On certification to the Superior Court, Appellate Division, whose opinion is reported at 390 N.J. Super. 444 (2007).
(This syllabus is not part of the opinion of the Supreme 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 Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
This appeal involves a challenge to a decision by the Commissioner of the Department of Health and Senior Services (Department) to grant the application of Virtua-West Jersey Hospital Voorhees (Virtua) for a certificate of need (CN), which approved Virtua's request to change the designation of its Voorhees hospital to a "Regional Perinatal Center." The issues are whether the Commissioner gave sufficient notice that providers in the field of maternal and child health care needs could apply for a change in designation; and, if so, whether the agency's record supports the Commissioner's determination to grant Virtua's specific CN application.
In March 2003, the Department published a notice inviting hospitals to submit CN applications for "Maternal and Child Health Consortia change in membership," and for intermediate and intensive bassinets in hospitals in areas in which a need had been identified. The notice did not include a specific reference to a "change in designation." A hospital's membership affiliation refers to the locality of the consortium to which it belongs. A hospital's designation refers to the level and degree of services it may offer.
Virtua, a member of a maternal and child health consortium, submitted a CN application requesting approval to add intensive and intermediate bassinets. Virtua also requested a change in the designation of its Voorhees hospital from a "Community Perinatal Center-Intensive" to a "Regional Perinatal Center" (RPC), which would allow it to provide services to high risk mothers and neonates. The request for a designation change is the subject of this case. At the time, the only RPC serving the southern New Jersey region was the joint RPC held by petitioners, Cooper Health System and Our Lady of Lourdes Medical Center. Virtua sought its own RPC designation because, according to Virtua, many patients in the southern New Jersey area, including Virtua's own increasing number of high-risk obstetrical and neonatal patients, were migrating out of New Jersey to hospitals in neighboring states for care.
Petitioners objected to the Department's processing of Virtua's application because the published call for CN applications did not refer to designation changes. Despite the objection, the Department forwarded Virtua's application to the State Health Planning Board (SHPB) for review. In materials submitted to the Department and to the SHPB, petitioners challenged the adequacy of the notice. They also argued that approval of Virtua's CN application would cause paying patients to choose Virtua's suburban location over petitioners' Camden RPC, forcing petitioners to discontinue services to indigent patients. Petitioners cited the need for an impact evaluation to examine the effect of adding another RPC in the vicinity of Camden's large, indigent-patient population.
At the SHPB hearing, the Department and Virtua expressed the view that a RPC designation would improve patient access and care, decrease out-migration of New Jersey patients, and allow Virtua to service its own growing patient population. The SHPB approved the CN application. In October 2004, the Commissioner issued a final decision approving Virtua's application in its entirety. The Appellate Division affirmed, finding that the Commissioner's decision was not arbitrary, capricious or unreasonable. In re Virtua-West Jersey Hosp. Voorhees, 390 N.J. Super. 444 (App. Div. 2007). The Supreme Court granted certification. 191 N.J. 315 (2007).
HELD: N.J.A.C. 8:33-4.1, with its regularized schedule allowing providers to submit CN applications for maternal and child health needs, provided ample basis for the Commissioner's determination to accept and process Virtua's application, including its request for a designation change. The Court remands the matter to the Commissioner, however, for a full analysis and complete explanation of the effects of a decision to grant this CN, specifically in respect of assessing the impact on competing urban hospitals and their ability to provide free or low-cost care to indigent patients.
1. An appellate court ordinarily should not disturb an administrative agency's determinations. A reviewing court is not bound, however, by an agency's interpretation of its enabling legislation or its determination of a strictly legal issue. A reviewing court should ensure that an agency's administrative actions do not exceed its express or implied statutory authority, while striving to give deference to the agency's interpretation of a statute it is charged with enforcing. (pp. 10-12)
2. Adopted in 1971, the objective of the CN review process under the Health Care Facilities Planning Act was providing residents with high quality health care services at a contained cost. The CN process mandated that health care facilities and services could not be instituted or expanded without the Commissioner's identification of a need and a prior approval through the issuance of a CN. Identification of need was pivotal to maintaining control over competition, proliferation of services, and quality of services. Over time, the CN program came under criticism for being slow and unresponsive to market changes. In 1998, the Certificate of Need Study Commission (CN Commission) was established to examine the continued effectiveness of the CN requirement. Spurred by the CN Commission's recommendations, the Legislature amended the CN statute to exempt certain services from a CN requirement. The CN requirement was retained in certain areas where it was identified asessential to the public interest to guard against the closing of important existing facilities, such as urban hospitals. The CN requirement was retained for hospital maternal and child health care services organized through the maternal and child health consortia. (pp. 12-15)
3. In 2002, the Department promulgated new regulations to implement the continued full-review CN requirement. Under a revised call system, the Commissioner published a generic schedule establishing annual dates for the submission of CN applications for certain commonly needed items. Pursuant to N.J.A.C. 8:33-4.1(a)(2), the Department announced that on an annual basis as of January 2, 2003, it would accept CN applications for maternal and child health needs, which includes requests for a designation change or bassinet increases. Pursuant to N.J.A.C. 8:33-4.1(a)(3), acceptance of applications submitted in accordance with the yearly submission dates does not equate to a departmental finding of need for the services proposed in any such application. When the Department identifies a specific need for a new or enhanced service, the Commissioner retains the ability to announce additional or special calls for CN applications beyond those identified in the yearly notice. The Commissioner also may delete announced calls from the yearly notice. (pp. 15-17)
4. Analysis of the relevant notice provided by the Department starts with the August 2002 regulation establishing the generic January 2 date for submitting CN applications for services encompassed under the designation of maternal and child health needs. In December 2002, the Department published a notice stating that the CN call for "Maternal and Child Health Consortia change in membership and for intermediate and intensive bassinets, originally scheduled to take place on January 2, 2003," was being postponed. That notice informed the public that the Department was postponing applications for a narrow band of beds and services, which would have been subsumed within the general notice permitting submission of CN applications for maternal and child health needs on January 2, 2003. A later notice rescheduling the call to May 1, 2003, provided information about the number of beds for which the Department had identified a need and the regions in which the need had been identified, and deleted one region of the state from the call notice. (pp. 17-19)
5. The general schedule of submission dates for CN applications remains valid and outstanding unless it is deleted or specifically limited by the Commissioner. The Commissioner is not bound to any pre-determined identification of need for the services and, therefore, the applicant must convince the Commissionerthat there is a need for the requested approval. On the other hand, when the Commissioner issues a specific call for CN applications, she must identify in advance the particular need for which applications are sought. (pp. 19-21)
6. Here, operation of N.J.A.C. 8:33-4.1, with its regularized schedule allowing providers to submit CN applications for maternal and child health needs, provided ample basis for the Commissioner's decision to process Virtua's application, including its request for a designation change. The acceptance of the application was an appropriate regulatory response to the interaction between the general-notice regulations inviting CN submissions on January 2, 2003, and the Department's later, specific call notices for particular services. The notices identifying specific needs in certain bassinet categories and calling for alterations in consortium membership did not rescind the general notice for CN applications. (pp. 21-25)
7. In granting Virtua's CN application for added bassinets and RPC status, the Commissioner's analysis did not include the required examination of whether the approval of this CN will have a substantial negative effect on nearby urban hospitals. The Commissioner's comment on this important issue was, essentially, nothing more than an acceptance of Virtua's proffer that its beds will be filled by currently out-migrating patients, rather than from petitioners' patient population. Virtua's representations were not subject to any apparent independent evaluation by the Commissioner, who simply did not discuss whether the addition of another perinatal center would diminish the number of paying patients willing to travel to Camden's hospitals. That left unanswered the question of whether the Camden hospitals' ability to provide free or low-cost care to a large, indigent population was at risk. The Commissioner's failure to analyze those questions in any meaningful way is a critical failing in a proceeding that has, as one of its pillars, avoidance of negative impacts on the delivery of health care services in the region. To fulfill the statutory and salutary purposes of the CN system, the case must be remanded to the Commissioner for a full analysis and a complete explanation of her decision. (pp. 25-32)
The judgment of the Appellate Division is AFFIRMED IN PART, and the matter is REMANDED to the Commissioner for further proceedings consistent with the Court's opinion.
CHIEF JUSTICE RABNER and JUSTICES LONG, ALBIN and HOENS join in JUSTICE LaVECCHIA's opinion. JUSTICES WALLACE and RIVERA-SOTO did not participate.
The opinion of the court was delivered by: Justice LaVECCHIA
Since 1971, New Jersey has employed a regulated process, known as certificate-of-need (CN) review, to supervise changes in the state-wide delivery of health care. See Health Care Facilities Planning Act (HCFPA), N.J.S.A. 26:2H-1 to -26 (establishing CN system of review under supervision of Commissioner of Health). For more than two decades the CN process facilitated top-down regulatory control over the health care delivery system through the requirements of State identification of health care needs and prior approval for additions or changes to the allocation of health care services among providers. See N.J.S.A. 26:2H-7 (controlling proliferation of services declared to be essential for purposes of cost containment and quality maintenance). The CN regulatory system was changed substantially in the late 1990s, however, after a legislatively authorized study scrutinized the continued efficacy of a CN requirement. The CN statute was amended in a number of ways and regulatory changes followed suit. Some health care services became altogether exempt from the requirement of prior approval through a state-issued CN. Other streamlining changes in process were enacted.
Importantly, for purposes of the case before us, the Legislature retained the requirement of full regulatory review and issuance of a CN for many types of health care services. To facilitate the revised CN process, the Department of Health and Human Services (Department) promulgated a regulation, establishing a new, regularized schedule for the submission of full-review CN applications by providers. See N.J.A.C. 8:33-4.1. The regulation identifies certain health care categories that are subject to a new CN submission schedule that, generally, calls for CN applications to be submitted on the dates specified for each category of service or type of equipment.*fn1 Ibid. At the same time, however, the regulation frees the Commissioner from any implied finding of need for a service based solely from processing a CN request submitted pursuant to this general invitation for CN applications. Ibid. The regulation also does not disturb the Commissioner's discretionary authority to issue special calls for CN applications for discrete health care services when the Commissioner finds a particular need for a service. Ibid.
This appeal involves a challenge to a CN that the Commissioner granted to a hospital following the Department's first experience under this new notice system involving annual submission dates and special calls for CN applications, as it applies to maternal and child care health needs. In re Virtua-West Jersey Hosp. Voorhees, 390 N.J. Super. 444, 455 (App. Div. 2007) (affirming Commissioner's CN grant). The primary issue in this matter is whether the Commissioner provided sufficient notice to the regulated public that providers in the field of maternal and child health care needs could apply for a particular change in status. If sufficient notice was provided, we must further determine whether the agency's record supports the Commissioner's determination to grant the hospital's specific CN application.
For the reasons that follow, we hold that the Department provided sufficient notice. Therefore, the Commissioner's determination to process this CN application is affirmed. However, because we cannot conclude that the Commissioner has performed a complete analysis of the effects of a grant of this CN --- specifically in respect of assessing the effect that granting this CN will have on nearby, competing urban-hospital providers -- we are compelled to remand this matter to the Commissioner for a more complete examination and explanation for her decision.
In the March 3, 2003, edition of the New Jersey Register, the Department published a notice inviting hospitals to submit "[CN] applications on a full review basis for Maternal and Child Health Consortia change in membership, and for intermediate and intensive bassinets in licensed general hospitals in those . . . regions in which a need has been identified based on the most recent utilization projects." 35 N.J.R. 1311(b) (Mar. 3, 2003).
Virtua-West Jersey Hospital Voorhees (Virtua), a system of community hospitals located in Voorhees Township, Camden County, submitted a CN application on behalf of its Voorhees hospital. Within the State's system of Maternal and Child Health Consortia, Virtua is a member of the Southern New Jersey Perinatal Cooperative (SNJPC). The SNJPC is a non-profit organization that serves as the maternal and child health consortium responsible for monitoring Virtua's, and other consortium members', perinatal and pediatric needs and services.
Virtua's CN application requested approval to add four intensive bassinets and eight intermediate bassinets to its already approved complement of bassinets. In addition to that request, Virtua applied for a designation change for its Voorhees hospital in respect of maternal and child health services. That request is the focus of this appeal. Specifically, Virtua asked for a change in classification from that of a "Community Perinatal Center-Intensive" to a "Regional Perinatal Center" (RPC). A RPC is a licensed general acute care hospital servicing "high risk mothers and neonates" and providing "consultation, referral, transport, and follow-up" to other hospitals in a certain geographic region. See N.J.A.C. 8:33C-1.2 (defining "RPC").
Because the Department's March 3, 2003, published call notice did not include an explicit reference to a "change in designation," two competitors who already held RPC status, Cooper Health System and Our Lady of Lourdes Medical Center (petitioners), objected to the Department's processing of Virtua's application. Despite the objection, once Department staff determined that Virtua's application was complete for processing purposes, see N.J.A.C. 8:33-4.5, the application was forwarded to the State Health Planning Board (SHPB) for review. See N.J.S.A. 26:2H-5.8; see also N.J.A.C. 8:33-4.1(a), -4.13.
At the time, the only RPC serving the southern New Jersey region was the joint RPC designation shared by petitioners. According to Virtua, it sought its own RPC designation for its Voorhees hospital because the proximity of the two Camden-based RPCs to Philadelphia has led to competition from the Philadelphia university hospitals for high risk obstetrical and neonatal patients who require transport to an [sic] RPC. Many patients and referring doctors will bypass a Camden facility to continue directly over the bridge to [Philadelphia for care].
The "many patients" migrating out of New Jersey to hospitals in neighboring states included Virtua's own increasing number of high-risk obstetrical and neonatal patients, as ...