New Alabama Appeals Court Decision Restricts Changes of Ownership

By Carey B. McRae
Bradley Arant Boult Cummings

On November 30, 2012, the Alabama Court of Civil Appeals released its opinion in Florence Surgery Center v. State Health Planning and Development Agency, et al. (Docket Number 2110812).  The case involved the change of ownership between two separate and unrelated limited liability companies of a certificate of need (CON) for a single-specialty ambulatory surgery center (ASC) that had been operated at its present location since 1999.  The change was to be effected through a lease of all the assets of the current owner and operator of the ASC (including the building, equipment, real property, and the CON) to the new, unrelated entity.  After execution of the lease, the new owner proposed to obtain a new license from the Alabama Department of Public Health to operate the ASC at the same site.

When the change of ownership filings were made with the Alabama State Health Planning and Development Agency (SHPDA), the agency approved the change and found that the change in ownership did not require the new owner to obtain a new CON.  The agency’s decision was consistent with numerous prior determinations in other similar transactions.

However, a competing ASC in the area objected to the agency’s decision and appealed the matter to the Alabama Court of Civil Appeals.

On appeal, the Court reversed the agency decision, finding that all transfers of ownership require a CON unless a statutory exemption applies.  Referencing two sections of a statute governing the CON program, the Court then went on to describe what is and is not a transfer of a CON.  Interpreting one section (Ala Code section 22-21-270(f) reads: “The transfer of stock in, or change of name or merger of, a corporation which holds a CON shall not constitute a transfer, assignment, or conversion of the certificate.”), the Court concluded that a transfer of stock is not a transfer of a CON.  Interpreting the second section (Ala. Code section 22-21-270(e) reads: “A certificate of need shall not be transferable, assignable, or convertible, other than between members of a parent-subsidiary controlled corporate group as defined in Internal Revenue Code, 26 U.S.C. section 1563(a)(1), and shall be valid solely to the person and purpose named thereon, except to such other member of the controlled group, or by change of name or merger with another corporation.”), the Court concluded that both a merger or an internal corporate reorganization among a parent and subsidiary is not a transfer of a CON. 

SHPDA has filed an application for rehearing with the Court to seek a modification to the restrictive ruling.  That application is currently pending before the Court.  The Alabama Hospital Association, the Assisted Living Association of Alabama, the Hospice and Palliative Care Organization, and the Alabama Nursing Home Association have joined together in an amicus brief supporting SHPDA’s application for rehearing and seeking to modify the Court’s decision to be less restrictive on changes of ownership.