Surgical Care Affiliates, LLC v. N.C. Indus. Comm'n

IN THE COURT OF APPEALS OF NORTH CAROLINA

No. COA17-78

Filed: 21 November 2017

Wake County, No. 16-CVS-600

SURGICAL CARE AFFILIATES, LLC, Petitioner,

v.

NORTH CAROLINA INDUSTRIAL COMMISSION, Respondent.

Appeal by respondent from decision entered 9 August 2016 by Judge Paul C.

Ridgeway in Wake County Superior Court. Heard in the Court of Appeals 22 August

2017.

Parker Poe Adams & Bernstein LLP, by Renee J. Montgomery and Matthew W.

Wolfe, for petitioner-appellee.

Attorney General Joshua H. Stein, by Special Deputy Attorney General Amar

Majmundar and Assistant Attorney General Bethany A. Burgon, for

respondent-appellant.

Wyrick Robbins Yates & Ponton LLP, by Frank Kirschbaum, Charles George,

and Tobias Hampson, for Greensboro Orthopaedics, P.A., OrthoCarolina, P.A.,

Raleigh Orthopaedic Clinic, P.A., Surgical Center of Greensboro, LLC,

Southeastern Orthopaedic Specialists, P.A., Orthopaedic & Hand Specialists,

P.A. (Hand Center of Greensboro), Cary Orthopaedic and Sports Medicine

Specialists, P.A., and Stephen D. Lucey, M.D., as amici curiae in support of

petitioner-appellee.

Troutman Sanders LLP, by Christopher G. Browning, Jr. and Gavin B.

Parsons, for North Carolina Retail Merchants Association, North Carolina

Home Builders Association, North Carolina Chamber, North Carolina Farm

Bureau, North Carolina Association of Self-Insurers, American Insurance

Association, Property Casualty Insurers Association of America, Employers

Coalition of North Carolina, North Carolina Forestry Association, North

Carolina Automobile Dealers Association, North Carolina Association of

County Commissioners, Builders Mutual Insurance Company, Dealers Choice

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Mutual Insurance Company, First Benefits Insurance Mutual, Inc., Forestry

Mutual Insurance Company and the North Carolina Interlocal Risk

Management Agency, and P. Andrew Ellen for North Carolina Retail

Merchants Association, J. Michael Carpenter for North Carolina Home

Builders Association, Amy Y. Bason for the North Carolina Association of

County Commissioners, Kimberly S. Hibbard and Gregg F. Schwitzgebel, III,

for North Carolina Interlocal Risk Management Agency, T. John Policastro for

North Carolina Auto Dealers Association, and H. Julian Philpott, Jr., for North

Carolina Farm Bureau, as amici curiae in support of respondent-appellant.

BRYANT, Judge.

Because we hold the Superior Court erred in defining the term “hospital,” as

used in the context of 2013 N.C. Sess. Laws ch. 410, § 33.(a) and concluding that

“hospitals are separate and legally distinct entities from ambulatory surgical

centers,” we reverse the court’s decision that our General Assembly did not authorize

the Industrial Commission to adopt new maximum fees for ambulatory surgical

centers pursuant to 2013 N.C. Sess. Laws ch. 410, § 33.(a) and remand the matter for

entry of an order affirming the Commission’s declaratory ruling.

On 1 October 2015, petitioner Surgical Care Affiliates, LLC, (“petitioner”) filed

a request for a declaratory ruling with respondent, the North Carolina Industrial

Commission (“the Commission”).

[Petitioner] has requested a declaratory ruling regarding

the validity of certain of the Commission’s rules affecting

the fee schedule for services performed at ambulatory

surgery centers. Specifically, [petitioner] has requested

that the Commission declare invalid its adoption of a new

fee schedule for ambulatory surgery center services set

forth in 04 NCAC 10J .0103(g) and (h) (also referenced in

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04 NCAC 10J .0103(i)), and its amendment of 04 NCAC 10J

.0101(d)(3) and (5) to remove the former fee schedule.

On 25 July 2013, our General Assembly ratified 2013 N.C. Sess. Laws ch. 410,

§ 33.(a), which set out mandates for the Commission regarding its medical fee

schedule. The Commission noted in its 14 December 2015 Declaratory Ruling that

“[w]ith respect to the schedule of maximum fees for physician and hospital

compensation adopted by [the Commission] pursuant to G.S. 97-26, those fee

schedules shall be based on the applicable Medicare payment methodologies.”

(Emphasis added). Furthermore, the Commission noted that in developing the new

fee schedules, 2013 N.C. Sess. Laws ch. 410, § 33.(a) provided that “[the Commission

was] exempt from the certification requirement of G.S. 150B-19.1(h) and the fiscal

note requirement of G.S. 150B-21.4.”

Addressing the new mandate, the Commission adopted rules 04 NCAC 10J

.0102 and .0103 and amended rules 04 NCAC 10J .0101 and .0102. Under Rule 04

NCAC 10J .0101, the Commission set out its “Hospital Fee Schedule,” which included

reimbursement for services provided by ambulatory surgery centers. Further, the

Commission reasoned that by following the procedures for rulemaking, as set out in

General Statutes, Chapter 150B, a rebuttable presumption was created that the rules

were adopted in accordance with the Administrative Procedure Act.

Petitioner challenged the Commission’s determination that the mandates set

out in 2013 N.C. Sess. Laws ch. 410, § 33.(a), “[w]ith respect to the schedule . . . for

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physician and hospital compensation” (emphasis added), directed the Commission to

change the fee schedule for medical treatment provided at ambulatory surgery

centers.1 Furthermore, petitioner challenged the assertion that the session law’s

exemption from the fiscal note requirement of N.C. Gen. Stat. § 150B-21.4 was

applicable to the Commission. Thus, petitioner argued that the adopted new rules

(04 NCAC 10J .0102 and .0103) and the amended existing rules (04 NCAC 10J .0101

and .0102) were also invalid due to the Commission’s failure to meet the fiscal note

requirements of section 150B-21.4. Petitioner asserts that “as a result of

substantially reduced maximum reimbursement rates for surgical procedures

provided pursuant to Chapter 97, and the Commission’s failure to promulgate a fee

schedule that includes all surgical procedures performed at ambulatory surgery

centers, [petitioner] will lose a significant amount of revenue.”

However, as reflected in its declaratory ruling, the Commission reasoned that

petitioner failed to rebut the presumption of validity regarding the Commission’s

adopted and amended rules and denied petitioner’s requested relief.

On 13 January 2016, petitioner filed a petition for judicial review of the

Commission’s declaratory ruling in Wake County Superior Court. Prior to the

1 In its declaratory ruling, the Commission found that “[t]he Hospital Fee Schedule set out in

04 NCAC 10J .0101 at the time 2013 N.C. Sess. Laws ch. 410, § 33.(a) was ratified applied to

reimbursement of inpatient hospital fees, outpatient hospital fees, and ambulatory surgery fees, and

S.L. 2013-410, s. 33.(a) contains no indication that the General Assembly intended for that to change

in the Hospital Fee Schedule adopted pursuant to its law.”

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hearing, the following parties, Greensboro Orthopedics, P.A.; OrthoCarolina, P.A.;

Raleigh Orthopaedic Clinic, P.A.; Surgical Center of Greensboro, LLC; Southeastern

Orthopaedic Specialists, P.A.; Orthopaedic & Hand Specialists, P.A.; Cary

Orthopaedic and Sports Medicine Specialists, P.A.; and Stephen D. Lucey, filed a

motion to intervene as amicus curiae: which was allowed. The matter was heard

before the Honorable Paul C. Ridgeway, Superior Court Judge presiding.

On 9 August 2016, Judge Ridgeway entered his decision concluding that

hospitals were separate and legally distinct entities from ambulatory surgical centers

and that 2013 N.C. Sess. Laws ch. 410, § 33.(a) authorized the Commission to use an

expedited rulemaking process only in adopting new maximum fees for physicians and

hospitals, not ambulatory surgical centers. The trial court determined that “the

Commission was required to comply with the fiscal note requirements [of N.C. Gen.

Stat. §§ 150B-21.2(a) and 150B-21.4] in adopting a new fee schedule for ambulatory

surgical centers and failed to do so, [and thus,] the Commission exceeded its statutory

authority and employed an unlawful procedure.” Therefore, the trial court granted

petitioner’s request for relief and reversed the Commission’s declaratory ruling. The

Commission appeals.

___________________________________________

On appeal, the Commission raises four questions: whether the superior court

erred by (I) defining hospitals and surgical centers pursuant to General Statutes,

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Chapter 131E (governing “Health care facilities and services”) and (II) failing to

properly defer to the Commission in the interpretation of 2013 N.C. Sess. Laws ch.

410, § 33.(a). Further, the Commission argues that (III) petitioner is estopped from

arguing the hospital fee schedule does not apply to ambulatory surgical centers and

(IV) the filed-rate doctrine bars Surgical Care Affiliates’ collateral attack on 04 NCAC

10J .0103(g) and (h). However, because we hold the trial court erred as to the

dispositive question—whether ambulatory surgical centers are “hospitals” within the

meaning of the hospital fee schedule—we need not address petitioner’s additional

arguments on appeal.

Standard of Review

[W]hen an appellate court reviews

a superior court order regarding an

agency decision, the appellate court

examines the [superior] court’s order

for error of law. The process has been

described as a twofold task: (1)

determining whether the [superior]

court exercised the appropriate scope of

review and, if appropriate, (2) deciding

whether the court did so properly.

Mann Media, Inc. v. Randolph Cty. Planning Bd., 356 N.C. 1, 14, 565 S.E.2d 9, 18

(2002) (quoting ACT–UP Triangle v. Commission for Health Servs., 345 N.C. 699,

706, 483 S.E.2d 388, 392 (1997)).

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The statutes governing a superior court’s review of a final agency decision are

provided in the Administrative Procedure Act, codified within Chapter 150B of our

General Statutes. Article 4, governing “Judicial review,” sets out the scope and

standard of review.

(b) The court reviewing a final decision may affirm the

decision or remand the case for further proceedings. It may

also reverse or modify the decision if the substantial rights

of the petitioners may have been prejudiced because the

findings, inferences, conclusions, or decisions are:

(1) In violation of constitutional provisions;

(2) In excess of the statutory authority or jurisdiction

of the agency or administrative law judge;

(3) Made upon unlawful procedure;

(4) Affected by other error of law;

(5) Unsupported by substantial evidence admissible

under G.S. 150B-29(a), 150B-30, or 150B-31 in view

of the entire record as submitted; or

(6) Arbitrary, capricious, or an abuse of discretion.

(c) In reviewing a final decision in a contested case, the

court shall determine whether the petitioner is entitled to

the relief sought in the petition based upon its review of the

final decision and the official record. With regard to

asserted errors pursuant to subdivisions (1) through (4) of

subsection (b) of this section, the court shall conduct its

review of the final decision using the de novo standard of

review. With regard to asserted errors pursuant to

subdivisions (5) and (6) of subsection (b) of this section, the

court shall conduct its review of the final decision using the

whole record standard of review.

N.C. Gen. Stat. § 150B-51(b), (c) (2015).

In its 9 August 2016 decision, the Superior Court stated that

[petitioner] contends that the Commission’s Declaratory

Ruling is in excess of its statutory authority, made upon

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unlawful procedure, and affected by other error of law.

Because of these errors asserted by [petitioner], this [c]ourt

has applied de novo standard of review to review the

Commission’s decision as required under N.C. Gen. Stat. §

150B-51(c).

We agree that the appropriate standard is de novo review. “Under the de novo

standard of review, the trial court consider[s] the matter anew[] and freely

substitutes its own judgment for the agency’s.” N.C. Dep't of Envtl. & Nat. Res. v.

Carroll, 358 N.C. 649, 660, 599 S.E.2d 888, 895 (2004) (alteration in original) (citation

omitted). We review the record in light of the Commission’s arguments to determine

if the standard was properly applied. See Mann Media, 356 N.C. at 14, 565 S.E.2d at

18.

As noted infra, the dispositive question, as set forth by the Commission, is

whether the trial court erred when it relied on an inapplicable definition to determine

that ambulatory surgical centers are not “hospitals” within the meaning of the

hospital fee schedule. The Commission argues that the Superior Court erroneously

used the definition of “hospital” that is exclusive to the Hospital Licensure Act and

further erred by adopting an overly narrow definition of “hospital,” thereby failing to

acknowledge the intent of our General Assembly. We agree.

At issue is the Superior Court’s interpretation of “hospital” as the term is used

in 2013 N.C. Sess. Laws ch. 410, § 33.(a) (“Industrial Commission Hospital Fee

Schedule”), and whether that term encompasses ambulatory surgical centers.

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Section 33.(a)(1) under 2013 N.C. Sess. Laws ch. 410, is entitled “Medicare

methodology for physician and hospital fee schedules.” 2013 S.L. 410, sec. 33.(a)(1)

(emphasis added).2

“In the interpretation and construction of statutes, the task of the judiciary is

to seek the legislative intent.” Housing Auth. v. Farabee, 284 N.C. 242, 245, 200

S.E.2d 12, 14 (1973) (citations omitted). “The intent of the General Assembly may be

found first from the plain language of the statute, then from the legislative history,

the spirit of the act and what the act seeks to accomplish.” Lenox, Inc. v. Tolson, 353

N.C. 659, 664, 548 S.E.2d 513, 517 (2001) (citation omitted). Here, the parties do not

direct our attention to any provision in General Statutes, Chapter 97 (“Workers’

Compensation Act”), which defines “hospital.”

[U]ndefined words are accorded their plain meaning

so long as it is reasonable to do so. In determining the plain

meaning of undefined terms, this Court has used

“standard, nonlegal dictionaries” as a guide. Finally,

statutes should be construed so that the resulting

construction harmonizes with the underlying reason and

purpose of the statute.

Midrex Techs., Inc. v. N.C. Dep't of Revenue, ___ N.C. ___, ___, 794 S.E.2d 785, 792

(2016) (alteration in original) (citations omitted); see id. (referring to the New Oxford

American Dictionary for a definition of the word “building”).

2 We note that N.C. Gen. Stat. § 97-26 (“Fees allowed for medical treatment; malpractice of

physician”), codified within Chapter 97, Article 1 (“Workers’ Compensation Act”), does not define

“hospital” or “ambulatory surgical center.”

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When a statute employs a term without redefining it, the accepted method of

determining the word’s plain meaning is not to look at how other statutes or

regulations have used or defined the term—but to simply consult a dictionary. See

Clark v. Sanger Clinic, P.A., 142 N.C. App. 350, 356, 542 S.E.2d 668, 673 (2001)

(“Absent a contextual definition, the courts may infer the ordinary meaning of a word

from its dictionary definition.” (citation omitted)). Turning to a nonlegal dictionary,

“hospital” is defined as “[a]n institution that provides care and treatment for the sick

or the injured.” Hospital, American Heritage College Dictionary (3d ed. 1993); see

also hospital, https://www.merriam-webster.com/dictionary/hospital (last visited Oct.

25, 2017) (defining “hospital” in part as “1 :a charitable institution for the needy,

aged, infirm, or young” and “2 :an institution where the sick or injured are given

medical or surgical care . . . .”). Cf. In re Appeal of Found. Health Sys. Corp., 96 N.C.

App. 571, 577, 386 S.E.2d 588, 591 (1989) (addressing whether an ambulatory

surgery center was a hospital for purposes of taxation under the Revenue Act, the

Court reasoned that the definition set forth in North Carolina’s Hospital Licensure

Act, codified under General Statutes, Chapter 131E, “ha[d] no applicability to the

construction of the term under the Revenue Act,” and referring to the definition of

“hospital” as stated in Black’s Law Dictionary (rev. 5th ed. 1979) as a generally

accepted definition that encompassed the ambulatory surgery center at issue).

We also look to the purpose of 2013 N.C. Sess. Laws ch. 410, § 33.(a).

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(1) Medicare methodology for physician and hospital fee

schedules.—With respect to the schedule of maximum fees

for physician and hospital compensation adopted by the

Industrial Commission pursuant to G.S. 97-26, those fee

schedules shall be based on the applicable Medicare

payment methodologies, with such adjustments and

exceptions as are necessary and appropriate to ensure that

(i) injured workers are provided the standard of services

and care intended by Chapter 97 of the General Statutes,

(ii) providers are reimbursed reasonable fees for providing

these services, and (iii) medical costs are adequately

contained.

2013 N.C. Sess. Laws ch. 410, § 33.(a)(1). The focus of this session law is to contain

medical care costs attributable to injured workers, while reasonably reimbursing

medical care providers for services. The inclusion of ambulatory surgical centers in

the definition of hospital, subjecting petitioner to the “Medicare methodology for . . .

hospital fee schedules” does not appear to frustrate this objective and may be

construed as in harmony with the reason for 2013 N.C. Sess. Laws ch. 410, § 33.(a).

See Midrex Techs., ___ N.C. at ___, 794 S.E.2d at 792 (“[S]tatutes should be construed

so that the resulting construction harmonizes with the underlying reason and

purpose of the statute.”).

In the order appealed from, the Superior Court referred to General Statutes,

section 131E-76 (providing definitions applicable to Article 5, codifying the “Hospital

Licensure Act,” within Chapter 131E, governing “Health Care Facilities and

Services”) to define the term “hospital” as it was used in 2013 N.C. Sess. Laws ch.

410, § 33.(a), which regards a fee schedule adopted by the Commission pursuant to

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G.S. section 97-26 (codified within the “Workers’ Compensation Act”). On this basis,

the court concluded “that hospitals are separate and legally distinct entities from

ambulatory surgical centers.” We hold the court erred. As that definition of

“hospital” was essential to the lower court’s determination that the session law did

not authorize the Commission to adopt new maximum fees for ambulatory surgical

centers, we reverse the court’s 9 August 2015 decision and remand for entry of an

order affirming the Commission’s 14 December 2015 declaratory ruling.

REVERSED AND REMANDED.

Judges DAVIS and INMAN concur.

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