The North Carolina Court of Appeals recently made clear that a certificate of need (CON) applicant’s submission of additional information after its application has been filed does not constitute a forbidden amendment unless it materially changes the proposal set forth in the application. The CON regulation prohibiting amendments of applications has been around for over 30 years, but it has rarely been interpreted by our appellate courts.  The no-amendment rule has often been a basis for attack against CON applicants who submit any supplemental information after their applications have been filed and deemed complete by the CON Section of the Division of Health Service Regulation.  In a recent opinion in WakeMed v. N.C. DHHS (COA11-1558), the Court of Appeals rejected the notion that the CON Section’s consideration of any additional information submitted by an applicant after an application has been deemed complete constitutes a prohibited amendment requiring disapproval of the application.  Instead, the Court held that the proper test is whether the additional information materially changed representations made in the application.

At issue in the WakeMed appeal were competitive applications for operating rooms (ORs)  in Wake County, and the Division of Health Service Regulation’s decision to award a CON for three ambulatory ORs to Holly Springs Surgery Center (HSSC), a subsidiary of Novant Health, Inc.  Rex Hospital, Inc. d/b/a Rex Healthcare (Rex), whose competing application was denied, argued that HSSC’s application should not have been approved because it was impermissibly amended after being filed and deemed complete.  Rex based this argument on HSSC’s submission of several subsections of the application and a letter of support from an orthopedic physician practice as attachments to its responsive comments during the CON review, approximately two months after the application was deemed complete by the CON Section. Both the subsections and support letter had been inadvertently omitted from HSSC’s application when it was originally filed. 

The Court of Appeals disagreed with Rex’s theory that the test for whether a CON application has been amended should be whether the Agency “considered” information provided after the application was filed.  Instead, the Court harkened to the single case in which it previously held that an application had been impermissibly amended.  In that 1996 Presbyterian-Orthopedic Hospital v. N.C. DHHS case, the Court of Appeals had concluded that the CON applicant made a material amendment to its application when it changed the management company that would oversee the operations of its proposed facility, because all the applicant’s logistical and financial data was based upon using the original management company.  Consistent with this prior decision, in WakeMed, the Court ruled that because the answers to the questions in the missing application subsections were found elsewhere in the HSSC application as originally submitted,  and because the physician letter of support was specifically referenced in the original application – including identification of the surgeons who signed the letter – the additional information submitted by HSSC did not materially amend the application.  The Court also noted the testimony of the CON Section Chief and project analyst that the approval of the HSSC application was not based upon the additional materials filed.

It is always the best practice to ensure a CON application is complete and contains all necessary information before it is filed with the CON Section. However, inadvertent omissions and other mistakes in the content of applications do happen. The Court of Appeals’ recent analysis of this issue sheds new light on the type of additional information that can be submitted regarding a CON application under review, without crossing the amendment line. It should also help CON applicants ward off specious and hypertechnical challenges by opponents based upon the mere submission of supplemental information after an application is filed.

Another noteworthy aspect of the Court of Appeals’ decision in the WakeMed case is the Court’s rejection of the notion that a CON applicant must explain how it derived or calculated its costs, charges and payor mix in order for the proposed project to be found financially feasible.  The Court specifically acknowledged that the financial feasibility CON criterion, commonly known as Criterion 5, does not dictate a specific method an applicant must follow to determine payor mix or project revenues and expenses for its proposal.  Rather, all that is required by the statute is that the applicant’s projections be reasonable.  As the Court of Appeals explained: “[N]either the statutory criterion nor the regulations require a particular method of projecting finances and payor mix beyond requiring that they be ‘reasonable.’  See N.C. Gen. Stat. § 131E-183(a)(5). . . . [R]easonableness is the only requirement that must be met.”