Health care providers are constantly subject to scrutiny and potential adverse impact from agency action and sometimes inaction. The content of an agency’s regulations can have a critical impact on the operations of a provider. This paper will provide an overview of provisions of North Carolina’s Administrative Procedure Act ("the APA"), N.C.G.S. Chpt. 150B, that can be helpful in representing health care providers.
The APA can be a very useful tool for health care providers. Providers who believe that agency action has substantially prejudiced their rights have the option of filing a contested case hearing. Providers who need guidance in determining the appropriate course of action can seek a declaratory ruling from the relevant agency. A declaratory ruling also can be helpful in positioning the health care provider for judicial review of a legal position taken by the agency that the health care provider believes is erroneous. A provider who wants to question the validity of a rule also can seek a declaratory ruling. The rule-making provisions of the APA provide avenues for changing existing regulations, proposing new regulations, and influencing and sometimes challenging an agency’s attempt to promulgate a new regulation.
Articles 3 and 3A of North Carolina’s Administrative Procedure Act, N.C.G.S. Chapter 150B, set forth the statutory provisions applicable to contested cases. Certain agencies governed by Article 3A, including occupational licensing agencies, handle their own hearings by using a majority of the agency as the hearing body. N.C.G.S. §§ 150B-38(a) and -40(b). Contested cases involving all other agencies are handled by the North Carolina Office of Administrative Hearings. An Administrative Law Judge is assigned to preside over each contested case. N.C.G.S. § 150B-23(a).
Any "person aggrieved" is permitted to file a petition for a contested case hearing. See N.C.G.S. §§ 150B-22, -23, and -38. The term "person aggrieved" is defined as ". . . any person or group of persons of common interest directly or indirectly affected substantially in his or its person, property, or employment by an administrative decision." N.C.G.S. § 150B-2(6).
A. The Decision at Issue in a Contested Case.
The decision at issue can be a formal written decision directed to a particular party or it may be agency action that appears in a general communication or even an agency bulletin directed to a class of providers. Informal agency decisions, such as the "no review" determinations by the Certificate of Need Section, have been the subject of contested cases. A "no review" determination has been described by the Chief of the Certificate of Need Section as an informal determination by the Certificate of Need Section concerning whether a project is or is not subject to Certificate of Need review.
A person challenging agency action files a Petition with the Office of Administrative Hearings. The Petition must
". . . state facts determining to establish that the agency named as the respondent has deprived the petitioner of property, has ordered the petitioner to pay a fine or a civil penalty, or has otherwise substantially prejudiced petitioner’s rights and 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.
N.C.G.S. § 150B-23(a)
Exhibit 1 of the Appendix to these materials is a Verified Petition for Contested Case Hearing filed on behalf of the Association for Home and Hospice Care of North Carolina ("the Association") challenging general communications by DMA that it would no longer pay for services from day one if a physician’s verbal order was not countersigned in 30 days and that it would discontinue paying for certain services if the individual were receiving other, Medicare covered services. In this case, the Agency protested that it had not made any "decisions" and that this was not a change that could be challenged through a contested case proceeding. The Administrative Law Judge disagreed.
B. The Authority of the ALJ During the Contested Case
N.C.G.S. § 150B-33 addresses the powers of an Administrative Law Judge during the contested case. The Administrative Law Judge has very broad powers to regulate the course of the contested case hearing. Some of the powers listed in N.C.G.S. § 150B-33 can be particularly helpful when an agency is acting unreasonably with harmful consequences.
The ALJ’s powers include, among others, the power to stay or enjoin the contested action by the Agency pending the outcome of the case. The determination of whether injunctive relief is appropriate is subject to the provisions of Rule 65 of the North Carolina Rules of Civil Procedure. N.C.G.S. § 150B-33(b)(6). The authority of an ALJ to be able to enjoin Agency action can be particularly important when an agency is taking action that will have an immediate, harmful impact, such as cutting reimbursement rates.
In the Verified Petition included in the Appendix, Exhibit 1, the Association sought and obtained a Preliminary Injunction which prohibited DMA from making the reimbursement and service changes that had been communicated to home care providers in a Medicaid Bulletin.
An ALJ also has the power to determine that a rule, as applied in the particular case, is void. The grounds for this determination are: (1) the rule is not within the statutory authority of the Agency, (2) is not clear and unambiguous to persons it is intended to direct, guide, or assist, or (3) is not reasonably necessary to enable the Agency to fulfill a duty delegated to it by the General Assembly. N.C.G.S. § 150B-33(b)(9). This authority, although used sparingly, can be very useful when an agency insists on applying a rule that is outdated, unnecessary, or ambiguous.
An ALJ also can enter an order, returnable before a Superior Court judge, to show cause why an agency should not be held in contempt. This provision has been used when an agency refused to abide by an ALJ’s order enjoining certain agency actions.
C. The ALJ’s Decision
Except in CON cases, the Administrative Law Judge makes a decision, and not a recommended decision. The APA was amended, effective January 1, 2001, to make it more difficult for the final agency decision-maker to ignore the findings and conclusions of the ALJ in a contested case.
Except in CON cases, the Agency is required to adopt each finding of fact contained in the ALJ’s decision, unless the finding is clearly contrary to the preponderance of the admissible evidence, giving due regard to the opportunity of the ALJ to evaluate the credibility of witnesses. If the Agency decision-maker fails to adopt an ALJ finding of fact, or makes a finding of fact that is not in the ALJ’s decision, the agency is required to explain in detail, by reference to the record, the evidence relied upon and, in the case of an ALJ finding of fact not adopted by the agency, the reasons for not adopting such finding. N.C.G.S. §§ 150B-36(b), (b1) and (b2).
Since January 1, 2001, the APA now also requires that in CON cases, the final agency decision must recite and address all of the facts set forth in the recommended decision and for each fact not adopted by the agency, the agency must state the specific reason, based on the evidence, for not adopting the finding of fact. N.C.G.S. § 150B-34(c).
Except in CON cases, the agency is required to adopt the decision of an ALJ unless the agency demonstrates that the decision of the ALJ is clearly contrary to the preponderance of the admissible evidence in the record. N.C.G.S. § 150B-36(b3). In such case, the agency also must set forth its reasoning for the final decision in light of the findings of fact and conclusions of law in the final decision, including any exercise of discretion by the agency. Id.
Except in CON cases, if an agency rejects an ALJ’s decision in favor of a petitioner, the petitioner has the right to seek de novo review from a superior court judge. See N.C.G.S. § 150B-45 and § 150B-51(c). In such case, the court cannot give deference to any prior decision made in the case and shall not be bound by the findings of fact or the conclusions of law contained in the agency’s final decision. N.C.G.S. § 150B-51(c).
The burden on the agency to justify its rejection of an ALJ’s decision has made it more difficult to summarily reject ALJ decisions. As a result, providers challenging agency action in a contested case, and succeeding before the Administrative Law Judge, should be more likely to have a final agency decision that is favorable.
Requesting that an agency issue a declaratory ruling can be very helpful in representing a provider who wants to question the validity of a rule or ask the agency to determine how the law and/or agency rules apply to a given fact situation. N.C.G.S. §150B-4 provides the authority for an agency issuing a declaratory ruling on request of a person aggrieved.
A. The Subject Matter of a Declaratory Ruling Request.
As set forth in N.C.G.S. §150B-4,
"[o]n request of a person aggrieved, an agency shall issue a declaratory ruling as to the validity of a rule or as to applicability to a given state of facts of a statute administered by the agency or of a rule or order of the agency, except when the agency for good cause finds issuance of a ruling undesirable."
Unless a ruling is set aside by the Court, it is binding on the agency and the person requesting it. Id. Agencies are required to prescribe in their rules the circumstances in which a ruling shall or shall not be issued. The rules of the Department of Health and Human Services, the Division of Mental Health, Medical Care Commission, and the Division of Facility Services are included in Appendix, Exhibit 2.
A provider who believes that an agency regulation is beyond the agency’s statutory authority could use a declaratory ruling request as the first stop in an attempt to have the rule declared invalid. A provider who is unsure that actions it wishes to take are permitted under an agency’s governing statute and/or regulations also could seek a declaratory ruling from the agency.
In the Appendix, Exhibit 3, the Petitioner requested a declaratory ruling on the application of the Certificate of Need law to his proposed plans to operate his ambulatory surgical facility in two locations, rather than one.
B. Judicial Review of a Declaratory Ruling.
A declaratory ruling by an agency is subject to judicial review by a Superior Court Judge in Wake County or in the county where the petitioning party resides. N.C.G.S. §§ 150B-4, -43, and -45. If the agency fails to issue a declaratory ruling in 60 days, this is considered a denial of the request as well as a denial of the merits of the request and is subject to judicial review. N.C.G.S. § 150B-4. Because declaratory rulings necessarily involve undisputed facts and legal issues, a Superior Court Judge conducting judicial review would apply a de novo standard of review. Brooks v. McWhirter Grading Company, Inc., 303 N.C. 573, 281 S.E.2d 24 (1981). Consequently, using a declaratory ruling request, even if it is likely that the agency will deny the request, can position a provider for de novo review by a Superior Court judge.
In the request for declaratory ruling, Appendix 3, the Division of Facility Services denied Christenbury Surgery Center’s request and entered a contrary ruling. However, on judicial review, the Superior Court judge agreed with Christenbury Surgery Center and entered a declaratory ruling that the Certificate of Need law allowed him to operate his ambulatory surgery center in two locations. The decision was affirmed on appeal. Christenbury Surgery Center v. N.C. Dept. of Health and Human Services, 138 N.C. App. 309, 531 S.E.2d 219, disc. rev. allowed, 352 N.C. 672, 545 S.E.2d 418 (2000); rev. improv. allowed, 353 N.C. 354, 547 S.E.2d 809 (2001).
Within the context of ruling making proceedings, a provider has numerous statutory rights that can impact the agency rules that govern its operations. Providers have the right to petition to amend existing rules. With new or amended rules being proposed by an agency, providers have an opportunity to participate in the public comment process and challenge these rules before the Rules Review Commission. Providers also can seek judicial review in Superior Court if the provider contends that certain requirements have not been met. Article 2A of the APA sets forth the procedures for adopting rules and the rights available to providers to comment on such rules or challenge existing or proposed rules.
A. Petitioning for the Adoption or Amendment of Rules.
N.C.G.S. §150B-20 sets forth the procedure for petitioning an agency to adopt a new rule or amend an existing rule. The petition process also can be used to seek the repeal of an agency rule. The statute provides that
"[a] person may petition an agency to adopt a rule by submitting to the agency a written rule-making petition requesting the adoption. A person may submit written comments with the rule-making petition. If a rule-making petition requests the agency to create or amend a rule, the person must submit the proposed text of the requested rule change and the statement of the effect of the requested rule change." Id.
If the agency denies the rule-making petition, the denial is considered a final agency decision and is subject to judicial review under Article 4 of the APA. N.C.G.S. § 150B-20(d). Failure of an agency to grant or deny the rule-making petition within 30 days (120 days for a Board or Commission) is a denial of a rule-making petition. N.C.G.S. §150B-20(b) and (d).
If an agency grants the rule-making petition, the agency then initiates rule-making proceedings pursuant to the procedures set out in Article 2A. N.C.G.S. § 150B-20(c).
Petitioning to adopt or amend a rule can be very useful, even if it is not likely that the agency will adopt or amend the rule, because of the availability of judicial review. If an agency refuses to grant a rule-making petition and in doing so has violated the standards of N.C.S.G. §150B-51(b), a superior court judge could reverse the denial and order that the agency institute rule-making proceedings.
B. Commenting upon and Challenging Proposed Rules or Amendments to Existing Rules.
During the 2003-2004 Session of the General Assembly, the rule-making provisions under the APA were substantially revised to shorten the process for promulgating many rules and to address other inefficiencies in the rule-making process. See N.C.G.S. Chapt. 150B, Article 2A. A new category of "emergency rules" was created and the process for an agency adopting temporary rules was substantially changed, providing an opportunity for public hearing and public comment prior to agency adoption of a temporary rule. Molly Masich, Director of APA Services with the Office of Administrative Hearings, has prepared a very helpful flow chart summarizing the steps in emergency rule-making, temporary rule-making, and permanent rule-making. A copy of this flow chart is attached as Exhibit 4 of the Appendix.
There is no opportunity for public comment before an agency adopts an emergency rule, but the standards for adopting an emergency rule are much more stringent than a temporary rule. The agency must find that adherence to the notice and hearing requirements would be contrary to the public interest and that the immediate adoption of the rule is required by a serious and unforeseen threat to the public health or safety. N.C.G.S. § 150B-21.1A(a). If the agency adopts an emergency rule, it must simultaneously initiate temporary rule-making proceedings which would provide an opportunity for public hearing and comment. Id.
Before the recent changes, an agency could adopt a temporary rule without public comment. Now, there must be a public hearing and the opportunity for public comment before the agency adopts a temporary rule. N.C.G.S. § 150B-21.1(a3). This offers an opportunity for providers to become actively involved in opposing a temporary rule.
A person aggrieved by a temporary rule adopted by an agency may file a declaratory judgment action in Wake County Superior Court to seek a judicial determination as to whether the agency’s written statement of findings of need for the rule meet the statutory criteria for a temporary rule, and the statutory standards for a permanent rule. N.C.G.S. § 150B-21.1(c). These standards are listed in N.C.G.S. § 150B-21.9(a).
Permanent rule-making still offers the opportunity for a public hearing and public comment. N.C.G.S. § 150B-21.2(e) and (f). Permanent rules now can become effective the first day of the month following the month the rule is approved by the Rules Review Commission, whereas in the past, a permanent rule could not become effective until at least the thirty-first legislative day of the next regular session of the General Assembly which could be extended if a bill were introduced to disapprove the proposed rule. N.C.G.S. § 150B-21.3(b). However, a "controversial rule", which is defined as a rule that ten persons or more have sent letters to the Rules Review Commission requesting that the rule be subject to legislative review, must still await the next legislative session before it can become final, even if it is approved by the Rules Review Commission. N.C.G.S. § 150B-21.3 (b1).
Providers opposing an agency’s adoption of a permanent rule can, by sending ten or more letters of opposition, delay the effective date of a permanent rule. This would provide the opportunity for lobbying the General Assembly to disapprove the proposed permanent rule.
North Carolina’s Administrative Procedure Act offers many avenues for involving providers in the regulatory process. Each time a healthcare client is faced with an adverse agency action or a proposed change in regulations that may negatively impact that providers operations, it is important to consider the options available under the APA.