Opinion
2200890
06-17-2022
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
James E. Williams and C. Mark Bain of Melton, Espy & Williams, P.C., Montgomery; and Samuel H. Franklin and William H. Brooks of Lightfoot, Franklin & White, LLC, Birmingham, for appellants. Mark D. Wilkerson and Kristen M. Beavers of Wilkerson & Bryan, P.C., Montgomery, for appellee State Health Planning and Development Agency. Colin H. Luke and Charles W. Prueter of Waller Lansden Dortch & Davis, LLP, Birmingham; and Matthew C. McDonald of Jones Walker LLP, Mobile, for appellee USA Baldwin County ASC, LLC.
James E. Williams and C. Mark Bain of Melton, Espy & Williams, P.C., Montgomery; and Samuel H. Franklin and William H. Brooks of Lightfoot, Franklin & White, LLC, Birmingham, for appellants.
Mark D. Wilkerson and Kristen M. Beavers of Wilkerson & Bryan, P.C., Montgomery, for appellee State Health Planning and Development Agency.
Colin H. Luke and Charles W. Prueter of Waller Lansden Dortch & Davis, LLP, Birmingham; and Matthew C. McDonald of Jones Walker LLP, Mobile, for appellee USA Baldwin County ASC, LLC.
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. 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 procedure rooms are for less complex medical procedures such as endoscopies and colonoscopies.
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. 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]").
Pursuant to Ala. Admin. Code (SHPDA), r. 410-1-8-.02(5), the parties agreed to an extension of both the 90-day period for conducting the contested-case hearing and the 30-day period for the ALJ to issue his recommendation to the Board. See also Ala. Code 1975, § 22-21-275(3).
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 Bay Eyes recommendation was based, in part, on a purported settlement between BESCI and the Bay Eyes intervenors. Pursuant to the purported settlement, Thomas Hospital obtained the option to purchase BESCI's assets and its CON, provided the CON application was granted. The July 2018 Bay Eyes recommendation included findings that, based on Baldwin County's recent and expected future growth through 2022, Baldwin County was "in need of a freestanding, multispecialty ASC," that optimum operating-room capacity for purposes of evaluating utilization was approximately 895 cases per operating room per year, that "there [was] an immediate and long-term need for five additional multispecialty operating rooms in Baldwin County," and that such would not "[r]esult in unnecessary duplication of multi-specialty operating rooms in Baldwin County."
After the ALJ issued the July 2018 Bay Eyes recommendation, BESCI informed the Board that it intended to sell its ASC to Thomas Hospital upon vesting of the CON, and the Board entered an order affirming that recommendation and approving BESCI's CON application on August 10, 2018. Thereafter, however, the Bay Eyes intervenors filed a motion to reconsider the Board's August 2018 order after a dispute arose regarding Thomas Hospital's purchase of BESCI's assets. The Board granted that motion and entered an order referring BESCI's CON application back to the ALJ for consideration of additional, newly discovered evidence.
Before a final order was issued regarding BESCI's CON application, University ASC filed its CON application as to the proposed ASC. Following a hearing on BESCI's still pending CON application, the ALJ who was assigned that application entered, on August 11, 2020, an order recommending adopting the findings in the July 2018 Bay Eyes recommendation as to the public need for the ASC and also making additional findings in favor of the approval of BESCI's CON application ("the August 2020 Bay Eyes recommendation"). On September 8, 2020, the Board entered an order approving the August 2020 Bay Eyes recommendation and granting BESCI's CON application. A few weeks later, Thomas Hospital completed its acquisition of BESCI's assets and began operating Bay Eyes ASC. Thereafter, however, on October 5, 2020, Bay Eyes ASC filed a request with the Board seeking a modification of the BESCI CON; Bay Eyes ASC informed the Board that it did "not intend to undertake ... to expand to four operating rooms at this time and [would] continue operating its multi-specialty ASC in its existing space and offering multi-specialty surgical procedures in ... [two] operating rooms." The Board granted Bay Eyes ASC's CON-modification request.
As noted above, the record from Bay Eyes ASC's CON proceedings (including both the BESCI CON proceeding and the modification proceeding) was admitted into evidence before the ALJ in the CON proceeding as to the proposed ASC. Following the issuance of the ALJ's May 2021 recommendation, University ASC timely filed with the Board exceptions to that recommendation, along with a copy of a proposed order approving the proposed ASC, which University ASC had submitted to the ALJ ("the alternative order"). See Ala. Admin. Code (SHPDA), r. 410-1-8-.05 ; Ala. Admin. Code (SHPDA), r. 410-1-8-.07(2) ("Parties may submit proposed findings of fact to the ... Board for inclusion in the final order."). The exceptions and the alternative order challenged the bases upon which the ALJ had made the adverse determinations discussed above. According to University ASC, the ALJ had erred by focusing on certain limited facts and by not giving appropriate weight to other facts when making his adverse determinations regarding the proposed ASC.
The Board scheduled a hearing to consider the ALJ's May 2021 recommendation for its meeting in June 2021, and it stated that it would receive oral argument, but no additional evidence, in regard to that recommendation. See Ala. Admin. Code (SHPDA), r. 410-1-8-.03. At the June 2021 hearing, the Board received oral arguments as to University ASC's CON application and questioned the parties’ representatives, who made statements under oath at the hearing. See Ace Home Health Care, LLC v. Gentiva Health Servs., Inc., 162 So. 3d 931, 937 (Ala. Civ. App. 2014). At the close of the hearing, the Board voted to approve University ASC's CON application; the approval vote was unanimous. On July 1, 2021, the Board issued an order rejecting the ALJ's May 2021 recommendation and approving University ASC's CON application "on the grounds set forth in [the] [a]lternative [o]rder, which is adopted herein." We note that the 174-page alternative order includes dozens of pages of factual findings, along with extensive quotations of supporting testimony as to some of those findings, and some credibility determinations that appear to be contrary to those made by the ALJ.
Three of the nine Board members recused themselves from the consideration of University ASC's CON application. See Ala. Code 1975, § 22-21-260(14) ; Ala. Admin. Code (SHPDA), r. 410-1-2-.01 ; see also Ala. Code 1975, § 41-22-18(a) ; Ala. Admin. Code (SHPDA), r. 410-1-3-.04(2) (providing that "[a]ny member of the ... Board who has a financial interest, privileges of practice or any other potential conflicts of interest pertaining to any application or the opposing party to any application pending before the ... Board, must recuse themselves from any debate, votes, or proceedings pertaining to said application); Ala. Admin. Code (SHPDA), r. 410-1-8-.05(2) (providing that an ALJ's recommendation may be "either ratified or rejected, in whole or in part, by a majority vote of a quorum of [the Board's] membership").
We do not read the July 2021 order as adopting verbatim the alternative order, which was drafted as if it was being adopted by the ALJ, but merely as adopting the grounds of approval stated in the alternative order.
The IHS intervenors timely filed a motion for reconsideration with the Board, pursuant to Ala. Code 1975, § 22-21-275(12). On July 21, 2021, the Board held a hearing on that motion. On August 5, 2021, the Board entered its order unanimously denying the motion to reconsider. On August 10, 2021, the IHS intervenors filed a timely notice of appeal to this court, pursuant to § 22-21-275(6). " Section 41-22-20(k), Ala. Code 1975, a part of the Alabama Administrative Procedure Act, provides the scope of judicial review regarding an order of the [Board] granting or denying a CON application." Select Specialty Hosps., Inc. v. State Health Plan. & Dev. Agency, 317 So. 3d 1007, 1013 (Ala. Civ. App. 2020). This court must take "the [Board's] order ... as prima facie just and reasonable," and we are prohibited from "substitut[ing our] judgment for that of the [Board] as to the weight of the evidence on questions of fact ...." § 41-22-20(k). In pertinent part, this court may reverse the Board's decision if that decision is "[c]learly erroneous in view of the reliable, probative, and substantial evidence on the whole record," § 41-22-20(k)(6), or is "[u]nreasonable, arbitrary, or capricious, or characterized by an abuse of discretion or a clearly unwarranted exercise of discretion," § 41-22-20(k)(7).
The three Board members who had previously recused themselves from the consideration of University ASC's CON application did not vote on the motion to reconsider.
"[C]onsidering SHPDA's recognized expertise in this specialized area, the weight and significance of any given piece of evidence presented in a CON-application case is left primarily to SHPDA's discretion. Colonial Mgmt. Group, [L.P. v. State Health Plan. & Dev. Agency], 853 So. 2d [972,] 975 [(Ala. Civ. App. 2002)]." Affinity Hosp., LLC v. St. Vincent's Health Sys., 129 So. 3d 1022, 1029 (Ala. Civ. App. 2012). As noted above, "[t]his court cannot substitute its judgment for that of the [Board] regarding the weight to be assigned to any given piece of evidence." Hometown Home Health Care of Shelby Cnty., LLC v. State Health Plan. & Dev. Agency, 190 So. 3d 44, 53 (Ala. Civ. App. 2015) ; see also § 41-22-20(k). That principle is controlling " ‘even in cases where the testimony is generalized, the evidence is meager, and reasonable minds might differ as to the correct result.’ " Colonial Mgmt. Grp., L.P. v. State Health Plan. & Dev. Agency, 853 So. 2d 972, 975 (Ala. Civ. App. 2002) (quoting Health Care Auth. of Huntsville v. State Health Plan. Agency, 549 So. 2d 973, 975 (Ala. Civ. App. 1989), and quoted with approval in Ex parte HealthSouth of Alabama, LLC, 207 So. 3d 39, 43 (Ala. 2016) ); see also State Health Plan. & Dev. Agency v. Baptist Health Sys., Inc., 766 So. 2d 176, 180 (Ala. Civ. App. 1999) ("The reviewing court is not to decide whether the evidence would have persuaded it to reach the same conclusion, but, rather, whether there was substantial evidence to support the Board's decision."). "[W]here the [Board's] order is the final decision of SHPDA, the [Board's] order is entitled to a presumption of correctness on appeal. Thus, this court's review of the [Board's] decision is deferential." Colonial Mgmt. Grp., 853 So. 2d at 977 ; McInnish v. Riley, 925 So. 2d 174, 186 (Ala. 2005) (quoting Tischer v. Housing & Redevelopment Auth. of Cambridge, 693 N.W.2d 426, 429 (Minn. 2005), for the proposition that " ‘[s]eparation of powers requires that [discretionary decisions of an executive body] be granted deference by the judiciary to avoid usurpation of the executive body's administrative prerogatives’ " (emphasis omitted)). "Our review of [the Board's] conclusions of law and its application of the law to the facts, however, [is] de novo." Ex parte STV One Nineteen Senior Living, LLC, 161 So. 3d 196, 202 (Ala. 2014).
The legislature established the CON-review process "to assure that only those health care services and facilities found to be in the public interest shall be offered or developed in the state" and "to prevent the construction of unnecessary and inappropriate health care facilities." Ala. Code 1975, § 22-21-261. Section 22-21-264, Ala. Code 1975, describes eight nonexclusive factors and subfactors that the Board must consider when reviewing a CON application. See Ex parte HealthSouth, 207 So. 3d at 42 ; see also Ala. Code 1975, § 22-21-274 ; Ala. Admin. Code (SHPDA), r. 410-1-6-.01 et seq. The Board must consider:
"(1) Consistency with the appropriate State Health Facility and services plans effective at the time the application was received ....
"(2) The relationship of services reviewed to the long-range development plan (if any) of the person providing or proposing such services.
"(3) The availability of alternative, less costly or more effective methods of providing such services.
"(4) Determination of a substantially unmet public requirement for the proposed health care facility, service or capital expenditure that is consistent with orderly planning within the state and the community for furnishing comprehensive health care, such determination to be established on the merits of the proposal after giving appropriate consideration to:
"a. Financial feasibility of the proposed change in service of facility;
"b. Specific data supporting the demonstration of need for the proposed change in facility or service shall be reasonable, relevant and appropriate;
"c. Evidence of evaluation and consistency of the proposed change in facility or service with the facility's and the community's overall health and health-related plans;
"d. Evidence of consistency of the proposal with the need to meet nonpatient care objectives of the facility such as teaching and research;
"e. Evidence of review of the proposed facility, service or capital expenditure when appropriate and requested by other state agencies[;]
"f. Evidence of the locational appropriateness of the proposed facility or service such as transportation accessibility, manpower availability, local zoning, environmental health, etc.;
"g. Reasonable potential of the facility to meet licensure standards[;]
"h. Reasonable consideration shall be given to medical facilities involved in medical education.
"(5) Determination that the person applying is an appropriate applicant, or the most appropriate applicant in the event of duplicative applications, for providing the proposed health care facility or service ....
"(6) Consideration of the special needs and circumstances of those entities which provide a substantial portion of their services or resources, or both, to individuals not residing in the health service area in which the entities are located or in adjacent health service areas.
"(7) The special needs and circumstances of health maintenance organizations.
"(8) In case of a construction project, consideration shall be given to:
"a. The costs and methods of the proposed construction including the costs and methods of energy provision; and
"b. The probable impact of the construction project reviewed on the costs of providing health services."
§ 22-21-264 ; see also Ala. Admin. Code (SHPDA), r. 410-1-6-.01 et seq. (setting forth the regulations addressing the statutory factors and additional criteria adopted by SHPDA).
It is SHPDA's role to "balance and ‘giv[e] appropriate consideration to’ " the various criteria applicable to the review of a CON application. Ex parte HealthSouth, 207 So. 3d at 42. No single factor described in § 22-21-264
"is a determinative factor in a proceeding on a CON application. SHPDA is charged with weighing the various factors and subfactors ... in a particular case; it is SHPDA, not a reviewing court, that must use its expertise and discretion to prioritize the relevant considerations. As the Court of Civil Appeals has noted:
" ‘Cases concerning CON applications are fact-intensive, and it is very unlikely that two cases will ever have the same facts. It is SHPDA's responsibility to weigh the evidence in each case, and SHPDA is afforded much deference in making its factual findings. ...’
" Affinity Hosp., LLC v. St. Vincent's Health Sys., 129 So. 3d 1022, 1030 (Ala. Civ. App. 2012)."
Ex parte HealthSouth 207 So. 3d at 42 ; see also Ace Home Health Care, LLC, 162 So. 3d at 940 n.5 ; Colonial Mgmt. Grp., 853 So. 2d at 975 (quoting Baptist Health Sys., 766 So. 2d at 178, and quoted with approval in Ex parte HealthSouth, 207 So. 3d at 42 ) (" ‘The weight or importance assigned to any given piece of evidence presented in a CON application is left primarily to [the Board's] discretion, in light of [the Board's] recognized expertise in dealing with these specialized areas.’ "). Further, " ‘ "the ALJ's recommendation [following a contested-case hearing] is not a binding order on the parties, and the SHPDA regulations do not require that the [Board] give any deference to an ALJ's recommendation," ’ " as a general rule. Brookwood Health Servs., Inc. v. Baptist Health Sys., Inc., 936 So. 2d 529, 536 (Ala. Civ. App. 2005) (quoting Colonial Mgmt. Grp., 853 So. 2d at 976, quoting in turn Forest Manor[, Inc. v. State Health Plan. & Dev. Agency], 723 So. 2d [75,] 82 [(Ala. Civ. App. 1998)] (Crawley, J., dissenting, joined by Thompson, J.)). As we explained in Colbert County Northwest Alabama Health Care Authority v. RegionalCare Hospital Partners, Inc., 195 So. 3d 948, 957-58 (Ala. Civ. App. 2015) :
Ex parte HealthSouth held that a CON applicant need not satisfy each subfactor that the Board must consider as to a factor described in § 22-21-264 or as to other factors not otherwise required by statute or regulation. See 207 So. 3d at 41 ; see also Ala. Admin. Code (SHPDA), r. 410-1-6-.01(1).
" ‘[M]any [Board] decisions involve an analysis of statistical and demographic data that is unaffected by an assessment of witness credibility and demeanor. However, we would note that there is merit to the notion that when an ALJ has conducted an ore tenus proceeding and is the only administrative official to have had the opportunity to observe the witnesses and evaluate their credibility and demeanor, there should be ‘at least some degree of deference to the hearing officer's findings when conflicting testimony and demeanor evidence are involved.’ See Personnel Board v. King, 456 So.2d 80, 82 (Ala. Civ. App. 1984). Thus, where there is substantial evidence, other than a witness's ore tenus testimony and demeanor, that is probative of the witness's credibility or lack thereof, that evidence may be considered by the [Board] and the [Board] is free to rule consistently with such other evidence. However, we would note that when the only substantial evidence as to
the credibility of a witness is the witness's own testimony and demeanor at an ore tenus proceeding conducted by an ALJ, a [Board] that has not seen or heard the witness testify would have no basis, other than the ALJ's findings, upon which to assess the credibility of the witness. Thus, where the credibility or lack of credibility of the witness is material to the outcome of a contested case, the fact that the only available evaluation of the witness's credibility comes from the ALJ's proposed findings should have to be considered in evaluating whether the [Board's] ultimate decision is supported by substantial evidence.’ "
(Quoting Colonial Mgmt. Grp., 853 So. 2d at 976-77.) See also 2 Am. Jur. 2d Administrative Law § 350 (2014) ("[E]ven though a hearing officer has the advantage of hearing and seeing witnesses testify, an agency may reject the hearing officer's decision even on a question involving the credibility of contradictory witnesses. On the other hand, while an agency need not defer to the hearing officer's findings, it should give substantial deference to the hearing officer's credibility determinations to the extent they are critical to the outcome of the case and they are demeanor-based, that is, they are the product of observing the behavior of the witnesses and not of drawing inferences from and weighing nontestimonial evidence. Nonetheless, a hearing officer's recommendation is not entitled to the same deference an appellate court must accord the findings of a trial court." (footnotes omitted)).
Before addressing the issues that are properly argued by the IHS intervenors, we wish to be clear that we are concerned about the Board's adoption of the 174-page alternative order drafted by University ASC, which includes numerous discussions of credibility determinations that appear to conflict with determinations made in the ALJ's May 2021 recommendation (whether explicit or implicit) and substantial, serious, and apparently unnecessary criticism of some of the IHS intervenors. Nevertheless, the IHS intervenors make no adequate, specific legal argument, including citation to pertinent legal authority, that supports their contentions that the Board abused its discretion or acted arbitrarily as to its voting and decision procedures, including the adoption of the alternative order. See Rule 28(a)(10), Ala. R. Civ. P.; White Sands Grp., L.L.C. v. PRS II, LLC, 998 So. 2d 1042, 1058 (Ala. 2008) (noting that an argument that fails to satisfy the requirements of Rule 28(a)(10) is waived); Dykes v. Lane Trucking, Inc., 652 So. 2d 248, 251 (Ala. 1994) ; see also Ala. Admin. Code (SHPDA), r. 410-1-8-.07(2) ("Parties may submit proposed findings of fact to the ... Board for inclusion in the final order."); Ala. Code 1975, § 41-22-16(b) ; cf. Stowe v. Alabama Bd. of Pardons & Paroles, 245 So. 3d 610, 616 (Ala. Civ. App. 2017) (discussing certain circumstances under which a party may challenge a court's adoption of a party-prepared order).
We note that, before it held its June 2021 hearing, the Board had received the record of the proceedings before the ALJ. See Ala. Admin. Code (SHPDA), r. 410-1-8-.03 ; Ala. Admin. Code (SHPDA), r. 410-1-8-.05(2). Members of the Board questioned the parties’ representatives during the hearing on whether the ALJ's May 2021 recommendation should be rejected or approved. Also, there is no indication in the record that the Board members were unfamiliar with the record and the transcripts of the proceedings before the ALJ, or the alternative order, which University ASC had filed with the Board before the June 2021 hearing. The IHS intervenors had even filed a response with the Board opposing University ASC's request that the Board adopt the alternative order. At the close of the hearing, Board member Randy Jones made a motion that the Board "reject the [ALJ's May 2021 recommendation] and grant [University ASC]'s application on the grounds presented in its alternative order ...." The Board unanimously approved that motion. Further, this issue was called to the attention of, and rejected by, the Board as part of the IHS intervenors’ motion for reconsideration. During the hearing on the motion for reconsideration, the chairman of the Board noted that the Board "very carefully read[s] the submissions" and "vote[s] based on the facts that are presented." Under the circumstances, this court will not presume that the Board failed to review the record of the proceedings before the ALJ and to familiarize itself with the alternative order before voting on University ASC's CON application and thereafter adopting the grounds for approval stated in the alternative order. See Ala. Admin. Code (SHPDA), r. 410-1-8-.05 ; see also Herbert v. State Oil & Gas Bd., 287 Ala. 221, 225, 250 So. 2d 597, 601 (1971).
Likewise, the IHS intervenors make negative remarks regarding the ownership structure of the proposed ASC, which is a factor that the Board must consider in reviewing a CON application. See § 22-21-264(5), Ala. Code 1975. The IHS intervenors’ statements, however, do not satisfy the requirements for making a legal argument. Any arguments that University ASC failed to meet the criteria described in § 22-21-264(5) or that the Board erred as to its consideration and determination regarding those criteria are waived. See Rule 28(a)(10), Ala. R. Civ. P.; White Sands Grp., 998 So. 2d 1042, 1058 (Ala. 2008).
We further note that, in their initial appellate brief, the IHS intervenors criticize the limited time that the Board devoted to the public hearing and to making its decision, as compared to the time spent on the CON application by the ALJ. They contend in their appellate brief that administrative discretion has been properly exercised when "the decision makers base their decision on reason rather than ‘whim,’ ‘fancy,’ or ‘personal preference,’ " but that, "when a vote on an issue is made without deliberative discussion (followed not by reasoned elaboration but rather by the wholesale adoption of the proponent's ‘facts'), an abuse of discretion has happened." They further argue that "[w]hatever level of discretion the Board may enjoy, it is not limitless and must be responsibly exercised." Nevertheless, the IHS intervenors do not discuss our precedents as to the issue of any deference the Board might owe an ALJ's recommendation under given circumstances, and they develop no legal argument based on any such legal authority. Nor do the IHS intervenors discuss how the Board might have erred by not deferring to some specific ALJ determination as to witness demeanor or credibility, rather than making a contrary determination. Although the IHS intervenors attempt to make a deference argument in their reply brief, that argument comes too late. Any argument that the Board failed to give proper deference to the ALJ's May 2021 recommendation has been waived. See, e.g., Meigs v. Estate of Mobley, 134 So. 3d 878, 889 n.6 (Ala. Civ. App. 2013) ; see also Ex parte Jackson Hosp. & Clinic, Inc., 167 So. 3d 324, 335 (Ala. 2014). Based on the arguments that have been adequately made by the IHS intervenors, we consider this appeal as involving only the issue whether the Board's challenged determinations are supported by the evidence presented in the record made before the ALJ. As to that issue, the IHS intervenors assert error regarding the Board's determination as to three factors or subfactors applicable to the review of a CON application.
We further note that, even if the IHS intervenors had properly made such an argument in their initial appellate brief, they failed to preserve any error as to that issue by making the argument to the Board, i.e., that it owed deference to the ALJ's determinations as to witness demeanor or credibility under the evidence presented. See Ex parte Williamson, 907 So. 2d 407, 416 (Ala. 2004) ; Alabama Real Estate Appraisers Bd. v. Walker, 739 So. 2d 8 (Ala. Civ. App. 1997), rev'd on other grounds, 739 So.2d 14 (Ala. 1999). Thus, we could not have considered the argument if it had been adequately presented in the IHS intervenors’ initial appellate brief. See, e.g., Andrews v. Merritt Oil Co., 612 So. 2d 409, 410 (Ala. 1992) ; Smith v. Equifax Servs., Inc., 537 So. 2d 463, 465 (Ala. 1988).
The IHS intervenors first argue that substantial evidence does not support the conclusion that a public need exists for the proposed ASC. According to the IHS intervenors, "existing facilities in Baldwin County are more than sufficient to meet the public need."
Regulation 410-1-6-.05, Ala. Admin. Code (SHPDA), states, in pertinent part:
"(1) Determination of a substantially unmet public requirement for the proposed health care facility, service, or capital expenditure shall be made before approval may be granted. The need shall be consistent with orderly planning within the state and community for furnishing comprehensive health care. Such determination of need shall be made based on the merits of the proposal after giving appropriate consideration to the following:
"(a) financial feasibility of the proposed change in service of the facility;
"(b) specific data supporting the demonstration of need for the proposed change in facility or service shall be reasonable, relevant, and appropriate;
"(c) evidence of evaluation and consistency of the proposed change in facility or service with the facility's and the community's overall health and health-related plans;
"(d) evidence of consistency of the proposal with the need to meet nonpatient care objectives of the facility such as teaching and research;
"(e) evidence of review of the proposed facility, service, or capital expenditure when appropriate and requested by other state agencies;
"(f) evidence of the locational appropriateness of the proposed facility or service such as transportation accessibility, manpower availability, local zoning, environmental health, etc.;
"(g) reasonable potential of the facility to meet licensure standards;
"(h) reasonable consideration shall be given to medical facilities involved in medical education."
See also § 22-21-264(4). Further, Ala. Admin Code (SHPDA), r. 410-1-6-.06(1) provides the following additional criteria for "determining whether a need for the project exists":
"(a) The need that the population served or to be served has for the services proposed to be offered, expanded, or relocated, will be considered. ...
"....
"(c) ... The current and projected utilization of like facilities or services within the proposed service area will be considered ....
"....
"(e) ... The probable effect of the proposed facility or service on existing facilities or services providing similar services to those proposed shall be considered. When the service area of the proposed facility or service overlaps the service area of an existing facility or service, then the effect on the existing facility or service shall be considered. The applicant or interested party must clearly present the methodologies, and assumptions upon which any proposed project's impact on utilization in affected facilities or services is calculated.
"1. ... Expansion of existing services may be reviewed more favorably than the establishment of new services as a generally more cost effective alternative, however, the availability and accessibility of services must be considered.
"2. ... Any merger of services into one facility or entity from two or more facilities or entities which can be shown to result in lower health care costs without adversely affecting need of access will be considered a favorable factor. Sharing of services which result in lower health care cost shall be considered a favorable factor. Modernization of services as an alternative to new construction which result in lower health care costs shall be considered a favorable factor.
"(f) ... The community reaction to the facility should be considered. The applicant may, at its option, submit endorsements from community officials and individuals expressing their reaction to the proposal. If significant opposition to the proposal is expressed in writing or at a public hearing, the opposition may be considered an adverse factor and weighed against endorsements received. Absence of opposition may be considered a favorable factor."
The IHS intervenors contend that the Board erred in finding a public need for the proposed ASC because, they say, the Board had recently determined that no need existed for a new ASC, referencing the CON proceedings approving the Bay Eyes ASC, which involved the expansion of an existing facility; because existing Baldwin County health-care facilities purportedly had low operating-room-utilization rates and could accommodate any existing need; and because negative findings as to IHS and Thomas Hospital did not create a public need for a new ASC. The record, however, includes evidence and testimony that supports the Board's conclusion as to a public need for the proposed ASC, particularly in light of the fact that the Board must weigh several subfactors in making its public-need determination, none of which are determinative. See, e.g., Ex parte HealthSouth, supra. The Board's favorable findings as to most of those subfactors are not in dispute, such as the fact that the proposed ASC will have significant involvement in medical education, that the proposed ASC can relieve pressure on Mobile County health facilities that is associated with Baldwin County residents seeking outpatient surgery in Mobile County facilities, and that the proposed ASC will benefit Baldwin County patients who have limited access or no access to ASC facilities in Baldwin County for certain surgical specialties to be offered in the proposed ASC. Also, we note that Bay Eyes ASC had abandoned the right to add two additional operating rooms, despite its having established the need for more than those two operating rooms in Baldwin County by at least 2022, which preceded the earliest possible time that the proposed ASC would be operational, and despite the undisputed projections of the continuing, substantial growth of Baldwin County's population for the foreseeable future.
Further, the IHS intervenors’ arguments include erroneous assumptions that the Board was not required to accept, such as the equating of hospital operating rooms and less costly and more efficient ASC operating rooms for purposes of the public-need determination and the import of certain findings made as part of the recent Bay Eyes ASC CON proceedings. As to the latter, in particular, operating-room-utilization rates were evaluated using an optimum operating-room-capacity formula for purposes of assessing public need in the Bay Eyes ASC CON proceedings. The Board approved the CON for that ASC based on the use of that formula, and the Board used that same formula in approving the CON for the proposed ASC. Interestingly, however, in the present case, the IHS intervenors, which include all the Bay Eyes intervenors and Bay Eyes ASC, made their utilization-rate argument using figures that are based on a maximum-operating-room-capacity formula, and the ALJ accepted the use of that formula for purposes of the findings in the ALJ's May 2021 recommendation. On appeal, the IHS intervenors continue to base their utilization-rate argument on the figures derived from the maximum-operating-room-capacity formula. The IHS intervenors do not argue that the Board erred by using the optimum-operating-room-capacity formula for purposes of its determination. In other words, the IHS intervenors’ utilization-rate argument relies on a formula that the Board did not use, but they have made no argument that the Board erred by choosing the formula it did use or that, using the other formula, utilization rates would have been too low to satisfy the public-need requirement, all of which would undercut the bases on which the CON for Bay Eyes ASC had been approved. The Board could have considered that inconsistency in evaluating the credibility of the IHS intervenors’ argument as to utilization rates, particularly because the maximum-operating-room-capacity formula skews utilization rates downward and the use of operating rooms at maximum-operating-room capacity creates additional risks for patients. Also, we note that, to the extent that there was some evidence of a recent downtrend in operating-room-utilization rates for certain Baldwin County facilities, it was undisputed that Baldwin County's population growth was continuing, particularly among the overage-65 population, which generally requires more surgeries, and that a significant number of Baldwin County residents have surgery at ASCs located in Mobile County but would benefit both in terms of accessibility and treatment from a local alternative for such surgeries. For example, in 2019, of the 11,331 surgeries performed on Baldwin County residents at ASCs located in either Mobile County or Baldwin County, 5,115 of those surgeries (45%) were performed in Mobile County ASCs, a number that would be sufficient to keep several operating rooms at capacity using the optimum-operating-room-capacity formula. Likewise, there was some testimony indicating that a Baldwin County ASC would be a more convenient alternative than a Mobile County ASC for residents from certain Alabama counties and the Florida panhandle. And there was also testimony indicating that IHS had policies that limited the ability of out-of-county surgeons to use its outpatient facilities; for example, IHS's call-coverage policy required surgeons to accept emergency-call duty at its hospitals in order to utilize its outpatient facilities, which made it difficult, if not effectively impossible, for some surgeons in Mobile County, who desired to perform surgeries in Baldwin County for their Baldwin County patients, to use IHS's outpatient facilities.
Based on the foregoing, we must reject the IHS intervenors’ argument that the Board erred by concluding a public need existed for the proposed ASC. The evidence and testimony as to whether a public need existed was in conflict, and we cannot second-guess the Board as to its resolution of those conflicts and the weighing of the evidence. See, e.g., Ex parte HealthSouth, supra ; Colonial Mgmt. Grp., supra. In so doing, however, we wish to be clear that we do not address the issue whether the negative remarks about IHS and Thomas Hospital that are included in the Board's July 2021 order (per the alternative order), only a few of which are discussed by the IHS intervenors, are supported by the evidence. We will not repeat those few statements here because we conclude that they were unnecessary to the Board's determination that a public need existed for the proposed ASC; at most, the referenced statements relate to why that need might have existed in Baldwin County. Accordingly, any error as to those statements would not be a basis for reversing the Board's determination on the public-need issue. See Rule 45, Ala. R. App. P. (describing the harmless-error rule); Select Specialty Hosps., Inc. v. State Health Plan. & Dev. Agency, 317 So. 3d at 1016.
The IHS intervenors next argue that alternatives to the proposed ASC are less costly, more efficient, more appropriate, and more effective. Regulation 410-1-6-.04, Ala. Admin. Code (SHPDA), states, in pertinent part:
"(1) The availability of less costly, more efficient, more appropriate, or more effective alternatives to the proposed facility or service to be offered, expanded, or relocated will be considered.
"(a) In the consideration of the availability of alternatives, priority may be given to those alternatives that are in existence.
"(b) Less costly alternatives must be judged against the need for greater accessibility, availability, and the impact on the total health care system."
(Emphasis added.) See also § 22-21-264(3).
According to the IHS intervenors, the Board's findings "that only [the proposed ASC] can ‘satisfy the needs of Baldwin County residents’ and that it is the ‘best alternative’ to meet these alleged, undefined needs" are "clearly erroneous." The former statement is part of the introductory discussion in the alternative order, before the actual findings as to the proposed ASC, which include the latter statement, i.e., that the proposed ASC is the best alternative to meet the need for the services offered by the proposed ASC. Indeed, to read the former statement literally would be in tension with the latter statement. Thus, we conclude that the former statement is hyperbole and not a factual "finding" on which this court might base a decision to reverse the Board's July 2021 order. We will address the issue whether the Board erred as to its actual express finding referencing r. 410-1-6-.04(1), namely, that the proposed ASC "is the best alternative for providing needed access to high quality, low cost multi-specialty ASC services in the Baldwin County area and to meet the immediate and long-term need for additional multi-specialty operating rooms in Baldwin County." However, the IHS intervenors’ argument on this issue has largely been rejected based on the evidence supporting the Board's decision as to the public need for the proposed ASC. The IHS intervenors continue to reference hospital-based outpatient facilities and Bay Eyes ASC as alternatives to the proposed ASC. The IHS intervenors assume that the former are alternatives within the meaning of r. 410-1-6-.04(1), see also § 22-21-264(3), despite the undisputed distinctions (including greater cost) between hospital-based outpatient facilities and ASCs; essentially the IHS intervenors’ argument begs the question of whose "cost" and what "effectiveness" are at issue for purposes of determining whether a facility is an alternative for purposes of the services at issue. Because they make no argument regarding that issue, we see no need to address it further. Also, the record would not support the conclusion that the Board failed to properly "consider" "[l]ess costly alternatives" or to "judge [those alternatives] against the need for greater accessibility, availability, and the impact on the total health care system." Ala. Admin. Code (SHPDA), r. 410-1-6-.04(1)(b). In fact, the Board's findings as to the proposed alternatives clearly indicate otherwise. In particular, as to whether the evidence supported the Board's conclusion that Bay Eyes ASC was not an alternative that the Board was required to prefer to approving the proposed ASC, we first note that "may" in r. 410-1-6-.04(1)(a) appears to be permissive, and the IHS intervenors make no argument to the contrary. See, e.g., Hanover Ins. Co. v. Kiva Lodge Condo. Owners’ Ass'n, 221 So. 3d 446, 452 (Ala. 2016) (" ‘[O]rdinarily, the use of the word "may" indicates a discretionary or permissive act, rather than a mandatory act.’ Ex parte Mobile Cty. Bd. of Sch. Comm'rs, 61 So. 3d 292, 294 (Ala. Civ. App. 2010)."). Also, Bay Eyes ASC had no pending request for an approval for expansion of its operating rooms; Bay Eyes ASC had recently reversed course on expanding its number of operating rooms after having received approval to do so from the Board; and Bay Eyes ASC's reversal coincided with its acquisition by Thomas Hospital, which had a financial interest in preferring outpatient surgeries to those performed at its ASC. Although Bay Eyes ASC was approved as a multispecialty ASC in 2020, as of the hearing before the Board in June 2021 it still admittedly was not actually operating as such at a meaningful level. As noted in one colloquy during the hearing before the Board:
"The Chairman: ... [W]hat procedures are being done [at Bay Eyes ASC] now?
"Dr. [Jimmy] Gavras: They're going to be doing endoscopies and --
"The Chairman: At the present time I meant. I'm sorry.
"Dr. Gavras: I don't think they're doing anything there now. That was formerly just an outpatient center for ophthalmology.
"The Chairman: So we sat for several hours, Bay Eyes, Bay Eyes, Bay Eyes, and a lot said about Bay Eyes. And you're telling me the facility that we spent so much time over is sitting there not doing much?
"Dr. Gavras: Currently. But now they have plans to introduce endoscopy there, ophthalmology, and ENT as well.
"The Chairman: Got it."
Testimony from Mark Nix, the chief executive officer and president of IHS, followed that of Dr. Gavras. Nix stated that IHS had opposed BESCI's CON application for an ASC
"less than a half mile from [the location of Thomas Hospital] when they wanted to go multispecialty -- and then through the negotiations with banter back and forth before this [B]oard you all graciously approved the multispecialty and the acquisition by us.
"Since that day we've done over 500 surgeries in that case, most ophthalmology, but one or two, as was brought out, a very small cosmetic procedures. But that was the requirement of the rule to perfect the multispecialty you had to do some other procedure than ophthalmology so we did that.
"We're currently in negotiations right now. We've already moved forward to syndicate that. We made a commitment that is recognized in the ALJ's order that says that we've committed we will be an ASC. And we're headed that way now. We are moving down that track. And we will be an ASC in that location by the end of this calendar year. ... So the idea that there will be a lower cost of care, we will be the lower cost of care by the end of this year. Anyway, I wanted to address Bay Eyes."
Elsewhere, Nix indicated that the intent was to expand Bay Eyes ASC, which is not only inconsistent with the decision to eliminate two approved operating rooms after Thomas Hospital acquired that facility, but also is inconsistent with the IHS intervenors’ argument that no need existed for additional operating rooms in Baldwin County. As with the issue of public need, the evidence and testimony as to the issue of alternatives to the proposed ASC was in conflict, and we cannot second-guess the Board as to its resolution of those conflicts. See, e.g., Ex parte HealthSouth, supra ; Colonial Mgmt. Grp., supra. Accordingly, we reject the IHS intervenors’ argument that the Board erred by concluding that the proposed ASC was the best alternative for providing the services it proposed to offer. The foregoing should not be read as indicating that the Board must consider as an "alternative" the mere prospect that a third party might pursue a CON when that party has made no formal commitment to do so.
Finally, the IHS intervenors argue that the proposed ASC will have a severe and adverse impact on the existing health-care system in Baldwin County. As noted above, in determining whether a need exists for a proposed ASC, r. 410-1-6-.06(1)(e) requires the Board to consider:
"The probable effect of the proposed facility or service on existing facilities or services providing similar services to those proposed shall be considered. When the service area of the proposed facility or service overlaps the service area of an existing facility or service, then the effect on the existing facility or service shall be considered. The applicant or interested party must clearly present the methodologies, and assumptions upon which any proposed project's impact on utilization in affected facilities or services is calculated.
"1. ... Expansion of existing services may be reviewed more favorably than the establishment of new services as a generally more cost effective alternative, however, the availability and accessibility of services must be considered.
"2. ... Any merger of services into one facility or entity from two or more facilities or entities which can be shown to result in lower health care costs without adversely affecting need of access will be considered a favorable factor. Sharing of services which result in lower health care cost shall be considered a favorable factor. Modernization of services as an alternative to new construction which result in lower health care costs shall be considered a favorable factor."
See also Ala. Admin. Code (SHPDA), r. 410-1-6-.08 ("The relationship of the services proposed to be provided to the existing health care system of the area in which the services are proposed to be provided will be considered. The proposed services shall be complimentary to and supportive of the existing health care system.").
The IHS intervenors argue that the purported finding in the alternative order that the proposed ASC would have "a minimal, if any, negative effect on existing surgical facilities" is clearly erroneous. They further state that the "market share" gains of the proposed ASC "can only come from one place: existing facilities." The actual finding in the Board's July 2021 order (per the alternative order) states that the proposed ASC would "result in minimal, if any, negative effect on existing surgical facilities as any negative effect will be offset by Baldwin County's booming population growth. The overall benefit to Baldwin County's residents far outweighs any negative effect on existing providers."
The IHS intervenors do not address the actual finding made by the Board; they do not argue that the Board erred by concluding that the growth of Baldwin County's population, which would result in more surgical procedures for both hospitals and ASCs, would offset the negative effect of approving the proposed ASC, such that that negative effect would be minimal. Instead, they insist that the effect of the proposed ASC would be "devastating" (particularly to hospitals, which use outpatient surgeries as a profit center to offset other costs). Nor do the IHS intervenors discuss their ability to mitigate losses in relation to any detrimental impact, which they admitted they could do before the ALJ. Regardless, in light of the IHS intervenors’ failure to assert error and develop an argument based on the actual findings of the Board regarding the proposed ASC's impact on the Baldwin County health-care system, we will not discuss the matter further.
Based on the foregoing, the Board's July 2021 order approving the CON for the proposed ASC is affirmed.
AFFIRMED.
Thompson, P.J., and Moore, Hanson, and Fridy, JJ., concur.