IN RE CERTIFICATE OF NEED APPLICATION FOR THE MEMORIAL HOSPITAL OF SALEM COUNTY (NEW JERSEY DEPARTMENT OF HEALTH) ( 2020 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2571-18T1
IN RE CERTIFICATE OF APPROVED FOR PUBLICATION
NEED APPLICATION FOR
July 2, 2020
THE MEMORIAL HOSPITAL
OF SALEM COUNTY. APPELLATE DIVISION
_________________________
Argued February 10, 2020 – Decided July 2, 2020
Before Judges Sabatino, Sumners and Natali.
On appeal from the New Jersey Department of Health,
Docket No. FR 18-0503-17-01.
Eric S. Aronson 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, 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 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 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, on the brief).
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
A-2571-18T1
2
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 hospital 1 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
1
N.J.A.C. 8:33-1.3 defines "[g]eneral hospital" as "a hospital which maintains
and operates organized facilities and services as approved by the Department
for the diagnosis, treatment or care of persons suffering from acute illness,
injury or deformity . . . ."
A-2571-18T1
3
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
A-2571-18T1
4
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," an d
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
2
Pursuant to N.J.A.C.8:33-4.1(a), "[t]he Commissioner shall publish in the
New Jersey Register . . . an anticipated schedule for receipt of [CN]
applications subject to full review procedures," otherwise known as a call
notice, in order to "invite [CN] applications" for a particular service in a given
area.
3
SCHC's CN application provides that it would reduce the amount of
medical/surgical beds to [sixty-five]. In SCHC's responses to completeness
questions from the Department, however, it clarified that "all references to
[sixty-five] medical/surgical beds were intended to be [seventy-five]."
A-2571-18T1
5
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
A-2571-18T1
6
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."
A-2571-18T1
7
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 b eds. 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
A-2571-18T1
8
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 as a whole and will contribute to the financial viability of Salem
Hospital." The Commissioner relied upon SCHC's testimony before the
Planning Board that:
if this approval does not contain the transfer of
ownership, the psychiatric beds, and the LTC beds,
then the continued operation of Salem Hospital would
be in question, and the closure of the hospital would
have a greater negative impact on the area's healthcare
system as a whole than the addition of the [thirty]
LTC beds would.
The Commissioner also found that the only alternative to the award of
thirty LTC beds would be the "closure of Salem Hospital," and that "[t]he
transfer of ownership and licensing of the psychiatric and LTC beds is the least
disruptive alternative to maintaining the current level of care and services in
the area." Moreover, he found that "[t]he addition of [thirty] LTC beds
represent an addition of 5.3 [percent] of the capacity in the Salem County
service area and will have a minimal impact on the health care system as a
whole." Thus, he stated, "the minimal impact coupled with the need for this
A-2571-18T1
9
hospital to have these beds in order to maintain the operations of the hospital
necessitates the granting of these LTC beds to Salem."
Finally, the Commissioner concluded that under N.J.A.C. 8:33-4.9(a),4
were he to deny the application, there would be an adverse effect on patients in
the Salem community because:
the transfer of ownership . . . along with the transfer of
the psychiatric beds [and] the award of the [thirty]
LTC beds appear to be the only manner in which
Salem Hospital may remain in operation. This
approval is the only manner in which the current level
of care and services may be maintained in the area.
This approval will preserve access to health care
services for the Salem community, including the
medically indigent and medically underserved
populations.
The same day, intervenors filed this appeal. One month later, the
Department denied intervenors' request to stay the implementation of the
award of the LTC beds.
On appeal, intervenors argue the Commissioner's final decision was
contrary to the requirements for granting CN applications detailed in the
Health Care Facilities Planning Act (Planning Act), N.J.S.A. 26:2H-8, and the
relevant administrative regulations and therefore constituted an ultra vires
4
N.J.A.C. 8:33-4.9(a) provides in part that "[n]o [CN] shall be issued unless
the action proposed in the application . . . will not have an adverse impact on
access to health care services in the region or Statewide . . . ."
A-2571-18T1
10
action as he: 1) failed to issue a call notice before approving SCHC's request
to convert medical surgical beds to LTC beds; 2) failed to adequately support
his approval of SCHC's request for LTC beds; and 3) erred by approving the
transfer of an unimplemented CN for psychiatric beds along with the transfer
of ownership.
II.
Our review of an agency's decision is limited. In re Stallworth, 208 N.J.
182, 194 (2011) (citing Henry v. Rahway State Prison, 81 N.J. 571, 579
(1980)). A reviewing court "should not disturb an administrative agency's
determinations or findings unless there is a clear showing that (1) the agency
did not follow the law; (2) the decision was arbitrary, capricious, or
unreasonable; or (3) the decision was not supported by substantial evidence."
In re Virtua-West Jersey Hosp. Voorhees for a Certificate of Need, 194 N.J.
413, 422 (2008) (citing In re Herrmann, 192 N.J. 19, 28 (2007)); see also
Bergen Pines Cty. Hosp. v. N.J. Dep't of Human Servs., 96 N.J. 456, 477
(1984).
As noted, intervenors initially argue that the final decision should be
vacated because the Commissioner failed to comply with CN regulations by
approving SCHC's request to add thirty LTC beds without subjecting it to the
full review process outlined in N.J.A.C. 8:33-4.1(a). Specifically, they
A-2571-18T1
11
contend that the Commissioner was required to publish a call notice in the
New Jersey Register to invite competing applications for LTC beds, and by
failing to do so, committed an ultra vires act that "deprived other providers . . .
of the opportunity to similarly apply to provide [LTC] services at Salem
Hospital." They also maintain that there was insufficient support in the record
to indicate that there was a need to provide LTC beds in the area and that the
process employed by the Commissioner "runs afoul of [his] statutory
obligations to first determine that there is a need for such services." We agree.
Pursuant to the Planning Act, and specifically N.J.S.A. 26:2H-7, no
health care facility, including a hospital, may construct new facilities, expand
existing ones, or initiate a new health care service, unless a CN has been
applied for by the facility and granted by the Commissioner. The ultimate
policy goals of the Planning Act are to "protect and promote the health of the
inhabitants of the State" and to "guard against the closing of important
institutions and the transfer of services from facilities in a manner that is
harmful to the public interest." N.J.A.C. 8:33-1.2(a). Further, the Planning
Act states that the Commissioner shall not grant a CN unless the proposal:
is necessary to provide required health care in the area
to be served, can be economically accomplished and
maintained, will not have an adverse economic or
financial impact on the delivery of health care services
in the region or [s]tatewide, and will contribute to the
A-2571-18T1
12
orderly development of adequate and effective health
care services.
[N.J.S.A. 26:2H-8.]
In determining whether to grant a CN, the Commissioner shall consider:
(a) the availability of facilities or services which may
serve as alternatives or substitutes, (b) the need for
special equipment and services in the area, (c) the
possible economies and improvement in services to be
anticipated from the operation of joint central
services, (d) the adequacy of financial resources and
sources of present and future revenues, (e) the
availability of sufficient manpower in the several
professional disciplines, and (f) such other factors as
may be established by regulation.
[Ibid.; see also N.J.A.C. 8:33-4.9(a)(1)-(5); N.J.A.C.
8:33-4.10(b).]
The application and review process regarding CNs is further outlined in
N.J.A.C. 8:33-1.1 to -6.2. In this regard, the applicable regulations provide for
either a full or expedited review of a CN application. N.J.A.C. 8:33-4.1(a) to
(b). As defined by N.J.A.C. 8:33-1.3, a full review includes "the review of an
application by the . . . Planning Board, as well as the Department," while an
expedited review "means the review by the Department of a [CN] application
meeting certain specified criteria" without a Planning Board review.
As noted, where the Commissioner determines that a need exists for a
particular service in a given area, he is required to publish a call notice in the
New Jersey Register in order to "invite [CN] applications . . . ." N.J.A.C.
A-2571-18T1
13
8:33-4.1(a). Any such call notice must "identify the needed service(s),
proposed geographic area(s) to be served, the date the application is due, and
the date the application is deemed complete for processing." Ibid. Call
notices are required only for CN applications subject to full review. Compare
N.J.A.C. 8:33-4.1(a) with N.J.A.C. 8:33-4.1(b).
Once an applicant submits an application subject to full review, the
Department reviews it for completion. N.J.A.C. 8:33-4.5(a). It submits
completed applications along with its analysis and recommendations to the
Planning Board. Ibid. The Planning Board then conducts a public hearing to
consider the application. N.J.A.C. 8:33-4.13. Following that hearing, the
Planning Board provides the Commissioner with its recommendations.
N.J.A.C. 8:33-4.13(c). Finally, the Commissioner issues a final agency
decision that details its factual findings and reasoning. N.J.A.C. 8:33-4.15(a).
Conversely, an expedited review requires neither a call notice nor a
review by the Planning Board. N.J.A.C. 8:33-4.1(b). The Commissioner may
expedite review of the types of CN applications outlined in N.J.A.C. 8:33 -
5.1(a), as well as in "[e]mergency situations which demand rapid action,"
N.J.A.C. 8:33-5.1(b)(1), or when it determines that "the project has minimal
impact on the health care system as a whole," N.J.A.C. 8:33-5.1(b)(2). The
expedited review process still requires "review of a [CN] application by the
A-2571-18T1
14
Department" against the statutory factors outlined in N.J.S.A. 26:2H-8 with "a
decision . . . by the Commissioner no later than [ninety] days" after the end of
the review cycle. N.J.A.C. 8:33-4.1(b).
Generally, "[a]ny increase in the number of licensed beds by licensure
and/or health planning category" requires a full review. N.J.A.C. 8:33-
3.4(a)(1). In this regard, "[c]onversions of licensed beds to other uses shall be
treated as increases in the number of beds by licensure or health planning
category" and are also subject to full review. N.J.A.C. 8:33-3.4(a)(2).
However, as noted, where the Commissioner determines, consistent with
N.J.A.C. 8:33-5.1, that a project will have a "minimal impact on the health
care system as a whole," the project may be reviewed on an expedited basis.
Where an agency commits an act that violates its enabling act or
regulations, that act is ultra vires, meaning that it is "void and may not be
ratified." Port Liberte II Condo. Ass'n v. New Liberty Residential Urban
Renewal Co., 435 N.J. Super. 51, 65 (App. Div. 2014) (quoting Grimes v. City
of East Orange, 288 N.J. Super. 275, 279 (App. Div. 1996)); see also Comms.
Workers of Am., AFL-CIO v. N.J. Civil Serv. Comm'n, 234 N.J. 483, 534
(2018). "While findings of ultra vires actions are disfavored, '[o]ur role is to
enforce the will of the Legislature' because '[s]tatutes cannot be amended by
administrative fiat.'" In re Agric., Aquacultural, & Horticultural Water Usage
A-2571-18T1
15
Certification Rules, 410 N.J. Super. 209, 223 (App. Div. 2009) (alterations in
original) (citations omitted).
In considering whether the Commissioner has exceeded his authority or
acted arbitrarily in approving an application, we are guided by the holding in
Virtua-West. In that case, our Supreme Court vacated and remanded the
Commissioner's decision to grant a CN to an applicant who "asked for a
change in classification" of its Voorhees hospital which would permit it to
provide "maternal and child health services . . . [for] 'high risk mothers and
neonates.'" Virtua-West, 194 N.J. at 418, 434. In support of its decision, the
Court determined that the Commissioner failed to analyze "the impact that this
CN will have on the urban hospitals likely to be affected by its grant." Id. at
434. In this regard, the Court described a "long-standing legislative objective
to protect urban hospitals" and noted that CN review is "an important
protective tool in the management of the health of urban hospitals." Id. at 434-
35; N.J.S.A. 26:2H-6.1(h).
Further, in determining that the Commissioner "did not analyze, in any
meaningful way," whether the grant would have "an adverse impact on the
region's urban hospitals," the Court found that omission to constitute "a critical
failing in a proceeding that has, as one of its pillars, avoidance of negative
impacts on the delivery of health care services in the region." Virtua-West,
A-2571-18T1
16
194 N.J. at 436. The Court emphasized that its role was not to reexamine the
strength of the application, but to search the final agency decision for
arbitrariness:
As far as her decision reveals, the Commissioner
uncritically accepted Virtua's position without
examining and explaining her response to the
positions advanced by the objectors. Virtua contends
that petitioners' concerns are speculative. That may
prove to be true, but on this record we cannot be sure.
It may be that there was a basis for her to reach her
conclusion to do so, but her decision gives little
comfort that the required analysis took place.
[Ibid.]
Moreover, when reviewing a final decision, we expect that the
Commissioner will "state the basis of [the] decision with clarity; and, with
sufficiency, to articulate the factual determinations and legal standards that
inform the action taken." In re Certificate of Need Application of Arnold
Walter Nursing Home, 277 N.J. Super. 472, 479 (App. Div. 1994) (citing Holy
Name Hosp. v. N.J. Health Care Admin. Bd., 258 N.J. Super. 411, 415-16
(App. Div. 1992)). We cannot properly review a case "in the absence of a
particularized and detailed articulation of the Commissioner's assessment of
the salient features of each application, how the various applications compare
to each other, and how each serves or fails to serve public health needs as
A-2571-18T1
17
expressed by the Legislature and in effecting regulations." Id. at 483; see also
Application of Holy Name Hosp., 301 N.J. Super. 282, 292 (App. Div. 1997).
Here, in SCHC's application for transfer of ownership, it sought to
"modify [its] licensed bed capacity" by decreasing the amount of
medical/surgical beds and increasing the amount of LTC beds. By seeking to
convert medical/surgical beds to LTC beds, SCHC's May 2018 application
functioned as an "increase in the number of licensed beds by licensure"
pursuant to N.J.A.C. 8:33-3.4(a)(1). Accordingly, the Commissioner was
required to consider that request specifically and in the context of a full review
consistent with the Planning Act and applicable regulations. 5
Even if the Commissioner was authorized to proceed in the manner in
which he did, we also conclude that the limited findings made by the
Commissioner regarding the LTC beds under N.J.S.A. 26:2H-8 were not
supported by substantial credible evidence in the record. In his decision, the
5
We note that in Virtua-West, the Court concluded that despite the lack of a
specific call notice for applications for regional perinatal centers, other
providers received sufficient notice that such applications would be accepted
under a general call for "services encompassed under the maternal-and-child-
health-need category." 194 N.J. at 429-30. Here, however, there is no
indication in the record that any such general notice existed which would have
notified all interested providers that applications for an increase in LTC beds
in the area would have been accepted for processing. And, even if intervenors'
participation could reflect a lack of prejudice as to their interests, as we have
concluded, the Commissioner failed to establish a need for LTC beds with
proper support in the record.
A-2571-18T1
18
Commissioner conducted an analysis of N.J.S.A. 26:2H-8(a) through (f) with
regard to the transfer of ownership of the hospital. This analysis focused on
the transfer of ownership and stressed that "continuation of the operatin g
losses at Salem Hospital could put the future of Salem Hospital at risk and lead
to [its] closure." The Commissioner also noted that "[t]he applicant's plan to
bring the hospital into good financial health includes the addition of the
[thirty] LTC beds and without the beds the hospital's financial forecast would
not be sustainable thereby placing the continuing operation of the hospital in
jeopardy."
We acknowledge that couched within the Commissioner's analysis were
spare references to the merits of granting SCHC's request for the LTC beds,
including that the application would be approved because "[t]he transfer of
ownership and licensing of the psychiatric and LTC beds is the least disruptive
alternative to maintaining the current level of care and services in the area"
and that "[t]he addition of [thirty] LTC beds represent an addition of 5.3
[percent] of the capacity in the Salem County service area and will have a
minimum impact on the healthcare system as a whole." Nevertheless, the
Commissioner clearly considered SCHC's application in the general context of
the financial viability of Salem Hospital and not with the necessary focus and
analysis regarding the actual need for LTC beds in the area.
A-2571-18T1
19
For example, although the Commissioner found that there would be a 5.3
percent increase in LTC beds in the area by dividing 30 beds into the 513 LTC
beds at the other four local facilities, we note that this figure represents, at
best, only an increase in capacity. It does not address whether an actual need
exists for those increased LTC beds. In this regard, the only evidence in the
record establishing the extent the LTC beds at those facilities are actually
filled was provided by intervenors, who pointed to data indicating that the
occupancy rate in Salem County in 2017 was 83.1 percent and "today's overall
occupancy rate" was less than 80 percent.
Likewise, the Commissioner stated that besides Inspira Medical Center-
Elmer, "all other New Jersey hospitals in the area are located greater than
[sixteen] miles from Salem Hospital." However, written testimony before the
Planning Board indicated that Golden "is located about 0.5 miles from [Salem]
Hospital," Carneys "is located 11.6 miles from [Salem] Hospital," and another
LTC facility "is located 7.7 miles from [Salem] Hospital." As such, we
conclude the Commissioner did not engage in the necessary analysis of the
N.J.S.A. 26:2H-8 factors and instead analyzed the application substantively in
the context of the financial viability of Salem Hospital. While this may have
been an altruistic goal, it did not address completely the appropriate standard,
which is whether granting SCHC's request for LTC beds would be necessary to
A-2571-18T1
20
supply "required health care in the area to be served, can be economically
accomplished and maintained, will not have an adverse economic or financial
impact on the delivery of health care services . . ., and will contribute to the
orderly development of adequate and effective health care services." N.J.S.A.
26:2H-8.
Moreover, the Commissioner improperly failed to address substantively
with support in the record, the positions of the objectors in making his
decision. Instead, as in Virtua-West, the Commissioner appears to have
"uncritically accepted" the position of SCHC "without examining and
explaining [his] response to the positions advanced by [intervenors]." 194 N.J.
at 436; see also Holy Name Hosp., 258 N.J. Super. at 416 (reversing the denial
of a CN application where the Commissioner's decision appeared to be
"effectively determined at the State Staff level and was not subjected to any
critical judgment thereafter").
By way of example, as noted, the Commissioner found that the addition
of thirty LTC beds would have a "minimum impact" on providers in the area
because "[t]he addition of [thirty] LTC beds represent an addition of 5.3% of
the capacity in the Salem County service area." However, at the Planning
Board meeting, one member was "disturbed" by an existing provider's
suggestion that SCHC "could basically put them out of business . . . by . . .
A-2571-18T1
21
taking those [LTC] beds." Further, representatives of intervenors contended
that if SCHC received thirty LTC beds, it would "devastate existing providers
to the county." Not only did the Commissioner note in a conclusory fashion
that there would be a "minimum impact" on existing providers without
considering the positions of intervenors, it appears that his words are "those of
the . . . investigator who had initially recommended" approval of SCHC's
application. Holy Name Hosp., 258 N.J. Super. at 416.
Further, according to the intervenors and amicus, limited personnel
resources and federal funding comprising the bulk of the payments for LTC
patients' care will be funneled from current underutilized facilities which will
result in not more or better care, but worse because it could "reduc[e] existing
providers' ability to provide services," particularly to the indigent population.
In this regard, intervenors’ written testimony before the Planning Board stated
that based on SCHC’s projected 95 percent occupancy of LTC beds, a thirty-
bed increase at Salem Hospital would transfer 36 percent of Salem County’s
Medicare population from existing providers. And, we note that this diversion
of services would be from financially viable entities currently providing the
necessary LTC beds to a hospital in financial distress - as conceded by SCHC's
own submissions and the Commissioner's findings - with an uncertain future
even with an increase in LTC beds. On this point, in its CN application SCHC
A-2571-18T1
22
disclosed historic operating losses of approximately $19 million in 2016 and
$22 million in 2017. While it also estimated total net operating revenues from
2019 through 2022 of approximately $70 million per year, it projected only a
total income of approximately $200,000 per year as a result of the LTC beds.
We also reject the Commissioner's argument that to the extent a separate
inquiry for an increase in LTC beds was required, the Commissioner made the
necessary findings to review that request on an expedited basis because he
"determined that [the additional LTC beds] would have a minimal impact on
the health care system as a whole." First and foremost, it is clear from the
record that the Department proceeded with a full review, as opposed to an
expedited review, of SCHC's application to acquire ownership of Salem
Hospital. In this regard, the Commissioner submitted SCHC's application to
the Planning Board and the Planning Board held a public hearing on the
application in order to issue recommendations to the Commissioner, a process
exclusive to applications subject to a full review. See N.J.A.C. 8:33-4.1(a)-
(b). And, neither party disputes that SCHC did not seek expedited review of
any portion of its CN. 6
6
Here, the concept of an expedited review was first raised in the Department's
staff recommendations, in which it noted "SCHC could have separately applied
for these LTC beds as an expedited review . . . claiming minimal impact on the
healthcare system as a whole," but that "for transparency purposes th ese LTC
(continued)
A-2571-18T1
23
As SCHC made no application for review of its CN application on an
expedited basis and the Commissioner clearly considered the application under
the full review process, we need not address whether a hypothetical CN
application for LTC beds could proceed on an expedited basis. Even were we
to assume, however, that an increase in LTC beds could proceed without a call
and the necessary input from all interested parties to assess the need for those
beds, and were we to further indulge the argument that the post hoc findings
by the Commissioner satisfied the requirements of N.J.A.C. 8:33-5.1(b)(2), for
the reasons detailed, supra pages 18 to 23, the Commissioner's findings on the
need for LTC beds under N.J.S.A. 26:2H-8 were not supported by the record in
any event.
Finally, we observe that the robust review process contemplated by
N.J.A.C. 8:33-1.1 to -6.2 and the Planning Act has numerous substantive
purposes including to limit the "proliferation of certain health care services to
preserve the viability of existing providers, . . . guard[ing] against the closing
(continued)
beds were added to this CN to indicate to the community all planned uses" of
Salem Hospital. Similarly, at the December 6, 2018 Planning Board meeting,
one member noted that the steps taken to that point with regard to the LTC
beds were "more in keeping with . . . an expedited [CN] review." Despite
these comments, it is clear that an expedited review was not the process
employed and that SCHC's CN application to transfer ownership of Salem
Hospital underwent a full review.
A-2571-18T1
24
of important institutions[,] and . . . transfer[ring] of services from facilities in a
manner that is harmful to the public interest." N.J.A.C. 8:33-1.2(a). Here,
despite the Commissioner's apparent goal to "save" Salem Hospital, noble as it
may have been, his final decision did not adequately address the
aforementioned legislative objectives or the intervenors' objection s.
Accordingly, we vacate the Commissioner's January 15, 2019 final agency
decision to the extent that it granted SCHC an increase in LTC beds and
remand for further proceedings consistent with the Planning Act.
III.
Finally, intervenors argue that the Commissioner erred in approving the
transfer of the twenty-six psychiatric beds from the unimplemented November
2017 CN awarded to CHS. Specifically, they contend that N.J.A.C. 8:33-3.3(j)
prohibits "the transfer of unimplemented certificates of need," and that the
Commissioner's approval was not based on any exception enumerated in
N.J.A.C. 8:33-3.3(h)(1) to (6). In response, the Commissioner maintains that
intervenors lack standing to challenge his award of psychiatric beds to SCHC
because that award does not affect intervenors' interests.
Generally, where an applicant seeks to acquire an unimplemented CN,
"the transfer of unimplemented [CNs] is prohibited [and] [p]roceeding with
any such transfer shall nullify the [CN] and preclude licensure as a health care
A-2571-18T1
25
facility." N.J.A.C. 8:33-3.3(j). N.J.A.C. 8:33-3.3(k) provides that in the
Department's discretion, "the [CN] process for transfer of ownership may be
allowed to proceed on an unimplemented [CN] if the types of changes set forth
at [subsection] (h)(1) through (6) above apply," 7 and that "[a]pplicants for
transfers of unimplemented [CNs] shall demonstrate in the application that the
transfer will not adversely affect the financial feasibility of the project."
However, N.J.A.C. 8:33-3.3(m), which governs the transfer of
unimplemented CN approvals in the specific context of a transfer of ownership
of a health care facility, provides:
If the facility being transferred has any partially
implemented or unimplemented [CN] approvals, an
application for a license to own and/or operate the
facility by the new owner will not be accepted . . .
unless the current owner/operator surrenders to the
Department the unimplemented [CN] approvals. The
Commissioner may waive this requirement, based on a
determination that the project has been substantially
7
N.J.A.C. 8:33-3.3(h) provides that a CN is not required for various types of
changes by health care facilities, including where: 1) "less than [ten] percent
of the outstanding stock" is purchased or sold; 2) a transaction occurs
involving "purchase or sale of limited partnership interests in a limited
partnership," 3) there exists "[a] change in the membership of a nonprofit
corporation . . . and there is no purchase or sale of assets,"; 4) there exists "[a]
change in ownership which does not involve acquisition of an owners hip
interest by a new principal"; 5) there is a "death of a principal in a health care
facility"; and 6) there is "[a] transfer, which involves a change in the
controlling legal entity, but not in individuals with ownership interests," such
as a merger, consolidation, or "[a] change in the type of organizational entity
owning the facility only."
A-2571-18T1
26
completed and that completion of the project is in the
public interest, consistent with the principles set forth
at N.J.A.C. 8:33-1.2.
Here, in the Planning Board's statement of reasons for recommending
that the Commissioner approve SCHC's CN application for transfer of
ownership, it stated that it relied upon Department staff's assertion "that
approval to transfer the [twenty-six] open psychiatric beds is a project that has
been substantially completed and that completion of the project is in the public
interest." Further, the Commissioner relied upon the November 7, 2017 CN
approval to determine that it was "not only appropriate but necessary to
transfer the unimplemented CN to [SCHC] to ensure that the need for these
beds is met." In support of his decision, the Commissioner considered the
"availability of facilities or services which may serve as alternatives or
substitutes," pursuant to N.J.S.A. 26:2H-8(a), and determined that "[t]he
transfer of ownership and licensing of the psychiatric . . . beds is the least
disruptive alternative to maintaining the current level of care and services in
the area."
In intervenors' reply brief, they argue that the Commissioner did not
make an explicit finding as to whether the unimplemented November 7, 2017
CN for psychiatric beds has been "substantially completed" pursuant to
N.J.A.C. 8:33-3.3(m). We initially note that because intervenors did not raise
A-2571-18T1
27
this argument below, we consider any such contention waived. Nieder v.
Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973). Further, intervenors
improperly raised the lack of substantial completion argument for the first time
on reply. See Borough of Berlin v. Remington Vernick Eng'rs, 337 N.J. Super.
590, 596 (App. Div. 2001) ("Raising an issue for the first time in a reply brief
is improper.") (citing State v. Smith, 55 N.J. 476, 488 (1970)).
As to the merits of intervenors' contention, we note that the
Commissioner incorporated the reasoning of the November 7, 2017 CN by
reference and conditioned his approval on SCHC's compliance "with all
conditions related to the [twenty-six] psychiatric beds as stated in the CN
approval letter dated November 17, 2017." At the December 6, 2018 hearing,
the Department's Health Systems Specialist read the Department's findings into
the record, including that "approval to transfer the [twenty-six] open
psychiatric beds is a project that has been substantially completed and that
completion of the project is in the public interest." There was never a
challenge to that finding by any entity in the administrative proceeding, and on
appeal intervenors fail to cite any record support to challenge that specific
finding or the Commissioner's decision to award the November 7, 2017 CN,
generally. As a result of our decision, we need not address the Commissioner's
A-2571-18T1
28
argument that intervenors do not possess standing to challenge the November
7, 2017 CN as they do not provide psychiatric beds at their facilities.
IV.
In sum, we affirm the Commissioner's January 15, 2019 final agency
decision transferring the unimplemented November 7, 2017 CN for twenty-six
psychiatric beds to SCHC. We vacate, however, that final agency decision to
the extent that it granted SCHC an increase in LTC beds, and we remand for
further proceedings consistent with our opinion and the Planning Act.
As in Virtua-West, "[w]e recognize that the CN has already been issued
and never has been stayed. Nonetheless, in order to fulfill the statutory, and
salutary, purposes of the CN system, we must remand this case to the
Commissioner for a full analysis and a complete explanation of [his] decision."
194 N.J. at 436. While we acknowledge that on remand, the Commissioner
may again award the LTC beds to SCHC, his conclusion "must be reached
through a more careful examination of the record and explication for the
determination that is reached." Ibid. We express no opinion on the outcome
of any future administrative proceedings.
Affirmed in part and vacated and remanded in part. We do not retain
jurisdiction.
A-2571-18T1
29