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Middle Tn Rehabilitation Hospital, LLC v. Health Services & Development Agency

Court of Appeals of Tennessee, Nashville

August 22, 2014

MIDDLE TN REHABILITATION HOSPITAL, LLC
v.
HEALTH SERVICES & DEVELOPMENT AGENCY, ET AL.

Session April 25, 2014

Appeal from the Chancery Court for Davidson County No. 12515IV Russell T. Perkins, Judge

Alexandra Coulter Cross, Nashville, Tennessee, for the appellant, Middle Tennessee Rehabilitation Hospital, LLC.

Robert E. Cooper, Jr., Attorney General and Reporter; Sue A. Sheldon, Senior Counsel; Nashville, Tennessee, for the appellee, Tennessee Health Services and Development Agency.

Byron R. Trauger; Paul W. Ambrosius; W. Justin Adams; and Thomas A. Wiseman, III; Nashville, Tennessee, for the appellee, HealthSouth Rehabilitation Hospital of Williamson County, LLC.

Amy V. Hollars, Sp. J., delivered the opinion of the court, in which Frank G. Clement, Jr., P.J., M.S., and Richard H. Dinkins, J., joined.

OPINION

AMY V. HOLLARS, JUDGE

Factual and Procedural Background

Middle Tennessee Rehabilitation Hospital, LLC ("MTRH") owns Nashville Rehabilitation Hospital, a 31-bed, comprehensive acute care medical rehabilitation hospital located in Nashville. HealthSouth Rehabilitation Hospital of Williamson County ("HealthSouth") is wholly owned by HealthSouth Corporation, which owns and operates inpatient rehabilitation hospitals in twenty-eight states and Puerto Rico. Vanderbilt Stallworth, an inpatient rehabilitation hospital located in Nashville, is a joint venture between Vanderbilt University Medical Center and HealthSouth.

In accordance with the rules of the Tennessee Health Services and Development Agency ("HSDA" or "the Agency"), on December 10, 2010, MTRH published in The Tennessean a letter of intent to submit a Certificate of Need application.[1] On December 15, 2010, MTRH filed its Certificate of Need application to relocate and replace its existing, dilapidated[2] 31-bed rehabilitation hospital to Williamson County, Tennessee.[3] MTRH's letter of intent estimated the total cost of the proposed project would be $19, 550, 000. In its application, MTRH represented that it had retained RehabCare Group, Inc. to provide the daily operations management of the proposed Williamson County hospital.

On December 20, 2010, HealthSouth published in The City Paper a letter of intent to file an application for a Certificate of Need to establish a new 40-bed rehabilitation hospital for inpatient and outpatient acute rehabilitation services in Williamson County at an estimated $27, 000, 000 cost. HealthSouth proposed that its hospital would be built adjacent to the site MTRH proposed. On December 22, 2010, HealthSouth filed its Certificate of Need application and requested simultaneous review with MTRH's application, pursuant to Tenn. Comp. R. & Regs. 0720-10-.03(3). In its application, HealthSouth stated that Vanderbilt University Medical Center faculty would medically lead and direct its proposed Williamson County rehabilitation hospital, as it does at Vanderbilt Stallworth. HealthSouth further represented that it would co-recruit the proposed facility's medical director with Vanderbilt, and that the medical director "and a substantial number of [the proposed hospital's] medical staff will have faculty positions or appointments at Vanderbilt." HealthSouth's Certificate of Need application estimated $23, 389, 263 for project costs, which was $3, 610, 737 lower than estimated in its letter of intent.

On January 4, 2011, HealthSouth was notified by letter, with a copy to MTRH, that the Agency's executive director had deemed its application complete and that the application would enter the review cycle for simultaneous review with that of MTRH. At its regular March 23, 2011 meeting, the HSDA considered MTRH and HealthSouth's competing Certificate of Need applications. Before the eight participating Agency members voted, MTRH and HealthSouth agreed that only one rehabilitation hospital would be needed in the proposed service area. The Agency members voted on MTRH's application first, which resulted in a four-four tie, so MTRH's application was denied, pursuant to Tenn. Code Ann. § 68-11-1604(e)(5).[4] Next, member Gregory Lammert moved to approve HealthSouth's application and the Agency members voted five-three to approve it.[5]

MTRH timely petitioned for a contested case hearing to challenge the HSDA's denial of its Certificate of Need application and the approval of HealthSouth's application.[6]HealthSouth intervened without opposition. An Administrative Law Judge ("ALJ") sitting for the Agency conducted a hearing over nine days between September and November 2011. By initial order issued March 19, 2011, the ALJ made detailed findings of fact and conclusions of law and granted HealthSouth's Certificate of Need application and denied MTRH's application. Neither party filed a petition for appeal to the HSDA, so the initial order became a final order pursuant to Tenn. Code Ann. § 4-5-318(f).

MTRH petitioned the chancery court for judicial review of the Agency's final order under the Uniform Administrative Procedures Act, Tenn. Code Ann. § 4-5-322. HealthSouth intervened by agreed order. By memorandum and order entered August 30, 2013, the chancery court adopted the ALJ's factual findings and conclusions of law, rejected all of MTRH's claims, and found substantial and material evidence in the record to affirm the Agency's decision to deny MTRH's Certificate of Need application and to grant HealthSouth's application.

MTRH timely perfected this appeal.

Issues

We will consider: (1) Whether HealthSouth's Certificate of Need application should have been denied based on the HSDA's procedural rules; (2) Whether HSDA member Gregory Lammert had a disqualifying conflict of interest; and (3) Whether substantial and material evidence supports the HSDA's decision.

Standard of Review

Currently before this Court is MTRH's petition for judicial review of the HSDA's final order. The narrow standard contained in Tenn. Code Ann. § 4-5-322(h) governs judicial review of administrative agency decisions. Willamette Indus., Inc. v. Tenn. Assessment Appeals Comm'n, 11 S.W.3d 142, 147 (Tenn. Ct. App. 1999) (citing Wayne Cnty. v. Tenn. Solid Waste Disposal Control Bd., 756 S.W.2d 274, 279 (Tenn. Ct. App. 1988)). This Court may reverse or modify the agency's decision only if it is:

(1)In violation of constitutional or statutory provisions;
(2)In excess of the statutory authority of the agency;
(3)Made upon unlawful procedure;
(4)Arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted ...

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