Department of Health v. Grand Island Health Care, Inc.

Decision Date01 August 1986
Docket NumberNo. 85-552,85-552
PartiesDEPARTMENT OF HEALTH, State of Nebraska, Appellant, v. GRAND ISLAND HEALTH CARE, INC., Also Known As Vetter Health Services, Inc., Appellee.
CourtNebraska Supreme Court

Syllabus by the Court

1. Administrative Law: Appeal and Error. The Supreme Court's review of an administrative agency's decision is de novo on the record. Neb.Rev.Stat. § 84-918 (Reissue 1981). As such, we make independent findings of fact without reference to those made by the agency whose action is being reviewed.

2. Administrative Law: Public Health and Welfare. The consideration of an application for a certificate of need is governed by three authorities: the Nebraska Health Care Certificate of Need Act, regulations promulgated under that act, and the Nebraska state health plan.

3. Administrative Law: Public Health and Welfare: Proof: Appeal and Error. In an appeal of a decision to grant a certificate of need, the party appealing that decision shall bear the burden of proof that the application does not meet the applicable criteria.

Robert M. Spire, Atty. Gen., and Marilyn B. Hutchinson, Lincoln, for appellant.

Robert L. Lepp of McGill, Koley, Parsonage & Lanphier, P.C., Omaha, for appellee.

KRIVOSHA, C.J., and BOSLAUGH, WHITE, HASTINGS, CAPORALE, SHANAHAN, and GRANT, JJ.

HASTINGS, Justice.

The appellee, Grand Island Health Care, Inc., filed an application for a certificate of need to construct a 60-bed, long-term-care facility for the elderly. The Nebraska Department of Health recommended denial of the application. Two public meetings were held before the Certificate of Need Review Committee, after which the committee approved the application. The Department of Health appealed to the Certificate of Need Appeal Panel. A full evidentiary hearing took place, and the panel rendered findings of facts, conclusions, an order, and a decision. Approval of the application was affirmed. The district court for Lancaster County also affirmed, and this appeal followed.

The Supreme Court's review of an administrative agency's decision is de novo on the record. Neb.Rev.Stat. § 84-918 (Reissue 1981). As such, we make independent findings of fact without reference to those made by the agency whose action is being reviewed. Haeffner v. State, 220 Neb. 560, 371 N.W.2d 658 (1985). From such de novo review we conclude that the action of the Certificate of Need Appeal Panel in upholding the grant of a certificate of need by the Certificate of Need Review Committee was correct. Accordingly, we affirm the judgment of the district court in its finding that the decision of the Certificate of Need Appeal Panel was supported by competent, material, and substantial evidence, and was neither arbitrary nor capricious.

The project proposed by appellee, Grand Island Health Care, is a 60-bed, long-term-care facility to be built in Grand Island, Nebraska. The appellee is a for profit corporation owned by Jack D. Vetter, who has extensive experience in the nursing home industry in the Midwest. The application sought certification for both skilled nursing and intermediate-care beds, proposing to provide care for medicare, medicaid, and private pay residents. Proposed services included nursing care and specialized services in rehabilitation, i.e., physical therapy, occupational therapy, speech therapy, and recreational therapy. Hospice care for the terminally ill and their families was proposed in conjunction with area hospital hospice programs. The proposed facility was designed with 25 semiprivate rooms [223 Neb. 589] and 10 private rooms on a single level, with specific areas for rehabilitation, recreation, personal care, and spiritual fulfillment.

The consideration of an application for a certificate of need is governed by three authorities: (1) The Nebraska Health Care Certificate of Need Act, Neb.Rev.Stat. §§ 71-5852 through 71-5855 (Cum.Supp.1984); (2) Department of Health regulations promulgated under the certificate of need act, Neb.Admin.Code tit. 182, ch. 2, §§ 005 through 006 (1983); and (3) The Nebraska State Health Plan 1982-1987 (Neb.Dept. of Health 1982) on file with the Nebraska Secretary of State. The construction of these statutes, regulations, and state health plan must be performed with particular attention to the policy behind these authorities, their purposes, and the context within which they were drafted and promulgated.

Nursing home costs have been on the rise in recent years, with nursing home care in Nebraska increasing from $5.78 per capita in 1966 to $66.38 per capita in 1978. These figures represent an annual increase of 21.6 percent and a total increase of 1,048 percent over the 12 years studied. During the same period, national nursing home expenditures increased from $7.18 to $70.64, an annual increase of 20.1 percent and an overall increase of 884 percent. Between 1966 and 1978, all health service expenditures paid for nursing home care increased from 3.9 percent to 9.4 percent.

Due to public funding cutbacks, the elderly are being forced to pay an increased portion of nursing home costs privately. In 1966, 80.42 percent of Nebraska's nursing home expenditures were paid with federal, state, or local government funds. By 1978 those governments were paying only 48.26 percent of the total nursing home expenditures in Nebraska. On a national level, government funding of nursing home expenses rose from 42.86 percent in 1966 to 53.67 percent in 1978. Total public funding of Nebraska nursing home expenses in 1978 was $50,149,000.

Whether the motive has been to reduce the cost of publicly funded nursing home expenditures or to minimize the increasing out-of-pocket expenses borne by the elderly and their families, state and federal governments have had abundant incentive to attempt to cap rising nursing home costs. The conventional wisdom has been that nursing home costs are reduced by reducing the number of long-term-care beds. A surplus of beds burdens the public, whether they are in use or not. Someone must pay the overhead expense of maintaining the nursing home facility and staff, so the cost of empty beds is passed on to the public through the beds that are occupied. Further, there is a tendency to fill surplus beds with patients who do not necessarily need such a high level of care, thus increasing total nursing home expenditures. This phenomenon is referred to as overutilization.

In the broader field of general health care facilities and services, not limited to nursing home care, the Legislature has stated its purpose in the enactment of the Nebraska Health Care Certificate of Need Act:

[T]o conserve the limited health care resources of personnel and facilities in order to provide quality health care to all citizens of the state, to minimize unnecessary duplication of facilities and services, to encourage development of appropriate alternative methods of delivering health care, to promote wherever appropriate a more competitive health care delivery system, to encourage the provision of high-quality health care which is available and accessible to all citizens of the state, and to maximize the effectiveness of expenditures made for health care.

Neb.Rev.Stat. § 71-5802 (Cum.Supp.1984).

In the Nebraska Health Care Certificate of Need Act, the Department of Health is directed to provide criteria for the consideration of applications for certificates of need. The specific criteria ordered by the Legislature and pertinent to this case include (1) the need that the population to be served has for the service, (2) the availability of less costly or more effective alternative methods for providing the service, (3) the relationship of the proposed services to the existing health care system in the area, (4) the efficiency and appropriateness of using existing services and facilities, and (5) the relationship of the proposed services to the state health plan. §§ 71-5852, 71-5853, and 71-5854.

Pursuant to the statutory directive, the Department of Health adopted the following methods by which an applicant should demonstrate need for long-term-care beds:

006.09 Long-Term Care Beds (Skilled Nursing Facility and Intermediate Care Facility Beds, Excluding ICF-MR Beds).

006.09A The combined occupancy of long-term care beds in the applicant's service area must be 90 percent or greater before long-term care beds may be added.

006.09B A system of alternative services, including either home health services, home aide/homemaker services, or an adult day care center, must be accessible to a majority of the population in the service area of the proposed project before long-term care beds may be added.

006.09C ....No long-term care beds may be added if the number of beds in the applicant's service area exceeds the need for that area determined by aggregating the bed needs estimated for each sex and age group from the following methodology:

Long-term Bed Need = Population x Utilization Rate Goal

----------------------------------

Minimum Occupancy Rate Goal

006.09C1 The population includes the total population of the applicant's service area, disaggregated by age (0-44, 45-64, 65-74, 75-84, 85 + ) and sex.

006.09C2 The utilization rate is the number of long-term care residents per 1000 persons. The utilization rate goal for each sex and age group is as follows:

                Age-Sex        Utilization Rate Goal
                -------------  ---------------------
                0-44   Female           0.10
                       Male             0.11
                45-64  Female           2.84
                       Male             3.00
                65-74  Female          14.87
                       Male            13.81
                75-84  Female          69.52
                       Male            47.35
                85k    Female         247.81
                       Male           173.15
                

006.09C3 The minimum occupancy rate goal is 90 percent, the goal for the ratio of the total number of patient days to the total annual available bed days.

Neb.Admin.Code tit. 182, ch. 2 (1983).

According to the Department of Health, Grand Island's service...

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