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Amisub of South Carolina, Inc. v. South Carolina Department of Health and Environmental Control

Court of Appeals of South Carolina

June 6, 2018

Amisub of South Carolina, Inc., d/b/a Piedmont Medical Center, d/b/a Fort Mill Medical Center, Respondent,
v.
South Carolina Department of Health and Environmental Control and The Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas Medical Center-Fort Mill, Respondents, Of whom The Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas Medical Center-Fort Mill, is the Appellant. Appellate Case No. 2015-000056

         ON REMAND FROM THE SUPREME COURT

          Submitted May 14, 2018

          Appeal From The Administrative Law Court S. Phillip Lenski, Administrative Law Judge.

          Douglas M. Muller, Trudy Hartzog Robertson, and E. Brandon Gaskins, of Moore & Van Allen PLLC, of Charleston, for Appellant.

          Stuart M. Andrews, Jr. and Daniel J. Westbrook, of Nelson Mullins Riley & Scarborough LLP, of Columbia, for Respondent Amisub of South Carolina.

          Ashley Caroline Biggers and Vito Michael Wicevic, of Columbia, for Respondent South Carolina Department of Health and Environmental Control.

          GEATHERS, J.

         Appellant Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas Medical Center-Fort Mill (Carolinas), challenges a decision of the South Carolina Administrative Law Court (ALC) ordering Respondent South Carolina Department of Health and Environmental Control (DHEC) to issue a Certificate of Need (CON) to Respondent Amisub of South Carolina, Inc., d/b/a Piedmont Medical Center, d/b/a Fort Mill Medical Center (Piedmont). Carolinas argues the purpose and effect of the ALC's application of the CON Act, the Project Review Criteria, and the 2004-2005 State Health Plan is to protect Piedmont from out-of-state competition, and, therefore, such an application violates the Dormant Commerce Clause.[1] We affirm.

         FACTS/PROCEDURAL HISTORY

         Piedmont Medical Center in Rock Hill is the sole hospital in York County. It provides standard community hospital services as well as specialized services such as open heart surgery, neurosurgery, neonatal intensive care, and behavioral health. Amisub of South Carolina, Inc., which is a subsidiary of Tenet Healthcare Corporation, operates Piedmont Medical Center. Tenet Healthcare Corporation is headquartered in Dallas, Texas, and owns forty-nine hospitals in ten states.

         Carolinas, which is headquartered in Charlotte, North Carolina, owns multiple hospitals in North Carolina with a large network of employed physicians, the Carolinas Physician Network (CPN), many of whom have practices in York County. As of the date of the final contested case hearing, Carolinas employed between seventy and ninety York County physicians. Additionally, Carolinas owns and operates Roper Hospital in downtown Charleston.

         In 2005, Piedmont, Carolinas, Presbyterian Healthcare System (Presbyterian), and Hospital Partners of America, Inc. submitted applications to DHEC for a CON to build a sixty-four-bed hospital near Fort Mill based on the 2004-2005 State Health Plan's identification of a need for sixty-four additional acute care hospital beds in York County. Subsequently, Piedmont withdrew its application and submitted a new application for a one-hundred-bed hospital, which would include thirty-six beds transferred from Piedmont's Rock Hill facility to its proposed Fort Mill facility. In 2006, DHEC approved Piedmont's new application and denied the other three applications. Carolinas and Presbyterian filed separate requests for a contested case hearing before the ALC, which took place in September 2009.

         The ALC concluded DHEC misinterpreted the 2004-2005 State Health Plan to allow only existing providers to obtain a CON. The ALC remanded the case to DHEC for a determination of which applicant most fully complied with the CON Act, the State Health Plan, Project Review Criteria, [2] and applicable DHEC regulations.[3] By October 2010, [4] the three remaining applicants submitted to DHEC additional information to supplement their respective applications.

         In September 2011, DHEC granted Carolinas' application and denied the applications of Piedmont and Presbyterian. Piedmont and Presbyterian submitted their respective requests for a contested case hearing before the ALC, and the ALC consolidated the cases. Presbyterian later withdrew its request, and the ALC dismissed Presbyterian as a party. The ALC ultimately ordered DHEC to award the CON to Piedmont. Carolinas filed a motion for reconsideration pursuant to Rule 59(e), SCRCP, and the ALC issued an Amended Final Order denying the motion. This appeal followed.

         STANDARD OF REVIEW

         The Administrative Procedures Act governs the standard of review on appeal from a decision of the ALC, allowing this court to

reverse or modify the decision if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are: (a) in violation of constitutional or statutory provisions; (b) in excess of the statutory authority of the agency; (c) made upon unlawful procedure; (d) affected by other error of law; (e) clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record; or (f) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

S.C. Code Ann. § 1-23-380(5) (Supp. 2017).

         LAW/ANALYSIS

         Carolinas does not challenge the constitutionality of the CON Act itself. Further, Carolinas does not challenge the constitutionality of the 2004-2005 State Health Plan or the Project Review Criteria. Rather, Carolinas argues the purpose and effect of the ALC's application of the CON Act, the 2004-2005 State Health Plan, and the Project Review Criteria is to protect Piedmont from out-of-state competition, and, therefore, such an application violates the Dormant Commerce Clause. Carolinas essentially challenges the ALC's conclusions of law concerning adverse impact and outmigration.

         On this record, [5] we hold the ALC properly applied the provisions of the CON Act, the 2004-2005 State Health Plan, and the Project Review Criteria in considering the needs of residents in all areas of York County and, therefore, did not violate the Dormant Commerce Clause. The ALC placed appropriate significance on adverse impact, as required by the Project Review Criteria, and outmigration, as we explain herein.

         We will address each criterion Carolinas references in turn. But first, we will provide a primer on the general principles surrounding the Dormant Commerce Clause and the general provisions of South Carolina's CON law.

         Dormant Commerce Clause

         The Commerce Clause of the United States Constitution, U.S. Const. art. I, § 8, cl. 3, grants Congress the power to regulate commerce among the several states. "However, 'the Commerce Clause is more than an affirmative grant of power; it has a negative sweep as well.'" Travelscape, LLC v. S.C. Dep't of Revenue, 391 S.C. 89, 103-04, 705 S.E.2d 28, 36 (2011) (quoting Quill Corp. v. North Dakota, 504 U.S. 298, 309 (1992)). "Even in the absence of Congressional regulation, the negative implications of the Commerce Clause, often referred to as the Dormant Commerce Clause, prohibit state action that unduly burdens interstate commerce." Id. at 104, 705 S.E.2d at 36 (citing Gen. Motors Corp. v. Tracy, 519 U.S. 278, 287 (1997)). "The 'common thread' among those cases in which the [United States Supreme] Court has found a [D]ormant Commerce Clause violation is that 'the State interfered with the natural functioning of the interstate market either through prohibition or through burdensome regulation.'" McBurney v. Young, 569 U.S. 221, 235 (2013) (quoting Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 806 (1976)). Nonetheless, the Commerce Clause

does not elevate free trade above all other values. As long as a State does not needlessly obstruct interstate trade or attempt to "place itself in a position of economic isolation, " it retains broad regulatory authority to protect the health and safety of its citizens and the integrity of its natural resources.

Maine v. Taylor, 477 U.S. 131, 151 (1986) (emphasis added) (citation omitted) (quoting Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 527 (1935)).

We apply a two-tiered analysis to state actions allegedly violating the [D]ormant Commerce Clause. The first tier, "a virtually per se rule of invalidity, " applies [when] a state law discriminates facially, in its practical effect, or in its purpose. Wyoming v. Oklahoma, 502 U.S. 437, 454- 55 . . . (1992) (quoting Philadelphia [v. New Jersey], 437 U.S. [617, ] 624 [(1978)]). In order for a law to survive such scrutiny, the state must prove that the discriminatory law "is demonstrably justified by a valid factor unrelated to economic protectionism, " New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 274 . . . (1988), and that there are no "nondiscriminatory alternatives adequate to preserve the local interests at stake, " [Chem. Waste Mgmt., Inc. v. Hunt, 504 U.S. 334, 342 (1992)] (quoting Hunt v. Washington State Apple Advertising Comm'n, 432 U.S. 333, 353 . . . (1977)). . . .
The second tier applies if a statute regulates evenhandedly and only indirectly affects interstate commerce. In that case, the law is valid unless the burdens on commerce are "clearly excessive in relation to the putative local benefits." Pike v. Bruce Church, Inc., 397 U.S. 137, 142 . . . (1970).

Envtl. Tech. Council v. Sierra Club, 98 F.3d 774, 785 (4th Cir. 1996).

         The first tier of analysis is also referred to as "strict scrutiny analysis[.]" Colon Health Ctrs. of Am., LLC v. Hazel, 733 F.3d 535, 543 (4th Cir. 2013) (quoting Waste Mgmt. Holdings, Inc. v. Gilmore, 252 F.3d 316, 334 (4th Cir. 2001)). "[A] 'less strict scrutiny' applies under the undue burden tier." Id. at 545 (quoting Yamaha Motor Corp. v. Jim's Motorcycle, Inc., 401 F.3d 560, 567 (4th Cir. 2005)). "The putative benefits of a challenged law are evaluated under the rational basis test, . . . though 'speculative' benefits will not pass muster[.]" Id. (quoting Medigen of Ky., Inc. v. Pub. Serv. Comm'n, 985 F.2d 164, 167 (4th Cir. 1993)).

         "[A] state or local law discriminates by restricting market participation or curtailing the movement of articles of interstate commerce based on whether a market participant or article of commerce is in-state versus out-of-state, or local versus non-local." Florida Transp. Servs., Inc. v. Miami-Dade Cty., 703 F.3d 1230, 1244 (11th Cir. 2012). Further, "[i]n conducting the discrimination inquiry, a court should focus on discrimination against interstate commerce-not merely discrimination against the specific parties before it." Colon Health, 733 F.3d at 543.

Focusing exclusively on discrimination against individual firms . . . improperly narrows the scope of the judicial inquiry and has the baneful effect of precluding certain meritorious claims. For while the burden on a single firm may have but a negligible impact on interstate commerce, the effect of the law as a whole and in the aggregate may be substantial.

Id.

         In any event, "[t]he Supreme Court has consistently held that a state's power to regulate commerce is at its zenith in areas traditionally of local concern." Kleenwell Biohazard Waste & Gen. Ecology Consultants, Inc. v. Nelson, 48 F.3d 391, 398 (9th Cir. 1995) (citing Hunt, 432 U.S. at 350). "In addition, regulations that touch on safety are those that the Court has been most reluctant to invalidate." Id. (citing Raymond Motor Transp., Inc. v. Rice, 434 U.S. 429, 443 (1978)). While "a bald assertion that laws are directed toward legitimate health and safety concerns is not enough to withstand a [D]ormant Commerce Clause challenge, . . . [courts] must give some deference to states' decisions regarding health and safety." Nat'l Ass'n of Optometrists & Opticians LensCrafters, Inc. v. Brown, 567 F.3d 521, 526 (9th Cir. 2009) (citing Gen. Motors Corp., 519 U.S. at 307). In fact, those asserting a Dormant Commerce Clause violation "'bear[ ] the burden of proving that the burdens placed on interstate commerce outweigh' [a law's] local benefits." Colon Health, 813 F.3d 145, 157 (4th Cir. 2016) (quoting LensCrafters, Inc. v. Robinson, 403 F.3d 798, 805 (6th Cir. 2005)).

         South ...


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