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The North Carolina Court of Appeals recently issued a decision which makes it crystal clear that in order to successfully challenge the approval of a non-competitive certificate of need application, a party must show how its rights have been substantially prejudiced by the approval of the health service or facility in question. The September 6 decision in Wake Radiology Services LLC et al. v. N.C. Department of Health and Human Services et al. involved an appeal from a decision awarding a CON to Pinnacle Health Services of North Carolina, LLC to purchase a mobile MRI scanner for use in Wake and Johnston Counties. Pinnacle essentially proposed to acquire its own mobile MRI scanner to replace an MRI scanner it had been leasing to provide services at three sites in Wake and Johnston. Wake Radiology Services, LLC and affiliated entities challenged the approval of Pinnacle's non-competitive application.

In upholding the decision to award the CON to Pinnacle, the Court of Appeals focused on the statutory requirement that a party appealing a decision to approve a CON application must demonstrate how the decision “substantially prejudiced” its rights. The Court rejected Wake Radiology's theory that its qualification, under the CON Law, as an “affected person” who could challenge the Pinnacle decision automatically established the substantial prejudice component of its case. The Court explained that a petitioner's standing to challenge a CON decision is distinct and separate from the requirement to show substantial prejudice. Accordingly, the Court concluded that Wake Radiology's standing to appeal the CON decision in no way obviated its need to prove that its rights were substantially prejudiced by the decision.

In reasoning through this issue, the Court of Appeals reviewed the Department's findings regarding the testimony of Wake Radiology's president concerning a past decline in the company's MRI volumes and an increase in the percentage of lower paying patient groups (Medicare, Medicaid, and self-pay patients) since Pinnacle first began offering mobile MRI services in Wake and Johnston Counties. The Court agreed with the Department that this evidence failed to demonstrate substantial prejudice resulting from the CON decision. The Court noted that because Wake Radiology's evidence of harm was based exclusively on its own internal data, it left open many possible causes from other market conditions for the changes in Wake Radiology's MRI volume and patient mix. The Court also pointed to the fact that Wake Radiology's testimony focused on past events which pre-dated the CON decision at issue, and noted the absence of any evidence other than speculation by the company's president regarding how Wake Radiology would be harmed by the approval of the Pinnacle Application.

Consistent with the Department's and the presiding Administrative Law Judge's approach to the case below, the Court of Appeals did not go on in its opinion to address Wake Radiology's contentions about defects in the decision to approve the Pinnacle Application and award the CON. Rather, the Court concluded that because Wake Radiology failed to make the required showing of substantial prejudice, it was not necessary to reach the merits of its challenges to the decision. The Wake Radiology decision follows the reasoning of earlier cases including Parkway Urology, P.A. v. N.C. DHHS (2010) and Bio-Medical Applications of N.C., Inc. v. N.C. DHHS (2005). But this most recent decision is the strongest articulation to date of the Court of Appeals' position that a petitioner challenging the approval of another provider's non-competitive CON application must show substantial prejudice through proof which must amount to something more than existing market conditions and competitive impact. Any petitioner challenging a decision to approve a non-competitive CON application will be well-advised to consider this line of cases carefully in developing and presenting evidence in its case.

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