CHRISTIAN HEALTH CARE CENTER VS. NEW JERSEY DEPARTMENT OF HEALTH CARRIER CLINIC VS. NEW JERSEY DEPARTMENTOF HEALTH (NEW JERSEY DEPARTMENT OF HEALTH) (CONSOLIDATED)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
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SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NOS. A-1781-17T2
A-1933-17T2

CHRISTIAN HEALTH CARE
CENTER,

Petitioner-Appellant,

v.

NEW JERSEY DEPARTMENT
OF HEALTH,

Respondent-Respondent.
_____________________________

CARRIER CLINIC,

Petitioner-Appellant,

v.

NEW JERSEY DEPARTMENT
OF HEALTH,

Respondent-Respondent.
_____________________________

Argued October 3, 2019 – Decided December 12, 2019

Before Judges Fisher, Accurso and Rose.
 On appeal from the New Jersey Department of Health,
Docket No. FR 17 0529-16-22.

Bruce Willard Clark argued the cause for appellants
Christian Health Care Center and Carrier Clinic (Clark
Michie LLP, attorneys; Bruce Willard Clark and
Christopher J. Michie, on the briefs).

Tanjika Nicole Williams-Parks, Deputy Attorney
General, argued the cause for respondent New Jersey
Department of Health (Gurbir S. Grewal, Attorney
General, attorney; Melissa H. Raksa, Assistant
Attorney General, of counsel; Tanjika Nicole Williams-
Parks, on the briefs).

Edwin F. Chociey argued the cause for respondents
Universal Health Services, Inc., Hampton Behavioral
Health Center and Summit Oaks Hospital (Riker
Danzig Scherer Hyland & Perretti LLP, attorneys;
Edwin F. Chociey and Glenn A. Clark, of counsel and
on the briefs).

PER CURIAM

Christian Health Care Center and Carrier Clinic – the operators of two

not-for-profit health care facilities – appeal a final decision of the Commissioner

of the New Jersey Department of Health that granted Universal Health Services,

Inc.'s applications for certificates of need to add beds to existing psychiatric

facilities and to open new facilities. Christian and Carrier argue the final

decision was arbitrary because the findings failed to adequately explain the need

for additional psychiatric beds, take into consideration the adverse impact on

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existing Christian and Carrier facilities, and failed to require Universal to

provide information on integral criteria. We agree and reverse.

I

The Health Care Facilities Planning Act, N.J.S.A. 26:2H-1 to -26,

designates the Department of Health to oversee the administration of private and

public healthcare institutions "of the highest quality, of demonstrated need,

efficiently provided and accessible at a reasonable cost," in order to protect and

promote the health of New Jersey residents. N.J.S.A. 26:2H-1. Under the Act,

a health care facility must apply for a certificate of need before constructing or

expanding a facility. N.J.S.A. 26:2H-7. Applications for certificates of need

may not be entertained "until the Commissioner invites such applications by a

general public notice," In re Certificate of Need Application of Arnold Walter

Nursing Home, 277 N.J. Super. 472, 476 (App. Div. 1994) (citing N.J.A.C. 8:33-

4.1(a)), or issues special calls for applications for an identified need, In re

Virtua-West Jersey Hosp. Voorhees for a Certificate of Need, 194 N.J. 413, 417

(2008).

The Department will not grant a certificate of need unless the proposal

provides "required health care in the area to be served, can be economically

accomplished and maintained, will not have an adverse economic or financial

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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. Specifically, the Department must 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.

[Ibid.; see also N.J.A.C. 8:33-4.9(a)(1)-(5); N.J.A.C.
8:33-4.10(b).]

In considering whether the Department has exceeded its authority or acted

arbitrarily in approving an application, we are guided by Virtua-West, where the

Court remanded because the Commissioner failed to discuss the impact on urban

hospitals likely to be affected. 194 N.J. at 434. The Act defined the protection

of urban hospitals as one of its legislative objectives and, therefore, required the

Commissioner to examine whether approving a certificate of need would

negatively affect those hospitals. Id. at 434-35; N.J.S.A. 26:2H-6.1(h). In

determining that the Commissioner "did not analyze, in any meaningful way,"

whether the grant would have "an adverse impact on the region's urban

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hospitals," the Court found that omission to constitute "a critical failing in a

proceeding that has, as one of its pillars, avoidance of negative impacts on the

delivery of health care services in the region." Virtua-West, 194 N.J. at 436.

The Court emphasized that its role was not to reexamine the strength of the

application, but to search the final agency decision for arbitrariness:

As far as her decision reveals, the Commissioner
uncritically accepted Virtua's position without
examining and explaining her response to the positions
advanced by the objectors. Virtua contends that
petitioners' concerns are speculative. That may prove
to be true, but on this record we cannot be sure. It may
be that there was a basis for her to reach her conclusion
to do so, but her decision gives little comfort that the
required analysis took place.

[Ibid.]

In Arnold Walter Nursing Home, the Department scored the applications

on a point system similar to that used here and denied an application because

the applicant scored one point less for failing to provide documentation showing

a "need of the magnitude" for the type of bed. 277 N.J. Super. at 478. We held

that the one-point difference in the criteria without a proper explanation was

arbitrary; we were also critical because the Commissioner's decision was "one

of mechanics rather than substance." Id. at 482. We have found arbitrary other

unexplained or mechanical determinations. See In re Valley Hosp., 240 N.J.

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Super. 301, 305 (App. Div. 1990); In re Bloomingdale Convalescent Ctr., 233

N.J. Super. 46, 54-55 (App. Div. 1989). With this understanding of the court's

role in such a controversy, we turn to the agency determinations in question.

II

The record reveals that Carrier is a not-for-profit health care facility in

Somerset County that specializes in psychiatric and substance abuse addiction

treatment. The facility includes a 281-bed inpatient psychiatric hospital, a 32-

bed detoxification and rehabilitation center, and a 78-bed adolescent residential

facility. Christian owns and operates the Ramapo Ridge Psychiatric Hospital in

Bergen County that includes a not-for-profit 58-bed facility offering inpatient

and outpatient care; it also possesses an existing authorization from the

Department to add twenty more psychiatric beds. Carrier Clinic and Ramapo

Ridge receive referrals from many parts of New Jersey as well referrals from

sources outside the State.

After finding in January 2015 that there was no need for additional

psychiatric beds, the Department found in February 2017 "an increasing need

for more adult acute care psychiatric beds" and established a need of forty beds

per 100,000 adults. The Commissioner invited certificate of need applications

by May 1, 2017; the call notice expressed a determined need for an additional

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864 psychiatric beds across fourteen counties. The Department's "guidance

document" advised applicants to respond to all components, impressing on them,

in particular, a need to "[i]dentify all other institutions in the service area(s)"

and a need to "[d]iscuss the anticipated impact of this project on these other

institutions."

The Department received thirty applications, including four from

Universal, which owns and manages Summit Oaks Hospital and Hampton

Behavioral Health Center branches in New Jersey. Universal applied for

approval of: (1) a new 120-bed Summit Oaks facility in Passaic County; (2) the

addition of forty-eight beds to an existing Summit Oaks facility in Union

County; (3) a new 120-bed Hampton facility in Monmouth County; and (4) the

addition of forty-eight beds to an existing Hampton facility in Burlington

County.

Universal's proposed Passaic County facility is a subject of these appeals

due to its proximity to and impact on Carrier's and Christian's facilities. With

respect to that proposed facility, on June 12, 2017, the Department asked

Universal to provide additional information to show that "[t]he approval will not

have an adverse economic or financial impact on the delivery of health care

services in the region or statewide[.]" Universal responded that:

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 Metrics available from The Joint Commission and CMS
show that [Universal] facilities provide effective health
care services. For example, using various rating scales
that measure severity, patients at [Universal] facilities
see[] improvements in Behavior and Symptom
Identification, Brief Psychiatric, Geriatric Psychotic
Dependency, and Geriatric Depression. 95% of
[Universal] facilities are at or above the national
average on measures like Restraint Duration, Discharge
Continuing Care Plan completed, and Continuing Care
Plan sent on to the next provider. In 2015, 87% of
[Universal] facilities met or exceeded the national
average on Joint Commission Inpatient Psychiatric
Measures; 70% of [Universal] facilities exceeded 95%
whereas only 43% of facilities nationwide hit that level.
[Universal] establishes benchmarks for restraint and
seclusion, patient and staff injury, medication errors
and falls.

Upon review, the Department "propose[d] to award" to Universal on all

four applications, "the full complement of its requested beds[.]" The

Department scored all criteria "to ensure that all applicable statutory and

regulatory criteria were taken into account when evaluating each application[.]"

Scoring was divided into five mandatory categories (based on statutory and

regulatory criteria) and three optional categories (based on the special

considerations identified in the call). The Department determined that every

application would receive a minimum score of eight with respect to the second

mandatory criteria – impact on nearby facilities – with the possibility of up to

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two additional points if applicants provided letters of support. The minimum

score was based on the Department's determination that there was a need:

for a significant number of additional adult acute
psychiatric beds in specific counties. Because the need
for additional beds was so great, Department staff
determined that the award of those additional beds to
the applicants would not have an adverse economic
impact on the delivery of services in the region or
statewide and would improve the orderly development
of adequate and effective health care.

Universal received ten points in this category on all its applications. The

Department awarded the additional two points because Universal included a

letter of support from Princeton House Behavioral Health, which it claimed was

a competing facility despite its location in Mercer County.

In October 2017, the State Health Planning Board met to consider the

applications. Christian objected to the application for Summit Oaks in Passaic

County; its chief executive officer expressed concern that the application for a

new 120-bed facility "will most certainly have a material negative impact on

[Ramapo Ridge's] occupancy level and a decrease on [Ramapo Ridge's]

efficiencies and [] financial health" because, although Ramapo Ridge was in

Bergen County, it is near Passaic County and receives patients from that area.

He also noted that the only supporting letter was from the distant Princeton

House. When asked if the Board considered the effect on Ramapo Ridge, the

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Department's Director stated that "we didn't pay attention to the impact on other

providers because the need was so great that it didn't appear that it would have

a significant impact on anybody." In response to the same question, the Board's

Chair said, "I think you only have to talk to the hospitals about their emergency

rooms to know that the bed need isn't being met." One Board member added

that "the applicant did indicate that certainly the statistics of the county indicate

that even with Ramapo, that these [needs] are not being sufficiently met by a

fairly large degree, and I felt that the needs are going to go up[.]" The Board

recommended approval of Universal's applications, which were in fact approved

in November 2017.

III

In appealing, Carrier and Christian argue that the Department: (a) failed

to explain its factual basis for determining that forty psychiatric beds were

needed per 100,000 adults or adequately respond to the assertion that it skewed

whatever factual analysis it undertook by failing to account for pre-approved but

not-yet-implemented beds; (b) failed to adequately consider or address the

impact Universal's proposals would have on existing facilities or the availability

of sufficient manpower to staff these proposed facilities; and (c) mistakenly

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accepted Universal's applications despite Universal's failure to address all the

required elements of such an application.

In reviewing these arguments, we must give substantial deference to the

agency's specialized or technical expertise, Virtua-West, 194 N.J. at 422, and

we will not disturb agency actions or omissions unless the agency acted

arbitrarily or unreasonably, failed to follow the law, or made determinations

lacking support from relevant factors. In re Herrmann, 192 N.J. 19, 28 (2007);

Bergen Pines Cty. Hosp. v. N.J. Dep't of Human Servs., 96 N.J. 456, 477 (1984).

In reviewing a final decision, we expect that the administrative agency will

"state the basis of [the] decision with clarity; and, with sufficiency, to articulate

the factual determinations and legal standards that inform the action taken."

Arnold Walter Nursing Home, 277 N.J. Super. at 479; Holy Name Hosp. v. N.J.

Health Care Admin. Bd., 258 N.J. Super. 411, 415-16 (App. Div. 1992). The

requirement that an agency provide interested parties with the reasoning behind

its decision-making is "far from a technicality"; it is "a matter of substance." In

re Issuance of a Permit, 120 N.J. 164, 173 (1990) (quoting N.J. Bell Tel. Co. v.

Commc'ns Workers of Am., 5 N.J. 354, 375 (1950)). In the final analysis, we

cannot properly review a case "in the absence of a particularized and detailed

articulation of the Commissioner's assessment of the salient features of each

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application, how the various applications compare to each other, and how each

serves or fails to serve public health needs as expressed by the Legislature and

in effecting regulations." Arnold Walter Nursing Home, 277 N.J. Super. at 483;

Holy Name Hosp., 301 N.J. Super. 282, 292 (App. Div. 1997).

A

We turn first to an argument both Christian and Carrier pose about the

Department's methodology for determining a need for psychiatric beds.

Christian and Carrier argue that in ascertaining a need, the Department

"inexplicably excluded inventory of already approved psychiatric beds,"

providing as an example that Ramapo Ridge holds outstanding authorization

from the Department to add twenty more psychiatric beds to its facility. In

responding to this argument, the Department doesn't dispute that these beds were

excluded from its calculations, only that it "could not count beds that have not

been implemented." This is an insufficient response. While inclusion of the

unimplemented beds would not enlighten as to the number of beds actually in

use, that figure would be relevant to determining what additional need beyond

those in use was required throughout the State. By the same token, Christian

and Carrier argue that the Department didn't factor in the existing inventory of

psychiatric beds at certain private hospitals, citing as an example the apparent

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disregard of the 150 drug-addiction beds operated by American Addiction

Centers in Ringwood.

Christian and Carrier also rightfully question how the Department went

from cancelling, in January 2015, a call for applications for certificates of need

because "there was no indication of a present need for additional beds and

services for this population," to suddenly, two years later, finding a need of an

additional forty beds per 100,000 adults. Besides the inexplicable failure to

count either beds that had already been authorized but not implemented or the

availability of private beds, the Department also acknowledged in its call notice

the significant variance between its two methodologies for calculating need, one

which provided a range between only eighteen to twenty beds per 100,000

adults, and the other forty to sixty beds per 100,000 adults. The Department

appears to have discounted the former and opted for the latter's lower end –

without explanation – by simply declaring that it "has established a bed need of

40 adult psychiatric beds per 100,000 adults." At a public hearing, the

Department could do no better than to explain this conclusion by baldly asserting

"that the 40 beds per [one-hundred] thousand is a coalescing. There were some

[calculations] that were higher than that, so we think that that 40 is good, but

you never know" (emphasis added).

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 Considering that even now the Department can provide no explanation of

the decision not to incorporate in its factual analysis the existence of

unimplemented beds or the availability of certain private psychiatric beds, or to

otherwise explain its decision to assume that forty beds per 100,000 adults was

appropriate – because that number was at the bottom of the range of the higher

calculation without explaining the rejection of the methodology which projected

a much lower need – poses grave questions about the reasonableness of its

factual determination. The Supreme Court has held that such a decision must

be based on a "meaningful" analysis, In re Virtua-West, 194 N.J. at 436; see also

Holy Name Hosp., 301 N.J. Super. at 292. On this record, we must conclude

the Department's determination of a need was unreasonable and arbitrary.

B

We reverse as well because of the Department's error in accepting

Universal's applications despite Universal's failure to address the potential

adverse economic or financial impact of its proposed project on existing

facilities. In response to that contention, the Department argues that it addressed

the impact on nearby facilities and determined that, because the need level was

so great, the operation of existing facilities would not be impacted. This

assumption that there would be no particular impact because the statewide need

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was so great rests on a determination that was not shown to be based on the

actual facts. Even if we could find in this record a reason for the conclusion that

there was a great statewide need for additional psychiatric beds, we reject the

argument that no further evidence of an impact was required.

In simply drawing such a conclusion, the Department mistakenly strayed

from the Act's requirements and conveyed an ultimate opinion without relying

on adequate factual support from the record. See Valley Hosp., 240 N.J. Super.

at 308-09. Indeed, the Commissioner attempted to sweep most of the statutory

requirements into the following single sentence:

I also find that the [Board] sufficiently reviewed the
potential impact on services, and that the applicant has
demonstrated that the proposed project can be
economically accomplished and maintained, will not
have an adverse economic or financial impact on the
delivery of health services in the region or statewide,
and will continue the orderly development of adequate
and effective health care services.

That is insufficient. The Department is required to base its findings on "the

necessary facts" together with an "expla[nation] [of] its reasoning"; "[i] n other

words, it is obliged '. . . to tell us why'" it drew its conclusion. Valley Hosp.,

240 N.J. Super. at 306 (quoting Drake v. Human Services Dept., 186 N.J. Super.

532, 538 (App. Div. 1982)). The type of findings that will commend our

deference are those which, at a most basic level, "show how and why the

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Commissioner made up h[er] mind the way [s]he did." Id. at 307 (quoting In re

Application of Howard Sav. Inst., 32 N.J. 29, 52-53 (1960)).

We acknowledge that administrative agencies have a certain level of

expertise and are owed deference when exercising that expertise. Arnold Walter

Nursing Home, 277 N.J. Super. at 483. And, when rendering decisions,

including those before us, the agency need not regurgitate all data in the record

used to support that decision. Valley Hosp., 240 N.J. Super. at 307. But the

agency must produce a decision that clarifies, "without question or doubt[,] what

facts and factors led to the ultimate conclusions reached." Ibid. That didn't

happen here. We have not been provided with an understanding of the

"information the Commissioner thought significant and worthy of relianc e" in

support of the decision. Holy Name Hosp., 258 N.J. Super. at 417. We have

only been presented with generalities and have been left to guess whether the

Commissioner properly analyzed Universal's applications. See Virtua-West,

194 N.J. at 436.

C

We also agree that the Department erred by failing to reject Universal's

applications because of Universal's failure to provide a response to the

established criteria. Although an applicant must provide "compelling evidence"

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to support the statutory criteria, Matter of Visiting Nurse Ass'n of Sussex Cty.,

Inc., 302 N.J. Super. 85, 97 (App. Div. 1997), the duty to ensure proposed

facilities will adhere to the criteria "lies squarely with the Commissioner."

Virtua-West, 194 N.J. at 436.

Although applicants were directed by the Department to provide an

explanation of the statutory criteria, the record clearly establishes that Universal

failed to adequately explain its position on at least three important criteria. For

example, as for its application to build a psychiatric hospital in Passaic County,

Universal was obligated to provide – per the Department's "guidance document"

– information about "[t]he availability of facilities or services which may serve

as alternatives or substitutes[.]" Universal responded that "[t]here are two acute

care facilities in Morris . . ., one in Passaic (St. Joseph's Hospital and Medical

Center) and one in Sussex . . .," and then asserted that the "combined occupancy

rates for current beds are above 80% in Morris and Sussex Counties" (emphasis

added), without demonstrating what this would do to the availability of facilities

or services in Passaic County.

In addressing the "availability of sufficient manpower in the several

professional disciplines," Universal provided only a general statement that it is

"currently not experiencing difficulties in maintaining staffing levels at its

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[other] facilities," as well as its unsupported assurances that it does "not expect[]

difficulties in filling the positions" needed to staff the proposed facility.

And in opining on whether the approval will "have an adverse economic

or financial impact on the delivery of health care services in the region or

statewide," Universal provided only a general discussion of the record of its

parent company that seems based on its performance outside the State.

We also note that Universal was obligated to provide letters of support

from competing facilities, yet provided only one letter from Princeton House in

Mercer County, a significant distance from Christian's facility in Bergen

County.

It is abundantly clear from a close examination of the record, in light of

the issues raised, that Universal's applications are deficient. The Department

mistakenly saw no problem because it viewed the statewide need for adult

psychiatric beds as being so great. This was acknowledged by the Department

Director when he said at a public hearing at which such objections were voiced,

that the Department "didn't pay attention to the impact on other providers [.]"

***

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 For these reasons, we conclude that the Department's determinations that

there was a need for additional adult psychiatric beds – and its approval of

Universal's applications – cannot stand.

Reversed.

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