Title: Dept. of Health v. Manor Care
Citation: 237 Neb. 269, 465 N.W.2d 764
Docket Number: 928
State: Nebraska
Issuer: Nebraska Supreme Court
Date: February 22, 1991

465 N.W.2d 764 (1991) 237 Neb. 269 DEPARTMENT OF HEALTH, STATE of NEBRASKA, et al., Appellants, v. MANOR CARE, INC., Doing Business as Manor Care of Lincoln, Appellee. No. 88-928. Supreme Court of Nebraska. February 22, 1991. *765 Robert M. Spire, Atty. Gen. and Marilyn B. Hutchinson, Lincoln, for appellant Department of Health. Robert L. Lepp of McGill, Parsonage &amp; Lanphier, P.C., John R. Holdenried, Barbara E. Person of Baird, Holm, McEachen, Pedersen, Hamann &amp; Strasheim, Omaha, Charles M. Pallesen, Jr., and Thomas C. Huston of Cline, Williams, Wright, Johnson *766 &amp; Oldfather, Lincoln, for appellants Milder Manor et al. Charles V. Sederstrom, of Erickson &amp; Sederstrom, P.C., Omaha, for appellee. BOSLAUGH, WHITE, SHANAHAN, GRANT, and FAHRNBRUCH, JJ. SHANAHAN, Justice. Pursuant to the Nebraska Health Care Certificate of Need Act, Neb.Rev.Stat. §§ 71-5801 et seq. (Reissue 1986), Manor Care, Inc., doing business as Manor Care of Lincoln, filed its application with the Department of Health (Department) for a certificate of need, namely, authorization for construction and operation of a 120-bed nursing home in Lincoln, Lancaster County, Nebraska. The Certificate of Need Review Committee adopted the Department's findings and conclusions, see § 71-5838(4), and denied the application of Manor Care, which appealed to the Certificate of Need Appeal Panel, see §§ 71-5862 and 71-5865. At this juncture, five potential competitors of Manor Care's intervened and contended that the decision of the Certificate of Need Review Committee should be upheld. The stipulated issues for the Certificate of Need Appeal Panel were whether Manor Care had met its burden to prove that (1) in Lancaster County "there is an unmet need for long term care services," a requirement under 182 Neb.Admin. Code, ch. 2, § 005.01A (1983); (2) any need is "consistent with the need projections in the [certificate of need] regulations and in the current State Health Plan or, if there is an inconsistency between the need projections in those two documents ... that the need is consistent with such document having priority in accordance with 182 NAC 2.005.01B"; (3) all "alternatives for meeting any unmet need" have been identified and that Manor Care's proposal is either "the least costly alternative for meeting any unmet need" or "is the most effective alternative for meeting any unmet need," requirements under 182 Neb.Admin. Code, ch. 2, §§ 005.02A1 and 005.02A2 (1983); (4) any increased cost or charges attributable to Manor Care's proposed project "are justified because of any unmet need," which is required by 182 Neb.Admin. Code, ch. 2, § 005.02B (1983); (5) Manor Care's "proposed project is financially feasible," as required by 182 Neb.Admin.Code, ch. 2, § 005.02C (1983); (6) Manor Care's "proposed project is consistent with the utilization requirements and projections of need in the [certificate of need] regulations and in the current State Health Plan," which is required under 182 Neb.Admin.Code, ch. 2, § 005.02E1 (1983); and (7) Manor Care's proposed project either "fosters competition and increases the range of choices available to consumers and payers" or that "the proposed project optimizes sharing and minimizes unnecessary duplication of long-term care services," required by 182 Neb.Admin.Code, ch. 2, § 005.02F (1983). Disposing of the stipulated questions, the appeal panel reversed the decision of the review committee and granted Manor Care a certificate of need. In February 1988, pursuant to § 71-5866, the Department and Manor Care's competitors appealed to the district court for Lancaster County, which affirmed the decision of the appeal panel and refused to stay the issuance of the certificate of need. In their appeal to this court, the appellants contend that (1) the evidence does not sustain the appeal panel's decision; (2) "[t]he Appeal Panel erred in refusing to consider evidence of newly converted and newly authorized (but unconstructed) beds in calculating the long-term care bed supply for 1990," brief for appellant objectors at 7; and (3) the district court erred in denying the Department's request for a stay of the issuance of a certificate of need to Manor Care. Judicial review of a decision concerning a certificate of need under the Nebraska Health Care Certificate of Need Act is governed by the Administrative Procedure Act. § 71-5866. *767 Since proceedings for judicial review in this case were filed in the district court before July 1, 1989, see, Neb.Rev. Stat. §§ 84-917(5)(a) and 84-918 (Cum. Supp.1990) of the Administrative Procedure Act, this court's standard of review is: In an appeal to the Supreme Court from an administrative agency's decision, the Supreme Court, pursuant to § 84-918, tries factual questions de novo on the record and reaches a conclusion independent of the conclusion reached by the administrative agency, provided, where credible evidence is in conflict on a material issue of fact, the Supreme Court considers and may give weight to the fact that the administrative agency heard and observed the witnesses and accepted one version of the facts rather than another. Department of Health v. Omaha Associates, 232 Neb. 516, 441 N.W.2d 579 (1989). See, § 84-918; Department of Health v. Grand Island Health Care, 223 Neb. 587, 391 N.W.2d 582 (1986); Department of Health v. Columbia West Corp., 227 Neb. 836, 420 N.W.2d 314 (1988). Manor Care has many health care facilities in several states, excluding Nebraska, and applied for a Nebraska certificate of need regarding a 120-bed skilled-and intermediate-care nursing center to accept both medicare and medicaid recipients. Manor Care's proposed facility will be located in Lancaster County, will emphasize rehabilitation, and will offer a 30-bed specialized unit for victims of Alzheimer's disease and similar conditions. The estimated cost is $3,610,000, with an anticipated completion date of July 1989. The requirements and criteria concerning Manor Care's application are found in 182 Neb.Admin. Code, ch. 2, § 005 (1983): 005.01B The need established under part 005.01A above must be consistent with the need projections in section 006 of these regulations (182 NAC 2), and with those in the state health plan most recently adopted under section *768 1524(c)(2)(A) of P.L. 93-641, 42 U.S.C. 300m-3(c)[2](A), and on file with the Secretary of State, each of which is hereinafter referred to as a document. Projections in section 006 of these regulations shall take priority over those in the state health plan in the case of conflicts between those documents. Exceptions to the requirement of consistency with the projections in the document having priority shall be made when justification is shown by a preponderance of the evidence. 005.02D4 The proposed project must be designed to provide or support high quality care. The quality of care provided by the applicant in the past may be considered in determining whether high *769 quality care will be provided by the proposed project. Since the Department's regulations allow an applicant to identify the "population in need," see § 005.01A2, in proceedings before the appeal panel, Manor Care identified Lancaster County as the "population in need" of its health services. By stipulation, an initial issue was whether Manor Care's facility satisfied "an unmet need for long term care services in Lancaster County...." (Emphasis supplied.) We construe this stipulation as a factual admission that Manor Care's proposed service area is Lancaster County, but we do not construe "service area" to mean "[h]ealth service areas or subareas" under 182 Neb.Admin. Code, ch. 2, § 002.02A (1983). The appellants seek to enlarge Manor Care's proposed service area to include "a 30 mile radius around the City of Lincoln. This service area would include all of Lancaster County, plus portions of Saunders, Seward, Saline, Gage, Otoe, and Cass Counties." Brief for appellant objectors at 23-24. Appellants argue that Manor Care's service area should be enlarged because a substantial number of Lancaster County residents have left the county to reside in nursing homes located in neighboring counties. Rather than demonstrating that Manor Care will serve persons outside Lancaster County, appellants' *770 argument is more persuasive that Manor Care's proposed service area should be accepted and retained rather than enlarged. On the other hand, information that many residents from surrounding counties are moving, or have moved, to Lancaster County for nursing home care might evidence a need to enlarge Manor Care's service area. After reviewing the record, we find that Manor Care's proposed service area is Lancaster County. In the present case, the primary dispute involves a determination of the long-term-bed need in Lancaster County. 182 Neb. Admin. Code, ch. 2, §§ 006.09 et seq. (1983) provide: At the appeal panel hearing, the Department supplied information that the projected number of long-term-care residents in Lancaster County for 1990 was 1,437, to which a factor of .9 is applied, resulting in a long-term-care need of 1,597 nursing home beds. As of 1987, there were 1,477 available beds. Deducting 1,477 (available beds in Lancaster County) from 1,597 (projected need) leaves 120 beds which will be needed for long-term care of Lancaster County residents. The appellants argue that the number of existing beds in Lancaster County should include 28 beds which Bethphage Residential Care Center was recertifying and 50 beds in a proposed nursing home at Waverly, in Lancaster County. The state *771 regulations fail to provide a method for calculating "existing beds." See §§ 005 and 006. In Department of Health v. Grand Island Health Care, 223 Neb. 587, 598, 391 N.W.2d 582, 589 (1986), we stated that "[t]he mere filing of a notice of intent [to apply for a certificate of need] does not, of course, indicate that the facility will be built." In our factual determinations, we have taken an approach that "existing beds" are only those beds currently available. There is no evidence that Bethphage's recertified 28 beds were available for use. Further, when the appeal panel reviewed Manor Care's application, the administrative process was just beginning for determination whether the proposed Waverly nursing home was entitled to a certificate of need. Administrative and judicial review are two of many contingencies involved in determining whether a nursing home may be built and operated. Accordingly, we find that there were 1,477 existing and available beds in Lancaster County. Thus, we conclude that there is a long-term need of 120 nursing home beds in Lancaster County. The current state health plan and regulations pertaining to a certificate of need yield substantially different projections. However, projections in conformity with the Department's regulations take priority over the state health plan. § 005.01B. During oral argument in this appeal, the parties acknowledged that the certificate of need regulations applied; hence, the Department's regulations apply in accord with § 005.01B to determine consistency under the Department's certificate of need regulations. Manor Care's need projection is based on the regulations pertaining to a certificate of need, and the appellee's need projection, therefore, is consistent with the need projection under the regulations pertaining to a certificate of need. Manor Care identified several alternatives for meeting any unmet long-term bed need, including addition of beds to existing facilities, conversion of excess hospital capacity, provision for less restrictive service alternatives, and sharing of services. Appellants argue that increasing the bed capacity of existing facilities is a more cost-efficient way of satisfying the long-term bed need in Lancaster County. However, according to the proposal for a 10bed addition at Homestead Nursing Home, the cost per bed is $95,000, while Manor Care projects a cost per bed of $30,000. Hence, Manor Care has supplied information that its proposed project is a cost-efficient means to satisfy the long-term bed need in Lancaster County. Dr. Lewis Price considered the construction cost of Manor Care's proposed 120-bed nursing home, cost of operation, and projected occupancy rates and concluded that a patient's daily fee would be $54.20, as compared to the average Lincoln-area fee of $54.05. Thus, Manor Care can meet the 120-bed need with a new facility at a cost of 15 cents more than the present daily fee. Moreover, the nominal fee increase is justified by considerations that Manor Care will foster competition, increase the range of choices available to patients, and promote cost-effectiveness for consumers and payers, as discussed below. Manor Care, which has 140 nursing homes in many states, has financed, constructed, and operated nursing home facilities for 27 years and has sufficient resources available for the proposed construction and operation of a nursing home in Lincoln, Nebraska. Considering our determination that there is a long-term-care bed need in Lancaster County, we accept Manor Care's income *772 projections, which forecast a positive net income by the second year of operations, and conclude that Manor Care has demonstrated financial feasibility for its proposed project. Manor Care's proposed 120-bed facility is consistent with a projected need of 120 beds determined in accordance with the Department's regulations pertaining to a certificate of need. Section 005.02F1 provides that "the proposed project must increase the range of choices available to consumers and third-party payers with respect to the price and use of services, and must have the effect of fostering price competition among providers of health services." Manor Care's proposed Alzheimer's program will consist of four components, including (1) specialized staffing, higher staff-to-patient ratio, medical specialty support, and a full-time program director; (2) structured daily programming and specialized services such as dietary services; (3) a uniquely designed physical environment and an interior decor that promote "way-finding" and minimize environmental irritants; and (4) family support, education, and participation. Dr. William Reichel described Manor Care's proposed Alzheimer's program as "state of the art." The Alzheimer's program at Manor Care would give Lancaster County a greater variety of health services and prices for those services. Also, Manor Care's new facility, with a specialized Alzheimer's program and daily fees virtually the same as those of area nursing homes, will likely attract prospective nursing home residents to choose Manor Care over another nursing home. As an additional competitor in the Lancaster County market of long-term health services, which has a need of 120 beds, Manor Care will likely intensify price competition among providers of health care services in the area of nursing homes. Having reviewed the applicable requirements and criteria for a certificate of need, we conclude that Manor Care has met and satisfied its burden of proof for entitlement to a certificate of need. Accordingly, we affirm the judgment of the district court which affirmed the Certificate of Need Appeal Panel's order and decision that Manor Care satisfied the applicable requirements for issuance of a certificate of need. During oral arguments before this court, the parties agreed that Manor Care has taken no action with its proposed project notwithstanding any decision that Manor Care is entitled to a certificate of need. We have said: Mullendore v. School Dist. No. 1, 223 Neb. 28, 36, 388 N.W.2d 93, 99 (1986). The question whether the district court abused its discretion by denying a stay on the issuance of a certificate of need is no longer a "live" issue because Manor Care has deferred construction, a situation the same as would have existed if a stay had been issued. Moreover, affirmance of the district court's judgment eliminates the necessity of examining the denial of the stay. Thus, whether the district court abused its discretion by denying a stay on the issuance of a certificate of need is rendered moot by our affirmance of the district court's judgment. Manor Care has presented sufficient information for entitlement to a certificate of need under the Nebraska Health Care Certificate of Need Act, while the Department and objectors have failed to show any basis under the Administrative Procedure Act for altering the district court's judgment. AFFIRMED. HASTINGS, C.J., and CAPORALE, J., not participating.