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Cooper University Hospital v. Jacobs

May 31, 2007

COOPER UNIVERSITY HOSPITAL AND OUR LADY OF LOURDES MEDICAL CENTER, APPELLANTS-APPELLANTS,
v.
FRED M. JACOBS, M.D., J.D., COMMISSIONER OF THE DEPARTMENT OF HEALTH AND SENIOR SERVICES, RESPONDENT-RESPONDENT, AND VIRTUA-WEST JERSEY HOSPITAL-MARLTON, INTERVENOR-RESPONDENT, AND DEBORAH HEART AND LUNG CENTER, INTERVENOR-APPELLANT.



On certification to the Superior Court, Appellate Division.

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 issue in this appeal is whether the Commissioner of the Department of Health and Senior Services granted valid certificates of need for a demonstration project to test the safety, quality and cost of elective angioplasty offered at community hospitals that do not also offer cardiac surgery services on site.

In November 2004, the Department of Health and Senior Services (Department) issued a call inviting New Jersey hospitals licensed to perform primary percutaneous transluminal coronary angioplasty (PTCA), but not licensed to perform cardiac surgery, to submit a certificate of need (CN) application to perform elective PTCA. The call stated that six successful applicants would be granted a CN to participate in the Atlantic C-PORT-E Trial, Elective Angioplasty project (Atlantic C-PORT-E) to test the safety, quality and cost of elective angioplasty offered at community hospitals that do not also offer cardiac surgery services on site. The call required applicants to comply with "the Certificate of Need Application and Review Process" outlined in N.J.A.C. 8:33, and specifically to "submit documentation in accordance with N.J.A.C. 8:33-3.11(e)." Virtua-West Jersey Hospital-Marlton (Virtua) submitted an application in response to the call.

On October 31, 2005, the Commissioner of the Department (Commissioner) granted CNs to nine hospitals, including Virtua, to participate in the "planned multi-state demonstration project." Five CNs, including the one issued to Virtua, the only one challenged in litigation, had been among six recommended for approval by the State Health Planning board (SHPB). The other four had not been recommended by the SHPB. One reason given by the Commissioner for granting a CN to Virtua was that Virtua was the only applicant "located within the seven southernmost counties in New Jersey."

Cooper University Hospital (Cooper) and Our Lady of Lourdes Medical Center (Lourdes), joined by Deborah Heart and Lung Center (Deborah), cardiac surgery centers located in Virtua's general service area, filed an appeal in the Appellate Division challenging the call and the Commissioner's grant of a CN to Virtua. Appellants argued that the call was ultra vires principally because it authorized as a "demonstration project" a procedure that is expressly prohibited by other regulations. Appellants also asserted that, even if the call was valid, issuance of the CN to Virtua was arbitrary, capricious and unreasonable.

In an unpublished opinion, the Appellate Division rejected the contentions of appellants. The panel held that the call was for a valid demonstration project and that the Commissioner's grant of a CN to Virtua was not arbitrary, capricious, or unreasonable. The panel recognized that the Department's regulations prohibit the performance of elective PTCA at hospitals without on-site cardiac surgery facilities, but accepted the Commissioner's argument that N.J.A.C. 8:33-.11(e) nevertheless authorizes calls for demonstration projects that do not comply with other regulations. The panel did not discuss the factual merits of Virtua's application or the Commissioner's approval of that application.

The Supreme Court granted certification and accelerated the appeal.

HELD: Although N.J.A.C. 8:33-3.11(e) authorized the call, the regulation, as applied, violates fundamental principles relating to the regulatory process. Under the circumstances, the Court cannot sustain the grant of Certificates of Need for the Atlantic C-PORT-E study. The projects may continue through November 30, 2007. However, a proper regulation must be promulgated -- after appropriate adherence to the principles of rulemaking --before any such "demonstration project" can be continued beyond that date.

1. In 1971, the Legislature enacted the Health Care Facilities Planning Act (HCFPA), N.J.S.A. 26:2H-1 to -26, in accordance with the public policy declared therein "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." To achieve its cost-containment purpose, the HCFPA provides that "[n]o health care facility shall be constructed or expanded, and no new health care service shall be instituted . . . except upon application for and receipt of a certificate of need[.]" N.J.S.A. 26:2H-7. The Legislature has authorized the Commissioner to promulgate rules and regulations to effectuate the provisions of the HCFPA. However, those regulations must be promulgated in accordance with the Administrative Procedures Act (APA) and require "approval of" the Health Care Administration Board (HCAB). The health care regulations adopted by the Commissioner and HCAB expressly limit the performance of elective PTCA to those facilities that have an on-site operating room. The regulations also permit the Commissioner to issue CNs to hospitals wishing to participate in "demonstration projects." The regulations identify two specific types of "demonstration projects" but also contain a broad provision allowing for the granting of CNs for demonstration projects "not specifically identified" in the regulations. N.J.A.C. 8:33-3.11(e). The issues before the Court require focus on N.J.A.C. 8:33-3.11(e). (Pp. 15-22)

2. The Supreme Court has long recognized that courts are obligated to "give substantial deference to the interpretation an agency gives to a statute that the agency is charged with enforcing." However, we have also emphasized that a rule promulgated by the Commissioner and HCAB will be set aside if it is inconsistent with the HCFPA. In this case, no statute precludes demonstration projects or the conduct of elective angioplasty at a hospital that does not perform cardiac surgery. The administrative history of N.J.A.C. 8:33-3.11(e) makes clear that the Commissioner and HCAB contemplated that elective PTCA at a hospital without an on-site surgery facility might be authorized as a demonstration project. The Commissioner and HCAB contemplated that the regulation would permit the Commissioner to issue a call for a demonstration project permitting hospitals without on-site surgery to perform elective angioplasty, notwithstanding other existing regulations. The regulations' authorization of the Commissioner's approval cannot end the inquiry before the Court, however, because adherence to due process has always been integral to the regulatory process. Furthermore, it is well settled that administrative action cannot be arbitrary or capricious or inconsistent with the legislative intent, policy, or delegation of authority. Independent of the "demonstration project," the Commissioner could not approve the conduct of elective angioplasty in a facility without an on-site cardiac surgical center. Rulemaking would be required to permit authorization of the procedure. Yet here, by calling the C-PORT-E study a "demonstration project," the Commissioner has authorized adoption of a medical procedure that has not otherwise been authorized by rulemaking. In so doing, he also decided for himself to authorize more CNs than announced in the call and included hospitals not recommended by the SHPB. Notwithstanding N.J.A.C. 8:33-3.11(e), the issuance of CNs incident to the Atlantic C-PORT-E study is the equivalent of a waiver without adequate standards. The fact that the Commissioner could decide for himself to issue the call for a demonstration project without any established medical criteria, determine how many CNs to issue, and choose the facilities to which they should be issued, emphasizes the need for proper rulemaking. In any event, in this case, the Commissioner has issued a CN based on a "demonstration project" that is inconsistent with the detailed regulations concerning PTCA. Under the circumstances, the Court cannot sustain the grant of CNs for the Atlantic C-PORT-E study. (Pp. 22-29)

3. It would be unjust and inappropriate to summarily terminate the demonstration projects. On the other hand, if the program is to continue, concerns both for the process and for patient well-being require that a specific regulation be promulgated to authorize continuation of the demonstration project and participation in Atlantic C-PORT-E. Accordingly, New Jersey's participation in the Atlantic C-PORT-E study must cease on November 30, 2007, unless N.J.A.C. 8:33-3.11 is amended, consistent with the procedure in the Administrative Procedures Act, to remedy the present inadequacies in the demonstration project authorization. Likewise, the previously issued CNs and licenses must be reissued in conformity with a new or amended regulation. (Pp. 30-32)

The judgment of the Appellate Division is REVERSED, and the matter is REMANDED to the Commissioner of the Department of Health and Senior Services for further proceedings consistent with this opinion.

CHIEF JUSTICE ZAZZALI and JUSTICES LaVECCHIA and ALBIN, and JUDGE CUFF (temporarily assigned) join in JUDGE STERN's opinion. JUSTICES LONG, WALLACE, RIVERA-SOTO, and HOENS did not participate.

The opinion of the court was delivered by: Judge Stern (temporarily assigned)

Argued March 20, 2007

In November 2004, the Department of Health and Senior Services (Department) issued a call inviting health care facilities without a cardiac surgery facility on site to apply for a certificate of need (CN) to conduct elective angioplasty. The Commissioner of the Department (Commissioner) granted CNs to nine New Jersey community hospitals that responded to the call. One of the hospitals was Virtua-West Jersey Hospital-Marlton (Virtua). Three cardiac surgery centers located in Virtua's general service area -- Cooper University Hospital (Cooper), Our Lady of Lourdes Medical Center (Lourdes), and Deborah Heart and Lung Center (Deborah) -- challenged the call and the subsequent grant of a CN to Virtua. In an unpublished opinion, the Appellate Division concluded that the Commissioner was authorized to issue the call for the CN as a "demonstration project" pursuant to N.J.A.C. 8:33-3.11(e), and that the grant of the CN to Virtua was not arbitrary, capricious, or unreasonable.

We granted the cardiac surgery centers' petitions for certification and now conclude that although N.J.A.C. 8:33-3.11(e) authorized the call, the regulation, as applied, violates fundamental principles relating to the regulatory process. We further hold that because Virtua and eight other community hospitals with similar projects, based on CNs issued without challenge, have relied on CNs issued more than a year ago and on subsequent licensure, the projects may continue through November 30, 2007. However, a proper regulation must be promulgated -- after appropriate adherence to the principles of rulemaking -- before any such "demonstration project" can be continued beyond that date.

I.

The call, published in the New Jersey Register,*fn1 invited hospitals licensed to perform primary percutaneous transluminal coronary angioplasty (PTCA), but not licensed to perform cardiac surgery, to submit CN applications to perform elective PTCA.*fn2

The call stated that six successful applicants would be granted a CN to participate in the Atlantic C-PORT Trial, Elective Angioplasty Study (Atlantic C-PORT-E), "a planned multi-state demonstration project to test the safety, quality and cost of elective angioplasty offered at community hospitals that do not also offer cardiac surgery services [(CABG)*fn3 ] on site." Virtua submitted an application in response to the call. On October 31, 2005, the Commissioner granted CNs to nine hospitals. Five CNs, including the one issued to Virtua, had been among six recommended for approval by the State Health Planning Board (SHPB). The other four had not been recommended by the SHPB. However, the only CN challenged in litigation was the one issued to Virtua.

Cooper and Lourdes filed an appeal in the Appellate Division challenging the call and the Commissioner's grant of a CN to Virtua. Deborah, which had challenged the call before CNs had been granted, intervened in the action in support of Cooper and Lourdes' position, and Virtua intervened in support of the Commissioner. Appellants argued that the call under N.J.A.C. 8:33-3.11(e) was ultra vires principally because it authorized as a "demonstration project" a procedure that is expressly prohibited by other regulations. Appellants also asserted that, even if the call was valid, issuance of the CN to Virtua was arbitrary, capricious and unreasonable. The Appellate Division rejected those contentions.

II.

PTCA was first introduced in 1976. During its early use, one in every twenty-five patients, or four percent, on whom the procedure was performed required emergency bypass surgery as a result of complications arising from PTCA. Today, only about one in every five hundred patients, or two-tenths of one percent, requires emergency bypass surgery following PTCA. The decreased risk associated with the procedure has sparked debate within the medical community about the safety of performing PTCA in hospitals without on-site cardiac surgery.

Dr. Thomas Aversano of the Johns Hopkins University School of Medicine devised the Atlantic C-PORT-E study to determine whether it is safe to perform elective PTCA at hospitals where on-site cardiac surgery is unavailable and how it can be done. Dr. Aversano hypothesizes that elective PTCA may be performed at hospitals without on-site cardiac surgery ...


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