JENNIE STUART MEDICAL CENTER, INC. VS. CABINET FOR HEALTH AND FAMILY SERVICES, ET AL.
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RENDERED: NOVEMBER 19, 2010; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2009-CA-001638-MR
JENNIE STUART MEDICAL
CENTER, INC.
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NOS. 09-CI-00478 & 09-CI-00487
COMMONWEALTH OF KENTUCKY,
CABINET FOR HEALTH AND
FAMILY SERVICES; AND
THE TROVER CLINIC FOUNDATION,
INC., D/B/A REGIONAL MEDICAL
CENTER OF HOPKINS COUNTY
APPELLEES
OPINION
REVERSING AND REMANDING WITH DIRECTIONS
** ** ** ** **
BEFORE: CLAYTON AND LAMBERT, JUDGES; HENRY,1 SENIOR JUDGE.
1
Senior Judge Michael L. Henry sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky Revised Statutes
(KRS) 21.580.
LAMBERT, JUDGE: Jennie Stuart Medical Center, Inc. (Jennie Stuart) appeals
from an opinion and order of the Franklin Circuit Court affirming the decision of
the Commonwealth of Kentucky, Cabinet for Health and Family Services
(Cabinet) to disapprove its application for a Certificate of Need (CON). Jennie
Stuart sought approval to convert two existing Level II neonatal intensive care unit
beds into Level III beds. Approval was denied because Jennie Stuart did not intend
to provide, nor was it capable of providing, all levels of Level III care. Jennie
Stuart contends that the circuit court erred in finding that the Cabinet had correctly
interpreted the applicable standard of review and in determining that it did not have
the authority to “second guess” the Cabinet’s interpretation. For the reasons
expressed herein, we agree. Hence, we reverse the circuit court’s decision and
remand this matter to the Cabinet for approval of Jennie Stuart’s application.
Prior to reaching the merits of this appeal, we must first address the
Cabinet’s failure to file a brief in this matter. Our rules of procedure direct us in
such situations as follows:
If the appellee’s brief has not been filed within the time
allowed, the court may: (i) accept the appellant’s
statement of the facts and issues as correct; (ii) reverse
the judgment if appellant’s brief reasonably appears to
sustain such action; or (iii) regard the appellee’s failure
as a confession of error and reverse the judgment without
considering the merits of the case.
Kentucky Rules of Civil Procedure (CR) 76.12(3)(c). We have opted to accept
Jennie Stuart’s statement of the facts and issues as correct pursuant to subsection
(i), but we shall address Jennie Stuart’s arguments on the merits.
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Jennie Stuart is a Joint Commission-accredited Kentucky nonprofit
corporation that operates an acute care hospital in Hopkinsville, Kentucky. One
service it provides is obstetrical care. To that end, Jennie Stuart operates a six-bed
Level II neonatal intensive care unit (NICU) to care for infants at or above
specified gestational ages and weights who have medical issues.
In order to maintain its special care neonatal beds, Jennie Stuart must
operate consistently within the State Health Plan. The State Health Plan, in turn, is
to incorporate the most recent version of the American Academy of Pediatrics and
the American College of Obstetrics and Gynecology Guidelines for Perinatal Care
(Guidelines). The most recent version of the Guidelines was released in 2008, and
it included an expanded classification system for Level II and Level III beds. The
Guidelines now describe Level III NICUs as follows:
Level IIIA NICUs can provide for newborns with a
birth weight of more than 1,000g and a gestational age of
more than 28 weeks. Continuous life support can be
provided but is limited to conventional mechanical
ventilation. Minor surgical procedures can be performed.
Level IIIB NICUs care for infants with extreme
prematurity (28 weeks of gestation or less) or extremely
low birth weight (1000g or less) or who have severe or
complex illnesses. Advanced respiratory support,
including high-frequency ventilation and inhaled nitric
oxide, and physiologic monitoring equipment must be
available. Level IIIC NICUs, which may be located at
childrens hospitals, have the capabilities of Level IIIB
NICUs and also are located within an institution with the
capability of providing extracorporeal membrane
oxygenation and performing surgical repair of complex
congenital cardiac malformations that require
cardiopulmonary bypass.
-3-
Under the new edition, Jennie Stuart discovered that some of its Level
II care overlapped into Level IIIA care. Therefore, in 2008, Jennie Stuart applied
for a CON pursuant to KRS 216B.010, et seq., and the applicable regulations, to
convert two of its Level II beds to Level IIIA beds so that it could continue to care
for its patients as it had prior to the updated edition. In early 2009, the Cabinet
held a comparative hearing on Jennie Stuart’s application.2 The Cabinet then
entered its order disapproving the application because Jennie Stuart failed to
establish consistency with the State Health Plan pursuant to KRS
216B.040(2)(a)2.a and 900 Kentucky Administrative Regulations (KAR) 6:050 §
7(1).3 The circuit court affirmed the Cabinet’s order, and this appeal now follows.
In Starks v. Kentucky Health Facilities, 684 S.W.2d 5, 6-7 (Ky. App.
1984), this Court stated that as follows:
If the findings of fact of an administrative agency are
supported by substantial evidence of probative value,
they must be accepted as binding upon the reviewing
court, and the resulting question is whether or not the
agency applied the correct rule of law to the facts so
found. . . . [W]e believe the criteria provided in KRS
216B.040(2) for the issuance of a certificate place broad
discretion in the board. The board is restricted only from
arbitrary and capricious acts within the traditional
framework of the foregoing authority. [Citations
omitted.]
2
The Trover Clinic Foundation, Inc., d/b/a Regional Medical Center of Hopkins County, an
appellee herein, also sought a CON to obtain two Level III beds. The Cabinet held a
comparative hearing and considered both applications together. Regional Medical Center did not
appeal the circuit court’s order affirming the denial of its application.
3
900 KAR 6:050 is no longer in effect.
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In the present matter, Jennie Stuart does not dispute the Cabinet’s findings of fact.
Rather, Jennie Stuart contends that the Cabinet misapplied the applicable statutes
and regulations. Therefore, we shall closely examine the provisions at issue.
KRS 216B.040(2)(a)2 and 900 KAR 6:050 § 7(1), the accompanying
regulation then in effect, require an applicant to establish five criteria in order to be
awarded a CON. These criteria include consistency with plans; need and
accessibility; interrelationships and linkages; costs, economic feasibility and
resource availability; and quality. There is no dispute that Jennie Stuart established
all but the first criterion, consistency with the State Health Plan. Accordingly, that
is the only criterion we shall address.
The 2007-2009 version of the State Health Plan, in effect at the time
of Jennie Stuart’s application, provides that the following criteria must be met in
order for Level III beds to be approved:
1. Approval of the application does not cause the number
of Level III beds in the Commonwealth to exceed the
following calculation:
(Total annual state births for the plan year/1000) 1 = Maximum number of Level III beds in the state
2. The Cabinet determines that more Level III beds than
indicated by the above calculation are justified in order to
allow for the presence of hospitals that provide a higher
intensity of neonatal care than that provided by most
hospitals, due to a high percentage of neonatal patient
referrals for specialized services such as open-heart
surgery, transplants, etc.;
3. No new Level III program shall be approved in the
ADD unless the overall utilization of existing providers
of Level III services in the ADD is at least seventy-five
-5-
(75) percent as computed from the most recently
published inventory and utilization data;
4. No additional beds shall be approved for an existing
unit unless the utilization of this unit is at least seventyfive (75) percent as computed from the most recently
published inventory and utilization data; and
5. The application documents consistency with the most
recent published edition of the American Academy of
Pediatrics and the American College of Obstetrics and
Gynecology Guidelines for Perinatal Care.
In its order, the Cabinet addressed Jennie Stuart’s application as it
related to consistency with the State Health Plan:
15. It is undisputed that Jennie Stuart’s application
does not satisfy Special Care Neonatal Beds review
criterion 1, as the calculated ratio allows for 56 Level III
neonatal beds within the Commonwealth, and the 2007
Annual Kentucky Utilization and Service Report indicates
that Kentucky currently has 157 Level III neonatal beds,
with 80 located at Kosair Children’s Hospital in
Louisville; 16 at the University of Louisville Hospital; 10
at Norton Suburban Hospital in Louisville; 50 at
University of Kentucky Hospital in Lexington, and one at
King’s Daughters Medical Center in Ashland.
16. Because it does not meet review criterion 1,
Jennie Stuart must meet review criterion two, and prove
to the Cabinet that more Level III beds are justified,
because it provides a higher intensity of neonatal care
than that provided by most hospitals, due to a high
percentage of neonatal patient referrals for specialized
services such as open-heart surgeries, transplants, etc.
[Because Level III is such a specialized level of care
anyhow, the phraseology of the review criterion becomes
important, in an analysis of its intent. While the SHP
does not specifically delineate among Level III-a, -b, and
–c services, the plain language of review criterion 2
references surgical procedures, explicitly, when
describing the specialized services that are necessary to
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justify an exception to the SHP-calculated need for Level
III special care neonatal beds. No other types of neonatal
medical services are listed for illustrative purposes.
Therefore, the undersigned concludes that the intent of
review criterion 2 is to provide a narrowly-tailored
exception to the review criterion 1 calculation only in the
most extreme cases: when a hospital is able to provide
the highest level of neonatal care – Level III-c surgical
neonatal services.]4 As Jennie Stuart proposes only to
offer Level III-a services, its application does not satisfy
review criterion 2.
17. Review criterion 3 is not applicable to Jennie
Stuart.
18. Review criterion 4 is not applicable to Jennie
Stuart.
19. Jennie Stuart participates in the VermontOxford Network data collection system, which enables
the hospital to better increase the effectiveness and
efficiency of its neonatal services. Jennie Stuart attests in
its application that its neonatal staff complies with the
Guidelines for Perinatal Care. Jennie Stuart’s
application satisfies review criterion 5.
20. Based on the foregoing, Jennie Stuart’s
application is not consistent with statutory Criterion 1
and regulatory criterion 7(1).
The Cabinet’s conclusion in paragraph 16 is the basis of Jennie Stuart’s appeal.
The crux of Jennie Stuart’s argument on appeal is that the circuit court
erred in upholding the Cabinet’s ruling despite its misinterpretation and
misapplication of the statutes and regulations. Jennie Stuart contends that the
Cabinet misinterpreted one phrase in the Level III criteria; namely, “. . . hospitals
4
The bracketed portion included above is taken from the Cabinet’s ruling regarding Regional
Medical Center’s application, which was incorporated by reference in the portion ruling on
Jennie Stuart’s application.
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that provide a higher intensity of neonatal care than that provided by most hospitals
due to a high percentage of neonatal patient referrals for specialized services such
as open-heart surgery, transplants, etc.” Jennie Stuart’s argument is this: the
Cabinet construed the above phrase to mean that no applicant would be approved
for Level III services unless it was able to provide neonatal heart or transplant
surgeries, procedures only pediatric teaching facilities are permitted to perform
under the State Health Plan. And the only two pediatric teaching facilities in the
Commonwealth, Norton Kosair Children’s Hospital and the University of
Kentucky Medical Center, already have a combined total of 138 Level III beds. In
light of these facts, the Cabinet’s construction of the phrase renders the provision
meaningless, making the ultimate ruling arbitrary and without a rational basis. We
agree with Jennie Stuart’s argument.
The Supreme Court of Kentucky addressed statutory construction in
Reyes v. Hardin County, 55 S.W.3d 337, 342 (Ky. 2001):
“The universal rule is, that in construing statutes it must
be presumed that the Legislature intended something by
what it attempted to do. . . .” Grieb v. National Bond &
Inv. Co., 264 Ky. 289, 94 S.W.2d 612, 617 (1936)
(emphasis added). “All statutes are presumed to be
enacted for the furtherance of a purpose on the part of the
legislature and should be construed so as to accomplish
that end rather than to render them nugatory.”
Commonwealth ex rel. Martin v. Tom Moore Distillery
Co., 287 Ky. 125, 152 S.W.2d 962, 967 (1939).
In a later opinion, the Court held:
Statutes should be construed in such a way that they do
not become ineffectual or meaningless. Any apparent
-8-
conflict between sections of the same statute should be
harmonized if possible so as to give effect to both
sections.
....
The statute must be read as a whole and in context with
other parts of the law. All parts of the statute must be
given equal effect so that no part of the statute will
become meaningless or ineffectual.
Lewis v. Jackson Energy Co-op. Corp., 189 S.W.3d 87, 91-92 (Ky. 2005) (internal
citations omitted). Finally, the Court has held that:
[O]ur goal in construing a statute is to give effect to the
intent of the General Assembly, and we derive that intent,
if at all possible, from the plain meaning of the language
the General Assembly chose. We presume, of course,
that the General Assembly intended for the statute to be
construed as a whole and for all of its parts to have
meaning. We also presume that the General Assembly
did not intend an absurd statute or an unconstitutional
one.
King Drugs, Inc. v. Commonwealth of Kentucky, Revenue Cabinet, 250 S.W.3d
643, 645 (Ky. 2008) (internal citations omitted).
Based upon these rules of statutory construction and taking the latest
version of the Guidelines into consideration, the Cabinet construed the phrase at
issue in the State Health Plan too narrowly by limiting approval of any new Level
III beds to only those facilities able to offer all categories of Level III care. If this
were the correct interpretation, no facility would be permitted to add any Level III
beds. The criterion at issue in the State Health Plan must be construed in harmony
with the Guidelines, which now subcategorizes Level III beds into three levels of
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care. To hold otherwise would certainly render the criterion in the State Health
Plan meaningless, as the only facilities eligible for Level III beds already have a
vast number of them.
In its opinion and order affirming, the circuit court determined that the
Cabinet’s interpretation of the regulation was reasonable and, as such, that it must
defer to that interpretation. The circuit court also determined that the narrow
construction applied by the Cabinet did not lead to an absurd result because it was
calculated to protect premature infants. However, this statement was based upon a
citation to the Guidelines that addressed only Level IIIB and Level III NICUs, not
Level IIIA NICUs, which is the level at which Jennie Stuart was seeking a CON.
Furthermore, we disagree with the circuit court’s statement that it did not have the
authority to second guess the Cabinet’s interpretation. See Durbin Orthopaedic
Center, PSC v. Commonwealth, State Bd. of Physical Therapy, 294 S.W.3d 421
(Ky. 2009) (holding that statutory provisions must be construed according to the
intent of the General Assembly and harmonized to avoid an absurd or nonsensical
result).
Accordingly, we hold that the circuit court erred in upholding the
Cabinet’s disapproval of Jennie Stuart’s application because the Cabinet
misapplied and misinterpreted the second criterion of the State Health Plan’s
Criterion 1 for approval of Level III beds. Therefore, we reverse the opinion and
order of the Franklin Circuit Court. Because the Cabinet found that the application
-10-
was consistent with all other criteria, we remand this matter to the Cabinet for
approval of Jennie Stuart’s application for a Certificate of Need.
ALL CONCUR.
BRIEF FOR APPELLANT:
No appellee brief filed.
Colleen McKinley
Louisville, Kentucky
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