation) Trinity would remove from its project in order to reduce its project to 372 beds. By approving Trinity to relocate 372 beds despite the lack of any evidence regarding the cost, design, financial feasibility, or bed complement of a 372-bed project, SHPDA failed to follow its own regulations requiring an applicant to demonstrate compliance with all of the applicable CON review criteria. Ala. Admin. Code (1). See also Southern Maryland Hospital Center, Inc. v. Fort Washington Community Hospital, Inc., 308 Md. 323, 519 A.2d 727 (Ct. of Appeals of Md. 1987). Ex parte Shelby Medical Center and Ala. Code

8 SHPDA s decision to approve Trinity s CON application is due to be reversed because it is in direct conflict with the Alabama Supreme Court s decision in Ex parte Shelby Medical Center, 564 So. 2d 63 (Ala. 1990). In this decision, the Alabama Supreme Court reversed SHPDA s decision to approve a CON application filed by Lloyd Noland Foundation ( Noland ) seeking to relocate 150 of its hospital beds and to construct a new hospital in the southern portion of Jefferson County. The Alabama Supreme Court held that SHPDA s decision to approve Noland s CON application was inconsistent with all five of the requirements of Alabama Code Ex parte Shelby Medical Center, 564 So. 2d at Applying the Alabama Supreme Court s reasoning in Ex parte Shelby Medical Center to Trinity s CON application leaves no doubt that Trinity s CON application is also inconsistent with the requirements of Alabama Code In Ex parte Shelby Medical Center, the Alabama Supreme Court held that SHPDA could not make a finding that Noland s CON application was consistent with the State Health Plan, as required by Alabama Code (1), because the State Health Plan showed that Jefferson County had 373 more hospital beds than were needed. Id. at 69. Applying this reasoning to Trinity s CON application requires the denial of its application. Jefferson County is even more over-bedded now than it was when the Supreme Court decided Ex parte Shelby Medical Center. Jefferson County is now by far the most over-bedded county in the entire state, with 1,510 more hospital beds than are needed according to the State Health Plan. Just like Noland proposed in its CON application, Trinity proposes to relocate more beds to its new location than it staffs at its current location. In denying Noland s project, the Alabama Supreme Court held that constructing a new $26,270,000 hospital in an overbedded area, relocating currently unstaffed beds into the new hospital, and providing duplicative services in the new hospital do not promote the [State Health Plan] goal of cost containment. Id. The same is even more true with respect to Trinity s project, given that the cost of Trinity s project is more than half a billion dollars. Added to this is the fact that SHPDA itself has found that Trinity s CON application does not comply with the State Health Plan s 60% occupancy rule. Accordingly, there is no way that SHPDA can make a finding that Trinity s CON application is consistent with the State Health Plan, as required by Alabama Code (1). In Ex parte Shelby Medical Center, the Alabama Supreme Court also held that SHPDA could not make a finding that existing Jefferson County hospitals were being used in an appropriate and efficient manner, as required by Alabama Code (3), because the county was over-bedded by 373 beds and the average occupancy for hospitals in the county was below 70%. Id. at Once again, applying this reasoning to Trinity s CON application requires the denial of its application. Jefferson County is now over-bedded by 1,510 beds and the average occupancy rate for Jefferson County hospitals has fallen below 50%. These low occupancy rates, combined with difficult economic conditions and the relatively low reimbursement rates available in Alabama, have created an extremely difficult operating environment for Jefferson County hospitals. Trinity s project will further compound these

9 difficult economic conditions. SHPDA specifically found that Trinity s project would have a significant adverse impact on existing Jefferson County hospitals including the operations of St. Vincent s and Brookwood. According to SHPDA, Trinity s proposed relocation would cause St. Vincent s to lose $3-7 million per year and Brookwood to lose $12-17 million per year. Given these factual findings by SHPDA and the Alabama Supreme Court s holding in Ex parte Shelby Medical Center, there is no way that SHPDA can make a finding that existing Jefferson County hospitals are being used in an appropriate and efficient manner, as required by Alabama Code (3). In Ex parte Shelby Medical Center, the Alabama Supreme Court held that SHPDA could not make a finding that that patients will experience serious problems in obtaining inpatient care of the type proposed in the absence of the proposed new service, as required by Alabama Code (5), because numerous other hospitals providing the same services were already located within ten miles of Noland s proposed hospital. Id. at 70. The same is true with respect to Trinity s CON application. Trinity proposes to establish its new hospital only five miles from Brookwood. As SHPDA itself found there are already seven hospitals (Brookwood, UAB Hospital, Children s Hospital, UAB Highlands Hospital, Cooper Green Medical Center, St. Vincent s Birmingham, and Lakeshore Rehabilitation Hospital) with a total of 2,779 hospital beds located within ten miles of the site to which Trinity proposes to relocate. SHPDA also found that the quality of hospitals in Jefferson County is exceptional ; every imaginable health care service is available, from open heart to robotic surgery, and these services are available at multiple hospitals ; there is better availability of hospital care in Jefferson County than in any other county in the State of Alabama ; Jefferson County has a world-class health system ; people come to Jefferson County for health care from all over the state, the southeast, and the world ; and the quality of care at the current hospital site [Trinity s Montclair Road campus] is excellent. Given these findings and the holding in Ex parte Shelby Medical Center, there is no way that SHPDA can make a finding that patients will experience serious problems in obtaining needed healthcare if Trinity s CON application is not approved, as required by Alabama Code (5). SHPDA s failure to apply the requirements of Alabama Code in accordance with the holding in Ex parte Shelby Medical Center requires the reversal of its decision to approve Trinity s CON application. Based on the findings set forth above, this Court hereby ORDERS, ADJUDGES and DECREES as follows: (1) The September 30, 2010, final decision of SHPDA approving Trinity s CON application to relocate its existing hospital to U.S. Highway 280 is REVERSED; and (2) Trinity s CON application to relocate its existing hospital to U.S. Highway 280 is due to be and is hereby DENIED.

10 DONE this 13 th day of July, /s/ JIMMY B POOL CIRCUIT JUDGE