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In re Certificate of Need Granted to the Harborage

May 2, 1997


On appeal from the Deputy Commissioner of the Department of Health and Senior Services.

Approved for Publication May 6, 1997. As Corrected May 22, 1997.

Before Judges Michels, Muir, Jr., and Coburn. The opinion of the Court was delivered by Michels, P.j.a.d.

The opinion of the court was delivered by: Michels

The opinion of the Court was delivered by


Appellant Bergen Pines County Hospital (Bergen Pines) appeals from a final administrative action of respondent Deputy Commissioner of the Department of Health and Senior Services of the State of New Jersey *fn1 that awarded a Certificate of Need (CON) to respondent The Harborage for the establishment of a thirteen long-term ventilator care bed unit at its facility in North Bergen, Hudson County, New Jersey, and denied Bergen Pines' CON application for a similar thirteen-bed unit at its facility in Paramus, New Jersey.



Pursuant to the Health Care Facilities Planning Act, N.J.S.A. 26:2H-1 et seq. (the Act), and specifically N.J.S.A. 26:2H-7, no health care facility, including a hospital, may construct new facilities or expand an existing one or initiate a new health care service, unless a CON has been applied for by the facility and been granted by the State Commissioner of Health (Commissioner). See also N.J.A.C. 8:33-3.1. *fn2 The award of the CON is governed by N.J.S.A. 26:2H-8, which, in pertinent part, provides:

No certificate of need shall be issued unless the action proposed in the application for such certificate 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 Statewide, and will contribute to the orderly development of adequate and effective health care services. In making such determinations there shall be taken into consideration (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. The State Health Plan may also be considered in determining whether to approve a certificate of need application.

CON applications are submitted to the State Department of Health and Senior Services (Department) for its consideration. N.J.S.A. 26:2H-10. However, an application to provide a particular health care service cannot be submitted until the Department issues a "call," in the New Jersey Register, inviting the submission of CON applications for that specific service. N.J.A.C. 8:33-4.1(a) and (b). Once a call is issued and a CON application received, the Department determines if the application is complete and meets specific criteria. N.J.A.C. 8:33-4.5; N.J.A.C. 8:33-4.9; N.J.A.C. 8:33-4.10. Once deemed complete, the application is forwarded for review to the Local Advisory Board (LAB) with jurisdiction over the geographic area in which the applicant is located. N.J.S.A. 26:2H-5.9b; N.J.S.A. 26:2H-10; N.J.A.C. 8:33-4.1; N.J.A.C. 8:33-4.12. The LAB is authorized to review, in light of applicable health planning regulations, CON applications for any proposed project in its geographic region and to make recommendations regarding those applications to the Commissioner. N.J.S.A. 26:2H-5.9b; N.J.A.C. 8:33-4.12(b).

Health planning regulations pertinent to this appeal, which involves the provision for adult ventilator beds, a specialized form of long-term care service, N.J.A.C. 8:33H-1.7(a)1, are codified at N.J.A.C. 8:33H-1.1 to N.J.A.C. 8:33H-1.20 of the New Jersey Administrative Code. If twenty-five percent or more of the quorum of voting members of a LAB vote to approve an application, regardless of whether the LAB's overall recommendation is to approve or deny the application, it is forwarded to the State Health Planning Board (SHPB), which was established within the Department by N.J.S.A. 26:2H-5.7, for review. N.J.S.A. 26:2H-10.1a(1); N.J.A.C. 8:33-4.1; N.J.A.C. 8:33-4.14(a). If twenty-five percent of a quorum of voting members at the SHPB vote to approve the application, the application is forwarded to the Commissioner for consideration, regardless of whether the SHPB's overall recommendation is to deny or approve the application. If less than twenty-five percent approve the application, it is not submitted to the Commissioner. N.J.S.A. 26:2H-10.1a(2); N.J.A.C. 8:33-4.14(b).

An applicant whose application is denied by the SHPB may seek a hearing conducted by the Office of Administrative Law (OAL). N.J.S.A. 26:2H-10.1b; N.J.A.C. 8:33-4.14(c). If the Administrative Law Judge (ALJ) decides that the application was wrongly denied by the SHPB, the application proceeds to the Commissioner for final review. N.J.A.C. 8:33-4.14(c). The ALJ's decision in this respect is deemed a final agency decision, subject to appeal directly to this court. N.J.A.C. 8:33-4.14(c)3; R. 2:2-3(a)(2). The Commissioner reviews the application, whether forwarded by the SHPB or as directed by an ALJ, based on relevant statutory and regulatory criteria and determines whether or not to approve it. N.J.S.A. 26:2H-9; N.J.A.C. 8:33-4.15.

Finally, an applicant whose application is ultimately denied by the Commissioner may file an appeal with the Health Care Administration Board, created pursuant to N.J.S.A. 26:2H-4. This appeal will be heard by the OAL. N.J.S.A. 26:2H-9; N.J.A.C. 8:33-4.15(b). The Health Care Administration Board's decision to deny a CON is a final agency decision, subject to direct appeal to this court, R. 2:2-3(a)(2); N.J.A.C. 8:33-4.15(e), as is the Commissioner's decision to grant a CON to a competing applicant.



On December 6, 1993, the Department issued a call inviting the submission of CON applications for ventilator beds for adult patients. 25 N.J.R. 5704(b) (December 6, 1993). The call specifically noted that thirteen additional ventilator beds were needed in the region administered by LAB II, covering Hudson and Bergen Counties, the relevant geographic area involved in this appeal. In response to the call, Bergen Pines, a county-owned, 1185-bed teaching hospital located in Paramus, New Jersey, submitted an application to convert thirteen of its long-term care beds to thirteen ventilator beds. Bergen Pines proposed to locate the ventilator beds in its long-term care facility next to twelve ventilator beds for which Bergen Pines had applied and received a CON in 1989. At the time of the submission of the application, the previously approved CON for the twelve-bed ventilator unit had not been implemented due to incomplete negotiations with Medicaid. However, we were advised at oral argument that while this appeal was pending, the CON awarded to Bergen Pines for the twelve-bed unit was implemented. Bergen Pines envisioned the proposed twenty-five-bed unit as a subsection of the existing long-term care unit, serving ventilator-dependent patients who require a mechanical respiratory device in order to sustain their lives. Bergen Pines estimated the total project cost at $111,900, consisting of $72,900 for renovations and $39,000 for major movable equipment, and anticipated financing the project through available cash resources in the amount of $12,000 and a County of Bergen Bond Ordinance for $99,900.

The estimated cost of the project, $20.25 per square foot and $5,608 per bed, was calculated based upon the full twenty-five-bed unit Bergen Pines envisioned ultimately operating. Bergen Pines projected a loss of approximately $900,000 in each of the first two years of the operation of this ventilator bed unit. Following submission of answers to "completeness questions," Bergen Pines' application was deemed complete and was forwarded to the LAB for the Hudson and Bergen County region (LAB II) for review.

The Harborage, which is adjacent to and affiliated with Palisades Medical Center (Palisades) in North Bergen, Hudson County, New Jersey, is a health care facility with 180 long-term care beds and sixty residential health care beds. The Harborage proposed to convert fourteen residential care beds to a separate dedicated unit of thirteen ventilator long-term care beds. Palisades had been experiencing difficulty in placing its ventilator-dependent patients in appropriate beds; thus, the application noted that if it were approved, Palisades would have a ventilator unit to which it could transfer those patients. The anticipated cost of The Harborage's proposed unit was $365,000, to be funded entirely through existing cash reserves. Excluding major moveable equipment of $250,000 and architect and engineer fees of $15,000, the project's cost was $100,000. The Harborage anticipated an operating profit of approximately $194,000 in the first year and $240,000 in the second year. After compliance with the "completeness questions," The Harborage's application was deemed complete and it was also forwarded to the LAB II for review.

In addition to the applications submitted by Bergen Pines and The Harborage, Englewood Nursing Center in Englewood, Bergen County, New Jersey and West Hudson Hospital in Kearny, Hudson County, New Jersey also submitted CON applications for the Commissioner's approval.



The LAB II reviewed the applications submitted by The Harborage and Bergen Pines as well as the application of West Hudson Hospital at its meeting on June 9, 1994. The LAB II did not recommend approval of Bergen Pines' application, but because the application received affirmative votes from more than twenty-five percent but less than fifty percent of the quorum of voting members, it was forwarded to the SHPB. In its rationale for its vote, the LAB II noted that there was a need for thirteen ventilator beds in the area, that the application substantially met the CON regulatory requirements, and that the project could be implemented in three months.

Bergen Pines' application did not address the availability of public transportation or supply documentation to show that the additional beds would improve the efficient operation of the facility by reducing the unit costs of care per patient. While noting that Bergen Pines had a current CON for twelve ventilator beds, which had been approved in 1989 but not yet implemented because of rate negotiations with Medicaid, the LAB II expressed concern that the service area was left with no operational ventilator beds. The LAB II also expressed concern with Bergen Pines' financial data, which indicated a projected financial loss of approximately $900,000 for each of the first two years of operation. The LAB II commented that it was unclear whether the funding for the project was to be ...

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