In re Virtua-West Jersey Hosp.

• Decision Date: 23 April 2008
• Docket Number: A-127 September Term 2006.
• Citation: 194 N.J. 413,945 A.2d 692
• Parties: In re Application of VIRTUA-WEST JERSEY HOSPITAL VOORHEES FOR A CERTIFICATE OF NEED.
• Court: New Jersey Supreme Court

945 A.2d 692

194 N.J. 413

In re Application of VIRTUA-WEST JERSEY HOSPITAL VOORHEES FOR A CERTIFICATE OF NEED.

A-127 September Term 2006.

Supreme Court of New Jersey.

Argued November 27, 2007.

Decided April 23, 2008.

John C. Connell, Haddonfield, argued the cause for appellants Cooper Health System and Our Lady of Lourdes Medical Center (Archer & Greiner, attorneys; Mr. Connell and Robert J. Fogg, Princeton, on the briefs).

Melissa H. Raksa, Deputy Attorney General, argued the cause for respondent Department of Health and Senior Services (Anne Milgram, Attorney General of New Jersey, attorney; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Rachana R. Munshi, Deputy Attorney General, on the brief).

Philip H. Lebowitz, Philadelphia, PA, a member of the Pennsylvania bar, argued the cause for intervenor-respondent Virtua-West Jersey Hospital Voorhees (Duane Morris, attorneys; Katherine Benesch, Princeton, of counsel; Mr. Lebowitz and Erin M. Duffy, Philadelphia, PA, on the brief).

Justice LaVECCHIA delivered the opinion of the Court.

Since 1971, New Jersey has employed a regulated process, known as certificate-of-need (CN) review, to supervise changes in the state-wide delivery of health care. See Health Care Facilities Planning Act (HCFPA), N.J.S.A. 26:2H-1 to -26 (establishing CN system of review under supervision of Commissioner of Health). For more than two decades the CN process facilitated top-down regulatory control over the health care delivery system through the requirements of State identification of health care needs and prior approval for additions or changes to the allocation of health care services among providers. See N.J.S.A. 26:2H-7 (controlling proliferation of services declared to be essential for purposes of cost containment and quality maintenance). The CN regulatory system was changed substantially in the late 1990s, however, after a legislatively authorized study scrutinized the continued efficacy of a CN requirement. The CN statute was amended in a number of ways and regulatory changes followed suit. Some health care services became altogether exempt from the requirement of prior approval through a state-issued CN. Other streamlining changes in process were enacted.

Importantly, for purposes of the case before us, the Legislature retained the requirement of full regulatory review and issuance of a CN for many types of health care services. To facilitate the revised CN process, the Department of Health and Human Services (Department) promulgated a regulation, establishing a new, regularized schedule for the submission of full-review CN applications by providers. See N.J.A.C. 8:33-4.1. The regulation identifies certain health care categories that are subject to a new CN submission schedule that, generally, calls for CN applications to be submitted on the dates specified for each category of service or type of equipment.¹ Ibid. At the same time, however, the regulation frees the Commissioner from any implied finding of need for a service based solely from processing a CN request submitted pursuant to this general invitation for CN applications. Ibid. The regulation also does not disturb the Commissioner's discretionary authority to issue special calls for CN applications for discrete health care services when the Commissioner finds a particular need for a service. Ibid.

This appeal involves a challenge to a CN that the Commissioner granted to a hospital following the Department's first experience under this new notice system involving annual submission dates and special calls for CN applications, as it applies to maternal and child care health needs. In re Virtua-West Jersey Hosp. Voorhees, 390 N.J.Super. 444, 455, 915 A.2d 1074 (App.Div.2007) (affirming Commissioner's CN grant). The primary issue in this matter is whether the Commissioner provided sufficient notice to the regulated public that providers in the field of maternal and child health care needs could apply for a particular change in status. If sufficient notice was provided, we must further determine whether the agency's record supports the Commissioner's determination to grant the hospital's specific CN application.

For the reasons that follow, we hold that the Department provided sufficient notice. Therefore, the Commissioner's determination to process this CN application is affirmed. However, because we cannot conclude that the Commissioner has performed a complete analysis of the effects of a grant of this CN—specifically in respect of assessing the effect that granting this CN will have on nearby, competing urban-hospital providers—we are compelled to remand this matter to the Commissioner for a more complete examination and explanation for her decision.

I.

In the March 3, 2003, edition of the New Jersey Register, the Department published a notice inviting hospitals to submit "applications on a full review basis for Maternal and Child Health Consortia change in membership, and for intermediate and intensive bassinets in licensed general hospitals in those ... regions in which a need has been identified based on the most recent utilization projects." 35 N.J.R. 1311(b) (Mar. 3, 2003). Virtua-West Jersey Hospital Voorhees (Virtua), a system of community hospitals located in Voorhees Township, Camden County, submitted a CN application on behalf of its Voorhees hospital. Within the State's system of Maternal and Child Health Consortia, Virtua is a member of the Southern New Jersey Perinatal Cooperative (SNJPC). The SNJPC is a non-profit organization that serves as the maternal and child health consortium responsible for monitoring Virtua's, and other consortium members', perinatal and pediatric needs and services.

Virtua's CN application requested approval to add four intensive bassinets and eight intermediate bassinets to its already approved complement of bassinets. In addition to that request, Virtua applied for a designation change for its Voorhees hospital in respect of maternal and child health services. That request is the focus of this appeal. Specifically, Virtua asked for a change in classification from that of a "Community Perinatal Center-Intensive" to a "Regional Perinatal Center" (RPC). A RPC is a licensed general acute care hospital servicing "high risk mothers and neonates" and providing "consultation, referral, transport, and follow-up" to other hospitals in a certain geographic region. See N.J.A.C. 8:33C-1.2 (defining "RPC").

Because the Department's March 3, 2003, published call notice did not include an explicit reference to a "change in designation," two competitors who already held RPC status, Cooper Health System and Our Lady of Lourdes Medical Center (petitioners), objected to the Department's processing of Virtua's application. Despite the objection, once Department staff determined that Virtua's application was complete for processing purposes, see N.J.A.C. 8:33-4.5, the application was forwarded to the State Health Planning Board (SHPB) for review. See N.J.S.A. 26:2H-5.8; see also N.J.A.C. 8:33-4.1(a), -4.13.

At the time, the only RPC serving the southern New Jersey region was the joint RPC designation shared by petitioners. According to Virtua, it sought its own RPC designation for its Voorhees hospital because

the proximity of the two Camden-based RPCs to Philadelphia has led to competition from the Philadelphia university hospitals for high risk obstetrical and neonatal patients who require transport to an [sic] RPC. Many patients and referring doctors will bypass a Camden facility to continue directly over the bridge to [Philadelphia for care].

The "many patients" migrating out of New Jersey to hospitals in neighboring states included Virtua's own increasing number of high-risk obstetrical and neonatal patients, as well as others in the southern New Jersey region.

Petitioners opposed the designation change through argument and supporting materials submitted to the Department staff evaluating Virtua's application, and to the SHPB. In part, petitioners cited a failure of notice because the Department's March 3, 2003, Register notice did not mention a request for "designation changes." Noting that the Department never studied whether the region needed another RPC, petitioners claimed that approval of Virtua's application would create "a serious and damaging impact on the[ir] existing [joint RPC] in Camden." Based on an assumption that patients would prefer the suburban location of Virtua, petitioners surmised that in the future they would be forced to discontinue services to indigent patients because they would lose paying patients who otherwise would have traveled willingly to the Camden RPC.

Petitioners also claimed that had the Department issued a CN call for changes in RPC designations, they would have been assured of an impact evaluation, examining the effect of adding another RPC in the vicinity of Camden's large, indigent-patient population. That study necessarily would have explored petitioners' related contention that Virtua's policies contributed to the patient out-migration problem because Virtua was sending patients to Wilmington, Delaware and Philadelphia, Pennsylvania, instead of sending them to petitioners.² Thus, petitioners' argument—about lack of a proper call for a designation change—raised substantive, as well as procedural issues.

Despite petitioners' objections, Department staff appeared at the SHPB hearing on Virtua's application and recommended its approval. The staff identified a substantial increase in Virtua's own specialty maternity patients who were going out-of-state to give birth, noting that "[o]f the New Jersey residents giving birth out of state in 2002, 55 percent (1,191) came from Virtua's three county service area. In 2001, 28 percent of all out-of-state births came from Virtua's three county service area." The departmental reviewers concluded in favor of approval of the designation change because patient access and care would...