State of North Carolina in the Office Of s8

STATE OF NORTH CAROLINA IN THE OFFICE OF ADMINISTRATIVE HEARINGS COUNTY OF WAKE and ORANGE

REX HOSPITAL, INC. d/b/a ) REX HEALTHCARE, ) ) Petitioner, ) ) And ) ) UNIVERSITY OF NORTH CAROLINA ) HOSPITALS AT CHAPEL HILL and WAKE ) RADIOLOGY ONCOLOGY SERVICES, PLLC, ) ) Petitioner-Intervenors, ) ) v. ) 09 DHR 5769 ) N.C. DEPARTMENT OF HEALTH AND ) HUMAN SERVICES, DIVISION OF HEALTH ) SERVICE REGULATION, CERTIFICATE OF ) NEED SECTION, ) ) Respondent, ) ) And ) ) PARKWAY UROLOGY, P.A. d/b/a ) CARY UROLOGY, P.A., ) ) Respondent-Intervenor. ) ______) UNIVERSITY OF NORTH CAROLINA ) HOSPITALS AT CHAPEL HILL, ) ) Petitioner, ) ) And ) ) REX HOSPITAL, INC. d/b/a REX ) HEALTHCARE and WAKE RADIOLOGY ) ONCOLOGY SERVICES, PLLC, ) ) Petitioner-Intervenors, ) v. ) 09 DHR 5770 ) N.C. DEPARTMENT OF HEALTH AND ) HUMAN SERVICES, DIVISION OF HEALTH ) SERVICE REGULATION, CERTIFICATE OF ) NEED SECTION, ) ) Respondent, ) ) And ) ) PARKWAY UROLOGY, P.A. d/b/a ) CARY UROLOGY, P.A., ) ) Respondent-Intervenor. ) ______) WAKE RADIOLOGY ONCOLOGY ) SERVICES, PLLC, ) ) Petitioner, ) ) And ) ) UNIVERSITY OF NORTH CAROLINA ) HOSPITALS AT CHAPEL HILL and REX ) HOSPITAL, INC. d/b/a REX HEALTHCARE, ) ) Petitioner-Intervenors, ) ) v. ) 09 DHR 5785 ) N.C. DEPARTMENT OF HEALTH AND ) HUMAN SERVICES, DIVISION OF HEALTH ) SERVICE REGULATION, CERTIFICATE OF ) NEED SECTION, ) ) Respondent, ) ) And ) ) PARKWAY UROLOGY, P.A. d/b/a ) CARY UROLOGY, P.A., ) ) Respondent-Intervenor. )

2 3 RECOMMENDED DECISION

In the above-captioned contested case, University of North Carolina Hospitals at Chapel Hill (“UNC Hospitals”), Rex Hospital, Inc. d/b/a Rex Healthcare (“Rex”) and Wake Radiology Oncology Services, PLLC (“WROS”) (collectively “Petitioners”) challenge the decision of the North Carolina Department of Health and Human Services, Division of Facility Services, Certificate of Need Section (“CON Section” or the “Agency”) to award a Certificate of Need (“CON”) to Parkway Urology, P.A. d/b/a Cary Urology, P.A. (“Cary Urology”) and to deny a CON to UNC Hospitals to acquire one (1) dedicated linear accelerator as part of a demonstration project for a model multidisciplinary prostate health center.

Under N.C. Gen. Stat. § 131E-188(a) and § 150B-23, a contested case hearing was held in this matter on June 1-11 and 18, 2010, in Raleigh, North Carolina before Administrative Law Judge Beecher R. Gray.

APPEARANCES

For Petitioner Rex Hospital, Inc. d/b/a Rex Healthcare:

Wallace C. Hollowell, III, Esq. Elizabeth B. Frock, Esq. Nelson Mullins Riley & Scarborough LLP GlenLake One, Suite 200 4140 Parklake Avenue Raleigh, NC 27612 For Petitioner University of North Carolina Hospitals at Chapel Hill:

Gary S. Qualls, Esq. Susan Hackney, Esq. K & L Gates, LLP 430 Davis Drive, Suite 400 Morrisville, NC 27560 For Petitioner Wake Radiology Oncology Services, PLLC:

Frank S. Kirschbaum, Esq. Kirschbaum, Nanney, Keenan & Griffin, P.A. Post Office Box 19766 Raleigh, NC 27619

For Respondent North Carolina Department of Health and Human Services, Division of Health Service Regulation, Certificate of Need Section:

Scott Stroud, Esq. Assistant Attorney General North Carolina Department of Justice

4 Post Office Box 629 Raleigh, NC 27602

For Respondent-Intervenor Parkway Urology, P.A. d/b/a Cary Urology, P.A.:

Renée J. Montgomery, Esq. Robb A. Leandro, Esq. Parker Poe Adams & Bernstein, LLP Wachovia Capitol Center 150 Fayetteville Street, Suite 1400 Post Office Box 389 Raleigh, NC 27602

APPLICABLE LAW

The statutory law applicable to this contested case is N.C. Gen. Stat. Chapter 150B, Article 3, the North Carolina Administrative Procedure Act and N.C. Gen. Stat. Chapter 131E, Article 9, the North Carolina Certificate of Need Law.

The administrative regulations applicable to this contested case are the North Carolina Certificate of Need Program Administrative Regulations, including 10A N.C.A.C. 14C.1900, et seq. (Criteria and Standards for Radiation Therapy Equipment).

BURDEN OF PROOF

As Petitioners, UNC Hospitals, Rex and WROS have the burden of proof by the preponderance of the evidence. Overcash v. N.C. Dep’t of Env’t & Natural Res., 179 N.C. App. 697, 704, 635 S.E.2d 442, 447-48 (2006); see also N.C. Gen. Stat. § 150B-23(a).

ISSUES

The issue to be resolved as to each Petitioner is whether Respondent substantially prejudiced Petitioner’s rights and exceeded its authority or jurisdiction, acted erroneously, failed to use proper procedure, acted arbitrarily or capriciously, or failed to act as required by law or rule when Respondent denied the CON application filed by UNC Hospitals and approved the application filed by Cary Urology.

5 WITNESSES

At the hearing, the following witness testimony was received:

Vol. No. Witness Affiliation Pages

Vol. 1 – June 1, 2010 Michael McKillip Agency (Petitioners’ 77-99; Adverse Witness) 107-222

Vol. 2 – June 2, 2010 Michael McKillip Agency (Petitioners’ 232-280 Adverse Witness)

Vol. 2 – June 2, 2010 Paul Godley, M.D. UNC Hospitals 282-360

Vol. 2 – June 2, 2010 Craig Smith Agency (Petitioners’ 361-426 Adverse Witness)

Vol. 3 – June 3, 2010 Craig Smith Agency (Petitioners’ 436-454 Adverse Witness)

Vol. 3 – June 3, 2010 Emmeline Madsen Rex 456-518

Vol. 3 – June 3, 2010 David French Rex 519-652

Vol. 4 – June 4, 2010 David French Rex 662-706

Vol. 4 – June 4, 2010 Lawrence Marks, M.D. UNC Hospitals 706-768; 778-814

Vol. 4 – June 4, 2010 Robert Schaaf, M.D. WROS 816-854

Vol. 4 – June 4, 2010 Leroy Hoffman, Jr., M.D. Rex 856-881

Vol. 5 – June 7, 2010 Daniel Carter, Jr. UNC Hospitals 893-1158

Vol. 6 – June 8, 2010 Daniel Carter, Jr. UNC Hospitals 1169-1276

Vol. 6 – June 8, 2010 Vickie Byler, R.N. Rex 1277-1351

Vol. 6 – June 8, 2010 Kevin Khoudary, M.D. Cary Urology 1355-1404

Vol. 7 – June 9, 2010 Nancy Lane Cary Urology 1413-1613

Vol. 8 – June 10, 2010 Nancy Lane Cary Urology 1623-1745

6 Vol. 8 – June 10, 2010 John Leung, M.D. Cary Urology 1745-1818

Vol. 9 – June 11, 2010 James Smith, M.D. Cary Urology 1829-1849

Vol. 9 – June 11, 2010 Craig Smith Agency 1850-1978

Vol. 9 – June 11, 2010 Kevin Khoudary, M.D. Cary Urology 1981-2088

EXHIBITS ADMITTED INTO EVIDENCE

The following exhibits were admitted into evidence:

JOINT EXHIBITS OF ALL PARTIES

Exhibit No. Description

1 Agency File

2 Cary Urology CON Application – Project ID No. J-8331-09

3 UNC Hospitals CON Application – Project ID No. J-8329-09

PETITIONERS’ EXHIBITS

4 Excerpts from 2009 SMFP

5 State Map of Wake and surrounding counties

6 Agency findings – 2006 Johnston Memorial Hospital Authority

7 Agency findings – 2008 Johnston Radiation Oncology

8 E-mail from Nancy Lane regarding Tumor Boards

9 Agency findings – 2009 Hoke/Cumberland Counties Hospital review

10 Agency findings – 2008 Orange County MRI Review

11 Documents from North State Bank – Gary Woodlief

12 Website information on Waverly Hematology Oncology

7 13 Website information on payment and insurance information at Waverly

16 Affidavit of Craig Smith in the matter of Blue Ridge Surgery Center, L.P., et al v. N.C. DHHS, et al., contested case 09 DHR 1578/1579/1580

17 Curriculum Vitae of Daniel Carter

21 Petition to SHCC regarding Change of Methodology for Radiation Oncology – Linear Accelerators for the 2009 SMFP, dated March 4, 2008

23 Curriculum Vitae of David French

24 Summary of expert opinions [David French]

27 Agency findings - 2008 Rex Hospital, Inc. d/b/a Rex Cancer Center of Panther Creek replacement and relocation of linac to Panther Creek Area (April 29, 2008) (DePorter/Smith)

28 Agency findings – 2009 Union County OR Review (August 29, 2009) (Hutchison/Frisone)

31 Agency Findings – 1996 HSA IV Home Health Review (March 27, 1997) (Cogley)

32 Agency Findings – 1996 HSA VI Home Health Review (Nov. 27, 1996) (No Analyst Listed)

33 Agency Findings – 1996 HSA I Home Health Review (Feb. 27, 1997) (Campbell)

34 Agency Findings – 1996 HSA V Home Health Review (July 28, 1997) (Slaton)

35 Agency Findings – 1997 HSA IV Home Health Review (March 30, 1998) (Campbell)

36 Agency Findings – 1998 Robeson County Home Health Review (Sept. 25, 1998) (Campbell)

37 Agency Findings – 2001 Wake County Hospice Review (Sept. 27, 2001) (Campbell/Hoffman)

38 Agency Findings – 2002 Wilson County Hospice Review (May 29, 2002) (Beville/Smith)

39 Agency Findings – 2002 Craven County Hospice Review (May 29, 2002) (Beville/Smith)

8 40 Agency Findings – 2002 Montgomery County Home Health Review (July 26, 2002) (Egan/Smith)

42 Agency Findings – 2006 Bladen County Hospice Review (Jan. 26, 2007) (Murphy/Smith)

43 Agency Findings – 2006 Richmond County Hospice Review (Jan. 26, 2007) (Rupp/Smith)

44 Agency Findings – 2006 Nash County MRI Review (July 12, 2006) (Alexander/Hoffman)

45 Agency Findings – 2006 Onslow County Linear Accelerator Review (April 27, 2007) (Alexander/Hoffman)

46 Agency Findings – 2007 Scotland County MRI Review (July 27, 2007) (Rupp/Hoffman)

47 Agency Findings – 2002 Wake County (Duke Raleigh) LINAC Review (March 13, 2003) (Loftin/Smith)

49 Agency Findings – 2008 Johnston County Hospice Review (Change in Scope) (July 29, 2008) (Murphy/Smith)

51 Agency Findings – 2007 Nash County Hospice Review (Sept. 27, 2007) (Murphy/Smith)

53 Agency Findings – 2002 Stokes County Acute Care Bed Relocation Review [1st Review] (December 27, 2002) (Frisone/Hoffman)

54 Agency Findings – 2003 Stokes County Acute Care Bed Relocation Review [2nd Review] (August 23, 2003) (Frisone/Hoffman)

55 Agency Findings – 2006 CHS Mint Hill Acute Care Bed Relocation Review (Feb. 5, 2007) (Frisone Hoffman)

56 Agency Findings – 2000 Eastern Carolina Internal Medicine Diagnostic Center/Oncology Treatment Center Review (Feb. 27, 2001) (Campbell/Hoffman)

57 Agency Findings – 1999 Duke – Relocate 14 Beds and 1 Heart Lung Bypass Machine to SE Regional in Robeson County (March 30, 1999) (Edwards)

59 Agency Findings – 2001 Presbyterian Hospital North Acute Care Bed Relocation Review (Feb. 27, 2002) (McKillip/Hoffman)

9 60 Agency Findings – 2007 Forsyth County/Davie County Acute Care Bed Relocation Review (Feb. 27, 2008) (Frisone/Hoffman)

67 Agency Findings – Scotland Memorial Hospital, Inc., Scotland MOB, LLC and Scotland Equipment Leasing, LLC/develop and urgent care outpatient imaging center with diagnostic imaging equipment (April 27, 2007) (Hutchison/Smith)

70 Agency file in 2008 SA 18 Linac Review, pp. 67-104

83 Agency Findings – 2007 University of North Carolina Hospitals at Chapel Hill/Replacement Linear Accelerator/Orange County (July 24, 2007) (DePorter/Smith)

84 Agency Findings – 2008 HSAI – III Demonstration Project for a fixed multi-position MRI scanner (Sept. 26, 2008) (Elkins/Hoffman)

85 Agency Findings – 2006 UNC Hospital’s acquisition of a replacement cyberknife linear accelerator (Sept. 27,2006) (Bradsher/Smith)

86 Agency Findings – 2009 Onslow County MRI Review (Sept. 22, 2009) (Thorne- Williams/Alexander)

87 Documents Produce by Jeff Cobb/First Citizens Bank

91 Gary Woodlief’s Deposition Transcript dated 2/18/10

92 Mark Graham, II, M.D.’s Deposition Transcript dated 3/24/10

93 Jane Talley, R.N.’s Deposition Transcript dated 3/31/10

95 Dr. Henry Unger’s Deposition Transcript dated 5/5/10

100 Dr. Tortora’s Deposition Transcript dated 5/18/10

120 Cary Urology’s Competitive Comments filed against Rex’s 2007 Panther Creek Oncology CON Application

121 Medfac Healthcare Consulting, Inc. Consulting Agreement

124 Agency Findings – 2004 Wake County Acute Care Bed Review (April 29, 2005) (McKillip/Smith)

130 WROS volume trend 1999-2009 linac treatments

131 WROS CPTs by diagnosis code

10 132 Comments on Rex Cancer Center project by Khoudary

133 Comments on behalf of Southern Surgical Center, 6/1/10

134 Agency findings, Raleigh Hematology Oncology Associates d/b/a Cancer Centers of North Carolina, acquisition of a second linear accelerator, 9/30/05

135 Agency findings, Raleigh Hematology Oncology Associates, d/b/a Cancer Centers of North Carolina, acquisition of a second linear accelerator, 5/5/06

RESPONDENT-INTERVENOR’S EXHIBITS

4A Sections of 10A N.C.A.C. 14C.1900 – Criteria and Standards for Radiation Therapy Equipment

4B 2009 SMFP Radiation Oncology Section

5 UNC Hospitals’ 2008 Hospital License Renewal Application

6 UNC Hospitals’ 2009 Hospital License Renewal Application 7 Site Plan for the UNC Hospitals Campus 8 March 10, 2009 E-mail from Cameron Ebron to John Lewis, et al.

9 March 11, 2009 E-mail from Daniel Carter to Cameron Ebron 10 Petition to the State Health Coordinating Council, August 1, 2008 11 Letters in Support of Petition to the State Health Coordinating Council 12 Letters in Opposition to Petition to the State Health Coordinating Council 14 Agency Analysis regarding Petition to the State Health Coordinating Council 15 State Health Coordinating Council, October 8, 2008 Meeting Minutes 16 Curriculum Vitae of Nancy Lane 17 V Foundation Rex PC COE Budget

21 March 2, 2009 E-mail from Christopher Ellington to Mark Hoffman

22 March 11, 2009 E-mail from Cameron Ebron to Lawrence Marks, et al.

27 March 13, 2009 E-mail from Cameron Ebron to Mary Beck, et al.

29 March 9, 2009 E-mail from Cameron Ebron to Lawrence Marks

30 March 11, 2009 E-mail from Cameron Ebron to Mary Beck, et al.

11 31 March 11, 2009 E-mail from Cameron Ebron to Lawrence Marks

32 March 12, 2009 E-mail from Cameron Ebron to Mark Hoffman

33 April 12, 2009 E-mail from Mary Beck to Ian Buchanan

34 March 16, 2009 E-mail from Marlene Rifkin to Cameron Ebron

35 March 17, 2009 E-mail from Cameron Ebron to Marlene Rifkin

36 April 6, 2009 E-mail from Cameron Ebron to Lawrence Marks

39 Excerpts 2010 Expansion and Renovation of Rex Cancer Center CON Application

40 First Citizens Bank Documents – Subpoenaed by UNC Hospitals 41 Cary Urology Financial Information Submitted to North State Bank 42 North State Bank’s Cary Urology Banking Proposal 43 Excerpt from 2010 SMFP – Linear Accelerator 45 Affidavit of Gary Woodlief 46 Affidavit of Billy Sutton 47 Affidavit of Craig Smith 51 Excerpts from WROS’ Responses to Cary Urology’s First Set of Interrogatories and Request for Production of Documents

53 Excerpt from Rex’s Responses to Cary Urology’s First Set of Interrogatories and Request for Production of Documents

54 Excerpts from UNC Hospitals’ Responses to Cary Urology’s First Set of Interrogatories and Request for Production of Documents

55 Deposition transcript of Mary Anderson 56 Deposition transcript of Mary Beck

58 Deposition transcript of Jeffrey Crane, M.D. 59 Deposition transcript of Cameron Ebron 64 Deposition transcript of John Lewis, M.D. 68 Deposition transcript of Scott Sailer, M.D.

73 Internet information on ultrasound equipment

74 Deposition transcript of Gene DePorter, March 2, 2010

75 CPT Codes data sheet

12 76 August 9, 2002 Letter from Bason to Schaaf

PRELIMINARY MATTERS

Before the contested case hearing commenced in this case, Petitioners filed a Motion for Partial Summary Judgment on the issue of whether the CON Section violated the standards of N.C. Gen. Stat. Chapter 150B-23(a) when it found that Cary Urology’s application demonstrated the availability of funds for the projected capital and operating needs for its proposed project under N.C. Gen. Stat. 131E-183(a)(5) (“Criterion 5”). ALJs are authorized to grant summary judgment in accordance with N.C. Gen. Stat. § 1A, Rule 56. N.C. Gen. Stat. § 150B-36(d) and 26 N.C.A.C. 3.0105(6).

In their Motion, Petitioners contended that the undisputed material facts show that the Agency erred as a matter of law when it found that Cary Urology demonstrated the availability of funds for its projected capital and operating needs under Criterion 5. Respondent Agency and Respondent-Intervenor Cary Urology contended that the undisputed facts show that the Agency did not err when it determined that Cary Urology demonstrated the availability of funds for the capital and operating needs of its proposed project. Respondent and Respondent-Intervenor argued that partial summary judgment should be granted in their favor on this issue.

The undersigned considered Petitioners’ Motion and Brief in Support of the Motion, the Response in Opposition to the Motion submitted by Respondent Agency and Respondent- Intervenor Cary Urology, the exhibits and affidavits submitted to this Court by the Parties and the arguments of counsel at a hearing, which was held on May 28, 2010. The Undersigned found that there were no genuine issues of material fact regarding whether Cary Urology demonstrated the availability of funds for the projected capital and working capital of its project. The Court determined that based on the undisputed facts, Petitioners’ Motion for Partial Summary Judgment should be denied. The Undersigned further determined that partial summary judgment on this issue should be granted in favor of Respondent Agency and Respondent-Intervenor Cary Urology.

Notwithstanding the Undersigned’s decision and the fact that Petitioners contended that there were no material issues of fact regarding this issue, Petitioners requested and were allowed to offer evidence for the record during the hearing. However, because this issue was decided on summary judgment, it is not necessary or appropriate for the Undersigned to make findings and conclusions regarding the testimony and evidence tendered as an offer of proof during the contested case hearing.

FINDINGS OF FACT

BASED UPON careful consideration of the sworn testimony of the witnesses presented at the hearing, the documents and exhibits received and admitted into evidence, and the entire record in this proceeding, the Undersigned makes the following Findings of Fact. In making the Findings of Fact, the Undersigned has weighed all the evidence and has assessed the credibility of the witnesses by taking into account the appropriate factors for judging credibility, including

13 but not limited to, the demeanor of the witness, any interests, bias, or prejudice the witness may have, the opportunity of the witness to see, hear, know, or remember the facts or occurrences about which the witness testified, whether the testimony of the witness is reasonable, and whether the testimony is consistent with all other creditable evidence in the case.

The Parties

1. Petitioner UNC Hospitals is an academic medical center located in Chapel Hill, Orange County that provides, among other health services, radiation oncology services, and currently operates four linear accelerators and one Mobetron linear accelerator. (Jt. Ex. 3, pp. 13, 17-18). UNC Hospitals was an applicant for the CON at issue in this case.

2. Petitioner Rex is an acute care hospital located in Raleigh, Wake County that provides, among other health services, radiation oncology services, and currently operates four linear accelerators. (Byler, Vol. 6, pp. 1302-1303). Rex is an entity operated by the UNC Health Care System. (Jt. Ex. 3, p. 17). Rex was not an applicant for the CON at issue in this case.

3. Petitioner WROS is an outpatient radiation therapy provider, which currently provides radiation oncology services at its office in Cary, Wake County. WROS currently owns one linear accelerator. WROS was not an applicant for the CON at issue in this case. (Schaaf, Vol. 4, pp. 816-818).

4. Respondent CON Section is the State Agency responsible for the administration of North Carolina’s Certificate of Need Law, N.C. Gen. Stat. Chapter 131E, Article 9.

5. Respondent Cary Urology is a physician practice composed of urologists who treat urological and prostate cancer. Cary Urology’s principal office is located in Cary, Wake County. Cary Urology maintains additional urology offices in Clayton, Clinton, and Lillington. (Jt. Ex. 2, p. 15; Khoudary, Vol. 6, pp. 1357-1358). Cary Urology applied for and was awarded the CON at issue in this case.

6. The parties received notice of hearing by certified mail more than 15 days prior to the hearing and each stipulated on the record that it was given proper notice.

Procedural and Factual Background

14 A. Medical Facilities Planning in North Carolina

7. The State Medical Facilities Plan (“SMFP”) is the official plan developed and published each year which inventories certain health services, facilities, and equipment that are subject to CON regulation and sets forth need determinations for certain additional health services, facilities, and equipment in the State. N.C. Gen. Stat. § 131E-176(25). (Respondent- Intervenor Ex. 4B).

8. The SMFP is prepared by the Department of Health and Human Services and the North Carolina State Health Coordinating Council (“SHCC”) and approved by the Governor. N.C. Gen. Stat. §§ 131E-176(17), (25), and 131E-177(4).

9. In addition to need allocations resulting from the established methodology used in preparation of the SMFP, individuals may petition the SHCC to include in the SMFP for the next year a special need determination for a particular health service, facility, or equipment. The SHCC reviews petitions and decides whether a special need determination should be included in the SMFP. (2009 SMFP, pp. 10-13; Lane, Vol. 7, pp. 1425-1428).

10. In August of 2008, Cary Urology petitioned the SHCC for a special need determination to add a multidisciplinary prostate health center demonstration project in Service Area 20 that would include the acquisition of one dedicated linear accelerator focused on the treatment of prostate cancer, especially in African American men. (Respondent-Intervenor Ex. 10; Khoudary, Vol. 6, pp. 1364-1365; Lane, Vol. 7, pp. 1428-1429).

11. Cary Urology’s Petition sets forth the reasons that the proposed demonstration project is needed, including statistical data showing that African American men suffer from unusually high death rates from prostate cancer in North Carolina and the potential benefits that providing comprehensive multidisciplinary prostate health care may have on treating prostate cancer. (Respondent-Intervenor Ex. 10, pp. 590-602).

12. Cary Urology’s Petition was supported by several community organizations including the NAACP and the North Carolina Minority Prostate Cancer Awareness Action Team. (Respondent-Intervenor Ex. 11). The petition also was supported by several traditionally African American churches in and around Wake County. (Id.).

15 13. UNC Hospitals, Rex, and WROS submitted written comments to the SHCC, which made it clear that Petitioners did not support the addition of the demonstration prostate health center to the 2009 SMFP. (Respondent-Intervenor Ex. 12).

14. The members of the North Carolina State Health Coordinating Council unanimously approved the inclusion of this need determination in the SMFP. (Respondent- Intervenor Ex. 15, pp. 5-6). Members of the Council expressed concern that North Carolina has an above average mortality rate due to prostate cancer compared to the rest of the country and commented on the merits of trying a new approach to the detection and treatment of prostate cancer in North Carolina. (Id.).

15. The Governor accepted the SHCC’s recommendation and determined that a multidisciplinary prostate health center demonstration project with a dedicated linear accelerator should be included in the 2009 SMFP. (Respondent-Intervenor Ex. 4B).

16. In accordance with the special allocation in the 2009 SMFP, the demonstration project was required to include several components, including the provision of urology services, medical oncology services, biofeedback therapy, chemotherapy, brachytherapy, and living skills counseling and therapy in the same building. (Respondent-Intervenor Ex. 4B, p. 121). The center was required to be located in close proximity to minority communities and was required to include an organized African American prostate cancer education/outreach program that would partner with and compliment existing initiatives, such as the N.C. Minority Prostate Cancer Awareness Action Team. (Id.).

17. The SHCC’s recommendation and the Governor’s decision to make the demonstration project a state-wide demonstration project meant that applicants from any county in North Carolina could apply for the project. (Smith, Vol. 2, p. 365).

B. The CON Review

18. In response to the need determination in the 2009 SMFP, four applicants, including Cary Urology and UNC Hospitals, each submitted a CON application on or around April 15, 2009, to acquire one dedicated linear accelerator and develop a demonstration project for a model multidisciplinary prostate health center. (Jt. Ex. 1, pp. 644-651).

16 19. Because the 2009 SMFP contained a need for the development of a single prostate health center demonstration project, only one of the applicants could be awarded the CON. (Jt. Ex. 1, p. 747).

20. Cary Urology’s application contained letters of support from 24 urologists in the community, 145 physicians and 847 citizens. (Jt. Ex. 2, App. Exs. 27, 63, 69, 82, 86, 96, and 97).

21. Cary Urology’s application also contained letters of support from several community organizations such as the NAACP, the Alliance Medical Ministry, the Jimmy V. Foundation, and the North Carolina Minority Prostate Cancer Awareness Action Team (the “Action Team”). (Jt. Ex. 2, App. Exs. 18, 55, 75, and 79).

22. The Action Team is North Carolina’s largest minority prostate outreach organization. (J. Smith, Vol. 9, p. 1830). The Action Team believes that Cary Urology’s proposal is an important project and will greatly aid the community. (Jt. Ex. 2, App. Ex. 18; J. Smith, Vol. 9, p. 1842). It was the opinion of the Action Team that current providers are not meeting the needs of African American men in North Carolina and specifically that the needs of African American men in and around Wake County are not being met by existing providers. (Jt. Ex. 2, App. Ex. 18; J. Smith, Vol. 9, pp. 1841-1842).

23. In conducting its review, the Agency considered the information in the applications as well as the competitive written comments, including comments submitted by Cary Urology, UNC Hospitals, and Rex. The Agency also considered the public hearing comments, including comments made by officials from Cary Urology, UNC Hospitals and Rex. (McKillip, Vol. 2, p. 261; Smith, Vol. 2, p. 363).

24. On September 25, 2009, the CON Section sent notice to the applicants that it had approved Cary Urology’s application and denied the other three applications. (Jt. Ex. 1, pp 755- 56).

25. Mike J. McKillip was the project analyst assigned to review the applications. (McKillip, Vol. 1, pp. 79-80). Craig R. Smith, Chief of the CON Section, reviewed, edited, and co-signed the Agency Findings. (Smith, Vol. 2, pp. 362-363).

17 26. In its review, the CON Section found that the Cary Urology and UNC Hospitals’ applications conformed to all the applicable statutory and the regulatory criteria developed for the prostate health center demonstration project. (Jt. Ex. 1, pp. 642-746).

27. However, the Agency found that Cary Urology’s application was the most effective alternative proposed and was comparatively superior to the proposals of UNC Hospitals and the other applicants. (Id. at pp. 747-756).

28. The Agency decision was based on the fact that: (1) Cary Urology proposed to develop its project in Wake County, which has the highest reported prostate cancer incidence rate among African American males of all of the counties proposed by the applicants in the review; (2) it proposed to serve the second highest percentage of Medicare recipients of all the applicants; (3) Cary Urology projected the lowest gross revenue and lowest net revenue per ESTV of the four applicants; and (4) Cary Urology projected the lowest operating expenses per ESTV of the four applicants. (Id. at p. 753).

29. The Agency found that UNC Hospitals’ application was a less effective alternative than Cary Urology’s proposal because: (1) UNC Hospitals proposed to develop the prostate health center in Orange County, which has the lowest percentage of African American males and the smallest population of African American males of all the counties proposed by the four applicants; (2) it proposed to serve the lowest percentage of Medicare recipients of all the applicants; and (3) UNC Hospitals projected the second highest operating expenses per ESTV of all the applicants. (Id. at p. 754).

C. Contested Cases Filed by Petitioners

30. On October 23, 2009, UNC Hospitals filed a contested case petition challenging the CON Section’s decision. The other two applicants for the CON did not contest the Agency’s decision.

31. On October 26, 2009, WROS and Rex, although not applicants for the CON, separately filed contested cases challenging the CON Section’s decision.

18 32. On November 12, 2009, Cary Urology moved to intervene in the contested cases. On November 13, 2009, Cary Urology’s Motions to Intervene were granted by the Office of Administrative Hearings.

33. These contested cases were consolidated by the Honorable Julian Mann, III, Chief Administrative Law Judge, on December 3, 2009.

Contested Case Hearing

34. At a hearing held before the Undersigned, between June 1-11 and 18, 2010, the Parties presented evidence and testimony regarding the Agency’s decision.

35. In the Prehearing Order, Petitioners contend that the Agency violated the standards of N.C. Gen. Stat. 150B-23(a) when it approved Cary Urology’s application and disapproved UNC Hospitals’ application. Specifically, Petitioners contend that the Agency erred in finding Cary Urology conforming with statutory criteria 1, 3, 4, 5, 6, 7, 8, 12, 13(c), 18(a) and certain regulatory criteria applicable to this review. Petitioners also contend that the Agency erred in finding that Cary Urology’s application was competitively superior to UNC Hospitals’ application.

36. Petitioner WROS also contends that if the Agency did not err in approving Cary Urology’s application, the Agency erred by not placing conditions on Cary Urology’s CON that would limit it to serving only African American prostate cancer patients. (Kirschbaum, Vol. 1, p. 49; Kirschbaum, Vol. 10, pp. 2167-2168, 2172-2173).

37. Respondent Agency and Respondent-Intervenor Cary Urology presented testimony and other evidence that the Agency did not violate the standards of N.C. Gen. Stat. 150B-23(a) when it approved its application and that the Agency was not required to place restrictive conditions on Cary Urology’s CON.

38. Respondent-Intervenor Cary Urology presented testimony and other evidence that UNC Hospitals’ application failed to conform to all applicable statutory and regulatory criteria.

19 39. As set forth in more detail below, Cary Urology’s application conformed to all applicable statutory and regulatory criteria, was comparatively superior to UNC Hospitals’ proposed project and the Agency did not violate the standards of N.C. Gen. Stat. 150B-23(a) when it awarded Cary Urology the CON to develop the multidisciplinary prostate health center and acquire one dedicated linear accelerator.

Review Criterion 1

40. Criterion 1 requires that a “proposed project . . . be consistent with applicable policies and need determinations in the State Medical Facilities Plan, the need determination of which constitutes a determinative limitation on the provision of any health service, health service facility, health service facility beds, dialysis stations, operating room, or home health offices that may be approved.” N.C. Gen. Stat. § 131E-183(a)(1).

41. The 2009 State Medical Facilities Plan (“SMFP”) identified a statewide need determination for one dedicated linear accelerator to be part of a demonstration project for a model multidisciplinary prostate health center focused on the treatment of prostate cancer, particularly in African American men. (Jt. Ex. 1, pp. 643-644; Respondent-Intervenor Ex. 4B, pp. 121 and 130).

42. The Agency found that Cary Urology’s application conformed to Criterion 1 based upon its finding that Cary Urology proposed to acquire one dedicated linear accelerator and develop a multidisciplinary prostate health center in Raleigh that would meet the requirements of the demonstration project set forth in the 2009 SMFP. The Agency also found Cary Urology’s application conforming to Criterion 1 based on its finding that Cary Urology complied with Policy GEN-3 from the 2009 SMFP, which requires the project to be consistent with the three basic principles governing the SMFP: to promote cost effective approaches, expand health care services to the medically underserved, and encourage quality health care services. (Jt. Ex. 1, pp. 646-647).

43. Petitioners UNC Hospitals and Rex presented testimony that Cary Urology’s application should have been found nonconforming with Criterion 1, contending that its proposed project lacks a complete array of on-site services. (French, Vol. 3, pp. 532-539; Carter, Vol. 5, pp. 903-905). Petitioners contend that because Jane Talley is unable to bill patients directly for biofeedback therapy and living skills counseling, she will not be able to provide these services at the prostate health center. (Id.).

20 44. Whether Ms. Talley bills patients directly or through the physician who supervises her services does not make any material difference because the service and billing arrangement will be very similar to what is represented in Cary Urology’s application. Ms. Talley can provide the services required and pay rent for the space she and her associates use at the prostate health center, as represented in Cary Urology’s application. A physician will have to bill for Ms. Talley and then give Ms. Talley the fee with her rent deducted. (Lane, Vol. 7, pp. 1460, 1589; Khoudary, Vol. 9, pp. 2044-2045).

45. Cary Urology’s application represents that its proposed prostate health center will have biofeedback therapy and living skills counseling provided on-site. (Jt. Ex. 2, pp. 48-50, 177, 276, and App. Ex. 9). Testimony confirms the fact that Cary Urology will have biofeedback therapy and living skills counseling provided on-site. (Khoudary, Vol. 9, pp. 2015-2016; Petitioners Ex. 93, p. 45; Lane, Vol. 71, pp. 1574-1575).

46. Health Planning Consultant David French testified on behalf of Rex that Cary Urology’s application failed to demonstrate that it would have the required services at its proposed prostate health center because the contractors who would be providing services and using space at the center had not signed a commitment to pay rent. (French, Vol. 3, pp. 539- 540).

47. It is not reasonable to expect that the contractors providing services at the center would provide a commitment to pay rent at a facility that has not been approved or constructed and there is no statute or regulation requiring that an applicant provide such information. (Smith, Vol. 9, pp. 1858-1859).

48. The deposition testimony of Jane Talley, RN, the nurse identified as providing the biofeedback therapy and living skills counseling, the deposition testimony of Mark Graham, II, M.D., the medical oncologist, and testimony by John Leung, the proposed Medical Director of Radiation Oncology at Cary Urology’s proposed center, support the representations in Cary Urology’s application that these individuals are very interested in providing services at the proposed prostate health center. They expected that they will be required to pay rent for use of space at the center. (Jt. Ex. 2, pp. 227, 228, 256, 265, 272, 276; App. Exs. 9, 19, 20, 29; Petitioners Ex. 93, pp. 32-33, 40, 60, 62, 65; Petitioners Ex. 92, pp. 27-29, 37-38, 54-55; Leung, Vol. 8, p. 1752).

21 49. Petitioners also contend that Dr. Graham, the medical oncologist, did not commit to providing medical oncology at the proposed center. (French, Vol. 3, pp. 539-540).

50. Dr. Graham is committed to meeting the needs of the prostate health center patients who need chemotherapy and chemotherapy services will be available at the proposed prostate health center. However, because only 2% of prostate cancer patients receive chemotherapy from a medical oncologist, it will not be necessary to have a full-time medical oncologist. (Jt. Ex. 2, pp. 47 and 117; Khoudary, Vol. 9, p. 2071; Petitioners’ Ex. 92, pp. 27-28, 37, 39-40, 55, 67-68, 97-98).

51. Dr. Graham testified that he intended to provide services at the center on a regular basis, that the amount of time that he would be present at the center would depend upon the volume of patients needing medical oncology, and that on occasion he would see a patient of the center at his office in Cary for the patient’s convenience. (Petitioners’ Ex. 92, pp. 27-28, 37, 39- 40, 55, 67-68, 97-98).

52. Cary Urology’s application represents that all the required services for the demonstration project will be available in the same building and the testimony and other evidence supports these representations. (Jt. Ex. 2, p. 27, App. Exs. 13, 77, 78; Petitioners Ex. 92, pp. 27-28, 37, 39-40, 55, 67-68, 97-98; Petitioners Ex. 93, pp. 26-27, 30-31, 38, 41, 45; Leung, Vol. 8, pp. 1753-1754).

53. There is no creditable evidence in the record indicating that Ms. Talley or any of the other proposed tenants do not intend to provide services at Cary Urology’s proposed prostate health center.

Review Criterion 3

54. Criterion 3 requires an applicant to “identify the population to be served by the proposed project . . . and demonstrate the need that this population has for the services proposed, and the extent to which all residents of the area, and, in particular, low income persons, racial and ethnic minorities, women, handicapped persons, the elderly, and other underserved groups are likely to have access to the services proposed.” N.C. Gen. Stat. § 131E-183(a)(3).

22 55. The statute does not require that the applicant demonstrate need in a specific manner. Instead, there are a variety of ways that an applicant can demonstrate need for the project. (Smith, Vol. 9, 1860). In its review of Criterion 3, the Agency determines if the projection of need set forth by the applicant is reasonable. (Id.)

56. The Agency found that Cary Urology’s application conformed with Criterion 3. (Jt. Ex. 1, pp. 661-680). Cary Urology adequately identified the population to be served and adequately demonstrated the need the population to be served has for the proposed project. (Id.).

57. Petitioners contend that Cary Urology failed to demonstrate conformity with Criterion 3, claiming that its proposed market shares for Wake, Franklin, Johnston, Durham, Harnett, Duplin, and Chatham counties are unreasonable and resulted in unreasonable utilization projections. (French, Vol. 3, pp. 544-547; Carter, Vol. 5, pp. 929-930).

58. Cary Urology’s proposed market share for each of these counties is based upon reasonable assumptions. (Jt. Ex. 2, pp. 184-202; Lane, Vol. 7, pp. 1442-1448; Smith, Vol. 9, pp. 1861-1862). Cary Urology took into account several factors in determining market share, including the percent of county radiation oncology patients that came to Wake County for radiation oncology, the total urologists in the county, the number of county urologists who offered referrals to Cary Urology, current Cary Urology patient origin, and the number of linear accelerators in the county. (Jt. Ex. 2, pp. 185-188; Lane, Vol. 7, pp. 1442-1448; Smith, Vol. 9, pp. 1861-1862).

59. It is reasonable for Cary Urology to project that it will receive 44.5% of new prostate cancer patients originating in Wake County by the third year of the project. (Jt. Ex. 2, pp. 185-188; Lane, Vol. 7, pp. 1444-1448). This percentage of new prostate cancer patients is only 6.6% of all cancer patients originating in Wake County. (Lane, Vol. 7, p. 1447). Cary Urology’s application presented physician estimates of referrals greater than the number of patients that Cary Urology proposed serving from Wake County. (Jt. Ex. 2, p. 188 and App. Exs. 27 and 63).

60. It is reasonable for Cary Urology to base its proposed service area on its existing urology practice and to propose receiving some patients from Sampson and Duplin counties, particularly since it has an office in Sampson County at which it also sees patients from Duplin County. (Jt. Ex. 2, pp. 188, 191, and 192; Lane, Vol. 7, pp. 1444-1446). Cary Urology proposes serving only one patient per year from each of these counties. (Id. at 192).

23 61. The methodology used by Cary Urology to project the market share for Franklin and Johnston counties was reasonable and resulted in Cary Urology projecting only three (3) patients from Franklin County and two (2) patients from Johnston County in the third year of operation. (Jt. Ex. 2, pp. 189, 191 and 203) The only urologist practicing in Franklin County has agreed to send more patients to Cary Urology’s proposed center than its projected market share would yield. (Jt. Ex. 2, p. 189, App. Ex. 27). Cary Urology maintains an office in Johnston County and has received more commitments to refer patients from Johnston County physicians than the number of patients projected in Cary Urology’s application. (Jt. Ex. 2, p. 191).

62. UNC Hospitals offered opinion testimony that Cary Urology failed to quantify the number of high risk patients that would be referred out and this should have been considered in the Agency’s findings. (Carter, Vol. 5, pp. 920-921).

63. The special criteria require that an applicant for this demonstration project include a written description of patient selection criteria including referral arrangements for high risk patients. (Respondent-Intervenor Ex. 4A, 10A N.C.A.C. 14C.1902(c)(12)). There is no regulation requiring that the number of high risk patients be quantified. Cary Urology provided the required information on criteria for high risk referrals and referral arrangements for these patients and described the number of these patients it expects to encounter as being “just a few”. (Jt. Ex. 2, p. 238).

64. Since Cary Urology did not represent it would serve 100% of the eligible prostate cancer patients in any of the counties in its proposed service area, high risk patients were not included in Cary Urology’s utilization projections. (Lane, Vol. 7, pp. 1454-1455, 1508-1513).

65. Petitioners also contend that Cary Urology failed to conform with Criterion 3 because Cary Urology’s linear accelerator will take market share from existing providers that treat prostate cancer patients. (Carter, Vol. 5, p. 941).

66. Criterion 3 does not require that applicants demonstrate that the approval of their project would result in no change in market share of existing providers or to quantify the market share it may take from existing providers. N.C. Gen. Stat. 131E-183(a)(3). (Smith, Vol. 9, p. 1954). However, because of the growth in Wake County, the increase in the elderly population in Wake County, and the growth and incidence rates of other cancers, it is not likely that linear accelerator providers in Wake County will experience a decline in patients served. (Jt. Ex. 2 , p. 168; Lane, Vol. 7, p. 1524; McKillip, Vol. 2, p. 267).

24 67. The patients from Wake County that Cary Urology proposes serving will be substantially less than the number of additional cancer patients in Wake County resulting from the growth of the population. (Lane, Vol. 7, pp. 1447-1448).

68. In its recent application to expand its cancer center, Rex admits that Wake County and the surrounding communities are among the fastest growing regions in the country and that this area will experience a growing need for cancer services because of the explosive population growth and aging population in Wake County. (Respondent-Intervenor Ex. 39, pp. 49-52).

69. The prostate health demonstration project was included in the 2009 SMFP as a special allocation because of the determination by the North Carolina State Health Coordinating Council that there currently exists an unmet need for a linear accelerator dedicated to a multidisciplinary prostate health center. (Respondent-Intervenor Ex. 4, pp. 121 and 130 and Ex. 15, pp. 5-6).

70. There is no linear accelerator in Wake County, in Cary Urology’s proposed service area, or in North Carolina that is dedicated to a multidisciplinary prostate health center focused on the treatment of prostate cancer. (Smith, Vol. 9, p. 1966; McKillip, Vol. 2, p. 268).

71. Petitioners also contend that Cary Urology’s proposed project was not needed in Wake County because of the existence of Rex’s “Prostate Cancer Center of Excellence” (“Prostate Center”). (Carter, Vol. 5, pp. 926-927).

72. Rex’s Prostate Center is not a multidisciplinary prostate health center with a dedicated linear accelerator and does not meet all of the needs for prostate cancer patients in and around Wake County. (Carter, Vol. 5, p. 1133; J. Smith, Vol. 9, pp. 1841-1842). Rex’s Prostate Center is instead a “virtual center” because it does not occupy any physical space. (Madsen, Vol. 3, p. 491).

73. Rex’s Prostate Center does not provide the multidisciplinary services required under the demonstration project criteria. While prostate cancer patients receive radiation oncology at Rex’s Cancer Center, urologists do not meet with patients at the Cancer Center and no biofeedback is provided at the Cancer Center. (Byler, Vol. 6, pp. 1316, 1333; Respondent- Intervenor Ex. 52, pp. 21 and 60).

25 74. Despite representations made by Rex to the Agency in its written comments and during the public hearing, Rex has no Medical Director for its Prostate Center, does not have a third-party researcher examining the efficacy of its prostate program, and recently eliminated its prostate cancer nurse navigator program. (Madsen, Vol. 3, pp. 462, 503-508, 510-513; Byler, Vol. 6, pp. 1293, 1322, 1334-1335; Jt. Ex. 1, pp. 244-245).

75. Rex’s community outreach efforts, including prostate screenings, do not currently reach the large number of individuals that need free community education and screenings in Wake County, provide no outreach and screening in surrounding counties, and are not as expansive as the community outreach and screenings proposed by Cary Urology. (Madsen, Vol. 3, pp. 480-481, 498-499, 515-517; Byler, Vol. 6, pp. 1338-1342).

76. Rex’s recent application to expand its existing cancer center represents that there are currently no multidisciplinary prostate cancer clinics in Wake County that are similar to the prostate cancer center proposed by Cary Urology. While Rex’s recent CON application represents that it intends to create multidisciplinary cancer clinics at the Rex Cancer Hospital, the CON application represents that it has no plans to dedicate space to the treatment of prostate cancer. (Byler, Vol. 6, pp. 1329; Respondent-Intervenor Ex. 39, pp. 28-29, 43).

77. Petitioners presented findings previously made by the Agency that they contend are relevant to the decision made by the Agency in this case. However, the facts in these findings are distinguishable from the facts in this case and these findings do not support a determination that the Agency violated any of the standards of N.C. Gen. Stat. § 150B-23(a) in finding Cary Urology’s application conforming with Criterion 3.

Review Criterion 4

78. Criterion 4 requires that “[w]here alternative methods of meeting the needs for the proposed project exist, the applicant shall demonstrate that the least costly or most effective alternative has been proposed.” N.C. Gen. Stat. § 131E-183(a)(4).

79. The Agency found that Cary Urology’s application was conforming with Criterion 4. (Jt. Ex. 1, p. 698).

26 80. Cary Urology’s application discussed the other alternatives it considered and explained why the proposed project was the most effective alternative. (Jt. Ex. 2, pp. 151-157).

81. Rex contends that Cary Urology’s application should have been found nonconforming with Criterion 4 for the same reasons that it should have been found nonconforming with Criterion 1. Specifically, Rex contends that Cary Urology’s application could not represent an effective alternative because it failed to demonstrate that Jane Talley, RN could offer services because she could not directly bill patients and because there was no documentation specifically stating that the proposed tenants were willing to rent space at the proposed prostate health center. (Petitioners Ex. 24, p. 3; French, Vol. 4, pp. 552-55).

82. UNC Hospitals’ health planning expert, Daniel Carter offered no opinion as to whether the Agency erred in finding Cary Urology conforming with Criterion 4. (Carter, Vol. 5, p. 1093).

83. As set forth in Findings of Fact 45-53, Cary Urology demonstrated that it would provide all the services required of the prostate health center demonstration project.

Review Criterion 5

84. Criterion 5 requires that:

Financial and operational projections for the project shall demonstrate the availability of funds for capital and operating needs as well as the immediate and long-term financial feasibility of the proposal, based upon reasonable projections of the costs of and charges for providing health services by the person proposing the service. N.C. Gen. Stat. §131E-183(a)(5).

85. The Agency found Cary Urology’s application conforming with Criterion 5. (Jt. Ex. 1, pp. 699-700).

27 86. Cary Urology’s application projects that its revenue will exceed expenses in the second and third years of operation following the completion of the proposed project. (Jt. Ex. 1, p. 700; Jt. Ex. 2, p. 310).

87. The Agency found that the costs and revenue proposed by Cary Urology were based on reasonable assumptions including projected utilization. Based on this finding, the Agency found that Cary Urology’s application adequately demonstrated that the immediate and long-term financial feasibility of the proposal was based on reasonable projections of costs and charges, and was conforming with Criterion 5. (Jt. Ex. 1, p. 700).

88. Petitioners argued that Cary Urology’s application was nonconforming with Criterion 5 because its application did not contain commitments from individuals such as Dr. Mark Graham and Jane Talley, RN that they will pay the amount of rent projected in the pro forma statement. (Carter, Vol. 6, pp. 1170-1174; French Vol. 3, pp. 558-568).

89. As set forth in Finding of Fact 47, it is not reasonable to expect written commitments from contractors to pay rent for space in a facility that has not been approved or constructed. (Smith, Vol. 9, pp. 1858-1859). There is no criteria that would require such a commitment.

90. Cary Urology’s rent calculations were based on the assumption that $283.00 would be charged in rent per half day. (Jt. Ex. 3, p. 334). Cary Urology’s rent calculation was based on a reasonable determination of the fair market value for the use of the space. In making its rent assumption, Cary Urology considered rent payments currently being paid by practitioners in this market. (Lane, Vol. 7, p. 1458; Khoudary, Vol. 9, pp. 1989-90). The testimony of Dr. John Leung, one of the proposed contractors, confirms that the rent assumption set forth in Cary Urology’s application is reasonable. (Leung, Vol. 8, p. 1752).

91. Petitioners argued that Cary Urology should have provided the projected revenues and expenses for the contractors who would be providing professional services at the proposed prostate health center. (French, Vol. 3, pp. 569-570). However, at the pre-application conference, Cary Urology was informed by the Agency that it would not need to include professional revenues and expenses in the financial projections in its application. (Lane, Vol. 7, pp. 1458-1459; Petitioners Ex. 20, p. 11).

28 92. Neither UNC Hospitals nor Cary Urology included professional revenues and expenses in the financial projections contained in their applications. (Respondent-Intervenor Ex. 59, pp. 46-47; Jt. Ex. 2, pp. 309-326). UNC Hospitals’ application does not even disclose who employs the physicians who will be providing professional services at UNC Hospitals’ proposed prostate health center. (Carter, Vol. 6, p. 1178).

93. Consultant Daniel Carter also testified that Cary Urology’s application was nonconforming with Criterion 5 because Cary Urology failed to include in its application the shipping costs associated with the purchase of the linear accelerator. (Carter, Vol. 5, pp. 956- 957). Consultant Carter’s opinion was based solely on his interpretation of the term “F.O.B. Origin” included in the cost estimate for the linear accelerator contained in Cary Urology’s application. (Carter, Vol. 5, pp. 957, 1156-1158).

94. Nancy Lane, Cary Urology’s health planning expert and the individual that prepared Cary Urology’s application, testified that the linear accelerator cost estimate included the cost of shipping. (Lane, Vol. 7, p. 1457). During the public comment period, Consultant Lane provided the Agency with an email from the linear accelerator manufacturer confirming that shipping costs were included in the manufacturer’s estimate. (Jt. Ex. 1, pp. 468 and 486; Lane, Vol. 7, pp. 1456-1457; Carter, Vol. 6, p. 1157).

95. Because the email from the linear accelerator manufacturer only served to confirm information that already was contained in Cary Urology’s application and did not change any of the representations made by Cary Urology in its application, providing such information does not constitute an amendment to the application. (Smith, Vol. 9, pp. 1872- 1873).

96. Consultant French, Rex’s expert witness, testified that in his opinion Cary Urology should have been found nonconforming with Criterion 5 based on his belief that Cary Urology’s utilization projections were overstated and unreasonable. Consultant French opined that overstated utilization projections would result in overstated revenue projections. (French, Vol. 3, pp. 568-569).

97. As set forth in Findings of Fact 56-64, because Cary Urology’s utilization projections are reasonable, Petitioners’ argument regarding overstated revenue projections is without merit.

29 98. Consultant French testified that Cary Urology’s failure to include a marketing budget in its pro forma was a “weakness” in Cary Urology’s application. However, Consultant French’s testimony indicates that standing alone this would not justify finding Cary Urology’s application nonconforming with Criterion 5. (French, Vol. 3, pp. 577 and 644).

99. Criterion 5 does not require an applicant to include a budgetary line item for marketing. N.C. Gen. Stat. 131E-183(a)(5).

100. Cary Urology’s application demonstrates that the prostate health center will be adequately promoted through its community outreach with the NC Minority Prostate Cancer Awareness Action Team, the support it has from community physicians, and efforts to participate in television and radio programs focused on prostate health and prostate cancer. (Jt. Ex. 2, pp. 54-57, App Exs. 27, 63, 69, 82, 86, 96, and 97; Lane Vol. 7, pp. 1449-1450).

101. Cary Urology provided the Agency with all the information it needed to make a determination that its proposal was financially feasible under Criterion 5. (Smith, Vol. 3, p. 450).

Review Criterion 6

103. Criterion 6 requires the applicant to “demonstrate that the proposed project will not result in unnecessary duplication of existing or approved health services capabilities or facilities.” N.C. Gen. State § 131E-183(a)(6).

104. In determining that Cary Urology conformed with Criterion 6, the Agency cited the fact that the 2009 SMFP identifies a statewide need for one dedicated linear accelerator to be part of a demonstration project for a model multidisciplinary prostate health center focused on the treatment of prostate cancer, for which both applicants were applying. (Jt. Ex. 1, pp. 704- 705). The Agency also found that Cary Urology adequately demonstrated that its proposal

30 would not result in unnecessary duplication of existing or approved linear accelerator services. (Id.). The Agency’s findings under Criterion 6 cross-reference the discussion in the Agency’s findings under Criterion 3. (Id.).

105. Although CON Section Chief Smith and Analyst McKillip testified that they did not do a separate analysis under Criterion 6 for any of the applications in this review, there are statements in the Agency’s analysis of Cary Urology’s application under Criterion 3 that indicate that the Agency analyzed whether Cary Urology demonstrated that its proposed project would not result in unnecessary duplication of existing or approved health service capabilities or facilities.

106. In analyzing Cary Urology’s projected market share, the Agency noted that Cary Urology considered several factors, including the number of existing linear accelerators in the county. (Jt. Ex. 1, p. 679).

107. In projecting the patients to be treated at the proposed health center by treatment modality and county of origin, the Agency noted that Cary Urology considered that Wake County has eight existing linear accelerators and consequently applied a 20 percent reduction in its market share projections based on the presence of multiple linear accelerators in Wake County. (Jt. Ex. 1, pp. 664-665).

108. In analyzing Cary Urology’s application, the Agency also noted that Cary Urology’s utilization projections were based upon population estimates for the counties in the proposed service area, cancer incidence rates from the North Carolina Center for Health Statistics and Central Cancer Registry for 2006, and assumptions regarding projected percentage of new prostate cancer patients (market shares) that would be referred to Cary Urology’s proposed prostate health center from each of the counties in the service area. (Jt. Ex. 1, p. 679). The population estimates used by Cary Urology for Wake County, referenced by the Agency in its findings, included projected growth for Wake County of 16.79% between 2009 and 2014. (Jt. Ex. 2, pp. 104-107; Lane, Vol. 7, pp. 1447-1448).

109. Craig Smith, Chief of the CON Section, and Mike McKillip, the Project Analyst, considered the information in Cary Urology’s application addressing the impact of its proposed linear accelerator on other linear accelerators in Wake County. (Jt. Ex. 2, p. 168 and Ex. 93; McKillip, Vol. 2, 267; Smith, Vol. 3, pp. 450-451; Smith, Vol. 9, pp. 1924-1926). As Cary Urology explained in its application, the other linear accelerators in Wake County treat all types of cancers and with the population of the service area expected to increase by more than 16%

31 between 2009 and 2014, and the incidence rates for new cancer cases holding steady or increasing, existing centers may see an increase in patients served. (Jt. Ex. 2, p. 168).

110. Cary Urology also demonstrated that its project would not result in unnecessary duplication of existing and approved health services by other information and statements in the application, including:

a. The growth rate for the 65 plus population in the service area which is 8% higher than the growth rate for this population state-wide. (Jt. Ex. 2, p. 107).

b. The growth rate of new prostate cancer cases for the service area of 4.56%, compared to the State growth rate of 1.79%. (Jt. Ex. 2, p. 108).

c. Wake County has the highest population per linear accelerator of any area in the State. (Jt. Ex. 2, pp. 154-155; Respondent-Intervenor Ex. 4B, 2009 SMFP, p. 126).

d. Utilization information for providers of linear accelerator services in Wake County. (Jt. Ex. 2, p. 165). While Rex’s utilization has declined, utilization for all other linear accelerator providers in Wake County has increased. (Jt. Ex. 1, p. 253).

e. Cary Urology will be the first health center dedicated to the treatment of prostate and male urological cancers in Wake County, the service area, or North Carolina. (Jt. Ex. 2, p. 68).

f. The prostate health center will provide a continuum of urological cancer care that is not currently available in the service area. (Jt. Ex. 2, p. 68).

g. No current provider of linear accelerator services in the proposed service area offers the disease specific, dedicated services proposed for Cary Urology’s prostate health center. (Jt. Ex. 2, p. 166 and Ex. 93).

h. Cary Urology would be the only provider in the state offering in-office combo radiation therapy (the combined use of both brachytherapy and external beam radiation) and the only provider in the county offering rapid arc linear accelerator services. (Jt. Ex. 2, pp. 166-167). 111. Scott Sailer, a radiation oncologist with WROS, testified that Cary Urology’s project would not represent unnecessary duplication of multidisciplinary prostate health centers in Wake County. (Respondent-Intervenor Ex. 68, p. 61).

32 112. Cary Urology will be the only provider in North Carolina with a dedicated linear accelerator used in a model multidisciplinary prostate health center focused on the treatment of prostate cancer. (McKillip, Vol. 2, p. 268; Smith, Vol. 3, p. 437). Cary Urology’s proposed prostate health center will not be duplicating Rex’s “Prostate Cancer Center of Excellence”, which is not a prostate health center with a dedicated linear accelerator used in a multidisciplinary prostate health center focused on the treatment of prostate cancer. (See Findings 73 through 79 above).

114. Cary Urology adequately demonstrated that its proposed prostate health center with a dedicated linear accelerator would not unnecessarily duplicate existing or approved health services.

Review Criterion 7

115. Criterion 7 requires the applicant to “show evidence of the availability of resources, including health manpower and management personnel, for the provision of the services proposed to be provided. N.C. Gen. Stat. § 131E-183(a)(7).

116. The Agency found that Cary Urology’s application conformed with Criterion 7. (Jt. Ex. 1, pp. 705-706).

117. Cary Urology’s application identified the proposed Medical Director and identified in a chart the projected staffing for the prostate health center in the second full year following completion of the proposed project. Cary Urology proposes 16.54 full time equivalent (“FTE”) positions at the center. Cary Urology’s application also describes its experience and the manner in which it will recruit the personnel required to staff the proposed project. (Jt. Ex. 2, pp. 252- 280).

33 118. Rex’s health planning expert, David French, testified that Cary Urology should be found nonconforming with Criterion 7 because it incorrectly states that Jane Talley, RN will provide biofeedback therapy, rehabilitative therapy, and counseling services and that she will bill patients directly for these services. (French, Vol. 3, pp. 582-583).

119. As set forth in Findings of Fact 44-45, the fact that Jane Talley may not be able to bill directly for services does not affect her ability to provide the services and is immaterial to the CON Section’s analysis under Criterion 7.

120. Cary Urology demonstrated that it will provide biofeedback therapy, rehabilitative therapy, and counseling services at its proposed prostate health center.

Review Criterion 8

121. Criterion 8 requires the applicant to demonstrate that it will make available or otherwise make arrangements for, the provision of the necessary ancillary and support services and that the proposed services will be coordinated with the existing health care system. N.C. Gen. Stat. § 131E-183(a)(8).

122. Although the Prehearing Order states that Petitioners contend that the Agency erred in finding Cary Urology’s application conforming to Criterion 8, Petitioners provided no testimony or other evidence setting forth the reasons why it believed the Agency’s finding was in error.

123. UNC Hospitals’ expert specifically testified that he was not offering a negative opinion regarding the Agency finding Cary Urology conforming with Criterion 8. (Carter, Vol. 5, p. 1093).

124. The Agency’s written findings regarding Criterion 8 set forth the reasons it found Cary Urology’s application conforming with Criterion 8. The sections referenced by the Agency in its findings support the determination that Cary Urology demonstrated that it will make available, or otherwise make arrangements for, the provision of the necessary ancillary and support services and that Cary Urology’s proposed services will be coordinated with the existing health care system. (Jt. Ex. 1, p. 707; Jt. Ex. 2, pp. 66-67 and App. Exs. 21, 40).

Review Criterion 12

34 125. Criterion 12 requires that the applicant demonstrate that:

the cost, design, and means of construction proposed represent the most reasonable alternative, and that the construction project will not unduly increase the costs of providing health services by the person proposing the construction project or the costs and charges to the public of providing health services by other persons, and that applicable energy saving features have been incorporated into the construction plans. N.C. Gen. Stat. § 131E-183(a)(12).

126. Although UNC Hospitals’ and WROS’ lists of issues in the Prehearing Order state that the Agency erred in finding Cary Urology’s application conforming to Criterion 12, Petitioners provided no testimony or other evidence setting forth the reasons why it believed the Agency’s finding was in error.

127. UNC Hospitals’ expert specifically testified that he was not offering a negative opinion regarding the Agency finding Cary Urology conforming with Criterion 12. (Carter, Vol. 5, p. 1093).

128. The Agency’s written findings regarding Criterion 12 set forth the reasons it found Cary Urology’s application conforming with Criterion 12. The sections referenced by the Agency in its findings support the determination that Cary Urology demonstrated that the cost, design and means of construction represent the most reasonable alternative, and that the construction costs will not unduly increase costs and charges for health services. (Jt. Ex. 1, pp. 708-709; Jt. Ex. 2, pp. 281-283, 304, and App. Ex. 13).

Review Criterion 13(c)

129. Criterion 13(c) requires the applicant to “demonstrate the contribution of the proposed service in meeting the needs of the elderly and of members of medically underserved groups” by showing “[t]hat the elderly and the medically underserved groups identified in this subdivision will be served by the applicant’s proposed services and the extent to which each of these groups is expected to utilize the proposed services.” N.C. Gen. State § 131E-183(a)(13)(c).

35 130. The Agency found that Cary Urology’s application conformed with Criterion 13(c) and cited Section VI.14(b) of Cary Urology’s application to support its finding. (Jt. Ex. 1, p. 715).

131. Petitioners contend that Cary Urology’s proposed payor mix was unreasonable because it was based on the historical payor mix for the brachytherapy patients Cary Urology currently serves. (Carter, Vol. 5, pp. 1025-1026). Petitioners contend that Cary Urology could have provided other historical information to project its proposed payor mix, including its historical urology payor mix. (Id. at p. 1026).

132. It was reasonable for Cary Urology to use its historical payor mix for its brachytherapy service because these patients are approximately the same age as individuals that will receive prostate cancer treatment at the proposed prostate health center. It also was reasonable to use the historical data for brachytherapy patients because a large number of these patients are eligible for Medicare, which is similar to the age demographic of the typical prostate cancer patient that likely will receive treatment at the proposed prostate center. (Lane, Vol. 7, pp. 1451-1452).

133. Rex’s health planning expert, David French, testified that the Agency should have found Cary Urology’s application nonconforming with Criterion 13(c) because there is no documentation in the application stating that Dr. Graham and Jane Talley, RN would adhere to the prostate health center’s financial and charity care policies. (French, Vol. 3, pp. 584-585).

134. Criterion 13(c) contains no requirement that an applicant provide written documentation that potential contractors specifically support the representations in the application related to providing access to the medically underserved. N.C. Gen. Stat. § 131E- 183(a)(13)(c).

135. Both Dr. Graham and Jane Talley currently provide charity care and there is no creditable evidence in the record that Dr. Graham or Jane Talley would not adhere to the financial or charity care policies set forth in Cary Urology’s application. (Petitioners Ex. 92, pp. 50-53; Petitioners Ex. 93, p. 50).

136. Petitioners provided testimony that Cary Urology’s application should have been found nonconforming with Criterion 13(c) because the application proposes that Cary Urology will provide 14 percent charity care/bad debt, while historically Cary Urology only has provided 2 percent charity care/bad debt. (French, Vol. 3, p. 585).

36 137. Cary Urology’s historical charity care/bad debt is not representative of all the charity care it currently provides, but only represents the amount of charity care/bad debt that it has documented in its billing system. Cary Urology currently is not required to report charity care, and in many instances when Cary Urology physicians provide charity care, the services are not documented in the billing system. (Lane, Vol. 8, p. 1626; Khoudary Vol. 9, pp. 1990-1991).

138. Cary Urology’s 14 percent charity care/bad debt projections are reasonable because the proposed prostate health center will be located in a low income area, would focus on treating African American men, and is targeted to communities with high underinsured/uninsured populations. (Lane, Vol. 7, pp. 1452-1453; Smith, Vol. 9, p. 1871).

139. Cary Urology adequately demonstrated that its proposed prostate health center would contribute in meeting the needs of the elderly and of members of medically underserved groups.

140. Petitioners presented findings previously made by the Agency that they contend are relevant to the decision made by the Agency in this case. However, the facts in these findings are distinguishable from the facts in this case and these findings do not support a determination that the Agency violated any of the standards of N.C. Gen. Stat. § 150B-23(a) in finding Cary Urology’s application conforming with Criterion 13(c).

Review Criterion 18(a)

141. Criterion 18(a) requires the applicant to demonstrate:

the expected effects of the proposed services on competition in the proposed service area, including how any enhanced competition will have a positive impact upon the cost effectiveness, quality, and access to the services proposed; and in the case of applications for services where competition between providers will not have a favorable impact on cost effectiveness, quality, and access to the services proposed, the applicant shall demonstrate that its application is for a service on which competition will not have a favorable impact. N.C. Gen. Stat. § 131E-183(a)(18a).

37 142. The Agency found Cary Urology’s application conforming with Criterion 18(a) because it found that “the application adequately demonstrated that its proposed project would have a positive impact upon the cost effectiveness, quality, and access to the proposed services.” (Jt. Ex. 1, p. 718).

143. Although Petitioners’ list of criteria at issue in the Prehearing Order includes Criterion 18(a), Petitioners provided no testimony or other evidence setting forth the reasons why they believed the Agency’s finding of conformity was in error.

144. Cary Urology’s proposed project will have a positive impact upon cost effectiveness because its charges will be less than that of other providers such as Rex. (Jt. Ex. 1, pp. 80-81; Lane, Vol. 8, pp. 1636-1638). Cary Urology’s proposal will also have a positive impact on quality and access to the proposed services because Cary Urology plans to implement a new multidisciplinary treatment approach that will integrate both urologists and other cancer specialists in a new and unique way. (Jt. Ex. 2, pp. 68, 166-67; Leung, Vol. 8, p. 1759; Khoudary, Vol. 6, pp. 1360-1363). Cary Urology also proposes to do significant community outreach and education that will provide individuals access to information and health care that they are not currently receiving. (Jt. Ex. 2, pp. 54-57).

Regulatory Criteria - 10A N.C.A.C. 14C.1900

145. In addition to the statutory criteria, the Agency is authorized to promulgate regulatory criteria which it can use in determining whether a CON should be awarded to an applicant. N.C. Gen. Stat. § 131E-183(b).

146. The Agency has promulgated regulations that apply to applications for linear accelerators and promulgated regulations that specifically apply to the prostate health center demonstration project at issue in this case. 10A N.C.A.C. 14C.1900.

147. The Agency found that Cary Urology conformed with all of the regulatory requirements applicable to this review. (Jt. Ex. 1, pp. 721-746).

38 148. Although UNC’s list of criteria at issue in the Prehearing Order include 10A N.C.A.C. 14C.1902(c)(6) and (7), no testimony or other evidence was offered by UNC setting forth the reasons why UNC believes the Agency’s findings of conformity were in error.

149. Cary Urology provided documentation that the multiple medical disciplines in the center will collaborate to create and maintain a single or common medical record for each patient and conduct multidisciplinary conferences regarding each patient’s treatment and follow-up care. (Jt. Ex. 2, p. 85). Cary Urology also demonstrated that it will establish its own prostate/urological cancer tumor board for review of cases. (Id.).

150. 10A N.C.A.C. 14C.1903(a)(2) requires that an applicant provide the Agency with the number of patients it will treat and the number of linear accelerator treatments it projects to perform.

151. Petitioners contend that Cary Urology’s application should have been found nonconforming with regulatory criterion 10A N.C.A.C. 14C.1903(a)(2), claiming Cary Urology’s projected number of patients and linear accelerator treatments are overstated and unreasonable. (French, Vol. 3, p. 586; Carter, Vol. 5, pp. 1030-1031).

152. As set forth in Findings of Fact 58-61, Cary Urology’s market share assumptions were reasonable.

153. Cary Urology’s application conforms with 10A N.C.A.C. 14C.1903(a)(2).

154. 10A N.C.A.C. 14C.1905(b)(2) requires that an applicant document that the prostate health center will have a multidisciplinary team which includes therapy specialists.

155. As set forth in Findings of Fact 43-44, Petitioners’ contention that because Jane Talley could not directly bill for her services, the Agency should have found Cary Urology nonconforming with 10A N.C.A.C. 14C.1905(b)(2) has no merit. (French, Vol. 3, p. 587).

39 156. 10A N.C.A.C. 14C.1905(b)(2) does not require that an applicant state how the multidisciplinary team will bill for its services but only requires that the applicant document that it will have a multidisciplinary team.

157. As set forth in Findings of Fact 45-53 Cary Urology’s application demonstrates that it will provide all the services required to comply with the CON criteria for the multidisciplinary prostate health center demonstration project, including therapy services. Therefore, Cary Urology’s application conforms with 10A N.C.A.C. 14C.1905(b)(2).

Regulatory Criteria 10A N.C.A.C. 14C.1800

158. N.C. Gen. Stat. 131E-176(7a) states that an applicant’s proposal qualifies as a diagnostic center if the total cost of all the diagnostic equipment utilized by the facility exceeds $500,000.00. If an applicant’s proposal qualifies as a diagnostic center, the applicant must comply with the regulatory criteria set forth in 10A N.C.A.C. 14C.1800.

159. During the pre-application conference, Mike McKillip and Helen Alexander, Project Analysts for the Agency, specifically told representatives from Cary Urology that the diagnostic equipment regulations did not apply to its application. (Petitioners Ex. 20, p. 13; Lane, Vol. 7, pp. 1443-1444).

160. Health Planning Consultant David French, Rex’s expert witness, testified that the total cost of acquiring the ultrasound unit would exceed the $500,000.00 threshold if the Agency considered the entire construction costs associated with constructing the urological section of the proposed prostate health center. (French, Vol. 3, pp. 588-589).

161. Consultant French’s opinion regarding the applicability of the Diagnostic Center rules lacks creditability and is unreasonable. The ultrasound unit that Cary Urology proposes to purchase is portable and therefore would not occupy any single space at the proposed center. The ultrasound unit is very small in size measuring exactly 49” x 16” x 26” in size. There are no construction costs associated with making the ultrasound operational. (Smith, Vol. 9, pp. 1965- 1966; Khoudary, Vol. 9, pp. 1987-1988; Respondent-Intervenor Ex. 73).

40 162. The application set forth that the construction cost for the proposed prostate health center is $261.36 per square foot. (Jt. Ex. 2, p. 302). Based on the dimensions of the ultrasound unit that Cary Urology proposes to purchase it is unreasonable to conclude that the total costs for making the $31,600.00 ultrasound unit operational will exceed $500,000.00.

UNC Hospitals’ Application

163. UNC Hospitals submitted a written statement to the SHCC opposing the addition of a linear accelerator dedicated to prostate cancer for a prostate health demonstration project in the 2009 SMFP. (Respondent-Intervenor Ex. 12, p. 10) UNC Hospitals’ written statement to the SHCC indicates that it believes that it is bad public policy to allocate a linear accelerator for the treatment of a particular disease such as prostate cancer. (Respondent-Intervenor Ex. 12, p. 10) Having one linear accelerator designated to treat all patients with a particular disease is sub- optimal care because a patient should be treated on the linear accelerator that is best suited to treat that particular patient. (Marks, Vol. 4, pp. 724, 726-727)

164. Despite its initial opposition to the demonstration project, UNC Hospitals decided to submit a CON application for the prostate health center demonstration project. UNC Hospitals’ decision to apply for the CON principally was based upon its determination that it wanted another linear accelerator and applying for the linear accelerator that would be allocated for the prostate health demonstration project was one of three options available for acquiring another linear accelerator. (Respondent-Intervenor Exs. 9, 27, 29, 31; Marks, Vol. 4, pp. 804- 808 and 813).

165. UNC Hospitals also considered that applying for the demonstration project would prevent other local providers from being approved for the project and that applying for the demonstration project would give UNC Hospitals “leverage” to settle with the Agency for a possible academic medical center linear accelerator acquisition (“AC3”). (Respondent- Intervenor Exs. 9 and 27; Godley, Vol. 2, p. 354).

166. John Lewis, UNC Health Care System CFO, testified in his deposition that it was still his position that the demonstration project was bad public policy and should not have been approved by the SHCC. (Respondent-Intervenor Ex. 64, p. 17).

167. Before submitting its application, UNC Hospitals had no radiation oncologists dedicated to urological malignancies. (Marks, Vol. 4, p. 765; Respondent-Intervenor Ex. 21). In

41 the two years prior to submission of UNC Hospitals’ application, it had performed no prostate brachytherapy procedures. (Respondent-Intervenor Ex. 36).

168. Although UNC Hospitals contended that it already provided multidisciplinary prostate cancer treatment, Paul Godley, M.D., the proposed medical director of UNC Hospitals’ proposed prostate center, admitted that the statistics showing a high incidence of prostate cancer in North Carolina, particularly in African American men, had not changed and that something new needed to be done to address the problem. (Godley, Vol. 2, p. 357).

169. The Agency found UNC conforming to all statutory criteria, including Criterion 1 which requires that a “proposed project shall be consistent with applicable policies and need determinations in the State Medical Facilities Plan.” (Jt. Ex. 1, pp. 642-646)

170. The Agency found UNC’s application conformed to Criterion 1 based upon its finding that UNC proposed to acquire a linear accelerator and develop a multidisciplinary prostate health center in Chapel Hill that would meet the requirements of the demonstration project set forth in the 2009 SMFP. The Agency also found UNC’s application conforming to Criterion 1 based on its finding that UNC complied with Policy GEN-3 from the 2009 SMFP, which requires the project to be consistent with the three basic principles governing the SMFP: to promote cost effective approaches, expand health care services to the medically underserved, and encourage quality health care services. (Jt. Ex. 1, pp. 642-646)

171. Cary Urology raised the issue that UNC Hospitals failed to account for procedures performed on its Mobetron and to include the information required by the special criteria addressing performance standards. 10A N.C.A.C. 14C.1903(a)(2) requires that an applicant proposing to acquire a linear accelerator demonstrate that its existing linear accelerators performed at least 6,750 ESTV treatments per machine or served at least 250 patients per machine in the twelve (12) months prior to the date the application was submitted. (Respondent- Intervenor Ex. 4A).

172. In responding to this special criterion, UNC Hospitals did not include its Mobetron in setting forth the number of ESTV treatments or patients served in the twelve (12) months prior to submission of its application. (Jt. Ex. 3, pp. 77-80).

173. In a Declaratory Ruling submitted by UNC Hospitals seeking a ruling regarding the Mobetron it planned to acquire, the Director of the Division of Health Service Regulation

42 declared that the Mobetron is a linear accelerator. (Jt. Ex. 3, p. 333, App. Ex. 3) However, the Declaratory Ruling provided that the Mobetron should be listed separately in the inventory from “traditional linear accelerators.” (Jt. Ex. 3, p. 332-333, App. Ex. 3)

174. Because the Mobetron cannot perform as many procedures as a traditional linear accelerator, the Declaratory Ruling also provided that the utilization standards for linear accelerators do not apply to the Mobetron. (Jt. Ex. 3, p. 333, App. Ex. 3) Past Agency Findings reflect the fact that the Agency has not counted the Mobetron in UNC’s inventory of linear accelerators. (Petitioners’ Ex. 83, p. 2 and Petitioners’ Ex. 85, p.2)

175. Cary Urology provided comments to the Agency regarding the other applications filed in this review. (Jt. Ex. 1, pp. 76-254) In its comments against UNC’s application, Cary Urology asserted that UNC failed to account for the Mobetron. (Jt. Ex. 3, pp. 83-84) Both Analyst McKillip and Chief Craig Smith reviewed the competitive comments submitted by the parties. (McKillip, Vol. 2, p. 261; Smith, Vol. 2, p. 363) The Agency was aware that UNC did not include the Mobetron in setting forth the number of patients served in the twelve months prior to submission of its application and found UNC conforming with the rule, 10A N.C.A.C. 14C.1903(a)(2). (Jt. Ex. 2, pp. 734-735)

Comparative Analysis

176. After reviewing each of the applications under the statutory and regulatory criteria, the Agency conducted a comparative analysis of the applications to determine which proposal was a comparatively more effective alternative. (Jt. Ex. 1, pp. 747-756). The Agency determined that Cary Urology’s application was comparatively the most effective alternative. (Id.).

177. In determining the comparative factors to use in the Agency’s comparative analysis, the Agency typically compares applications on service to Medicare and Medicaid recipients, projected gross and net revenue, and projected expenses. (Smith, Vol. 9, p. 1875).

178. The Agency also determines whether there are factors unique to the review being conducted, such as special criteria or regulations that should be considered. (Smith, Vol. 9, p. 1876).

43 179. In the comparative analysis conducted in this review, the Agency analyzed geographic access to the linear accelerator demonstration project, using factors unique to this review, and also compared the applications on service to Medicare and Medicaid recipients, projected gross and net revenue, and projected expenses. (Jt. Ex. 1, pp. 747-754).

180. The Agency promulgated special criteria for applicants proposing to acquire a linear accelerator for development of a multidisciplinary prostate health center pursuant to a need determination for a demonstration project in the 2009 SMFP. (Respondent-Intervenor Ex. 4A, 10A N.C.A.C. 14C.1902(c); Smith, Vol. 9, p. 1876). These special criteria are based in part upon the demonstration project criteria included in the 2009 SMFP. (Respondent-Intervenor Ex. 4B, p. 121; Smith, Vol. 9, p. 1876).

181. The criteria included in the 2009 SMFP include the requirement that the prostate health center be located in close proximity to minority communities. (Respondent-Intervenor Ex. 4B, p. 121).

182. The special criteria applicable to this demonstration project required applicants to provide certain demographic information about the population in the county in which the proposed multidisciplinary prostate health center will be located, including specific information about African American males in the county and the incidence of prostate cancer for African American males in the county. (Respondent-Intervenor Ex. 4A, 10A N.C.A.C. 14C.1902(c)(4)).

183. Under these special criteria, applicants also were required to document that the proposed center would be located within walking distance of an established bus route and within five (5) miles of a minority community. (Respondent-Intervenor Ex. 4A, 10A N.C.A.C. 14C.1902(c)(5)).

184. In the comparative analysis, the Agency compared the applications on the information provided in response to the special criteria requiring applicants to provide the “demographics of the population in the county in which the proposed multidisciplinary prostate health center will be located”. The Agency compared the applications on total population of African American males and percentage of African American males in the counties where each applicant’s proposed center may be located and determined that UNC Hospitals was the least effective alternative with regard to improving geographic access to the proposed services, and that the application of Cary Urology was the more effective alternative. (Jt. Ex. 1, pp. 747-750, 53-54).

185. The percentage of African American males in Orange County is only 5.9% as compared to Wake County, in which 9.6% of the population is African American males. (Jt. Ex. 1, p. 749).

44 186. The Agency also compared the counties in which the applicants proposed to locate the prostate health center demonstration project to determine which county had the highest reported prostate cancer incidence rate among African American males. Based on this comparison, Cary Urology was the most effective alternative. (Jt. Ex. 1, p. 749).

187. There are 29,129 African American males within a five (5) mile radius of Cary Urology’s proposed site, compared to 4,948 African American males within five (5) miles of UNC Hospitals’ proposed site. (Jt. Ex. 1, p. 79 and 750).

188. Cary Urology proposed a higher percentage of total procedures to be provided to Medicare recipients than UNC Hospitals. (Jt. Ex. 1, pp. 751-752).

189. The Agency also found Cary Urology comparatively superior to UNC Hospitals in its projection of average gross revenue and the net revenue per ESTV procedure on the proposed dedicated linear accelerator. (Jt. Ex. 1, p. 752). Cary Urology projected gross revenues of $1,002 and net revenue of $649 per ESTV procedure, compared to gross revenue of $1,993 and net revenue of $712 per ESTV procedure projected by UNC Hospitals. (Id.).

190. The Agency also determined that Cary Urology was comparatively superior on the average operating expense per ESTV procedure. Cary Urology projected $383 per procedure and UNC Hospitals projected $548 per procedure. (Id. at p. 753).

191. UNC Hospitals contends that these comparisons of gross and net revenue and operating expenses per ESTVs should not have been used in the comparative analysis because Cary Urology’s projections do not include revenues and expenses for the professional services to be provided at its proposed center. However, UNC Hospitals’ financial projections also do not include professional revenues and expenses. (Carter, Vol. 6, p. 1178; Respondent-Intervenor Ex. 59, pp. 46-47).

192. UNC Hospitals also contended that this comparison should not have been conducted because Cary Urology’s projections included radiation oncology procedures for urological cancers in addition to prostate cancer. (Carter, Vol. 6, pp. 1180-1181). However, the number of urological procedures projected by Cary Urology is very small and makes no material difference in the comparison. (Jt. Ex. 2, p. 197).

45 193. Expert witnesses for Rex and UNC Hospitals testified that the Agency should have used other factors to compare the applications. There is no statute or rule requiring the CON Section to use any particular factors in its comparative analysis. Frequently, applicants submit comments to the Agency suggesting factors that should be used in a comparative analysis, but the Agency is not obligated to use factors suggested by an applicant. (Smith, Vol. 9, p. 1877).

194. Rex provided opinion testimony that the Agency should have compared the applications using the linear accelerator service areas used for the standard methodology in the SMFP, instead of the counties where the prostate health centers were proposed to be located. (French, Vol. 3, p. 607). However, the linear accelerator service areas used in the standard methodology do not apply to a statewide demonstration project that includes a dedicated linear accelerator. (Smith, Vol. 2, p. 365; Smith, Vol. 9, pp. 1915-1916). It was appropriate to compare counties because the special criteria promulgated for this special demonstration project specifically requests that applicants address the demographics of the population in the county in which the proposed multidisciplinary prostate health center will be located. (Respondent- Intervenor Ex. 4A, 10A N.C.A.C. 14C.1902(c)(4); Smith, Vol. 9, p. 1876).

195. UNC’s Health Planning Consultant David French also testified that UNC Hospitals’ application is comparatively superior because UNC Hospitals is in a central location and proposes serving many more counties than Cary Urology. (French, Vol. 3, p. 608). However, the purpose of this prostate health center demonstration project is to focus the services to minority communities in close proximity to the proposed center. (Respondent-Intervenor Ex. 4A, 10A N.C.A.C. 14C.1902(c)(4) and (5)). A statewide service area is not an advantage in this review.

196. Petitioners also contended that the Agency should have considered the “projected surpluses” of linear accelerators in Service Area 20, which includes Wake County, as compared with Service Area 14, which includes Orange County. (French, Vol. 3, pp. 605-606). However, this is not a review of general linear accelerators and the service areas used to project the need for general use linear accelerators are not applicable to this statewide demonstration project. (Smith, Vol. 9, p. 1913). If linear accelerator service areas were an appropriate geographic area for comparison, the 2009 SMFP shows that Service Area 20 has the largest population per linear accelerator in the State, while Service Area 14 has the smallest population per linear accelerator. (Respondent-Intervenor Ex. 4B, p. 126; Jt. Ex. 2, p. 2765).

197. UNC also presented opinion testimony that the applications should have been compared based upon projections of uninsured and underinsured. (Carter, Vol. 5, p. 1080). These terms are not defined in the CON statute or regulations.

46 198. If the terms “uninsured and underinsured” refer to services for which the provider does not receive payment because the patient either does not have insurance to pay or cannot pay, Cary Urology’s application projects charity care/bad debt that is similar to the charity care/bad debt projected by UNC Hospitals. (Jt. Ex. 1, p. 81). Because Cary Urology projects lower gross revenues per ESTV, the amount for charity care cannot be compared without taking into account that Cary Urology can provide more charity care for the same dollar amount because its charges are less. (Jt. Ex. 1, pp. 80-81; Lane Vol. 8, pp. 1636-1638).

199. The criteria for this demonstration project require that the applicant document arrangements with a third-party researcher to evaluate the efficacy of the clinical and outreach initiatives on prostate and urological cancer treatment. (Respondent-Intervenor Ex. 4A, 10A N.C.A.C. 14C.1902(c)(14)). The expert for UNC Hospitals, Daniel Carter, testified that UNC Hospitals should have been found comparatively superior because of its research capabilities. (Carter, Vol. 3, pp. 1086-1088).

200. Cary Urology is comparatively superior in the area of research because Cary Urology proposed both an outreach research team and two third-party research teams to conduct clinical research. (Lane, Vol. 7, pp. 1463-1465). Cary Urology proposed using James Atkins, M.D., with the Southeastern Cancer Control Consortium to head one clinical research team and Edward Messing, M.D., Chairman of the Department of Urology at the University of Rochester, to head the other clinical research team to evaluate the efficacy of the clinical programs at Cary Urology’s proposed center. (Jt. Ex. 2, p. 26; Lane Vol. 7, pp. 1464-1465.). In comparison, UNC Hospitals did not propose having any clinicians as third-party researchers to evaluate the efficacy of the clinical outcomes at its proposed prostate health center. (Godley, Vol. 2, pp. 309 and 350).

201. There are other comparative factors that could have been used by the Agency that would further support the Agency’s determination that Cary Urology’s application was comparatively superior. Cary Urology’s application proposed involving twenty-six (26) urologists while UNC Hospitals’ application proposed involving four (4) urologists. (Jt. Ex. 1, p. 80).

202. Cary Urology showed a much greater commitment to brachytherapy, a procedure involving both urologists and radiation oncologists. (Jt. Ex. 2, pp. 43-46; Jt. Ex. 3, p. 183). Brachytherapy has been demonstrated to be effective in treating prostate cancer. (Id. at 44).

47 203. Cary Urology projects 616 brachytherapy procedures in the third year of its proposed center while UNC projects only 10 brachytherapy procedures in the third year. (Jt. Ex. 2, p. 181; Jt. Ex. 3, p. 183). In 2008, Cary Urology performed 196 brachytherapy procedures while UNC Hospitals performed none. (Jt. Ex. 2, p. 176; Jt. Ex. 3, p. 182).

204. Cary Urology proposed acquiring a linear accelerator that would be used for prostate and urological cancers. (Jt. Ex. 2, p. 68). In contrast, UNC proposes acquiring a linear accelerator that will be used to treat all types of cancer. (Jt. Ex. 3, p. 27).

205. Although UNC admits that typically 50% of all cancers are treated with radiation therapy, it projects using radiation therapy on only 12.5% of its prostate cancer patients in the third-year of the project. (Jt. Ex. 3, p. 187). In contrast, Cary Urology projects that 50% of its prostate cancer patients will receive radiation therapy. (Jt. Ex. 2, p. 193).

206. The comparative factors used by the Agency to compare Cary Urology’s and UNC Hospitals’ applications were reasonable and consistent with the special criteria applicable to this demonstration project.

Harm to WROS

207. N.C. Gen. Stat. 150B-23(a) requires that WROS demonstrate by the preponderance of the evidence that the Agency’s decision has substantially prejudiced its rights.

208. WROS contends that the Agency’s decision substantially prejudiced its rights because Cary Urology’s proposed prostate cancer center would shift patients away from its practice and negatively affect its revenues. (Schaaf, Vol. 4, p. 824-827). Dr. Robert Schaaf, President of WROS, testified that WROS likely would lose 10 to 14 percent of its linear accelerator practice. (Id. at p. 824).

209. WROS provided no data, analysis or evidence, other than the unsupported statements of Dr. Schaaf, to demonstrate that WROS likely would lose 10 to 14 percent of its linear accelerator practice if Cary Urology acquires the CON to construct the prostate health center with a dedicated linear accelerator. WROS also provided no data or analysis to

48 demonstrate the amount of revenue that WROS likely would lose if Cary Urology acquires the CON.

210. Dr. Khoudary, secretary of Cary Urology, testified at hearing that while he had previously referred patients to WROS for linear accelerator services, he would begin referring those patients to the proposed prostate center if Cary Urology is permitted to obtain a linear accelerator. (Khoudary, Vol. 9, pp. 2023-2025)

211. Cary Urology’s proposed market share only will represent 6.6 percent of the total number of cancer patients treated on a linear accelerator in Wake County in the third year of operation. (Lane, Vol. 7, p. 1447). The patients that Cary Urology proposes to treat are “new” patients which have not yet been diagnosed with prostate cancer and are not current patients of WROS. (Jt. Ex. 2, p. 185; Smith, Vol. 2, p. 425; Lane, Vol. 7, p. 1520).

212. Using current North Carolina demographic data, which is compiled by the State, the population of Wake County will increase by 16.79% percent by Cary Urology’s third year of operations. Even assuming that the cancer rate in Wake County remains constant, which is contrary to current information which shows that the cancer rate in Wake County is increasing, the number of cancer patients that will require treatment in Wake County will increase by more than double the number of patients Cary Urology proposes to serve. (Lane, Vol. 7, p. 1447- 1448; Jt. Ex. 2, pp. 106-107, 108-109).

213. WROS provided no creditable testimony or other evidence contradicting the evidence in the record that the number of total cancer patients in Wake County will increase by more than the number of patients that Cary Urology proposes to serve.

214. The weight of the testimony by Dr. Schaaf that WROS will lose 10 to 14 percent of the patients it currently treats is reduced by the evidence that the number of cancer patients in Wake County is expected to increase by more than twice the number of total patients that Cary Urology proposes to serve at the prostate health center.

215. WROS also provided no testimony or other evidence that it has a “right” to treat patients that have yet to be diagnosed with prostate cancer and are not currently patients of WROS. (Smith, Vol. 2, p. 425).

49 Harm to Rex

216. N.C. Gen. Stat. 150B-23(a) requires that Rex demonstrate by the preponderance of the evidence that the Agency’s decision has substantially prejudiced its rights.

217. Rex’s expert witness, David French, testified that if Cary Urology is awarded the CON in this case, Rex will experience diminished linear accelerator utilization and loss of revenue. (French, Vol. 3, pp. 580-582; Petitioners Ex. 24, pp. 4-5). Rex’s expert attempted to quantify its losses by showing that it will lose 98 patients and as a result will lose $663,907.00 in net income by year three of Cary Urology’s project. (Id.).

218. Consultant French’s testimony makes clear that in his calculation of lost patients and income he did not account for the increase in population in Wake County or the increase in the incidence rates of certain cancers. (French, Vol. 4, p. 685-686).

219. As set forth above, because Wake County is expected to grow by 16.79% percent by Cary Urology’s third year of operation, even assuming that the cancer rate in Wake County stays the same, the number of cancer patients that will receive treatment in Wake County will increase by more than two times the number of patients that Cary Urology proposes to serve. (Lane, Vol. 7, pp. 1447-1448; Jt. Ex. 2, pp. 106-107, 108-109).

220. Dr. Unger testified that approval of Cary Urology would cause “collateral damage” to existing linear accelerator providers in Wake County, and that it would potentially decrease the number of linear accelerator treatments at Rex. (Pet. Ex. 95, p. 148)

221. Dr. Tortora testified that if Cary Urology received a CON and developed a prostate health center, he would expect his referrals to Rex to change. (Pet. Ex. 100, p. 103)

222. Dr. Khoudary testified that although he refers patients to Rex for linear accelerator services, he will refer patients to the Cary Urology linear accelerator instead of Rex if Cary Urology is permitted to develop a prostate health center. (Khoudary, Vo. 9, pp. 2024-25)

50 223. A recent Rex CON application to renovate its Cancer Center states that Rex expects the cancer rate to increase by 37.9 percent in Wake County between 2010 and 2020 and the 65 and over population is expected to grow by 95.4 percent during this time period. (Respondent-Intervenor Ex. 39, p. 50). Rex acknowledges that the substantial growth in population will result in the projected demand for additional cancer services. (Id. at pp. 49-50). The total number of cancer patients in Wake County will increase by a number that is much greater than the 196 patients that Cary Urology proposes it will serve. (Lane, Vol. 7, pp. 1447- 1448)

224. Rex provided no creditable testimony or evidence contradicting the evidence in the record, which included its own CON application, that the number of total cancer patients in Wake County will increase by substantially more than the number of patients that Cary Urology proposes to serve.

225. In regard to Rex’s contention that it may have difficulty justifying future replacement of its older linear accelerators due to diminished volume, Rex has failed to establish that it is likely to experience diminished volumes for the reasons set forth above. Further, Rex provided no testimony or evidence that it has plans to replace any of its current linear accelerators in the foreseeable future.

226. Rex also provided no testimony or evidence that it has a “right” to treat patients or receive revenue from patients that have yet to be diagnosed with prostate cancer and are not currently patients of Rex. (Smith, Vol. 2, p. 425).

Conditions Placed on Cary Urology’s Approval

227. Petitioner WROS argued that the Agency erred by not placing appropriate conditions on Cary Urology’s CON. (Kirschbaum, Vol. 1, p. 49; Kirschbaum, Vol. 10, pp. 2167- 2168, 2172-2173). Specifically, WROS argued that the Agency should have placed a condition on Cary Urology’s CON that it could only treat prostate cancer and African American men.

228. Although the Agency may place conditions on a CON, there is no requirement that the Agency place certain conditions on a CON other than conditions that are required for expansion of nursing home and intermediate care homes for the mentally retarded. N.C. Gen. Stat. § 131E-186.

51 CONCLUSIONS OF LAW

To the extent that certain portions of the foregoing Findings of Fact constitute mixed issues of law and fact, such Findings of Fact shall be deemed incorporated herein as Conclusions of Law. Based upon the foregoing Findings of Fact, the undersigned makes the following Conclusions of Law:

1. The parties properly are before the undersigned Administrative Law Judge and jurisdiction and venue are proper.

2. When challenging the CON Section’s decision to approve a Certificate of Need application, a Petitioner must establish, by a preponderance of the evidence, that: (1) the Agency’s decision deprived Petitioner of property, ordered the Petitioner to pay a fine or civil penalty, or has otherwise substantially prejudiced the Petitioner’s right, and (2) the Agency exceeded its authority or jurisdiction, acted erroneously, failed to use proper procedure, acted arbitrarily or capriciously, or failed to act as required by law. Britthaven v. N.C. Dep’t of Human Resources, 118 N.C. App. 379, 382, 455 S.E.2d 455, 459 (1995); see also N.C.G.S. § 150B- 23(a).

3. Petitioners bear the burden of proof on each and every element of their case. Overcash v. N.C. Dep’t of Env’t & Natural Res., 179 N.C. App. 697, 704, 635 S.E.2d 442, 447- 48 (2006).

4. An ALJ need not make findings as to every fact which arises from the evidence and need only find those facts which are material to the settlement of the dispute. Flanders v. Gabriel, 110 N.C. App. 438, 440, 429 S.E.2d 611, 612 (1993).

5. An ALJ is not limited to information that the CON Section actually reviewed or relied upon in making its decision regarding an application. Dialysis care of North Carolina, LLC v. N.C. Dept. of Health and Human Services, 137 N.C. App. 638, 648, 529 S.E.2d 257, 262, affirmed per curiam, 353 N.C. 258, 538 S.E.2d 566 (2000). See also In re Wake Kidney Clinic, PA., 85 N.C. App. 639, 643-644, 355 S.E.2d 788, 791 (1987). In determining these issues, the undersigned considered evidence that was presented or available to the Agency during the review period.

6. The North Carolina Court of Appeals has held that the exercise of an applicant’s right to an evidentiary hearing under the contested case provision of N.C. Gen. Stat. § 131E- 188(a) does not commence a de novo proceeding by the ALJ intended to lead to a formulation of the final decision. Britthaven, 118 N.C. App. at 382, 455 S.E.2d at 459. The Court expressly

52 recognized that to do so would misconstrue the nature of contested case hearings under the CON law and the Administrative Procedure Act. Id.

7. Administrative Agency decisions may be reversed as arbitrary and capricious only if they are “patently in bad faith,” or “whimsical” in the sense that “they indicate a lack of fair and careful consideration” or “fail to indicate any course of reasoning in the exercise of judgment.” ACT-UP Triangle v. Comm’n for Health Servs., 345 N.C. 699, 707, 483 S.E.2d 388, 393 (1997) (internal citation and quotations omitted).

8. The “arbitrary and capricious” standard is a difficult one to meet. Blalock v. N.C. Dep’t of Health and Human Servs., 143 N.C. App. 470, 475, 546 S.E.2d 177, 181 (2001).

9. North Carolina law also gives great deference to an Agency’s interpretation of a law it administers. Frye Reg’l Med. Ctr. v. Hunt, 350 N.C. 39, 45, 510 S.E.2d 159, 163 (1999). See also Carpenter v. N.C. Dep’t of Human Res., 107 N.C. App. 278, 279, 419 S.E.2d 582, 584 (1992), disc. rev. improvidently allowed, 333 N.C. 533, 427 S.E.2d 874 (1993) (holding that a reviewing court should defer to the Agency’s interpretation of a statute it administers “so long as the Agency’s interpretation is reasonable and based on permissible construction of the statute”).

Alleged Agency Error

10. As set forth in the above Findings of Fact, Cary Urology’s application conformed to all the applicable statutory and regulatory criteria.

11. The Agency did not violate the standards of N.C. Gen. Stat. § 150B-23(a) in determining that Cary Urology’s Application conformed to the applicable statutory and regulatory criteria. Petitioners failed to meet their burden of proof in this contested case.

12. The Agency was not required to analyze whether Cary Urology’s application conformed with the regulatory criteria pertaining to diagnostic centers because Cary Urology’s application did not meet the $500,000.00 threshold required by N.C. Gen. Stat. § 131E-176(7a).

13. In a competitive review, the Agency may conduct a comparison of the applications to determine which applicant should be awarded the CON. Craven Reg’l Med. Auth. v. N.C. Dep’t of Health and Human Servs., 176 N.C. App. 46, 58, 625, S.E.2d 837, 845 (2006). There is no statute or rule which requires the Agency to utilize certain comparative factors. Id. Thus, the Agency has discretion to select comparative factors which it believes is appropriate for each particular review.

53 14. Because the Agency has the discretion to select the comparative factors that will be used in each review, Petitioners have the burden of demonstrating that the Agency acted arbitrarily and capriciously in the selection of the factors it uses to compare the applicants.

15. The comparative factors used by the Agency in this review were appropriate, bear a direct relation to important considerations related to the demonstration project at issue, and were in no way whimsical or fail to indicate any course of reasoning.

16. Petitioners failed to meet their burden of proving that the Agency’s comparative findings violated the standards of N.C. Gen. Stat. § 150B-23(a). Petitioners also failed to meet their burden of proving that the Agency was arbitrary or capricious in the selection of the comparative criteria used to determine that Cary Urology’s application was comparatively superior.

17. The Agency did not violate the standards of N.C. Gen. Stat. § 150B-23(a) when it found Cary Urology’s application comparatively superior to UNC Hospitals’ application and decided that Cary Urology should be awarded the Certificate of Need.

18. N.C. Gen. Stat. § 131E-188(a) authorizes an “affected person” to petition the Office of Administrative Hearings for a contested case. Rex and WROS qualify as affected persons under § 131E-188(c).

19. N.C. Gen. Stat. § 131E-188 provides the statutory grounds for and prerequisites to filing a petition for a contested case hearing regarding decisions made by the CON Section; it does not alter the statutory requirements that must be met in order for a Petitioner to be entitled to relief. The actual framework for deciding the contested case is governed by N.C. Gen. Stat. Chapter 150B Article 3.

20. Under N.C. Gen. Stat. § 150B-23(a), Petitioners Rex and WROS must prove by the preponderance of the evidence, not only that the Agency exceeded its authority or jurisdiction, acted erroneously, failed to use proper procedure, acted arbitrarily or capriciously or failed to act as required by law or rule, but also that the Agency’s decision substantially prejudiced their rights. Britthaven, 118 N.C. App. at 382, 355 S.E.2d at 459.

54 21. None of the issues raised by Petitioners under Criterion 1 support a determination based on a preponderance of the evidence that the Agency erred in finding Cary Urology’s application conforming with this Criterion. The Agency did not err in its determination that Cary Urology conformed with Criterion 1.

22. Cary Urology’s application conforms with Criterion 1.

23. None of the issues raised by Petitioners under Criterion 3 support a determination based on a preponderance of the evidence that the Agency erred in finding Cary Urology’s application conforming with this Criterion. The Agency did not err in its determination that Cary Urology conformed with Criterion 3.

29. None of the issues raised by Petitioners under Criterion 6 support a determination based on a preponderance of the evidence that the Agency erred in finding Cary Urology’s

55 application conforming with this Criterion. The Agency did not err in its determination that Cary Urology conformed with Criterion 6.

32. Cary Urology’s application conformed to Criterion 7.

33. The Agency did not err in its determination that Cary Urology conformed with Criterion 8.

35. The Agency did not err in its determination that Cary Urology conformed with Criterion 12.

37. None of the issues raised by Petitioners under Criterion 13(c) support a determination based on a preponderance of the evidence that the Agency erred in finding Cary Urology’s application conforming with this Criterion. The Agency did not err in its determination that Cary Urology conformed with Criterion 13(c).

38. Cary Urology’s application conforms with Criterion 13(c).

56 39. The Agency did not err in its determination that Cary Urology conformed with Criterion 18(a).

40. Cary Urology’s application conforms with Criterion 18(a).

41. None of the issues raised by Petitioners relating to the regulatory criteria support a determination based on a preponderance of the evidence that the Agency erred in finding Cary Urology’s application conforming with the regulatory criteria. The Agency did not err in its determination that Cary Urology conformed with the applicable regulatory criteria.

42. Cary Urology’s application conforms with all the applicable regulatory criteria.

43. Cary Urology was not required to meet the regulatory standards set forth in 10A N.C.A.C. 14C.1800 relating to diagnostic centers. The Agency did not err in failing to make findings regarding these regulatory criteria.

44. The Agency did not err in its application of the comparative factors and its determination that Cary Urology was comparatively superior to UNC Hospitals.

45. WROS failed to prove that the Agency’s decision will substantially prejudice its rights.

46. Rex failed to prove that the Agency’s decision will substantially prejudice its rights.

47. The language of the 2009 SMFP states only that the demonstration project focus on the treatment of prostate cancer, especially in African American men. (Respondent-Intervenor Ex. 4B, p. 121). This statement does not mean that the proposed prostate health center demonstration project must exclusively treat prostate cancer in African American men.

48. The language of the special criteria promulgated for this demonstration project specifically addresses the treatment of urological cancers. 10A N.C.A.C. 14C.1902(c)(7) and

57 (14). Therefore, it would be erroneous to place a condition on the CON that Cary Urology only could treat prostate cancer patients with its linear accelerator.

49. The Agency did not err by failing to place conditions on Cary Urology’s CON that it only treat prostate cancer and African American men with its linear accelerator.

50. The evidence demonstrates that Rex and WROS’ primary concern is the effect of competition. The fact that some patients may choose to receive services at Cary Urology’s proposed facility rather than at a facility operated by Rex or WROS does not support or define any legal right that is substantially prejudiced by the Agency’s decision to grant Cary Urology a CON to obtain a dedicated linear accelerator and operate a multidisciplinary prostate health center. “Everyone [has] the right to enjoy the fruits and advantages of his own enterprise, industry, skill and credit. He has no right to be protected against competition.” Coleman v. Whisnant, 225 N.C. 494, 506, 35 S.E.2d 647, 655 (1945). Rex and WROS are not “being prevented from benefiting from ‘the fruits and advantages of [its] own enterprise, industry, skill, and credit,’ but merely are being required to compete for such benefit”. Bio-Medical Applications v. N.C. Dep’t of Health and Human Servs., 179 N.C. App. 483, 491-92, 634 S.E.2d 572, 578 (2006) (quoting Coleman, 255 N.C. at 506, 35 S.E.2d at 665).

51. Because Rex and WROS have failed to establish that they have substantially been prejudiced by the Agency’s decision, they have failed to prove an essential element of their cases.

RECOMMENDED DECISION

It hereby is recommended that the Director of the Division of Health Service Regulation, Department of Health and Human Services, enter a Final Agency Decision affirming the Agency’s decision to approve the CON application of Cary Urology and to disapprove UNC Hospitals’ application.

It hereby is ordered that the Agency serve a copy of the final decision on the Office of Administrative Hearings, 6714 Mail Service Center, Raleigh, North Carolina, 27699-6714, in accordance with N.C.G.S. § 150B-36(b).

NOTICE

The Agency making the Final Decision in this contested case is required to give each party an opportunity to file exceptions to this Recommended Decision and to present written arguments to those in the Agency who will make the Final Decision. N.C.G.S. § 150B-36(a).

58 The Agency is required by N.C.G.S. § 150B-36(b) to serve a copy of the Final Decision on all parties and to furnish a copy to the parties’ attorneys of record and to the Office of Administrative Hearings.

The Agency that will make the Final Decision in this contested case is the North Carolina Department of Health and Human Services.

This, the 20th day of July, 2010.

______Beecher R. Gray, Administrative Law Judge