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Home Care Association of New Jersey v. New Jersey Dep't of Health and Senior Services


May 7, 2008


On appeal from a Final Agency Decision of the Commissioner, New Jersey Department of Health and Senior Services, CN # ER 051202-13-06; 051203-12-06.

Per curiam.


Argued March 10, 2008

Before Judges S. L. Reisner, Gilroy and Baxter.

Appellant Home Care Association of New Jersey (Home Care)*fn1 appeals from the March 7, 2006, decisions of the New Jersey Department of Health and Senior Services (Department), which granted two applications for certificates of need (CN) submitted by intervenor Erickson Retirement Communities, LLC (Erickson),*fn2 as amended by the Department's supplemental decision of August 25, 2006. We affirm.

The combined statement of facts and procedural history is as follows. On July 12, 2005, Erickson received approval from the Federal Centers for Medicare & Medicaid Services (CMS) to participate in the Federal Medicare Advantage Continuing Care Retirement Community Demonstration project through December 31, 2008. Under that program, Erickson was charged with developing a new healthcare access program known as "Evercare" for enrollment by senior residents of the Erickson communities in various states, including New Jersey. Under the terms and conditions of the approval, Erickson was obligated to offer its Medicare Advantage Plan (Plan) to its residents at the same time and on the same basis as any other Medicare Advantage Plan.

Under the Plan, Evercare would be paid a capitated rate for each enrollee and would accept the risk for the full cost of healthcare, including hospitalization. Erickson described the Plan as:

[T]he program emphasizes preventive care to avoid or minimize hospital stays and assures the delivery of healthcare in the most appropriate setting. The program will rely heavily on the use of home health, tailoring a specific package of services for residents in independent living. The ability to manage total healthcare costs under a fixed capitated rate is largely dependent on the ability to manage appropriate hospitalizations and to provide care in the most appropriate setting.

On December 1, 2005, Marilyn Roach, Erickson's Director of Regulatory Affairs, submitted two applications, seeking authority to establish new home health agencies (HHA)*fn3 at Seabrook and at Cedar Crest. Both applications were submitted to the Department under the expedited review process, pursuant to N.J.A.C. 8:33-5.1(b)2, on the premise that the HHAs would have a "minimal impact on the healthcare system as a whole due to its unique status as a Medicare Advantage pilot demonstration." Erickson estimated that fifteen to twenty residents per month at each facility would use the proposed HHA services.

Erickson also stated in the applications that: (1) its "residents are more likely to use home health services if it is managed by their own community and if the HHA is on-site"; (2) approximately 90% of its residents participate in Erickson Health, an integrated health management system, and those residents "are dramatically less likely to use nursing home and acute care services"; (3) "in states where Erickson Health directly manages home health services for residents, the program is among the top performers in the country in keeping residents out of the hospital"; and (4) because the CN requests were limited to serving Seabrook and Cedar Crest residents exclusively, "we anticipate an insignificant impact on the state and local home health industry."

On January 20, 2006, the Department acknowledged receipt of the applications and requested additional information pertaining to Erickson's ability to operate the HHAs. On January 31, 2006, Erickson transmitted its responses to the Department, explaining that it: (1) had experience complying with state and federal requirements for operating HHAs and would develop policies specific to New Jersey licensing requirements; (2) had minimal start-up expenses, reduced overhead, seamless continuum of care, and corporate support; and (3) expected to treat a maximum of 192 patients per year.

On March 7, 2006, Commissioner Jacobs approved Erickson's two applications. In his two decision letters, the Commissioner noted that the Department had "accepted Erickson's application under the expedited review process . . . based on documentation that the proposed project will have minimal impact on the healthcare system as a whole in New Jersey since it will provide home health services only to Erickson residents enrolled in the [Evercare] program." The Commissioner further stated that the proposed HHAs would use existing space at the Erickson locations, enabling Erickson to better assist its residents, thus, avoiding placement of its residents in assisted living or nursing home settings. Although the Commissioner expressed concern about the projected low volume of patients that could affect the financial viability of the project, he accepted Erickson's assurances that it was able to operate the HHAs as proposed in the applications. The approval of each application was subject to the following three conditions:

1. Erickson's Home Health Agency services shall be limited to persons residing in the Erickson Retirement Community . . . who are also enrolled in Evercare Medicare Advantage [p]rogram.

2. Should the CMS terminate this demonstration project prior to the scheduled close in 2008, Erickson shall notify the Department and will arrange an orderly and timely closure of its HHA.

3. At the conclusion of the CMS demonstration project Erickson shall notify the Department as to whether CMS is requiring termination of the Evercare Medicare Advantage program. The Department will determine at that time whether the HHA may continue operations.

On March 31, 2006, Roach wrote to the Department, contesting the first condition that restricted the proposed HHA services to residents enrolled in Evercare. Roach asserted that the restriction "creates problems for actual implementation that are insurmountable." Specifically, Erickson contended that the restriction would have caused Erickson to violate New Jersey regulations requiring that residents receive treatment without discrimination based on the source of payment. Erickson further noted that in response to questions from the Department, it had proposed that the HHA services be limited to Erickson residents who were eligible for Medicare, not solely to residents that participated in Evercare.

On August 25, 2006, Commissioner Jacobs agreed to remove the condition from Erickson's CNs:

I have reviewed the basis for your concern with the conditions of these CN approvals and after careful consultation with Department staff, we concur with your contention that the first condition of approval would inhibit the financial feasibility of Erickson's operation of these home health agencies. Therefore, I am rescinding the afore-stated first condition of approval . . . . Subsequently, once licensed, Erickson shall be able to admit any of its residents from Seabrook Village, Inc., and Cedar Crest Village, Inc., to its home health agencies service despite their non-enrollment in Evercare Medicare Advantage Program. The two other conditions remain in effect.

On January 19, 2007, Home Care filed this appeal, challenging the Department's approval of the CNs and its removal of the first condition. On August 8, 2007, the court granted Erickson's motion for leave to intervene.

On appeal, Home Care argues:





As a threshold matter, before we address Home Care's arguments, we consider Erickson's contention that Home Care does not have standing to challenge the Department's approval of the CNs. Erickson contends that Home Care is not an interested party, and that Home Care's brief failed to identify any particular member of the Association that was impacted by the Department's decisions. Erickson asserts that because Home Care as a whole is not affected by these decisions, it does not have a sufficient stake in the subject matter of the litigation to seek judicial review. The Department raised the same contentions.

To have standing to raise an issue, "a party must have 'a sufficient stake and real adverseness with respect to the subject matter of the litigation.'" Triffin v. Somerset Valley Bank, 343 N.J. Super. 73, 81 (App. Div. 2001) (quoting In re Adoption of Baby T., 160 N.J. 332, 340 (1999)). "Standing has been broadly construed in New Jersey as 'our courts have considered the threshold for standing to be fairly low.'" Ibid. (quoting Reaves v. Egg Harbor Twp., 277 N.J. Super. 360, 366 (Ch. Div. 1994)). Although, "a litigant may not [ordinarily] claim standing to assert the rights of a third party," Jersey Shore Med. Ctr. v. Estate of Baum, 84 N.J. 137, 144 (1980), "standing to assert the rights of third parties is appropriate if the litigant can show sufficient personal stake and adverseness so that the [c]court is not asked to render an advisory opinion." Ibid.

We agree that Home Care was not a party to the proceedings before the Department, and that its brief did not identify any particular member of the Association that was impacted by the Department's decisions. Nevertheless, we conclude that Home Care has standing to appeal the Department's determinations approving the two CNs. During the pendency of this appeal, Home Care filed a motion seeking leave to supplement the record, which motion was supported in part by a certification of Mary Ann Christopher, the Chief Executive Officer of the Visiting Nurse Association of Central Jersey (VNACJ), a New Jersey home health agency, and a member of Home Care. Among other matters, Christopher certified that VNACJ provides home healthcare services to "populations which include those that reside in . . . Seabrook. As such, VNACJ and the Health Care system will be adversely impacted by the establishment of a new home health agency at Seabrook, even if it was only limited to Seabrook residents enrolled in the Evercare . . . program." Christopher further stated that "VNACJ and the Health Care system would be even more greatly adversely affected by the Department's August extension of this expedited certificate of needs to include the entire Seabrook population and not just those enrolled in the Evercare . . . [p]rogram."

Although appellant's motion to supplement the record was denied by order of April 16, 2007, we advised counsel at oral argument that we would take the motion record into account for the limited purpose of addressing the standing issue. Considered in the light of our liberal approach on that issue, we are satisfied that Home Care has standing to prosecute the appeal. VNACJ may be adversely impacted by the establishment of a new HHA at Seabrook, even if limited to Seabrook residents enrolled in the Evercare program. Accordingly, we now address Home Care's arguments.

At oral argument, Home Care's counsel advised that the Association was not challenging the merits of the Department's determinations, only the Department's procedure in approving the two applications. Home Care argues that the Department failed to articulate a reasonable basis for considering the two applications under the expedited review process and made no independent investigation into whether Erickson's proposed HHAs would have an adverse impact on existing HHAs. Home Care contends that "[w]hile the Commissioner offered a conclusionary statement that the project would have a minimal impact on the healthcare system in New Jersey, his use of the 'catch-all' category was left unexplained, despite the fact that an exception to the general full review process was used." Home Care asserts that "[i]n the absence of any stated justification for the use of the expedited review process, the Department's unsupported actions [in approving the applications] can only be categorized as arbitrary and capricious, warranting reversal."

Appellate courts have a limited role in reviewing decisions of administrative agencies. In re Taylor, 158 N.J. 644, 656 (1999). Our review of a final agency decision and of an appeal in a non-jury case is the same, that is, "'whether the findings made could reasonably have been reached on sufficient credible evidence present in the record,' considering 'the proofs as a whole,' with due regard to the opportunity of the one who heard the witnesses to judge of their credibility." Close v. Kordulak Bros., 44 N.J. 589, 599 (1965) (quoting State v. Johnson, 42 N.J. 146, 162 (1964)).

As recently described by the Supreme Court in In re Application of Virtua-West Jersey Hosp. Voorhees for a Certificate of Need, ____ N.J. _____, ______ (2008) (slip op. at 10-11), "an appellate court ordinarily should not disturb an administrative agency's determinations or findings unless there is a clear showing that (1) the agency did not follow the law; (2) the decision was arbitrary, capricious, or unreasonable; or (3) the decision was not supported by substantial evidence." Accordingly, we will reverse an agency decision that is arbitrary, capricious, or unreasonable, or that is not supported by credible evidence in the record. In re N.J. Pinelands Comm'n Resolution PC4-00-89, 356 N.J. Super. 363, 372 (App. Div.), certif. denied, 176 N.J. 281 (2003).

Courts "may not vacate an agency determination because of doubts as to its wisdom or because the record may support more than one result." Ibid. Stated another way, "we are obliged to give due deference to the view of those charged with the responsibility of implementing legislative programs." Ibid. It is equally well settled that an appellate court is not bound by the agency's interpretation of a statute or legal issue. In re Taylor, supra, 158 N.J. at 658.

We have considered each of Home Care's arguments in light of the record and applicable law. We are satisfied that the arguments are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). Nevertheless, we add the following comments.

Pursuant to the regulations adopted under the Health Care Facilities Planning Act, N.J.S.A. 26:2H-1 to -26, an HHA shall not be instituted or licensed to operate "except upon application for and receipt of a Certificate of Need issued by the Commissioner." N.J.A.C. 8:42-2.1. The application and review process for obtainment of a CN is governed by N.J.A.C. 8:33-1.1 to -6.2. Under the regulations, there are two types of review of applications for CNs: full review and expedited review. N.J.A.C. 8:33-2.1. The full review process requires review of the application by the State Health Planning Board, in addition to the Department, N.J.A.C. 8:33-4.1(a); whereas, the expedited review process only involves review of an application by the Department; it does not include a review by the State Health Planning Board. N.J.A.C. 8:33-4.1(b). Under either method of review, the party applying for the CN must satisfy certain statutory criteria:

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. [N.J.S.A. 26:2H-8.]

In making a determination as to whether to approve a CN, the Commissioner shall take 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. [Ibid.]

See also, N.J.A.C. 8:33-4.16(b).

The expedited review process may be used to review applications for a CN which meet certain criteria. N.J.A.C. 8:33-1.3. In addition to using the expedited review process for the twelve types of applications specified in N.J.A.C. 8:33-5.1, "[t]he expedited review process may also be used in lieu of the full review process, or in the following limited situations: 1. Emergency situations which demand rapid action; or 2. When the project has minimal impact on the healthcare system as a whole." N.J.A.C. 8:33-5.1(b). The determination of whether an application for CN may be considered under the expedited review process rests solely with the Department. N.J.A.C. 8:33-5.2(b).

Home Care contends that the Department erred in considering Erickson's two applications for CNs under the expedited review process, asserting that the Commissioner failed to undertake an investigation into whether the proposed HHAs would have an adverse impact on any existing HHAs. Although we agree that the Commissioner could have expressed his findings in a more definitive manner "so that the parties and any reviewing tribunal will know the basis on which the final decision was reached," Riverside Gen. Hosp. v. N.J. Hosp. Rate Setting Comm'n, 98 N.J. 458, 468 (1985), we are satisfied from our review of the record that his decision to approve the two applications under the expedited review process can be discerned from, and is adequately supported by, credible evidence in the record.

The Department considered the applications pursuant to the expedited review process standard contained in N.J.A.C. 8:33-5.1(b)(2): "[w]hen the project has minimal impact on the health system as a whole." Pursuant to that standard, the question is not whether the proposed services will have an impact on a particular provider, but rather will it have more than a minimal impact on the State's healthcare system as a whole. Erickson only sought to provide services to the residents of Seabrook and Cedar Crest, not to individuals residing outside of the two CCRCs. The estimate of the CCRCs' residents who would elect to use the services based on Erickson's experience in managing communities throughout the country was low, that is, a maximum of 192 patients per year at the end of the third year of the program. Moreover, the program was approved only for a three-year term, ending on December 31, 2008. Lastly, the CNs did not vest Erickson with the exclusive right to act as the sole HHA within the two CCRCs. Any existing HHA could continue to provide similar services to the residents of Seabrook and Cedar Crest. Accordingly, we are satisfied that the Department's determination to consider the two applications under the expedited review process pursuant to N.J.A.C. 8:33-5.1(b)(2) was correct.

Home Care contends that the use of the expedited review process "failed to afford the public and existing home health providers with an opportunity to be heard and voice their concerns relating to the CN application[s] at hand." This argument has no legal basis in fact. The Department was not obligated to provide notice and an opportunity to be heard to existing home health providers or to the public at large. Nothing contained in the regulations, governing the expedited review process, requires such notice or the right of a competitor to be heard at the administrative level. See In re Request for Solid Waste Util. Customer Lists, 106 N.J. 508, 520 (1987) (an administrative agency is not required to hold an evidentiary hearing before it conducts business it was created to perform); Elizabeth Fed. Sav. & Loan Ass'n v. Howell, 24 N.J. 488, 505 (1957) (a competitor may attack an administrative action; however, the competitor is not entitled to notice of hearing or a broader review than is required by statute). Moreover, weighing heavily against Home Care's argument is the practical matter that if in reviewing an application submitted under the expedited review process the Department was required to adhere to the provisions of the full review process, it would gravely diminish the purposes of an expedited review.


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