                          NO. COA13-1322

                NORTH CAROLINA COURT OF APPEALS

                       Filed: 19 August 2014


SURGICAL CARE AFFILIATES, LLC and
BLUE RIDGE DAY SURGERY CENTER,
L.P.,
     Petitioners,

    v.                               Office of
                                     Administrative Hearings
                                     No. 12 DHR 09678
N.C. DEPARTMENT OF HEALTH AND
HUMAN SERVICES, DIVISION OF HEALTH
SERVICE REGULATION, CERTIFICATE OF
NEED SECTION,
     Respondent,

    and

WAKEMED,
     Respondent-Intervenor.


    Appeal by Petitioners from Final Decision entered 23 July

2013 by Judge Eugene J. Cella in the Office of Administrative

Hearings. Heard in the Court of Appeals 23 April 2014.


    Nexsen Pruet, PLLC, by Frank S. Kirschbaum,          Robert   A.
    Hamill, and Rachael Lewis Anna, for Petitioners.

    Attorney General Roy Cooper, by Special       Deputy   Attorney
    General June S. Ferrell, for Respondent.

    Smith Moore Leatherwood LLP, by Maureen Demarest Murray,
    Terrill   Johnson  Harris, and  Carrie  A.   Hanger  for
    Respondent-Intervenor.


    STEPHENS, Judge.
                                        -2-


                                     Background

         This case involves the proposed relocation of two specialty

ambulatory operating rooms from Southern Eye Ophthalmic Surgery

Center (“Southern Eye”)1 to the               WakeMed health care system’s

Raleigh     Campus,   where    the    operating       rooms   would   be   used   as

“shared operating rooms” for inpatients and outpatients. WakeMed

is   a    nonprofit   corporation      that    owns     and   operates     multiple

health care facilities in the Triangle region of North Carolina.

WakeMed purchased Southern Eye on 10 May 2012 with the intention

of   relocating       its     operating       rooms     to    WakeMed      Raleigh.

Petitioners Surgical Care Affiliates, LLC (“SCA”) and Blue Ridge

Day Surgery Center, L.P. (“Blue Ridge”)2 operate a multispecialty

ambulatory surgical facility in Raleigh,3 are direct competitors




1
  A specialty ambulatory operating room is a surgical facility
that is used for single-day, outpatient surgical procedures
limited to one specialty area. See N.C. Gen. Stat. § 131E-
176(1b), (24f) (2013). For Southern Eye, that specialty is
ophthalmic surgery.
2
  SCA is the managing partner of Blue Ridge and has an ownership
interest in the partnership.
3
  A multispecialty ambulatory surgical facility is a surgical
facility that is used for same-day surgical procedures occurring
over at least three defined specialty areas, including general
surgery. See N.C. Gen. Stat. § 131E-176(15a).
                                             -3-
with       WakeMed,    and   contest     the       proposed     relocation        of    these

rooms.

       WakeMed    filed      a   certificate        of   need     (“CON”)      application

with the North Carolina Department of Health and Human Services

(“the Agency”) on 16 April 2012, officially proposing to move

the    two    operating      rooms      to   its     Raleigh      Campus.      The     Agency

conditionally         granted    that    application       on     27    September       2012.

Following the Agency’s decision, SCA and Blue Ridge petitioned

for    a    contested    case    hearing       to    challenge     the    decision.4         An

administrative         law   judge      with       the   Office    of    Administrative

Hearings (“the ALJ”) heard the matter beginning 15 April 2013

and affirmed the Agency’s decision on 23 July 2013 by final

decision. Petitioners appeal from the ALJ’s final decision.

                                        Discussion

       On     appeal,    Petitioners         argue       that     the    ALJ    erred       in

affirming the Agency’s decision because (1) the Agency failed to

apply       certain     agency-created         regulations,            referred        to   by

Petitioners       as     “the     conversion         rules,”      to     WakeMed’s          CON



4
  A “contested case” is an “administrative proceeding [held under
Chapter 150B of the North Carolina General Statutes] to resolve
a dispute between an agency and another person that involves the
person’s rights, duties, or privileges, including licensing or
the levy of a monetary penalty.” N.C. Gen. Stat. § 150B-2(2)
(2013).
                                   -4-
application   and   (2)   this   failure    “substantially   prejudice[d]

[Petitioners’] rights.” We affirm the decision of the ALJ on the

issue of substantial prejudice and, therefore, do not reach the

issue of the application of the conversion rules.

    I. Standard of Review

    “In cases appealed from administrative tribunals, we review

questions of law de novo and questions of fact under the whole

record test.” Diaz v. Div. of Soc. Servs., 360 N.C. 384, 386,

628 S.E.2d 1, 2 (2006) (citation omitted). Pursuant to section

150B-51 of the North Carolina General Statutes:

         (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 [sections] 150B-29(a),
                150B-30, or 150B-31 in view of the
                entire record as submitted; or
                                     -5-
                (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) . . . , 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) . . . , 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) (2013) (italics added). “Under

de novo review, the court considers the matter anew and freely

substitutes   its   own   judgment    for   that   of   the   trial   court.”

McMillan v. Ryan Jackson Props., LLC, __ N.C. App. __, __, 753

S.E.2d 373, 377 (2014) (citation and internal quotation marks

omitted).

            In applying the whole record test, the
            reviewing court is required to examine all
            competent   evidence   . . .  in   order   to
            determine whether the [final] decision is
            supported    by    “substantial    evidence.”
            Substantial   evidence   is   such   relevant
            evidence as a reasonable mind might accept
            as adequate to support a conclusion.

Parkway Urology, P.A. v. N.C. Dep’t of Health & Human Servs.,

205 N.C. App. 529, 535, 696 S.E.2d 187, 192 (2010) (citations
                                                -6-
omitted), disc. rev. denied, __ N.C. __, 705 S.E.2d 753 (2011)

[hereinafter Parkway Urology].




       II. Substantial Prejudice

       After the Agency decides to issue, deny, or withdraw a CON

or    exemption   or     to    issue        a    CON     pursuant      to    a     settlement

agreement, “any affected person [as defined by section 131E-

188(c)] shall be entitled to a contested case hearing under

Article 3 of Chapter 150B of the General Statutes.” Id. at 535,

696 S.E.2d at 192 (citation omitted). Subsection (c) defines an

“affected    person”     as,        inter       alios,      “any    person     who    provides

services, similar to the services under review, to individuals

residing within the service area or the geographic area proposed

to be served by the applicant.” N.C. Gen. Stat. § 131E-188(c)

(2013). In addition to meeting this “prerequisite[] to filing a

petition    for   a    contested          case        hearing      regarding     CONs,”   the

petitioner must also satisfy “the actual framework for deciding

the   contested       case    [as     laid       out     in    section      150B-23(a)     of]

Article 3 of Chapter 150B of the General Statutes.”                                    Parkway

Urology,    205   N.C.       App.    at     536,      696     S.E.2d   at    193     (citation

omitted; emphasis in original).
                                  -7-
      Section 150B-23(a) of the North Carolina General Statutes

provides that   a   petitioner must      state facts in its petition

which

           tend[] to establish that the agency named as
           the respondent has deprived the petitioner
           of property, has ordered the petitioner to
           pay a fine or civil penalty, or has
           otherwise   substantially    prejudiced  the
           petitioner’s rights and that the agency:

                (1) Exceeded     its         authority       or
                    jurisdiction;

                (2) Acted erroneously;

                (3) Failed to use proper procedure;

                (4) Acted arbitrarily or capriciously;
                    or

                (5) Failed to act as required by law or
                    rule.

N.C. Gen. Stat. § 150B-23(a) (2013) (emphasis added).5 This Court

has   interpreted   subsection   (a)    to   mean   that   the    ALJ   in   a

contested case hearing must “determine whether the petitioner

has met its burden     in showing       that the agency substantially

prejudiced [the] petitioner’s rights.” Parkway Urology, 205 N.C.

App. at 536, 696 S.E.2d at 193 (citation and emphasis omitted)



5
  Section 150B-23 was amended in 2013 to include an additional
subsection. This amendment is unrelated to the issues raised by
the parties in this appeal. See 2013 N.C. Sess. Laws 397, sec.
4.
                                            -8-
(overruling the petitioner’s argument that it was not required

to show substantial prejudice as long as it could show that it

was an affected person). Therefore, under section 150B-23 and

our opinion in Parkway Urology, a petitioner in a CON case must

show (1) either that the agency (a) has deprived the petitioner

of property, (b) ordered the petitioner to pay a fine or civil

penalty,     or    (c)     substantially           prejudiced      the     petitioner’s

rights,    and    (2)    that     the     agency    erred    in    one    of     the   ways

described above. See N.C. Gen. Stat. § 150B-23(a); 205 N.C. App.

at 536, 696 S.E.2d at 193; see also Caromont Health, Inc. v.

N.C. Dep’t of Health & Human Servs., __ N.C. App. __, __, 751

S.E.2d    244,    248    (2013)     (“The    administrative         law    judge       must,

therefore, determine whether the petitioner has met its burden

in   showing      that    the     agency     substantially         prejudiced          [the]

petitioner’s rights, as well as whether the agency also acted

outside its authority, acted erroneously, acted arbitrarily and

capriciously,      used        improper    procedure,       or    failed    to    act    as

required by law or rule.”) (citation omitted; certain emphasis

added).

     Here,       the     ALJ     concluded    in     the     final       decision       that

Petitioners       were     “‘affected        persons’       because       they    provide

surgical    services       that    are     similar     to   services       provided       by
                                        -9-
WakeMed,” and the parties do not dispute that conclusion. In

addition, Petitioners do not argue that the Agency deprived them

of property or ordered them to pay a fine or civil penalty.

Rather,       Petitioners     contend     that       they   were    substantially

prejudiced by the Agency’s decision, which was erroneously and

improperly decided.         Specifically,      Petitioners argue that         they

were substantially prejudiced either (1) as a matter of law or,

in    the    alternative,    (2)     because   the    Agency’s     decision   gives

WakeMed an unfair competitive advantage amounting to substantial

prejudice. We disagree.

              (1) Substantial Prejudice as a Matter of Law

       Petitioners         contend      that       the      Agency’s     decision

substantially prejudiced their rights as a matter of law because

(a)    the    ALJ    had   already     determined        that   Petitioners   were

substantially prejudiced and (b) the Agency’s alleged failure to

follow       its    own    rules     necessarily      constitutes      substantial

prejudice as a matter of law. We are unpersuaded.

                     (a) The ALJ’s Statement

       Petitioners assert that the Agency’s decision substantially

prejudiced their rights as a matter of law because the ALJ made

a finding to that effect during the contested case hearing. This

argument takes the ALJ’s statement out of context. Responding to
                                 -10-
WakeMed’s    motion   for   summary   judgment,   the   ALJ   made   the

following comment at the hearing:

            The Court: All right. As far as this
            particular motion is concerned and ruling on
            the motion for summary judgment, I’m going
            to find that I think there is enough
            evidence on the record that there is
            substantial prejudice by not applying this
            rule and consequently deny the motion for
            summary judgment.

Following    that     ruling,   Wakemed   presented     evidence,    and

Petitioners presented rebuttal witnesses. Afterward, the parties

attempted to clarify the ALJ’s initial ruling:

            [Counsel for WakeMed]: . . . [I]t’s our
            understanding, Your Honor, that you deferred
            — that you denied the motion [for summary
            judgment] and decided to have a hearing on
            the issue of whether the multispecialty
            rules applied. . . .

            . . . .

            The summary judgment motion that we filed
            was to say that they were not substantially
            prejudiced as a matter of law, and that was
            what was renewed yesterday and that you also
            denied. . . .

            . . . .

            The Court: I don’t know that I can agree or
            disagree —

            . . . .

            — Without sitting down and thinking about it
              and looking at it.
                                             -11-
               [Counsel for the Agency]: I think, Judge
               . . . , that the heart of this is we
               understood that you did not grant summary
               judgment in favor of [SCA], but you also
               didn’t grant summary judgment the other way
               and say that the Agency was correct on the
               rule. You said, “I’d go to trial[,] and I’ll
               hear the evidence.”

               . . . .

               The Court: I wasn’t deciding on the merits,
               no.

(Emphasis       added).       The    ALJ’s    comments     make    clear    that     his

preliminary ruling constituted a denial of Respondents’ motion

for summary judgment on grounds that Petitioners had presented

enough evidence to proceed with the hearing. It was not a final

determination on the merits and does not control or undermine

the     ALJ’s        ultimate,      written     determination,       following       the

presentation of the parties’ evidence, that Petitioners failed

to    show      substantial          prejudice.      Accordingly,         Petitioners’

argument       that    the    ALJ     determined     the   issue    of     substantial

prejudice       in    their     favor    at   the   contested      case    hearing      is

overruled.

                       (b)    Failure to        Follow     Rules    as     Substantial
                              Prejudice

      Petitioners also argue that the Agency’s alleged failure to

apply    its    own     rules       constitutes     substantial     prejudice      as   a

matter of law, citing N.C. Dep’t of Justice v. Eaker, 90 N.C.
                                         -12-
App. 30, 367 S.E.2d 392 (1988),                   overruled on other grounds,

Batten v. N.C. Dep’t of Corrs., 326 N.C. 338, 389 S.E.2d 35

(1990); Hospice at Greensboro, Inc. v. N.C. Dep’t of Health &

Human Servs., 185 N.C. App. 1, 647 S.E.2d 651, disc. review

denied,   361    N.C.    692,      654   S.E.2d      477–78     (2007)    [hereinafter

Hospice at Greensboro]; and HCA Crossroads Residential Ctrs.,

Inc. v. N.C. Dep’t of Human Res., 327 N.C. 573, 398 S.E.2d 466

(1990) [hereinafter HCA Crossroads] for support. This argument

is without merit.

      Petitioners cite Eaker for the rule that a plaintiff need

not “show prejudice once he carries his burden of showing that

the   Department        [of     Justice]      failed       to   follow     the     [State

Personnel]      Commission’s       policies,”        90    N.C.   App.    at     37,   367

S.E.2d at 397, and seek to apply that rule here. In Eaker, the

Department      of   Justice        attempted        to    eliminate       a     research

associate    position         in   the   Department’s           Sheriffs’      Standards

Division. 90 N.C. App. at 31, 367 S.E.2d at 394. The research

associate    position         belonged   to    the    petitioner,        who   sought    a

contested    case    hearing        following        his    termination.         Id.   The

petitioner alleged that the Department’s actions were the result

of political discrimination and “that the Department failed to

comply with its own policies or those of the State Personnel
                                            -13-
Commission      regarding       ‘reductions        in    force.’”       Id.   The     State

Personnel       Commission           rejected      the        petitioner’s     political

discrimination claim, but agreed that the Department had failed

to follow the Commission’s policies for a reduction in force and

recommended that the petitioner be reinstated to his position.

Id. at 31–32, 367 S.E.2d at 394. The case was appealed to the

trial court, which reversed the Commission on grounds that the

Department had followed all mandatory policies for reductions in

force and, even if it had not followed those policies, that the

“petitioner had failed to show [prejudice in the form of] a

substantial chance of a different result.” Id. at 32, 367 S.E.2d

at 394.

    On appeal, this Court reversed the trial court because it

“improperly placed [the] burden on the Department [to prove that

appropriate procedures for personnel reduction were utilized].”

Id. at 36, 367 S.E.2d. at 397. We also elected to address the

Department’s          remaining       arguments         and     concluded      that    the

petitioner “does not have to show prejudice once he carries his

burden    of    showing       that    the   Department         failed   to    follow   the

Commission’s policies.” Id. at 37–38, 367 S.E.2d at 397–98. We

reasoned       that     the     Commission’s        policies        were      promulgated

pursuant to statutory authority and, thus, had “the force of
                                       -14-
law.” Id. Because the substance of those policies required the

Department   to    consider       a   number        of    discretionary       factors,

however, we pointed out that a showing of prejudice would be

“nearly    impossible”      for       the        petitioner       to    achieve.     Id.

Specifically, we observed that

           [t]o show prejudice from failure to follow
           policy, [the] petitioner would have to show,
           not only how he stood in relation to other
           employees in the same class as to type of
           appointment, length of service, and work
           performance, but he would have to show the
           weight which the Department would attribute
           to each of those factors. The Commission and
           the reviewing court would be relegated to
           speculating how the Department would weigh
           each factor.

Id. at 38, 367 S.E.2d at 398. Therefore, we held that it was

sufficient to show prejudice for the petitioner to establish

that the Department failed to follow the mandatory policies of

the Commission, which had been promulgated pursuant to statutory

authority. Id. A separate showing of prejudice was unnecessary

in that circumstance. Id.

    Assuming      without   deciding         that      the   Eaker     opinion    raises

issues    that    are   analogous           to    those      in    this     case,    its

interpretation of prejudice is no longer applicable to section

150B-23(a) of Article 3 of the Administrative Procedure Act. The

petitioner   in    Eaker    submitted            his     petition      to   the     State
                                        -15-
Personnel Commission on 24 April 1985. 1585 N.C. App. Records &

Briefs   No.    8710SC857,     2   (1987).     At   that   time,      Article    3   of

Chapter 150 contained no requirement that a petitioner establish

that it had been deprived of property, ordered to pay a fine or

penalty, or substantially prejudiced in addition to showing that

the   agency     exceeded      its     authority     or    jurisdiction,        acted

erroneously, failed to use proper procedure, acted arbitrarily

and capriciously, or failed to act as required by law or rule.

See 1973 N.C. Sess. Laws 1331, sec. 1. Those burdens were added

to the statute during the 1985 session of the General Assembly

and came into effect on 1 January 1986. 1985 N.C. Sess. Laws

746, secs. 1, 19 (“This act shall not affect contested cases

commenced before January 1, 1986.”). As this Court has since

explained, the amended provisions of section 150B-23(a) require

the ALJ in a contested case hearing to “determine whether the

petitioner      has   met    its     burden    in   showing    that     the     agency

substantially prejudiced [the] petitioner’s rights, and that the

agency   also    acted      outside    its    authority,      acted    erroneously,

acted arbitrarily and capriciously, used improper procedure, or

failed to act as required by law or rule.” Britthaven, Inc. v.

N.C. Dep’t of Human Res., 118 N.C. App. 379, 382, 455 S.E.2d

455, 459 (emphasis modified), disc. review denied, 341 N.C. 418,
                                               -16-
461 S.E.2d 754 (1995).                   These burdens require            that,    when the

petitioner alleges that the Agency did not properly apply its

own rules, the petitioner must also prove, and the ALJ must

separately        decide      the    issue       of,   substantial    prejudice,          i.e.,

that the Agency’s failure to follow its rules actually caused

sufficient harm to the petitioner. See id.; see also Parkway

Urology, 205 N.C. App. at 535–37, 696 S.E.2d at 192–93; N.C.

Gen. Stat. § 150B-23(a). The Agency’s mere failure to follow its

own rules is not enough. Accordingly, Defendant’s argument in

reliance on Eaker is overruled.

       We       turn   now    to     the   next    case      cited   by    Petitioners      to

support their contention that the Agency’s alleged failure to

follow its rules constitutes substantial prejudice as a matter

of law. The petitioner in Hospice at Greensboro was a hospice

service provider located in Greensboro. 185 N.C. App. at 3–5,

647 S.E.2d at 653–54. Following the Agency’s issuance of a “no

review”         letter,      which    authorized       the    respondent      to    open    an

office in Greensboro without first obtaining CON review, the

petitioner sought a contested case hearing. Id. The respondent

filed       a    motion      for     summary      judgment      on   grounds       that    the

petitioner “was not an ‘aggrieved party’ because the issuance of

[the    letter]        . . .       did     not    ‘substantially          prejudice’      [the
                                              -17-
petitioner’s] rights,” and that motion was granted. Id. at 5–6,

647 S.E.2d at 654–55.

       On appeal by the respondent, we affirmed the decision to

grant the petitioner’s motion for summary judgment because the

issuance of the letter, “which result[ed] in the establishment

of     a     new     institutional         health     service        without     a   prior

determination           of      need,         substantially           prejudice[d        the

petitioner,] a licensed, pre-existing competing health service

provider[,] as a matter of law.” Id. at 16, 647 S.E.2d at 661.

In so holding, we noted that “the CON [s]ection’s issuance of

[the       letter]   . . .     effectively         prevented     any      existing   health

service provider or other prospective applicant from challenging

[the]      proposal     [to    open    a     new   office]     at    the    agency   level,

except by filing a petition for a contested case.” Id. at 17,

647 S.E.2d at 661–62.

       In     this    case,    unlike      Hospice    at     Greensboro,       the   Agency

conducted       a    full     review    of    WakeMed’s      CON     application.      This

review included consideration “of the applications submitted for

this cycle[,] . . . the [CON] law, . . . the State Medical

Facilities Plan, and other applicable information.” The Agency

elected to approve WakeMed’s application only after completing

the    CON     review    process.       Petitioners        had      the    opportunity   to
                                          -18-
comment      on      the     application     and    took       advantage       of    that

opportunity by submitting a detailed discussion of the validity

of    WakeMed’s        CON      application.       In     addition,      Petitioners

participated in a public hearing on 18 June 2012, summarizing

their      concerns.       Thus,    Petitioners    were       not    prohibited      from

challenging       WakeMed’s        CON   application     at    the    agency        level.

Petitioners’ argument is overruled as it pertains to Hospice at

Greensboro.

      As for HCA Crossroads, the final case cited by Petitioners

in support of their position, the controlling issue in that case

was       “whether     the     [relevant     agency]       lost      subject        matter

jurisdiction when it failed to act, within the time prescribed

by law, on applications for [CONs] for construction of chemical

dependency treatment facilities.” 327 N.C. at 574, 398 S.E.2d at

467. On that issue our Supreme Court held that the agency lost

its authority to deny applications for CONs by failing to act in

a timely manner. Id. The Court did not address section 150B-

23(a) or the requirement that a petitioner opposing the issuance

of    a     CON   must       establish     substantial        prejudice.       See    id.

Accordingly, Petitioners’ argument in reliance on HCA Crossroads

is overruled.
                                           -19-
         Petitioners argue that they were substantially prejudiced

as   a    matter    of    law   because     the    Agency     failed   to     apply   the

conversion rules. As discussed above, however, the petitioner

must establish that the Agency has deprived it of property, has

ordered     it     to     pay   a   fine    or     penalty,     or     has    otherwise

substantially        prejudiced       the    petitioner’s        rights,       and,    in

addition,     the        petitioner   must        establish    that     the     agency’s

decision was erroneous in a certain, enumerated way, such as

failure to follow proper procedure or act as required by rule or

law. Parkway Urology, 205 N.C. App. at 535–37, 696 S.E.2d at

192–93;     see    also     N.C.    Gen.    Stat.     §   150B-23(a).         These   are

discrete requirements and proof of one does not automatically

establish the other. See Parkway Urology, 205 N.C. App. at 535–

37, 696 S.E.2d at 192–93; see generally Britthaven, Inc., 118

N.C. App. at 382, 455 S.E.2d at 459 (treating the substantial

prejudice and agency error requirements as separate elements to

be addressed at the hearing). As we have already stated,

             the ALJ [in a CON case must, in evaluating
             the   evidence,]    determine   whether   the
             petitioner has met its burden in showing
             that    [(1)]   the    agency   substantially
             prejudiced [the] petitioner’s rights, and
             . . . [(2)] acted outside its authority,
             acted erroneously, acted arbitrarily and
             capriciously, used improper procedure, or
             failed to act as required by law or rule.
                                       -20-
205 N.C. App. at 536, 696 S.E.2d at 193 (citing Britthaven,

Inc., 118 N.C. App. at 382, 455 S.E.2d at 459; certain emphasis

added). Therefore, while the Agency’s action under part two of

this test might ultimately result in substantial prejudice to a

petitioner,     the   taking    of   the      action      does    not     absolve   the

petitioner of its duty to separately establish the existence of

prejudice, i.e., to show how the action caused it to suffer

substantial      prejudice.      See        id.     Accordingly,          Petitioners’

argument that they were substantially prejudiced solely on the

basis that the Agency failed to apply the conversion rules is

overruled.

           (2) Substantial Prejudice by Competitive Disadvantage

      Second,    Petitioners      argue      that       they    were    substantially

prejudiced by the Agency’s decision because that decision will

likely   make    it   more     difficult          for   Petitioners       to   acquire

additional    operating      rooms     in    the    future,      giving     WakeMed   a

competitive advantage. Again, we disagree.

       Medical    facilities,          including         operating        rooms,    are

regulated by chapter 131E of the North Carolina General Statutes

(“the Act”). In section 175, the General Assembly stated “[t]hat

the   proliferation     of     unnecessary         health      services    facilities

results in costly duplication and underuse of facilities, with
                                           -21-
the availability of excess capacity leading to unnecessary use

of    expensive      resources       and    overutilization          of     health        care

services.” N.C. Gen. Stat. § 131E-175(4). As a consequence, a

CON    is     required      for      the      development       of     an        additional

institutional         health         service,      including          the         use      and

implementation of an operating room. See N.C. Gen. Stat. § 131E-

178(a); see also Hope-A Women’s Cancer Ctr., P.A. v. N.C. Dep’t

of Health & Human Servs., 203 N.C. App. 276, 281, 691 S.E.2d

421, 424 (2010) (“The fundamental purpose of the [CON] law is to

limit the construction of health care facilities in this [S]tate

to    those   that    the     public       needs   and     that      can    be     operated

efficiently and economically for their benefit.”), disc. review

denied, __ N.C. __, 706 S.E.2d 254 (2011).

       In   order    for    the    Agency     to   issue    a     CON,      the    proposed

project must be “consistent with applicable policies and need

determinations         in      the      State      Medical         Facilities             Plan

[(“SMFP”)] . . . .” N.C. Gen. Stat. § 131E-183. The SMFP is a

document      prepared        by     the      North      Carolina          State        Health

Coordinating        Council       and   the     Agency     “which        constitutes         a

determinative limitation on the provision of any . . . operating

rooms . . . that may be approved.” N.C. Gen. Stat. §§ 131E-

183(a)(1), -176, -177(4). CON review is not typically required,
                                            -22-
however, if the party seeking to develop the additional health

service acquires an existing health service facility. N.C. Gen.

Stat. § 131E-184(a)(8).

         In    determining       whether    there       is    a    need    for     additional

health        service     facilities,      the     Agency      considers       a     number   of

factors, including the number of operating rooms currently in

use and how regularly those rooms                        are being used.             Operating

rooms that are used infrequently are considered “underutilized”

and are not a part of the Agency’s calculus. At the time WakeMed

filed its CON application, there was not a need for additional

operating rooms in Wake County.

         The operating rooms that WakeMed seeks to relocate from

Southern       Eye   to    its    Raleigh    Campus          are   currently       considered

“underutilized.” Therefore, they are not counted in the Agency’s

formula        for   determining         need.     At    the       hearing,        Petitioners

presented testimony that the operating rooms would no longer be

considered underutilized if transferred to the Raleigh Campus.

As   a    result,       those    rooms     would    be       counted      in   the    Agency’s

subsequent need determination formula.                         Petitioners         argue that

this change constitutes substantial prejudice because it means

that the Agency will be less likely to find a need for more

operating rooms in the near future and, thus, Petitioners will
                                       -23-
be unable to expand their health care service. We do not find

merit in Petitioners’ argument.

       In order to establish substantial prejudice, the petitioner

must “provide specific evidence of harm resulting from the award

of the CON . . . that went beyond any harm that necessarily

resulted from additional . . . competition . . . .” Parkway

Urology,   205   N.C.    App.   at    539,    696   S.E.2d   at   194–95   (“[The

petitioner] did not, however, quantify th[e] financial harm in

any specific way, other than testimony regarding the amount of

revenue [it] receives . . . .”). The harm required to establish

substantial prejudice cannot be conjectural or hypothetical. It

must be concrete, particularized, and “actual” or imminent. See

Ridge Care, Inc. v. N.C. Dep’t of Health & Human Servs., 214

N.C.    App.   498,     506,    716    S.E.2d       390,   396    (2011)   (“[The

p]etitioner[s’] claims of potential harm should [the respondent]

decide to develop facilities in the counties where petitioners

are located or where they may wish to file CON applications are

similarly unsupported. There was no evidence presented that [the

respondent] is planning to develop facilities in those counties

or that petitioners have suffered any actual harm.”) (emphasis

added).
                                              -24-
      Petitioners’             argument       that         they     were       substantially

prejudiced        by     the     Agency’s       decision           is     based       on        sheer

speculation.        They      have    neither        alleged       nor    proven      that        the

relocation of these two operating rooms has caused them any

actual      harm.       In    fact,    SCA’s        vice    president         of     operations

admitted during the 15 April 2013 hearing that Petitioners had

not   undertaken         any    analysis       of    the        economic     impact        of    the

Agency’s     decision         upon    them    prior        to    filing      their    petition.

According to the vice president, Petitioners have instead

             look[ed] at the fact that we need additional
             operating   rooms  based  on   surgeons  and
             specialties that we’re trying to move in and
             the space that we need to do those. And to
             me the harm comes from the surplus and this
             adding to the surplus and potentially just
             making it longer before we’re ever able to
             expand.

      As the vice president made clear in her testimony, the only

purported        harm    to     Petitioners         is     the    possibility         that        the

Agency’s decision will make it more difficult for them to expand

their business. This concern is based on their understanding of

how   the    need-determination              process       works.       It    is   not         clear,

however, that the outcome suggested by Petitioners will occur.

When the vice president was asked whether SCA would “definitely

decide      to    apply”       for     more     operating          rooms       when        a    need

determination is eventually made, she admitted that she could
                                        -25-
not be sure because “who knows when that will be and who knows

what the situation will be then[.]”

     At the moment, the operating rooms are still a part of

Southern     Eye.   They       have   not   been    transferred      to    WakeMed’s

Raleigh Campus, and an SMFP taking those rooms into account has

not been issued. Even if this occurs, however, Petitioners have

not presented any evidence that                  the transfer   of these rooms

would   result      in   substantial        prejudice.   Although         Petitioners

allege that they would like to expand their business, they have

not and cannot assert that they will necessarily do so when or

if the Agency finds a need. Indeed, it is entirely plausible

that a health care provider other than Petitioners would obtain

any new operating rooms found to be needed in the future. For

these reasons, Petitioners’ argument that the relocation of the

operating rooms will likely result in substantial prejudice by

competitive disadvantage is overruled.

     Petitioners have failed to show that the Agency’s decision

to   grant     WakeMed’s         application       resulted     in        substantial

prejudice.    Because      a    showing     of   substantial    prejudice       is   a

necessary element of Petitioners’ attempt to successfully oppose

the Agency’s decision, we need not address Petitioners’ argument
                              -26-
that the Agency should have applied the conversion rules. We

affirm the ALJ’s final decision.

    AFFIRMED.

    Judges HUNTER, JR., ROBERT N., and ERVIN concur.
