Greenwood Manor v. Dept. of Public Health

• Citation: 641 N.W.2d 823
• Decision Date: 03 April 2002
• Docket Number: No. 00-0994.,00-0994.
• Parties: GREENWOOD MANOR, Lantern Park Nursing and Rehab Center and Parkview Manor, Appellants, v. IOWA DEPARTMENT OF PUBLIC HEALTH, STATE HEALTH FACILITIES COUNCIL, Appellee, and Coralville Manor, RFMS, Inc., Intervenor.
• Court: United States State Supreme Court of Iowa

641 N.W.2d 823

GREENWOOD MANOR, Lantern Park Nursing and Rehab Center and Parkview Manor, Appellants, v. IOWA DEPARTMENT OF PUBLIC HEALTH, STATE HEALTH FACILITIES COUNCIL, Appellee, and Coralville Manor, RFMS, Inc., Intervenor.

No. 00-0994.

Supreme Court of Iowa.

April 3, 2002.

Robert F. Holz of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, for appellants.

Thomas J. Miller, Attorney General, and Heather L. Adams, Assistant Attorney General, for appellee.

Robert J. Baudino, Jr. and Kelly D. Hamborg of the Baudino Law Firm, P.C., Des Moines, for intervenor.

CADY, Justice.

This appeal requires us to determine whether persons affected by an application for a certificate of need requesting permission to construct a new institutional health facility are entitled to an evidentiary hearing prior to the evaluation of the application by the State Health Facilities Council pursuant to Iowa Code section 135.66 (1999). After holding a public hearing on the application in this case, the Council granted the certificate for construction of the facility. Three nursing centers located within the geographical area of the proposed facility petitioned for judicial review. On judicial review, the district court upheld the Council's decision to grant the certificate. The district court found an evidentiary hearing was not required because the action of the Council in evaluating the application did not constitute a contested case. On our review, we affirm the decision of the district court.

I. Background Facts and Proceedings.

The dispute in this case centers on the decision of the State Health Facilities Council to grant a certificate of need to Coralville Manor, L.L.C. The certificate of need proposed construction of a 120-bed skilled nursing facility in Coralville, Iowa. Coralville is located near the city of Iowa City, and is a part of Johnson County. The proposed facility would consist of four distinct patient care areas. Twenty-eight beds would be devoted to a chronic confusion and dementing illness (CCDI) unit. The CCDI unit would primarily care for patients with Alzheimer's disease, and would be separate from the other three units in the facility. The CCDI unit would be aesthetically designed to minimize the disorientation and agitation ordinarily suffered by those afflicted with dementia, particularly Alzheimer's patients.

The other three units would be composed of intermediate and skilled nursing care patients. One unit would provide intense rehabilitation services, including treatment for stroke victims. Although the entire facility would be certified by Medicaid, twenty beds would be specifically allotted to Medicare/Medicaid patients. Additionally, the facility would have occupational and physical therapy rooms that would provide outpatient services to former residents who have been successfully rehabilitated but still require continuing treatment.

The proposed site of the facility is a five-acre plot of land on Heartland Drive. It is a central location for the residents of Johnson County and the surrounding counties, and is easily accessible by the metropolitan area's interstate and state highways. Coralville Manor also has an option to purchase twenty-five undeveloped acres adjacent to the five-acre plot. Eventually, Coralville Manor would convert the additional twenty-five acres into a retirement community. In addition to the nursing facility, the campus would contain independent living, assisted living, and general retirement centers. The purpose of the campus atmosphere is to permit senior citizens to retire to an area where they can move to different living units to accommodate changes in their physical or mental condition.

Donald Fike is the sole owner of Coralville Manor. He is also the sole owner of RFMS, Inc., which has been providing services similar to those proposed by Coralville Manor since 1981. Fike owns and operates over 100 facilities in Iowa, Illinois, Florida, Nevada, and South Carolina. Thirteen of these facilities are nursing homes, some of which have special units providing care to Alzheimer's patients. Many of these nursing facilities are included in a retirement community campus.

Fike determined a need existed in the Johnson County area for a nursing facility specially equipped for treating those afflicted with dementing illnesses. He based this determination on several factors. First, none of the seven nursing facilities in Johnson County had a CCDI unit. Furthermore, the CCDI units in neighboring counties were at or near full capacity. Moreover, the closest CCDI unit was in Cedar Rapids, and that facility only served private pay patients.

In addition, Fike believed Johnson County needed more long-term care beds for the general treatment of aging seniors. The state bed need formula projected a need for 121 long-term care beds in Johnson County. The state bed need formula estimates the number of long-term nursing beds necessary to adequately serve a county's projected population in five years. See Iowa Admin. Code r. 641-203.5(3)(a)(1), (2) (1987). The Department of Public Health is charged with updating the long-term care bed need calculations each year. Id. r. 641-203.5(3)(a)(4). The Council, which is a division of the Department, then uses the figure as a guideline in its review of a certificate of need application. See id. r. 641-203.5(3)(c).

Fike also conducted a phone survey of the seven local nursing facilities in June, September, and December 1998. In each of these months, the vacancy bed total never exceeded six beds. Fike also relied on the reported occupancy rates of the seven facilities over eight quarters. Three of the facilities consistently reported occupancy rate levels near 100%, two between 85 and 90%, and one between 77 and 84%. Although one of the facilities reported levels consistently below 50%, the administrator of that facility testified the occupancy rates have never been that low. In any event, the overall reporting rate for Johnson County, excluding the latter facility's rates, was 90%. Generally, a nursing facility is considered to be operating at full capacity when its occupancy rates reach the level of 85 to 90%. Fike considered these statistics with other facts showing that Johnson County has the fastest growing elderly population in the state of Iowa.

Coralville Manor filed a letter of intent for the construction of the 120-bed skilled nursing facility in Coralville on January 8, 1998. It received an extension for the letter on December 30, 1998. See id. r. 641-202.2(4) (1997) (letter of intent expires one year after its receipt by the Department, but is subject to renewal). The Department received Coralville Manor's formal application on February 25, 1999. Contemporaneously with the filing of the application, Coralville Manor notified each of the seven Johnson County nursing facilities of the submission of its certificate of need application. Additionally, the Department sent written notice of the application to all persons deemed to be affected by Coralville Manor's application. The Department invited the affected persons to comment on the application, either through written statements or an oral presentation to the Council at the hearing on the application. The Department subsequently received numerous letters challenging and supporting the certificate of need.

The Department scheduled a public hearing on the application for June 10, 1999. On the day preceding the hearing, Greenwood Manor,¹ Parkview Manor,² and Lantern Park Nursing and Rehab Center³ filed a motion for a contested case proceeding. These three facilities are located in the geographic area of the proposed facility and, consequently, are considered affected persons. See Iowa Code § 135.61(1)(c) (institutional health facilities "located in the geographic area which would appropriately be served by the new institutional health service proposed in the application" are considered affected persons in certificate of need proceedings). The facilities claimed the decision to grant or deny a certificate of need is a contested case proceeding and, therefore, the Council was required to hold an evidentiary hearing. The Council denied the motion.

Numerous witnesses testified at the hearing on June 10. In addition to Fike, the health care planning consultant to Coralville Manor, the local economic developer for the Coralville area, and the mayor and the city administrator for the city of Coralville testified in support of the project. These witnesses revealed that the acreage where Coralville Manor planned to build its retirement campus had been specifically identified by the city of Coralville for the development of senior services. In 1997, the city enacted a plan to set aside an area of undeveloped acreage for continuing care retirement centers. The city officials believed the Coralville Manor development matched the plan's objectives and was needed by the community. In fact, the Coralville City Council adopted a resolution on May 25, 1999, supporting the Coralville Manor nursing home project.

Nine affected parties challenged the certificate. Eight of the parties were operators or administrators of neighboring nursing care facilities. Each person's testimony echoed two main concerns: a recent decrease in occupancy rates and shortages in health care professionals. They attributed the occupancy rate decreases to the recent surge in popularity of assisted living and independent living centers. Additionally, they detailed the difficulties they often encountered in satisfying their staffing needs, blaming the national shortage in health care personnel. The facility representatives believed their facilities adequately served the community, including those with dementing illnesses, and feared a new center would force them to compete for nurses and certified nurses aides. A representative from All Staff Medical, a medical staffing agency, shared the staffing concerns espoused by...