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STATE HEALTH COMMISSIONER v. SENTARA NORFOLK GENERAL HOSPITAL



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STATE HEALTH COMMISSIONER

v.

SENTARA NORFOLK GENERAL
HOSPITAL


September 15, 2000

Record No. 992018

STATE HEALTH COMMISSIONER

v.

SENTARA NORFOLK GENERAL HOSPITAL

FROM THE COURT OF APPEALS OF VIRGINIA

Present: Carrico, C.J., Lacy, Hassell, Keenan,
Koontz, and Kinser, JJ., and Compton, Senior Justice


OPINION BY JUSTICE ELIZABETH B. LACY

In this appeal, we consider whether the Court
of Appeals erred in concluding the State Health Commissioner
(Commissioner) exceeded his statutory authority and committed
reversible error by relying on evidence outside the record and on
a mistake of fact when he denied a Certificate of Public Need
(COPN) for creation of an additional liver transplant program in
Virginia.

On July 31, 1996, Sentara Norfolk General
Hospital (Sentara) submitted an application for a COPN pursuant
to Code ? 32.1-102.3 to establish a liver transplant
facility in Norfolk. In accordance with the procedures governing
consideration of an application for a COPN, ? 32.1-102.6, a
public hearing was held in Norfolk on September 16, 1996.
Following the hearing, the staff of the Eastern Virginia Health
Systems Agency Board recommended that the application be denied.
The Board disagreed with the staff recommendation and voted to
recommend approval of the application.

The application was then forwarded to the
Virginia Department of Health (VDH), Division of Certificate of
Public Need, for review. The staff of VDH recommended denial of
the application. An informal non-adversarial fact finding
conference was convened pursuant to ? 9-6.14:11, and a VDH
adjudication officer recommended that the application be
approved.

The adjudication officer’s recommendation along
with the entire record of the proceeding was submitted to the
Commissioner for decision. The Commissioner reviewed the agency
record, rejected the adjudication officer’s recommendation, and,
by letter dated November 3, 1997, denied Sentara’s application
for a COPN, finding that there was currently no public need for
the project. In his letter, the Commissioner stated three reasons
for this decision. First, the Commissioner determined that the
provisions of the State Medical Facilities Plan (SMFP) relating
to liver transplants are "inaccurate, outdated, inadequate
or otherwise inapplicable" and that "[b]ecause they
fail to reflect current standards, they should not be applied
here." The Commissioner based this finding on the fact that
although the SMFP only requires that facilities perform a minimum
of 12 liver transplant procedures annually, 12 VAC 5-280-70,
"[t]he average number of liver transplants performed per
transplant center nationally in 1994 was 36. In 1996 the average
number of liver transplants performed per transplant center in
Virginia was 52."

Second, the Commissioner concluded that the
establishment of an additional liver transplant facility at
Sentara "may erode the quality of other transplant centers
by reducing the volume of liver transplants at the other
centers." The Commissioner made this statement based on his
finding that "[i]ndications in the healthcare system are
that the numbers of available organs may be reaching a plateau;
consequently, the actual numbers of transplantations performed
appear to be stabilizing."

Finally, the Commissioner stated that "an
additional liver transplant center at [Sentara] may seriously
impact the established liver transplant fellowship training
program at MCVH [Medical College of Virginia Hospital]"
because MCVH is required by the American College of Surgeons
"to perform 45 liver transplants annually."

In conclusion, the Commissioner found that
Sentara’s application for a COPN was premature because "the
system presently (i) reflects no need for additional liver
transplantation sites in light of organ supply; (ii) appears to
have no excess of transplantation procedures requiring
accommodation whereas approval of another site could result in an
excess of facilities lacking volume to meet the national average
or to assure essential technical experience; and (iii) should
maintain and sustain necessary training programs in the
Commonwealth."

Sentara filed a petition for appeal in the
Circuit Court for the City of Norfolk, arguing that the
Commissioner’s decision should be reversed because the
Commissioner exceeded the scope of his authority, relied on
evidence not contained in the record, and relied on a mistake of
fact regarding the impact of the proposed transplant program on
accreditation of the liver transplant fellowship program at MCVH.
During the circuit court proceedings, the Commissioner conceded
that his recitation of the accreditation requirement was
incorrect.

The circuit court affirmed the Commissioner’s
decision and dismissed Sentara’s petition, holding that the
Commissioner did not abuse his discretion in denying the COPN and
that, considering the record as a whole, "a reasonable mind
could not necessarily conclude that Sentara’s COPN should be
approved." Additionally, the circuit court held that the
Commissioner’s reliance on the mistake of fact regarding
accreditation requirements was harmless error.

Sentara appealed to the Court of Appeals,
raising the same three issues. The Court of Appeals resolved each
issue adversely to the Commissioner, holding that: (1) the
Commissioner exceeded his authority in denying the petition
because ? 32.1-102.3(A) does not allow the Commissioner to
deny an application for a COPN based on his determination that
the SMFP standards are outdated, inaccurate, inadequate, or
otherwise inapplicable; (2) the Commissioner’s finding that the
number of livers available for transplantation "may be
reaching a plateau" was based on evidence outside the
record, reliance on this finding prejudiced Sentara and,
therefore, it was reversible error; and (3) the Commissioner’s
reliance on a mistake of fact regarding the number of transplant
procedures necessary for a facility to maintain teaching
accreditation constituted reversible error and was not harmless. Sentara
Norfolk Gen. Hosp. v. State Health Comm’r
, 30 Va. App. 267,
283, 516 S.E.2d 690, 698 (1999). The Commissioner appealed,
assigning error to the holding of the Court of Appeals on each
issue. We consider these assignments of error in order.

I. Commissioner’s Statutory Authority

In his letter denying the COPN, the
Commissioner stated that the SMFP standard of 12 liver
transplants per year was "inaccurate and outdated" and
"should not be applied" in this case. The Commissioner
directed that procedures for amending the SMFP standard be
initiated. Sentara claims that, in making this determination, the
Commissioner "set aside the SMFP in order to impose a higher
volume standard, rather than a less strict standard as permitted
by the statute." In doing so, Sentara asserts, the
Commissioner exceeded his statutory authority because
? 32.1-102.3(A) allows the Commissioner to set aside the
SMFP if it is outdated and inaccurate only to grant a COPN
application, not to deny an application.

Agreeing with Sentara, the Court of Appeals
held that "[t]he plain language of the statute provides that
the Commissioner ‘may issue or approve‘ a petition
that does not comply with an outdated or inaccurate SMFP"
but it does not provide "that he may deny or disapprove a
petition on this basis." Sentara, 30 Va. App. at 277,
516 S.E.2d at 695.

Section 32.1-102.3(A) provides in relevant
part:

No person shall commence any project without
first obtaining a certificate issued by the Commissioner. No
certificate may be issued unless the Commissioner has determined
that a public need for the project has been demonstrated
. . . . Any decision to issue or approve the
issuance of a certificate shall be consistent with the most
recent applicable provisions of the State Medical Facilities
Plan; however, if the Commissioner finds, upon presentation of
appropriate evidence, that the provisions of such plan are not
relevant to a rural locality’s needs, inaccurate, outdated,
inadequate or otherwise inapplicable, the Commissioner,
consistent with such finding, may issue or approve the issuance
of a certificate and shall initiate procedures to make
appropriate amendments to such plan.

This section clearly authorizes the
Commissioner to conclude that provisions of the SMFP are outdated
and directs the Commissioner to initiate the process for changing
the provisions found to be outdated. Thus, in this case, the
Commissioner acted within his statutory authority when he
determined that the existing SMFP requiring a minimum of 12 liver
transplants was outdated and directed that procedures be
instituted to adopt appropriate amendments.

We agree with the Court of Appeals, however,
that the section specifically authorizes the Commissioner to
grant a COPN even if he finds provisions of the SMFP
"outdated" or "otherwise inapplicable," but
does not contain similar specific authorization to deny a COPN
under such circumstances. Denial of the COPN under such
circumstances would allow the Commissioner to unilaterally impose
new, and presumably higher, standards. The statute contemplates
that new standards would be imposed as a result of amendment
procedures initiated, not pursuant to unilateral adoption and
application of new standards by the Commissioner in the course of
the COPN process.

Section 32.1-102.3(A) does not, however,
require the Commissioner to grant a COPN simply because a COPN
application complies with the provisions of the existing SMFP.
The Commissioner correctly points out that compliance with the
SMFP is only one factor in the decision. The statute provides
that to grant a COPN, the Commissioner must conclude that "a
public need for the project has been demonstrated."
Subsection B of ? 32.1-102.3 lists 20 factors which the
Commissioner must consider in addition to compliance with the
SMFP in determining whether a public need has been demonstrated.
In this case, therefore, the Commissioner exceeded his authority
under ? 32.1-102.3(A) if the Commissioner denied Sentara’s
application solely on the basis that the SMFP regarding
the average number of transplants was outdated and inapplicable.
While the Court of Appeals opinion states that the Commissioner
exceeded his authority "to the extent" he denied the
COPN on the ground the SMFP was outdated, there is no discussion
of the extent to which the denial was based on that ground.

Sentara argues that the Commissioner exceeded
his authority because, in setting aside the existing SMFP, he
applied "some higher, impromptu, unspecified standard"
as a basis for denying the COPN. The record, however, contains no
evidence that the Commissioner required Sentara to satisfy some
higher standard in order to secure the COPN. The Commissioner’s
only references to higher standards were those regarding the
national average for annual liver transplantations. First, the
Commissioner observed that it was "reasonable to
assume" that over time there would be an increase in the
number of liver transplants performed by Sentara and that this
would reduce the number of procedures at other existing
transplant centers. This redistribution of patients, the
Commissioner wrote, "would place the Commonwealth’s programs
below the national average of 36 transplants per center." A
second reference is contained within one of the three
considerations cited in his conclusion: "[a]pproval of
another site could result in an excess of facilities lacking
volume to meet the national average or to assure essential
technical experience."

These references to the national average were
made in regard to future events, not requirements which the
Commissioner imposed on Sentara as a prerequisite to securing a
COPN in this proceeding. They are a reflection of the record
evidence that the quality of transplant medical expertise is
directly related to the number of procedures performed, and that
the clinical outcome for liver transplants improves as the number
of procedures performed in a facility increases. Thus, they
cannot be the "higher, impromptu, unspecified standard"
that Sentara argues the Commissioner applied as a basis for
denying the COPN.

Furthermore, although the Commissioner stated
that the SMFP standard was outdated and would not be applied, he
nevertheless relied on the provisions of the existing SMFP in
support of his decision that no public need existed for Sentara’s
proposed project. Citing the portion of the SMFP that states that
transplantation programs are expected "to perform
substantially larger numbers of transplants annually" and
that meeting the minimum volume "does not necessarily
indicate a need for additional transplantation capacity or
programs," the Commissioner concluded that the existing SMFP
was "not binding as to minimum acceptable volumes." The
Commissioner also stated that even the existing SMFP "does
not support" the grant of a COPN to Sentara at this time.

In his letter denying Sentara’s application,
specifically in the section relating to the existing SMFP
standards, the Commissioner made no statements which support the
proposition that the COPN was denied solely on the basis of a
determination that the existing SMFP was outdated and
inapplicable. Rather, the statements as set out above indicate
that the Commissioner found that even though Sentara complied
with the existing SMFP, it had not demonstrated a public need for
the project. This conclusion was within the discretion and
authority of the Commissioner under both ? 32.1-102.3 and
the provisions of the SMFP.

For these reasons, we hold that the
Commissioner did not exceed his statutory authority in denying
the COPN in this case.

II. Evidence Outside the Record

The Commissioner’s determination that a liver
transplant facility at Sentara might reduce the quality of
transplants at other facilities because a new facility would
reduce the number of such procedures at those facilities was
based on his conclusion that "the numbers of available
organs may be reaching a plateau." The Court of Appeals
concluded that the evidence on trends in organ donation rates
was, at best, inconclusive and that the proposition was faulty
because the number of liver transplants performed in Virginia
increased in 1995 and 1996. Based on this rationale, the Court of
Appeals held, "as a matter of law that the evidence
contained in the record is insufficient to support the
Commissioner’s finding that organ donation rates have reached a
plateau," 30 Va. App. at 279, 516 S.E.2d at 696, and,
therefore, that the Commissioner must have relied upon evidence
outside the record in making his decision. Because such evidence
outside the record constituted neither "institutional
knowledge" nor "a public statistic," the
Commissioner’s reliance on it was improper. Id. at 280,
516 S.E.2d at 696. Reliance on this improper evidence was
reversible error, according to the Court of Appeals, because the
record did not otherwise support the concerns of the Commissioner
and, therefore, Sentara was prejudiced by the Commissioner’s
consideration of evidence outside the record regarding organ
donation rates. Id. at 282, 516 S.E.2d at 697. We disagree
with the Court of Appeals’ analysis and conclusion.

In considering whether the record evidence is
sufficient to support a factual finding made by an agency, we
apply the substantial evidence standard of review. Virginia
Real Estate Comm’n v. Bias
, 226 Va. 264, 268-69, 308 S.E.2d
123, 125 (1983). Under that standard, substantial evidence is
" ‘such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion.’ " Id. at
269, 308 S.E.2d at 125 (citations omitted). An agency’s factual
findings should only be rejected if, " ‘considering the
record as a whole, a reasonable mind would necessarily
come to a different conclusion.’ " Id.

As the Court of Appeals and trial court
acknowledged, the record in this case contains testimonial and
documentary evidence suppporting the proposition that the number
of livers available for transplantation has reached a plateau.
Examples of this evidence include a chart prepared by MCVH
showing a decline in liver donations in Virginia, testimony that
MCVH must import livers from out of state for its transplant
program, and various letters from members of the medical
community involved in liver transplantation programs. These
letters state that "there remains throughout the world, a
scarcity of donor solid organs for transplantation"; that
"[t]here has been an increase in the numbers of liver
transplants in the state with addition of programs at UVA (1988)
and Fairfax (1992); however, over the past three years
. . . this number has reached a state-steady plateau,
indicating the driving force is now only the numbers of available
donor organs"; that "the number of livers donated in
our procurement region is inadequate to support the existing
capacity of the region to perform liver transplantations";
that "[a]t the present time, the availability of liver
transplants is limited primarily by the availability of
transplantable livers. A second transplant program
. . . will do nothing to change the one limiting
factor. In addition, it may diminish the overall quality and
effectiveness of this procedure in our area"; and
"[t]he most dramatic improvements in access to liver
transplantation for the residents of Virginia can be accomplished
through initiatives directed at improving the rate of organ
donations." (Emphasis omitted.)

Applying the substantial evidence standard of
review, we conclude that the character of this evidence would not
require a reasonable person to reject it as untrustworthy or
incredible and that a "reasonable mind might accept" it
to support the conclusion that the availability of livers
"may have reached a plateau." And, in light of this
evidence, we cannot say that a reasonable person would
necessarily come to a different conclusion.

For these reasons, we hold that the Court of
Appeals erred in finding that the Commissioner relied on evidence
outside the record in making a factual finding regarding organ
donation rates. Because the Commissioner did not improperly base
his finding on evidence outside the record, questions of
prejudice to Sentara do not arise.

III. Mistake of Fact

The third reason cited by the Commissioner for
denying Sentara’s application for a COPN was that the new
transplant center "may seriously impact the established
liver transplant fellowship training program at MCVH." This
conclusion was based on the Commissioner’s factual finding that
"the American College of Surgeons requires the training
institution to perform 45 liver transplants annually." This
factual finding was wrong. The accreditation requirement, which
had been changed by the American College of Surgeons during the
course of the application process, no longer required a specific
number of procedures annually by the institution
but rather required 45 procedures by the fellow
as primary surgeon in the course of the
fellowship, usually two years.

The Court of Appeals determined that "[i]n
the absence of substantial credible evidence supporting the
Commissioner’s decision to deny the COPN, we must assume that
Sentara was also prejudiced by this mistake of fact." Sentara
at 282, 516 S.E.2d at 698. We disagree with the Court of Appeals.

In determining whether an error is reversible,
we apply familiar principles.

Error will be presumed prejudicial unless it
plainly appears that it could not have affected the result. A
plaintiff in error must always show, not only error
. . . , but also error of a substantial nature. When
once he has pointed out an error of a substantial character, he
is entitled to have it corrected if it appears from the record
that there is reasonable probability that it did him any harm.

Breeding v. Johnson, 208 Va. 652, 659,
159 S.E.2d 836, 842 (1968). The Commissioner argues that the
factual mistake was not substantial and that there is no
reasonable probability that it did Sentara any harm. We agree
with the Commissioner.

In determining whether there was a public need
for Sentara’s transplant program, the Commissioner was required
to consider the program’s impact on "the clinical needs of
health professional training programs in the area in which the
project is proposed." ? 32.1-102.3(B)(12). The
gravamen of the Commissioner’s expressed concern was whether the
volume of liver transplant procedures would be sufficient to
sustain MCVH’s liver transplant training accreditation if Sentara
established a transplant program. According to the record, MCVH
performed 66 liver transplants in 1996. That year, Sentara
referred 28 patients for liver transplants and the majority of
these patients went to MCVH for the procedure. Based on these
figures, the Commissioner stated that, if the COPN were granted,
over time Sentara would perform those transplant procedures and
the volume of liver transplants at MCVH would be reduced by
40-50%. That degree of reduction in transplant procedures at MCVH
would impact the accreditation of MCVH’s liver transplant
fellowship training program under either the current
accreditation standard or the erroneous standard considered by
the Commissioner.

Furthermore, the number of procedures which
must be performed at MCVH each year to retain its accreditation
under the current standard may be as many as 45 because, under
the new standard, the requisite number of procedures must be
performed by the fellow as primary surgeon. Presumably, a
fellow will have to assist on some number of procedures before
assuming the role of primary surgeon. As noted by the trial
court, "[a]ssuming there is one new fellow each year, as
well as an expert surgeon directing the program and performing
the majority of procedures during the first year of each fellow’s
training, the training facility will exceed forty-five
transplants per year."

Therefore, we conclude that the Commissioner’s
use of an accreditation requirement of 45 transplants per
institution per year, rather than 45 transplants per fellow as
primary surgeon, in considering the impact of Sentara’s proposed
transplant program on MCVH’s liver fellowship training program,
was not "error of a substantial nature."

Finally, as we have already noted, the
Commissioner’s decision to deny the COPN was based on multiple
grounds. In addition to concern about the continued accreditation
of MCVH’s training program, the Commissioner’s denial was based
on the need to maintain the quality of the technical experience
and the need for additional transplant centers in light of the
availability of donated livers. These other reasons for denying
the COPN are not affected by the mistake of fact. Thus, we cannot
conclude that a different result would have occurred in the
absence of the factual error.

In summary, we hold (1) that the Commissioner
did not exceed his authority when he did not apply certain
standards in the SMFP because he found that they were outdated,
inaccurate, inadequate, and otherwise inapplicable; (2) that he
did not rely on evidence outside the record when finding that
"the numbers of available organs may be reaching a
plateau"; and (3) that his reliance on a mistake of fact was
harmless error.

For the foregoing reasons, the judgment of the
Court of Appeals will be reversed and the judgment of the trial
court dismissing Sentara’s petition for appeal will be
reinstated.

Reversed and final judgment.

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