Here's the latest in a case we've been following. The New Jersey Supreme Court has agreed to review the Appellate Division's decision in Englewood Hospital & Medical Center v. New Jersey.
That's the case where several hospitals challenged a New Jersey statute which requires hospitals to take all patients regardless of their ability to pay, but does not fully reimburse under Medicaid the hospitals for the costs of treating these patients even where it results in the hospitals losing money.
The Appellate Division held this was not a categorical (Cedar Point/Loretto) or an ad hoc (Penn Central) taking.
The hospitals asserted that the statute required them to suffer a physical invasion, because the statute prohibited hospitals from excluding nonpaying patients. The court rejected the argument, in what reminded us of the Yee rent control and PruneYard commercial benefit approach, where the essential reasoning is that "you let people onto your land and business, so you've waived your right to exclude."
In contrast to the plaintiffs in Loretto and Nollan, plaintiffs here operate hospitals within the complex and highly regulated health care industry. Unlike the cable installation law in Loretto, N.J.S.A. 26:2H-18.64 does not limit the right to exclude individuals from their premises. Rather, it prohibits hospitals from turning away patients "on the basis of [their] ability to pay" without being subject to civil penalty, and further prohibits billing only those patients who qualify under charity care.
Slip op. at 19.
The court concluded that "the charity care statute's operation does not lead to physical invasion of the hospitals' property by the public because, unlike Cedar Point, the public's presence in a hospital is a natural element of its business, making it more analogous to Pruneyard." Slip op. at 20 ("Charity care restricts how hospitals use their property to provide medical services, not whether they do so. The property will be used as it was intended—to treat patients.").
The Penn Central argument fared no better. The economic impact must be viewed in the context of the hospital as a whole: the court viewed the property at issue as the operation of the entire hospital, not the right to treat each patient in a way that doesn't lose money on that patient:
Although plaintiffs contend that charity care as a whole has a negative economic impact on their investment interests, there is no evidence that the prohibition on turning away patients because of inability to pay unreasonably impairs the value of the premises.
Slip op. at 20. Yes, the requirement to treat all patients and then provide only a limited reimbursement for those who could not pay has an adverse impact on the hospitals' "profitability," the premises could still be used as a hospital.
But, the hospitals argued, the statute forces us to operate as pretty lousy hospitals! The Appellate Division's response is faintly laughable, along the lines of "yeah, the lack of reimbursement forces hospitals to operate kinda crap hospitals, but they can still operate them as hospitals: "A takings claim cannot be sustained on the sole ground that plaintiffs fail to financially perform on par with industry-wide norms." Slip op. at 23.
The court really torpedoed the notion that the hospitals have any expectation of operating free of onerous regulations. Ah yes, the old "heavily-regulated industry" trope:
Hospital investors in the highly regulated health care industry should expect that use of their property, in all its forms, is likely to be regulated by the state, and that such government regulation may diminish investment-backed expectations without resulting in an unconstitutional taking.
Slip op. at 24.
Not only did the court require hospital investors to understand the existing regulatory environment ... they also are charged with predicting the future:
When a hospital seeks a license to operate in our state, it must consider the laws in effect at that time as well as those which may be adopted by our Legislature. Given plaintiffs' choice to do business here, it is reasonable that they should expect such license conditions to affect business profits. In turn, we conclude it is not reasonable for the hospitals to expect an at-cost reimbursement for the medical services the Legislature has required them to provide as a condition of doing business in our state
Slip op. at 25.
Finally, the Appellate Division made the common error when analyzing the "character of the government action" factor, concluding that "courts have repeatedly stated that the character of public health and healthcare regulations typically weighs against the conclusion that a law acts as a taking." Slip op. at 25.
We've said it before but we shall say it again, just as a reminder: the reasons the government does something is not part of the takings analysis, and has not what the "character" factor asks about. Read this article we wrote a while back for the inquiry this Penn Central factor should focus on is whether the government action looks like it is having the same effect as would a straight-up exercise of eminent domain. If it looks like the property owners is being forced to bear more than its proportionate share of a public benefit, then the "character" factor should weigh in favor of a taking.
What does the New Jersey Supreme Court's agreeing to review this case mean, prediction-wise. We're not going to venture a guess there, but it does seem like something is in the cards.
Here's the issue the court will be reviewing:
Does New Jersey’s charity care program -- which requires a hospital to provide services to all patients regardless of their ability to pay, prohibits the hospital from billing those patients, and does not provide at-cost reimbursement to the hospital -- amount to an unconstitutional taking of the hospital’s property?
More on the case here from our NJ colleague Joe Grather, who predicted, "I bet the hospitals are preparing their petition for certification to the New Jersey Supreme Court now."
Stay tuned.
