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In re 2006 Screening Center Designation for Warren County


May 23, 2008


On appeal from New Jersey Department of Human Services, Division of Mental Health Services.

Per curiam.


Submitted May 5, 2008

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

In these consolidated appeals, appellant Warren Hospital (Hospital) appeals from the final action of the New Jersey Department of Human Services, Division of Mental Health Services (Division), which on July 11, 2006, redesignated the Family Guidance Center of Warren County (FGC) as the screening center for emergency psychiatric services for Warren County for the July 2006 to July 2008 time period. In doing so, the Division rejected the Hospital's application and so notified the Hospital on July 19, 2006. The Hospital seeks a reversal and remand to the Division with instructions that it be designated as the screening center for Warren County.

We have been advised by the Division that on March 17, 2008, during the pendency of these appeals, it published a Notice of Request for Proposal (RFP) announcing that the agency is soliciting applications for an emergency psychiatric screening service for Warren County. See 40 N.J.R. 1710(b). Although the RFP does not specify the duration of the contract that the Division intends to award, the notice specifies that the successful applicant will be so notified no later than June 13, 2008, and the successful applicant is expected to begin providing services on July 1, 2008, with the services to be "fully operational" by September 1, 2008. Ibid. In light of the June 13, 2008 selection date, we consider the present appeals to be, for all practical purposes, moot. Nonetheless, we recognize that the issues presented on appeal are likely to recur, but tend to evade review because of the relatively short duration of the bid awards. Courts may decide cases that are technically moot when the issue is "of considerable public importance, capable of repetition, yet evading review." N.J. Div. of Youth & Family Servs. v. J.B., 120 N.J. 112, 118-19 (1990). Accordingly, in light of the important public issue involved, namely the provision of screening services for involuntary psychiatric commitment, we exercise our discretion to consider the principal issues raised by this appeal.

The FGC began operating as the screening service for Warren County in 1988. A screening service is a facility in a specified geographic area where a person believed to be in need of involuntary psychiatric commitment undergoes an assessment to determine whether he or she is a danger to self or others, thereby satisfying the statutory standard for involuntary psychiatric hospitalization. See N.J.S.A. 30:4-27.2(z); N.J.S.A. 30:4-27.5(a). Until 2001, the FGC operated out of offices in Phillipsburg. From 2001 through 2004, the FGC was physically located in Warren Hospital's emergency room, pursuant to an affiliation agreement. On June 1, 2004, the FGC was redesignated as the screening center for Warren County for a two-year period, which included a one-year waiver from the regulatory requirement, N.J.A.C. 10:31-2.1(a)(6), that a screening center have holding beds with twenty-four hour capability.

In 2004, the relationship between the hospital and the FGC deteriorated to the point that the two were unable to negotiate a continuation of the affiliation agreement. A principal point of contention was the Hospital's belief that the FGC was not performing its screening center functions properly. The FGC in turn claimed the dispute was due to "significant differences in the . . . interpretation of the New Jersey Rules and Regulations." The FGC vacated the hospital in 2005, moving its operations back to the office building, which was located a few blocks from the hospital.

On June 2, 2005, the Warren County Mental Health Board (County Board) approved two waivers sought by the FGC: the requirement of an extended crisis evaluation bed and the requirement that the center be physically located in a hospital. On August 3, 2005, the Division approved the County Board's waivers, effective until June 30, 2006. The Hospital appealed the grant of the location waiver. We reversed the grant of that waiver and remanded for reconsideration. Warren Hosp. v. N.J. Dep't of Human Servs., No. A-209-05 (App. Div. March 6, 2007). On remand, the agency issued a detailed, twelve-page decision explaining its reasons for granting the location waiver.

Because of shortages of medical personnel, the FGC requested on September 12, 2005, that the Division grant a third waiver, this time from the face-to-face assessment requirement in order to permit "telepsychiatry" to be conducted by a health company located in Marlton using a remote video hook-up. On November 16, 2005, the Division approved the waiver, effective until June 30, 2006. On appeal, the Hospital succeeded in its challenge of that waiver.*fn1

On November 29, 2005, the Hospital by letter notified the County Board that it intended to seek designation as the screening center for Warren County beginning in July 2006. In its letter, the Hospital requested the County Board's "guidance on the procedure that Warren should follow when submitting this proposal to the Board." On January 4, 2006, the County Board responded, in part:

The county Mental Health Board is asked by DMHS to comment on the Family Guidance Center's screening program every two years, as DMHS is considering redesignation . . . . The Mental Health Board welcomes participation from local providers and consumers. Warren Hospital is welcome to provide information to the Mental Health Board and participate in meetings regarding the provision of services and program development throughout the year.

The Hospital responded on February 10, 2006, informing the County Board that: your correspondence did not provide any information on the procedure that Warren should follow when submitting its proposal to the Board. Nor is the procedure available through other means. Among other things, we are seeking specific details on applicable deadlines for the submission of the proposal, the format for the proposal, and information that must be included in the proposal.

The County Board responded on February 16, 2006, by advising the Hospital to contact the Division for answers to these questions.

On April 4, 2006, the FGC requested redesignation as the designated screening center for Warren County for the 2006-2008 time period. As part of that request, the FGC requested waivers from the following requirements: twenty-four hour crisis evaluation, location of the screening center in a hospital setting, and face-to-face psychiatric evaluation.

On April 26, 2006, the Hospital formally submitted its proposal to the Division for designation as the screening center for Warren County, effective July 1, 2006. The Hospital pointed out that its application fully complied with all regulatory requirements and no waivers were required. On April 28, 2006, the County Board requested assistance from the Division on how to proceed in the face of the two applications. Specifically, the Board sought answers to the following questions:

While the MHB stands ready to work with DMHS to determine the best possible screening service for Warren County, the process for reviewing an unsolicited proposal is unclear. Is it permissible to give consideration to the Warren Hospital proposal without a competitive process which invites all potential providers to apply? . . . . Can DMHS potentially move funding from one provider to another without a competitive process? The MHB is reluctant to review and comment on a proposal without guidance from the DMHS on the potential outcome of such a review.

The Division responded to the County Board's inquiries on May 9, 2006:

The submission of a proposal from Warren Hospital and the procedural issues raised from the submission are being carefully considered here. While that review is underway, we believe that the best guidance in this matter is for the Board to carefully follow the requirements of the Screening Outreach Program regulations, particularly N.J.S.A. 10:31-6(a)(3) . . . . It is our view that the County Mental Health Board should consider all applications before it, despite the fact that no competitive program solicitation for sponsorship of Screening services in Warren County has been made.

The results of your considerations should be transmitted to us as a designation recommendation.

The County Board discussed the proposals at its May 9, 2006 meeting, and heard presentations from both the FGC and the Hospital. A month later, on June 7, 2006, the County Board notified the Division that it recommended that the FGC's redesignation request be approved for an interim six-month period to create the opportunity for a formal competitive bid process. Nonetheless, the County Board told the Division: "The information presented to the MHB . . . is in two completely different formats, which makes a fair comparison impossible. The fact that the MHB was asked to review two requests without the benefit of a formal competitive process is problematic and . . . [may be] in violation of the public bidding law."

On July 11, 2006, the Assistant Commissioner of the Department of Human Services notified the FGC by letter that it was being redesignated as the screening center for Warren County as of July 1, 2006. The Division also granted the three waivers sought by FGC. On July 19, 2006, the Division notified the Hospital that its application had been rejected because the FGC had been redesignated as the screening center for Warren County. Although that notification did not specify the duration of the redesignation, N.J.A.C. 10:31-6.1(d) specifies that such designations encompass a two-year period.

The Hospital filed a timely notice of appeal from the agency actions of both July 11 and July 19, 2006. We consolidated the two appeals.

On appeal, the Hospital argues that the Division's decisions granting the FGC's redesignation application and denying the Hospital's designation application, were arbitrary, capricious and unreasonable. The Hospital further claims that the Division offered no basis for its decisions, failed to give correct regulatory guidance to the County Board, erroneously disregarded the Board's recommendation, and awarded a contract to the FGC that was dependent on the issuance of three improperly granted waivers. The Hospital argues that the Division acted arbitrarily and capriciously in its consideration, or lack of consideration, of the Hospital's application.

The Division in turn argues that the redesignation of the FGC should be upheld because: (1) the FGC met all applicable regulatory criteria; and (2) the Division was not required to consider the Hospital's application, which was unsolicited, because the screening center regulatory process does not envision or require a competitive bidding process. In addition, the Division asserts that the granted waivers were not fatal to the FGC's application because waivers in the screening center regulatory process are not uncommon.


We review the Hospital's arguments in accordance with our scope of review, which requires us to affirm the agency's decision unless it was arbitrary, capricious or unreasonable, Burris v. Police Dep't, Twp. of W. Orange, 338 N.J. Super. 493, 496 (App. Div. 2001), or violative of express or implied legislative policies. Wnuck v. N.J. Div. of Motor Vehicles, 337 N.J. Super. 52, 56 (App. Div. 2001). So long as there is substantial credible evidence to support the agency's findings, and the agency reached a conclusion that is supported by the relevant facts and consistent with legislative policy, we will affirm the agency's decision. Ibid. A reviewing court will not substitute its judgment for that of the agency and accords a presumption of reasonableness to the agency's action, which is the appellant's burden to overcome. Burris, supra, 338 N.J. Super. at 496.

However, in order to review the agency's decisions, we must know the reasons for those determinations. In neither the July 11 nor July 19, 2006 letters did the Division set forth its reasons for granting the FGC's request for redesignation or for denying the Hospital's request for designation. "[I]t is incumbent on the agency to explain its decision in sufficient detail to assure [the reviewing court] that the agency actually considered the evidence and addressed all of the issues before it." Green v. State Health Benefits Comm'n, 373 N.J. Super. 408, 414-15 (App. Div. 2004). "Failure to address critical issues, or to analyze the evidence in light of those issues, renders the agency's decision arbitrary and capricious and is grounds for reversal." Id. at 415.

In this instance, the Division's July 11 and July 19 letters summarily set forth its decision without detail as to the facts, analysis of the applicable regulatory law, or conclusions drawn from a comparison of the facts to the law. By contrast, in its decision on remand of the location waiver, the Division issued a twelve-page, highly-detailed decision discussing all of these matters. The agency's failure to explain its current decision in light of the applicable regulatory framework renders its decision arbitrary and capricious. See ibid.


We turn now to the Hospital's remaining arguments. A brief overview of the applicable civil commitment law is in order. In 1987, the Legislature revised the civil commitment laws in order to "enable State and county facilities to provide the rehabilitative care needed by some mentally ill persons following their receipt of acute care." N.J.S.A. 30:4-27.1(d).

To effectuate that policy, screening services were established. Ibid.*fn2 The Commissioner of the Department of Human Services, in consultation with the appropriate county mental health board, "shall designate one or more mental health agencies or facilities in each county or multi-county region in the State as a screening service." N.J.S.A. 30:4-27.4.

Pursuant to statutory authority, N.J.S.A. 30:4-27.5, the Commissioner promulgated regulations establishing the "Screening and Screening Outreach Program" (Program), N.J.A.C. 10:31-1.1 to -9.1. The Program is designed to provide on-and off-site screening and crisis stabilization services, twenty-four hours per day, 365 days a year. N.J.A.C. 10:31-1.1(a). The Division is mandated to designate the screening centers. N.J.A.C. 10:31-1.1(b). N.J.A.C. 10:31-6.1 directs the Division to consider the following factors when making the designation of a screening center:

(a) A designated screening center shall be named in each geographic area. Although a geographic area will usually consist of a county, depending on geographic size, population, demographics or other factors, the Division may designate a portion of a county or a multi-county area as a geographic area. The following procedure shall be used for designation of the screening centers:

1. The county mental health board shall make a recommendation to the Division regarding the boundaries of the geographic area to be covered by the screening center;

2. The Division shall designate the geographic area after consideration of this recommendation; and

3. The county mental health board shall recommend an agency to be designated as the screening center, based on, but not limited to, the following factors:

i. Demonstrated history of providing quality services;

ii. Knowledge of, and willingness to provide services to, target populations;

iii. Ability to provide mental health services in a cost effective manner; and

iv. The documented ability to comply with this chapter.

(b) In order to assure the availability and provision of necessary medical services, a designated screening center shall be physically located in a hospital, and shall be either directly operated by or formally affiliated by written agreement with said hospital.

(c) The Division shall designate a screening center after reviewing the mental health board's recommendation and evaluating the proposed agency or hospital's ability to comply with this chapter. Continued designation is contingent upon the center's ability to perform mandated functions.

(d) Re-designation shall be required after the first year of operation and every two years after thereafter.

Once designated, a screening center has a sanctioned monopoly on the provision of screening and screening outreach services in the geographic region for which it is designated for the duration of the contract term. N.J.A.C. 10:31-2.1(f)(1); N.J.A.C. 10:31-6.1(e). Any continued designation thereafter is contingent upon the screening center's ability to perform its mandated functions. N.J.A.C. 10:31-6.1(c).

The Hospital asserts that the County Board failed to follow the Division's instructions concerning the handling of the Hospital's application, and that the County Board failed to make a recommendation to the Division, as required by N.J.A.C. 10:31-6.1(a)(1). What is clear is that neither the County Board nor the Division appeared entirely sure how to handle a situation involving competing screening center applications. Assistant Commissioner Martone described the Hospital's application as presenting a "unique situation." The Division, in essence, instructed the County Board to handle the Hospital's application as it would any other.

Contrary to the Hospital's contention that the County Board failed to act, the County Board in fact made a recommendation that the FGC be given a six-month extension until a competitive process could be instituted. The County Board was clearly concerned that because more than one application had been submitted, the matter might have to be opened up to the public bidding process by way of a Request for Proposal (RFP), pursuant to N.J.S.A. 52:34-6. Thus, contrary to the Hospital's contentions, nothing would have been gained by the Division sending the matter back to the County Board.

However, we agree with the Hospital that the Division's grant of the three waivers to the FGC is highly problematic. These waivers related to the requirement that a screening center: have a psychiatrist available for a face-to-face evaluation as needed, N.J.A.C. 10:31-2.5(a)(1); maintain holding bed(s) with twenty-four hour capability for crisis stabilization, N.J.A.C. 10:31-2.1(a)(6); and be physically located in a hospital, N.J.A.C. 10:31-6.1(b). The regulation permitting waiver, N.J.A.C. 10:31-1.4(a), provides in part:

Under no circumstances will waiver of this subchapter in its entirety be allowed. If, in the judgment of the Division, sufficient contract funding from the Division is available to the designated screening center or emergency service to comply with all rules of this subchapter, the designated screening center or emergency service shall comply with all rules of this subchapter. If, however, in the judgment of the Division, sufficient contract funding from the Division is not available to the designated screening center or emergency service to comply with any rule of this subchapter, the Division may act to relax or waive, with or without conditions, such rule in the specific circumstances presented if the Division is satisfied that:

(1) The rule is not mandated by any provision of N.J.S.A. 30:4-27.1 et seq.;

(2) The provision of screening services in accordance with the purpose and procedures contained in N.J.S.A. 30:4-27.5 would not be compromised if the waiver was granted; and

(3) No significant risk to the welfare and safety of individuals subject to screening services or the staff of designated screening centers or emergency services would result from the granting of the waiver.

The Division failed to determine, in accordance with N.J.A.C. 10:31-1.4(a), whether these waivers would violate any provision of the statutory civil commitment law, whether the provision of screening services in Warren County would be compromised as a result of the grant of the waivers, and whether the grant of the waivers would constitute a significant risk to the safety and welfare of individuals subject to screening services or the staff providing such services. The Division contends only that it is not unusual to grant waivers in the regulatory process. That rationale is plainly insufficient and impermissibly avoids any discussion of the controlling regulatory criteria set forth in N.J.A.C. 10:31-1.4(a). Agency action is arbitrary and capricious when a law or regulation is disregarded by that agency. Hudson County v. Dep't of Corrections, State of N.J., 300 N.J. Super. 389, 392 (App. Div.), aff'd, 152 N.J. 60 (1997). Therefore, the Division's grant of the waivers was arbitrary, capricious and unreasonable because it was neither explained nor harmonized with the agency's regulatory requirements.

In addition, two of the waivers granted in this instance, the location waiver and the telepsychiatry waiver, have, as noted above, already been found to be arbitrary, unreasonable and capricious for the 2005-2006 time period, based on the Division's failure to follow regulatory guidelines regarding notice and the opportunity to comment. An appeal from a re-grant of the location waiver, following remand proceedings, is currently pending.

Furthermore, we agree with the Hospital that the Division's attempt to distinguish between "designations" and "redesignations," in which the latter only requires a confirmation that the designated screening center is continuing to meet all requirements, would require the Division to amend its rules. The Division attempts to support this distinction through the certification of Assistant Commissioner Martone. In essence, Martone claims that an application by an undesignated facility is not contemplated by the redesignation process.

Rather, in such a situation, the Division investigates whether the designated screening center is meeting the statutory and regulatory requirements. If so, it is redesignated; if, on the other hand, the Division finds that there are "material programmatic or financial problems" with the designated screening center, the agency will issue a RFP pursuant to N.J.S.A. 52:34-6 and solicit applications for designation. Thus, according to Martone:

A new application by another facility for designation as the screening center in the context of a re-designation is not contemplated in the regulations governing screening center designation. Therefore, it has not been the Division's practice to entertain and review unsolicited applications of undesignated facilities for screening center designation at the time of re-designation.

However, N.J.A.C. 10:31-6.1 does not distinguish between designations and redesignations substantively, but merely sets forth, in subsection (d), when redesignations must occur. The reference to "continued designation" in subsection (c) refers to the requirement that a screening center be able to carry out its mandated functions during the entire designation period, not a separate standard by which the Division can redesignate a screening center. "In general, an administrative agency should follow its own rules and regulations. If an agency wants to amend a rule or regulation, it may do so expressly after providing notice and a hearing." In re CAFRA Permit No. 87-0959-5 Issued to Gateway Assocs., 152 N.J. 287, 308 (1997). An agency may not amend its regulations under the guise of using its power to interpret its own existing regulations. Venuti v. Cape May County Constr. Bd. of Appeals, 231 N.J. Super. 546, 554 (App. Div. 1989). If the Assistant Commissioner seeks to formalize the process he describes in his certification, he must do so through the rule-making process, not by amending the existing rules in the guise of regulatory interpretation. Accordingly, we conclude that the Division's expressed preference for FGC merely because FGC was the incumbent is not permissible under the existing regulatory framework.

Accordingly, we conclude that the procedures used to designate the FGC as the screening center for Warren County for 2006-08 were arbitrary and unreasonable. We reverse the Division's July 11 and July 19, 2006 final decisions, but stay the implementation of our decision until the emergency screening service provider for 2008-10 has been designated as a result of the March 17, 2008 RFP.

Reversed and remanded.

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