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In re Applications of Overlook Hospital and Morristown Memorial Hospital for Certificate of Need

Decided: March 3, 1987.

IN RE THE APPLICATIONS OF OVERLOOK HOSPITAL AND MORRISTOWN MEMORIAL HOSPITAL FOR CERTIFICATE OF NEED


On appeal from the Health Care Administration Board.

Pressler, Gaulkin and Ashbey. The opinion of the court was delivered by Pressler, P.J.A.D.

Pressler

[215 NJSuper Page 403] This appeal, which arises out of the State Department of Health's certificate of need program, raises issues respecting the hearing and discovery rights of rejected applicants for a

certificate of need who seek to challenge the Commissioner of Health's recommended denial of their applications, his grant of a certificate to a competing applicant, and his determination of the extent of the existing need for which any certificate would be issued.

In 1984 five hospitals in Health Care Area II of the State, consisting of Essex, Morris, and Union Counties, filed certificate of need applications for cardiac surgical programs. Newark Beth Israel Medical Center sought to expand its existing program, and the other four, Overlook Hospital, Morristown Memorial Hospital, St. Barnabas Hospital, and University of Medicine and Dentistry of New Jersey -- University Hospital, sought to establish programs. In April 1985, after a comprehensive review process, the Commissioner of Health approved the application of Beth Israel, granting it permission to add one operating room to its cardiac surgery program and to convert six existing medical surgical beds to cardiac intensive care beds. On the same date, he advised the other four hospitals that he was recommending denial of their applications and of his reasons for that action. Although the statements of reasons in each of the denial letters varied, common to all was the finding that the Beth Israel application was "superior" to the other four and that the approval of additional applications "at this time would drive utilization down and further inflate costs and therefore be inconsistent with the goals of N.J.S.A. 26:2H-1." Each of the denial letters also advised the rejected applicant that it was entitled to request an administrative hearing to review the Commissioner's determination. Overlook and Morristown Memorial made such a request. They also appealed to this court from the Commissioner's grant of Beth Israel's application. By order of the New Jersey Supreme Court, the proceedings on the appeal from the Beth Israel grant have been stayed pending completion of the administrative proceedings on the Overlook and Morristown Memorial denials. The Supreme Court also ordered, with respect to those administrative proceedings, that the two rejected applicants "will be permitted to

address the Commissioner's decision granting a certificate of need to Newark Beth Israel Medical Center." Beth Israel is not, however, a party to those proceedings and has declined to intervene therein.

The issue before us concerns the right of Overlook and Morristown Memorial, in preparation for the hearing on their denials, to obtain extensive discovery from Beth Israel relating both to its existing cardiac surgical program and to its application for a certificate of need for expansion of the program. They have identified eighteen topics on which they seek discovery and they also seek production of fifteen sets of documents.*fn1 Beth Israel resisted the discovery demand, and Overlook

and Morristown Memorial applied to the Office for Administrative Law for relief. Following a hearing, the administrative law judge entered an order requiring Beth Israel to submit to discovery and issued a subpoena directing it to appear at a discovery deposition, to produce the requested documents, and to designate the person or persons competent to testify on each of the enumerated topics. We granted Beth Israel's motion for leave to appeal from the discovery order, and we now reverse.

We reject Beth Israel's contention that the administrative law judge lacked the power to order pretrial discovery by way of issuance of a deposition subpoena duces tecum. That power is implicit in N.J.S.A. 26:1A-47, which accords a subpoena power to the Commissioner of Health himself, and N.J.A.C. 1:1-11.3, which permits pretrial depositions for good cause shown.*fn2 The issue before us is, rather, whether good cause was shown for the grant by the administrative law judge of the broad discovery here ordered. That issue must be resolved in the context of the complex, comprehensive, and coordinated framework of state and federal legislative and regulatory enactments governing the health care delivery system.

We begin with the Health Care Facilities Act, N.J.S.A. 26:2H-1, et seq., which designates the State Department of Health as the state agency for comprehensive health planning under the National Health Planning and Resources Development Act of 1974, 42 U.S.C.A. § 300k, et seq., § 300m, and delegates to it "the central, comprehensive responsibility for the development and administration of the State's policy with respect to health planning, hospital and related health care [215 NJSuper Page 408] services and health care facility cost containment programs, and all public and private institutions" rendering health care. N.J.S.A. 26:2H-1. The statute requires the State Commissioner of Health to recognize the Statewide Health Coordinating Council and the Health Systems Agencies, established under federal law and to whom recommending functions are delegated by the national act, 42 U.S.C.A. § 300 l,*fn3 and establishes in the State Department of Health an independent Health Care Administration Board (HCAB). N.J.S.A. 26:2H-3 and -4, respectively. At the heart of the legislation is the requirement of a certificate of need as a condition for ...


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