Englewood Hospital & Medical Center v. the State of New Jersey ( 2024 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2767-21
ENGLEWOOD HOSPITAL &
MEDICAL CENTER, HUDSON
HOSPITAL OPCO, LLC, d/b/a
APPROVED FOR PUBLICATION
CHRIST HOSPITAL, IJKG OPCO,
June 27, 2024
LLC, d/b/a BAYONNE MEDICAL
CENTER, HUMC OPCO, LLC, APPELLATE DIVISION
d/b/a HOBOKEN UNIVERSITY
MEDICAL CENTER, CAPITAL
HEALTH REGIONAL MEDICAL
CENTER, CAPITAL HEALTH
MEDICAL CENTER – HOPEWELL,
COOPER UNIVERSITY HOSPITAL,
HACKENSACK MERIDIAN
HEALTH PASCAK VALLEY
MEDICAL CENTER, JFK
MEDICAL CENTER, OUR LADY
OF LOURDES MEDICAL CENTER,
LOURDES MEDICAL CENTER OF
BURLINGTON COUNTY,
ST. FRANCIS MEDICAL CENTER,
HACKENSACK MERIDIAN
HEALTH – MOUNTAINSIDE
MEDICAL CENTER, and PRIME
HEALTHCARE SERVICES –
ST. MARY’S PASSAIC, LLC, d/b/a
ST. MARY’S GENERAL HOSPITAL,
Plaintiffs-Appellants,
v.
THE STATE OF NEW JERSEY,
THE STATE OF NEW JERSEY
DEPARTMENT OF HUMAN
SERVICES, SARAH ADELMAN
in her capacity as Commissioner of
the DEPARTMENT OF HUMAN
SERVICES, STATE OF NEW
JERSEY DEPARTMENT OF
HUMAN SERVICES, DIVISION
OF MEDICAL ASSISTANCE AND
HEALTH SERVICES, MEGHAN
DAVEY, in her capacity as Director
of the DIVISION OF MEDICAL
ASSISTANCE AND HEALTH
SERVICES, STATE OF NEW
JERSEY DEPARTMENT OF
HEALTH, and DR. KAITLAN
BASTON, in her capacity as
Commissioner of the
DEPARTMENT OF HEALTH,
Defendants-Respondents.
________________________________
Argued October 31, 2023 – Decided June 27, 2024
Before Judges Rose, Smith and Perez Friscia.
On appeal from the Superior Court of New Jersey,
Law Division, Mercer County, Docket Nos.
L-1434-17 and L-1397-18.
John Zen Jackson argued the cause for appellants
(Greenbaum, Rowe, Smith & Davis, LLP, attorneys;
James A. Robertson IV, John Zen Jackson, Andrew F.
McBride, Robert B. Hille, and Paul L. Croce, on the
briefs).
Jacqueline D'Alessandro, Deputy Attorney General,
argued the cause for respondents (Matthew J. Platkin,
Attorney General, attorney; Melissa H. Raksa,
Assistant Attorney General, of counsel; Jacqueline
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D'Alessandro and Elizabeth Tingley, Deputy Attorney
General, on the brief).
The opinion of the court was delivered by
SMITH, J.A.D.
After cross-motions for summary judgment, plaintiffs appeal from the
trial court's order granting defendants' motion for summary judgment on
certain taking claims and dismissing certain plaintiffs' remaining takings
claims on ripeness grounds for failure to exhaust administrative remedies.
Plaintiffs, a group of hospitals licensed to do business in New Jersey and
governed by the Health Care Cost Reduction Act, N.J.S.A. 26:2H-18.50 to -69,
contend that N.J.S.A. 26:2H-18.64 (charity care), the State's Medicaid Plan,
and corresponding regulations compel plaintiffs to use medicine, equipment,
and services they control to provide patient care regardless of ability to pay,
and without an adequate subsidy to make up the financial shortfall. Plaintiffs
argue that this scheme represents an unconstitutional taking. Plaintiffs also
claim the trial court erred when it dismissed certain plaintiffs' claims for a lack
of ripeness due to their failure to exhaust administrative remedies.1
1
See Do-Wop Corp. v. City of Rahway, 168 N.J. 191, 199 (2001) (permitting
an appellate court to affirm for other reasons because "appeals are taken from
orders and judgments and not from opinions").
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Considering the arguments and governing legal principles, we affirm the
trial court's order dismissing all of the constitutional taking claims, but we do
so for slightly different reasons.
I.
A.
A brief overview of Medicaid, the Health Care Cost Reduction Act, and
related charity care provisions is warranted. The Medicaid program,
established in 1965 by Title XIX of the Social Security Act, is a joint federal -
state program designed to provide medical care for indigent, disabled, and
elderly persons. 42 U.S.C.A. § 1396; United Hosps. Med. Ctr. v. State, 349
N.J. Super. 1, 4 (App. Div. 2002). If a state chooses to join the Medicaid
program, it "must operate its program in compliance with the federal statute
and regulations," United Hosps., 349 N.J. Super. at 4 (citing Harris v. McCrae,
448 U.S. 297, 301 (1980)), and must submit a Medicaid State Plan, describing
the methods and standards for reimbursement to providers, for federal
approval, 42 U.S.C.A. § 1396(a)(13); N.J.S.A. 30:4D-7.
In 1968, our State Legislature elected to participate in the Medicaid
program when it passed the Medical Assistance and Health Services Act
(N.J.S.A. 30:4D-1 to -19) for patients whose "resources are determined to be
inadequate to secure necessary medical care at their own expense." Bergen
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Pines County Hosp. v. N.J. Dep’t of Human Servs., 96 N.J. 456, 465 (1984).
As per the Act, the Medicaid program is administered by the Division of
Medical Assistance and Health Services (the Division). See United Hosps.,
349 N.J. Super. at 5. 2
In 1992, as part of the Health Care Cost Reduction Act, N.J.S.A. 26:2H -
18.50 to -69, the Legislature enacted N.J.S.A. 26:2H-18.64, which provides in
part, "[n]o hospital shall deny any admission or appropriate service to a patient
on the basis of that patient’s ability to pay or source of payment." Such care is
referred to as charity care. 3 To qualify for charity care, individuals must have
no health coverage, private or government sponsored (including Medicaid),
and meet the income and asset eligibility requirements. N.J.A.C. 10:52 -11.8.
A hospital which violates the statute is subject to a fine of $10,000 per
violation.4 See N.J.S.A. 26:2H-18.64.
2
Providers are reimbursed for care of Medicaid-eligible patients through the
N.J. Medicaid Program fund, and the State is permitted to seek reimbursement
for a portion of those costs. See SSI Med. Servcs v. State of New Jersey, 146
N.J. 614, 617-18 (1996).
3
Charity care is one aspect of New Jersey's Medicaid State Plan, which is
approved by the Secretary of Health and Human Services. See N.J.S.A.
30:4D-6.
4
The corresponding regulation is N.J.A.C. 10:52-11.14, which prohibits
hospitals from sending a bill for services to eligible persons or initiating
collection actions against them.
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The Legislature recognized that disproportionate share hospitals (DSH) 5
bear a greater burden to sustain the interests of the Health Care Cost Reduction
Act and established a Health Care Subsidy Fund (HCSF), N.J.S.A. 26:2H-
18.58, to distribute subsidies to qualifying facilities. Each year, the
Legislature appropriates funds to the HCSF via the annual Appropriations Act.
The State of New Jersey Department of Health (DOH) then allocates subsidies
for the current state fiscal year according to the statutory formula contained in
N.J.S.A. 26:2H-18.59i—accounting for any instructions or modifications
contained in the current year’s Appropriations Act. N.J.S.A. 26:2H-18.55.
In Univ. of Med. & Dentistry v. Grant, we explained the subsidy
program's operation in detail:
The statutory distribution formula requires a
determination of how much charity care an eligible
hospital has provided, valued not at its usual and
customary charges but rather on the amount Medicaid
would pay for such services ("documented charity
care").
....
Therefore, the initial value must be converted or
"priced" to the Medicaid value to determine ultimately
______________________
5
A hospital qualifies as a DSH when it serves a disproportionate number of
low-income patients with special needs.
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the "documented charity care" for each eligible
hospital.
....
To this basic figure, other calculations are
applied to determine eligibility for, and amount of,
any subsidy. The "profitability factor" reduces the
hospital's "documented charity care" if the hospital's
operating margin is above the statewide median. Also
considered is the "payer mix factor," determined by
how much of the hospital revenues come from private
payers. A hospital with a factor equal to or less than
the statewide target would not receive a charity care
subsidy.
[343 N.J Super. 162, 165-68 (App. Div. 2001)
(internal citations omitted).]
The Legislature's health care subsidy is not designed to be a full
"reimbursement" covering a hospital’s actual charity care expenses, but instead
to provide each hospital with its "proportionate share of the total subsidy
funded by the Legislature for that year." Id. at 165. Hospitals may challenge
their assigned share of the HCSF in two ways. They may challenge the
amount of their designated HCSF subsidy by filing an administrative appeal
with the DOH. N.J.A.C. 10:52-13.4(f)(1)-(2). They may also seek an
adjustment of the Medicaid rate issued each year by the Division. N.J.A.C.
10:52-14.17(c)(1).
B.
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Against this backdrop, we review our unpublished opinions in In re
Medicaid Inpatient Hosp. Reimbursement Rate Appeals (In re Medicaid), No.
A-3726-13 (App. Div. May 20, 2016) and IMO Englewood Med. Ctr.'s SFY
2014 Charity Care Subsidy Appeal (IMO Englewood), No. A-1555-13 (App.
Div. May 20, 2016), which are directly related to the matter before us. 6 In
each case, the plaintiff hospitals raised taking claims as part of their rate
challenges, and in each case final administrative decisions were issued
dismissing the taking claims on jurisdictional grounds.
In In re Medicaid, plaintiff hospitals appealed to the Division disputing
their assigned Medicaid rates pursuant to N.J.A.C. 10:52–14.17. (slip op. at 2-
3). After the Division denied the appeals, plaintiffs sought an administrative
hearing to make an as-applied constitutional challenge to each [h]ospital's
2009 Medicaid rates. Id. at 4. They argued the State failed to provide
adequate compensation for its taking of [h]ospital property, "including . . .
facilities, equipment, staff and services, for public use." Ibid. In its final
administrative decision, the Director of the Division concluded that an
6
References and citations to these unpublished appellate opinions herein are
provided for the purpose of explaining the history of the hospitals' efforts to
bring constitutional takings claims, and as such are not provided for any
precedential purpose. See Zahl v. Hiram Eastland, Jr., 465 N.J. Super. 79, 86 n.1
(App. Div. 2020) ("Although citing an unpublished opinion is generally forbidden,
[see R. 1:36-3], we do so here to provide a full understanding of the issues
presented.").
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administrative hearing was not the proper venue for the hospitals' "facial
challenge to the charity care statute . . . administered by the [DOH] not [the
Division]." Ibid. We affirmed, concluding the hospitals' takings claims were
not foreclosed, and could "be developed and . . . adjudicated in another
forum." Id. at 17.
In IMO Englewood, eight hospitals filed administrative appeals
challenging the New Jersey Health Care Cost Reduction Act, including
N.J.S.A. 26:2H-18.64. (slip op. at 3). The plaintiffs projected losses for fiscal
year 2015, alleging the losses were due to their statutory obligation to provide
low or no-cost care to eligible persons. Id. at 5-6. The plaintiffs claimed this
statutory obligation, combined with the alleged inadequate subsidies,
constituted unconstitutional takings of their property without just
compensation. Id. at 6. The Commissioner of the DOH concluded it lacked
jurisdiction to consider the hospitals' constitutional claims. Ibid. We
affirmed. Id. at 3. Noting the plaintiff hospitals received some subsidies in
the disputed years, we declined to exercise original jurisdiction because of an
insufficient factual record. Id. at 8-9, 14. Similar to In re Medicaid, we
instructed the plaintiff hospitals to bring their claims in the trial court, where a
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factual record appropriate to analyze their takings claims could be developed.
Id. at 15.7
II.
We turn to the matter before us. Plaintiffs are fourteen licensed for-
profit and non-profit general acute care hospitals who all qualify as DSH.8
Defendants include the State of New Jersey, the State of New Jersey
Department of Human Services (DHS), the Division, DOH, and several state
officials.9
Approximately six weeks after our decisions in In re Medicaid and IMO
Englewood, plaintiffs filed suit against various state entities and individual
7
In both In re Medicaid and IMO Englewood, the plaintiff hospitals brought
as-applied constitutional challenges, however, in both cases, the Director and
Commissioner considered the challenges as facial. For example, the
Commissioner in IMO Englewood noted the hospitals had not challenged the
manner in which their charity care subsides had been calculated, but rather
their statutory obligation to provided charity care in light of inadequate
subsidies. Id. at 6.
8
After argument, JFK Medical Center was dismissed pursuant to stipulation
on February 27, 2024.
9
Sarah Adelman is the current commissioner of DHS. Jennifer Langer Jacobs
is the current Division Assistant Commissioner of the Division. As the
Division is part of the Department of Human Services, respondents
Commissioner Adelman, DHS, Assistant Commissioner Jacobs, and the
Division are referenced collectively in this memo as "the Division." In
addition, the current commissioner of the DOH is Dr. Kaitlan Baston as of July
25, 2023. All defendants are collectively referenced to herein as "the State."
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officers, asserting constitutional takings claims dating back to 2004. Plaintiffs'
two-count complaint alleged that under the Fifth and Fourteenth Amendments
of the United States Constitution as well as Article I, Paragraph 20 of the New
Jersey Constitution of 1947: "The obligations imposed by the [charity care]
[s]tatute result in a taking of the . . . [h]ospitals' real and personal property in
terms of space, supplies, and services"; and "[T]he mandates imposed on the
. . . [h]ospitals by . . . [the charity care] [s]tatute along with the limited
reimbursement provided by the Division and DOH for the . . . hospitals'
treatment of Medicaid and charity care patients has resulted in an as-applied
violation of the Takings Clauses of the United States and New Jersey
Constitutions."
After the close of discovery, both sides moved for summary judgment.
Finding no disputed issues of material fact, the court granted defendants'
motion for summary judgment on certain taking claims, and dismissed in part
plaintiffs' remaining takings claims on ripeness grounds for failure to exhaust
administrative remedies.
The court first considered the question of whether plaintiffs' claims
constituted as-applied or facial constitutional challenges. The court found
each plaintiff sought just compensation for their individual alleged shortfalls
and did not seek to advocate for the rights of hospitals statewide. Hence, the
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court concluded plaintiffs' claims were as-applied constitutional takings
claims.
The court's comprehensive statement of reasons supporting its order
granting defendants summary judgment included findings of fact and
conclusions of law. First, the court concluded certain plaintiffs' claims were
not ripe, finding they failed to exhaust administrative remedies prior to filing
suit. Next, the court analyzed the surviving plaintiffs' claims and concluded
New Jersey's charity care statute and the Medicaid rates used for the HCSF
distribution formula did not constitute a physical or regulatory taking. The
court stated:
[A]ny interference with [p]laintiffs' property rights
arises from two public programs enacted to adjust the
burdens and benefits of economic life for the common
good. The charity care and Medicaid programs ensure
equal access to healthcare for indigent patients—a
public health and healthcare purpose squarely in line
with the public health laws upheld in In re Health Care
Admin. Bd., 83 N.J. 67, 73, 75-76 (1980), and Cooper
Medical Center v. City of Camden, 214 N.J. Super.
493, 496-97 (App. Div. 1987).
[(Citations reformatted).]
Plaintiffs appealed.
III.
Our review of a trial court's summary judgment order is de novo,
applying the same legal standard, namely, the standard set forth in Rule 4:46-
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2. Conley v. Guerrero, 228 N.J. 339, 346 (2017). We consider, as did the trial
court, whether "the competent evidential materials presented, when viewed in
the light most favorable to the non-moving party, are sufficient to permit a
rational factfinder to resolve the alleged disputed issue in favor of the non-
moving party." Town of Kearny v. Brandt, 214 N.J. 76, 91 (2013) (quoting
Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995)).
If there is no genuine issue of material fact, we must then "decide
whether the trial court correctly interpreted the law." Dickson v. Cmty. Bus
Lines, 458 N.J. Super. 522, 530 (App. Div. 2019) (citing Prudential Prop. &
Cas. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div. 1998)). "We accord
no deference to the trial judge's conclusions of law and review these issues de
novo." Ibid.Both the Takings Clause of the Fifth Amendment and the New Jersey
Constitution prohibit the taking of private property for public use "without just
compensation." U.S. Const. amend. V; N.J. Const. art. I, ¶ 20. Our courts
apply the same analysis for state and federal takings claims, viewing the
constitutional provisions as "coextensive." Klumpp v. Borough of Avalon,
202 N.J. 390, 405 (2010).
While "[t]he paradigmatic taking requiring just compensation is a direct
government appropriation or physical invasion of private property," the
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Constitution also guards against certain uncompensated regulatory interference
with a property owner's interest in their property. Lingle v. Chevron U.S.A.
Inc., 544 U.S. 528, 537-38 (2005); see also Cedar Point Nursery v. Hassid, 594
U.S. 139, 147-48 (2021) (noting most obvious examples of physical takings
include when government condemns property, takes possession without
acquiring title, or physically occupies property—such as "recurring flooding as
a result of building a dam"). Regulations are considered per se takings where
they "result[] in a physical appropriation of property." Cedar Point, 594 U.S.
at 149.
Where the regulation does not occupy or appropriate property, but still
influences it, we must engage in a fact-specific inquiry. See Ark. Game &
Fish Comm'n v. United States, 568 U.S. 23, 32 (2012); Bernardsville Quarry,
Inc. v. Borough of Bernardsville, 129 N.J. 221, 232 (1992). In Penn Central,
438 U.S. 104, 124 (1978), the Supreme Court identified certain factors to
guide such a fact-sensitive analysis, observing there is no "set formula" for
deciding regulatory takings cases. The three Penn Central factors are: the
economic impact of the regulation on plaintiff; the extent to which the
regulation has interfered with plaintiff's investment-backed expectations; and
the character of the governmental action being challenged. Ibid.; see also
Mansoldo v. State, 187 N.J. 50, 58-59 (2006) (explaining "protection from
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governmental takings under the New Jersey constitution is coextensive with
protection under the federal constitution" and that the Penn Central factors
serve to resolve regulatory takings claims that are not per se physical takings).
A.
We first consider whether the trial court erred by dismissing some of
plaintiffs' claims for failure to exhaust administrative remedies.
The court found plaintiffs' taking claims were as-applied claims. Having
carefully reviewed the record, we reach a different conclusion. An as -applied
constitutional challenge to a regulatory scheme necessarily involves the proffer
of evidence to support the challenge. The administrative agency responsible
for enforcement of the regulation must hear the claim first. See Fred Depkin
& Son, Inc. v. Dir., New Jersey Div. of Tax'n, 114 N.J. Super. 279, 284-86
(App. Div. 1971). This principle does not apply to facial claims, which are
purely questions of law. Ibid. see also Matter of Comm'r of Ins.'s Issuance of
Ords. A-92-189 & A-92-212, 274 N.J. Super. 385, 404 (App. Div. 1993).
Here, plaintiff hospitals challenge the Legislature's reimbursement
system, including N.J.S.A. 26:2H-18.64, in its entirety. If successful,
plaintiffs would have us declare charity care unconstitutional for failing to
provide plaintiffs at-cost reimbursement. The charity care subsidy reimburses
no hospital in New Jersey at one hundred percent. It follows that plaintiffs'
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claim is one which, if successful, will affect all hospitals, even though the
claim was not brought on behalf of all hospitals licensed to operate in the state.
We conclude this represents a facial constitutional attack on the charity care
statute, and that it would be futile to remand those claims to the agency. 10 We
conclude that the trial court's order dismissing without prejudice certain
plaintiffs' takings complaints between 2004 and 2015 for failure to first obtain
individual decisions under the rate appeal process was issued in error.11
B.
Plaintiffs' primary argument on appeal is that the trial court erred by
concluding no taking occurred. They propose alternate theories . First,
plaintiffs posit N.J.S.A. 26:2H-18.64's operation results in a per se taking of
10
Even if we accept that plaintiffs' constitutional claims were as-applied and
not facial claims, a ripeness analysis would require judicial review of all the
takings claims now. See Platkin v. Smith & Wesson, 474 N.J. Super. 476, 496
(App. Div. 2023). Plaintiffs have spent years attempting to bring
constitutional taking claims as part of their administrative challenge to
Medicaid rates and charity care subsidies. It follows that remand for an
administrative hearing on any aspect of these claims after more than a decade
of litigation would be fundamentally unfair.
11
The trial court dismissed without prejudice all takings claims for lack of
ripeness except the following: Englewood Hospital & Medical Center and JFK
Medical Center for fiscal years 2009-12 and 2014-15; Hoboken University
Medical Center, Capital Health Regional Medical Center, and Capital Health
Medical Center–Hopewell for fiscal years 2014-15 only; and Hackensack
Meridian Health Pascack Valley Medical Center, Hackensack Meridian Health
Mountainside Medical Center, and St. Mary's General Hospital for fiscal years
2009-12 only.
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hospital property due to the "inadequate" state subsidies the statute generates.
In the alternative, plaintiffs contend they met their burden to show a regulatory
taking of the same property occurred when they presented to the trial court
uncontroverted Penn Central evidence.
A constitutional takings analysis must first address the nature of the
property at issue. Property need not be physical, tangible property to trigger a
takings analysis. The term property
is not used in the "vulgar and untechnical sense of the
physical thing . . . . [Instead, it] [denotes] the group of
rights inhering in the citizen's relation to the physical
thing, as the right to possess, use and dispose of it. . . .
The constitutional provision is addressed to every sort
of interest the citizen may possess."
[Pruneyard Shopping Ctr. v. Robins, 447 U.S. 74, 82
n.6 (1980) (second, third, and fourth alterations in
original) (quoting United States v. General Motors
Corp., 323 U.S. 373, 377-78 (1945)).]
The United States Supreme Court has identified property interests in
both real property and in investment interests. See, e.g., Horne v. Dep't of
Agric., 576 U.S. 350 (2015) (finding property interest in raisins confiscated by
government officials); Duquesne Light Co. v. Barasch, 488 U.S. 299, 309-12
(1989) (finding property interest in utility profits where rates were so stringent
that they became confiscatory in nature). Our Supreme Court has also
identified property interests in a landlord's expectation of rental income and
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the rendering of professional services. See, e.g., Prop. Owners Ass'n v. North
Bergen, 74 N.J. 327, 336 (1977) (finding rental subsidies confiscatory);
Madden v. Delran, 126 N.J. 591, 602 (1992) (identifying legal services as
property).
We now consider plaintiffs' contention that operation of N.J.S.A. 26:2H-
18.64 results in a physical appropriation of their property, which effects a per
se taking. Plaintiffs argue government-authorized entry onto their property
and compelled provision of medical supplies and staff labor goes further than
just a "regulatory restriction on use." They rely primarily on the standard set
forth in Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982),
which was further developed by Nollan v. California Coastal Com'n, 483 U.S.
825 (1987).
In Loretto, New York passed a law requiring landlords to permit cable
companies to install equipment on apartment buildings in exchange for a
nominal fee. 458 U.S. at 421. The Supreme Court held that where a physical
occupation is permanent—no matter how small—it is a taking that must be
compensated. Id. at 435.
In Nollan, the Supreme Court applied Loretto where a government land
use entity conditioned a use permit upon the property owner's grant of a public
easement. 483 U.S. at 827. The Court concluded the easement was a
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"permanent physical occupation" of the property, because the public was
"given a permanent and continuous right to pass to and fro, so that the real
property may continuously be traversed, even though no particular individual
is permitted to station himself permanently upon the premises." Id. at 832.
In contrast to the plaintiffs in Loretto and Nollan, plaintiffs here operate
hospitals within the complex and highly regulated health care industry. Unlike
the cable installation law in Loretto, N.J.S.A. 26:2H-18.64 does not limit the
right to exclude individuals from their premises. Rather, it prohibits hospitals
from turning away patients "on the basis of [their] ability to pay" without
being subject to civil penalty, and further prohibits billing only those patients
who qualify under charity care. Similarly, the contested scheme does not
permit the public's unfettered access to plaintiffs' premises like the easement
condition in Nollan. Instead, the Legislature crafted the charity care statute
with specificity, requiring plaintiffs provide care only to those the act aims to
benefit.
To further support their argument, plaintiffs contend their facts are
analogous to the facts in Cedar Point, and distinguishable from Pruneyard
Shopping Ctr., 447 U.S. at 74 (holding that the temporary occupation of a
privately owned mall by pamphleteers was not a taking).
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In Cedar Point, the Supreme Court concluded a regulation granting labor
union organizers a three-hour right of access to agricultural employer's
property 120 days a year, for the purpose of soliciting support for unionization
was a per se physical taking. 549 U.S. at 143. The nature of the property at
issue was a private agricultural business—not open to the public. The disputed
regulation required the plaintiff property owners to open their property to
third-party union organizers. The plaintiffs claimed the imposition disturbed
their operations. Ibid. The Court pointed out that Pruneyard was "readily
distinguishable," as it involved a business generally open to the public unlike
the farms at issue. Id. at 157.
We conclude the charity care statute's operation does not lead to physical
invasion of the hospitals' property by the public because, unlike Cedar Point,
the public's presence in a hospital is a natural element of its business, making
it more analogous to Pruneyard. Although plaintiffs contend that charity care
as a whole has a negative economic impact on their investment interests, there
is no evidence that the prohibition on turning away patients because of
inability to pay unreasonably impairs the value of the premises. Charity care
restricts how hospitals use their property to provide medical services, not
whether they do so. The property will be used as it was intended—to treat
patients.
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Finally, the hospitals' argument that the charity care provisions'
requirements are an unconstitutional appropriation of their tangible personal
property is without merit. To support their argument, plaintiffs cite the
standard provided by Horne, 576 U.S. at 355 (holding a law requiring raisin
growers "to give a percentage of their crop to the government, free of charge,"
was a per se taking). However, unlike Horne, the statute here does not require
a transfer of ownership of medical supplies or equipment into the government's
or a third party's hands. The hospitals retain the majority of their agency as to
their medical supplies and equipment. The record shows no per se taking, as
plaintiffs have failed to show evidence of physical appropriation of the
hospital property, real or personal, consistent with our jurisprudence.
C.
Having found no per se taking, we next balance "the private interests
affected by the regulation against the public interests that are advanced."
Matter of Plan for Orderly Withdrawal of Twin City Fire Ins. Co., 129 N.J.
389, 417 (1992). To accomplish this, we analyze the relationships among the
Penn Central factors. Where there is no per se taking, and
where the government merely regulates the use of
property, compensation is required only if
considerations such as the purpose of the regulation or
the extent to which it deprives the owner of the
economic use of the property suggest that the
regulation has unfairly singled out the property owner
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to bear a burden that should be borne by the public as
a whole.
[Yee v. City of Escondido, 503 U.S. 519, 522-23
(1992).]
Plaintiffs argue the uncontroverted record shows: adverse economic
impact to the hospitals; undue infringement on their investment backed
expectations; and per se confiscatory government action. They contend that,
on balance, N.J.S.A. 26:2H-18.64's regulatory burden outweighs its public
good. We discuss each factor in turn.
1. Economic Impact
Plaintiffs argue the subsidy shortfall causes a constitutionally
burdensome economic impact. They offer expert testimony to show their
hospitals fall below the national median in three main industry-wide criteria:
profitability, liquidity, and debt-to-capitalization ratio.
A regulation's economic impact must be examined in the context of the
property as a whole rather than by its parts or segmented uses. See Penn
Central, 438 U.S. at 130-31. We look to the disparity between subsidies
plaintiffs received and the cost they've incurred for charity care medical
services and determine the impact it has had on their property. Giving all
favorable inferences to plaintiffs, Kearny, 214 N.J. at 91, the record shows
they clearly established before the court evidence sufficient to support a
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finding that N.J.S.A. 26:2H-18.64 has had an adverse impact on their
profitability. The record also shows that during the years of plaintiffs'
compliance with N.J.S.A. 26:2H-18.64, they fell short of industry-wide
profitability standards. Plaintiffs further contend that shortfall is wholly due to
the charity care provisions. While plaintiffs have shown sufficient material
issues of fact demonstrating they are less profitable than the average hospital
nationally, they have not shown that N.J.S.A. 26:2H-18.64 deprives them of
economic use of their properties as a whole, in effect, as hospitals. See Yee,
503 U.S. at 522-23. A takings claim cannot be sustained on the sole ground
that plaintiffs fail to financially perform on par with industry-wide norms.
This framing fails to recognize other relevant regulatory factors at work which
may be unique to a given hospital serving the community where it is located.
See Hutton Park Gardens v. Town Council of Town of W. Orange, 68 N.J.
543, 570 (1975) ("The rate of return permitted need not be as high as prevailed
in the industry prior to regulation nor as much as an investor might obtain by
placing his capital elsewhere."). Giving all favorable inferences that this
factor should weigh moderately in favor of finding a taking of plaintiffs'
property, but we caution that this one factor is not dispositive.
2. Interference with Investment-Backed Expectations
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Plaintiffs claim that the charity care statute unduly interferes with their
investment-backed expectations. Here, the pertinent question is whether
plaintiffs have a reasonable investment-backed expectation in receiving
reimbursement at cost for their treatment of charity care patients. "[D]istinct,
investment-backed expectations are reasonable only if they take into account
the power of the state to regulate in the public interest." Nekrilov v. City of
Jersey City, 45 F. 4th 662, 674-75 (3d Cir. 2022) (alteration in original)
(quoting Pace Resources, Inc. v. Shrewsbury Twp., 808 F. 2d 1023, 1033 (3d
Cir. 1987)). Hospital investors in the highly regulated health care industry
should expect that use of their property, in all its forms, is likely to be
regulated by the state, and that such government regulation may diminish
investment-backed expectations without resulting in an unconstitutional
taking. See also United Wire, Metal & Mach. Health & Welfare Fund v.
Morristown Mem'l Hosp., 995 F. 2d 1179, 1191 (3d Cir. 1993) (rejecting a
takings challenge to state system of setting hospital billing rates, in part,
because plaintiffs' investment-backed expectations were reduced by "the
historically heavy and constant regulation of health care" in the state).
The New Jersey health care industry has been consistently and
comprehensively regulated within our state. Plaintiffs, as a condition of
obtaining their hospital licenses, elected to provide subsidized medical
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services in the communities they serve. When a hospital seeks a license to
operate in our state, it must consider the laws in effect at that time as well as
those which may be adopted by our Legislature. Given plaintiffs' choice to do
business here, it is reasonable that they should expect such license conditions
to affect business profits. In turn, we conclude it is not reasonable for the
hospitals to expect an at-cost reimbursement for the medical services the
Legislature has required them to provide as a condition of doing business in
our state. Plaintiffs have failed to satisfy this Penn Central factor.
3. Character of the Government Action
Our courts have repeatedly stated that the character of public health and
healthcare regulations typically weighs against the conclusion that a law acts
as a taking. See JWC Fitness, LLC v. Murphy, 469 N.J. Super 414, 436 (2021)
(recognizing the nature of the regulation weighed against finding a taking as it
was not specific to plaintiff and was a valid exercise of police power); In re
Health Care Admin. Bd., 83 N.J. at 81 (finding no taking where the
"regulations in question are directed at an acute social problem affecting the
health and welfare of the needy aged and infirm, are well within the power and
authority vested in the [DOH] by the Legislature").
The requirements of the charity care statute and its subsidy scheme are
specific to its aims—to ensure equal access to healthcare for indigent patients,
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and we conclude that such regulation fits squarely within the police power
vested in our Legislature. The Legislature, in turn, has delegated authority to
the respective agencies to oversee the appeal processes for both Medicaid
reimbursement rates and the charity care subsidy. To this end, the character of
the government action reflects a reasonable adjustment to the benefits and
burdens of economic life for the common good and weighs strongly against
finding a taking.
D.
After a thorough review of all plaintiffs' constitutional taking claims, we
conclude that the record shows no per se taking, nor does a balancing of the
Penn Central factors reveal a regulatory taking. We affirm the trial court's
order granting defendants' motion for summary judgment against all plaintiffs.
Affirmed.
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