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Assisted Living Concepts, Inc. v. New Jersey Dep't of Health and Senior Services


April 19, 2010


On appeal from the New Jersey Department of Health and Senior Services.

Per curiam.


Argued December 8, 2009

Before Judges Carchman, Lihotz and Ashrafi.

Plaintiff challenges defendant's interpretation of the scope of a certificate of need, issued to operate an assisted living residence. Plaintiff, Assisted Living Concepts (ALC), is a licensed operator of eight assisted living facilities in New Jersey, including Chapin House. On October 29, 2007, defendant, the New Jersey Department of Health and Senior Services (DHSS or the agency), issued a "cease and desist order" notifying ALC that, pursuant to the conditions of Chapin House's certificate of need, ALC was prohibited from discharging residents who converted from private pay to Medicaid waiver status. ALC did not appeal from that determination. Instead, it agreed not to discharge the resident and attempted to negotiate an acceptable proposal to resolve its obligation to accept Medicaid residents.

Correspondence was sent and meetings were held regarding a resolution to the facility's level of participation in the Medicaid program. No consensus was reached. DHSS confirmed ALC's certificate of need application represented it would not discharge residents who spent down their resources and then provided payment through Medicaid. ALC argued the provision had no binding effect, was not a condition of licensure, and requested DHSS to waive the interpretation presented in the October 29, 2007 letter. Negotiations continued.

Prompted by ALC's demand, DHSS advised, in a September 3, 2008 letter, that continued consideration of ALC's proposals for modification of its resident participation in the assisted living Medicaid waiver program was placed "on hold," pending an investigation of whether ALC had already acted to discharge residents.

On appeal, ALC maintains DHSS's imposition of the posited restrictions is unlawful and represents a post hoc restrictive condition on its license. DHSS argues the requirement prohibiting the discharge of residents who become Medicaid eligible, after "spending down" their resources, was part of ALC's licensure proposal, accepted by DHSS when it awarded the certificate of need.

Following our review of the record, we conclude the October 29, 2007 letter was a final agency decision regarding the scope of ALC's certificate of need. In contrast, the September 3, 2008 correspondence was informational only, as DHSS had not rendered a final determination on ALC's informal modification requests. Accordingly, we dismiss the appeal.

The facts are undisputed. On February 1, 1996, ALC submitted a certificate of need application to the DHSS seeking licensing approval to develop a thirty-nine unit, forty-seven bed assisted living facility in Middle Township, which became known as Chapin House.*fn1 The facility offers "an adaptable environment" providing varying levels of care in "a home-like setting," allowing each elderly resident's "aging in place." The narrative portion of ALC's application stated:

[ALC] is committed to serving a moderate to low-income population which would include Medicaid eligible clients. [ALC] will apply to become a contracted Medicaid provider to serve low-income eligible clients. Approximately 20 percent of all residents will be Medicaid clients at the opening of the building. As private-pay residents spend down this percentage may increase to as high as thirty percent. Residents will not be asked to move from the Residence because of spend-down situations.

Neither free nor below cost charity care will be provided by [ALC]. Low income individuals will instead be served primarily through the Medicaid program.

Under the statement of financial feasibility, ALC recited, "Although approximately 20 percent of all tenants are expected to be Medicaid clients, income projections were based on 100 percent private occupancy, as information on the cap for Medicaid rates is not available at this time."

In its review of ALC's application, DHSS requested ALC's proposed policy "when a resident's funds become depleted after he or she has lived in the assisted living facility for some time" and then receives only Medicaid payments. ALC responded:

A Unit Application (attached) is completed by the resident and/or designated agent with basic financial information prior to move-in. At this time, the Program Director, may assist the tenant in facilitating access to financial assistance according to eligibility criteria for applicable programs or other community resources available (i.e. Medicaid, long-term care insurance benefits, veteran's benefits, family resources, etc.).

On May 3, 1996, DHSS approved ALC's application, granting a certificate of need for Chapin House. The approval expressed that "[a]ssisted living residences [] are necessary in order to fully meet the needs of health care consumers and to ensure the orderly development of adequate and effective heath care services in the area to be served by [ALC]. In granting the application, DHSS considered, among other things, that ALC provided "assurances that all residents of the area, particularly the medically underserved, will have access to services, pursuant to N.J.A.C. 8:33-5.3(a)(2). Finally, the approval was "limited to the proposal as presented and reviewed," and that "[a]n additional review by the Department may be necessary if there is any change in project cost, scope or financing, as defined at N.J.A.C. 8:33-3.9."*fn2 Following approval, Chapin House "voluntarily" maintained a Medicaid patient census of approximately twenty percent and retained those residents who converted from private pay status to the Medicaid waiver program.

On December 31, 2004, ALC was transferred to Extendicare Health Services, Inc. (EHSI). ALC, as a wholly-owned subsidiary of EHSI, continued as the licensed operator and owner of EHSI's eight New Jersey assisted living facilities. On June 22, 2006, additional corporate restructuring made ALC an independent, publicly traded company owned by EHSI's shareholders.

In late 2006, Mary Merklinger, a then eighty-three-year-old, who had entered Chapin House as a private pay resident, was denied her request to continue her residency under the Medicaid waiver program. Merklinger had applied for Medicaid after her funds and assets were dissipated. On May 22, 2007, ALC told Merklinger Chapin House had reached its maximum number of Medicaid waiver program residents. On September 14, 2007, ALC notified Merklinger it intended to discharge her.

DHSS was copied on a letter sent to ALC on Merklinger's behalf, which requested ALC reconsider its denial of Merklinger's request to continue residence as a Medicaid client. The correspondence noted ALC had made oral promises to prospective Chapin House residents, representing they would be eligible to convert to Medicaid once they extinguished their private funds. The Public Advocate's Division of Elder Advocacy advised DHSS that it had also received a complaint on behalf of Merklinger. Its resultant investigation determined ALC had previously notified Chapin House residents of a change in policy with respect to the retention of private pay residents who converted to Medicaid status.

A meeting was held, which included representatives of ALC, the Public Advocate and Merklinger. ALC admitted promises were made that when private pay residents entered Chapin House, they would be permitted to remain as residents once they extinguished their resources and pursued Medicaid funding. ALC expressed a prospective change in policy to limit Chapin House's Medicaid population to eight residents.

The Public Advocate notified DHSS of ALC's position. After its review, DHSS informed ALC that Merklinger's discharge would violate the conditions of its certificate of need. In its response, ALC asserted "it was not required to participate in the New Jersey Medicaid program [] because [its] buildings were licensed before the law was changed to require 10% Medicaid participants and . . . there [were] no conditions [its] licensing and certificate of need documents." ALC explained that in its eight New Jersey facilities, the Medicaid population totaled seventy-nine residents, or approximately thirty-two percent. ALC suggested it needed to reduce that percentage to remain competitive with other providers that are required to maintain only ten percent participation.

On October 25, 2007, citing the certificate of need application's project narrative, DHSS notified ALC that [b]ased on a review of all applicable documentation, including a comprehensive review of the Certificate of Need application submitted to the Department February 1, 1996, completeness question responses and other supporting documentation, the Department has determined Chapin House to be in violation of relevant provisions of their Certificate of Need application if they (sic) continue in the course of discharging Ms. Merklinger from the facility. Furthermore, this determination is made in full consideration of information provided to Department staff in a telephone conversation . . . on October 25, 2007[.]

Although ALC disagreed with DHSS's determination, it agreed to permit Merklinger to convert from private pay to Medicaid waiver status and will accept her Medicaid waiver benefits . . . in order to eliminate the dispute over this one individual resident's Medicaid status while ALC and [DHSS] pursue a global resolution of all issues concerning the acceptance of Medicaid waiver benefits by ALC facilities in New Jersey.

Negotiations to resolve ALC's required level of participation in the Medicaid waiver program continued. On January 9, 2008, ALC requested DHSS abandon its interpretation of the certificate of need. ALC asserted the statement in its project narrative that "[r]esidents will not be asked to move from [Chapin House] because of spend down provisions" could not be read as an explicit condition imposed by DHSS for certificate of need approval. ALC argued DHSS's interpretation would unfairly require Chapin House to accept 100% Medicaid occupancy. If DHSS declined to alter its interpretation, ALC requested "a waiver of this [c]ondition and/or . . . to change the scope of its services to correctly reflect the current legal requirements imposed upon New Jersey assisted living facilities."

Nevertheless, ALC agreed to "continue to accept the conversion of its current residents from private pay to Medicaid status pending the resolution of the present dispute." DHSS advised it would accept a formal request by ALC "to change the scope of its certificate of need in order to allow the facility to restrict Medicaid admissions and conversions so long as each of its facilities had a Medicaid census of ten percent or higher." However, ALC was required to agree not to discharge existing residents who had depleted their assets and relied upon Medicaid payments.

On March 26, 2008, DHSS met with ALC. A May 23, 2008 follow-up letter expressed that before "entertain[ing] a waiver of the existing conditions," DHSS awaited review of documentation to include "economic, policy and strategy concerns" justifying "why ALC cannot survive in New Jersey as a licensed assisted living provider if required to accept more than 10-15% Medicaid resident occupancy." ALC responded in a June 6, 2008 letter arguing its Medicaid requirements should not exceed applicable regulations, despite its past acceptance of Medicaid eligible residents in much higher percentages. ALC maintained its past practices adversely affected profits and private-pay occupancy levels, leading to undue financial hardship. Despite this claim, ALC declined to disclose operating information regarding Chapin House.

During these negotiations, DHSS learned the Public Advocate's Ombudsman for the Institutionalized Elderly*fn3 had begun investigating ALC's Medicaid conversion practices. The Public Advocate had gathered "approximately 15 inquiries and/or complaints regarding the alleged involuntary discharge of past and present residents of ALC facilities, including Chapin House." In a July 29, 2008 telephone conversation between DHSS, the Public Advocate and ALC, DHSS suspended further consideration of ALC's waiver request pending completion of the Ombudsman's investigation of its discharge policies. ALC rejected the Ombudsman's discovery subpoena, but assured the Public Advocate that it would not evict any current resident who converted to Medicaid status.

ALC sought confirmation of whether DHSS considered the October 29, 2007 letter, which stated Chapin House would be in violation of its certificate of need if it discharged Merklinger, a final agency decision. On September 3, 2008, DHSS replied:

As stated during our telephone conversation on July 29, 2008, and memorialized in my August 4, 2008 letter . . . [DHSS] placed the discussion begun at our March 26, 2008 meeting regarding [ALC's] compliance with the provision of the certificate of need (CN) applications "on hold" until the investigation by the [DPA] into ALC's discharge practices has been completed.

As the negotiations are 'on hold,' the Department does not consider [the] letter of October 29, 2007 to be final. When the investigation being conducted by the DPA is completed, the Department will advise you of the formal actions necessary for ALC to come into compliance with CN requirements.

This appeal ensued. ALC's motion for summary disposition and DHSS' motion to dismiss were denied. The Public Advocate was permitted to file a brief as an amicus curiae.

The challenges set forth by ALC include that DHSS imposed an "unlawful ex post facto restrictive condition upon the [f]acility," as there were no minimum Medicaid population requirements expressly set forth in its certificate of need approval. ALC suggests DHSS's reliance on a single statement in its application -- that is, "[r]esidents will not be asked to move from the Residence because of spend-down situations" -- is arbitrary and ignores the application as a whole. We note neither of these issues are addressed in the September 8, 2008 letter. Rather, DHSS's decision was definitively presented in its October 29, 2007 correspondence advising ALC it was in violation of its certificate of need.

Therefore, before reviewing ALC's substantive arguments, we must determine whether DHSS has entered a final decision subject to our review. Such a determination is pivotal to establishing this court's jurisdiction as "appeals may be taken . . . to review final decisions or actions of any state administrative agency or officer[.]" R. 2:2-3(a)(2).

Administrative agency decisions become final when the decision-making process is complete and "its effects [are] felt in a concrete way by the challenging parties." Civil Serv. Ass'n v. State, 88 N.J. 605, 612 (1982); see also In re Donohue, 329 N.J. Super. 488, 494 (App. Div. 2000) (stating that "administrative determination must be final as to all parties and all issues" to be appealable). Stated in another way, the agency action is final when it marks the "consummation of the agency's decision-making process," and is one from which "legal consequences [] flow." Bennett v. Spear, 520 U.S. 154, 178, 117 S.Ct. 1154, 1168, 137 L.Ed. 2d 281, 305 (1997) (quotations and citations omitted). "[A]n agency decision should contain adequate factual and legal conclusions. The decision also should give unmistakable notice of its finality." In re Cafra Permit No. 87-0959-5, 152 N.J. 287, 299 (1997) (citing DeNike v. Bd. of Trs., Emps. Ret. Sys., 34 N.J. 430, 435 (1961)).

By contrast, "[o]pinions of an administrative agency on which no action is based do not constitute 'final agency action' which would be subject to appeal as of right." In re Executive Comm'n on Ethical Standards re: Appearance of Rutgers Atty's, 222 N.J. Super. 482, 488 (App. Div. 1988) (citation omitted), rev'd on other grounds, 116 N.J. 216 (1989). See also N.J. Civil Serv. Ass'n, supra, 88 N.J. at 611; In re Proposed Xanadu Redev. Project, 402 N.J. Super. 607, 630 (App. Div.), certif. denied, 197 N.J. 260 (2008); In re Application of Jackson Tp., 350 N.J. Super. 369, 372 (App. Div. 2002). Even specific agency determinations, if made only as recommendations, are not final. In re Zion Towers Apts. (HMFA #2), 344 N.J. Super. 530, 535-36 (App. Div. 2001). Reviewing such conclusions and opinions of administrative agencies would render any decision on the merits advisory, which we must abstain from doing. Id. at 536.

DHSS's October 29, 2007 letter to Chapin House recites that the certificate of need was granted in reliance on the application's articulation that private pay residents would not be discharged when they became Medicaid eligible. Accordingly, the letter concluded that discharging Merklinger from the facility would be in violation of the application for the certificate of need. The correspondence makes clear that the Director of DHSS reviewed the issue, and entered a decision binding ALC to its application submission, compelling the facility to refrain from discharging Merklinger. The agency's position is definitive and not advisory. ALC acceded to the agency's demands, agreeing to allow Merklinger to remain as a facility resident. It did not test the legality of DHSS's decision-making. We conclude the October 29, 2007 letter was a "final decision or action" of a state agency, as required by Rule 2-2:3(a)(2).

Assuming, arguendo, that ALC was uncertain, as to the finality of DHSS's decision, any doubts were eliminated by January 9, 2008. On that date, ALC issued its response challenging DHSS's position. In its letter ALC states:

[T]he Department has taken a position that the statement included in [ALC's] project narrative submitted with the [c]ertificate of [n]eed application . . . created, upon approval of the [c]ertificate of [n]eed, a condition to that approval that [ALC] must accept the conversion of any and all residents from private pay to Medicaid waiver status.

ALC clearly understood and disputed the validity of DHSS's decision. Contrary to ALC's suggestion that it sought "clarification" of the decision, the letter makes clear ALC fully recognized the finality and effect of the October 29, 2007 notice. Also, in the January 9, 2008 submission, ALC sought a waiver of the discharge restraint or a change in the scope of required services. Therefore, by that date, ALC was unquestionably apprised of DHSS's decision-making, understood its impact, and chose to act informally to seek modification.

This appeal was filed on October 3, 2008. The Rules of Court provide that an appeal from a final decision of a state agency "shall be taken within 45 days from the date of service of the decision or notice of the action." R. 2:4-1(b); In re Cafra Permit, supra, 152 N.J. at 299. To overcome the impact of the time bar, ALC argues DHSS's September 3, 2008 letter serves as the final agency action. We disagree.

After months of telephone discussions and meetings, ALC agreed to document its justification for lowering the percentage of Medicaid residents in order that DHSS might "entertain a waiver to the existing conditions of the CN approval letters or any modification to the scope of services provided[.]" The only purpose served by the September 3, 2008 correspondence was confirmation that DHSS had suspended these negotiations pending completion of the Public Advocate's investigation. ALC is not appealing the determination to place the negotiations "on hold," and the September 3, 2008 letter added nothing to the agency's expressed position, as recited in the October 29, 2007 notice.

DHSS's statement that "the October 29, 2007 letter was not a final decision" must be read in context. It was made in response to ALC's request for its "final written conclusions to the negotiations." The letter stated DHSS could not yet finalize consideration of ALC's requests for waiver or modification. Thus, it could not state that the conditions set forth in its October 29, 2007 letter would remain unchanged.

Therefore, ALC was fully apprised of DHSS's "final decision or action" with respect of the involuntary discharge of former private pay residents who exhausted their resources and assumed Medicaid status no later than January 8, 2008. This appeal, filed well beyond forty-five days of that decision, is untimely and must be dismissed. Rule 2:4-1(b).

For completeness, we briefly address ALC's challenge to DHSS's determination. In our review, we give great weight to an administrative agency's interpretation and implementation of the statute it is responsible to enforce, as well as the agency's interpretation of its own regulations. Atlantic City Med. Ctr. v. Squarrell, 349 N.J. Super. 16, 23 (App. Div. 2002). Despite this deference, however, we are not bound by the agency's interpretation. Ibid.

The Health Care Facilities Planning Act, N.J.S.A. 26:2H-1 to -26, charges DHSS with "central responsibility for the development and administration of the State's policy with respect to health planning [and] hospital and related health care services[.]" N.J.S.A. 26:2H-1. This mandate includes assisted living facilities. Ibid.; N.J.S.A. 26:2H-2(a). Within DHSS, the State Health Planning Board reviews applications for certificates of need and makes recommendations for approval to the Commissioner. N.J.S.A. 26:2H-5.8. Certificate of need applications for the establishment of assisted living residences must contain a project description and justification, as well as note the "extent to which all residents . . . shall have access to services, particularly the medically underserved." N.J.A.C. 8:33-5.3(a)(1) and (2).

In rendering approval, DHSS may place conditions on the certificate of need "if they relate to material presented in the application itself, are prescribed in State rules, relate to the criteria specified in N.J.A.C. 8:33-4.9 and 4.10 or promote the intent of the Health Care Facilities Planning Act, N.J.S.A. 26:2H-1 et seq., as amended." N.J.A.C. 8:33-4.16(a). All such conditions become part of the licensure requirements of the approved facility, which has thirty days from receipt of notice of the approval to contest any condition. N.J.A.C. 8:33-4.16(b).

Here, ALC's approval for a certificate of need was "limited to the proposal as presented and reviewed." DHSS acknowledges the absence of enumerated, expressed conditions relating specifically to retention rates for residents participating in the Medicaid waiver program. However, the agency, supported by the Public Advocate, argues ALC remains bound by its submitted representations on that issue. We agree with DHSS's position.

DHSS's approval of licensure considered ALC's "assurances that all residents of the area, particularly the medically underserved, will have access to services." Moreover, the approval stipulated that "[a]n additional review by [DHSS] may be necessary if there is any change in project cost, scope or financing, as defined at N.J.A.C. 8:33-3.9."

Pursuant to N.J.A.C. 8:33-3.9(f), "[a]ny modifications to the project as approved shall be reported to [DHSS] in writing for review and approval prior to implementation." (Emphasis added.). The conditional approval of ALC's certificate of need on "the proposal as presented and reviewed" included provisions to allow private pay residents to continue on when they become Medicaid eligible.*fn4 Deviation from that provision represented a substantial modification from the application as approved. See In re Certificate of Need App. of Chilton Mem'l Hosp., 269 N.J. Super. 426, 438-39 (App. Div. 1993) (Commissioner's decision to remove a condition from the certificate of need, "in effect, granted a new and expanded certificate of need").

ALC's certificate of need application promoted its commitment to serving Medicaid eligible clients, pledged to apply to be a contracted Medicaid provider, and assured it would actively facilitate the referral of Medicaid clients. Its application projected maintaining a Medicaid population of twenty percent. We reject ALC's contention that the DHSS acted arbitrarily when it merely enforced the representations made to secure licensure.*fn5


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