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ManorCare Health Services, LLC v. Illinois Health Facilities & Services Review Board

Court of Appeals of Illinois, Second District

November 3, 2016

MANORCARE HEALTH SERVICES, LLC; HCR HEALTHCARE, LLC; and HCR MANORCARE, INC., Plaintiffs-Appellees,
v.
THE ILLINOIS HEALTH FACILITIES AND SERVICES REVIEW BOARD; KATHRYN J. OLSON, as Chair of the Illinois Health Facilities and Services Review Board; JOHN HAYES, as Vice Chair of the Illinois Health Facilities and Services Review Board; PHILIP BRADLEY, JAMES J. BURDEN, DEANNA J. DEMUZIO, DALE GALASSIE, ALAN GREIMAN, DAVID PENN, and RICHARD H. SEWELL, as Members of the Illinois Health Facilities and Services Review Board; THE DEPARTMENT OF PUBLIC HEALTH; LAMAR HASBROUCK, as Director of the Department of Public Health; THE SPRINGS AT CRYSTAL LAKE; FAIR OAKS HEALTH CARE CENTER; and CRYSTAL PINES REHABILITATION AND HEALTH CARE CENTER, Defendants The Illinois Health Facilities and Services Review Board; Kathryn J. Olson, as Chair of the Illinois Health Facilities and Services Review Board; John Hayes, as Vice Chair of the Illinois Health Facilities and Services Review Board; Philip Bradley, James J. Burden, Deanna J. Demuzio, Dale Galassie, Alan Greiman, David Penn, and Richard H. Sewell, As Members of the Illinois Health Facilities And Services Review Board; The Springs at Crystal Lake; and Fair Oaks Health Care Center, Defendants-Appellants.

         Appeal from the Circuit Court of McHenry County. No. 14-MR-569 Honorable Michael T. Caldwell, Judge, Presiding.

          JUSTICE ZENOFF delivered the judgment of the court, with opinion. Justices Jorgensen and Spence concurred in the judgment and opinion.

          OPINION

          ZENOFF JUSTICE

         ¶ 1 Plaintiffs, ManorCare Health Services, LLC, HCR Healthcare, LLC, and HCR ManorCare, Inc. (collectively referred to as ManorCare), filed an application with defendant the Illinois Health Facilities and Services Review Board (the Board) for a certificate of need to construct a new nursing-home facility in Crystal Lake, Illinois. Three local nursing homes opposed the application: defendants The Springs at Crystal Lake (The Springs), Fair Oaks Health Care Center (Fair Oaks), and Crystal Pines Rehabilitation and Health Care Center (Crystal Pines). The Board denied the application, and ManorCare filed a complaint for administrative review in the circuit court of McHenry County, naming as additional defendants the Board's members and the Department of Public Health. The circuit court reversed the Board's decision and instructed the Board to issue a certificate of need. The Board and its members appeal, as do The Springs and Fair Oaks. For the reasons that follow, we reverse the circuit court's judgment and affirm the decision of the Board.

         ¶ 2 I. BACKGROUND

         ¶ 3 ManorCare hoped to construct a 130-bed skilled-nursing facility on an 8.9-acre parcel at the intersection of Route 176 and Terra Cotta Road in Crystal Lake. To do so, it was required to apply for and receive a certificate of need from the Board. ManorCare emphasized in its April 24, 2012, application that the number of area residents over the age of 65 was expected to grow by 7.5% between 2011 and 2016. Additionally, the Board's bed-need formula showed a need for 469 additional skilled-nursing-facility beds in McHenry County by 2018. ManorCare also highlighted the lack of available private nursing-home rooms in the county, a need that ManorCare intended to address with 50 private rooms. ManorCare further noted that, in the United States, there are 43 licensed skilled-nursing-facility beds for every 1, 000 persons over the age of 65; the number of such beds within both a 5-mile and a 10-mile radius of ManorCare's proposed Crystal Lake facility was far below the national average. A 2010 McHenry County "Healthy Community" study also found that there was a lack of sufficient nursing-home options in the county.

         ¶ 4 In its application, ManorCare declared that McHenry County residents were leaving the area for nursing-care services. In support of that conclusion, ManorCare noted that in 2010 2, 627 residents in the area received Medicare discharges to skilled-nursing facilities. If each of those patients required the average 30-day Medicare stay at a nursing facility, that would equal 78, 810 patient days. However, the existing facilities in the area had provided only 68, 944 days of Medicare services in 2010. Therefore, ManorCare posited, it was reasonable to assume that 9, 866 of the required 78, 810 days of care had been provided outside of the county. Again assuming an average 30-day stay, ManorCare calculated that 328 patients had left McHenry County for nursing-care services. ManorCare asserted that it intended to bring those patients back to McHenry County.

         ¶ 5 On the other hand, ManorCare acknowledged in its application that data indicated that existing nursing homes in the area were being underutilized. According to the Board's regulations, the target utilization rate for long-term nursing-care services is an annual average occupancy of 90% of licensed beds. 77 Ill. Adm. Code 1125.210(c)-(d) (2011). In its application, ManorCare advanced possible reasons for the underutilization of existing facilities. For example, some facilities might have taken licensed beds out of service; it was also possible that families might have chosen not to use the existing facilities, because of poor performance records.

         ¶ 6 The three existing nursing-home facilities in Crystal Lake-The Springs, Crystal Pines, and Fair Oaks-each objected to ManorCare's application and argued that there was no need for the project. They noted that Crystal Pines was in the middle of a $500, 000 renovation project. Also, Fair Oaks was undergoing a $3.25 million renovation that included adding 16 private rooms. The Springs was a five-star facility that currently had over 30 beds available. The Springs had also recently received regulatory approval to expand its bed capacity.

         ¶ 7 Before the Board considers an application for a certificate of need, the Board's staff reviews the application and prepares a staff report. According to the staff report here, ManorCare's application, as originally submitted, complied with 16 of 20 review criteria. The initial application did not meet the "service demand" criterion, because ManorCare did not submit letters from hospitals and physicians projecting the number of patient referrals to the proposed facility. See 77 Ill. Adm. Code 1125.540 (2011). Additionally, the application did not meet the "service accessibility" criterion, i.e., it did not show that "[t]he number of beds being established or added for each category of service is necessary to improve access for planning area residents." 77 Ill. Adm. Code 1125.570 (2011). To comply with this criterion, the applicant must document that at least one of the following factors exists in the planning area: (1) an absence of the proposed service; (2) access limitations due to the payor status of patients or residents; (3) existing providers' restrictive admission policies; (4) a medical-care problem in the area, such as an average family-income level that is below the poverty level or a designation of the area as a "Medically Underserved Area, " a "Health Professional Shortage Area, " or a "Medically Underserved Population"; or (5) all services within a 45-minute normal travel time meeting or exceeding the 90% occupancy standard. 77 Ill. Adm. Code 1125.570(a) (2011). According to the staff report, there was no absence of the proposed service in the planning area. Nor were there access limitations, restrictive admission policies, or indicators of medical-care problems in the area. Additionally, 18 of the 26 facilities within 45 minutes of ManorCare's proposed location were not operating at target occupancy.

         ¶ 8 The staff report also noted that ManorCare's application did not meet the "unnecessary duplication/maldistribution" criterion. See 77 Ill. Adm. Code 1125.580 (2011). That criterion states:

"(b) The applicant shall document that the project will not result in maldistribution of services. Maldistribution exists when the identified area (within the planning area) has an excess supply of facilities, beds and services characterized by such factors as, but not limited to:
(1)A ratio of beds to population that exceeds one and one-half times the State average;
(2) Historical utilization (for the latest 12-month period prior to submission of the application) for existing facilities and services that is below the [90%] occupancy standard ***; or
(3)Insufficient population to provide the volume or caseload necessary to utilize the services proposed by the project at or above occupancy standards." 77 Ill. Adm. Code 1125.580(b) (2011).

         According to the staff report, 11 of the 17 facilities within 30 minutes of the proposed facility were not at target occupancy. Additionally, the average occupancy of those 17 facilities was only 81.38%, which indicated that there were ...


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