The case for a new MRI machine in Wake County went to the top court in North Carolina on Tuesday. Pinnacle Health Services and Duke Health are both trying to get a certificate of need, which is a government-mandated document.
In 2021, Duke got a CON from the Department of Health and Human Services. Under state law, that means Duke would be the only one in Wake County who could buy and use a new MRI machine.
In 2022, a state administrative law judge said that the people in charge of healthcare made legal mistakes when they picked Duke. The ALJ’s ruling went against the state agency and gave Pinnacle the CON.
On September 2, 2023, the state Appeals Court upheld the ALJ’s finding by a vote of 2-1. At that point, Duke and the state office asked the state Supreme Court to change its mind.
Derek Hunter, the state’s Special Deputy Attorney General, told the top court that Pinnacle had not shown that the original CON decision caused it “substantial prejudice.” Without that legal bias, Pinnacle can’t change the decision made by the health officials.
“The harm Pinnacle says there was was competition-based harm,” Hunter said. “Pinnacle has said that competition has caused them to lose money, time, and patients. This is the same kind of competition-related harm that appellate courts have consistently thrown out as not strong enough to show substantial prejudice.”
Justice Richard Dietz said that Pinnacle’s case was different from other CON cases.
“We’d say, “Well, so what?” if you were not familiar with the case and came in and said, “Hey, hey, hey, the agency made a mistake.” “You have to have something to gain from this,” he said. “it’s not enough that the agency messed up.”
It’s because the agency made a mistake, and you should have been able to gain from it but aren’t because of the mistake. “Then why isn’t that the substantial bias?”
“If you asked the government for a certificate of need and they gave it to someone else when the law said you should have had it, that seems like basically per se substantial prejudice to me.”
The lawyer for Pinnacle asked the court to uphold the ruling of the Appeals Court.
Marcus Hewitt said, “In this case, Pinnacle itself…applied, met all the statutory review criteria, and was only denied the right to get an MRI because Duke was wrongly approved.”
“Your point of view is… Dietz told Hewitt, “Your client asked for it and has a legal right to get it. It would be strange to say, ‘Well, you don’t have any substantial prejudice,'” when they were told they couldn’t get it.
Hewitt replied, “That’s exactly right.”
Hunter said in his rebuttal that a decision in favor of Pinnacle would be against long-standing court law.
If this court thinks it’s their job to decide what substantial prejudice means, then they should look at decades of case law that says the loss Pinnacle says it suffered because of the competition is not substantial prejudice, he said. “You would definitely be able to go against those decades of case law.” Yes, that is something you all should do.
In March, Pinnacle complained to North Carolina’s highest court about how state regulators and Duke Health were handling the CON issue in court.
In this case, an executive agency told Pinnacle that it couldn’t put in a fixed MRI scanner in Wake Forest, even though there aren’t any in that area already and Pinnacle showed that it could do the work for less money than other companies, the company’s lawyers wrote in a brief.
It was instead decided that Duke could add a fixed MRI scanner to its building in the middle of Raleigh. Duke and other providers already have a lot of scanners open to the public at this location.
“Duke stepped in when Pinnacle brought a contested case against the agency,” the brief said. A law says that an Administrative Law Judge had to hold a meeting with evidence over several days.
It was impossible for the Agency to defend how it made decisions. It made a choice that was full of math and logic mistakes. It did a few things differently than normal, but it couldn’t explain why.
“Again, as required by law, the ALJ made a detailed decision that included findings of fact backed up by evidence in the record and conclusions of law that followed from those findings,” Pinnacle’s lawyers wrote.
The administrative law judge overturned the ruling of the state agency and gave the CON to Pinnacle. That ruling was upheld by a Court of Appeals panel that was split 2-1.
Pinnacle says that the state’s Administrative Procedure Act changed in 2011 so judges must follow the ALJ instead of the DHHS regulators. “Should the courts not care about the changes made to the Administrative Procedure Act in 2011?”
The lawyers for Pinnacle wrote, “Because of… litigation choices made by appellants, the issues squarely presented to this Court are now greatly simplified.”
The lawsuit began when Pinnacle questioned the state’s choice in 2021 to give Duke a CON. It was a race between Pinnacle and Duke to get the state to approve a single new MRI machine for either Raleigh or Wake Forest.
In July 2022, Administrative Law Judge Melissa Owens Lassiter overturned the state’s choice. A person named Lassiter thought that Pinnacle should have won the CON from the state’s Department of Health and Human Services.
As a result of major mistakes in the geographic accessibility analysis, ALJ Lassiter came to the wrong conclusion that Duke’s application would work better, which led to the wrong decision being made by the Agency. Judge Julee Flood wrote for the majority of the Appeals Court that supported Lassiter’s decision.
“ALJ Lassiter also found that the Agency made a mistake by not following the rules used to find historical use, which would have shown that Pinnacle’s application was the better one.” Finally, ALJ Lassiter decided that Pinnacle had done enough to show that the Agency’s decision significantly hurt its rights.
Flood wrote that the ruling in the Pinnacle case was affected by a change in state law in 2011.
“Duke begs this Court to look over this case again, but this time to follow the Agency’s decision instead of the ALJ’s final decision,” she wrote. “To support this argument, Duke cites a number of cases from this Court that did, in fact, look at agency decisions by recognizing the agency’s knowledge and experience in the area.”
“This review would have been right in cases before the 2011 legislative session, but it is not the right way to apply the law now,” Flood said.
“Duke either didn’t notice or didn’t want to, but our government changed the Administrative Procedure Act (the “APA”) in 2011, “giving [ALJs] the authority to render final decisions in challenges to agency actions, a power that had previously been held by the agencies themselves.”
“Before the legislature changed the APA, an ALJ would send a suggested decision to each agency. That agency could then choose to accept the decision in whole or in part, or they could reject it completely,” Flood explained. “However, since the 2011 change, the ALJ’s decision is no longer just a suggestion; it is now the final decision that everyone has to follow.”
The ALJ must decide the case based on the “preponderance of the evidence,” while also taking into account the “demonstrated knowledge and expertise of the agency with respect to facts and inferences within the specialized knowledge of the agency.”
“Duke’s brief spends most of its time arguing why the Agency decision was right, but it fails to show this Court specifically where the ALJ’s Final Decision was wrong,” the majority opinion said.
Flood also said bad things about the state’s claims. The Agency said that the Court’s job is to check if Pinnacle did enough to show substantial bias, which is what she wrote.
But the question this Court has to decide is “whether the whole record contains relevant evidence that a reasonable mind might accept as adequate to support the [ALJ’s] decision” that Pinnacle showed it was seriously hurt when the Agency gave Duke the CON.
Flood said, “Our review is not focused on whether Pinnacle met its burden of proof to the ALJ. Instead, our review is focused on whether the ALJ’s Final Decision that Pinnacle did meet its burden is supported by substantial evidence.”
Judge Jeff Carpenter agreed with Flood’s point of view. Judge John Tyson did not agree.
The CON process starts with state health regulators, not an administrative law judge in the state Office of Administrative Hearings, Tyson said.
That’s right, he wrote. “The ALJ is not writing from scratch and is legally required to “give due regard to the proven knowledge and expertise of the agency with respect to facts and inferences within the specialized knowledge of the agency.”
Since 2011, changes to the law have made it possible for the OAH and the ALJ to make a Final Decision instead of a Recommended Decision. However, the NCAPA and those changes make it clear that an ALJ cannot just disagree with the agency’s decision and make their own instead.
“Both applicants, Pinnacle and Duke, sent in applications that were in line with the requirements,” Tyson said. “The NC DHHS could only approve one application because there was only room for one CON.”
Just like in any other game or competitive setting, there had to be a winner and a loser. The agency carefully and fairly looked over all the applications that were within its area of knowledge to see which one would be best for giving the CON.
Lassiter “was not free to substitute her personal preferences for the record, expertise, and knowledge of the agency merely to reach a contrary result,” Tyson wrote. This was because the state’s regulators picked Duke.
He specifically pointed out Lassiter’s conclusion that the state’s choice would cost Pinnacle $400,000 a year in savings and an extra $97,000 in net income. Tyson wrote, “While both may be true, since there are two qualified applicants and only one CON available, those findings will be the same no matter which party doesn’t get the CON.”
According to the law, it’s not up to the ALJ to decide that. They only have to look at “whether the whole record contains relevant evidence that a reasonable mind might accept as adequate to support the Agency’s conclusion.”