High court: Harmless error doctrine limited by VAPA

The Supreme Court of Virginia has asked the state health commissioner to re-evaluate an application for a certificate of public need, or COPN, from Chesapeake Regional Medical Center for a new open-heart surgery service and cardiac catheterization equipment.

The decision came as the court reversed and remanded previous rulings by a circuit court and the Virginia Court of Appeals, which found that the denial of the application, while made as a result of a misinterpretation of the State Medical Facilities Plan, constituted harmless error.

Virginia Supreme Court Senior Justice Lawrence L. Koontz Jr. authored the opinion in Chesapeake Hospital Authority v. State Health Commissioner, et al. (VLW (022-6-025). Justice Stephen R. McCullough authored a concurring opinion providing his “additional observations” on the issue of harmless error.

Background

In 2017, Chesapeake Regional Medical Center, or CRMC, applied for a COPN with the Virginia Department of Health, seeking to develop an open-heart surgery program and expanded cardiac catheterization services. Later that year, Sentara Hospitals filed a petition to be made a party in the review of the application, which was granted.

In April 2018, an informal fact-finding conference was convened on the merits of the COPN application, after which the adjudication officer recommended the application be denied.

The state health commissioner denied CRMC’s application in August. The commissioner cited multiple reasons for denial, including that the proposal “is not consistent with the State Medical Facilities Plan,” that “the proposed project would likely decrease utilization at existing providers of open heart surgery,” and that the project would not significantly increase access to the procedure in that locale.

The commissioner relied on a report that said 12 VAC § 5-230-450(A)(2) required that CRMC demonstrate the existing cardiac catheterization service “performed an average of 1,200 diagnostic equivalent procedures annually.” The report found the figures presented by Sentara which showed an average below 1,200 “more credible and reliable” than the figures presented by CRMC.

“The report concluded that CRMC’s project did not meet the SMFP standard under 12 VAC § 5-230-450(A)(2), reasoning that utilization rates were calculated per-operating room, rather than per-service,” Koontz noted.

CRMC filed a petition for appeal with the Chesapeake Circuit Court, arguing the decision should be reversed because the commissioner erred in interpreting that the code required the average number of procedures be determined by a per operating room basis, rather than per service. The commissioner also erred in finding the code required an average of 1,200 procedures per cardiac catheterization laboratory, rather than per service, according to CRMC.

The circuit court said the commissioner misinterpreted the provision of the code, but that it “constituted harmless error.”

Compliance with the SMFP, the circuit court said, “was only one of eight statutory factors for the Commissioner to consider” and the code section in question “was generally ambiguous and the Commissioner’s interpretation warranted deference.”

In its appeal, CRMC challenged the lower court’s ruling of harmless error. The Virginia Court of Appeals upheld the circuit court’s ruling in an unpublished decision, stating “the project’s consistency with the SMFP was only one of eight reasons cited by the Commissioner in denying CRMC’s application, and thus was not substantial in nature.”

But the Virginia Supreme Court said the appellate court erred in “applying the harmless error doctrine to an agency’s legal error in interpreting and applying its own regulations” and “in deferring, without robust analysis, to an agency’s interpretation of its own regulations in contravention of recent United States Supreme Court precedent.”

Reversed and remanded

On appeal, “neither the Commissioner nor Sentara now argue that the Commissioner’s interpretation of ‘services’ and its application to the SMFP’s utilization metric in 12 VAC § 5-230-450(A)(2) were correct,” Koontz noted. “Instead, they assert that Code § 8.01-678 requires a harmless error review in all appellate cases, including those that arise under the [Virginia Administrative Process Act.]”

The high court disagreed with this contention based on the plain language of Code §§ 2.2-4027 and 4029.

“The Commissioner’s error was a substantive error of law because the Commissioner was required to evaluate CRMC’s COPN application for consistency with the SMFP as a condition for approval. … [W]e hold that the harmless error doctrine was inapplicable, and the lower courts erred by failing to remand the case to the Commissioner for further proceedings.” – Justice Lawrence L. Koontz Jr.

“The plain language of Code § 2.2-4027 specifies that issues of law are subject to court review,” Koontz wrote.

Such issues include “observance of required procedure where any failure therein is not mere harmless error,” a phrase Koontz wrote “only applies to procedural errors … due to its location within the statute.”

The justice added, “While the Commissioner and Sentara urge this Court to find that harmless error review under Code § 8.01-678 is applicable to all errors of law under Code § 2.2-4027, the plain language of Code § 2.2-4027 specifically limits the harmless error doctrine’s applicability.”

The court’s holding follows prior decisions on the issue, including the precedent set in 1997’s Browning-Ferris Ind. v. Residents Involved in Saving the Env’t Inc.

In the present case, Koontz said “the Commissioner’s error was a substantive error of law because the Commissioner was required to evaluate CRMC’s COPN application for consistency with the SMFP as a condition for approval. … [W]e hold that the harmless error doctrine was inapplicable, and the lower courts erred by failing to remand the case to the Commissioner for further proceedings.”

The case was remanded to the commissioner for reconsideration.

Concurrence

Justice Stephen R. McCullough said that “the anomalous nature of this situation prompts some additional observations.”

He cited Walker v. Commonwealth, a 1926 case which stated the harmless error statute “puts a limitation which we must consider on every application for an appeal and on the hearing of every case submitted to our judgment,” as the statute limits the court’s ability to reverse trial court judgments.

“Yet for reasons that are not clear, uniquely with administrative law appeals, the General Assembly has limited harmless error review to procedural defects,” McCullough pointed out.

“Virginia is an outlier in this respect. I am aware of no other state that provides such a limitation.”

He concluded by saying public policy decisions “remain entirely the prerogative of the General Assembly.”

“To the extent the placement of the harmless error language in Code § 2.2-4207 was an oversight, it may be worth correcting,” McCullough wrote.