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decided: November 19, 1987.


Appeals from the Order of the State Health Facility Hearing Board in the case of In Re: Holy Spirit Hospital, Project No.: CON-83-C-2516-B (Grandview Surgical Center, Inc.) Docket No. CN 85-016, dated April 15, 1986.


Jonathan Vipond, III, with him, Charles E. Gutshall, Baskin, Flaherty, Elliott, Mannino & Beren, P.C., and Jerry J. Weinberger, Tellie, Durkin, Weinberger, Murphy & Piazza, P.C., for petitioner, Grandview Surgical Center, Inc.

Carol Brayshaw Longwell, Assistant Counsel, with her, Darius G. C. Moss, Assistant Counsel, and Jonathan P. Neipris, Chief Counsel, for petitioner, Department of Health.

Jack M. Mumford, Duane, Morris & Heckscher, with him, David W. DeLuce, Myers, Johnson, Duffie & Weidner, for respondent.

President Judge Crumlish, Jr., and Judges Craig, MacPhail, Doyle, Barry, Colins and Palladino. Opinion by Judge Colins. Judge MacPhail and Judge Doyle dissent.

Author: Colins

[ 111 Pa. Commw. Page 160]

Grandview Surgical Center, Inc. (Grandview), appeals an order of the State Health Facility Hearing

[ 111 Pa. Commw. Page 161]

Board (Board) which reversed the decision of the Department of Health (Department) granting Grandview a Certificate of Need (CON) to operate a free-standing ambulatory surgical center in Camp Hill, Pennsylvania. The Department has also appealed the Board's decision and both appeals are here consolidated for our consideration.

I. Factual History and Regulatory Framework

We are constrained to review the lengthy factual history in the instant matter. In March, 1984, following preliminary negotiations, Grandview submitted an application for a CON with the Department and the local Health Systems Agency for Central Pennsylvania (HSA), pursuant to Section 702(b) of the Health Care Facilities Act (Act), Act of July 19, 1979, P.L. 130, 35 P.S. § 448.702(b), which application sought approval for the construction of a multi-specialty ambulatory surgical center consisting of four operating rooms. Grandview's application was immediately opposed by Holy Spirit Hospital (Holy Spirit), an acute care hospital located approximately one-quarter mile from the proposed facility which itself provides in-house ambulatory surgical services.*fn1 The matter proceeded to a public hearing before the HSA and that agency ultimately issued a decision holding that Grandview's proposal was inconsistent with the State Health Plan (State Health Plan or Plan) and recommending disapproval of the application.

At all times relevant here, neither the local HSA health services plan nor the State Health Plan distinguished hospital inpatient operating room capacity

[ 111 Pa. Commw. Page 162]

    from ambulatory surgical capacity. The State Health Plan, described by Department Secretary H. Arnold Muller, M.D. as a "voluminous document [containing] complex criteria for the review of new institutional health services,"*fn2 directed the Department to disapprove any CON proposal which would result in a supply of operating rooms in excess of projected need. Accompanying statistics projected an excess operating room capacity in the pertinent provider region, Holy Spirit inclusive, by 1985. However, these statistics did not distinguish ambulatory and inpatient facilities. Moreover, the Plan recommended that "[i]n areas where additional surgical capacity is needed, free-standing ambulatory surgery programs should be considered, especially if inpatient facilities do not have a commitment to ambulatory surgery."

Prompted by cost-containment initiatives, the Plan's approval of free-standing ambulatory surgical programs and the apparent limitations imposed on such facilities by an excess of inpatient capacity, the Department convened a task force to consider the development of a new policy on ambulatory surgery, ultimately to replace the extant provisions in the Plan. At the request of its proponents, Grandview's application was deferred pending this evaluation.

In March, 1985, the Department issued CON Memorandum 85-15,*fn3 in which it: (1) articulated a goal

[ 111 Pa. Commw. Page 163]

    of promoting ambulatory surgical procedures as a cost effective alternative to inpatient surgery; (2) quantified a goal of 50% of all surgical procedures to be performed on an outpatient basis; and (3) indicated its intent to utilize the guidelines in its review of ambulatory surgical projects, pending submission of the guidelines as an amendment to the State Health Plan. The Memorandum advised applicants that all ambulatory surgical proposals would be considered as exceptions to the State Health Plan, until such time as the Plan was amended.

Department staff then reviewed Grandview's application pursuant to the above criteria, and, in consideration of data revealing that area hospitals were performing only 36.5% of total surgeries on an outpatient basis and that Grandview's charges for such services would be less than those of area hospitals, recommended approval of the application as an exception to the Plan. Secretary Muller adopted the staff recommendation, approved Grandview's application as an exception to the Plan in accordance with the newly-promulgated criteria and, by separate letter, granted the CON application.

Upon appeal to the Board, Holy Spirit raised numerous substantive objections to the Secretary's decision and challenged the procedural validity of the Department's promulgation of CON-Memorandum 85-15. The Board reversed the Secretary's decision, concluding, in essence, that Grandview did not meet its burden of demonstrating entitlement to an exception under the State Health Plan and that the Secretary's decision approving the CON application violated Section 707(a) of the Act, 35 P.S. § 448.707(a), which provision mandates that CON applications be "consistent" with the Plan. The Board confined its analysis to consideration of whether the Secretary's decision to grant Grandview

[ 111 Pa. Commw. Page 164]

    an exception to the Plan was supported by substantial evidence and thus did not reach Holy Spirit's remaining objections.*fn4

II. The Department's Promulgation of CON Memorandum 85-15

We first consider the threshold challenge to the Department's authority in promulgating CON Memorandum 85-15 and in utilizing these standards to review Grandview's CON application.

This Court has exhaustively set forth the powers and duties of the Department pursuant to the Act. See Rehab Hospital Services Corp. v. Health Systems Agency of Southwestern Pennsylvania, 82 Pa. Commonwealth Ct. 147, 475 A.2d 883 (1984). At the risk of repeating that analysis, we emphasize that Section 201 of the Act, 35 P.S. § 448.201, designates the Department as the sole statewide health planning and development agency, subject to the directives of Subchapter XIII of the Federal Public Health Service Act, 42 U.S.C. §§ 300k-300n-6.*fn5 Moreover, Section 202 of the Act requires the Department to "foster competition and encourage innovations in the financing and delivery systems for health services that will promote economic behavior by consumers and providers of health services and that lead to appropriate investment, supply and use of ...

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