Pine Rest Christian Mental Health Services faces long odds to successfully challenge a proposed state decision allowing competitor Havenwyck Hospital Inc. to develop a new psychiatric hospital in Kent County.
Few appeals end successfully for the party trying to reverse a recommendation from certificate-of-need staff to the director of the Michigan Department of Health and Human Services. Experts say appeals hinge on proving that the review process for a given project was somehow flawed.
In this instance, Pine Rest would need to demonstrate that department staff erred in reviewing and scoring Havenwyck’s competing proposal for the 60 adult psychiatric beds available in the Grand Rapids-area market under existing certificate-of-need (CON) standards.
“There has to be a manifest error,” said attorney Scott Alfree, who chairs the health care practice at Varnum LLP in Grand Rapids. “The appeal’s not to substitute a different judgment about evaluating what happened. It’s to make sure that the rules were followed and the people involved in making the decision weren’t acting in bad faith. It is only about making sure the decision was made with the proper process. (State staff) don’t make those kinds of mistakes very often.”
Only “a fraction” of CON appeals — roughly 5 percent or less — succeed because the standard of review is so high, Alfree said.
Pine Rest’s appeal contests a proposed Department of Health and Human Services staff recommendation to allow Auburn Hills-based Havenwyck Hospital Inc. to develop a 60-bed inpatient psychiatric hospital near Mercy Health’s Southwest Campus at Byron Center Avenue and 64th Street. Havenwyck plans to develop the $20.5 million facility through a joint venture formed with Mercy Health that the two announced publicly earlier this month.
The appeal puts that recommendation by department staff and a final decision by MDHHS Director Elizabeth Hertel on hold for now.
Seeking ‘consistent standards’
In the appeal to the Michigan Office of Administrative Hearings and Rules, Pine Rest claims that Havenwyck’s CON application “did not include key required details which in similar situations has led the state to disqualify past applications from consideration,” and would have altered the scoring, CEO Mark Eastburg wrote in a memo.
In a CON application last fall to the state, Pine Rest proposed adding 60 adult inpatient beds at the 68th Street campus in Cutlerville at a cost of $15 million for a new wing and renovated space at the Jay and Betty Van Andel Center.
In its appeal, Pine Rest offered a lower-cost alternative and asked for approval to immediately house psychiatric beds that would flex between adult and adolescent use in a 40-bed special care unit now temporarily licensed for COVID-19 patients. The proposal would leave other providers to seek approval for the remaining 20 available licensed psychiatric beds in the market.
“Those beds — two thirds of the licensed beds in question — would be available almost immediately, without the need to build a new hospital,” Eastburg wrote in the memo to state staff.
Pine Rest claims that “there are clearly parts of the comparative review application of Havenwyck that in similar situations those applications were actually thrown out as being incomplete,” Pine Rest Vice President and Chief Operating Officer Bob Nykamp said.
“Because of that kind of thing, it potentially alters the scoring, which potentially alters the final decision on who is approved and denied,” Nykamp said. “We’re not fighting Havenwyck. This is us saying to the state CON staff, ‘We want you to apply consistent standards in how you review applications and score them,’ and (through the appeal) they’re going to have to answer back to that process about whether or not they were consistent.”
One area of contention is that CON rules used for scoring competing applications require applicants to use data on the number of Medicaid patients served at all of its Michigan hospitals, Nykamp said. Havenwyck’s owner, Pennsylvania-based Universal Health Services Inc., a large for-profit provider of medical and mental health care, only used data from one of its three Michigan hospitals, in Auburn Hills, “which was completely to their advantage in terms of the statistics that are scored,” Nykamp said.
Universal Health Services’ Michigan hospitals also include Forest View in Grand Rapids, a psychiatric facility with 77 adult beds and 31 beds for children and adolescents.
Despite what has historically been long odds for overturning a proposed CON decision, Pine Rest filed the appeal confident of success, Nykamp said.
“Was that process fairly and consistently done, like every other CON comparative review? The answer is ‘no,’ and that’s why we’re appealing and feel strongly in the end our application will be approved,” said Nykamp, who expects the appeal to take six months to a year.
Back to square one?
In a joint statement to MiBiz, Havenwyck and Mercy Health said they “respect the appeals process and we are confident the Department of Health and Human Services properly exercised its statutory authority to apply the CON review standards and reach the correct conclusion. We look forward to a prompt resolution so that we can move forward with our proposed project and address the need for additional adult psychiatric beds in Kent County.”
Even in instances when a CON appeal substantiates an error in the review process, the appealing party needs to show that it would have otherwise resulted in a different decision, Alfree said.
“Let’s say there is some kind of hole in the data. If it’s not a gigantic hole in the data, it’s not going to change the outcome,” he said. “How big is the hole in the data to be compelling to overturn this?”
Even if an appeal overturned a DHHS staff recommendation, chances are the case would go back to square one for an entirely new review, Alfree said.
“It would be much, much more likely to be that it would just go back to start over,” he said. “They’d do the whole thing over again.”
When the Department of Health and Human Services conducts a comparative review of proposals from health care providers competing for approval, “It’s really trying to find the best situation for the people of the area” where a project will go, said Bret Jackson, president of the Economic Alliance for Michigan, which follows CON issues.
Comparative reviews themselves are rare, Jackson said. Applicants that win a comparative review for projects such as the number of hospital beds in a market that are regulated by state CON standards “earned it,” Jackson said.
“They have a proposal that meets the best needs of patients in that given area,” he said. “Ultimately, not everybody is going to win everything all of the time.”
State Sen. Curt VanderWall, R-Ludington, who’s pushing to remove psychiatric hospital beds from CON review, cited the Pine Rest denial to support his legislation that recently passed the state Senate. VanderWall claims S.B. 181 would result in more inpatient psychiatric beds that are badly needed across the state.
Yet even Pine Rest, which could potentially benefit, opposes VanderWall’s legislation. Nykamp said Pine Rest believes the CON process is still valuable despite the Havenwyck decision. Similar legislation lawmakers passed last year was pocket-vetoed by Gov. Gretchen Whitmer.