In re Certificate of Need Application for the Mem'l Hosp. of Salem Cnty.

• Decision Date: 02 July 2020
• Docket Number: DOCKET NO. A-2571-18T1
• Citation: 235 A.3d 213,464 N.J.Super. 236
• Parties: IN RE CERTIFICATE OF NEED APPLICATION FOR THE MEMORIAL HOSPITAL OF SALEM COUNTY.
• Court: New Jersey Superior Court — Appellate Division

464 N.J.Super. 236

235 A.3d 213

IN RE CERTIFICATE OF NEED APPLICATION FOR THE MEMORIAL HOSPITAL OF SALEM COUNTY.

DOCKET NO. A-2571-18T1

Superior Court of New Jersey, Appellate Division.

Argued February 10, 2020

Decided July 2, 2020

Eric S. Aronson, Florham Park, argued the cause for intervenor-appellants Carneys Point Rehabilitation & Nursing Center and Golden Rehabilitation & Nursing Center (Greenberg Traurig, LLP, attorneys; Eric S. Aronson and Matthew F. Bruno, Florham Park, on the briefs).

Patrick Jhoo, Deputy Attorney General, argued the cause for respondent Department of Health (Gurbir S. Grewal, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Patrick Jhoo, on the brief).

Steven D. Gorelick, Hackensack, argued the cause for respondent Salem County Hospital Corp. (Garfunkel Wild, PC, attorneys, join in the brief of respondent Department of Health).

Barry J. Muller, Lawrenceville, argued the cause for amicus curiae Health Care Association of New Jersey (Fox Rothschild LLP, attorneys; Jonathan D. Weiner, of counsel and on the brief; Maureen E. Kerns and A. William Henkel, Lawrenceville, on the brief).

Before Judges Sabatino, Sumners and Natali.

The opinion of the court was delivered by

NATALI, J.A.D.

Carneys Point Rehabilitation & Nursing Center (Carneys) and Golden Rehabilitation & Nursing Center (Golden) (collectively, intervenors) appeal a final decision of the Commissioner of the New Jersey Department of Health (the Commissioner) that granted Salem County Hospital Corporation's (SCHC) application for a certificate of need (CN) to transfer ownership of the Memorial Hospital of Salem County (Salem Hospital) to SCHC. In the context of that approval, the Commissioner also permitted SCHC to establish thirty long-term care (LTC) beds and twenty-six adult acute care psychiatric beds at the hospital.

We conclude that, despite the general deference owed to administrative agencies on appeal, the Commissioner failed to apply the relevant statutory factors to determine that there was a need for LTC beds in Salem County and he improperly awarded those beds without issuing a call notice in the New Jersey Register inviting competing applications. Further, even if the Commissioner's final decision can be interpreted as having determined a need for LTC beds in the area, the record contained insufficient support for such a finding. We also conclude that the Commissioner was required to conduct an independent analysis of the actual need for a proposed service regardless of whether the transaction has an otherwise meritorious purpose, such as to support a hospital's financial viability. We agree, however, with the Commissioner's approval of the open adult acute care psychiatric beds to SCHC consistent with an unimplemented CN. Accordingly, we affirm in part and vacate and remand in part.

I.

Salem Hospital is a licensed general acute care hospital¹ located in Salem. It was formerly owned and operated by Salem Hospital Corporation, "an indirect wholly owned subsidiary of ... Community Health Systems, Inc. (CHS)." While owned by CHS, the hospital was licensed to provide a bed capacity of 114 medical and surgical beds, as well as twelve adult Intensive Care Unit/Critical Care Unit beds, totaling 126 beds.

In May 2017, the Commissioner approved a CN to transfer ownership of Salem Hospital from CHS to Prime Healthcare Foundation-Salem Hospital, LLC (Prime) for $15 million. In support of his decision, the Commissioner noted Salem Hospital's "sustained operating losses and reduction in patient volume for several years" and that "the only option [besides] the transfer of ownership of Salem Hospital is the closure of the Hospital ...." Prime, however, cancelled the agreement and the transfer of ownership never occurred.

In addition, on November 17, 2017, the Commissioner approved a CN application by CHS which permitted it to implement twenty-six "open adult acute care psychiatric beds" at Salem Hospital. That CN, however, was never implemented.

On May 1, 2018, SCHC filed a CN application to transfer ownership of Salem Hospital. SCHC noted in its application that it sought to modify the licensed bed capacity at Salem Hospital to implement the November 17, 2017 award of twenty-six "[o]pen [a]dult [a]cute [p]sychiatric" beds. Further, as noted, SCHC sought to establish thirty LTC beds at the hospital. The Commissioner, however, did not issue a call notice regarding the need for LTC beds in the area.² In conjunction with its request to add the LTC beds, SCHC also sought to reduce the number of medical/surgical beds from 114 to 75.³

In support of its request for the thirty LTC beds, SCHC stated it sought "to meet the demand for post-acute services and to enhance the continuity of services at the current location." It contended that there was a "minimal availability of [LTC] services in the immediate area of [Salem] Hospital," and that the additional beds would "represent[ ] an addition of only 5.8% of capacity in the Salem County service area and will have minimal impact on existing providers." It also stated that the closest facility offering [LTC] services was "located more than [ten] miles from [Salem] Hospital."

Further, SCHC noted that because the application was "limited to a [t]ransfer of [o]wnership, there [would] be no reduction in competition," and that "any decrease in volume on any one provider will be minimal, at best." SCHC prepared a Market Share Data report and concluded that "since this application is limited to a [t]ransfer of [o]wnership, there will be no reduction in competition as a result of the project." That report included no analysis regarding any effect on providers in the service area specifically relating to SCHC's proposed increase in LTC beds. With regard to alternatives to the project, SCHC noted in its application that its only available alternative would be "the closure of [Salem] Hospital."

On November 8, 2018, the Department held a public hearing on SCHC's application. It considered written testimony on behalf of Carneys, Golden, and another facility objecting to approval of the portion of the application that requested the establishment of LTC beds. Those facilities argued that "SCHC's request to establish [thirty LTC] beds at [Salem] Hospital" was not "filed in accordance with governing statutes and regulations" and that SCHC was attempting to acquire a new license while characterizing the establishment of LTC beds as a "transfer" or "conversion." In this regard, Carneys, Golden, and the third facility contended that the portion of SCHC's application requesting LTC beds was "subject to the full review certificate of need process," which required a Department finding "that a need exists for such beds."

On December 6, 2018, the State Health Planning Board (Planning Board) held a hearing at which it voted to recommend that the Commissioner approve SCHC's application. At that hearing, one Planning Board member questioned whether it was permissible "to grant [the LTC] beds without ... a needs assessment or a call for beds in the area." In response, a representative of the Department stated:

[T]he [D]epartment determined that the addition of the [thirty] beds, which is just over [five] percent ... of the licensed beds in the area would have a minimal impact on the service area, so that would be more in keeping with ... an expedited [CN] review .... We have received an objection. The [D]epartment considered the objection in making its determination ... that it's only a minimal impact, and there's no impediment going forward.

At that hearing, the Planning Board also heard oral testimony both in favor of and against SCHC's CN application. The Human Resources Director at Golden testified "with certainty that the creation of [thirty] new [LTC] beds at the hospital will not create new jobs in the area as promised, but instead cause a transfer of current jobs from already well-established nursing facilit[ies]." Counsel for intervenors contended at that hearing that the Department's conclusion that "there will be a minimal impact on the service area is absolutely untrue" because the "[thirty] LTC beds, if they were built with Medicare subacute patients, represent about 36 percent of the Medicare business in [Salem] [C]ounty," and that market share would "devastate existing providers [in] the county."

The Chief Operating Officer of intervenors' parent company also stated that SCHC's estimate that the thirty LTC beds would comprise 5.8 percent of Salem County's total beds was "grossly wrong," instead explaining that the beds would comprise 30 percent of the market. He also stressed that if SCHC were "granted a 30 percent market share of Salem County's subacute market, the existing providers in that market [would] be devastated." Ultimately, three members of the Planning Board voted to recommend the application to the Commissioner, while one member voted against it.

One month later, on January 15, 2019, the Commissioner issued a sixteen-page final decision approving SCHC's CN application, including the thirty requested LTC beds and the unimplemented CN for psychiatric beds. In making his decision, the Commissioner "considered the CN application, responses to completeness questions, the public hearing transcript, written comments and exhibits, Department staff recommendations, and the [Planning Board] recommendations."

The Commissioner determined that the November 17, 2017 CN approval letter which awarded the implementation of twenty-six psychiatric beds to CHS would be transferred to SCHC as part of the transfer of ownership. In doing so, he noted that the November 17, 2017 CN approval letter "addressed the requirements of N.J.S.A. 26:2H-8(a) [to] (f) [with] regard to the psychiatric beds and that analysis is incorporated herein by reference."

With respect to the LTC beds, the Commissioner concluded that "the addition of [thirty] LTC beds will have a minimal impact on the health care system...