CLARK NURSING AND REHABILITATION CENTER v. FRED M. JACOBS, Commissioner of the Department of Health et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1054-05T21054-05T2

A-1170-05T2

A-3471-05T2

CLARK NURSING AND REHABILITATION

CENTER,

Appellant,

v.

FRED M. JACOBS, Commissioner of the

Department of Health and Senior

Services,

Respondent.

__________________________________________

 

Telephonically argued May 24, 2006 - Decided July 18, 2006

Before Judges Stern, Fall and Grall.

On appeal from a Final Decision of the Commissioner, New Jersey Department of Health and Senior Services.

Jonathan D. Weiner argued the cause for appellant (Fox Rothschild, attorneys; Mr. Weiner, of counsel; Maureen E. Kerns and Patricia Barron, on the brief).

Michael J. Kennedy, Deputy Attorney General, argued the cause for respondent Department of Health and Senior Services (Zulima V. Farber, Attorney General, attorney; Patrick DeAlmeida, Assistant Attorney General, of counsel; Mr. Kennedy, on the brief).

Nicholas Harbist argued the cause for respondent Westfield Center (Blank Rome, attorneys; Anthony Merlino, on the brief).

Gage Andretta argued the cause for respondent Rahway Geriatric Center (Wolff & Samson, attorneys; Mr. Andretta and Nicole DeMaria, on the brief).

PER CURIAM

This consolidated appeal is from a decision of the Commissioner of the Department of Health and Senior Services (Commissioner) on applications for certificates of need (CN) submitted by three long-term care facilities in response to the Commissioner's call for specialized, long-term care ventilator beds in Union and Somerset Counties. N.J.S.A. 26:2H-7. The applications at issue were filed by Clark Nursing and Rehabilitation Center (Clark), Rahway Geriatric Center (Rahway) and Westfield Center (Westfield).

The Commissioner's invitation requested applications for eight beds in Union County and six beds in Somerset County. See 35 N.J.R. 1739(c) (April 21, 2003). He issued a CN approving Rahway's application to provide eight beds to meet needs in Union County and a CN approving Westfield's application to provide eight beds -- six to meet needs in Somerset County and two to meet needs in Union County. The Commissioner denied Clark's application for authorization to extend its ten-bed ventilator unit by eight beds in order to meet the additional needs in Union County.

Clark appealed as of right from the Commissioner's final decisions granting CNs to Rahway and Westfield. See Nat'l Nephrology Found. v. Dougherty, 138 N.J. Super. 470, 472-73 (App. Div. 1976). By order dated March 14, 2006, we granted Clark leave to appeal from the Commissioner's denial of its application. Clark's administrative appeal, filed in accordance with N.J.S.A. 26:2H-9, was pending before the Office of Administrative Law (OAL). We also consolidated these three related appeals. See Nat'l Nephrology Found., supra, 138 N.J. Super. at 478-79 (noting that the grant and denial of separate applications for the same CN are inextricably related and suggesting application for leave to appeal a denial pending in the OAL when an appeal from a grant is pending in this court).

Clark contends that the Commissioner's ruling violated the governing statutes and regulations. In order to prevail, Clark must "demonstrate that the action was arbitrary, capricious or contrary to a legislative purpose." In re Visiting Nurse Ass'n, 302 N.J. Super. 85, 89 (App. Div. 1997). The following principles govern our review:

A "strong presumption of reasonableness" must be accorded the agency's exercise of its statutorily delegated duties. This presumption is even stronger when the agency has delegated discretion to determine the technical and special procedures to accomplish its task. When there is room for two courses of action, an administrative decision will not be deemed arbitrary and capricious if exercised honestly and the course ultimately chosen is a reasonable one. Conversely, "a determination predicated on unsupported findings is the essence of arbitrary and capricious action."

In reviewing an agency decision, we must survey the record to determine if sufficient credible evidence supported that determination. Even if we might have chosen a different course, the agency's decision must be affirmed if supported by the record. We are not free to substitute our judgment as to the wisdom of a particular agency action so long as it is statutorily authorized and not otherwise defective as arbitrary and capricious.

[Visiting Nurse Ass'n, supra, 302 N.J. Super. at 95 (citations omitted).]

In this case, the Commissioner's decision explains "the ways in which the successful applicants satisfy existing statutory and regulatory standards and the ways in which the unsuccessful applicants do not [and] why [the successful] applications . . . better satisfy the goals" of the applicable statutes and regulations. In re Arnold Walter Nursing Home, 277 N.J. Super. 472, 480-81 (App. Div. 1994) (citations omitted). Accordingly, we affirm.

We begin our analysis with the statutes and regulations. "No health care facility shall be . . . expanded, and no new health care service shall be instituted . . . except upon application for and receipt of a [CN]." N.J.S.A. 26:2H-7. The Commissioner is charged with the responsibility of issuing and denying CNs. N.J.S.A. 26:2H-9. Applications are submitted to the Department of Health and Senior Services (Department). N.J.S.A. 26:2H-10. When the Department determines that an application is complete, it is forwarded to the State Health Planning Board (SHPB) for review and recommendation. Ibid.; N.J.A.C. 8:33-4.5; cf. In re Harborage, 300 N.J. Super. 363, 370 (App. Div. 1997) (discussing procedures under prior law which included review by a Local Advisory Board, pursuant to N.J.S.A. 26:2H-5.9(b), repealed by L. 1998, c. 43, 19). The SHPB's recommendations are forwarded to the applicant and the Commissioner for final determination. N.J.S.A. 26:2H-10.

The criteria for grant of a CN is set forth in N.J.S.A. 26:2H-8. Issuance is not authorized unless the facility or service at issue "is necessary to provide required health care in the area to be served, can be economically accomplished and maintained, will not have an adverse economic or financial impact on the delivery of health care services . . . and will contribute to the orderly development of adequate and effective health care services." N.J.S.A. 26:2H-8. The factors that must be considered in assessing the need and impact are:

(a) the availability of facilities or services which may serve as alternatives or substitutes, (b) the need for special equipment and services in the area, (c) the possible economies and improvement in services to be anticipated from the operation of joint central services, (d) the adequacy of financial resources and sources of present and future revenues, (e) the availability of sufficient manpower in the several professional disciplines, and (f) such other factors as may be established by regulation.

Ibid.

As authorized by N.J.S.A. 26:2H-8(f), the Commissioner has adopted regulations. N.J.A.C. 8:33-4.9, which includes standards for review that are generally applicable to CNs, provides:

(a) No certificate of need shall be issued unless the action proposed in the application for such certificate is necessary to provide required health care in the area to be served, can be financially accomplished and licensed in accordance with applicable licensure regulations, will not have an adverse impact on access to health care services in the region or Statewide, and shall contribute to the orderly development of adequate and effective health care services. In making such determinations there shall be taken into consideration:

1. The availability of facilities or services which may serve as alternatives or substitutes;

2. The need for special equipment and services in the area;

3. The adequacy of financial resources and

sources of present and future revenues;

4. The availability of sufficient manpower in the several professional disciplines; and

5. Other applicable requirements which are specified in any health planning rule adopted by the Department.

N.J.A.C. 8:33-4.10(a) requires each applicant for a CN to show how its proposal will "promote access to low income persons, racial and ethnic minorities . . . and other persons who are unable to obtain care." To that end the applicant is required to provide information on how it will meet the "needs of members of medically underserved groups," serve the "medically indigent, Medicare recipients, Medicaid recipients and members of medically underserved groups," provide charity care, and facilitate communication between staff and persons who are unable to communicate orally or in the English language. Ibid. Applicants also must provide information on the demographics and economic status of the population it currently serves and proposes to serve. N.J.A.C. 8:33-4.10(b).

Pursuant to N.J.A.C. 8:33-4.10(b), applicants must demonstrate how its proposal will address "unmet needs" without adverse impact on access to health care services and provide financially feasible, licensed, "quality" care. In making this showing the applicant must address cash flow, physician and professional staffing, and provide detailed information on its track record. Ibid.

Adult ventilator beds are a specialized form of long-term care service. Harborage, supra, 300 N.J. Super. at 368. The Commissioner has adopted specific criteria applicable to CNs for long-term care services such as ventilator beds.

There is a periodic evaluation of the need for additional ventilator beds in the State's various planning regions. N.J.A.C. 8:33H-1.6. The Commissioner issued this invitation, or "call," for applications authorizing ventilator beds in Union and Somerset Counties after a periodic review and calculation of need in accordance with the formula set forth in N.J.A.C. 8:33H-1.6. 35 N.J.R. 1739(c).

The Commissioner's "call" invited proposals "to meet the identified need in the county [in which an applicant's facility] is located, as well as in contiguous counties according to the definition of a planning region as set forth in N.J.A.C. 8:33-1.3." Ibid. The regulation referenced in this invitation, N.J.A.C. 8:33-1.3, defines a planning region as "the county(ies) where (a) facility(ies), service(s), or bed(s) subject to CN is located and/or proposed to be located, in accordance with the approved CN, and contiguous counties." N.J.A.C. 8:33-1.3. The invitation advised: "Preference for approval will be given to those applicants proposing the on-site conversion of general long-term care beds to specialized long-term care beds for ventilator-dependent residents." 35 N.J.R. 1739(c).

Specific regulations governing review of applications to provide long-term care services include additional criteria for evaluation of competing proposals for specialized, long-term care ventilator beds. Recognizing the Department's "major responsibility for the promotion of high quality, efficiently and economically rendered health services which are available to all citizens of the State," N.J.A.C. 8:33H-1.1(b) directs planning and CN activities toward goals that include:

. . . .

3. Expansion of both general and specialized long-term care options to maximize consumer choice;

4. Increased geographic, economic, and architectural accessibility of long-term care services;

5. Expansion of long-term care services to the extent that they are needed, while minimizing excess, underutilized capacity;

6. Increased affordability of long-term care services, the cost of which must be borne by consumers and the government;

7. Access to long-term care services without regard to race, ethnicity, or medical diagnoses, including HIV infection or a history of psychiatric illness;

8. Coordination of long-term care services; and

9. Community participation in decision-making about the development of expanded long-term care services.

N.J.A.C. 8:33H-1.18(b) provides an additional standard: "Where possible, each facility shall be located where access is easily obtained via low-cost public transportation."

Applicants for ventilator beds must demonstrate financial feasibility, N.J.A.C. 8:33H-1.16, and must have or have a plan for installation of required fixtures. N.J.A.C. 8:33H-1.17. Considering the need for cost-effective units and staffing requirements, the Commissioner's staff and the SHPB recommended disapproval of units with fewer than eight beds. While the staff recognized and advised the SHPB that N.J.A.C. 8:85-2.21(a)(1) requires a minimum of twenty-four beds, that regulation is inapplicable when a facility's CN authorizes fewer beds.

Clark, Rahway and Westfield all applied for approval to provide eight beds to meet the need in Union County. Westfield also proposed to provide six beds to meet the need in Somerset County. Clark and Rahway did not apply for a CN to meet the needs of Somerset.

Rahway and Westfield submitted proposals that qualified for the preference under the Commissioner's invitation for proposed conversion of general long-term care beds to specialized long-term care beds for ventilator-dependent residents. See 35 N.J.R. 1739(c). Rahway proposed to convert eight skilled nursing beds to eight long-term care ventilator beds at a project cost of $64,000. Westfield proposed to convert fourteen long-term care beds to long-term ventilator care at a project cost of $20,000.

Clark's proposal did not qualify for a preference based on conversion, but its proposal was less costly. At the time of the call, Clark was the only long-term care facility with ventilator beds in Union County. Clark planned to add eight beds to its existing ten-bed long-term care ventilator unit at no capital cost. Thus, unlike Rahway and Westfield, Clark did not require installation of oxygen and other necessary fixtures. Clark also had competent staff in place.

The applications were reviewed by Department staff and the SHPB prior to the Commissioner's review. See N.J.S.A. 26:2H-10; N.J.S.A. 26:2H-5.8(b); N.J.A.C. 8:33-4.1 (outlining CN review process); N.J.A.C. 8:33-4.13 (role of State Health Planning Board); N.J.A.C. 8:33-4.15 (procedures for Commissioner review). The SHPB found each of these three applicants financially capable of installing, maintaining and providing the staff needed for the eight beds in Union County. While Rahway's debt ratio was not as favorable as Westfield's or Clark's, its financial condition was deemed adequate to establish and maintain the unit it proposed. All three applicants had acceptable "track records" for compliance. N.J.A.C. 8:33-4.10(d).

As noted above, Westfield was the only qualified applicant that sought approval to meet the need in Somerset County.

The SHPB recommended approval of Rahway for eight beds for Union County and approval of Westfield for eight beds, six for Somerset County and two for Union County. Both staff and the SHPB recommended rejection of Clark's application because adding additional beds at the Clark facility would not promote consumer choice or geographic distribution of beds within Union County. For reasons stated in separate decisions on the applications for Union and Somerset County ventilator beds, the Commissioner accepted the SHPB's recommendations. The decisions are integrally related, and for that reason, we discuss those decisions together, in light of Clark's objections.

Clark's claim that the SHPB and the Commissioner disregarded the legal standards is based, in part, on the Commissioner's decision to approve ten beds for Union County. Noting that the invitation for applications in Union County was limited to eight beds for the county, Clark suggests that the Commissioner violated N.J.S.A. 26:2H-8, which prohibits the grant of a CN for services or facilities that are not necessary. We cannot agree with that conclusion.

The Commissioner's determination to solicit applications for eight beds in Union County was based on the results of a periodic review and a regulatory formula for determination of need. As the Commissioner explained: "Although the formula describes regional bed need in terms of local advisory board regions [which were abolished, N.J.S.A. 26:2H-5.9(b) (repealed by L. 1998, c. 43, 19)], the Department adapted it to estimate bed need by county . . . ." Because of the few options for ventilator-dependent patients, "other than ventilator care in acute care facilities," the Commissioner found that "the bed need projected by the formula" provided "reasonable evidence to [him] that approval of sufficient beds to meet the need is necessary to provide required health care services, both statewide, and in Union County."

We cannot conclude that the Commissioner acted arbitrarily or disregarded the law when he determined that it was necessary to approve ten, rather than eight beds, for Union County. The decision was based on two factors: need and economies. N.J.S.A. 26:2H-8 (providing that a CN cannot "be issued unless the action proposed . . . is necessary to provide required health care in the area [and] can be economically accomplished and

maintained . . . ."). There was a need for six beds in Somerset County and only one qualified facility, Westfield, applied to fill that need. Second, Department staff and the SHPB had determined that eight or more beds were required for a cost effective unit. Thus, the Commissioner's reasons for approving two additional beds beyond the initial, projected need for Union County were consistent with the statute and not unreasonable or arbitrary; the Commissioner provided the "full[], substantive explanation" that is required when the Commissioner grants a CN that approves a greater number of beds than solicited. See Arnold, supra, 277 N.J. Super. at 481 (requiring such an explanation in a case where the Commissioner solicited applications for ninety-five beds and approved 165 beds); Visiting Nurse Ass'n, supra, 302 N.J. Super. at 97 (holding that neither the applicant nor agency is bound by an initial assessment of need).

We recognize that there were two alternatives to approval of ten rather than eight beds for Union County. The Commissioner could have matched the projected need in both Somerset and Union by approving fourteen beds for Westfield or six additional beds for Clark and eight additional beds for Westfield. This court, however, is not authorized to substitute its judgment for that of the Commissioner; when the Commissioner has made a decision about need based on the evidence, law and his expertise it is entitled to a presumption of validity. See Visiting Nurse Ass'n, supra, 302 N.J. Super. at 95; Harborage, supra, 300 N.J. Super. at 379. Under all of the circumstances, we see no ground for disturbing this decision on the basis of the Commissioner's decision to approve ten rather than eight beds for Union County. Clark has not established, as it must to prevail, that the beds were unnecessary and the Commissioner's action was contrary to the "legislative purpose" of the Health Care Facilities Planning Act. Visiting Nurse Ass'n, supra, 302 N.J. Super. at 89. Absent a showing that the award to Rahway was arbitrary and capricious, Clark cannot demonstrate that the Commissioner's decision to award two additional beds to Westfield was unreasonable. The need to award the Somerset beds to the only qualified applicant explains the Commissioner's preference for Westfield over Clark.

The Commissioner denied Clark's application and approved Rahway's and Westfield's because Clark was an existing provider and approval of Rahway and Westfield would promote geographic access, access for the medically-underserved and consumer choice. The last three criteria are recognized in the applicable regulations, and the differences in capital costs are properly considered over the life of this long-term project. N.J.A.C. 8:33H-1.1(b)(3),(4),(7); N.J.A.C. 8:33-4.10. The Commissioner's decision details the factual basis for his decision: demographics and Medicaid eligible persons served by the three facilities.

Clark argues that because of the proximity of the three facilities, the Commissioner's reliance on these factors was not supported by the record. The crux of this argument is that consumer choice alone explains the Commissioner's decision. The argument overlooks an important reality. Where applicants are similarly qualified, a factors such as consumer choice and accessibility to undeserved populations may well tip the balance in favor of a new provider without signaling the Commissioner's disregard of other significant factors. As the Commissioner explained, multiple facilities will "lessen concerns that would arise if existing providers experienced problems that might call into question or interrupt their ability to provide quality care to ventilator-dependent residents."

Clark also suggests that the Commissioner overlooked cost and staffing issues. The Commissioner detailed the relevant facts. With respect to capital cost, the maximum difference amounts to $64,000. With respect to Clark's claim about staffing, Clark's application reports that it had no "difficulty in recruiting and retaining high quality staff for its facility." We find no support in the record for Clark's concern about an insufficient number of qualified professionals.

Clark also fails to consider that its competitors both qualified for a preference that is relevant to cost, staffing and its need for long-term beds. The Commissioner's invitation announced his intention to prefer applicants who proposed to convert long-term care beds to specialized, long-term care for ventilator-dependent residents. Rahway's and Westfield's proposals included a plan to convert beds; Clark's did not. Thus, an award to Clark would have increased the overall number of long-term care beds in Union County by the number awarded to Clark; the award of two additional ventilator beds to Westfield increased the overall number of long-term beds for Union County by only two.

The Commissioner's decision is supported by substantial evidence and consistent with the governing statutes and regulations. The Commissioner distinguished three qualified applicants for the Union County beds on reasonable grounds. There is no basis for finding the award of eight beds to Rahway for Union County arbitrary, capricious and unreasonable. Because Clark did not apply for the six Somerset County beds and Westfield was the only qualified applicant for those beds, the Commissioner granted the six Somerset beds to the Westfield Center, together with two additional beds for Union County. In these circumstances awarding eight beds to Westfield in order to make an award to it economically feasible, was not arbitrary or capricious. Neither Clark nor Rahway had a right to be protected against competition. Thus, there is no basis for disturbing the grant of eight beds to Westfield even though the aggregate number of beds was two more than embodied in the call. As there is no basis for disturbing the award of Union County beds to Rahway, and as Clark did not apply for the Somerset beds which could have been granted to Clark without the increase in the aggregate number of ventilator beds, we affirm.

Pursuant to our order dated March 14, 2006, the motion for a stay is automatically dismissed as moot upon the filing of this opinion.

 

Although the Commissioner's "call" elicited applications for ventilator beds in additional counties and although other applicants sought CNs to meet the needs in Union and Somerset Counties, the Commissioner's decisions on those applications are not challenged on this appeal.

This appeal does not embody a challenge to the regulations or include the assertion that the regulations were drawn to favor one facility over another.

(continued)

(continued)

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A-1054-05T2

July 18, 2006