Greenbriar Nursing Home, Inc. v. Pilley

• Decision Date: 23 May 1994
• Citation: 637 So.2d 429
• Parties: 93-2059 La
• Court: Louisiana Supreme Court

Page 429

637 So.2d 429

93-2059 La. 5/23/94

GREENBRIAR NURSING HOME, INC., Guest House of Slidell, Inc. Forrest Manor, Inc., Lacombe Nursing Home Inc. and Pontchartrain Guest House Inc. v. Christopher PILLEY, His Capacity as Secretary of the Louisiana State Department of Health and Hospitals.

No. 93-CC-2059.

Supreme Court of Louisiana.

May 23, 1994.

James A. Cobb, Jr., John Francis Emmett, Emmett, Cobb, Waits & Kessenich, New Orleans, for applicant.

Jerry L. Phillips, Philip B. Waters, Baton Rouge, for respondent.

[93-2059 La. 1] LEMMON, Justice. ^*

This action involves the interpretation of Section 1122 of the Social Security Act, 42 U.S.C. § 1320a-1 (Supp.1975), which authorized federal reimbursement of capital expenditures made by or on behalf of a health care facility after a designated state agency approves the necessity of the facility. Competing health care facilities filed this action to require (by mandatory injunction) the Louisiana State Department of Health and Hospitals (DHH) to recall and vacate the certificate of need on Project No. 3057 issued pursuant to Section 1122. The issue at this stage of the proceeding is whether the court of appeal properly sustained an exception of no right of action when the opponents of the recipient of the certificate protested DHH's noncompliance, in issuing the certificate of need, with its own procedural rules and regulations promulgated pursuant to Section 1122.

[93-2059 La. 2] I

Prior to 1972, the United States Department of Health, Education and Welfare (now the Department of Health and Human Services (DHHS)) reimbursed hospitals and other health care facilities for the cost of providing service to Medicare, Medicaid and other federal beneficiaries. The reimbursements included the costs attributable to building and equipping those facilities. When the costs of health care began to spiral, Congress became concerned that automatic reimbursement of all health facilities for their capital expenditures might undermine the comprehensive plans for health facilities which many states had developed. Hollingsworth v. Schweiker, 664 F.2d 526 (5th Cir.1981).

In 1972, Congress enacted 42 U.S.C. § 1320a-1 (Supp.1975) to allow interested states to enter into an agreement with DHHS whereby the state would determine whether a proposed facility is necessary. Psychiatric Institutes of America, Inc. v. Guissinger, 464 So.2d 7 (La.App. 1st Cir.1984), cert. denied, 467 So.2d 530 (La.1985). The purpose of the act, commonly known as Section 1122, ¹ was to assure that federal reimbursements for health care capital expenditures were limited to those that were necessary, thereby discouraging duplicative projects that increase the costs of medical care and encouraging rational health care planning under the control of state and local agencies. Humana Hosp. Corp v. Blankenbaker, 734 F.2d 328 (7th Cir.1984); Wilmington United Neighborhoods v. United States Dept. of Health, Education and Welfare, [93-2059 La. 3] 615 F.2d 112 (3d Cir.), cert. denied, 449 U.S. 827, 101 S.Ct. 90, 66 L.Ed.2d 30 (1980).

Pursuant to Section 1122 and the regulations promulgated thereunder, 42 C.F.R. §§ 100.101-100.109 (1989), Congress authorized the Secretary of DHHS to enter into an agreement with individual states, under which the state was to review all proposed health care capital expenditures reimbursable by federal funds and to determine whether the expenditures conformed with local standards, criteria or plans developed to meet the need for adequate health care facilities in the state. ² 42 U.S.C. § 1320a-1(b) (1988); First Fed. Sav. and Loan Ass'n of Lincoln v. Casari, 667 F.2d 734 (8th Cir.), cert. denied, 458 U.S. 1106, 102 S.Ct. 3484, 73 L.Ed.2d 1367 (1982).

In each cooperating state, a designated planning agency (DPA) was to be established to review each capital expenditure proposed by a health care facility, and the DPA was to make findings and recommendations to the Secretary as to approval or disapproval of the project. ³ 42 U.S.C. § 1320a-1(b)(1) (1988). If the DPA recommends approval, the Secretary is required to follow that positive recommendation, unless the Secretary finds the proponent had failed to give the required notice to the state agency before incurring expenses. 42 U.S.C. § 1320a-1(d) (1988); 42 C.F.R. § 100.108(a)(1) (1989).

Adverse findings and recommendations by the DPA can be appealed by the proponent in a "fair hearing" before a state-appointed hearing officer under procedures established and maintained by the DPA. 42 U.S.C. § 1320a-1(b)(3) (1988). The findings and recommendations of the hearing officer supercede those of the DPA, but a favorable ruling from the hearing officer also has to be approved by the Secretary of DHHS. 42 C.F.R. § 100.106(c)(4) (1988).

[93-2059 La. 4] When the DPA notifies the Secretary that a proposed capital expenditure does not conform to local standards, the Secretary may exclude those expenditures from federal health care reimbursements to the facility. 42 U.S.C. § 1320a-1(d)(1) (1988). However, the Secretary of DHHS can decide, despite a notice of nonconformity, to include these capital expenditures for federal reimbursement where sufficient proof of capability to provide efficient, effective and economical delivery of health care is demonstrated. 42 U.S.C. § 1320a-1(d)(2) (1988). The Secretary's final determination is not subject to administrative or judicial review. ⁴ 42 U.S.C. § 1320a-1(f) (1988).

II

Pursuant to Section 1122, the Secretary of DHHS entered into a written agreement with the Louisiana State Department of Health and Hospitals, through the Division of Health, Planning and Development, under which that state agency was named as the state designated planning agency (DPA). Louisiana's DPA thereafter set forth state policies and guidelines for Section 1122 capital expenditure review which were published in the state register. The policies and guidelines pertinent to this case became effective in November, 1983. 9 La. Register 757 (1983).

In January, 1984, Mississippi Extended Care Centers, Inc. (MECCI), d/b/a Slidell Heritage House, submitted an application to the DPA requesting approval under Section 1122 of a 200-bed nursing home facility. ⁵ In this application, MECCI specified a certain tract of land near the Rigolets in Slidell as the [93-2059 La. 5] proposed site for location of the facility and identified the service area for the facility as St. Tammany and Orleans parishes. ⁶

While reviewing the application, the DPA issued staff comments which noted a state health plan goal of ninety-five percent annual occupancy for nursing homes within a particular service area. At the time of MECCI's application, the occupancy rate of nursing homes located in the combined Orleans and St. Tammany Parishes area slightly exceeded that standard. However, the occupancy rate for nursing homes in St. Tammany only was far below ninety-five percent, thus indicating that a service area consisting of St. Tammany Parish alone would not meet the standard stated by the DPA.

After review of the application, the DPA in March of 1984 issued to MECCI a notification of conformity with their standards, criteria and plans for the Slidell Heritage House project. The DPA recommended to the Secretary of DHHS that amounts attributable to capital expenditures for this project be included under Section 1122 in payments to MECCI for services furnished. The DPA also issued a certificate of need to MECCI for the construction of Slidell Heritage House.

In March, 1984, pursuant to a request from MECCI, the DPA changed the name of the owner of the certificate of need to Louisiana Extended Care Centers, Inc. (LECCI). In February, 1985, LECCI requested that the name of the project be changed to St. Tammany Heritage House.

At the time of the approval of Project No. 3057, the DPA required the successful applicant to submit evidence of a binding obligation to make a capital [93-2059 La. 6] expenditure within one year of the approval. After the approval, the DPA amended its policies to require evidence from holders of certificates of need that vertical construction had begun within one year of the date of approval, and the DPA requested such evidence from LECCI. In February, 1986, over one year after the new policy had been in effect, the DPA had not received such evidence from LECCI and notified LECCI that its certificate of need had expired. More than two years later, LECCI's attorney requested reinstatement of the certificate, arguing that the vertical construction requirement did not apply to the St. Tammany project because the rule was adopted after approval of the application. In April, 1988, the DPA, without any other action or explanation, reinstated the certificate.

In November, 1989, LECCI notified the DPA that the nursing home would be built on a site in Mandeville, which was not the site designated in the application for the certificate. In December, 1989, the DPA acknowledged receipt of this correspondence. The DPA did not conduct any other review of the project or publish any notice of the request to change the proposed location.

Plaintiffs, who are the operators of all of the nursing homes in St. Tammany Parish and are themselves holders of Section 1122 certificates of need, eventually learned of the planned site change and requested that the DPA immediately recall and vacate the certificate of need issued to LECCI and notify DHHS not to reimburse LECCI for capital expenditures for the project. When they did not receive a response from the DPA, plaintiffs filed a petition for declaratory judgment and injunctive relief against the Secretary of DHH, asserting the following causes of action:

FIRST CAUSE OF ACTION

....

[93-2059 La. 7] Under policies and guidelines existing at the time of the submission of this application, a change in site required review by the designated planning agency in order to determine whether there was a continuing...