IN THE MATTER OF REQUEST FOR AGENCY RULING UNDER N.J.S.A. 52:14B-8 (DEPARTMENT OF HEALTH) ( 2022 )

NOT FOR PUBLICATION WITHOUT THE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
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4431-19
IN THE MATTER OF
REQUEST FOR AGENCY
RULING UNDER N.J.S.A.
52:14B-8.
________________________
Argued December 15, 2021 – Decided January 3, 2022
Before Judges Hoffman, Geiger and Susswein.
On appeal from the New Jersey Department of Health.
James P. Flynn argued the cause for appellant Bayonne
Medical Center, LLC (Epstein Becker & Green, PC
attorneys; James P. Flynn and Sheila Woolson, of
counsel and on the briefs).
Francis X. Baker, Deputy Attorney General, argued the
cause for respondent New Jersey Department of Health
(Andrew J. Bruck, Acting Attorney General, attorney;
Melissa H. Raksa, Assistant Attorney General, of
counsel; Francis X. Baker, on the brief).
Thomas A. Abbate argued the cause for intervenors
NJMHMC, LLC and 29 E 29 Street Holdings, LLC
(Decotiis, Fitzpatrick, Cole & Giblin, LLP, attorneys;
Jeffery D. Smith, of counsel; Thomas A. Abbate, on the
brief).
Lawrence Bluestone argued the cause for intervenor
WTFK Bayonne, LLC (Genova Burns LLC, attorneys,
join in the brief of intervenors NJMHMS, LLC and 29
E. 29 Street Holdings, LLC).
PER CURIAM
This appeal concerns a final agency decision of the New Jersey
Department of Health (Department), in response to a petition filed by Appellant
Bayonne Medical Center, LLC (BMC), for a declaratory ruling that a Certificate
of Need (CN) was required for the transfer of real property from respondent-
intervenor WTFK Propco, LLC (WTFK) to respondent-intervenor NJMHMC,
LLC, doing business as Hudson Regional Hospital (HRH). Bayonne Medical
Center, an acute care hospital, is located on the subject property (the Property).
We affirm.
We glean the following facts from the record. In February 2008,
ownership of Bayonne Medical Center was transferred from Bayonne Medical
Center, Inc. to IJKG Opco, LLC (IJKG), doing business as CarePoint Health-
Bayonne Medical Center. IJKG applied for and received a license and a CN to
operate the hospital as a general acute care hospital. In February 2011, IJKG
entered into a lease with Medical Properties Trust (MPT), which then owned the
Property where the hospital was situated. Under the terms of the lease, IJKG
maintained ownership and responsibility for assets and operation of the hospital,
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while MPT maintained ownership of the Property. The lease allowed IJKG to
sublease the Property, subject to MPT's consent. In March 2020, IJKG agreed
to sublease the Property to BMC.
In or about November 2019, MPT sold the Property to WTFK. Because
the transaction was limited to the sale of the Property and did not affect the
operation of any health care facility on the Property, a CN was not sought or
obtained in connection with the conveyance of the real estate. Then, on June 1,
2020, HRH announced it reached an agreement to purchase the Property from
WTFK. The sale of the Property closed on August 10, 2020. The sale made
HRH the lessor to IJKG, 1 which still sought to sublease to BMC.
While the real estate transaction was underway, through a March 2020
Letter of Intent and a June 2020 Asset Purchase and Sale Agreement, IJKG
agreed to sell the assets of Bayonne Medical Center to BMC, subject to both CN
approval by the Department, and HRH's approval as required by the lease.
Because the proposed sublease involved a transfer of the operation of a
general hospital, a CN was required pursuant to N.J.A.C. 8:33-3.3(a). On April
1, 2020, IJKG filed an application requesting expedited CN approval of the
transfer of the hospital to BMC. On June 25, 2020, the Department advised
1
IJKG is not a party to this appeal.
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BMC that the CN application could not be reviewed on an expedited basis
because N.J.A.C. 8:33-3.3 mandates that CNs for the transfer of ownership of a
general hospital must undergo full review as set forth in N.J.A.C. 8:33-4.1(a).
Neither WTFK nor HRH consented to BMC taking over operation of
Bayonne Medical Center as a sublessee. BMC contends there was "zero chance"
HRH would agree to the sublease to BMC. HRH rejected BMC's request to
approve the sublease, determining that BMC was unqualified.
On July 10, 2020, BMC petitioned the Department to issue a declaratory
judgment under N.J.S.A. 52:14B-8 regarding whether a CN was required for the
transfer of the property from WTFK to HRH. WTFK opposed the petition,
contending that its pending contract with HRH was "for the sale of real estate
only and has no impact on the health care facility license held by the current
tenant of Bayonne Hospital." WTFK also contended a pure real estate
transaction "does not increase or establish an ownership interest in a 'health care
facility,' as required by N.J.A.C. 8:33-3.3(f)" and is exempt from the
requirement for CN approval. In its reply, BMC argues that the Department
should exercise jurisdiction over the real estate sale because recent amendments
to N.J.S.A. 26:2H-5.1(b) "extended the Departments control over the transfer of
title for real property on which a hospital operates . . . ." BMC further contended
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that the amendments should apply retroactively even though the statute indicates
the amendments took effect on July 20, 2020.
The Department undertook a contextual review of the enabling legislation,
the Health Care Facilities Planning Act (the Act), N.J.S.A. 26:2H-1 to -26, and
the Department's own implementing regulation, N.J.A.C. 8:33-3.3(f), and found
that the transfer of real estate by an entity disassociated from the operation of a
hospital does not require a CN. Accordingly, on July 31, 2020, the Deputy
Commissioner of Health Systems responded to BMC's request and stated that a
declaratory ruling was unnecessary.
The Deputy Commissioner explained that "[t]he Department has
consistently interpreted the statutes and rules governing CN[s], including
N.J.A.C. 8:33[-3.3](f)(4), as not extending to the sale of real property where a
licensed health facility is located, unless it involves a change in ownership and
operator of the facility." The Deputy Commissioner further explained "that the
CN standard of review found at N.J.S.A. 26:2H-8 and N.J.A.C. 8:33-4.9 have
no practical bearing on a real estate transaction." The Department declined to
depart from its longstanding interpretation of its regulations without engaging
in formal rulemaking, noting that to do so "could arguably be viewed as ad hoc
rulemaking contrary to the Administrative Procedure Act (APA), N.J.S.A.
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52:14B-1 [to -31], and the Office of Administrative Law's Rules for Agency
Rule Making, N.J.A.C. 1:30-1 [to -6.7]."
The Deputy Commissioner noted that the Department's authority comes
from the Healthcare Facilities Planning Act, N.J.S.A. 26:2H-1 to -26, to
"regulate health care providers and services, not real property transactions." The
specific requirement for a Certificate of Need is found in N.J.S.A. 26:2H-7 and
states, "[n]o health care facility shall be constructed or expanded, and no new
health care service shall be instituted" without a certificate. The Deputy
Commissioner reiterated that "[s]ince this proposed transaction does not involve
the construction of a new hospital by a currently licensed hospital, but rather the
ownership of the land where a hospital is located, no CN is required under the
[statute]."
Finally, the Deputy Commissioner stated: "When IJKG, LLC was
awarded a CN by the Department to operate Bayonne Medical Center, no CN
was required for [MPT] to acquire title to [the Property]. Furthermore, when
[WTFK] acquired the [the Property] from [MPT], that transaction also did not
require a CN." She added that "[t]he Department has not historically required a
CN for transactions solely involving the land on which a health care facility is
located." This appeal followed.
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We denied BMC's motion to supplement the record and granted WTFK's
motion to strike the references to the proposed supplemental materials from
BMC's brief. We also granted the Department's motion to strike references to
the supplemental materials contained in BMC's amended brief.
BMC raises the following points for our consideration:
POINT I
A CN IS REQUIRED TO TRANSFER THE REAL
PROPERTY ON WHICH A HOSPITAL OPERATES.
POINT II
THE TRANSFER OF TITLE TO THE BAYONNE
REAL PROPERTY REQUIRES A CN.
POINT III
REQUIRING THE DEPARTMENT TO INTERPRET
AND APPLY THE CN REGULATIONS
CONSISTENT WITH THEIR PLAIN LANGUAGE IS
NOT RULEMAKING.
We are guided by the following well-established legal principles.
"Appellate review of an agency's determination is limited in scope." Circus
Liquors, Inc. v. Governing Body of Middletown Twp., 199 N.J. 1, 9 (2009).
"[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
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unreasonable; or (3) the decision was not supported by substantial evidence." In
re Virtua-West Jersey Hosp., 194 N.J. 413, 422 (2008). When undertaking that
review, we examine:
(1) whether the agency's action violates express or
implied legislative policies . . .;
(2) whether the record contains substantial evidence to
support the findings on which the agency based its
action; and
(3) whether in applying the legislative policies to the
facts, the agency clearly erred in reaching a conclusion
that could not reasonably have been made on a showing
of the relevant factors.
[Allstars Auto Grp., Inc. v. N.J. Motor Vehicle
Comm'n, 234 N.J. 150, 157 (2018).]
Where an agency's decision satisfies these criteria, an appellate court
should accord substantial deference to the agency's fact-finding and legal
conclusions, recognizing "the agency's 'expertise and superior knowledge of a
particular field.'" Circus Liquors, 199 N.J. at 10 (quoting Greenwood v. State
Police Training Ctr., 127 N.J. 500, 513 (1992)). "An administrative agency's
interpretation of a statute it is charged with enforcing is entitled to great weight."
In re Saddle River, 71 N.J. 14, 24 (1976). The Appellate Division accords great
deference to an agency's "interpretation and implementation of its rules
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enforcing the statutes for which it is responsible." In re Freshwater Wetlands
Prot. Act Rules, 180 N.J. 478, 489 (2004).
The party challenging the agency's action bears the burden of
demonstrating that the agency's action was arbitrary, capricious, or
unreasonable. Lavezzi v. State, 219 N.J. 163, 171 (2014) (citing In re J.S., 431
N.J. Super. 321, 329 (App. Div. 2013)).
We begin our analysis by reviewing the language of the statute and
regulations. In 1971, New Jersey adopted the Health Care Facilities Planning
Act (the Act), N.J.S.A. 26:2H-1 to -26, which sets forth a regulatory system
intended to provide residents with high-quality health care services at a
contained cost. N.J.S.A. 26:2H-1.
N.J.S.A. 26:2H-7 provides in pertinent part: "No health care facility shall
be constructed or expanded, and no new health care service shall be instituted
after the effective date of [the Act] except upon application for and receipt of a
[CN] as provided by [the Act]." N.J.S.A. 26:2H-7 applies to "[t]he initiation of
any health care service," "[t]he purchase . . . of major movable equipment whose
total cost is over $2 million"; and "[t]he expenditure by a licensed health care
facility of over $2 million for construction of a new health care facility[.]"
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Notably, N.J.S.A. 26:2H-7 does not state it is applicable to the purchase of land
on which an existing health care facility is located.
Similarly, N.J.A.C. 8:33-1.1(b) provides that the CN rules promulgated to
implement the Act and the Certificate of Need Act, L. 1998, c. 43, "apply to the
initiation, construction, and/or expansion of all health care facilities and services
identified in the [Act] . . ." N.J.A.C. 8:33-3.3(a) provides that a CN is required
for "a transfer of ownership . . . of an entire general hospital" or a "transfer that
will result in a new Medicare provider number for the hospitals involved in the
transfer . . . ."
In contrast, N.J.A.C. 8:33-3.3(f) provides that the CN regulations apply to
any entity that "is the licensed operator of a facility or which owns the facility's
real property." In turn, N.J.A.C. 8:33-3.3(f)(4) defines "ownership" of a health
care facility to include not only "shares of stock" or "[o]wnership of a
proprietorship or any other entity which operates a health care facility[,]" but
also "holding title to real property which is used to operate the health care
facility . . . ." Relying on N.J.A.C. 8:33-3.3, BMC argues that a CN is required
to "sell or change ownership of the real estate of an acute care hospital or its
operations."
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BMC supports its argument with the 1998 revisions to the Act. The Senate
and Budget Appropriations Committee Statement on the amendments to
N.J.S.A. 26:2H-6.1, states: "To ensure community input when ownership of an
acute care hospital is to be transferred or a health care facility or service which
is subject to CN requirements may be closed or eliminated . . . the bill requires
the State Health Planning Board to conduct at least one public hearing in the
area . . . ." S. 1181 (1998) (Committee Amendments). BMC contends the
Department has improperly refused "to enforce the clear language of its
regulations and the clear intent of the statutory policy underlying those
regulations."
BMC also relies on N.J.S.A. 26:2H-5(e), which focuses on conditions of
licensure of a general hospital. Finally, BMC cites to N.J.S.A. 26:2H-14 which
focuses on operation of a hospital without a license and the associated penalties.
We are unpersuaded by these arguments. The 1998 amendments and
comments do not specify that a CN is required to transfer real property when
operations will not be affected. N.J.S.A. 26:2H-5(e) does not regulate CNs.
N.J.S.A. 26:2H-14 does not enforce CN requirements. Nor is there any
contention that the transfer resulted in a new Medicare provider number for the
hospital. More fundamentally, the transfer of the Property does not include a
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transfer of ownership of an entire general hospital or directly affect the operation
of the hospital or its licensure.
Moreover, the plain language of the statute governing the issuance of CNs
reveals no legislative intent to require the issuance of a new CN when only the
real estate is transferred. To obtain a CN, an applicant must demonstrate that
the proposed action:
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; see also N.J.A.C. 8:33-4.9(a).]
In addition, CN applicants must demonstrate that the proposed action will
promote access to low-income persons, racial minorities, and enhance the
quality of care. N.J.A.C. 8:33-4.10(a)-(b).
The factors the Department must consider include:
(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
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disciplines, and (f) such other factors as may be
established by regulation. The State Health Plan may
also be considered in determining whether to approve a
[CN] application.
[N.J.S.A. 26:2H-8; see also N.J.A.C. 8:33-4.9(a).]
The existing CN for Bayonne Medical Center was issued after consideration of
these factors, which are not pertinent to a transfer of the Property that does not
include transfer of the hospital. Therefore, reconsideration of these factors
because of a pure real estate transaction is unnecessary.
Upon issuance of a CN for an acute care hospital, the recipient may apply
for and receive an operating license from the Department, upon satisfying
related substantive regulatory criteria.
The Department noted that the Act "vests the Department with authority
to regulate healthcare providers and services, not real property transaction." It
correctly observed that the primary focus of the Act is to regulate licensed health
care facilities, not commercial real estate transactions. "Healthcare facility" is
a statutory term of art. A real estate transaction between two entities that are
not engaging in regulated activity within the scope of the Act, is not a regulated
event giving rise to the requirement for obtaining a CN. The Department further
observed that requiring CN approval for a pure real estate transfer would
contradict the Department's longstanding interpretation of the Act and its
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implementing regulations that CN approval was not required if the conveyance
does not involve a change in ownership or operator of a licensed health care
facility. Imposing a requirement of CN approval in such circumstances would
arguably require formal rulemaking, not an ad hoc declaratory ruling.
We have recognized that "'[t]he paramount objective of the Act is to
promote only those 'highest quality' health care services that are justifiable in a
cost benefit sense[,]' and N.J.S.A. 26:2H-7 accomplishes this goal by placing a
direct check on proposed expansion programs." Radiological Soc'y of N.J. v.
N.J. State Dep't of Health, 208 N.J. Super. 548, 552-53 (App. Div. 1986)
(quoting In re 1976 Hosp. Reimbursement For William B. Kessler Mem'l Hosp.,
78 N.J. 564, 583 (1979) (Handler, J., concurring)).
As to the applicability of N.J.S.A. 26:2H-5.1b(a)(3), which now requires
a hospital to "notify the Department no less than [ninety] days prior to signing
an agreement for the sale or lease of land or property on which a hospital is
located[,]" the Department viewed the enactment of this section as evidence that
CN approval is not required to sell the real estate. The Department noted it was
"well known to the regulated community" that CN approval was not required.
Under N.J.S.A. 26:2H-7, a CN is only required to initiate a "health care
facility" or "health care service" as defined by N.J.S.A. 26:2H-2. In turn, the
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Department's implementing regulations define "health care facility" more
narrowly, providing that a health care facility is "the facility or institution . . .
engaged principally in providing services for . . . diagnosis or treatment of
human disease, pain, injury, deformity or physical condition, including, but not
limited to, a general hospital . . . ." N.J.A.C. 8:33-1.3. The regulations clearly
do not apply to the owner of the underlying real estate upon which the facility
is located if the owner itself does not provide medical services. Such is the case
here, where the owner of the Property is not a health care provider.
We recognize that N.J.A.C. 8:33-3.3(f) states that it applies to an entity
"which owns the facility's real property" and that "a transfer of ownership which
requires a [CN] is defined as an acquisition or transfer which will increase or
establish an ownership interest in a health care facility, as defined in N.J.A.C.
8:33-1.3, through purchase, lease . . . ." In this case neither WTFK nor HRH
held a CN for the hospital, were licensed to operate a hospital, or at any time
operated the hospital. Requiring them to obtain a CN as a result of the sale of
the underlying real estate misconstrues the legislative scheme of the Act and the
regulatory scheme of the implementing rules. Moreover, a regulation "should
be construed . . . in a manner that makes sense when read in the context of the
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entire regulation." Medford Convalescent & Nursing Ctr. v. Div. of Med.
Assistance & Health Servs., 218 N.J. Super. 1, 5 (App. Div. 1985).
The sale of the Property did not involve the construction or expansion of
a health care facility or the provision of a new health care service. See N.J.S.A.
26:2H-7. Nor did it involve the purchase of "major moveable equipment whose
total cost is over $2 million." Ibid. Moreover, the "action proposed" did not
involve a new health care facility or service as contemplated by N.J.S.A. 26:2H-
8. The hospital and the services it rendered already existed and were not
changed by the conveyance of the Property.
The purpose of the rules is to implement the provisions of the Act.
N.J.A.C. 8:33-1.1(a). They are intended to be consistent with the Act. To that
end, the rules mirror certain language in the Act. For example, the rules state
that they "apply to the initiation, construction and/or expansion of all health care
facilities and services as identified in [the Act] . . . ." N.J.A.C. 8:33-1.1(b).
Imposing additional CN requirements would be contrary to the legislature's
findings and declarations expressed in N.J.S.A. 26:2H-6.1 and would serve no
purpose or goal envisioned by the Act.
Since neither WTFK nor HRH operated or conducted the hospital, they
were not required to obtain a license to do so. See N.J.S.A. 26:2H-14 (requiring
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any entity that operates or conducts a health care facility to first obtain the
license required by the Act). In addition, the notice to the Department required
by N.J.S.A. 26:2H-5.1b(a)(3) as a condition of licensure, only applies to a
"hospital's intent to sign an agreement to sell or lease land or property on which
the hospital is located." The hospital never owned or agreed to sell the Property.
In this case, requiring the new owner of the Property, which does not
operate the hospital or provide health care services, to obtain a CN would serve
no legitimate purpose and makes no sense. The Department's longstanding
interpretation of the Act is based on this recognition. The Legislature has not
amended the Act to override that interpretation.
"Substantial deference" to the Department's "construction" of its enabling
legislation "is particularly appropriate considering the Legislature's long-
standing acceptance of that interpretation." Matturi v. Bd. of Trs. of Jud. Ret.
Sys., 173 N.J. 368, 383 (2002); see also Cedar Cove, Inc. v. Stanzione, 122 N.J.
202, 212 (1991) ("The meaning ascribed to legislation by the administrative
agency responsible for its implementation, including the agency's
contemporaneous construction, long usage, and practical interpretation, is
persuasive evidence of the Legislature's understanding of its enactment.").
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Accordingly, we apply enhanced deference to an agency's longstanding,
consistently applied interpretation of its regulations:
Our deference is even greater because the Board
has followed this interpretation for more than four
decades. "Such continued interpretation and practice
by the agency which administers a statute is entitled to
great weight." Moreover, "the fact that the Legislature
has not acted in response to an agency's interpretation
or practice is 'granted great weight as evidence of its
conformity with the legislative intent.'"
[Piatt v. Police and Firemen's Ret. Sys., 443 N.J. Super.
80, 99-100 (App. Div. 2015) (citations omitted).]
Applying enhanced deference to the Department's longstanding
"interpretation and implementation of its rules enforcing the statutes for which
it is responsible," Freshwater Wetlands, 180 N.J. at 489, we discern no basis to
disturb the Departments final decision, which was supported by the record and
was not arbitrary, capricious, or unreasonable, did not violate express or implied
legislative policies, or ignore relevant factors.
To the extent we have not specifically addressed any of BMC's remaining
arguments, we conclude they lack sufficient merit to warrant discussion in a
written opinion. R. 2:11-3(e)(1)(E).
Affirmed.
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