MUHLENBERG COMMUNITY HOSPITAL , ET AL. VS. MUHLENBERG MEDICAL PROPERTIES VI, LLC , ET AL.
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RENDERED: OCTOBER 9, 2009; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2007-CA-002219-MR
MUHLENBERG COMMUNITY HOSPITAL;
OWENSBORO MEDICAL HEALTH SYSTEM, INC.;
AND THE KENTUCKY HOSPITAL ASSOCIATION
v.
APPELLANTS
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE THOMAS D. WINGATE, JUDGE
ACTION NO. 06-CI-00112
MUHLENBERG MEDICAL PROPERTIES, VI, LLC;
AND THE COMMONWEALTH OF KENTUCKY,
CABINET FOR HEALTH AND FAMILY SERVICES
APPELLEES
OPINION
REVERSING
** ** ** ** **
BEFORE: FORMTEXT LAMBERT AND TAYLOR, JUDGES; GRAVES,
SENIOR JUDGE. TAYLOR, JUDGE: Muhlenberg Community Hospital,
Owensboro Medical Health System, Inc. and the Kentucky Hospital Association
(collectively referred to as appellants) bring this appeal from an August 10, 2007,
Opinion and Order of the Franklin Circuit Court reversing the Findings of Fact,
Conclusions of Law and Final Order (final order) of the Commonwealth of
Kentucky, Cabinet for Health and Family Services and holding that Muhlenberg
Medical Properties VI, LLC qualified for an exemption under Kentucky Revised
Statutes (KRS) 216B.020(2)(a) to the certificate of need requirement. We reverse.
Muhlenberg Medical Properties VI, LLC (Muhlenberg Medical) is
comprised of six members - five physicians and one nurse practitioner - practicing
medicine in the areas of family practice and internal medicine.1 Muhlenberg
Medical requested an advisory opinion from the Cabinet for Health and Family
Services, Office of Certificate of Need (Cabinet) regarding whether it “could
provide MRI services without a certificate of need pursuant to the exemption from
certificate of need provided by KRS 216B.020(2)(a) for the private offices and
clinics of physicians” (private office exemption). Essentially, Muhlenberg Medical
sought to open a medical facility that performed MRI scans (MRI facility). The
physicians of Muhlenberg Medical were not radiologists, so independent
radiologists would be contracted to interpret the MRI scans. The physicians of
Muhlenberg Medical would continue to see patients at an adjoining facility and
only provide “general medical oversight” of the MRI facility. In its request for an
advisory opinion, Muhlenberg Medical described its proposed MRI facility as
follows:
1
The six member of Muhlenberg Medical provide medical services through another entity, MS
Community Health, LLC (Community Health). Community Health has one member –
Muhlenberg Medical Center, LLC (Medical Center). Medical Center is also comprised of six
members – the same five physicians who comprised Muhlenberg Medical and Thomas Randall
Powell, who is the Chief Executive Officer of Muhlenberg Medical.
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[Muhlenberg Medical] plans to purchase or lease,
and to operate, magnetic resonance imaging equipment
as a new imaging service in Powderly. The members of
[Muhlenberg Medical] are physicians licensed to practice
in Kentucky and a nurse practitioner working in their
practice group. [Muhlenberg Medical] plans to provide
the new MRI imaging services from an addition to the
physicians’ current practice space in Powderly.
[Muhlenberg Medical] will offer no medical services
other than the technical component of the MRI services.
The physicians and the nurse practitioner who are
members of [Muhlenberg Medical] will practice
medicine regularly at [Muhlenberg Medical]’s office
facility, which will be immediately adjacent to their
existing office space. [Muhlenberg Medical]’s MRI
service will be housed in a building owned by another
entity controlled by the physicians. [Muhlenberg
Medical] will provide, and bill for, the technical
component of the MRI service. The physicians will
provide general medical oversight of the MRI service.
[Muhlenberg Medical] will contract with radiologists not
in the physicians’ group to read and interpret the MRI
images, and the radiologists will bill the patients and
their health benefits plans separately for the radiologists’
professional services.
....
[Muhlenberg Medical] may enter into an arrangement
with a local hospital under which hospital inpatients will
be brought to [Muhlenberg Medical]’s office for MRI
services.
The Cabinet ultimately issued an Advisory Opinion that Muhlenberg
Medical did not qualify for the private office exemption of KRS 216B.020(2)(a)
and; thus, a certificate of need would be required for the MRI facility. In its
Advisory Opinion, the Cabinet opined:
[Muhlenberg Medical] may not provide MRI services
without a certificate of need because none of the owners
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of [Muhlenberg Medical] will actually practice or
provide physician services at [Muhlenberg Medical].
In order to qualify for the exemption from
certificate of need provided by KRS 216B.020(2)(a) for
the private offices and clinics of physicians . . . the office
or clinic claiming exemption must be:
• Solely owned by practitioners of the healing arts;
and
• The owners-practitioners must practice at the
office or clinic on a regular basis.
Being dissatisfied with the Advisory Opinion, Muhlenberg Medical
subsequently requested a hearing before the Cabinet. Following the hearing, a
final order was entered December 12, 2005, which affirmed the Advisory Opinion.
Therein, the following findings of fact and conclusions of law were made:
4.
The [private] office exemption contained in
KRS 216B.020(2)(a) states that, “Nothing in this chapter
shall be construed to authorize the licensure, supervision,
regulation or control in any manner of private offices and
clinics of physicians, dentists and other practitioners of
the healing arts.”
5.
Because the stated purpose of the certificate
of need laws is to prevent the proliferation of
unnecessary health care facilities, the physicians’ office
exemption must be narrowly construed.
6.
The [private] office exemption cannot apply
to a non-physician owned facility where physicians
provide health services. The exemption must apply only
where the “office or clinic” is owned by physicians or
other practitioners who actually practice there. This is
obvious for several reasons.
7.
KRS 216B.020(2) is unambiguous and
therefore, in applying the facts of this case to the
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exemption, one must look to the plain meaning of the
statute. The plain meaning of the statutory language
mandates only one conclusion. The exemption applies
only to “private offices or clinics of physicians, dentists
and other practitioners of the healing arts.” “Private”
means “belonging to a particular person or group rather
than the public.” “Of” means “belonging to.” Taken
together this means “offices or clinics belonging solely to
physicians, dentists and other practitioners.” Because
physicians and dentists are included in the phrase with
“other practitioners,” the physicians must also be
“practitioners,” and must actively practice in their offices
or clinics.
8.
There is no question that [Muhlenberg
Medical] would be a health facility offering health
services.
9.
Therefore, the issue before the undersigned
is whether the Cabinet correctly concluded in the
Advisory Opinion that [Muhlenberg Medical] cannot
operate MRI services without a certificate of need.
Specifically, it must be determined whether [Muhlenberg
Medical] may rely on the [private] office exemption, and
thus be allowed to operate without obtaining a certificate
of need.
10. After considering all the evidence presented,
it must be concluded that [Muhlenberg Medical] does not
fall within the [private] office exemption and that the
Cabinet’s Advisory Opinion should be affirmed.
11. While the members/owners of [Muhlenberg
Medical] are either physicians or practitioners of the
healing arts, by [Muhlenberg Medical’s] own admission
they are not qualified to read MRI scans. Rather,
[Muhlenberg Medical] is proposing to contract with a
radiology practice group to read the scans done at
[Muhlenberg Medical]. Within the plain meaning of the
[private] office exemption, it can not be said that the
members/owners of [Muhlenberg Medical] would be
actively practice[ing] in their office.
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Muhlenberg Medical then filed a Petition for Review from the final
order in Franklin Circuit Court. In an Opinion and Order entered August 10, 2007,
the circuit court reversed the final order of the Cabinet. Therein, the circuit court
specifically concluded:
It is clear that all members of [Muhlenberg Medical]
actively practice medicine at the very location where the
new MRI equipment is to be operated. Further
[Muhlenberg Medical] will employ certified technicians
to operate the on-site equipment. Although the MRI
scans will be read and evaluated off-site, and patients
may receive limited diagnostic care to the radiologists
selected by [Muhlenberg Medical], the patients would be
sent back to their primary care physician for final
diagnosis and treatment.
Because the words of the statute are plain and
unambiguous, they must be given their commonly
understood meaning. Stewart v. Estate of Cooper, 102
S.W.3d 913 (Ky. 2003). Applying, [sic] the commonly
understood meaning of the statutory language at issue,
this Court finds that [Muhlenberg Medical] is subject to
the [private] office exemption because the MRI
equipment will be located and operated on the premises
where all members of [Muhlenberg Medical] regularly
practice medicine.
All members of [Muhlenberg Medical] see patients on
the same premises where the MRI is to be located. In
fact, although the reading of the images will be
contracted out, it is the members of the MRI who will be
relying on the images to make final diagnoses and
treatment decisions for their patients, whom they see on
the same premises. Unlike the question raised in the
Gilbert case, which involved whether any physicians
were practicing in the MRI clinics at issue, this matter
involves the purchase of an MRI by a group of
physicians for the treatment of their own patients.
....
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Because [Muhlenberg Medical] qualifies for the
[private] office exemption to certificate of need
requirements, the Final Order of Respondent Cabinet for
Health and Family Services is hereby REVERSED, and
this matter is remanded to the Cabinet with direction to
enter an order consistent with this opinion.
In sum, the circuit court held that Muhlenberg Medical did qualify for the private
office exemption of KRS 216B.020(2)(a) and the Cabinet erred by holding
otherwise. This appeal follows.
Appellants contend that the circuit court erred by reversing the final
order of the Cabinet and by concluding that Muhlenberg Medical qualified for the
private office exemption to the certificate of need requirement. For the reasons
hereinafter set forth, we are of the opinion that Muhlenberg Medical did not
qualify for the private office exemption and that the circuit court erred by
concluding that it did.
Judicial review of an administrative agency’s decision is concerned
with arbitrariness. Com., Transp. Cabinet v. Weinberg, 150 S.W.3d 75 (Ky. App.
2004). Arbitrariness has many facets. Id. In this appeal, the material facts are
undisputed, and we are confronted with a question of law – the proper
interpretation and ambit of the private office exemption under KRS
216B.020(2)(a), which reads:
(2) Nothing in this chapter shall be construed to authorize
the licensure, supervision, regulation, or control in any
manner of:
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(a) Private offices and clinics of physicians, dentists, and
other practitioners of the healing arts, except any
physician's office that meets the criteria set forth in KRS
216B.015(4)[.]
The circuit court viewed the private office exemption contained in
KRS 216B.020(2)(a) as broad enough to encompass Muhlenberg Medical’s
proposed MRI facility. The court’s reasoning was simplistic:
[T]his Court finds that [Muhlenberg Medical] is subject
to the [private] office exemption because the MRI
equipment sought will be located and operated on the
premises where all members of [Muhlenberg Medical]
regularly practice medicine.
....
[I]t is clear that the proposed activity of [Muhlenberg
Medical] is entitled to the [private] office exemption
because all the members of [Muhlenberg Medical] are
treating their own patients on-site and the MRI will assist
them in offering such treatment. . . .
Considering the recent decision by the Court of Appeals in Gilbert v. Com., ____
S.W.3d ____ (Ky. App. 2008), we are convinced that the circuit court’s above
reasoning and interpretation of the private office exemption of KRS
216B.020(2)(a) was mistaken and erroneous.
In Gilbert, the Court of Appeals was squarely faced with the proper
scope of the private office exemption found in KRS 216B.020(2)(a). Id. Relevant
to this appeal, the Gilbert Court held that the availability of the private office
exemption is dependent upon “the kind of activity that takes place at the office for
which the exemption is sought.” Id. at _____. In Gilbert, a physician sought the
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private office exemption for three separate offices that performed MRI services.
The Court noted that no physician regularly treated patients at these offices; rather,
the offices were more akin to a “diagnostic testing facility:”
The evidence presented at the show cause hearing
does not describe a private office or clinic of a physician.
It does, however, describe a facility which performs
diagnostic testing on patients who, but for their referral to
these MRI testing facilities by their own treating
physicians, would have no connection to Dr. Gilbert's
medical practice.
The Cabinet found that at all three offices “[t]here
are no physicians present for a substantial portion of the
time [and still] the MRI machines [were] running and
scanning individuals;” that “[r]egardless of which facility
performs the MRI scan, virtually all of the scans are read
in Lexington;” and that the “MRI services are billed
‘globally’ [meaning that Dr.] Gilbert is reimbursed for
both the technical and professional component of the
MRI service.” The record shows that MRI technicians,
not physicians, conduct each MRI scan performed on
each patient.
....
These offices had every appearance that they were
something other than the private offices or clinics of a
physician-specifically, they had all the hallmarks of a
diagnostic testing facility. The manner of operation of
these facilities establishes one obvious fact. The only
reason these patients presented themselves at the testing
facility was that, unlike a patient whose blood or urine or
biopsied tissue is tested, these patients could not separate
themselves from the biological subject matter of the testtheir bodies.
Id. at ____.
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As in Gilbert, we believe Muhlenberg Medical’s proposed MRI
facility, likewise, constituted a diagnostic testing facility and not a private office of
a physician. See Gilbert, ____ S.W.3d ____. According to Muhlenberg Medical,
the proposed MRI facility would “offer no medical services other than the
technical component of the MRI services.” The physician members of
Muhlenberg Medical would continue to practice medicine in an adjacent office and
would merely provide “general medical oversight” at the MRI facility. As the
physician members of Muhlenberg Medical were not radiologists, Muhlenberg
Medical intended to contract with radiologists to interpret the MRI images. These
independent radiologists would separately bill patients for their services (referred
to as the “professional component”). Thus, Muhlenberg Medical would only bill
patients for the costs of the MRI scan (referred to as the “technical component”).
Moreover, it was undisputed that patients from physicians other than Muhlenberg
Medical would be served by the MRI facility. Simply put, the facts of this case do
not demonstrate that the proposed MRI facility constituted a private office of a
physician where a patient would customarily receive medical care by a physician
or her employees. Rather, the facts clearly reveal a diagnostic testing facility
where a patient would merely present his or her body for a diagnostic MRI scan
and nothing more.
Considering the nature of activity to be performed at Muhlenberg
Medical’s proposed MRI facility, we hold that Muhlenberg Medical was not
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entitled to the private office exemption of KRS 216B.020(2)(a) and that the circuit
court erred by concluding otherwise. See Gilbert, ____ S.W.3d ____.
For the foregoing reasons, the Opinion and Order of the Franklin
Circuit Court is reversed and the December 12, 2005, final order of the Cabinet for
Health and Family Services is reinstated.
ALL CONCUR.
BRIEFS FOR APPELLANTS:
Carole D. Christian
Patrick J. Martinez
Louisville, Kentucky
Marian J. Hayden
Frankfort, Kentucky
BRIEF AND ORAL ARGUMENT
FOR APPELLEE MUHLENBERG
MEDICAL PROPERTIES VI, LLC:
Edwin A. Logan
Frankfort, Kentucky
ORAL ARGUMENT FOR
APPELLANTS:
ORAL ARGUMENT FOR
COMMONWEALTH OF
KENTUCKY CABINET FOR
HEALTH AND FAMILY
SERVICES:
Carole D. Christian
Louisville, Kentucky
Ann Truitt Hunsaker
Frankfort, Kentucky
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