JUNE HOWE & others [Note 1] vs. HEALTH FACILITIES APPEALS BOARD & another. [Note 2]

FINE, J. This case arises under G. L. c. 111, Sections 25B-25G, inserted by St. 1972, c. 776, Section 3, the statute popularly known as the determination of need law. The statute requires that any substantial capital expenditure for construction or renovation, or any substantial change in services, by a health care facility be preceded by a determination of need for such by the Department of Public Health (department). The purpose of the statute (to control the unnecessary expansion by health care institutions of their patient care facilities), its relevant legislative history, and some helpful guidance in its interpretation are set forth in Brookline v. Medical Area Serv. Corp., 8 Mass. App. Ct. 243, 249-259 (1979). Specifically, with some significance for the instant case, health care facilities are to be allowed "some degree of flexibility in determining their operational necessities -- albeit under the department's watchful eye," "the department's role" is "a major one . . . in defining the contours of the statute," and the department's conclusion as to which projects require determinations of need are entitled to "particular deference." Id. at 253, 254, 259. See also Lahey Clinic Foundation, Inc. v. Health Facilities Appeals Bd., 376 Mass. 359 (1978); Wing Memorial Hosp. v. Department of Pub. Health, 10 Mass. App. Ct. 593 (1980); Shoolman v. Health Facilities Appeals Bd., 10 Mass. App. Ct. 799, 802-803, 806 (1980); Adam v. Department of Pub. Health, 15 Mass. App. Ct. 906 (1982); Gerte v. Department of Pub. Health, 18 Mass. App. Ct. 901 (1984). Not discussed in the Brookline case, and not discussed at length elsewhere, is the standard of judicial review applicable to an administrative decision on a determination of need application.

On September 9, 1981, the New England Baptist Hospital filed an application with the department for a determination of need for a project involving renovation and new construction. In accordance with G. L. c. 111, Section 25C, and 105 Code Mass. Regs. Sections 100.500 et seq. (1980), a review process was undertaken by the department and several other agencies. Pursuant to Section 25C, various separate groups of ten taxpayers, including the plaintiffs, Back of the Hill Ten Taxpayers' Group (Back of the Hill), participated in the administrative proceedings before

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the department. On August 18, 1982, the department [Note 3] held a public hearing, and on December 21, 1982, the department voted its partial approval of the application. On March 10, 1983, the department issued a decision in writing, with reasons.

Back of the Hill filed an appeal under G. L. c. 111, Section 25E, with the Health Facilities Appeals Board (board). [Note 4] The board considered the record compiled by the department and written and oral arguments from the parties, including Back of the Hill, but declined to hold an evidentiary hearing. On June 24, 1983, the board issued a decision finding "no abuse of discretion or failure to follow required procedures," thereby upholding the department's determination of need.

In this action against the board, Back of the Hill sought judicial review of the board's decision. The hospital intervened as a defendant. A Superior Court judge affirmed the decision of the board, ruling that the court was required under the statute to determine only whether the board's decision was arbitrary or capricious, not whether it was based upon substantial evidence. The judge ruled, however, that even if a substantial evidence standard applied, the decision satisfied that test.

On appeal, Back of the Hill argues, first, that a substantial evidence test for judicial review applied and that the board's decision was not supported by substantial evidence in the record, and, second, that, as a matter of law, the board erroneously excluded from its consideration the cost of establishing an arthritis center and a heart center and the cost of renovating the Brigham East Wing to relocate the heart center.

1. Scope of judicial review. The hospital and the board contend that the board's decision should be judicially reviewed only to determine if it is arbitrary or capricious or an abuse of

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discretion. Back of the Hill argues that the test is more rigorous, namely, whether the decision is based upon substantial evidence. "The substantial evidence test is commonly understood to require that agency findings must rest upon `such evidence as a reasonable mind might accept as adequate to support a conclusion.' See, e.g., Bunte v. Mayor of Boston, 361 Mass. 71, 74 (1972). Review under the standard entails scrutiny of the whole record to determine whether substantial evidence exists. See, e.g., Cohen v. Board of Registration in Pharmacy, 350 Mass. 246, 253 (1966)." Boston Edison Co. v. Boston Redevelopment Authy., 374 Mass. 37, 54 (1977). The more deferential "arbitrary or capricious (or the equivalent abuse of discretion) standard" requires only that there be a rational basis for the decision. Attorney Gen. v. Sheriff of Worcester County, 382 Mass. 57, 62 (1980). Our reading of the statute convinces us that the Legislature intended to require a court reviewing a decision of the board on a determination of need issue to determine only whether the agency decision was legally infirm because arrived at arbitrarily or capriciously, without observance of procedure required by law, or in violation of applicable provisions of substantive law. We read the decision of the Supreme Judicial Court in Lahey Clinic Foundation, Inc. v. Health Facilities Appeals Bd., 376 Mass. at 372, as requiring this conclusion. Compare Shoolman v. Health Facilities Appeals Bd., 10 Mass. App. Ct. at 803, & 806 n.17.

Section 25C provides for the first level of administrative review of an application for a determination of need, which takes place before the department. After the filing of an application by the health provider, notice to various agencies, and the opportunity for comment on the proposal, the department must hold a public hearing if requested to do so by the applicant, the State, the appropriate regional comprehensive planning agency, or any group of ten taxpayers. The hearing is not an adjudicatory proceeding (105 Code Mass. Regs. Section 100.410 [1983]; see Gerte v. Department of Pub. Health, 18 Mass. App. Ct. 901, 903 [1984]), and there is no requirement that the agency make findings of fact. Under the eighth paragraph

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of G. L. c. 111, Section 25C (inserted by St. 1977, c. 945, Section 4), the department's determination must be made "on the written record compiled by the department during its review of the application," as well as applicable criteria, and it must be in writing and set forth reasons.

Section 25E (and regulations 113 Code Mass. Regs. Sections 1.00 et seq. [1978]) sets forth the procedure for the second level of administrative review and also for judicial review. The second level of review takes place before the board. In its review, the board is restricted to the materials on file with the department. It must decide "whether the determination appealed from was an abuse of discretion, without observance of procedure required by law or in violation of applicable provisions of law." G. L. c. 111, Section 25E [Note 5], inserted by St. 1972, c. 776, Section 3. The board may order a hearing on the appeal if it determines that the available written materials are inadequate for the consideration required of it.

The final decision of the board is subject to judicial review under the provisions of G. L. c. 30A, Section 14, "to the extent they are not inconsistent with the provisions of [Section 25E]." G. L. c. 111, Section 25E. General Laws c. 30A, Section 14(7), as appearing in St. 1973, c. 1114, Section 3, sets forth the basis on which a court may set aside an agency decision. It may do so if the decision is "(a) [i]n violation of constitutional provisions; . . . (b) [i]n excess of the statutory authority or jurisdiction of the agency; . . . (c) [b]ased upon an error of law; . . . (d) [m]ade upon unlawful procedure; . . . (e) [u]nsupported by substantial evidence; . . . (f) [u]nwarranted by facts found by the court on the record as submitted or as amplified [hereunder] . . . in those instances where the court is constitutionally required to

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make independent findings of fact; or (g) [a]rbitrary or capricious, an abuse of discretion, or otherwise not in accordance with law."

To protect health care provider applicants and the consuming public, whichever in a particular case happens to be the party aggrieved by the board's determination of need decision, the Legislature, rejecting the extremes of both the absence of any judicial review and the award of a trial de novo, sought to impose some intermediate level of judicial scrutiny of the board's decision. The precise issue before us is whether the inclusion of the somewhat more rigorous substantial evidence test in G. L. c. 30A, Section 14(7), is "inconsistent with the provisions of [Section 25E]."

The board and the hospital point to a number of factors on the basis of which they urge a finding of inconsistency between the substantial evidence test and Section 25E. First, they point to the fact that the agency hearing is not adjudicatory. That alone is not conclusive, however. See Massachusetts Bonding & Ins. Co. v. Commissioner of Ins., 329 Mass. 265, 273 (1952). Second, they point out that determination of need issues, involving questions of public policy and informed discretion, political or legislative in nature, are not well suited to judicial oversight. In some analogous situations, the Legislature has chosen to limit the scope of review to an "arbitrary or capricious" standard. Greenleaf Fin. Co. v. Small Loans Regulatory Bd., 377 Mass. 282 (1979). Cast Iron Soil Pipe Inst. v. Board of State Examrs. of Plumbers & Gas Fitters, 8 Mass. App. Ct. 575, 589 (1979). See also Natick Trust Co. v. Board of Bank Incorporation, 337 Mass. 615 (1958); Dubois v. Selectmen of Dartmouth, 2 Mass. App. Ct. 674, 677-678 (1974); Pronghorn, Inc. v. Licensing Bd. of Peabody, 13 Mass. App. Ct. 70, 72-73 (1982). It does not follow that a substantial evidence test could not be employed for judicial review of an administrative determination of such a nature. See, e.g., Boston Edison Co. v. Boston Redevelopment Authy., 374 Mass. 37, 51-53 (1977). The critical factor, in our view, is the unworkability of the use of a narrower standard of review by the board than by the court. The board's decision is a determination

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whether the department acted arbitrarily or capriciously or abused its discretion in reaching its decision. It is the board's decision, not the initial decision of the department, which is subject to judicial review. Our search has revealed no statutory scheme in which the scope of judicial review was broader than the scope of review before the administrative body whose decision was subject to review. If the statutory scheme were as Back of the Hill contends, a court would be authorized to reverse a board decision which was not improper under the test of arbitrariness. It would invite appeals to the Superior Court from valid decisions of the board. This we do not believe the Legislature intended. [Note 6] We rule that application of the substantial evidence test at the Superior Court level would be so unworkable as to be inconsistent with the provisions of Section 25E. The reference in Section 25E to G. L. c. 30A, Section 14, is not thereby robbed of all meaning. The provisions of that section relating, among other things, to service of process, intervention, and stays, remain applicable.

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2. The merits of the appeal. Back of the Hill first argues that the hospital should not have been permitted to establish a heart center without having included that project in its application for a determination of need. The facts relating to the issue raised are not in dispute. Originally the hospital had planned to operate its own comprehensive cardiac disease detection, prevention, and rehabilitation program on the hospital's premises for inpatients and outpatients. In 1981 the hospital requested an advisory ruling from the department as to whether a determination of need was a prerequisite to its going forward with the project. On June 25, 1981, the department ruled such a determination necessary for the following reasons: (1) the project represented the addition of a new coordinated service, not formerly offered, entailing annual operating costs of more than $75,000, and under G. L. c. 111, Section 25B, ninth par., such a project is a substantial change in service within the statute; (2) the proposal was an "addition of a major service to those available" at the facility (105 Code Mass. Regs. Section 100.054[A] [1980]); and (3) patients receiving services from the program would be patients of the hospital and they would be billed by the hospital, and the services they were to receive would be controlled by the hospital.

Before the application was filed, the hospital abandoned the concept discussed in the advisory ruling. Instead, the hospital renovated space in the Brigham East Wing at a cost of $64,850 which it rents to the New England Heart Center, a sole proprietorship of a cardiologist, Dr. Ahmed Mohiuddin. Dr. Mohiuddin's practice was formerly located off the hospital grounds. The hospital did not bear the moving costs. No member of the hospital staff works in the heart center. Patients of the heart center are not billed by the hospital. The hospital maintains no control over the nature, scope, or quality of the services provided. The relationship between the hospital and the heart center is that of landlord and tenant. In short, the heart center being operated in the Brigham East Wing is not the same as the proposal which was the subject of the advisory opinion.

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The issue is whether the project constitutes a "substantial change in services" by the hospital. That term is defined in G. L. c. 111, Section 25B, as amended through St. 1980, c. 541, Section 3, subject to further definition by the department. However, when this application was filed, whatever definition was adopted by the department, according to Section 25B, had to include the addition of any service which entailed more than $75,000 annual operating expenses. The department's regulations defined the term further to include "every change in kind rather than degree" including any addition of a major service. 105 Code Mass. Regs. Section 100.054 (1980). Neither the statute nor the regulations make reference to a rental arrangement resulting in the provision of services which, if provided by the hospital, would require a determination of need.

We think the case is governed by the reasoning in the Brookline case. Back of the Hill has not demonstrated how the relocation of the heart center to the hospital grounds under the rental arrangement will result in an increase in health costs to the consuming public. There is no indication that the department has had a practice of regulating private physicians' offices or rentals on hospital grounds. Cf. G. L. c. 111, Section 52, as amended through St. 1979, c. 674, Section 1 (solo or group medical practice wholly owned by one or more of the practitioners is excluded from the definition of "clinic" in law governing licensing of clinics). The act contemplates some flexibility, and the department's role in defining the contours of the statute is to be a major one. No party disputes the $64,850 figure attributed to expenditures by the hospital to renovate the space in the Brigham East Wing for the heart center to occupy. Even if the funds will not be recouped in the form of rent, the amount expended is less than the amount needed to trigger the determination of need requirement for capital expenditures. The administrative determination was not arbitrary or capricious.

We need not deal at length with the argument concerning the arthritis center. Even assuming that the hospital expanded and coordinated the services previously offered, there is no dispute that the center remains in a part of the "Main" building not covered by the hospital's determination of need application.

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Moreover, only minimal expenses ($2,480) for some refurbishing of the space were incurred in setting up the center. Again, we rely upon the agency's expertise in deferring to its definition of the contours of its regulatory authority, and we discern no abuse of discretion.

Other issues raised on appeal do not, in our view, merit discussion.

Judgment affirmed.