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Saint Peter's University Hospital v. Lacy

August 11, 2005

SAINT PETER'S UNIVERSITY HOSPITAL, APPELLANT-RESPONDENT,
v.
CLIFTON R. LACY, M.D., COMMISSIONER OF THE NEW JERSEY DEPARTMENT OF HEALTH AND SENIOR SERVICES, MARY WACHTER, CHIEF OF STAFF OF THE NEW JERSEY DEPARTMENT OF HEALTH AND SENIOR SERVICES, AND THE NEW JERSEY DEPARTMENT OF HEALTH AND SENIOR SERVICES, AN AGENCY OF THE STATE OF NEW JERSEY, RESPONDENTS-RESPONDENTS, AND ROBERT WOOD JOHNSON UNIVERSITY HOSPITAL, INTERVENOR-APPELLANT.



On certification to the Superior Court, Appellate Division, whose opinion is Reported at 372 N.J. Super. 170 (2004).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

The Court considers whether regulations requiring that all licensed children's hospitals operate a regional perinatal center, adopted by the Commissioner of the New Jersey Department of Health and Senior Services (Department), are invalid because they are inconsistent with the statutory requirement of a certificate of need.

In 1971, the Legislature adopted the Health Care Facilities Planning Act (HCFPA), N.J.S.A. 26:2H-1 to -26, in response to a growing concern over the rising costs of hospital care. HCFPA is essentially cost-containment legislation focusing on the institutional delivery of health care services. In part, the HCFPA provides that all new health care facilities constructed or expanded and all new health care services must apply for and receive a certificate of need. N.J.S.A. 26:2H-7. HCFPA also requires that the Commissioner of the Department adopt and amend rules and regulations to effectuate HCFPA, including "standards and procedures relating to the licensing of health care facilities and the institution of certain additional health care services." N.J.S.A. 26:2H-5b.

In 1992, the Legislature added subsection 18d to HCFPA, which obligated the Commissioner to "designate Robert Wood Johnson University Hospital/St. Peter's Medical Center in the City of New Brunswick as the State's specialty acute care children's hospital in central New Jersey for the counties of Hunterdon, Mercer, Middlesex, Monmouth and Somerset." There was no separate legislative finding of need or a requirement for the issuance of a certificate of need for that designation.

In April 2002, the Commissioner proposed new regulations governing the licensing standards for children's hospitals "designed to ensure that facilities licensed as children's hospitals provide more comprehensive and specialized pediatric care and meet more stringent regulations than hospitals licensed to operate a general pediatric service." Among other things, the proposed regulations required that, as part of the continuing designation as a licensed children's hospital, all licensed children's hospitals in this State had to operate a regional perinatal center by October 21, 2003. N.J.A.C. 8:43-22A.6(c). A regional perinatal center is "a general acute care hospital that is designated and licensed to provide care to high risk mothers and neonates." N.J.A.C. 8:33C-1.2. The regulations, however, while limiting the numbers of beds or bassinets for the new service, exempted already licensed children's hospitals from the requirement to obtain a certificate of need before establishing a regional perinatal center.

N.J.A.C. 8:43G-22A.6(e). During the comment period, St. Peter's University Hospital objected to the proposed requirement that, in order to retain a meaningful designation as a licensed children's hospital, an entity also must be licensed to operate a regional perinatal center. St. Peter's contended that the requirement would place an undue financial burden on existing licensed children's hospitals and also place undue competitive and economic pressures on current centers. The objections were rejected and the regulations became effective on October 21, 2002.

On appeal, the Appellate Division held that the regulations were invalid as inconsistent with the requirements of the certificate of need statute. 372 N.J. Super. 170 (2004).

HELD: Given the presumption of validity and reasonableness accorded to administrative regulations, the Court finds valid the regulations codified at N.J.A.C. 8:43G-22A.6(c) and (e), requiring all licensed children's hospitals in the State to operate a regional perinatal center and exempting already licensed children's hospitals from the requirement to obtain a certificate of need before establishing the regional perinatal center.

1. Administrative regulations enjoy a presumption of legality and, unless they are clearly ultra vires on their face, the person attacking them has the burden of proving their invalidity. Courts give great deference to an agency's interpretation and implementation of its rules enforcing the statutes for which it is responsible. A rule will be set aside, however, if it is plainly at odds with the statute it purports to interpret. (Pp. 14-15).

2. When a court interprets different statutory provisions, it must make every effort to harmonize them. Here, twenty-two years after first adopting the certificate of need requirement of HCFPA-and on the heels of having created a list of exemptions to the certificate of need requirement-the Legislature specifically designated both Robert Wood Johnson Hospital and St. Peter's as "the State's specialty acute care children's hospital in central New Jersey for the counties of Hunterdon, Mercer, Middlesex, Monmouth and Somerset." N.J.S.A. 26:2H-18d. No certificate of need was required. The view that most closely approximates the intent of the Legislature in creating statutorily designated children's hospitals must be that, when read in pari materia with the certificate of need statute, the designation is a legislative-in lieu of an administrative-finding of need, the implementation of which is delegated to the Commissioner. The Court's conclusion that the Legislature, which created the certificate of need process, intended the legislative designation of certain hospitals as children's hospitals to serve in lieu of the certificate of need process is consistent with the interpretation the Commissioner and the Department have given this statutory enactment. (Pp. 15-19).

3. Further, subsequent legislation may be used as an extrinsic aid when seeking to discern legislative intent. Here, in May 2004, the Assembly sought to designate Jersey Shore University Medical Center and Monmouth Medical Center as the State's specialty acute care children's hospitals for Monmouth and Ocean Counties. The bill, as passed by the Assembly in 2005, required the centers to comply with all appropriate certificate of need and licensure requirements. The Senate, however, required only that the Commissioner determine that the centers meet "all of the licensure criteria that apply to a children's hospital" and "all of the requirements to obtain State authorization to offer the component services that constitute a children's hospital." The Senate bill was signed into law on June 29, 2005. N.J.S.A. 26:2H-18g. The Legislature's intent is clear and applies with equal force to the earlier statutory designation concerning Robert Wood Johnson Hospital and St. Peter's: by creating statutorily designated children's hospitals, the Legislature obviated the certificate of need process once a statutory designation as a children's hospital is made. Viewed through that prism and in light of the deference due, the challenged regulations are entirely consistent with the statutory scheme and are neither arbitrary, nor capricious, nor unreasonable, nor plainly incompatible with HCFPA. (Pp. 19-21).

The judgment of the Appellate Division is REVERSED.

JUSTICE ZAZZALI, in a separate dissenting opinion in which JUSTICE WALLACE joins, is of the opinion that the regulations and the statute are incompatible, and he would affirm the Appellate Division's decision. Further, in respect of the recent legislation, N.J.S.A. 26:2H-18g, he interprets the Legislature's language requiring the centers to have "met and complied with all of the requirements to obtain State authorization to offer the component services that constitute a children's hospital" as including the requirements set forth in the certificate of need statute.

CHIEF JUSTICE PORITZ and JUSTICES LaVECCHIA and ALBIN join in JUSTICE RIVERA-SOTO's opinion. JUSTICE ZAZZALI filed a separate, dissenting opinion in which JUSTICE WALLACE joins. JUSTICE LONG did not participate. JUSTICE LONG did not participate.

The opinion of the court was delivered by: Justice Rivera-soto

Argued March 28, 2005

In October 2002, after due notice and comment and upon the approval of the Health Care Administration Board (Board), the Commissioner (Commissioner) of the New Jersey Department of Health and Senior Services (Department) adopted regulations requiring that, "[b]y October 21, 2003, all licensed children's hospitals [in the State] shall operate a regional perinatal center [RPC]," N.J.A.C. 8:43G-22A.6(c), that is, "a general acute care hospital which is designated and licensed to provide care to high risk mothers and neonates." N.J.A.C. 8:33C-1.2. Those regulations, however, exempted already licensed children's hospitals from the requirement to obtain a certificate of need before establishing either a RPC, a pediatric intensive care unit (PICU) or a neonatal intensive or intermediate care unit (NICU). N.J.A.C. 8:43G-22A.6(e). It is the perceived conflict between that latter and specific exception and the general certificate of need requirements of the Health Care Facilities Planning Act (HCFPA), N.J.S.A. 26:2H-1 to -26, that gives rise to this appeal.

We hold that, given the presumption of validity and reasonableness we accord to administrative regulations, the regulations codified at N.J.A.C. 8:43G-22A.6(c) and (e) are valid. We, therefore, reverse the judgment of the Appellate Division invalidating those regulations.

I.

In 1971, the Legislature adopted HCFPA to implement generally the declared "public policy of the State that hospital and related health care services of the highest quality, of demonstrated need, efficiently provided and properly utilized at a reasonable cost are of vital concern to the public health."

N.J.S.A. 26:2H-1. Stated differently, HCFPA was "adopted in response to a growing concern over the rising cost of hospital care and, consequently, hospitalization insurance, in this state. It is essentially cost-containment legislation focusing on the institutional delivery of health care services." Women's Med. Ctr. v. Finley, 192 N.J. Super. 44, 56 (App. Div. 1983), certif. denied, 96 N.J. 279 (1984). The public policy thus enunciated by the Legislature translated into the general certificate of need requirement of HCFPA: "[n]o health care facility shall be constructed or expanded, and no new health care service shall be instituted after the [1971] effective date of [HCFPA] except upon application for and receipt of a certificate of need as provided by [HCFPA]." N.J.S.A. 26:2H-7. As part of the mechanisms for implementing HCFPA, the Legislature also mandated that the Commissioner, with the approval of the [B]oard, shall adopt and amend rules and regulations in accordance with the "Administrative Procedure Act," [N.J.S.A. 52:14B-1 to -25,] to effectuate the provisions and purposes of this act, including but not limited to: . . . (3) standards and procedures relating to the licensing of health care facilities and the institution of certain additional health care services.

[N.J.S.A. 26:2H-5b.]

The Legislature has revisited HCFPA several times since its original enactment. Of these, the provisions of L. 1992, c. 181, § 1, which added N.J.S.A. 26:2H-18d to HCFPA, are the most relevant. Effective January 9, 1993, N.J.S.A. 26:2H-18d required that, subject to and "contingent upon[] the execution of a written agreement between Robert Wood Johnson University Hospital/St. Peter's Medical Center and a majority of the acute care hospitals providing inpatient pediatric services which are located in the [listed catchment area] counties[,]" the Commissioner was obligated to "designate Robert Wood Johnson University Hospital/St. Peter's Medical Center in the City of New Brunswick as the State's specialty acute care children's hospital in central New Jersey for the counties of Hunterdon, Mercer, Middlesex, Monmouth and Somerset."*fn1 There was no separate legislative finding of need or a requirement for the issuance of a certificate of need for that designation. The Legislature, by its own sanction and vesting no discretion in the Commissioner, decreed that, once the condition precedent of a referring agreement was satisfied, Robert Wood Johnson University Hospital (RWJ Hospital) and St. Peter's University Hospital (St. Peter's) were to be designated by the Commissioner as "the State's specialty acute care children's hospital in central New Jersey." The required referring agreements were executed and the Commissioner, as mandated, designated both RWJ Hospital and St. Peter's as specialty acute care children's hospitals.

In April 2002, as required by N.J.S.A. 26:2H-5b, the Commissioner proposed new regulations governing the licensing standards for children's hospitals "designed to ensure that facilities licensed as children's hospitals provide more comprehensive and specialized pediatric care and meet more stringent requirements than hospitals licensed to operate a general pediatric service." 34 N.J.R. 1305(a) (April 1, 2002). In doing so, the Commissioner engaged in a deliberative and comprehensive process:

To develop these proposed new rules, the Department convened a children's hospital advisory subcommittee, comprised of hospital administrators, clinical experts and other professionals to provide input on pediatric services. This subcommittee included representatives of all currently designated children's hospitals. The proposed new rules establish the necessary guidelines for the Department's Licensure and Inspections, Complaints and Compliance teams to determine facility compliance with the substantive standards applicable to children's hospitals.

[Ibid.]

Both RWJ Hospital and St. Peter's, as "currently designated children's hospitals," were represented individually on this subcommittee.

Among other things, the proposed regulations required that, as part of the continuing designation as a licensed children's hospital, all licensed children's hospitals in this State had to operate a RPC "in accordance with the provisions contained in N.J.A.C. 8:43G-19, and N.J.A.C. 8:33C-3.4(c)3 through 10." Ibid. Although the proposed regulations required that a children's hospital not already licensed to operate either a PICU or a RPC file a licensing application for such a unit or center, the hospital was "not . . . required to obtain a certificate of need approval for the establishment of such units/services." Ibid. The proposed regulations specifie[d] that a children's hospital without a licensed [PICU] may establish such a unit for a maximum of six beds without certificate of need approval, and that a licensed children's hospital without a licensed [NICU] may create an intermediate care nursery with a maximum of four bassinets and an intensive care nursery with a maximum of six bassinets without certificate of need approval.

[Ibid.]

Although the Administrative Procedure Act only requires a presumptive thirty-day notice and comment period prior to the adoption of an agency regulation, N.J.S.A. 52:14B-4(a)(1), the Commissioner specifically provided for a sixty-day comment period on these proposed regulations. 34 N.J.R. 1306 (April 1, 2002).

Ten entities commented; of these, four -- RWJ Hospital, St. Peter's, St. Joseph's Hospital and Medical Center, and Hackensack University Medical Center -- are licensed children's hospitals. Only one of these -- St. Peter's -- objected to the proposed requirement that, in order to retain a meaningful designation as a licensed children's hospital, the licensed children's hospital also must be ...


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