Court of Appeals deals Wellmont another setback

By Thomas Wilson

   The Tennessee Court of Appeals has upheld a lower-court ruling that vacated the Certificate of Need (CON) granted to the Kingsport-based Wellmont Health System in 2000 permitting the health care system to build a new hospital in Washington County.
   Issued Friday, Judge Frank G. Clement Jr. delivered the opinion of the court, which ruled a conflict-of-interest situation existed on the part of one member of the Health Facilities Commission, which granted the CON to Wellmont over three years ago. In rendering its decision, the Court supported the findings of both an Administrative Law Judge and Chancellor Carol L. McCoy of Davidson County to vacate Wellmont's Certificate of Need.
   On July 13, 2000, Wellmont applied for a Certificate of Need to build and operate a for-profit hospital in Johnson City. The proposed facility would be an acute care facility providing emergency care. In its application, Wellmont asserted that additional hospital capacity is needed in Washington County based on reports showing emergency room waits, delays in scheduling surgical and diagnostic procedures and the unavailability of hospital beds.
   The proposed new hospital stirred staunch opposition from Mountain States Health Alliance, which owns four health care facilities in Washington County including Johnson City Medical Center Hospital, North Side Hospital and Johnson City Specialty Hospital.
   After taking evidence and hearing arguments of counsel, the Commission voted 5-4 in November of 2000 granting Wellmont's application for the CON. The Commission's chairperson abstained from the vote. Commissioner Charles Mann voted with the majority in favor of granting the Certificate of Need.
   During previous court, Mountain States Health Alliance presented evidence that established Mann as the principal owner, officer and director of Specialty Surgical Instruments (SSI) and that SSI sells surgical instruments to hospitals and other health care providers in Tennessee. More specific to this case, Mountain States presented evidence that SSI sold over $450,000 to Wellmont from fiscal year 1997 through June 6, 2001, and alleged that Mann would likely sell even more equipment to Wellmont if another hospital were opened. Mountain States also introduced evidence showing that SSI sold $158,000 to Mountain States in the year 2000, bringing the total sales by SSI to more than one-half million dollars for the period.
   In its opinion, the Court of Appeals rules, "The record is clear that Commissioner Mann and/or SSI had a substantial relationship with Wellmont during the four years leading up to the vote. Specifically, the record shows that SSI had sales to Wellmont of approximately $456,810 from 1997 through June of 2001." The appellate court cited a separate legal precedent of a lower court's finding that Mann had a "disqualifying pecuniary conflict of interest" based on sales to Methodist of approximately $405,093, which occurred prior to the vote.
   The Court of Appeals ruled that Mann had an affirmative duty to inform the Commission of his conflict of interest and to recuse himself and his vote to approve the CON was void. Based on the ruling that Mann's vote was void, the Court ruled that the vote of the eligible commissioners voting was four to four, being a tie vote, which constitutes a decision by the Commission denying Wellmont's CON application.
   The ruling issued Friday is the result of a three-year court battle that stemmed from flaws in Tennessee's previous CON process. The latest ruling comes as the third setback for Wellmont.
   "The courts have continued to validate our position that the CON should have never been awarded," said MSHA President and CEO Dennis Vonderfecht in a statement released Friday. "This is the third consecutive court ruling that supports our position."
   Despite the ruling, Wellmont officials also announced Friday that they were not giving up. The health system's plan to file a new CON application for its proposed Johnson City hospital by the end of the first quarter remains on track, according to Wellmont Senior Vice President of Marketing and Communications Tim Baylor.
   "This latest ruling by the Court of Appeals is the product of an unwieldy, outdated CON system," Baylor said. "Thankfully, the state legislature has enacted major reforms that have completely reshaped the CON approval and appeals process."