THE CITY OF PLAINFIELD v. NEW JERSEY DEPARTMENT OF HEALTH AND SENIOR SERVICES
Annotate this CaseNOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0107-08T3
A-0179-08T2
THE CITY OF PLAINFIELD and
MAYOR SHARON ROBINSON-BRIGGS
(in her official capacity),
Appellants,
APPROVED FOR PUBLICATION
and April 12, 2010
APPELLATE DIVISION
PEOPLE'S ORGANIZATION FOR
PROGRESS AND RESTORE MUHLENBERG
f/k/a SAVE MUHLENBERG,
Appellant,
v.
NEW JERSEY DEPARTMENT OF
HEALTH AND SENIOR SERVICES;
SOLARIS HEALTH SYSTEM, INC.;
and MUHLENBERG REGIONAL MEDICAL
CENTER, INC.,
Respondents.
___________________________________
IN RE MUHLENBERG REGIONAL MEDICAL
CENTER.
________________________________________________________________
Argued February 23, 2010 - Decided April 12, 2010
Before Judges Carchman, Parrillo and
Lihotz.
On appeal from the New Jersey Department
of Health and Senior Services, Docket
No. FR 080303-20-01.
Debra A. Sahler argued the cause for
appellants (Ventantonio & Wildenhain,
attorneys; Ms. Sahler, of counsel and
on the brief).
Bennet D. Zurofsky argued the cause
for appellant People's Organization
For Progress and Restore Muhlenberg f/k/a
Save Muhlenberg.
Michael J. Kennedy, Deputy Attorney General,
argued the cause for respondent NJ Department
of Health and Senior Services (Paula T. Dow,
Acting Attorney General, attorney; Melissa H.
Raksa, Assistant Attorney General, of counsel;
Mr. Kennedy, on the brief).
Kevin McNulty argued the cause for respondents
Solaris Health Systems and Muhlenberg Regional
Medical Center, Inc. (Gibbons, P.C., attorneys;
Mr. McNulty, on the brief).
Eric M. Bernstein & Associates, attorney for
amicus curiae Borough of Plainfield (Mr. Bernstein,
of counsel; Mr. Bernstein and Wendy L. Wiebalk,
on the brief).
The opinion of the court was delivered by
CARCHMAN, P.J.A.D.
Founded in 1877 in response to a public awareness of the
need for a health-care facility, the Muhlenberg Hospital (later
styled as the Muhlenberg Regional Medical Center) was
established to serve the City of Plainfield (Plainfield) and its
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environs.1 Muhlenberg was a important part of the community not
only providing medical care but generating popular response and
financial and volunteer support from its citizen-constituents.
It inspired unique traditions such as the playing of Brahms'
lullaby signaling the birth of a child. It thrived as Plainfield
thrived, and its population base expanded. Over the years,
Muhlenberg served tens of thousands of residents who looked to
it as a critical community resource.
In recent years, Muhlenberg faced a new reality. Not
unlike other hospitals in New Jersey, its medical,
administrative and maintenance costs spiraled, its physical
plant aged, and Plainfield's economic base deteriorated; soon
Muhlenberg's prime source of revenue was no longer private-pay
patients but those on government assistance. Instead of a
thriving, fiscally-sound institution, Muhlenberg reflected
declining admissions and mounting losses.
In 1997, Muhlenberg merged with the JFK Health System to
form Solaris Health System, Inc. Despite attempts to
rehabilitate the hospital, Solaris determined that it would
1
"Near the close of the year 1876, a railroad accident to a
stranger, necessitating a serious surgical operation amid the
bustle and distracting surroundings of the railway station,
indicated the need of a hospital in Plainfield." Five months
later, Muhlenberg Hospital was incorporated. Muhlenberg
Hospital, Report for 1903-1904 (June 1904).
A-0107-08T3
3
close Muhlenberg. On March 3, 2008, Solaris applied to Heather
Howard, the Commissioner of the Department of Health and Senior
Services (the Department), for a certificate of need (CN) to
shut down Muhlenberg as a general acute care hospital. By final
decision dated July 29, 2008, Commissioner Howard granted
Solaris's CN application, subject to eighteen conditions.
Solaris surrendered Muhlenberg's license on August 22, 2008.
In this consolidated appeal, appellants Plainfield and
Mayor Sharon Robinson-Briggs (collectively referred to as
Plainfield), and the People's Organization for Progress and
Restore Muhlenberg f/k/a Save Muhlenberg (POP) challenge the
decision of Commissioner Howard to grant a CN to close the
hospital. On appeal, appellants argue that the Commissioner's
decision was arbitrary and capricious. Respondents maintain
that the Commissioner's decision was properly substantiated;
alternatively, they assert that the appeal is moot because
appellants did not appeal from the Commissioner's denial of
their request for a stay of the CN and Muhlenberg's closing.
During the pendency of the CN application, the Supreme
Court decided In re Application of Virtua-West Jersey Hosp.
Voorhees for a Certificate of Need,
194 N.J. 413 (2008)
(Virtua), imposing certain obligations on the Commissioner when
considering CN applications as applied to urban hospitals.
A-0107-08T3
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While we agree that Muhlenberg's closing renders this appeal as
to the closing, per se, moot, we choose to address the merits
and applying Virtua, we conclude that the Commissioner properly,
not arbitrarily or capriciously, and subject to the conditions
imposed, granted a CN to allow for the closure of Muhlenberg.
I.
Consideration of the significant issues raised on appeal
requires an expansive exposition of the facts derived from the
record before the Commissioner. As we previously noted,
Muhlenberg was established in Plainfield in 1877. In 2007, it
was licensed for 282 medical/surgical beds, thirty
obstetrics/gynecology beds, nineteen adult ICU/CCU beds, sixteen
acute psychiatric beds, and eight adult closed acute psychiatric
beds. It offered medical care, intensive care, basic
obstetrics, inpatient psychiatric services, inpatient and
outpatient surgery, therapeutic services, emergency care, home
health services, acute hemodialysis services, cardiac
catheterization, and primary and elective angioplasty.
Muhlenberg also served as a teaching hospital, maintaining a
residency program and a school of nursing.
Based upon 2006 census data, Muhlenberg's primary service
area of North Plainfield, Plainfield and Scotch Plains
encompassed an eight-mile radius containing a population of
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329,184. Notably, based upon household income, Plainfield is
considered a medically underserved area and 6.9% of households
live below the poverty line. Indigent patients made up fourteen
percent of Muhlenberg's total discharges, and minority patients
approximately fifty to sixty percent.
In 1997, Muhlenberg merged with JFK Health System to create
Solaris. According to Solaris, this merger was sought by
Muhlenberg upon its realization that its ability to survive as
an acute care hospital was in jeopardy. In addition to JFK
Medical Center (JFK) in Edison and Muhlenberg, Solaris's
affiliates included three JFK Hartwyck Nursing, Convalescent &
Rehabilitation Centers, JFK Johnson Rehabilitation Institute,
New Jersey Neuroscience Institute, the Whispering Knoll assisted
living facility, Diabetes Center of New Jersey, Muhlenberg
School of Nursing, Medical Imaging & Therapeutic Services, and
the JFK MediPlex Surgery Center.
According to Solaris, in the ten years following the
merger, it invested over $50,000,000 in: (1) upgrades to
Muhlenberg's facilities and equipment; (2) physician
recruitment; and (3) program development, including a new wound
center, lithotripsy, elective angioplasty and a sleep lab.
Through these investments, Solaris attempted to enable urban
Muhlenberg "to compete with neighboring suburban hospitals for
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patient volume and payer mix." However, according to Solaris,
despite these efforts, Muhlenberg was unable to attract new
privately insured patients to the facility. Instead, between
2000 through 2007, medical/surgical acute admissions dropped
18.5% and obstetric utilization dropped nine percent. During
the same years, the average daily census at Muhlenberg declined
from 182 to 135 patients. Notably, though, in 2005, 2006 and
2007, the Muhlenberg emergency department saw 33,836, 33,583 and
34,512 patients, respectively. Only 18.2% of these emergency
visits resulted in admission to the hospital. Solaris asserted
that this indicated that the emergency department was primarily
serving as a resource for non-acute diagnostic and treatment
services.
Between 2000 and 2006, Muhlenberg consistently reported
annual operating losses of $2,000,000 to $5,000,000. Solaris
attributed these losses to Muhlenberg's declining admissions,
and the fact that Muhlenberg drew upon a narrow geographic area
that was overly dependent on government payers. Approximately
seventy-one percent of Muhlenberg's patients, as opposed to the
state average of fifty-nine percent, were dependent upon
government payers (Medicare, Medicaid and charity) or were
uninsured. Solaris subsidized these losses through JFK Health
A-0107-08T3
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System entities with JFK being ultimately responsible for
Muhlenberg's debt service and pension payments.
In addition, the staff recognized a new dynamic affecting
the hospital. There was "increased competition and a shift of
volume from hospital settings to freestanding, physician owned
ambulatory care facilities." No longer subject to CN
requirements, by 2008, nine diagnostic imaging facilities and
five ambulatory surgery facilities were established in
Muhlenberg's primary service area.
By 2007, Muhlenberg was operating at a maintained bed
occupancy rate of less than sixty percent, and less than forty
percent of its licensed bed capacity. Its annual operating loss
had grown to $16,500,000. Solaris blamed this increase on new
reductions in state funding and its disproportionate burden of
caring for state-insured and uninsured patients. Solaris
anticipated that Muhlenberg's deficit for 2008 would reach
approximately $18,000,000. At the same time, Solaris estimated
that a major capital infusion would be required over the next
five to ten years to upgrade Muhlenberg's aging physical plant.
In November 2007, Solaris's Board of Directors authorized
management to offer Muhlenberg for sale. Solaris engaged an
investment banking firm to market the hospital. Although four
to six entities expressed interest in purchasing Muhlenberg, no
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formal offers were ultimately submitted. According to Solaris,
most of these potential purchasers were unable to demonstrate an
adequate source of financing to purchase and operate the
hospital.
On February 21, 2008, Solaris's Board of Trustees voted to
close Muhlenberg. According to Solaris, its Board reached this
difficult decision after spending nine months considering every
possible scenario to avoid closure, including eliminating
services and outsourcing. The Board ultimately concluded that
Muhlenberg was not financially sustainable based upon: (1) the
underutilization of services at Muhlenberg coupled with
overwhelming financial pressures; (2) the inability of Solaris's
other affiliates to continue to subsidize Muhlenberg's losses
without jeopardizing Solaris's overall viability and the
availability of healthcare services for both the Plainfield and
Edison communities; and (3) the fact that, according to current
estimates, Muhlenberg would need to increase its total patient
volume by 110.7 percent over the next five years to break even -
a seemingly impossible task.
Solaris's Board believed that a consolidation of acute care
services represented the most efficient use of limited resources
to meet the needs of Plainfield's residents. It also asserted
that an orderly closure was preferable to a chaotic bankruptcy.
A-0107-08T3
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It admitted, though, that "[i]ndigent minority and other
medically underserved patients have clearly relied on Muhlenberg
. . . for healthcare services . . . . The closure of Muhlenberg
. . . will require special diligence and sensitivity to ensure
that medically underserved and indigent patients continue to
have comparable access to healthcare services."
Solaris filed an application for a CN to close Muhlenberg
as a general acute care hospital. Solaris required $70,000,000
in borrowing to both close Muhlenberg and upgrade its JFK
facilities in Edison. This included $18,500,000 to retire
outstanding tax exempt debt owed on Muhlenberg, $15,000,000 to
fund pension obligations for Muhlenberg employees, $8,000,000 to
fund severance for displaced Muhlenberg employees, and
$6,500,000 to fund stranded and closing costs. The remaining
$22,000,000 would be spent on upgrades to JFK in Edison. It
further explained that it intended to close all of Muhlenberg's
inpatient medical/surgical, ICU, obstetrics, and psychiatric
beds, plus all related diagnostic and treatment services.
Muhlenberg's internal medicine residency program, which provided
coverage for indigent patients, would also have to close.
Solaris planned to relocate Muhlenberg's Wound Care Center,
bariatric surgery program, cardiac catheterization lab, and
sleep lab to JFK. In recognition of the heavy usage of
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Muhlenberg's emergency department, Solaris proposed to maintain
a satellite emergency department (SED), with attendant basic
imaging and lab services, at the campus. It also intended to
continue offering on-site hemodialysis service (operated by
contractor DeVita), and to keep Muhlenberg's school of nursing
open.
Solaris identified nine other hospitals in the vicinity of
Muhlenberg that could absorb displaced patients: (1) JFK (5.46
miles away with an average travel time from Muhlenberg of
eighteen minutes); (2) Robert Wood Johnson University Hospital
at Rahway (7.57 miles away, twenty-two minute average travel
time); (3) Overlook Hospital (9.78 miles away, twenty-four
minute average travel time); (4) Saint Peter's University
Hospital (10.37 miles away, twenty-nine minute average travel
time); (5) Raritan Bay Medical Center at Perth Amboy (10.46
miles away, twenty-nine minute average travel time); (6) Robert
Wood Johnson University Hospital (10.81 miles away, thirty-three
minute average travel time); (7) Somerset Medical Center (11.56
miles away, thirty-one minute average travel time); and (8)
Trinitas - Jersey Street Campus (13.08 miles away, thirty-eight
minute average travel time); (9) Raritan Bay Medical Center At
Old Bridge (20.14 miles away, thirty-nine minute average travel
time). Solaris noted that the occupancy rates at these
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hospitals ranged from forty-five percent to eighty-seven percent
for maintained beds.
Plainfield has a federally qualified Neighborhood Health
Center (NHC-Plainfield) in the community, with six satellite
locations, five of which were also in Plainfield, that provides
health services to local residents. These health services
include: abnormal pap follow-up; annual exams; birth control
education; birth control/family planning; breast exam; cancer
screening (Pap test); counseling for birth control, pregnancy
options, STD, tubal ligation, vasectomies, depo-provera;
emergency contraception; Hepatitis B vaccine; high blood
pressure screening; HIV/AIDS testing and counseling; HPV
vaccine; immunizations; male health services; menopause/midlife
services; post-abortion exams; pregnancy education, testing and
counseling; sexually transmitted infection testing and
treatment; urinary tract infection diagnosis and treatment; and
vaginal infection testing and treatment.
Twenty-five to thirty percent of Muhlenberg's patients
would be admitted to JFK in Edison. To handle the increased
volume, Solaris proposed to: (1) renovate and expand its cardiac
suite; (2) reopen twenty-six unstaffed beds and rededicate five
additional rooms for patient use; (3) add a new thirty-eight bed
unit; and (4) expand its emergency department. Solaris claimed
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that it had made efforts to reduce the average length of patient
stays at JFK in order to free up beds, but given the eighty-
seven percent occupancy rate for obstetric beds at JFK, JFK
would only be able to absorb some of Muhlenberg's obstetrics
patients.2 JFK also did not currently offer any psychiatric
services.
Solaris recognized that the closure of Muhlenberg would
require that patients travel farther to receive care. It
proposed to collaborate with the Plainfield Red Cross to
establish a network of transportation services utilizing taxi
vouchers and van services. It offered to provide taxi and
shuttle service for three years and suggested that local
emergency response services could be utilized to transport
patients to other area hospitals.
In conjunction with its application, Solaris submitted 2005
and 2006, but not 2007, audited financial statements for
Muhlenberg as well as documentation confirming that, in October
2007, Moody's Investors Service had downgraded JFK's bond rating
from Baa2 to Ba1 (noninvestment grade). Moody's noted that it
had "consider[ed] the consolidated financial performance of the
entire Solaris System in our rating of JFK and its guarantee of
2 In 2007, approximately 1100 babies were born at Muhlenberg.
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[Muhlenberg's] debt service. The outlook is negative at this
lower rating category."
In May and June 2008, the SHPB held public hearings on the
CN. More than 1000 community members attended each hearing.
All who spoke opposed the closure of Muhlenberg, citing concerns
over access, emergency services, lack of transportation and the
economic harm to Plainfield as a result of the loss of over 1000
jobs. Community groups argued that Muhlenberg was not failing
because of poor quality of care, but because of Solaris
mismanagement and the shortcomings of the state health care
system. They alleged that Solaris had been shifting revenue-
generating services away from Muhlenberg since 2003. The
objecting community members also asserted that Solaris had
contributed to the reduction in the number of private patients
with insurance delivering babies at Muhlenberg when they moved
the hospital's pediatrics practice to JFK. They noted that
Muhlenberg's former dialysis center, which had been sold by
Solaris as an unprofitable business, was still being operated by
DaVita on Muhlenberg's campus, offered six days per week
service, and was one of the largest dialysis centers in the
State. Moreover, the objectors pointed out that JFK had
recently sent 300 elective angioplasties to hospitals other than
Muhlenberg, thereby depriving the hospital of $10,000,000 in
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revenue. They also noted that Solaris had sold Muhlenberg's
SurgiCenter and moved the Diabetes Center off of Muhlenberg's
campus.
Other community groups and individuals argued that three
months was not a sufficient time period to find a buyer for the
hospital and that the sale price of $70,000,000 was
"ridiculous" given that "business ha[d] been diverted and the
building gutted of equipment." Still others expressed surprise
at the fact that Solaris was willing to borrow $70,000,000 to
close the hospital, rather than utilizing that money to try to
rehabilitate and support it.
Community groups requested that an independent community
needs assessment and financial audit be performed before
Muhlenberg was allowed to close. Others asked for a
postponement of any decision for three to six months so that a
buyer for the hospital could be located. Alternately, these
groups asked that, if a CN were granted, Solaris be required to
retain Muhlenberg's license so as to facilitate a transfer of
ownership to a new entity if a buyer were located. Mayor
Robinson-Briggs of Plainfield requested that Muhlenberg be
turned over to Plainfield, a state audit be performed, a new
Board of Directors be put in place, and a lottery be held for a
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cash infusion. It was also noted that Solaris had paid only $1
for the hospital campus in 1997.
Despite the community opposition, SHPB staff recommended
that the CN be granted subject to fourteen conditions. In
pertinent part, SHPB staff concluded that
the applicant's decision to close Muhlenberg
is sound and in the best interest of the
health care delivery system in Union and
surrounding counties. The objectives of
this closure are to maintain accessibility
and availability of services at current
levels and strengthen the financial
viability of the Solaris Health System. It
is also noteworthy that Assemblyman Jerry
Green established a local health care task
force to address access and availability of
services. The Department was invited to
participate and attended several meetings of
the task force. The task force focused on
ways for local providers to better
coordinate services for Plainfield area
residents. Department staff does, however,
believe that the implementation of a SED is
necessary at the Muhlenberg campus given the
number of emergency room visits for the
years 2005 through 2007, which were recorded
as 33,836, 33,583 and 34,512, respectively,
as reflected in Condition 8. In addition,
staff believes that continuation of
prenatal/obstetric and primary care services
will need to be continued in the Plainfield
area and these are reflected in Conditions 6
and 7, respectively. Furthermore, staff
believes that in order to continue medical
care at the same level while minimizing any
loss of access, continuity or quality of
care, a transportation or shuttle system to
JFK and the other surrounding hospitals must
be implemented at the Muhlenberg site and
made available to the patient population
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within the area, as reflected in Conditions
10, 11 and 12.
Notably, as its first condition to the granting of the CN,
SHPB staff recommended that Solaris be
permitted to retain the hospital license for
a period of time not to exceed 24 months,
commencing on the date of the approval of
the closure of Muhlenberg by the Commission
. . . . A purchaser who intends to re-
establish an acute care hospital at the
Muhlenberg site must comply with all current
statutory and regulatory requirements and
commence operation prior to the expiration
of the 24 month period.
In her decision of July 29, 2008, granting the CN, the
Commissioner initially found that, if Muhlenberg were to close,
the greater Plainfield community, including the indigent and
other medically underserved residents, would continue to have
access to inpatient health care services. She was satisfied
that Muhlenberg was being fatally underutilized, noting that, in
2005, 2006 and 2007, Muhlenberg had an average daily census of
only 103.75, 109.59 and 98.96 patients, respectively, out of 282
licensed medical/surgical beds. The Commissioner observed that
the needs of Muhlenberg's patients could be accommodated through
the use of surplus licensed acute care beds at other hospitals
in Union, Somerset and Middlesex counties. In this regard, the
Commissioner noted that the average occupancy rates for licensed
medical/surgical beds at eight other area hospitals ranged from
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39.6% to 91.5%, leaving a more than sufficient number of beds
for Muhlenberg patients.
The Commissioner rejected the notion that the closure of
Muhlenberg would result in a need for specialized services such
as cardiac services, psychiatric services, and both inpatient
and outpatient obstetrical services. She noted that all of
these services would be available at JFK and other area
hospitals. She further observed that: (1) JFK had applied to
participate in the elective angioplasty demonstration project;
(2) Princeton House Behavioral Health Unit of the University
Medical Center at Princeton had been granted temporary approval
to operate six additional short-term care facility (STCF) beds;
(3) Trinitas and Raritan Bay had offered to provide sixteen
additional psychiatric STCF beds; and (4) Trinitas had agreed to
provide inpatient obstetrical services and also oversee the
midwifery program at the NHC-Plainfield. The Commissioner
further pointed out that, in 2007, the Department had authorized
a grant of $300,000 to NHC-Plainfield for the expansion of its
services. Finally, the Commissioner emphasized that, as a
condition to the CN, Solaris would be required to maintain both
primary care services and a SED on the Muhlenberg campus.
The Commissioner found that Solaris's application was "in
full compliance" with all access requirements. She accepted
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Solaris's representation that outreach efforts to low income,
racial and ethnic minorities, women, and disabled and elderly
patients would continue to be made by JFK, Trinitas, NHC-
Plainfield and the SED. She was satisfied that indigent care
would continue to be provided, noting that she had conditioned
the CN on the establishment of a Community Advisory Group (CAG)
that would monitor the availability of health care services in
the community.
Next, the Commissioner considered the financial resources
available to Muhlenberg. The Commissioner made the following
findings:
I am convinced that if the annual operating
losses at Muhlenberg continue, JFK, which is
operated by Solaris and is the closest area
hospital to Muhlenberg may seek bankruptcy
protection. I believe the closure of
Muhlenberg by Solaris would maintain access
to inpatient services, create operational
efficiencies, enhance revenues, and improve
resource utilization to reduce the risk of
future operating losses at JFK. It is
appropriate to review this application as it
relates to the availability of health care
services in the surrounding area. . . . I
recognize that Solaris can no longer afford
the multi-million dollar annual operating
losses at Muhlenberg, which began to
accelerate in 2007, when the operating
deficit reached $16.5 million, and is
projected to reach $18 million in 2008.
Muhlenberg is not a financially sustainable
hospital, and the additional losses at
Muhlenberg, were it to remain open, would
threaten the financial viability of JFK and
risk the closure of both hospitals. The
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impact of closure of both hospitals would
significantly impact the availability of
health care services in the service area
....
In reviewing the transcripts from the public
hearings and the written comments, I found
many references to the availability of
financial information provided by Solaris.
Pursuant to existing administrative rules,
hospitals are required to submit financial
information to the Department consistent
with Generally Accepted Accounting
Principles. Specifically, with respect to
the financial conditions reported by
Solaris, the New Jersey Health Care
Facilities Financing Authority reviewed the
2007 audited financial statements for
[Muhlenberg] prepared by the independent
auditing firm Parente Randolph. The
statements show that as of December 31,
2007, liabilities exceeded unrestricted
assets by $9.2 million and unrestricted cash
reserves were only $3.1 million. Further,
for the 12 months ended December 31, 2007,
expenses exceeded revenue by $16.7 million.
Based on [Muhlenberg's] poor financial
condition, the auditors have expressed
doubts as to whether [Muhlenberg] can
continue to operate. [JFK] is ultimately
responsible for the debt service and pension
payment of Muhlenberg. As such, continued
losses at Muhlenberg would jeopardize the
financial viability of [JFK]. Additionally,
in October 2007, Moody's Investor Services
downgraded JFK's bond rating . . . noting
that "[Muhlenberg's] financial impact has
taken its toll, and has been a major
contributor to the declining credit profile
of Solaris." Further, on June 16, 2008,
Moody's downgraded Muhlenberg's rating
. . . . Given the financial situation of
Muhlenberg and its parent, Solaris, the
approval of the closure through a public
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process is far preferable to the
alternative, a filing for bankruptcy.
The Commissioner dismissed the notion that Solaris had
refused to sell the hospital. She found that, despite Solaris's
timely engagement of a hospital acquisition broker, no viable
candidate had come forward with an offer to buy the hospital.
The Commissioner rejected the recommendation of the Department
staff and the request of the community that Solaris be permitted
to retain Muhlenberg's license for some period of time so that
it could be readily transferred to an entity prepared to operate
an acute care hospital at the Muhlenberg site. Rather, she
ordered that Solaris surrender Muhlenberg's license within ten
days of closure. She explained that, if an entity willing and
able to operate Muhlenberg were found
the Department's regulatory process requires
that the entity file an application for a
certificate of need to operate an acute care
hospital in Plainfield, and that the
application be subject to the Department's
full CN review process. I am sensitive to
the concerns of the community regarding the
desire to leave open the possibility that an
acute care hospital may be operated in
Plainfield sometime in the future. However,
I find that allowing Solaris to continue to
hold the license for a period of time in
order to facilitate a transfer of the
license is not required in order to
accomplish that goal. If Solaris' license
is terminated, and the Department
subsequently determines that there is a need
for an acute care hospital in the community,
the Department may issue a call for
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applications for a [CN] to provide those
services and the applications would be
subject to the Department's full CN review
process. Any potential applicant for a [CN]
may submit a request to the Department at
any time requesting that the Department
issue a call for applications, and the
Department will process that request as
expeditiously as possible. By considering
multiple CN applications under the
competitive call process, the Department can
most fairly consider what applicant is best
equipped to provide the required services.
Next, the Commissioner acknowledged that the public had
expressed concern with the inaccessibility of the substitute
hospitals due to distance and lack of transportation.
Accordingly, among the conditions to the grant of the CN, the
Commissioner ordered that Solaris: (1) operate a primary care
clinic either on site at the Muhlenberg campus or in conjunction
with NHC-Plainfield; (2) maintain a SED on site at Muhlenberg
for at least five years; (3) provide a no-cost continuous loop
shuttle between the SED and JFK between the hours of noon and
8:30 p.m., seven days per week; (4) provide a no-cost medical
taxi service for patients to access scheduled non-emergent care
services at JFK and Trinitas; and (5) provide round-the-clock
no-cost ambulance service from the SED to area health care
providers for patients in need of services not available at the
SED. Additionally, Solaris was required to consult with New
Jersey Transit and the transportation authorities in both Union
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and Middlesex Counties to "develop a patient and family
transportation plan after performing an assessment, in
consultation with CAG, to determine transportation needs to
alternative inpatient and outpatient service providers."
In sum, the Commissioner determined that Solaris's decision
to close Muhlenberg "appear[ed] sound and in the best interest
of the county's health care delivery system." She observed that
the primary objective of the closure was to maintain access at,
and preserve the financial viability of JFK. In the
Commissioner's view, "the discontinuance [of service at
underperforming Muhlenberg] will contribute to the delivery of
inpatient acute care services in the region and will not have a
significant adverse impact on the remaining hospitals in Union
County and the surrounding counties."
Solaris surrendered Muhlenberg's license on August 22,
2008, three weeks after the Commissioner issued her decision.
It is not clear whether Muhlenberg was actually closed on that
date or sometime before. Notably, Solaris had previously
indicated to Muhlenberg employees that, following the grant of
the requested CN, it would take six months to complete the "wind
down" at the hospital. However, as set forth in its answers to
Department completeness questions, Solaris actually began
affirmatively implementing its "transition plan" to close
A-0107-08T3
23 Muhlenberg in May 2008. At that time, Solaris began moving
Muhlenberg's inpatient and outpatient surgical services (which
comprised the bulk of the hospital's services) to JFK. It
anticipated completing this move during the summer of 2008, at
which point it also planned to discontinue its obstetrical
services.
Due to "staff resignations," Solaris also decided, in April
2008, to reduce its nineteen-bed ICU/CCU unit to eight beds, and
its twenty-four bed in-patient psychiatric unit to sixteen beds.
It advised the Department that it anticipated further reducing
these units if it could not secure sufficient staffing.
Notably, Solaris was never asked by the Department whether these
"resignation-driven" reductions in service at Muhlenberg were
actually the result, in whole or in part, of staff transfers to
JFK, which transfers Solaris had promised to make available to
as many Muhlenberg employees as possible.3
Plainfield and POP appealed the Commissioner's decision.
4 On September 9, 2008, the day after filing the notice of appeal,
3
In fact, in her decision, the Commissioner noted that Solaris
had retained at least 600 of Muhlenberg's more than 1000
employees, the vast majority of whom had been transferred to
JFK.
4 In a November 5, 2008 order, we consolidated the appeals and
thereafter, granted leave to the Borough of North Plainfield to
file an amicus brief.
A-0107-08T3
24
Plainfield and POP, among other applications, moved for a stay
pending appeal. The Commissioner denied the stay concluding
that Plainfield and POP had not shown a likelihood of success on
the merits of their appeals since Solaris's CN application had
complied with all statutory requirements. She disagreed that
the closure of Muhlenberg would result in irreparable harm to
the communities in its service area. According to the
Commissioner, "[d]iscontinuing services at Muhlenberg is a
realistic assessment of the health care environment in Union
County and the neighboring counties and the conditions [to the
CN] provide access to health care services in the surrounding
area." She noted that "while one may argue . . . that the
troubles at Muhlenberg could be attributed to many causes and
culprits and may have been fixable had these troubles been
addressed sooner, the inescapable fact remains that Solaris can
no longer financially support Muhlenberg." The Commissioner
further noted that staying her decision with its attendant
conditions would potentially result in great harm to the public
since Muhlenberg was already closed and "[i]t would not be
possible or practical for Solaris to bring Muhlenberg back to
the status of a full-service general hospital for purposes of
. . . appeal[]." Neither Plainfield nor POP sought relief from
the denial of the stay.
A-0107-08T3
25
II.
We first address Solaris' argument that the appeal is moot.
The argument is premised on the denial of a stay and the
resultant closure of the hospital facility. The hospital has
been closed since mid-2008, facilities and services have been
transferred, staff has been reassigned or dispersed and the task
and cost of reopening would be considerable.
Short of reopening the hospital, a seemingly improbable
circumstance and the result sought by Plainfield and POP here,
Muhlenberg is closed and the decision sought here "'can have no
practical effect'", Greenfield v. New Jersey Dep't of Corr.,
382 N.J. Super. 254, 258 (App. Div. 2006) (quoting New York
Susquehanna & W.Ry. Corp. v. State Dep't of Treasury, Div. of
Taxation,
6 N.J. Tax 575, 582 (Tax Ct. 1984), aff'd,
204 N.J.
Super. 630 (App. Div. 1985)). Generally, "courts should not
decide cases where a judgment cannot grant relief." Marjarum v.
Twp. of Hamilton,
336 N.J. Super. 85, 92 (App Div. 2000).
However, courts may decline to dismiss a matter on grounds
of mootness, if the issue in the appeal is an important matter
of public interest, Reilly v. AAA Mid-Atlantic Ins.,
194 N.J.
474, 484 (2008), and capable of repetition, Joye v. Hunterdon
Cent. Reg'l High School Bd. of Educ.,
176 N.J. 568, 583 (2007).
Because this appeal involves the closure of an urban hospital,
A-0107-08T3
26
the adequacy of the CN process governing such closures and
consideration of additional conditions attached to the CN, we
address the merits of the appeal.
III.
A.
Plainfield and POP contend that the Commissioner's decision
to grant Solaris's application for a CN to close Muhlenberg was
arbitrary and capricious, was not supported by sufficient
evidence in the record, and violated the governing statutory and
regulatory provisions.
We first consider our standard of review. We will not
upset the ultimate determination of an administrative agency
unless it is shown that it was arbitrary, capricious or
unreasonable, that it violated legislative policies expressed or
implied in the enabling legislation, or that the findings on
which the decision was based were not supported by substantial,
credible evidence. R & R Mktg., L.L.C. v. Brown-Forman Corp.,
158 N.J. 170, 175 (1999). When an error in the factfinding of
an administrative agency is alleged, our review is limited to
assessing whether sufficient credible evidence exists in the
record below from which the findings made could reasonably have
been drawn. Close v. Kordulak Bros.,
44 N.J. 589, 599 (1965).
This review must encompass "the proofs as a whole" and must take
A-0107-08T3
27
into account "the agency's expertise where such expertise is a
pertinent factor." Ibid.
B.
In 1971, New Jersey adopted the Health Care Facilities
Planning Act (HCFPA), N.J.S.A. 26:2H-1 to -26, which established
a regulatory system, under the supervision of the Commissioner
of the Department of Health and Senior Services, intended to
provide state residents with high quality health care services
at a contained cost. N.J.S.A. 26:2H-1. Pursuant to this Act,
health care facilities and services could not be expanded or
instituted without the Commissioner's identification of a need
and prior approval of the change through issuance of a CN.
N.J.S.A. 26:2H-7. A CN was also mandated in the case of a
voluntary closure of a general hospital. N.J.A.C. 8:33-3.2(b).
In 1998, the Legislature amended the CN statute to exempt
certain services (but not the closure of a general hospital)
Virtua, supra,
194 N.J. at 424;
from the CN requirement.
N.J.S.A. 26:2H-7a, -7c. Notably, though, it retained the
requirement in areas where
a limitation of the proliferation of such
services [through the CN requirement] may
continue to be essential to protect the
viability of the services as well as the
providers now rendering them, to protect the
role of such institutions as urban
hospitals, whose importance to the Statewide
health care system is indisputable, and to
A-0107-08T3
28
guard against the closing of important
facilities and the transfer of services from
facilities in a manner which is harmful to
the public interest[.]
[N.J.S.A. 26:2H-6.1h (emphasis added).]
CN review was viewed as an "important protective tool in the
management of the health of urban hospitals," Virtua, supra,
194 N.J. at 434.
In order to secure a CN, an applicant must demonstrate that
the action proposed in the application for
such certificate 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 in the region or
Statewide, and will contribute to the
orderly development of adequate and
effective health care services.
[N.J.S.A. 26:2H-8.]
In ruling upon a CN application, the Commissioner must also
consider:
(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.
A-0107-08T3
29
[Ibid.]
According to N.J.A.C. 8:33-4.10(a), "[e]ach applicant for a [CN]
shall show how the proposed project shall promote access to low
income persons, racial and ethnic minorities, women, disabled
persons, the elderly, and persons with HIV infections and other
persons who are unable to obtain care."
In Virtua, supra,
194 N.J. at 418, the Court reviewed the
Commissioner's decision to approve Virtua-West's request to
change the designation of its Vorhees hospital to a regional
perinatal center (RPC), and for a CN to add four intensive and
eight intermediate bassinets to its already approved complement
of bassinets. This approval had been granted despite the
objections of an existing RPC in Camden that claimed that there
was no need for another RPC in the area, and that approval of
Virtua-West's application for a suburban RPC would damage its
own urban practice. Id. at 419. The objector asserted that, if
it lost paying patients, it would be forced to discontinue
services to indigent patients. Ibid. The objector also alleged
that Virtua-West had already undermined its RPC through its
existing policy of sending patients to hospitals outside of
Camden, and often out of state. Ibid.
A-0107-08T3
30
The Court reversed the Commissioner's5 decision, concluding
that she had improperly failed to analyze the impact that the CN
would have on the urban hospitals likely to be affected by its
grant. Id. at 434. The Court observed:
Here the Commissioner's comment on this
important issue was, essentially, nothing
more than an acceptance of Virtua's proffer
that its beds will be filled by currently
out-migrating patients, rather than from
petitioners' patient population. In so
ruling, the Commissioner accepted Virtua's
claims that a new RPC was needed; that the
purpose of its new designation was merely to
reduce current transfers out of its system;
and that it would not siphon off the
objectors' patients. Those representations,
which were strongly contested by the Camden
objectors, were not subject to any apparent
independent evaluation by the Commissioner,
who simply did not discuss whether the
addition of another perinatal center would
diminish the number of paying patients
willing to travel to Camden's hospitals.
That, in turn, left unanswered the question
of whether the Camden hospitals' ability to
provide free or low-cost care to a large,
indigent population was at risk.
The Commissioner's duty requires that
she abide by her statutory and regulatory
charges and examine all relevant evidence in
each case. That must include the positions
espoused by the objectors. Here, the
Commissioner did not analyze, in any
meaningful way, whether the grant to Virtua
will have an adverse impact on the region's
urban hospitals. That omission is a
critical failing in a proceeding that has,
5
The then Deputy Commissioner, on behalf of a different
Commissioner, actually signed the decision.
A-0107-08T3
31
as one of its pillars, avoidance of negative
impacts on the delivery of health care
services in the region.
As far as her decision reveals, the
Commissioner uncritically accepted Virtua's
position without examining and explaining
her response to the positions advanced by
the objectors. Virtua contends that
petitioners' concerns are speculative. That
may prove to be true, but on this record we
cannot be sure. It may be that there was a
basis for her to reach her conclusion to do
so, but her decision gives little comfort
that the required analysis took place.
Virtua also asserts that it cannot, and
should not, be expected to make a showing in
its CN application of the likely patient
impact on petitioners. That, however, does
not excuse the Commissioner from her
obligation to satisfy the legislative
preference for a regulatory review that will
serve as a check on undue harm to our
valuable, and vulnerable, urban hospitals.
The duty to guard against severe or
pervasive negative impacts on urban
hospitals when a CN for a new or enhanced
service is under consideration lies squarely
with the Commissioner.
[Id. at 435-36 (emphasis added).]
Although the CN granted by the Commissioner had never been
stayed, the Court remanded the case for a full analysis and a
complete explanation of the Commissioner's decision. Id. at
436.6
6
We have reviewed the text of the then [Deputy] Commissioner's
decision in Virtua and unlike the analysis here, it was
(continued)
A-0107-08T3
32
Plainfield and POP now contend that, in granting the
requested CN to close Muhlenberg, the Commissioner disregarded
her statutory duty to protect urban hospitals and chose instead
to close a hospital entitled to special deference in favor of a
suburban hospital serving a more affluent population.
Specifically, POP and Plainfield argue that the Commissioner
improperly failed to independently assess the needs of the
indigent community in Muhlenberg's service area and to
critically examine the legitimacy of the representations made by
Solaris in its application. Plainfield and POP also assert
that, by simply accepting Solaris's claims, the Commissioner
essentially ceded her decision-making authority regarding this
closures to Solaris.
In support of its contentions, POP notes that Solaris: (1)
provided almost no information regarding its overall finances,
preferring to present Mulhenberg as an isolated entity; (2) did
not identify the alternatives it explored to closing the
hospital and why those alternatives were rejected; (3) was never
asked to respond to allegations that it depleted Muhlenberg's
assets for the benefit of JFK; and (4) was never asked to
provide particulars as to its efforts to sell Muhlenberg.
(continued)
conclusory with little of the analysis undertaken by the
Commissioner on this application.
A-0107-08T3
33
Plainfield also notes that the Commissioner did not critically
assess whether the drive times to substitute hospitals would
negatively impact the affected community's access to care. POP
further maintains that the Commissioner should have performed
independent audits and community health need assessments, and
should have examined whether closure would increase health
disparities between white and other racial and ethnic
minorities. POP takes special issue with the Commissioner's
decision authorizing the immediate relinquishment of
Muhlenberg's license, which it perceives as "calculated to
increase the difficulties of reopening the Hospital."
Amicus curiae North Plainfield, among other arguments,
notes that the Commissioner did not consider exactly which of
the eight substitute hospitals Muhlenberg patients would
actually be brought to, given their occupancy rates and EMS
patterns, as well as the impact of farther facilities on
existing emergency services.
We disagree with the broad attack on the Commissioner's
assessment of the CN submission. Aside from the SHBP hearings,
the record reveals that the Commissioner made cogent inquiries
into the financial and service underpinnings of the application
and according to her letter decision, secured an audited report
for 2007 indicating that expenses exceeded revenues by $16.7
A-0107-08T3
34
million. She noted that "Based on [Muhlenberg's] poor financial
condition, the auditors have expressed doubts as to whether the
[hospital] can continue to operate." Contrary to the arguments
raised by Plainfield and POP, the Commissioner did make inquiry
of Solaris into the issues raised by them.7
The Commissioner alluded to the newly-enacted Health Care
Stabilization Fund Act, N.J.S.A. 26:2H-18.74 to 18.78, effective
August 29, 2008 (one month after her decision), and saw this as
a resource for grant funding to meet community health needs.8
Significantly, this Act established a fund "for the purpose of
providing emergency grants to general hospitals and other
licensed health care facilities to ensure continuation of access
and availability of necessary health care services to residents
in a community served by a hospital facing closure . . . due to
financial distress." N.J.S.A. 26:2H-18.75f. The Commissioner
saw this fund as a resource for providing funding for the NHC-
7
Particularly noteworthy, one of the commenters on Solaris'
application characterized the CN application as "the most
informative and professionally presented CN application that we
have reviewed over the past four years involving the sale and/or
closure of an acute care hospital." Letter to John Calabria,
Director, Certificate of Need and Acute Care Licensure Program,
New Jersey Department of Health from Renée Steinhagen, Executive
Director, New Jersey Appleseed, dated May 5, 2008.
8
According to the Commissioner's decision, she had not yet
promulgated the rules to "guide the application process."
A-0107-08T3
35
Plainfield, an integral component of the Commissioner's closing
conditions.
The Commissioner made no mention of the January 2008 report
issued by the Governor's Commission on Rationalizing Healthcare
Services (the Reinhardt Report). That report focused, in part,
on a number of concerns germane to this appeal. The first
recognized the need to preserve urban hospitals, a need that was
confirmed by the Court's decision in Virtua. The second was the
deficiencies in the statutory review process and the use of a CN
procedure to assess the viability of the closing of a hospital.
And lastly, the report urged the need for a community health
assessment. Plainfield and POP assert that the Commissioner
should have adopted the principles advocated in the Reinhardt
Report as they apply to Muhlenberg. Specifically, they
criticize the Commissioner for failure to order a study to
determine Muhlenberg's "essentiality."
Vital to any such mandate is a recognition that the
Reinhardt Report is just that, a report, that must find its way
into legislative consideration of a means of evaluating hospital
The Commissioner was not obligated to perform the
closures.
recommended studies or adopt the report's recommendations, and
while there appears to provide salutary prerequisites to a
A-0107-08T3
36
closure analysis, it was not a mandate at the time of
consideration of this application.
The Reinhardt Report recommends a series of proposals to
provide support for financially distressed hospitals, both
essential and non-essential. These proposals, likewise,
incorporate suggestions requiring legislative action and are
beyond the options available to the Commissioner at the time of
this application.
Additionally, the report urges that the CN process for
closure should be reviewed and "streamlined and refocused to
permit a more rational closure and realignment process than
results from normal market forces and the bankruptcy procedure."
New Jersey Commission on Rationalizing Health Care Resources,
Final Report (Jan. 24, 2008), at 16, available at
http://www.nj.gov/health/rhc/finalreport/index.shtml(Reinhardt
Report). All parties agree that the present process is ill-
suited to address the closure of the hospital, but that, too, is
beyond the authority of the Commissioner to correct.9 Much of
the chaos that would ensue from a bankruptcy proceeding was
apparent here as Solaris moved to closures both before receipt
of approval of the CN and soon thereafter. Many of the
9
A careful reading of the CN application reveals that an
inordinate number of questions are not applicable to the action
proposed by the applicant.
A-0107-08T3
37
conditions imposed by the Commissioner were not yet in place.
Both the Reinhardt Report and the facts of this closure suggest
that the Commissioner and the Legislature should reexamine the
CN procedure as a means of effectuating hospital closures
especially when the closures involve protected urban hospitals.
Lastly, Plainfield and POP assert the need for a community
health assessment to monitor the needs of those previously
served by the now-closed Muhlenberg Hospital. Our review of the
decision as well as the conditions imposed by the Commissioner
satisfies us that the Commissioner was sensitive to the
significant health-care needs of the greater Plainfield
community. She imposed extraordinary conditions including
continued, but limited, medical care at the Muhlenberg site,
transportation programs to insure patient delivery to the
hospitals now serving the community health needs as well as the
formation of a Community Advisory Group to monitor the health
needs of the community. She required bolstering of the services
provided by the neighborhood health clinics. We cannot fault
the imposition of these unique conditions nor the requirements
imposed to ease the transition to other health care facilities.
The community outpouring in support of Muhlenberg Hospital
not only demonstrated the significant impact that the
institution had on generations of residents but the importance
A-0107-08T3
38
of health care in the lives of not only health care
professionals, patients, past and present, but also ordinary
citizens who recognized the import of a cherished resource. Yet
the circumstances that brought these forces together in
opposition also reflected the crises faced by the Commissioner
in balancing the health of a failing institution with the need
to insure that health care can be provided in a meaningful and
orderly process.
We are satisfied that the Commissioner understood the
conflict and properly determined that Muhlenberg Hospital could
no longer sustain itself in the time of crisis.
Affirmed.
A-0107-08T3
39
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