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Cathedral Rock of Granite City, Inc. v. Illinois Health Facilities Planning Board

December 9, 1999


Appeal from Circuit Court of Sangamon County No. 97MR53 Honorable Robert J. Eggers, Judge Presiding.

The opinion of the court was delivered by: Justice Garman

JUSTICE GARMAN delivered the opinion of the court:

The Illinois Health Facilities Planning Board (Board) granted a certificate of need (CON) jointly to defendants Rosewood Care Center, Inc., of Cook County, No. 4, and HSM Development No. 5, L.L.C. (hereinafter referred to collectively as Rosewood), on January 27, 1997, allowing Rosewood to build an 80-bed, long-term-care nursing facility in Granite City, Madison County, Illinois. Plaintiff Cathedral Rock of Granite City, Inc. (Cathedral), a competing nursing facility, appealed the decision to the circuit court of Sangamon County pursuant to section 11 of the Illinois Health Facilities Planning Act (Planning Act) (20 ILCS 3960/11 (West 1998)). The circuit court affirmed the Board's decision. Plaintiff raises the following arguments on appeal to this court: (1) the Board's decision to grant the CON is void because the proceedings before the Board were tainted by ex parte communications, (2) plaintiff was denied procedural due process by the proceedings before the Board, (3) the Board's decision was against the manifest weight of the evidence and/or arbitrary and capricious, and (4) if this court invalidates the Board's regulations, plaintiff is entitled to attorney fees under section 10-55 of the Illinois Administrative Procedure Act (Procedure Act) (5 ILCS 100/10-55 (West 1998)). We affirm.


The purpose of the Planning Act is to "establish a procedure designed to reverse the trends of increasing costs of health care resulting from unnecessary construction or modification of health care facilities." 20 ILCS 3960/2 (West 1998). In furtherance of this purpose, section 4 of the Planning Act provides for the creation of the Board and governs its duties and functions. 20 ILCS 3960/4 (West 1998). The Planning Act provides that no person may construct or modify a health care facility without first obtaining a CON from the Board. 20 ILCS 3960/5 (West 1998). The Illinois Department of Public Health (Department) serves as administrative and staff support for the Board. 20 ILCS 3960/4 (West 1998). The Department is authorized, with the prior approval of the Board, to prescribe rules, regulations, standards, and procedures to carry out the provisions and purposes of the Planning Act. 20 ILCS 3960/12 (West 1998). These regulations (Regulations) are contained in sections 1110.10 through 1260.50 of Title 77 of the Illinois Administrative Code. 77 Ill. Adm. Code §§1110.10 through 1260.50 (1996).

On July 10, 1996, Rosewood filed an application for a CON with the Board, requesting a permit to build an 80-bed nursing facility in Granite City, Madison County, Illinois. Rosewood owns or operates 15 other similar facilities in Illinois and Missouri. An application for a CON consists of two parts: (1) part 1110, which requires the applicant to submit information and documents showing that it meets the applicable general review criteria set forth in sections 1110.10 through 1110.2650 of the Regulations (77 Ill. Adm. Code §§1110.10 through 1110.2650 (1996)) and (2) part 1120, which requires the applicant to submit information and documents showing that it meets the financial and economic review criteria set forth in sections 1120.210 through 1120.310 of the Regulations (77 Ill. Adm. Code §§1120.210 through 1120.310 (1996)). The Board forwarded the application to the Department for its review and investigation. By letter dated July 15, 1996, the Department advised Rosewood that its application was substantially complete.

Pursuant to section 1200.30 of the Regulations (77 Ill. Adm. Code §1200.30 (1996)), the Department published a notice in the Granite City Press that Rosewood had submitted an application for a CON and that a public comment hearing could be requested by any interested person. The Department also sent notices by mail to various nursing homes and hospitals in Granite City; to medical societies in St. Clair, Monroe, and Clinton, Illinois; and to state representatives and senators. Plaintiff received one of these individualized notices. Upon receipt of a request for a public hearing, the Department scheduled a public comment hearing and published a notice that such hearing would be held on August 19, 1996, in Granite City.

Twenty-eight people attended the public hearing. Sixteen people offered oral testimony and five submitted written materials. Twelve of the sixteen people who offered oral testimony spoke in favor of Rosewood's proposed project. Four nursing homes, including plaintiff, submitted written material in opposition to Rosewood's intended project. The opposition can be summarized as follows: (1) if constructed, Rosewood's nursing home would take all of the private paying patients, leaving only the lower-paying Medicaid patients for the other nursing homes in the area; (2) no need was shown for an additional nursing home because of the high number of empty beds in the existing nursing homes in the area; and (3) the existing homes were finding it difficult to find qualified applications to fill vacancies in their nursing staffs and Rosewood's nursing home would only compound the problem.

Following the public hearing, plaintiff and several other nursing care facilities submitted additional letters opposing Rosewood's project. Specifically, these parties contended that Rosewood's history demonstrated that it was not committed to helping Medicaid patients. They claimed that Rosewood often discharged Medicare and/or Medicaid patients from its other facilities after the patients' Medicare funds were exhausted, leaving them to find other accommodations on short notice. They also claimed that Rosewood had been very dilatory in submitting information to the Illinois Department of Public Aid to obtain Medicaid certification. The parties again urged the Department to find that the proposed area lacked both a bed need and adequate staffing. At least one party also alleged that Rosewood had improperly certified certain physician referral letters. Rosewood submitted letters and additional information rebutting all of these claims.

The first hearing before the Board was held on October 24, 1996. At the hearing, the Department submitted a report of its review of Rosewood's application. The Department's report concluded that Rosewood's proposed project was not in conformance with part 1110 of the application, but that it was in conformance with part 1120. Specifically, the Department found that of 18 applicable general review criteria, Rosewood did not meet the following three criteria: (1) allocation of additional beds (77 Ill. Adm. Code §1110.320(b) (1996)), (2) location (77 Ill. Adm. Code §1110.230(a) (1996)), and (3) alternatives (77 Ill. Adm. Code §1110.230(e) (1996)).

To meet the "Allocation of Additional Beds" criterion, Rosewood was required to prove that its project would improve access to the nursing home service by documenting at least one of the following conditions: (1) the proposed service was not available within the planning area, (2) existing facilities had restrictive admissions policies resulting in access limitations, (3) existing service providers were experiencing higher than the target utilization level of 90%, and (4) the travel time to existing service providers exceeded 45 minutes for area residents. The Department concluded that Rosewood was unable to document any of these conditions. To meet the "Location" criterion, Rosewood was required to show that the primary purpose of its project was to serve the residents of the area in which the project would be physically located and that the addition of its facilities would not create a maldistribution of beds and services. The Department found that Rosewood's project would create a maldistribution because the facilities in the area were already underutilized. Specifically, it found that all of the 6 hospital-based programs and 9 of 22 long-term-care facilities located in the planning area were underutilized. The Department concluded that an additional facility would result in an unnecessary duplication of services. To meet the "Alternatives" criterion, Rosewood was required to show that its project was the least costly or most effective alternative. The Department concluded that the best alternative was to utilize existing facilities until they met target levels.

Based on these findings, the Department recommended that the Board deny Rosewood's application for a CON. Rosewood presented the following information to the Board in response the Department's finding: (1) the State's own bed-need standards indicated a need for 80 beds in the proposed area; (2) other attempts to build a nursing facility in the area had been made but failed; (3) though underutilized facilities were in the planning area, Granite City residents would not likely use the facilities because they were not located within certain artificial geographic boundaries outside of which Granite City residents tended not to travel; (4) Rosewood's other facilities had only a small percentage of Medicaid patients because they were located in affluent areas; and (5) Rosewood had made a conscious corporate decision to accept Medicaid patients, even up to 100%, in the proposed project to better serve the area, which was economically depressed.

Upon the conclusion of the presentations, the Board denied approval of the CON by a unanimous vote of 12. Pursuant to section 1130.760 of the Regulations (77 Ill. Adm. Code §1130.760 (1996)), the Board issued a notice of "intent-to-deny" to Rosewood. The Board advised Rosewood that it had the right to a hearing to appeal the decision and that it had 60 days to submit additional material to the Department to support or modify the project. Although Rosewood did submit additional material, it was not within the 60-day period. Consequently, this material was never forwarded to the Board.

A second hearing was held before the Board on January 24, 1997. The Department was present and advised the Board that Rosewood had not timely submitted any additional material. The Department's recommendation to deny Rosewood's application stood firm. Rosewood acknowledged the late submission, but explained that the only new information it had submitted was in response to an inquiry from the Board at the previous hearing. The Board asked Rosewood to defend the charge that it should be denied a CON because nine of the existing general long-term-care facilities in the planning area were underutilized. Rosewood explained that three of the facilities did not accept Medicaid patients and, thus, would not be available for Granite City residents, most of whom were likely on Medicaid. Rosewood also contended that of the six remaining facilities, two were operating at their target full capacity, but only appeared to be underutilized because they were new or still under construction. The beds these facilities did have were fully occupied. Thus, Rosewood concluded, only 4 of the 22 general long-term-care units in the planning area were underutilized, not 9. Of the four remaining facilities, Rosewood explained that only two were in the artificial geographic boundaries it had described in the previous hearing. Of those two, one operated at 87% utilization levels and the other at 90%. Thus, Rosewood believed the area was clearly underserviced. Rosewood indicated that not only was it willing to provide service to this area, but that it would have little difficulty obtaining financing.

The Board then inquired into the bed need in the area, at which point the Department stated that it believed its original projection of an 80-bed need was too high. The Board spent considerable time discussing the issue but, aside from recognizing that it was a dilemma for the Board, the Board did not reach a clear conclusion at the meeting. However, the Board did find it significant that a facility may actually operate fewer beds than the number for which it was licensed. Thus, if utilization rates were based on licensed capacity instead of actual number of beds, these rates may appear lower than they really are.

Upon the conclusion of the presentations, the Board voted eight to four to approve the project and issue a CON to Rosewood, and a letter was sent to Rosewood on January 27, 1997, advising it as such. On February 28, 1997, plaintiff filed with the Board a "Petition to Intervene with attached Motion for Reconsideration and Motion for the Board to Revoke the CON" (petition for intervention). In its petition for intervention, plaintiff supplied information that it claimed was previously unavailable and alleged that Rosewood had made misrepresentations of facts to the Board. By letter dated August 4, 1997, the Illinois Attorney General notified plaintiff that neither the Planning Act nor the Regulations authorized plaintiff to bring the petition for intervention and the Board had no authority to recognize it.

Plaintiff filed a complaint for administrative review in the circuit court of Sangamon County against the Board, its members, the Department, Rosewood, and Rosewood Care Center of Granite City. In its brief to the circuit court, plaintiff contended that (1) the Board's decision to grant a CON was against the manifest weight of the evidence, (2) the grant of the CON was void because of ex parte communications between Rosewood and the Board, and (3) due process required that plaintiff be given notice and a hearing and that ...

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