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SHENANGO VALLEY OSTEOPATHIC HOSPITAL v. DEPARTMENT HEALTH COMMONWEALTH PENNSYLVANIA (10/21/82)

decided: October 21, 1982.

SHENANGO VALLEY OSTEOPATHIC HOSPITAL, ON ITS OWN BEHALF AND ON BEHALF OF ITS MEDICAL STAFF AND PATIENTS,
v.
DEPARTMENT OF HEALTH OF THE COMMONWEALTH OF PENNSYLVANIA, APPELLANTS



No. 11 M.D. Appeal 1982, Appeal from the Order Dated April 14, 1982 of the Commonwealth Court at No. 418 C.D. 1982

COUNSEL

Joel M. Ressler, Deputy Atty. Gen., for appellants.

Daniel M. Mullholland, III, Barbara Blackmond, John S. Hoff, pro hac vice, for appellee.

O'Brien, C.j., and Roberts, Nix, Larsen, Flaherty, McDermott and Hutchinson, JJ. Flaherty and Hutchinson, JJ., filed dissenting opinions in which Larsen, J., joined.

Author: Nix

[ 499 Pa. Page 41]

OPINION OF THE COURT

The Health Care Facilities Act (Act), 35 P.S. § 448.101 et seq. was enacted to insure the orderly and economical distribution

[ 499 Pa. Page 42]

    of health care resources to prevent needless duplication of services and to enhance the health and welfare in this Commonwealth. The Legislature charged the Department of Health (Department) with fostering a sound, coordinated health care system. This litigation concerns the validity of the Department's ruling that a certificate of need must first be obtained by the Shenango Valley Osteopathic Hospital (Hospital) before purchase and use of a Computerized Tomography scanner (C.T. scanner). The principal question on appeal*fn1 is whether the hospital had a clear right to the special relief from the Department's ruling afforded it by the Commonwealth Court.

The facts, as adduced from the record, reveal that on July 29, 1981 the Hospital entered into a binding contract of purchase for a full body C.T. scanner*fn2 from Technicare Corporation of Cleveland, Ohio and paid 25% ($67,125.00) of the total purchase price of $268,500.00. The Hospital accepted delivery of the C.T. scanner on August 20, 1981 and made an additional payment leaving a balance of 10% due upon installation. The Act required certificates of need for new institutional health services,*fn3 including (at that time) capital expenditures in excess of $150,000.00, and/or an operating

[ 499 Pa. Page 43]

    expense in excess of a $82,200 threshold.*fn4 The Act mandates the filing of a notice of intent prior to the institution of a project for services or the acquisition of equipment which require a certificate of need.*fn5 On August 4, 1981, the Hospital supplied the Department and Health Systems Inc. of N.W. Pennsylvania with a notice of intent to purchase the C.T. scanner. The notice of intent sent by the hospital did not refer to the contract entered into on July 29, 1980 or the subsequent performance under that contract.

[ 499 Pa. Page 44]

Almost two months later (September 29, 1981), the Hospital sought to withdraw without prejudice its letter of intent. The letter of withdrawal assumed that the new thresholds of $600,000 for capital expenditures and $250,000 for operating expenses established under the federal Omnibus Budget Reconciliation Act of 1981, P.L. 97-35, § 936 (effective October 1, 1981) (Omnibus Act) automatically negated the necessity of a certificate of need review for this transaction. The letter, ignoring the reality that the contract had been entered into and substantially performed prior to the increase of those thresholds, implied that an intended acquisition would be made under the new thresholds. The Department, relying on the facts set forth in the letter of withdrawal, nevertheless contended that the obtaining of a certificate of need was still required under section 701(a)(3), supra, relating to a capital expenditure which results in the addition of a health service not provided in the previous 12 months. Moreover, the Department did not address the applicability of the new Omnibus Act thresholds to completed transactions because the Hospital had withheld the fact of its completed purchase of the C.T. scanner. On November 2, 1981 the Department learned for the first time the true facts surrounding the purchase of the scanner.

On November 6, 1981, the Hospital filed an appeal of the Department's reviewability decision with the State Health Facility Hearing Board (Board). On November 19, 1981 the Department notified the Hospital that under the circumstances its acquisition of the C.T. scanner was a violation of the Act and operation of the scanner would be deemed a wilfull violation subject to penalties. On December 17, 1981 counsel for the Department informed the Hospital that in order to cease violating the Act, the Hospital should divest itself of ownership and possession of the scanner or obtain a certificate of need. Thereafter, on January 25, 1982 the Hospital filed an application for a certificate of need and also moved for a continuance of its appeal from the determination of reviewability. The motion for continuance was granted.

[ 499 Pa. Page 45]

On March 1, 1982, while the application for a certificate of need was, and still is, pending, the Hospital filed a petition for review seeking declaratory and injunctive relief. The thrust of the Hospital's constitutional objection was that the delegation of authority to the Department under the Act contravenes Art. 2, Section 1 of the Pa. Constitution, and that the denial of interim use of the C.T. scanner was arbitrary and capricious.

The Hospital requested that the Department be enjoined from enforcing the Act against it with respect to the Hospital's operation of the C.T. scanner and sought the right to use the equipment pending a determination of the issues presented.

On March 15, 1982 the Hospital filed an Application for Special Relief with the Commonwealth Court. A hearing was scheduled for April 13, 1982. Preliminary objections raising a question of jurisdiction, in the nature of a demurrer and a motion to strike on the grounds of impertinency were filed by the Department. No disposition was made of the preliminary objections.

After hearing held on the appointed date, the Honorable David W. Craig entered an order, dated April 14, 1982, (a) authorizing the Hospital to use the C.T. scanner pending final disposition of the certificate of need or petition for review, whichever is later, (b) holding that the operation of the scanner shall not be deemed to be in violation of the Act and (c) enjoining the Department from bringing any enforcement or penalty action based on operation of the C.T. scanner or otherwise interfering with its operation during the pendency of the application or the petition for review. The following day, April 15, 1982, the Department filed a notice of appeal to this Court, which operated as an automatic supersedeas pursuant to Pa.R.A.P. 1736(b).*fn6 On motion

[ 499 Pa. Page 46]

    of the Hospital, Judge Craig vacated the ...


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