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In the Matter of Certificate of Need For Humc North Hospital Englewood v. Commissioner of Health and Senior Services


December 4, 2012


On appeal from the Department of Health and Senior Services, Docket No. 110603-02-01.

Per curiam.


Argued September 24, 2012

Before Judges Sabatino, Fasciale and Maven.

In these two consolidated appeals, appellants Englewood Hospital and Medical Center ("Englewood") and The Valley Hospital, Inc. ("Valley") challenge a February 27, 2012 decision of the Commissioner of the Department of Health (the "Department"), granting a certificate of need ("CN") to Hackensack University Medical Center ("HUMC"). The CN authorizes HUMC to open a new 128-bed hospital in Westwood at the former site of Pascack Valley Hospital ("PVH"), which closed in November 2007. On appeal, Englewood and Valley contend that the Commissioner's decision was arbitrary and capricious, as well as procedurally defective.

Applying the well-established judicial deference that must be accorded to an administrative agency head acting within the agency's field of expertise, we affirm the Commissioner's decision. We also reject appellants' contention that the decision must be set aside because of alleged procedural deficiencies.


The extensive administrative record presents the following relevant chronology of events and statistic-laden factual contentions.

A. Events Leading to PVH's Closure

For forty-eight years, PVH, a 275-bed*fn2 general acute care hospital in Westwood, served the residents of northern Bergen County and other nearby communities. PVH's core service area included fourteen municipalities in the far northeastern corner of the county.

Eventually, PVH sustained a host of operational and financial problems. Between 2004 and 2007, PVH's patient volume declined by approximately 10%, resulting in a mere 35% daily occupancy rate in 2007. The hospital was on a pace to sustain operating losses of over $50,000,000 between 2004 and the end of 2007. PVH also was approximately $120,000,000 in debt. Part of PVH's operating losses arose from unfunded pension liabilities and the loss of a crucial health insurance contract. Much of its debt was due to an $80,000,000 construction project to expand and modernize the hospital.

On September 24, 2007, the Pascack Valley Hospital Association, Inc. ("PVHA"), which operated PVH, filed a bankruptcy petition. Four days later, PVHA submitted an application to the Department seeking a CN granting it permission to close PVH. Within that application, PVHA described the hospital's financial crisis. PVHA represented to the Department that there were available beds to accommodate PVH's patients at other Bergen County hospitals situated within a thirteen-mile radius of PVH. These other hospitals included:

(1) Valley, 5.9 miles away in Ridgewood; (2) Englewood, 8.2 miles away in Englewood; (3) Holy Name Hospital, 8.7 miles away in Teaneck; and (4) HUMC, 12.19 miles away in Hackensack.

Using the Department's methodology, PVHA noted that an average daily patient census of between 80% and 85% on an annualized basis represents what is considered full occupancy.*fn3

HUMC and Valley, by comparison to PVH's 35% occupancy rate, were then operating at above 85% capacity. PVHA further noted that Englewood and Holy Name then had occupancy rates of 72% and 67.5%, respectively.

While PVHA'S application seeking the Department's approval of the hospital's closure was pending, PVH gradually curtailed its services. The hospital ultimately ceased its operations on November 21, 2007.

B. The Department's December 28, 2007 Approval of PVH's

Closure and Its Aftermath

A little over a month later, on December 28, 2007, Fred Jacobs, who was then the Commissioner of the Department, approved PVHA's application. Commissioner Jacobs specifically found that the closure of PVH was "fiscally required" and that there was "sufficient bed capacity in Bergen County to enable the remaining health care system to bridge any gaps in services." Commissioner Jacobs was further persuaded that the closure of PVH would "strengthen the nearby hospitals located in PVH's service area by increasing their occupancy[.]" Nonetheless, Commissioner Jacobs expressly stated in his decision that PVHA would be allowed to retain PVH's license for twenty-four months, during which time any purchaser of PVH's assets could attempt to re-establish the hospital.

In early 2008, the bankruptcy court approved the sale of PVH's real estate and assets to HUMC, which, along with its then-partner Touro University College of Medicine ("Touro"), had submitted the highest bid at auction. In October 2008, HUMC opened a satellite emergency department ("SED") on the PVH site, using its own license. Between October 2008 and August 2011, the SED treated 33,779 patients, 23,135 of whom were residents of PVH's core service area.

Meanwhile, in mid-2008, HUMC and Touro dissolved their partnership. HUMC then entered into a joint venture (known as the Pascack Valley Health System, L.L.C.) with Legacy Hospital Partners, Inc. ("LHP"), a private equity firm. They founded the joint venture with a goal to renovate and reopen PVH as "HUMC North," a modern, for-profit acute care community hospital with 128 single-occupancy beds.*fn4

HUMC and LHP developed this plan, in spite of the findings of a Commission on Rationalizing Health Care Resources ("the Reinhardt Commission"), indicating a lack of need for such a facility in the health planning region of Hackensack, Ridgewood, and Paterson (the "HRP region"), in which PVH was situated. In its January 2008 report, the Reinhardt Commission concluded, based primarily upon 2006 data, that the HRP region had an excess of 765 "maintained" hospital beds (i.e., "the equivalent of between [two] and [three] hospitals of the average bed size of hospitals now in that market area"). In calculating that figure, the Reinhardt Commission took into account the HRP region's hospital discharge rates. Those discharge rates were expected to increase through 2015 (according to a baseline analysis) or decrease through 2010 and then begin to rebound by 2015 (according to an adjusted analysis). The Reinhardt Commission observed that [a]lthough these numbers do not necessarily imply that [two] to [three] hospitals could be closed in the area without depriving New Jersey residents in the area of essential hospital services, it does suggest considerable slack in the market such that the patient loads of one or two "non-essential" hospitals could be absorbed by other hospitals in the market area.

However, the Reinhardt Commission added this significant caveat: if all hospitals in the area were deemed essential on the criteria used in this report, then no one hospital should be closed. Instead, hospitals with low occupancy ratios should reduce the number of beds they staff until most or all hospitals in the area approximated an occupancy ratio of 83%.

C. HUMC's 2008 CN Application Seeking to Reopen PVH

In July 2008, HUMC, acting on behalf of itself and LHP, filed a CN application with the Department, seeking a transfer of PVH's license and permission to reopen the Westwood hospital facility.*fn5 Because this application proposed transferring an existing license rather than establishing a new hospital in response to a call for CN applications, the Department deemed it unnecessary to make a preliminary finding of need. See generally N.J.A.C. 8:33-3.3 (addressing transfer applications). Even so, in evaluating whether to grant this requested approval, the Department was required to consider whether HUMC North was "necessary to provide required health care in the area to be served" and whether it would have "an adverse economic or financial impact on the delivery of health care services in the region." N.J.S.A. 26:2H-8. Englewood and Valley filed opposition to HUMC's application.*fn6

In May 2009, the Department determined that HUMC's CN application to transfer PVH's license was complete. It submitted the application to the State Health Planning Board ("SHPB"), which scheduled a public hearing on the matter for July 23, 2009. On July 7, 2009, sixteen days before the scheduled SHPB hearing, HUMC requested a deferment of the hearing for up to six months, pursuant to N.J.A.C. 8:33-4.7(a). According to HUMC, it requested the deferment so that HUMC could potentially "resolve Englewood's objections to the reopening of PVH" by presenting Englewood, which HUMC understood to be in financial trouble, with "opportunities for revenue enhancements and expense reductions."

Englewood and Valley maintain, however, that there were no such negotiations. Instead, they believed -- apparently based upon rumors reported in the news media -- that HUMC had requested the deferment because it had reason to believe that an unreleased report prepared by Department staff had recommended denial of HUMC's application. Englewood and Valley suspected that HUMC wished to have the matter revisited in 2010 after the 2009 statewide election.

In December 2009, HUMC requested the Department to confirm that the Permit Extension Act of 2008 (the "PEA"), N.J.S.A. 40:55D-136.1 to -136.6, applied to extend until January 1, 2011 the twenty-four-month period that PVHA had been permitted by Commissioner Jacobs to retain PVH's hospital license. While that administrative request was pending, HUMC also filed a declaratory judgment action in the Law Division against the Department, seeking a declaration to the same effect. The Department rejected HUMC's argument for such an extension; deeming the PEA inapplicable to PVH's license. HUMC thereafter abandoned its declaratory action. PVH's license consequently expired, and HUMC withdrew its deferred 2008 CN application.

D. The Department's 2011 "Limited" CN Call

A fixed statewide call for CNs for new general hospitals was scheduled for April 1, 2011, in accordance with N.J.A.C. 8:33-4.1(a)(2). Hoping to obtain such a CN for the Westwood site in its own right, HUMC filed a petition in December 2010 asking the Department to issue a specific call for CN applications to open a new acute care hospital in Bergen County. According to HUMC, it filed this petition "to advise the Department of HUMC's intention to file the 2011 CN and to ask the Department not to cancel or modify the fixed call in a way that would hinder HUMC's ability to apply for licensure." In its petition, HUMC asserted that, after taking into account the recent regional hospital closures, there would be a need for 187 acute care beds in Bergen County in 2015. Englewood and Valley submitted opposition to the petition.

In February 2011, the Department issued a notice advising that the "certificate of need call for new general hospitals scheduled to take place on April 1, 2011 . . . is hereby cancelled." That notice went on to state that "[i]n lieu of the April 1, 2011 general call for proposed new general hospitals, the Department is providing notice of a limited certificate of need call as described [later in the notice]." (Emphasis added). The Department explained that it was initiating this "limited" call in light of documentation from HUMC "indicating that there may be a potential need for a new general hospital in [Bergen County] of approximately 125 beds."*fn7

The Department made clear in its notice that only one new hospital to be situated in Bergen County would be considered for approval pursuant to the limited call. The Department emphasized that [i]issuance of this call does not constitute a finding of need by the Department for any new general hospital affected by the call, and the Department reserves the right to disapprove all applications submitted in response to the call if the Department determines that they have not satisfactorily demonstrated need or otherwise compl[ied] with the requirements of N.J.S.A. 26:2H-8, N.J.A.C. 8:43G-1.1, et seq. and N.J.A.C. 8:33-1.1, et seq.

The Department's notice further provided that all CN applications responding to the limited call were to be submitted by June 1, 2011. Among other things, the applicants had to demonstrate that they could license a proposed project within two years of any CN approval. The Department further invited competing hospitals to provide opposing submissions addressing the anticipated impact of any new hospital proposed in response to the limited call.

E. HUMC's 2011 CN Application to Authorize HUMC North

On June 1, 2011, HUMC applied to the Department for a CN to open what it identified as "HUMC North" at the PVH site in Westwood by a then-projected opening date of late 2012. The proposed 128-bed, single-occupancy, for-profit hospital would consist of eighty-seven medical/surgical beds, eighteen obstetric beds, eighteen ICU/CCU beds, and five intermediate bassinets, plus a new low-risk catheterization laboratory. If approved, the new facility would offer inpatient and same-day surgery operating rooms, cystoscopy rooms, MRI services, CT Scan services, and acute hemodialysis services.

HUMC intended for HUMC North to be clinically integrated with its main campus in Hackensack, with substantial overlap in the medical staff. Professional standards at both locations would be enforced through a joint clinical integration plan. HUMC North would accept all Medicare, Medicaid, and emergency patients, regardless of their ability to pay. Building on its existing role as the primary provider of charity care in Bergen County, HUMC committed that it would set aside a $14,639,000 allowance for charity care in HUMC North's second year of operation.

As proposed, HUMC North would be eligible to receive funding for thirty medical residents, eighteen in family practice, and four each in emergency medicine, obstetrics/gynecology, and general surgery.*fn8 HUMC represented that it would offer services and benefits that would increase the prospect that HUMC North's medical residents would remain in New Jersey after completing their residencies.

HUMC asserted to the Department that the renovation of PVH could be completed far more rapidly and cost-effectively than if a new hospital were constructed. It estimated that the cost to operationalize HUMC North would be $39,590,409, whereas, by comparison, the construction of a new 128-bed hospital at the Westwood site would cost roughly $200,000,000.*fn9

Since it was already licensed for more beds at its main campus in Hackensack, HUMC acknowledged that it could theoretically construct additional bed space there without resorting to the CN process. However, HUMC asserted that space constraints at the Hackensack site would make such an endeavor unduly expensive and time-consuming. To create space to accommodate such new construction in Hackensack, HUMC explained that it would have to demolish existing facilities after relocating critical services presently housed on the main campus. Such relocation activities alone could take three to four years to complete, and the subsequent construction at the main campus was estimated to take at least another four to five years. Consequently, HUMC preferred to create the additional beds at the former PVH site in Westwood.

In its CN application, HUMC emphasized that PVH had closed due to fiscal mismanagement, not lack of need, as substantiated by the fact that PVH had operated in Westwood for nearly half a century. HUMC further noted that 75% of voters in local communities that held referenda on the issue in November 2009 had supported a reopening of a hospital in Westwood. In addition, 88% of respondents to an October 2011 poll supported the creation of HUMC North. Approximately 26,000 persons signed a petition in support of HUMC's CN application, and hundreds of others submitted written comments directly to the Department.

HUMC maintained that the other area hospitals were not readily accessible by Pascack and Northern Valley residents, particularly senior citizens, due to the lack of a primary road system, unavoidable railway crossings, and traffic conditions. In that regard, HUMC presented documents from local residents and EMS personnel reflecting such delays they encountered after PVH had closed. According to HUMC, MICU units dispatched into the relevant core area often required twice as much time to transport a patient to Valley, Englewood, or HUMC's main campus than it took to get to the SED in Westwood. A traffic engineer retained by HUMC, Desman Associates, Inc., confirmed these longer travel times in a 2008 study.

HUMC further represented that the opening of a scaled-down 128-bed hospital in Westwood was consistent with regional need. It noted that since the time of the Reinhardt report, the HRP region lost 696 licensed beds, as a combined result of the closures of Passaic Beth Israel Regional Medical Center ("PBI") in 2006, PVH in 2007, and Barnert Memorial Hospital in Paterson in 2008. Additionally, HUMC pointed out that, in calculating the excess number of acute care beds in this region, the Reinhardt Commission had erroneously included 253 beds at Bergen Regional Medical Center ("BRMC"), a geriatric and long-term psychiatric facility, not an acute care hospital. According to HUMC, there was actually a net deficit of 184 acute care beds in the HRP region at the time of its CN application.

Although it appeared that hospital occupancy in the area had slightly declined after 2008, HUMC contended this reported decline was due to the exclusion of so-called "observation patients"*fn10 from reported occupancy statistics. HUMC cited ambulance dispatch data supporting its claim that area hospitals, and in particular, Valley, were overburdened. According to HUMC, the data revealed that, during the year after PVH closed, Valley found it increasingly necessary to advise dispatching authorities to divert incoming ambulances due to overcrowding at its emergency room. Specifically, the incidence at Valley of what are termed "divert status" days increased 220% in the year after PVH closed. The incidence of two-hour periods on divert status at Valley increased 453% during the same time frame. Valley ceased requesting divert status in 2009. HUMC believed, however, that the overcrowding at Valley had not changed, citing anecdotal evidence from patients and first responders.

HUMC also relied upon projected demographic changes in Bergen County. As noted by HUMC, Bergen County's population is growing and aging. In particular, the New Jersey Department of Labor and Workforce Development has projected that the population in Bergen County aged sixty-five and over will increase by 37.7% between 2008 and 2028.*fn11 Such persons over age sixty-five are generally hospitalized 3.7 times more frequently than younger individuals.

HUMC anticipated that HUMC North would primarily serve PVH's original fourteen-town core service area, as well as portions of Rockland County, New York. HUMC hoped to achieve an 80.7% occupancy rate by the end of HUMC North's second full year of operation (which corresponded to 8379 patients).*fn12 Based upon these projections, HUMC calculated that 4187 patients from the core market and other regions of Bergen County would not be admitted to HUMC North and would be available for other hospitals. HUMC emphasized that, at its target occupancy level, HUMC North's share of the Bergen County market would still not exceed 6%.

HUMC maintained that HUMC North would not have a negative impact on other local hospitals, in part because it would draw a number of its patients from its Hackensack main campus. Many PVH physicians had obtained privileges at HUMC after PVH closed, and such doctors evidently anticipated shifting their practices back to the former PVH site for convenience. HUMC noted that, according to the American Hospital Association, it was among the top ten busiest hospitals in the United States. The data cited by HUMC also indicated that many patients who would have obtained care for routine ailments at PVH were now coming to HUMC, thereby making HUMC's beds scarcer for more critically ill patients who needed the services of a tertiary care facility with a Level II trauma center.*fn13

On the other hand, according to HUMC, neither Valley nor Englewood sustained a substantial gain in inpatient admissions after PVH closed. Although the occupancy rate of licensed beds at Valley in 2008 was 10% higher than it had been in 2006, Valley subsequently returned to a rate only slighter higher than the 2006 level. Likewise, although Englewood saw a slight increase in its occupancy rate in 2008, the rate returned to its 2007 level by 2009 and had remained there. Englewood's patient gain following PVH's closure was characterized by HUMC as a one-time event, most likely because its primary service area had not overlapped with that of PVH. By contrast, HUMC asserted that if it had not added eighty-three licensed beds to its complement in 2007, its occupancy rate allegedly would have jumped to 93.29% in 2008 and would have remained around 90% thereafter.

F. Englewood and Valley's Opposition to a CN for HUMC North

Both Englewood and Valley filed opposition with the Department objecting to the issuance of a CN for HUMC North. The competitors argued that the reopening of a new hospital at the former PVH site in Westwood is unnecessary. In addition, they raised concerns that such a reopening could jeopardize their business viability, particularly Englewood's.

Englewood contended, among other things, that there is no need for HUMC North because occupancy rates at Bergen County hospitals overall had declined between 2005 and 2010 and were expected to decline through at least 2015. As described in a report of Englewood's expert, Urban Health Institute, this downward trend was occurring, despite the aging of the population, due to countertrends in the health care industry that reduced the frequency of hospital admissions, the scope of the services performed, and the length of hospital stays.

Englewood also contended that it had been strengthened by PVH's closure. Its admissions from PVH's core area had risen from 2365 in 2007 to 3286 in 2008, although these admissions dropped back to 2899 in 2009, and 2904 in 2010. Englewood's operating margin increased between 2007 and 2010. Its days of available cash also increased from 23.6 to 51.5 days between 2007 and 2010. Its annual operating income grew by approximately $14,000,000 over a four-year period, converting a $7,942,000 operating loss in 2006 to a $6,087,000 surplus in 2010. However, the increased admissions from the PVH core area did not reverse Englewood's overall decline in occupancy between 2008 and 2010.

Englewood maintained that it is far more likely that HUMC North will draw Pascack Valley patients back to Westwood from other Bergen County hospitals than that it would draw new patients from Rockland County in New York. According to a September 2008 report prepared by Englewood's other expert, the Lewin Group, if Englewood lost 50% of the estimated 1800 additional admissions it received in 2008 following PVH's closure, it would lose $10,000,000 in annual revenue, for a net loss of $8,242,000. Englewood asserted that such projected losses would far exceed its 2010 net surplus of $6,087,000. Englewood feared that HUMC North would pose an even bigger threat if HUMC chose to add more licensed beds, which it could do of its own accord at a later time without any additional finding of need by the Department.

In its own opposition to the CN application, Valley heavily relied upon the Reinhardt report's 2008 conclusion that an additional hospital was not needed in the area. Valley maintained that the closure of three hospitals in the HRP region during the last several years had not rendered the Reinhardt report outdated for purposes of the present litigation, since PVH was the only hospital that had closed in Bergen County. Valley asserted that the Reinhardt Commission had not erred in including the beds at BRMC in its calculations because those beds were identified as acute care beds in hospital filings with the state, notwithstanding the fact that BRMC was largely a psychiatric care facility.

Valley criticized HUMC's assessment of the occupancy levels at Bergen County hospitals, noting that HUMC had focused excessively upon maintained bed usage. According to Valley, the occupancy rates between 2006 and 2010 for licensed beds at the three key hospitals were quite lower. Valley's expert, Ingenix Consulting Services ("Ingenix"), had performed a needs analysis and determined that there were 654 licensed beds and 325 maintained beds available in Bergen County on any given night in 2010.*fn14 Based upon 2009 Medicare data, Valley further claimed that HUMC's estimate of the observation patients typically found in New Jersey hospitals was grossly inflated and did not have an appreciable impact on occupancy rates.

In rebuttal to HUMC's contention that Valley had experienced persistent over-occupancy, Valley contended that the increase in its divert status statistics in 2007 and 2008 was aberrational and did not reflect an ongoing problem. Valley also noted that its emergency department had since won awards for its efficient performance.

Valley emphasized that the overall population in Bergen County had grown by only 2.4% between 2000 and 2010. It pointed out that HUMC's projected 37.7% increase in the senior citizen population was based on 2000 census data, as opposed to more recent 2010 data. Valley also noted that HUMC had failed to mention that the much larger population in Bergen County of persons under age sixty-five was projected to shrink by 5.9% between 2008 and 2028. According to Valley, and as set forth in the report of its expert, Stroudwater Associates ("Stroudwater"), the "growth of the [age] 65 cohort [wa]s almost completely diminished by the shrinking of the under [age] 65 cohort."

The demise of PVH, Valley insisted, had been precipitated not by fiscal management, but instead by volume erosion, increasing competition, and a regional decline for inpatient services. According to Valley, the overall population in the core service area was projected to increase by just 1.7% by 2015 and the senior population by only 18.8%. In its expert report, Ingenix had noted that overall hospital usage in Bergen County had declined by 5% between 2006 and 2010. Ingenix projected that, even with an increase in usage due to the growing elderly population, there would still be 375 to 488 excess beds in Bergen County in 2015, corresponding to an assumed 83% occupancy level.

Valley also expressed skepticism that 44% of HUMC North's patients would come from Rockland County, noting that historically only 10% of PVH's patient base had originated from there. It asserted that a new hospital was not needed in Bergen County to service Rockland County residents.

Relying upon the Stroudwater report, Valley also contended that the drive times to Englewood and Valley from the Pascack and Northern Valleys were well within planning standards.*fn15

Valley also noted that patients from PVH's former market had long used the emergency departments at Valley and Englewood, even before PVH closed.

Although its financial projections were less threatening than that of Englewood, Valley further argued that the reopening of a competing hospital in Westwood would materially diminish revenues. According to the Lewin Group report, if Valley lost half of the estimated 3000 admissions it had gained in 2008 as a result of PVH's closure, it would lose $14,000,000 in revenue, for a projected net impact of $11,620,000.*fn16

G. The Public Hearings and the Department's Review

On October 19, 2011, the SHPB held a public hearing on HUMC's CN application. More than a thousand people attended that hearing. Those who testified overwhelmingly supported the application. Thereafter, Department staff prepared a report recommending to the Commissioner that the CN be granted, subject to thirteen conditions. On November 29, 2011, the SHPB held another public meeting, at the conclusion of which it voted to adopt the staff recommendation.

On February 6, 2012, Englewood wrote the Commissioner and requested that she return HUMC's CN application to Department staff and to the SHPB for reconsideration, in light of HUMC's announcement that it had applied for a CN to acquire Mountainside Hospital in the Essex County town of Montclair. Englewood asserted that "[t]he acquisition of Mountainside Hospital will provide HUMC with the spillover capacity that is the principal alleged need for a new hospital in Westwood." Despite the fact that Mountainside Hospital is thirteen miles south of Hackensack, Englewood insisted that, because of its proximity to "urban Passaic County," Mountainside is nevertheless "ideally located as a satellite facility to relieve any pressure on HUMC, especially pressure resulting from Passaic County admissions." Valley supported Englewood's request.

The Commissioner denied Englewood's request for the SHPB's reconsideration, explaining as follows:

In . . . support of your request for remand, you . . . claim that the proposed purchase of Mountainside Hospital by HUMC and a partner would obviate HUMC's need to develop the subject property of HUMC North. Such request is . . . without basis in statutory, regulatory and case law. Each CN application is reviewed by the Department and approved or disapproved by the Commissioner based on its own merits. Each CN application allows for the appropriate public input and review by the Department, the SHPB and the Commissioner. To link multiple CN applications that are not batched in accordance with N.J.A.C. 8:33-4.1 together for review is not contemplated by either the Health Care Facilities Planning Act, N.J.S.A. 25:2H-1 et seq., or the regulations promulgated thereunder.

H. The Commissioner's February 27, 2012 Final Agency

Decision Approving The CN

On February 27, 2012, Commissioner Mary E. O'Dowd granted the CN application for HUMC North, subject to thirteen conditions. In her detailed written decision, the Commissioner explained why she concluded, consistent with the SHPB's recommendation, that HUMC's application met the applicable statutory and regulatory criteria for a CN, despite the 2008 closure of PVH at the same Westwood site.

In her decision, the Commissioner initially observed that the addition of HUMC North would enhance the quality of care in Bergen County because HUMC was nationally known for its standard of care and it was reasonable to expect that such service provided at its main campus would be replicated at HUMC North. She noted that HUMC intended for the staffs at the two hospitals to work closely together, thereby promoting clinical integration. According to the Commissioner, the opening of HUMC North would beneficially address the growing physician shortage problem in New Jersey, by adding up to thirty residency slots in areas where the shortage was most serious. HUMC North would also follow HUMC's employment model by offering its newly-trained doctors incentives to remain in this state.

The Commissioner was satisfied that HUMC had limited the proposed size of HUMC North to a level that would "ensure limited negative impact on other existing hospitals in Bergen County." She specifically found that "[t]he scaling back of beds at HUMC [North] in comparison with the former PVH [i.e., from 280 beds to 128] demonstrates this hospital's commitment to preserving the existing health care delivery system in the region[.]"*fn17 She noted that HUMC North planned to focus its efforts on serving the same core area as the former PVH, and would, in fact, be the only hospital convenient to the rural communities in the far northeastern corner of Bergen County.

The Commissioner was persuaded that HUMC had examined all of its available options before deciding to proceed with HUMC North as a means of increasing the availability and accessibility of health care services in the area. She acknowledged that HUMC historically was "the hospital [in Bergen County] with the highest occupancy and average length of stay," a fact which she regarded as "an apparent indication of patient choice." She also noted that HUMC North planned to shift some patients away from HUMC, thereby alleviating the stress on HUMC's existing resources, which had increased since PVH's closure. In particular, the Commissioner found that HUMC North was expected to reduce the high occupancy rate at HUMC's main campus from over 90% to a "more manageable level" of 83%.

Given the groundswell of public support for opening HUMC North and the considerable volume of patients who were already utilizing the SED in Westwood, the Commissioner "[did] not take issue" with HUMC's claims that HUMC North could draw as much as 50% of its patients from the fourteen-town core region previously served by PVH. The Commissioner also found it was "not an overstatement" that HUMC North would attract roughly 538 patients annually from Rockland County, given the proximity of the hospital to the New York border and the number of Rockland County residents presently being treated at HUMC in Hackensack.

The Commissioner found significant that HUMC would provide more access to health care services for the community, including the medically indigent and the medically underserved. She noted that HUMC had a strong record in providing charity care. Additionally, she found that HUMC North would lower the risk of harm to the residents of Pascack Valley and Northern Valley in emergency situations, since lengthy trips to other area hospitals -- worsened by the lack of a primary road system and inevitable traffic delays -- could be avoided.

The Commissioner also found that HUMC's projections of the combined number of potential patients from the core area, Rockland County, and the remaining markets indicated that there were an additional three patients for every estimated potential patient projected for HUMC North. Consequently, the Commissioner determined that a substantial number of patients would still be available to the other area hospitals, including Valley and Englewood, even if HUMC North was built. Although the data can be interpreted in many ways, there is reasonable support for the Commissioner's regulatory judgment that approval of HUMC North would not cause significant negative impact on the other area hospitals, which had co-existed with both HUMC and PVH for many years.

Based upon Department of Labor and Workforce Development forecasts, the Commissioner anticipated that the overall population in Bergen County would continue to grow through 2028. The County's senior population in particular was expected to increase by 37.7% between 2008 and 2028. Recognizing that seniors were admitted to hospitals 3.7 times more frequently than younger age cohorts, the Commissioner expected that HUMC's occupancy rates would "rise beyond capacity" unless there was "some adjustment" by way of creating new patient beds. The Commissioner understood that "adding these beds at HUMC could have been done without a CN if HUMC had the room to expand," but she was persuaded that "[a]dding th[e]se beds at HUMC North would relieve this volume strain and better serve the medical needs of the core area residents."

On the whole, the Commissioner was satisfied that, within the present health care environment, "maintaining the existing bed[-]to[-]population ratio while improving access to emergency care and relieving high occupancy at HUMC appears both logical and prudent, especially at a relatively low cost." The Commissioner specifically noted that she had not based her decision on either the 2007 ruling of former Commissioner Jacobs approving the closure of PVH or the 2008 Reinhardt report, since both of those documents had: (1) relied on 2006 hospital utilization data; (2) were issued "when economic times were significantly different and [f]ederal health care and Medicare reform was non-existent"; and (3) predated the closure of PVH, Barnert Hospital, and PBI.

I. Post-Decisional Events and The Present Appeal Following the Commissioner's final decision granting the CN to HUMC North, Englewood and Valley sought an emergent stay pending appeal of the decision -- first before the Department, and then before this court -- seeking to halt construction of the new facility. Those stay applications were denied, largely based upon the failure to demonstrate a likelihood of success on the merits on appeal and also based upon considerations of public interest. As we noted, however, in our order dated April 2, 2012 denying emergent relief, the denial was without prejudice to this court's plenary consideration of the merits of the appeal. In the meantime, the construction of HUMC North has proceeded, but according to HUMC's representations, it is not anticipated to be completed until early 2013. The consolidated appeals were accelerated.


Fundamentally, Valley and Englewood contend on appeal*fn18 that Commissioner O'Dowd's decision to grant HUMC a CN for the Westwood site was arbitrary and capricious. Among other things, appellants maintain that there is no need for the new facility; that the reasons cited by Commissioner O'Dowd for granting the CN in 2012 are in conflict with former Commissioner Jacobs's decision in 2008 to authorize the closure of PVH; and that the reestablishment of a competing hospital in Westwood will cause their own operations substantial financial and business difficulties, particularly Englewood. Appellants further contend that the Department's decision-making process was procedurally flawed. In particular, they maintain that the Department's February 2011 "limited" call for CN applications, which was restricted to opening a new hospital in Bergen County, violated the pertinent regulations. We reject these arguments and sustain the final agency decision.


We precede our analysis of the issues with a brief overview of the statutory and regulatory framework governing certificates of need, as well as a delineation of our scope of judicial review.

In 1971, New Jersey adopted the Health Care Facilities Planning Act ("HCFPA" or "the Act"), N.J.S.A. 26:2H-1 to -26, which sets forth a regulatory system, under the supervision of the Commissioner, intended to provide state residents with high-quality health care services at a contained cost. N.J.S.A. 26:2H-1. Pursuant to the Act, certain health care facilities and services cannot be launched or expanded in our State without the identification of a need, and the Commissioner's approval of the facility or service through the issuance of a CN. N.J.S.A. 26:2H-7. A CN is also mandated to authorize a voluntary closure of a general hospital. N.J.A.C. 8:33-3.2(b).

To obtain a CN to open a new hospital, an applicant must demonstrate that 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 ruling upon a CN application, the Commissioner must also consider:

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

Apart from these factors expressly stated in the Act, the pertinent regulations call for each CN applicant to demonstrate, among other things, how the proposed new facility or service will: promote access to low-income persons, minorities, and the medically underserved; maintain or enhance the quality of care; be financially feasible; meet all applicable licensure rules; address unmet needs in the region; have no adverse impact on access to health care services in the area; and create a projected volume that is reasonable. Moreover, the applicant must establish that it has an acceptable track record. See generally N.J.A.C. 8:33-4.9 to -4.10.*fn19

To evaluate whether the Commissioner's final agency decision here sufficiently adhered to these CN standards, we are guided by well-settled principles that constrain the appellate review of administrative agency decisions. As the Supreme Court has instructed, "[i]n administrative law, the overarching informative principle guiding appellate review requires that courts defer to the specialized or technical expertise of the agency charged with administration of a regulatory system." In re Application of Virtua-West Jersey Hosp. Voorhees for a Certificate of Need, 194 N.J. 413, 422 (2008) (citing In re Freshwater Wetlands Prot. Act Rules, 180 N.J. 478, 488-89 (2004)). "[A]n 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." Ibid. (emphasis added) (citing In re Hermann, 192 N.J. 19, 28 (2007); Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562 (1963)).*fn20

In that same vein, a "strong presumption of reasonableness must be accorded [to an] agency's exercise of its statutorily delegated duties." In re Certificate of Need Granted to the Harborage, 300 N.J. Super. 363, 380 (App. Div. 1997). Consequently, "[t]he burden of demonstrating that the agency's action was arbitrary, capricious or unreasonable rests upon the [party] challenging the administrative action." In re Arenas, 385 N.J. Super. 440, 443-44 (App. Div.), certif. denied, 188 N.J. 219 (2006). "Absent arbitrary, unreasonable or capricious action, the agency's determination must be affirmed." Wnuck v. N.J. Div. of Motor Vehicles, 337 N.J. Super. 52, 56 (App. Div. 2001) (citing R & R Mktg., L.L.C. v. Brown-Forman Corp., 158 N.J. 170, 175 (1999)). That said, we are not bound by the agency's views on matters of regulatory law. Levine v. State, Dep't of Transp., 338 N.J. Super. 28, 32 (App. Div. 2001) (citing G.S. v. Dep't of Human Servs., 157 N.J. 161, 170 (1999)); see also Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 93 (1973).


As a threshold matter, we reject appellants' contention that the Department violated the law, or that it acted arbitrarily and capriciously, by issuing in February 2011 what it described as a "limited" call for CN applications confined to the Bergen County area. Appellants maintain that the limited call was legally improper because it was issued without a preliminary finding of need or of extraordinary circumstances. We disagree.

The pertinent regulations are as follows. According to a schedule established by the Department, CN applications for new general hospitals may be submitted every five years. N.J.A.C. 8:33-4.1(a)(2). The last scheduled submission date for such a "fixed" call was April 1, 2011. N.J.A.C. 8:33-4.1(a)(2). The Department's acceptance of CN applications submitted in accordance with the fixed-call schedule "does not constitute a finding by the Department of need for the additional beds or services proposed in the application(s)." N.J.A.C. 8:33-4.1(a)(3). In fact, the Commissioner may cancel a regularly-scheduled call for a new general hospital, upon the provision of forty-five days notice, if he or she determines that there is insufficient need to support such a facility. N.J.S.A. 26:2H-7c(c).

If a health care provider wishes to submit a CN application for a new general hospital prior to the next scheduled fixed-call submission date, it can petition the Department to issue what is termed in the regulations as a "special call." N.J.A.C. 8:33-4.1(a)(4). The Department is authorized to issue such a special call upon a finding that there are "extraordinary circumstances that warrant such a call prior to the next scheduled submission date." Ibid.

Our Supreme Court has explained the interplay between such "regular" and "special" calls for CN applications as follows:

As N.J.A.C. 8:33-41(a) indicates, the general schedule of submission dates for CN applications subject to full review remains valid and outstanding unless it is deleted or specifically limited by the Commissioner. Importantly for those applications, the Commissioner is not bound to any predetermined identification of need for the service and, therefore, the applicant must convince the Commissioner that 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, and with specificity as to geographic region if applicable, the particular need for which applications are sought. [Virtua-West Jersey, supra, 194 N.J. at 428-29 (emphasis added).]

Englewood and Valley argue that the February 2011 "limited" call violated the Department's regulations, maintaining it was actually a "special" call that should have been preceded by an agency finding of need. They argue that the Commissioner's cancellation of the general call implicitly meant that she had determined that there was insufficient need for any new general hospitals in New Jersey. We reject this contention.

This is not a situation where, for example, a general call was cancelled based upon a finding of lack of need, and then months or years later, an application was made by a hospital for a mid-cycle "special" call pursuant to N.J.A.C. 8:33-41(a)(4). Because the Department canceled the general call and simultaneously replaced it with a "limited" call, such coordinated action logically signified that the Commissioner did not make any finding of a lack of need for a new hospital in Bergen County. To the contrary, the issuance of a limited call, one confined to that county, signified the recognized potential for such a need.

In its February 2011 notice, the Department conveyed that it was substituting a more "limited" call for the broad general call authorized under N.J.A.C. 8:33-4.1(a)(2). The five-year general fixed schedule of submitting CN applications for new general hospitals was not modified. As the Supreme Court has made clear, the Commissioner has the authority not only to cancel, but also to limit, general calls for CN applications. See Virtua-West Jersey, supra, 194 N.J. at 431. The Department's power to issue a comprehensive general call inherently subsumes the power to issue an alternative call of lesser scope, at or around the time when such a general call had been previously fixed. See Deborah Heart & Lung Ctr. v. Howard, 404 N.J. Super. 491, 503 (App. Div.) ("administrative agencies have wide discretion in selecting the means by which they must fulfill their missions"), certif. denied, 199 N.J. 129 (2009).

Conceivably, HUMC could have waited a few more months and submitted its CN application as a response to the regularly-scheduled April 1, 2011 general call, for which no preliminary finding of need was required. Instead, HUMC elected to submit its December 2010 petition requesting a less expansive call, so as to ensure that the April 1, 2011 call was not cancelled in its entirety. Given the discretion on such matters vested in the Commissioner, as expressly recognized by the Supreme Court in Virtua-West Jersey, we do not regard the limited call issued by the Department to be illegal or arbitrary. Both the timing of the limited call, and the words used by the Department within the text of its notice, reasonably support the Department's legal position that it had and properly exercised the authority to issue that call.


We next turn to appellants' various disagreements with the Commissioner's assessment of the merits of HUMC's CN application. Although they raise a host of specific arguments in an effort to undercut the Commissioner's decision, none of those arguments, either alone or cumulatively, suffices to overcome the strong presumption of validity that must be accorded to the Commissioner's exercise of regulatory judgment in this case.

On the issue of need, Valley and Englewood argue that in finding that HUMC North should be approved as an additional provider of health care in the area, the Commissioner allegedly focused only on the needs of HUMC, rather than those of the entire area, and failed to consider the capacity of other hospitals with available beds. Appellants further argue that the Commissioner improperly accepted at face value HUMC's assertion that it had no realistic way to expand its campus in Hackensack. Englewood also contends that the Commissioner erred in declining its request to reopen the record to consider HUMC's recent acquisition of Mountainside Hospital and the possibility that HUMC's patients could be accommodated there.

We are satisfied that the Commissioner's finding of need has a sound evidentiary and analytic foundation. Her final agency decision reasonably bespeaks a recognition that HUMC's overcrowding problem cannot be resolved by forcing patients to receive treatment at other area hospitals with bed availability, because patients generally will go where they prefer to be treated.

The occupancy data considered by the Commissioner shows that HUMC had significant and sustained gains in patient admissions from the former PVH core market following PVH's closure. Additionally, HUMC's occupancy rates have remained high, despite increasing its number of licensed beds. HUMC North can ease HUMC's burden by attracting HUMC's Pascack Valley and Rockland County patients, which should thereby free beds for area patients who are in need of the specialized services offered at HUMC's Hackensack campus. As the Commissioner reasonably found, the opening of HUMC North will allow for the more efficient provision of health care services in the region.

The Commissioner did not act arbitrarily in accepting HUMC's assertion that it lacked a realistic and efficient means to expand its campus in Hackensack. HUMC offered a cogent explanation as to why the expansion of its Hackensack campus would not be a practical alternative -- in terms of time, money, and on-site disruption. We defer to the Commissioner's acceptance of that explanation.

The Commissioner likewise did not abuse her discretion in declining to address the possibility that some of HUMC's Passaic County patients would shift to Mountainside Hospital in Montclair after HUMC acquired that facility in Essex County. The record suggests that Essex County has not previously been considered part of HUMC's own primary or secondary service area. The Commissioner was not obligated to send the CN application back to the SHPB for reconsideration because of this late development, particularly given her general and appropriate concern about the overall projected need for more beds in the area as the population ages.

On the subject of accessibility, Valley and Englewood argue that the Commissioner unfairly concluded, without any basis, that HUMC North was needed to reduce emergency travel times for Pascack Valley and Northern Valley residents. We disagree. The Commissioner's decision found that "travel time [for residents in HUMC North's core area]. . . could be impeded by the lack of a primary road system" and compounded by "[m]orning and evening rush hours." She concluded that the opening of HUMC North "should improve access and availability to emergency treatment." This limited finding was substantiated not only by HUMC's traffic study, but also by letters submitted to the Department from emergency services personnel, attesting to the difficulties they faced navigating Bergen County, as well as by patients anecdotally recounting their own difficulty in getting to an emergency room. Furthermore, the Commissioner's analysis makes clear that this issue was only one factor among many in her consideration of the availability of alternative facilities or services under N.J.S.A. 26:2H-8(a).

Valley argues that Commissioner O'Dowd erred in allegedly failing to take into account Commissioner Jacobs's decision approving the closure of PVH in 2007, as well as the findings in the 2006 Reinhardt report indicating a lack of need for more beds. Neither of these contentions are persuasive.

By the time that former Commissioner Jacobs made his finding in 2007 that PVH's patients could be absorbed by other hospitals in Bergen County, PVH had already closed, in response to an irreversible financial demise. Since the impetus that led PVH to seek closure had already occurred, the former Commissioner's 2007 decision, viewed properly in context, did not represent an affirmative and immutable finding that a new hospital in the area was not needed. In fact, Commissioner Jacobs explicitly stated "I am convinced that . . . closure of [PVH] is fiscally required." (Emphasis added). Furthermore, he allowed for the Westwood hospital to reopen through a transfer of PVH's license, if financial backers were found within the next twenty-four months. Moreover, several years have passed in the interim, and additional patient data has been generated for the Commissioner's consideration. Given these circumstances, it was not unreasonable for Commissioner O'Dowd to make an independent and current evaluation of patient need in 2012, without being constrained by the prior Commissioner's 2007 decision respecting PVH's fiscally-driven closure.

Nor did Commissioner O'Dowd act arbitrarily in declining to accept the recommendations of the Reinhardt report. By the time of the Commissioner's 2012 decision, the data upon which the Reinhardt Commission had relied was about six years old. The healthcare landscape in New Jersey has continuously evolved in the meantime. Commissioner O'Dowd had a sound basis to conclude that the loss of three hospitals within the HRP region since 2006 significantly undercut the Reinhardt Commission's earlier calculation of excess maintained beds for the area. In any event, Commissioner O'Dowd had the prerogative to reject the views of the Reinhardt Commission, just as she had the right to accept or reject opinions and projections from other sources and expert consultants. See, e.g., Animal Prot. League of N.J. v. N.J. Dep't of Envtl. Prot., 423 N.J. Super. 549, 562 (App. Div. 2011) (noting that an appellant's mere disagreement with an administrative agency's findings, "even if based on contradictory expert opinions, is insufficient to overcome the presumption of reasonableness ascribed to [the agency's] findings") certif. denied, 210 N.J. 108 (2012); Allen v. Hopewell Twp. Zoning Bd. of Adj., 227 N.J. Super. 574, 581 (App. Div. 1988) (recognizing the province of a governmental board to accept or reject the opinions presented by an objector's expert) certif. denied, 113 N.J. 655 (1988).

Valley and Englewood further argue that the Commissioner erred in failing to appreciate: evidence that overall demand for inpatient beds had been shrinking since 2006; predictions from their own experts of a net excess of at least 488 licensed beds in Bergen County by 2015; and expectations that national health care reform will reduce the demand for inpatient acute care services. Despite these assertions, the Commissioner was entitled to rely upon contrary indicia of growing inpatient bed need, as the population within the region becomes older and requires more services. Although the numbers surely can be debated, the Commissioner had sufficient grounds to interpret them in a manner indicative of a need for more beds in the Westwood vicinity.

Turning to the projected impact of CN approval for HUMC North upon their own operations, Valley and Englewood argue that the Commissioner erred by not adopting the Lewin Group's findings that they would sustain significant losses if their newly-acquired segment of Pascack Valley patients no longer utilized their own hospitals. Again, the Commissioner was not bound to accept such an expert forecast. Allen, supra, 227 N.J. Super. at 581. The Commissioner was entitled to adopt HUMC's projections of the wide geographical area from which HUMC North would draw its patients, and that some of its patients would be drawn from HUMC's main campus, thereby abating the potential extent of appellants' financial losses. The Commissioner also reasonably found that the opening of HUMC North with only 128 beds, as compared with PVH's former 275-bed operation, would preserve a sufficient market share for Valley and Englewood.

The Commissioner did not abuse her discretion in rejecting the conclusions contained in the Lewin Group report, which rested upon estimated 2008 data and, as described in the report, "high-level assumptions." Although we appreciate that Englewood, in particular, has experienced significant financial difficulties, we do not second-guess the Commissioner's judgment that those competitive difficulties do not trump the patient and community benefits offered by the reestablishment of a community hospital in Westwood.*fn21 The record is also suggestive that some of Englewood's financial problems may stem from unrelated labor disputes.

Lastly, we reject appellants' supposition that the issuance of a CN to HUMC North was granted simply to appease voters, without regard to the merits of the application. Regardless of what its political impact may or may not be, the Commissioner's detailed final agency decision withstands scrutiny on its own accord, as it provides more than ample credible reasons to justify the issuance of the CN.

As we have already noted, the Commissioner did take into account, with justification, the overwhelming desire of Pascack Valley residents to have a community hospital reopened in Westwood. We appreciate that it may be natural for residents in every community to desire a local hospital within minutes from their homes. But such community support was clearly not the only factor that the Commissioner considered here.

The market data generated since the closure of PVH, along with the many other analytic factors relied upon in the Commissioner's decision, provide reasonable support for her prudent exercise of regulatory judgment. We will not question the wisdom of her policy-laden assessment. See St. Barnabus Med. Ctr. v. Cnty. of Essex, 111 N.J. 67, 87 (1988) (noting the courts' deference to regulatory judgments, as well as legislative judgments, in deciding matters of policy) (Pollock, J., concurring); Local 518, N.J. State Motor Vehicle Emps. Union v. Div. of Motor Vehicles & Dep't of Personnel, 262 N.J. Super. 598, 606 (App. Div. 1993) (noting the judicial reluctance to question the wisdom of policy-oriented decisions made by administrative agencies).


Based upon the record before us, we conclude that the Commissioner's final agency decision to grant the CN to HUMC North, after extensive submissions and two public hearings, was neither arbitrary nor capricious and, in fact, was well within the confines of the statutory and regulatory framework. Appellants have failed to meet their burden of providing a "clear showing" as required by Virtua-West Jersey, supra, 194 N.J. at 422, to overcome the strong presumption that the agency's determination was reasonable.


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