Sacred Heart Health System, Inc. v. Infirmary Health System and South Baldwin Regional Medical Center (Appeal from Montgomery Circuit Court: CV-07-900905)
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ALABAMA COURT OF CIVIL APPEALS
OCTOBER TERM, 2013-2014
_________________________
2090239
_________________________
Sacred Heart Health System, Inc.
v.
Infirmary Health System and South Baldwin Regional Medical
Center
____________________________
Infirmary Health System and South Baldwin Regional Medical
Center
v.
Sacred Heart Health System, Inc.
_________________________
2120658
_________________________
Sacred Heart Health System, Inc.
v.
Infirmary Health System and South Baldwin Regional Medical
Center
Appeals from Montgomery Circuit Court
(CV-07-900905)
On Return to Remand in Case No. 2090239
THOMAS, Judge.
This is the second time these parties have appeared
before
this
court.
Sacred
Heart
Health
Sys.,
Inc.
v.
Infirmary Health Sys., [Ms. 2090239, September 24, 2010] ___
So. 3d ___, ___ (Ala. Civ. App. 2010).
Sacred Heart Health
System, Inc. ("Sacred Heart"), again appeals from the trial
court's judgment in a declaratory-judgment action instituted
by Infirmary Health System ("IHS") and South Baldwin Regional
Medical Center ("South Baldwin").
As explained in our earlier opinion,
"[Sacred Heart] is an out-of-state, not-forprofit corporation that, among other things,
provides medical services through three hospitals
and other medical facilities located in the
northwestern region of Florida. Sacred Heart is also
the owner of a multi-specialty physician group known
2
2090239; 2120658
as Sacred Heart Medical Group ('SHMG').
SHMG is
made up of 143 physicians practicing in the
northwestern area of Florida and the south Baldwin
County area of Alabama. The record indicates that
SHMG is not a separate legal entity; however, Sacred
Heart has presented evidence indicating that the
physicians of SHMG have employment contracts with
SHMG, that SHMG employees perform consolidated
billing for all the SHMG physicians' patients, that
third-party providers like insurers consider SHMG a
medical group, and that SHMG physicians all share
the same billing number.
"Six
SHMG
physicians
provide
health-care
services to patients in the south Baldwin County
area of Alabama. Because the practices of three of
those physicians had increased and an expansion of
the physicians' existing offices was not feasible,
Sacred Heart began, as early as 2003, seeking a way
to assist those physicians in locating more office
space to provide better service to their patients."
___ So. 3d at ___.1
Sacred Heart Health Sys.,
As part of its
plan to provide more space to its Baldwin County physicians,
Sacred Heart began working with a developer to develop a
medical-office building ("the MOB") in which, among other
things, space for physicians' offices would be leased by
Sacred Heart.
project,
the
Id. at ___.
plans
for
Early in the development of the
the
MOB
called
for
space
for
a
rehabilitation clinic; the plans also called for space for an
1
In this opinion, we will use the same defined terms and
designations we used in Sacred Heart Health System.
3
2090239; 2120658
ambulatory, or outpatient, surgery center, a walk-in care
clinic, and laboratory and diagnostic facilities. Id. at ___.
The procedural history of this case was, in large part,
also set out in our earlier opinion:
"[South Baldwin], a health-care facility located
in Baldwin County, filed a petition for a
declaratory ruling with the State Health Planning
and Development Agency ('SHPDA'), requesting that
SHPDA declare Sacred Heart's plans to develop the
MOB required Sacred Heart to obtain a certificate of
need ('CON') from SHPDA.
Infirmary Health System
('IHS'), another health-care facility that provides
health services in the Mobile County/Baldwin County
area, intervened in support of the petition. The
administrative law judge ('ALJ') assigned to hear
the petition determined that he lacked jurisdiction
to decide the matter and remanded the petition to
the CON Review Board ('CONRB'). Because neither the
CONRB nor the ALJ issued any ruling on the petition
within 45 days, see Ala. Code 1975, § 41-22-11(b)
(stating that an agency's failure to rule on a
request within 45 days constitutes a denial of the
request), South Baldwin and IHS (hereinafter
referred to collectively as 'the opponents') filed
a petition for judicial review in the Montgomery
Circuit Court.
See Ala. Code 1975, § 41-22-20
(explaining the procedure to seek judicial review of
an agency decision).
"In the petition for judicial review, as
originally filed, the opponents sought an order
directing
that
SHPDA
conduct
a
fact-finding
proceeding and issue a ruling on the merits of the
petition for a declaratory ruling.
The opponents
later amended their petition, requesting that the
circuit court declare that the MOB project that
Sacred Heart was developing was reviewable under the
statutes and regulations pertaining to SHPDA and
4
2090239; 2120658
thus required Sacred Heart to obtain a CON in order
to offer health-care services in the MOB. Finally,
in their final amended petition and complaint, the
opponents sought declaratory and injunctive relief
under the Alabama Administrative Procedure Act, Ala.
Code 1975, § 41-22-1 et seq.; the Declaratory
Judgment Act, Ala. Code 1975, § 6-6-220 et seq.; and
§ 22-21-276(a), one of the statutes relating to the
regulation of health-care facilities, codified at
Ala. Code 1975, § 21-22-260 et seq. The opponents
specifically requested that the circuit court
determine that a CON was required for Sacred Heart
to offer health-care services in the MOB and that
the circuit court enjoin Sacred Heart from offering
those services in the MOB until it obtained a CON.
"Although both Sacred Heart and the opponents
each sought a summary judgment in their respective
favor, the circuit court denied both motions and set
the case for trial. By agreement of the parties,
the circuit court did not hold a bench trial;
instead, it took the case under submission on a
joint submission of evidence.
The circuit court
entered a judgment determining that the MOB project
fell under 'the physician's office exemption'
contained in Ala. Code 1975, § 22-21-260(6), and,
thus, that it was not the establishment of a new
health-care facility, which requires CON review
under Ala. Code 1975, § 22-21-263(a)(1). Based on
that determination, the circuit court concluded that
Sacred Heart was not required to secure a CON to
offer health-care services in the MOB.
After
consideration of a timely filed postjudgment motion,
the circuit court amended its judgment to explain
that the MOB project qualified for the physician's
office exemption only insofar as the three SHMG
physicians who were relocating their south Baldwin
County-area offices into the MOB were concerned;
however, the circuit court further ruled that adding
any additional physicians or providing additional
services would require Sacred Heart to obtain a CON
before adding such physicians or providing such
5
2090239; 2120658
services in the MOB.
Sacred Heart appealed that
judgment to the Alabama Supreme Court; the opponents
cross-appealed. Our supreme court transferred the
appeal and the cross-appeal to this court, pursuant
to Ala. Code 1975, § 12-2-7(6).
All the parties
requested oral argument; this court granted those
requests, and oral argument was held on April 21,
2010."
Sacred Heart Health Sys.,
___ So. 3d at ___.2
After oral argument, this court released our opinion
reversing the trial court's judgment and determining that "the
MOB project, as developed as a whole, does not qualify for the
physician's office exemption because SHMG diagnostic equipment
would be used by SHMG physicians whose primary offices are not
located in the MOB, and, thus, that it requires CON review."
Id. at ___.
This court relied on criteria the CONRB had
utilized
determining
in
whether
the
physician's
office
exemption ("the POE"), which exempts certain entities from the
CON process, see Ala. Code 1975, § 22-21-260(6), applied,
which criteria had been set out in CONRB administrative
rulings.
Specifically, we relied on the test set out in the
CONRB's administrative ruling regarding The Institute for
Advanced Cardiovascular Care; under that test, in order to
2
See supra note 1.
6
2090239; 2120658
show that the POE applies and that applying for a CON is
unnecessary, the following criteria must be met:
"'1. That the proposed services are to be
provided, and related equipment used,
exclusively by the physicians identified as
the owners or employees of the physicians'
practice for the care of their patients.
"'2. That the proposed services are to be
provided, and related equipment used, at
the primary office of such physicians.
"'3. That all patient billings related to
such services are through, or expressly on
behalf of, the physicians' practice, and
not on behalf of a third party.
"'4. That the equipment shall not be used
for inpatient care, nor by, through or on
behalf of a health care facility.'"
Sacred Heart Health Sys., ___ So. 3d at ___ (quoting CONRB
Administrative Ruling Regarding The Institute for Advanced
Cardiovascular Care, DR-110 (May 3, 2007)).
Sacred
decision.
Heart
then
sought
certiorari
review
of
our
Our supreme court stated the issue presented to it
thusly:
"The contested issue between the parties is
whether the portion of the medical-building project
Sacred Heart has leased for its Baldwin County
physicians to use ('the SHMG leased space') is
subject to Sacred Heart's first obtaining a CON from
SHPDA.2
7
2090239; 2120658
"_________________
"2In examining the medical-building project as
a whole, this Court does not refer to the entire
building constructed by Johnson Development, which
contains space for medical and non-medical uses, but
to the portion of the building leased by the
specific physicians' practice seeking to apply the
physician's office exemption to the CON requirement.
In this case, we review the SHMG leased space
because that is the only space to be used by the
SHMG practice."
Ex
parte
Sacred
Heart
Health
Sys.,
Inc.,
[Ms.
1091788,
November 21, 2012] ___ So. 3d ___, ___ (Ala. 2012) (first and
second emphasis added).3
After considering the arguments
presented by Sacred Heart, our supreme court reversed the
decision of this court, determining that the four-part test
for determining the application of the POE set out by the
CONRB, which the supreme court referred to as "the Heart-Lung
test," should be modified.
at ___.
Ex parte Sacred Heart, ___ So. 3d
Our supreme court explained:
"This Court has reviewed the Heart-Lung test and
given it great weight, has considered the problems
with the application of the test that have arisen in
this case, and has given the words in the POE 'their
natural, plain, ordinary, and commonly understood
meaning.'
IMED Corp.[ v. Systems Eng'g Assocs.
Corp.], 602 So. 2d [344,] 346 [(Ala. 1992)].
We
3
In this opinion, we use the same defined terms and
designations the supreme court used in Ex parte Sacred Heart.
8
2090239; 2120658
conclude that the Heart-Lung test is substantially
sound but that it should be modified to be
consistent with the purpose and policy of the POE
and to reflect the legislative intent expressed in
§ 22-21-260(6). We hereby adopt a modified fourpart test5 to be used to determine whether a proposed
medical facility or project qualifies for the POE
(hereinafter referred to as 'the POE application
test'):
"(1) The proposed services are to be
provided, and related equipment used,
exclusively by the physicians identified as
owners or employees of the physicians'
practice for the care of their patients.
"(2) The proposed services are to be
provided, and related equipment used, at
any office of such physicians.
"(3) All patient billings related to
such services are through, or expressly on
behalf of, the physicians' practice.
"(4) The equipment shall not be used
for inpatient care, nor by, through, or on
behalf of a health-care facility.
"________________
"5We have changed the phrase 'the primary
office' to 'any office' in the second part of the
test and have struck the phrase 'and not on behalf
of a third party' in the third part because of a
potential conflict with phrase 'regardless of
ownership' in the statutory language of the POE. Ex
parte McLeod, 718 So. 2d 682, 690 (Ala. 1997) ('An
administrative agency's interpretation of a statute
will not be given deference if it is contrary to the
legislative intent.'). See also Ex parte Crestwood
Hosp. & Nursing Home, Inc., 670 So. 2d 45, 47 (Ala.
1995) ('It is settled law that the provisions of a
statute will prevail in any case in which there is
9
2090239; 2120658
a conflict between the statute and a state agency
regulation.')."
Id. at ___.4
Our supreme court remanded the cause to this
court for us to remand the cause to the trial court for it to
apply the newly modified POE application test.
Id. at ___.
The specific remand instructions provided by our supreme court
required the trial court to conduct "any further proceedings
it deems necessary and for the trial court to apply the POE
application test to the SHMG leased space in the medicalbuilding project in a manner consistent with this opinion."
Id.
Following the remand order from this court, the trial
court, at the request of the parties, permitted limited
discovery and held a hearing.
The trial court entered an
order on April 10, 2013, in which it made the following
findings and conclusions:
"The Sacred Heart medical park was developed per
the joint agreement of Sacred Heart Health System
Inc. and Colonial Pinnacle MOB, LLC, an affiliate of
Johnson Development, LLC. Colonial Pinnacle owns the
medical park but Sacred Heart is the major tenant
and holds seven leases for a majority of the usable
footage.
4
See supra note 3.
10
2090239; 2120658
"Sacred Heart Health System Inc. is a Florida
based operator of hospitals and other health care
facilities. Sacred Heart Health System also employs
approximately
143
physicians,
including
approximately six physicians who practice in Baldwin
County. The physician practices operate under the
moniker of the Sacred Heart Medical Group ('SHMG').
However, the SHMG is not a legal entity but a unit
of Sacred Heart Health System Inc., and all
operating income and expenses of the SHMG are
included in the consolidated financial statement for
Sacred Heart Health System, Inc.
"The Sacred Heart medical park was developed to
provide space for Sacred Heart's physicians in
Baldwin County, and to also offer the following
services: outpatient surgery center, a diagnostic
center, a laboratory,[5] and a rehabilitation center.
None of these services are presently offered by
Sacred Heart's physicians in Baldwin County.
"The Court concludes that the medical park
contains leaseholds for multiple facilities that do
not satisfy the POE application test. All seven
leases, as amended, vary in the footage leased and
the lease rate per square foot. For example, the
Family Care lease where Drs. Eslava and Taylor
practice is $23.46 a square foot as compared to
$44.86 a square foot for the ambulatory surgery
center; $33.80 a square foot for the diagnostic
center; and $30.54 a square foot for Same Day Walk
In. Sacred Heart clearly does not treat these
facilities as one physician's office, but as
separate facilities.
5
The evidence on remand indicates that the laboratory and
the diagnostic center, which were originally planned to be
housed in separate areas of the MOB, are now being housed
together in one part of the MOB. Thus, in the remainder of
this opinion, we will refer to them collectively as "the
laboratory and diagnostic center."
11
2090239; 2120658
"Focusing on the specific leases, the diagnostic
center and ambulatory surgery center are not leased
as physicians' practices; and the leases are in the
name of Sacred Heart Health System. From the
evidence, it also appears that the Same Day Walk In
clinic will be operated as an outpatient clinic as
defined by [Ala. Code 1975,] § 22-21-260(8).[6]
Therefore, in focusing on the 'specific physicians'
practice,' the Court concludes that the medical park
contains at least three facilities that are not per
se physicians' offices and that it would circumvent
the CON law to apply the POE to a facility that is
not a physician's office.
"Based upon all of these findings, the Court
therefore concludes that the POE does not apply to
the leaseholds for the ambulatory surgery center,
the diagnostic facility and the Same Day Walk In,
and that a Certificate of Need is required for these
facilities. Specifically, the Court finds and holds
that these facilities and/or the services provided
therein: (1) will not be used exclusively by the
physicians identified as owners or employees of the
physicians' practices for the care of their
patients; (2) the proposed services and related
equipment will not be used at an office of the
physician; (3) patient billing for services will not
be through or on behalf of the physician's practice;
and (4) the equipment will be used by, through, and
on behalf of a health care facility.
"In adopting the POE application test, the
Alabama Supreme Court stated further: 'The POE
application test ... should not be interpreted as
circumventing
the
statutory
language
in
§§
22-21-260(6),
22-21-260(8),
22-21-263,
and
22-21-265, Ala. Code 1975, or otherwise applicable
statutes or administrative regulations pursuant to
6
We note that § 22-21-260(8) does not define "outpatient
clinic."
12
2090239; 2120658
the "State Health Plan,"' [___ So. 3d at ___]. The
Court finds that upon viewing the project as a
whole, including its initial development on behalf
of Sacred Heart, applying the POE to the entire
medical park would circumvent the statutory language
in §§ 22-21-260(6), 22-21-260(8), 22-21-263, and
22-21-265.
"In addition, § 22-2l-263(a)(2) provides that
new institutional health services for which a CON
must be obtained include new annual operating
expenses by or on behalf of a health care facility
in the amount of $800,000 adjusted annually for
inflation. According to the evidence on remand, the
annual operating costs to Sacred Heart for the
leasehold interests now exceed the threshold in §
22-21-263(a)(2)
by
over
$400,000.
The
Court
therefore concludes that it would circumvent the
statutory language to apply the POE to an entire
medical park that will house multiple health care
facilities as defined by Ala. Code [1975,] §§
22-21-260(6) and 22-21-260(8), and the cost of which
exceed the threshold in § 22-21-263(a)(2).
"Based on the above, the Court declares that
Defendant Sacred Heart Health System must obtain a
Certificate of Need from the State Health Planning
and Development Agency. Accordingly, JUDGMENT is
hereby entered in favor of [IHS and South Baldwin]."
(Capitalization in the original.)
We received the trial court's order on return to remand
in case no. 2090239.
Because on remand the trial court
reversed its earlier decision and held that the MOB, in its
entirety, did not meet the four-part POE application test,
Sacred Heart filed a new appeal from that order, which this
13
2090239; 2120658
court assigned case no. 2120658. We have consolidated the two
appeals.
The first argument Sacred Heart makes on appeal is that
the trial court exceeded the scope of the instructions on
remand in making its determination that the MOB as a whole was
subject to the requirement that Sacred Heart first seek and
receive a CON.
According to Sacred Heart, the trial court was
limited by the remand instructions to consider only the "SHMG
leased space," which includes only that space in the MOB
leased by Sacred Heart for its SHMG physicians in Baldwin
County.
Sacred Heart specifically relies on the language of
note 2 in Ex parte Sacred Heart, in which our supreme court
stated:
"In examining the medical-building project as a
whole, this Court does not refer to the entire
building constructed by Johnson Development, which
contains space for medical and non-medical uses, but
to the portion of the building leased by the
specific physicians' practice seeking to apply the
physician's office exemption to the CON requirement.
In this case, we review the SHMG leased space
because that is the only space to be used by the
SHMG practice."
Id. at ___ n.2.
instructions,
Instead of following our supreme court's
contends
Sacred
Heart,
the
trial
court
considered all the portions of the MOB, including the space
14
2090239; 2120658
originally planned to house an outpatient surgery center,7 in
determining whether the POE application test was satisfied.
Sacred Heart points to the language used by our supreme court
in its opinion in making the argument that, on remand, the
trial court was limited to considering only those portions of
the MOB that were leased to the SHMG physicians in its
application
of
and
analysis
of
the
factors
in
the
POE
application test.
IHS argues that the trial court did not violate the
remand instructions and that it carefully considered each
separate leasehold in the MOB to determine whether each of
them satisfied the POE application test; according to IHS, the
trial court held, by omitting them from discussion, that four
specific leaseholds –- those leaseholds covered by what the
parties refer to as the "primary-care" lease, the "medical
7
As explained in our original opinion, Sacred Heart had
planned to sublease the area intended to house an outpatient
surgery center to another entity, Pleasure Island Ambulatory
Surgery Center, LLC ("PIASC"). Sacred Heart Health Sys., ___
So. 3d at ___. PIASC sought a CON for an outpatient surgery
center, but its request was denied; PIASC's appeal from the
denial of a CON to operate the outpatient surgery center was
affirmed by this court without an opinion. Pleasure Island
Ambulatory Surgery Ctr., LLC v. State Health Planning & Dev.
Agency, 82 So. 3d 17 (Ala. Civ. App. 2010) (table).
15
2090239; 2120658
oncology"
lease,
the
"co-op
timeshare"
lease,
and
the
"community room" lease –- satisfy the POE application test.
Further, IHS contends that the trial court did not conclude
that a CON is required for the MOB itself, just for certain
leaseholds.
Thus, under its analysis, IHS asserts that the
trial court properly considered the issues on remand.
South Baldwin contends that our supreme court did not
exclude from the trial court's consideration any portion of
the MOB. According to South Baldwin, our supreme court stated
that the MOB must be viewed as a whole, despite the language
of note 2 in Ex parte Sacred Heart, which, as noted above,
Sacred Heart insists limits review of the MOB to that area
leased for the use of the SHMG physicians.
South Baldwin
appears to treat the term "SHMG leased space" as if it means
"space in the MOB leased by Sacred Heart."
South Baldwin
argues that our supreme court did not limit the space to be
considered when applying the POE application test by use of
the
term
"SHMG
leased
space."
Instead,
South
Baldwin
contends, the term "SHMG leased space" was used merely to
delineate
between
the
space
in
16
the
MOB
retained
by
the
2090239; 2120658
developer and the space leased by Sacred Heart.
We cannot
agree.
As noted above, our supreme court stated the issue under
consideration to be "whether the portion of the medicalbuilding project Sacred Heart had leased for its Baldwin
County physicians to use ('the SHMG leased space') is subject
to Sacred Heart's first obtaining a CON from SHPDA." Ex parte
Sacred Heart, ____ So. 3d at ____.
the
opinion
explained
that
the
Before stating the issue,
MOB
had
originally
been
designed to house a rehabilitation center and an outpatient
surgery center.
Id. at ___.
However, our supreme court
noted, Sacred Heart had abandoned the plan to lease space for
a rehabilitation center before construction of the MOB had
been completed and the entity that planned to lease and
operate the area originally conceived of as an outpatient
surgery center had not secured the required CON to provide
outpatient surgery services.
6.
Id. at ___; see also supra note
Thus, Sacred Heart contends, our supreme court considered
those particular aspects of the MOB to be irrelevant to the
application of the POE application test.
Furthermore, Sacred
Heart points out, our supreme court stated that "Sacred Heart
17
2090239; 2120658
intends for the SHMG physicians practicing in the medicalbuilding project to provide a family practice, walk-in care,
and laboratory and diagnostic facilities."
Id. at ___.
According to Sacred Heart, our supreme court intended for the
POE application test to be applied to those spaces –- the
spaces intended to be used by the SHMG physicians to provide
family practice, walk-in care, and laboratory and diagnostic
services -– and not to the outpatient surgery center or the
rehabilitation center.
Our reading of the supreme court's opinion convinces us
that the space planned to house the proposed outpatient
surgery center and the space originally planned to house the
proposed rehabilitation center are not to be considered in
applying the POE application test. The plans for those spaces
in the MOB, according to our supreme court, were either
abandoned or have not come to fruition because of a failure to
secure a CON.
Id. at ___.
In addition, neither of those
spaces was intended to be used by the SHMG physicians, the
entity seeking application of the POE to the MOB.
___.
See id. at
Thus, we agree with Sacred Heart that the trial court
erred in considering those spaces within the MOB when applying
18
2090239; 2120658
the POE application test on remand.
Our decision is fully
supported by the specific language of note 2 in Ex parte
Sacred Heart, in which our supreme court limited its review to
that aspect of the trial court's judgment that applied to "the
SHMG leased space because that is the only space to be used by
the SHMG practice."
However,
Id. at ___.
despite
our
agreement
with
that
argument
presented by Sacred Heart, the error committed by the trial
court in considering the outpatient-surgery-center space is,
in the present case, an error that does not require reversal
of the trial court's order on remand. Because the trial court
applied the POE application test to the portions of the MOB
project to be utilized by the SHMG physicians, as required by
the supreme court's remand instructions, we will consider
whether its conclusion that those areas fail to meet the POE
application test is legally correct.
As we will explain
below, based on our review of the evidence submitted to the
trial court, we hold that the trial court's conclusion that
the
SHMG
leased
space
does
not
meet
the
four-part
application test is not supported by the evidence.
19
POE
2090239; 2120658
The trial court was required to determine whether the
SHMG leased space met the four-part POE application test. The
first factor of the POE application test required the trial
court to decide, based on the evidence, whether the services
proposed to be provided in the SHMG leased space were to be
provided exclusively by SHMG physicians to their patients and
whether the equipment to be used in providing those services
was to be used exclusively by SHMG physicians for the care of
their patients.
We agree with Sacred Heart that the evidence
does not support the trial court's conclusion that SHMG
physicians will not be the only physicians to provide the
services and to use the equipment at the SHMG leased space in
the MOB.
In presenting their view of the evidence, South Baldwin
and IHS make much of press releases indicating that the plan
for the MOB mirrored that of a similar Sacred Heart medical
park in Pace, Florida, which houses physicians' offices and a
laboratory and diagnostic center that provides services as an
outpatient
diagnostic
center
operated
by
Sacred
Heart.
Indeed, the minutes of an April 27, 2006, meeting of the
Sacred Heart board of directors indicates that the board
20
2090239; 2120658
discussed the MOB as being "like" the building in Pace.
excerpts
of
the
August
29,
2008,
deposition
of
In
Peter
Heckathorn, the executive vice president of Sacred Heart and
the president of SHMG, Heckathorn explained that the reference
to the Pace facility in the minutes of the board-of-directors
meeting was meant to indicate that the services being offered
at the MOB would be similar to the services offered at the
Pace facility.
However, Heckathorn stated in that same
deposition that the laboratory and diagnostic center in the
MOB would not be used to offer outpatient services but would
serve only the SHMG physicians practicing in Baldwin County.
He
testified
that
only
SHMG
physicians
could
use
the
laboratory and diagnostic center in the MOB and that non-SHMG
physicians, including any time-share physicians that might use
office space in the MOB, would not be not be permitted to send
patients to the laboratory and diagnostic center housed in the
MOB.
Many of those same statements are contained in an
affidavit Heckathorn executed on October 10, 2008.
Tammy Nall, the administrative director of real-estate
operations and corporate travel for Sacred Heart, likewise
testified in her a October 13, 2008, affidavit that the
21
2090239; 2120658
laboratory and diagnostic center the MOB would be used solely
by SHMG physicians.
supported
by
Sacred
Nall's and Heckathorn's testimony is
Heart's
propounded to it on remand.
answers
to
interrogatories
In those answers, Sacred Heart
states that "[a]ll physicians, nurses, and support staff
working in the [SHMG leased space in the] MOB are employed by
SHMG." Thus, other than comments at a board meeting referring
to the MOB as being "like" a similar building in Pace,
Florida, and some advertisements that might indicate that the
MOB was a medical park operated by Sacred Heart, the evidence
of record indicates that the SHMG leased space in the MOB and
the equipment housed there will be used exclusively by SHMG
physicians to diagnose and treat their patients.
The second factor of the POE application test required
the
trial
court
to
consider
whether
the
services
to
be
provided would be provided and the equipment to be used would
be used at "any office of such physicians." Our supreme court
specifically modified this factor of the test, changing the
term "the primary office" to the term "any office," stating
that limiting a physician to providing services or using
equipment only in his or her primary office might conflict
22
2090239; 2120658
with the phrase "regardless of ownership" contained in § 2221-260(6) (creating the POE by excluding from the definition
of "health care facility" "the offices of private physicians
..., whether for individual or group practices and regardless
of ownership ....").
___ n.5.
See Ex parte Sacred Heart, ___ So. 3d at
The evidence relating to the SHMG physicians who
planned to relocate to the MOB indicates that the MOB office
would be their primary office.
Furthermore, the evidence
indicates that the equipment that the SHMG physicians had used
in diagnosing and treating their patients had been housed
either in the individual physician's office or in a facility
in
Foley
that
physicians.
diagnostic
was
used
by
all
the
Baldwin
County
SHMG
According to the Heckathorn's testimony, all the
equipment
that
had
been
housed
in
the
Foley
facility and in the physicians' offices was to be moved into
the MOB laboratory and diagnostic center for continued use by
SHMG physicians. Thus, the question to be resolved is whether
the fact that all the SHMG-owned diagnostic equipment would be
housed in one location in the MOB meets the requirement that
"related
equipment
physicians."
[be]
used[]
at
any
office
of
such
Based on our review of the record, none of the
23
2090239; 2120658
evidence supports the conclusion that the laboratory and
diagnostic center, by providing a localized space within the
SHMG leased space of the MOB to house all the diagnostic
equipment owned by the SHMG physicians, fails to meet the
second factor of the POE application test.
The trial court also determined that the laboratory and
diagnostic center and walk-in clinic area of the SHMG leased
space in the MOB failed to meet the third factor of the POE
application test, which requires all patient billings to be
made "through, or expressly on behalf of, the physicians'
practice."
Heckathorn testified in his October 10, 2008,
affidavit that all billing for SHMG physicians was done by
SHMG and that the money received as a result of those billings
is treated as the receipts of SHMG.
In the excerpts from her
deposition, Denise Barton, the vice president of business
development for Sacred Heart, likewise testified that all
billing
for
SHMG
physician
services
was
performed
by
a
separate billing group for SHMG.
Regarding the walk-in clinic portion of the SHMG leased
space, Heckathorn, in an affidavit he executed on October 23,
2008,
explained
that
the
walk-in
24
clinic would
not
be
a
2090239; 2120658
"freestanding emergency department," that it would not operate
24 hours a day or 7 days a week, that it would not provide
trauma care, and that it would not have access to "advanced
technology."
In
her
August
26,
2008,
deposition,
Nall
testified that the walk-in clinic space would provide same-day
appointment care and not "urgent care," although the term
"urgent care" had been used interchangeably at some points
during the planning for the MOB.
Barton testified that Dr.
Cynthia Harbaugh, an SHMG physician, had been providing sameday, walk-in care at her office in Orange Beach and that she
and other SHMG physicians housed in the MOB would continue to
provide that care in the MOB. Nall explained in her affidavit
that the walk-in clinic area of the MOB would allow "the
segregation of [walk-in clinic] patients, many of whom may
have cold, fever, flu, and injuries, from patients seeking
routine and chronic care."
Although the spaces housing the
walk-in clinic, the laboratory and diagnostic center, and the
family-practice
area
explained
"all
that
were
of
"physically
the
space
will
distinct,"
function
Nall
in
a
coordinated and integrated manner on behalf of SHMG patients."
25
2090239; 2120658
The evidence, therefore, does not support the conclusion
that patients receiving treatment or diagnosis at either the
laboratory and diagnostic center or the walk-in clinic area of
the MOB would not be billed by or on behalf of SHMG.
Because
SHMG has its own billing department, which bills all SHMGphysician-provided services to SHMG patients, and because the
record reflects that the walk-in clinic would be operated
solely by SHMG physicians, as Dr. Harbaugh had always operated
her office to treat persons in need of care for non-trauma
ailments or injuries without an appointment, we cannot agree
that these areas of the MOB do not meet the requirement that
the
patient
billings
for
such
services
be
"through,
or
expressly on behalf of," SHMG.8
Finally, we consider whether the trial court correctly
determined that the SHMG leased space in the MOB fails to meet
the fourth factor of the POE application test, which prohibits
8
South Baldwin and IHS mention that SHMG is not a separate
legal entity and that, in the end, the money billed for the
services of SHMG physicians would be income for Sacred Heart.
However, because § 22-21-260(6) clearly exempts physicians'
offices from the definition of health-care facilities and
expressly notes that a physician's office is entitled to this
exemption "regardless of ownership," the fact that SHMG is
essentially owned by Sacred Heart is of no consequence.
26
2090239; 2120658
use of the equipment for inpatient care or by, through, or on
behalf
of
evidence
a
health-care
contained
in
facility.
the
record
As
noted
establishes
above,
the
that
the
equipment contained in the SHMG leased space will be used
"exclusively
by
the
physicians
identified
as
owners
or
employees of the physicians' practices for the care of their
patients."
Ex parte Sacred Heart, ___ So. 3d at ___.
As we
have already explained, Heckathorn testified that non-SHMG
physicians would not be permitted to use the SHMG laboratory
and diagnostic center.
Based on the evidence, we conclude that the SHMG leased
space, which consists of the family-practice area, the walk-in
clinic, and a laboratory and diagnostic center, satisfies the
POE application test.
The evidence indicates that the SHMG
leased space will be used "exclusively by the physicians
identified as owners or employees of the physicians' practices
for the care of their patients" and that the services to be
provided in the SHMG leased space in the MOB will be provided
in the offices of SHMG physicians.
Further, the evidence
demonstrates that all patient billing will be done by SHMG or
on its behalf and that the equipment housed in the SHMG leased
27
2090239; 2120658
space in the MOB will not be used for inpatient care or by a
health-care facility.
In its order on remand, the trial court considered facts
such as the different build-out costs of the various leases,
which, it said, indicated that "Sacred Heart clearly does not
treat these facilities as one physician's office, but as
separate facilities."
The POE application test does not
contain a factor for which the build-out costs of the various
leases would be a relevant consideration.
Thus, we have not
considered the build-out costs of the various leases in
determining whether the evidence supported the trial court's
conclusion that the SHMG leased space does not qualify for the
POE.
The trial court went further than applying the four
factors of the POE application test, stating that "applying
the POE to the entire medical park would circumvent the
statutory language in §§ 21-22-260(6), 22-21-260(8), 22-221263, and 22-21-265."
The trial court's basis for doing so was
our supreme court's statement that "[t]he POE application test
... should not be interpreted as circumventing the statutory
language in §§ 22-21-260(6), 22-21-260(8), 22-21-263, and 22-
28
2090239; 2120658
21-265, Ala. Code 1975 ...."
3d at ___.
Ex parte Sacred Heart, ___ So.
However, we must agree with amicus curiae, The
Medical Association of Alabama, that the trial court erred in
considering our supreme court's statement as adding a fifth
factor that would override the four factors set out in the POE
application test.
Our reading of our supreme court's opinion
convinces us that our supreme court was merely stating that
the POE application test, which provides an exemption from CON
review for physicians' offices, is not intended to circumvent
the requirements in §§ 22-21-260(6), 22-21-260(8), 22-21-263,
and 22-21-265, which require CON review for new institutional
health services provided by health-care facilities, because
health-care facilities, by definition, do not include "the
offices of private physicians or dentists."
§ 22-21-260(6).
The statement that the POE application test should not be
construed
as
circumventing
the
statutes
governing
the
necessity for a CON did not create an additional factor to be
considered by the trial court in applying the POE application
test.
The trial court was not ordered to, and, in fact,
should not have, determined whether applying the POE to the
SHMG leased space in the MOB would "circumvent" the statutory
29
2090239; 2120658
language in §§ 22-21-260(6), 22-21-260(8), 22-21-263, and 2221-265. By doing so, the trial court, much like this court in
Sacred Heart Health System, injected a subjective factor into
a test that our supreme court has indicated should be limited
to the four objective factors set out in its opinion.
The
trial court's only function on remand was to consider the POE
application test set out in Ex parte Sacred Heart and to apply
the factors of that test to the facts in the record or those
facts developed in any proceedings held on remand.
As a final consideration in its order on remand, the
trial court considered the application of § 21-22-263(a)(2),
which prohibits "[a]ny expenditure by or on behalf of a health
care facility ... which, under generally accepted accounting
principles consistently applied, is ... in excess of eight
hundred thousand dollars ($800,000) for new annual operating
costs indexed annually for inflation."
Based on § 21-22-
263(a)(2), the trial court concluded that Sacred Heart was
required to apply for a CON because the cost of all the
leaseholds it held in the MOB exceeded that statutory limit.
Sacred Heart argues that the trial court erred by considering
the cost of all the leaseholds as annual operating costs of
30
2090239; 2120658
Sacred Heart.
Sacred Heart makes the same point we discussed
above –- that the trial court's review on remand was limited
to applying the POE application test to the specific SHMG
leaseholds mentioned in our supreme court's opinion.
Indeed,
our supreme court stated that, "[i]n examining the medicalbuilding project as a whole, this Court does not refer to the
entire building constructed by Johnson Development, ... but to
the portion of the building leased by the specific physicians'
practice seeking to apply the physician's office exemption to
the CON requirement."
___ n.2.
Ex parte Sacred Heart, ___ So. 3d at
Thus, as we discussed above, we are constrained to
agree with Sacred Heart, as discussed above, that the trial
court was limited to considering those spaces in the MOB
leased for use by SHMG physicians and that it was not to
consider other areas of the MOB leased by Sacred Heart.
Furthermore, because of our determination that the evidence
supports a conclusion that the SHMG leased space in the MOB
meets the POE application test, the SHMG leased space is not,
by definition, a health-care facility.
Therefore, we must
reject the trial court's application of § 22-21-263(a)(2) to
31
2090239; 2120658
the combined cost of all the Sacred Heart leaseholds in the
MOB.
Our review of the record fails to support the trial
court's conclusion that the SHMG leased space fails to meet
the four-factor POE application test set out in Ex parte
Sacred Heart.
The evidence supports a determination that the
SHMG leased space, which consists of the family-practice area,
the walk-in clinic, and a laboratory and diagnostic center in
the MOB, meets the POE application test.
Furthermore, the
trial court's decision to consider whether the application of
the POE to the MOB as a whole would circumvent §§ 22-21260(6), 22-21-260(8), 22-21-263, and 22-21-265, effectively,
and inappropriately, added an additional factor to the POE
application test.
Thus, we must reject the trial court's
decision to require Sacred Heart to seek a CON for the MOB on
the basis that allowing the SHMG leased space in the MOB to
qualify
for
the
POE
would
circumvent
the
CON
statutes.
Finally, we must also reject the trial court's conclusion that
Sacred Heart was required to seek and obtain a CON before
operating in the MOB because the combined cost of all the
leaseholds exceeded the threshold for new annual operating
32
2090239; 2120658
costs set out in § 22-21-263(a)(2).
Our supreme court stated
that it was proper to consider only those parts of the MOB
leased
for
the
SHMG
physicians
when
applying
the
POE
application test, because SHMG is the physicians' office
seeking the benefit of the POE.
Accordingly, we reverse the
judgment of the trial court, and we remand the cause to the
trial court for the entry of a judgment consistent with this
opinion.
2090239 –- REVERSED AND REMANDED.
2120658 –- REVERSED AND REMANDED.
Pittman, Moore, and Donaldson, JJ., concur.
Thompson, P.J., concurs in the result, without writing.
33
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