Lahey Clinic Foundation, Inc. v. Health Facilities Appeals Bd.

• Court: Supreme Judicial Court of Massachusetts
• Writing for the Court: Before HENNESSEY; BRAUCHER; QUIRICO
• Citation: Lahey Clinic Foundation, Inc. v. Health Facilities Appeals Bd., 380 N.E.2d 675, 376 Mass. 359 (Mass. 1978)
• Decision Date: 18 September 1978
• Parties: LAHEY CLINIC FOUNDATION INC., et al. v. HEALTH FACILITIES APPEALS BOARD et al.

Page 675

380 N.E.2d 675

376 Mass. 359

LAHEY CLINIC FOUNDATION INC., et al. v. HEALTH FACILITIES APPEALS BOARD et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued May 3, 1978.

Decided Sept. 18, 1978.

Lawrence S. Fordham, Boston (Loyd M. Starrett and Arthur G. Telegen, Boston, with him) for the Concerned Committee for Hospital Cost Control.

Donald K. Stern, Asst. Atty. Gen. (S. Stephen Rosenfeld, Asst. Atty. Gen., with him) for Health Facilities Appeals Board.

David Berman, Town Counsel, Medford, for the town of Burlington.

George T. Finnegan, Boston (Ronald B. Schram and Wayne H. Scott, Boston, with him) for Lahey Clinic Foundation, Inc.

Carl Cyr, Joan Ghio and George L. Judge, Burlington, for Consumers for a Health Care Choice, amicus curiae, submitted a brief.

John T. Hasenjaeger, Burlington, amicus curiae, submitted a brief.

Wayne A. Budd, Boston, for the North Shore Health Planning Council, Inc., amicus curiae, submitted a brief.

Henry Wheeler, Howard Whitehead and Regina S. Rockefeller, Boston, for the Middlesex North Medical Society and others, amici curiae, submitted a brief.

Before HENNESSEY, C. J., and QUIRICO, BRAUCHER, LIACOS and ABRAMS, JJ.

BRAUCHER, Justice.

In 1972 the Department of Public Health (department) granted a "determination of need" (DoN) to the Lahey Clinic Foundation, Inc. (Lahey), for a 200 bed hospital-clinic complex in Burlington. In December, 1976, the department issued an "extension of determination of need," approving increases in gross square feet and in cost. A ten taxpayer group called the Concerned Committee for Hospital Cost Control (Concerned Committee) and the Health Facilities Appeals Board (board) contended that the "extension" was in substance a grant of a new DoN, subject to review by the board. A judge of the Superior Court, after seventeen days of trial, ruled against that contention. The Concerned Committee and the board appealed, and we granted the application of all parties for direct appellate review. We hold that the issue should have been determined by the board. In view of the circumstances, however, particularly the public interest in a speedy resolution of the controversy, we review the merits of the dispute, conclude that the "extension" was not in substance a grant of a new DoN, and order the entry of a judgment declaring the rights of the parties.

1. The action. The Public Health Council (Council) of the department voted the "extension" on December 14, 1976, and issued it December 28, 1976. An appeal to the board was taken on January 11, 1977, pursuant to G.L. c. 111, § 25E, and § 3.01(b) of the board's regulations. Lahey and the department moved to dismiss the appeal, and on March 14, 1977, the board denied those motions, ruling that the "extension" was a DoN "for the purposes of our appellate jurisdiction."

On March 23, 1977, Lahey sued the board in the Superior Court for declaratory and injunctive relief. The judge issued a temporary restraining order against the board, allowed a motion of the Concerned Committee to intervene, and held three days of evidentiary hearings. On April 1, 1977, the judge announced his decision orally. In a written decision dated April 20, 1977, he ruled that there was a reasonable likelihood that Lahey would prevail on its contention that the board lacked subject matter jurisdiction; he also ruled that no appeal was pending before the board after the original appellant withdrew its appeal on March 7, 1977; he ordered that the proceedings before the board be dismissed. Judgment was entered on May 13, 1977, dismissing those proceedings.

Meanwhile, the Concerned Committee had filed a counterclaim against Lahey under G.L. c. 111, § 25G, to enforce the provisions of the DoN statute, §§ 25C-25G, seeking declaratory and injunctive relief. The board was permitted to intervene as a plaintiff in counterclaim, and the town of Burlington to intervene in opposition to the counterclaim. Extensive hearings were held in May and June, 1977. On his own motion the judge notified the department to appear and show cause why it should not be joined as a defendant in counterclaim; after hearing, the proposed joinder was denied. On September 16, 1977, the judge filed a memorandum of decision of ninety-four pages, and pursuant to that memorandum judgment was entered on October 11, 1977, dismissing the counterclaim and denying all relief sought by the plaintiffs in counterclaim. The Concerned Committee and the board appealed from both the decision on the action brought by Lahey and the decision on the counterclaim.

2. The history. a. The 1972 DoN. Before November, 1971, there was no DoN statute like the present G.L. c. 11, §§ 25B-25G, but G.L. c. 111, § 51, as appearing in St. 1967, c. 891, § 1, provided, as it does today, that an original license to establish or maintain a hospital or clinic should not be issued "unless there is determination by the department that there is need for such a facility at the designated location." In November, 1970, the department approved "in principle" Lahey's plan to construct a medical facility in Burlington. The town of Burlington approved necessary zoning changes and issued a special permit; Lahey purchased the site and began planning. On October 22, 1971, Lahey submitted a letter of intent (LoI) to the department projecting a 250-bed hospital, a clinic and a research center, occupying 400,000 gross square feet and costing $43.1 million. It was clear that the size and cost figures were estimates based on rules of thumb rather than on architects' plans.

On November 15, 1971, an emergency DoN statute, St. 1971, c. 1080, was adopted effective immediately; regulations under that statute were published December 22, 1971. The statute required consideration of "present and projected future needs," but did not mention costs or square footage. The regulations required an "estimated cost" and "simple line drawing plans showing proposed structures," and approximate gross square footage could have been determined from such plans. On December 30, 1971, Lahey filed an application for a DoN, incorporating the LoI and requesting a waiver of the "simple line drawing plans." On May 9, 1972, the Council granted a DoN to Lahey for a 200-bed hospital rather than the proposed 250-bed hospital, but at the same "estimated cost" of $43.1 million. No square footage was stated. There was no appeal.

b. The 1972 DoN statute. The 1971 emergency DoN statute expired on May 31, 1972. On July 18, 1972, G.L. c. 111, §§ 25B-25G, was inserted by St. 1972, c. 776, § 3, retroactive to June 1, 1972. § 6. Under § 25C no one may make "substantial capital expenditures" for construction of a health care facility or "substantially change the services" of such a facility without a DoN. For the first time, § 25C directed the department to consider costs. "Substantial capital expenditure" meant an expenditure in excess of $100,000 until St. 1977, c. 945, § 2, amended § 25B by raising the amount to $150,000. Lahey's DoN was covered by St. 1972, c. 776, § 4: "All determinations of need granted and actions taken by said department under the provisions of said chapter one thousand and eighty shall remain in full force and effect and be deemed to be granted or taken under the provisions of said sections twenty-five B to twenty-five G, inclusive." The 1971 DoN regulations, except in so far as they were in conflict with the 1972 statute, were continued in effect until new DoN regulations were issued, effective September 1, 1973. On January 23, 1975, the department passed a resolution on cost overruns; 1975 DoN regulations became effective May 1, 1975; and 1976 DoN regulations became effective November 26, 1976. The effect of these regulations will be discussed hereafter.

c. Progress 1972-1976. After Lahey obtained its DoN in May, 1972, it went forward with planning and architectural work, consulting frequently with the department's Bureau of Planning and Construction, later renamed the Bureau of Engineering and Construction (Bureau). Pursuant to an extension of time, Lahey submitted preliminary plans on March 1, 1973, and revised preliminary plans on December 7, 1973; in each case the Bureau wrote that the plans were "approvable." In January, 1974, Lahey began preliminary site work; site excavation work was done between August, 1974, and April, 1975.

As the plans developed, the estimated cost and gross square footage increased. After a general review of cost overruns, to be discussed hereafter, the Council approved Lahey's cost overruns and on March 4, 1975, Lahey was notified that $67,208,000 was "the upper ceiling approved" by the department for DoN purposes. On March 31, 1975, the Bureau approved Lahey's revised preliminary plans showing 674,000 gross square feet and cost of $67,273,000. The approval was "based on, and limited to, that scope of work as set forth under the Determination of Need approval."

After consultation with and approval by the department, Lahey began construction of a physicians' office building on the site early in 1976 and it was completed in September, 1976. The building occupies 20,244 gross square feet. It has been licensed by the department, and a clinic is being operated there.

d. The 1976 "extension." On August 31, 1976, Lahey asked the department to approve cost overruns which brought planned total costs to $81,066,352. Some $10.5 million of the increase was in financing costs, and was related to a shift from tax exempt bonds to a Federal Housing Authority loan after a fiscal crisis in New York. The Council deducted certain noncapital costs, reducing the total to $79,666,352. After several consultations between Lahey and the department and an inquiry into gross square footage by the department's DoN program director, the Council voted, on December 14, 1976, to accept a staff recommendation that Lahey be allowed "to complete the project as presently designed." There was no compliance...