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

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Appellate Court Date: 2017.01.19

15:41:53 -06'00'

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

2016 IL App (2d) 151214

Appellate Court MANORCARE HEALTH SERVICES, LLC; HCR HEALTHCARE,

Caption 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).

District & No. Second District

Docket Nos. 2-15-1214, 2-16-0057 cons.

Filed November 3, 2016

Decision Under Appeal from the Circuit Court of McHenry County, No. 14-MR-569;

Review the Hon. Michael T. Caldwell, Judge, presiding.

Judgment Circuit court judgment reversed.

Counsel on Mark J. Silberman and Nicholas J. Lynn, both of Duane Morris LLP,

Appeal of Chicago, for appellants The Springs at Crystal Lake and Fair Oaks

Health Care Center.

Lisa Madigan, of Chicago (Carolyn E. Shapiro, Solicitor General, and

Linda Boachi-Ansah, Assistant Attorney General, of counsel), for

appellant Illinois Health Facilities & Services Review Board.

Jason T. Lundy and Paula S. Kim, both of Polsinelli Shugart, P.C., of

Chicago, for appellees.

Panel JUSTICE ZENOFF delivered the judgment of the court, with opinion.

Justices Jorgensen and Spence concurred in the judgment and opinion.

OPINION

¶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

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United States, there are 43 licensed skilled-nursing-facility beds for every 1000 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

2627 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

9866 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. 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)

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(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 approximately 161 long-term-care beds not

being used in the 30-minute area.

¶9 Finally, due to the underutilization of existing facilities within both 30 and 45 minutes of

the proposed facility, the staff report determined that ManorCare’s application did not meet the

“impact of project on other area providers” criterion. See 77 Ill. Adm. Code 1125.580(c)

(2011). That criterion requires an applicant to document that, within 24 months after the

completion of the proposed project, the project will not lower below 90% the utilization rates

of other area providers and will not further lower the utilization rates of facilities that are

currently operating below 90%. See 77 Ill. Adm. Code 1125.580(c) (2011).

¶ 10 The Board first considered ManorCare’s application at its July 23, 2012, meeting. Board

member James Burden asked a question regarding the projected need for 469 additional beds

in McHenry County by 2018. A staff member for the Board explained that, pursuant to the

relevant statute, bed need was calculated for 10-year periods. Accordingly, in 2008, the

calculated need was for 469 additional beds by 2018. However, the staff member explained,

the statute had recently been amended to provide that bed need would be calculated for

five-year periods. The Board voted 7-1 against the project at the July 23 meeting. Burden

indicated that his vote against the project was based on “several factors, not the least of which

would be my concern for the projection of health needs at least six years in advance.” He

added, “I think we can address that in the future adequately.” Other Board members stated that

they voted against the project for the same reasons.

¶ 11 On July 25, 2012, the Board issued an intent-to-deny-letter, in response to which

ManorCare could submit additional information and appear before the Board again. One of the

arguments that ManorCare raised in its response was that its application had met more criteria

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than any other skilled-nursing-facility application that the Board had approved in the past three

years. The Board’s staff subsequently drafted a supplemental report in which it determined that

ManorCare had submitted sufficient referral information to meet the “service demand”

criterion. However, the application still did not meet the “service accessibility,” “unnecessary

duplication/maldistribution,” and “impact of project on other area providers” criteria.

Specifically, based on new information that had been released since the original staff report

was prepared, the supplemental report noted that, of the 26 existing facilities within 45 minutes

of the proposed project, 20 were not operating at target occupancy and one was not yet

operational. Additionally, 14 of the 17 facilities within 30 minutes of the proposed project

were not at target occupancy, and their average occupancy was 79.48%. According to the

amended staff report, Crystal Pines, Fair Oaks, and The Springs had utilization rates of

88.20%, 84.60%, and 64.40%, respectively.

¶ 12 The Board addressed ManorCare’s application at a second meeting on December 10, 2012.

Burden again addressed the 10-year projection of bed need, asking the Board staff: “Why do

we continue to see projected occupancy data going up to 2018?” Burden continued: “How in

the hell do we know? We can’t tell sometimes two years how we’re going to be.” When a staff

member explained that the bed-need projection was “our inventory estimate of how many beds

are going to be needed in that Planning Area” by 2018, Burden responded: “that’s the first time

I’ve seen that lengthy of a bed-need methodology projected out that far, and I guess there’s a

reason for it that I’m missing.” A representative of the Illinois Department of Public Health

then explained to the Board that, although the applicable statute had recently been amended to

require 5-year bed-need projections, it had been using 10-year projections for the past several

years. The Board voted 5-3 to deny ManorCare’s application. On December 17, 2012, the

Board sent ManorCare a letter denying the certificate of need, based on noncompliance with

the “service accessibility,” “unnecessary duplication/maldistribution,” and “impact on other

area providers” criteria.

¶ 13 ManorCare exercised its right to a hearing before an administrative law judge (ALJ). The

ALJ allowed The Springs, Crystal Pines, and Fair Oaks to intervene in the proceedings. The

Board filed a motion in limine, seeking to bar ManorCare from introducing evidence relating to

any projects other than the proposed ManorCare facility. In its response to the motion,

ManorCare explained that it intended to introduce evidence showing that, from September

2008 through October 2012, the Board considered 26 other applications to establish new

nursing homes and that, although each of those applications had negative findings with respect

to the current utilization of existing providers in the planning area, the Board approved each

application. ManorCare argued that this evidence demonstrated that “the Board grants new

nursing home [certificate-of-need] applications despite non-conformance with ‘current

utilization’ criteria.” ManorCare also contended that this evidence showed that its application

was in compliance with the Board’s standards, criteria, and plans. The ALJ granted the motion

in limine prohibiting ManorCare from introducing evidence relating to other projects.

¶ 14 Prior to and during the administrative hearing, there were lengthy discussions about

ManorCare presenting an offer of proof with respect to the evidence that was excluded per the

motion in limine. Much of the debate centered on whether the documents that ManorCare

wanted to introduce had already been included in the record during prehearing motion practice.

Although the ALJ purported to deny ManorCare’s request to make an offer of proof, the record

contains a 38-page, 177-paragraph written offer of proof submitted by ManorCare. (The

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parties also supplemented the record in the trial court with the documents that ManorCare had

hoped to introduce at the administrative hearing.)

¶ 15 Two witnesses testified at the administrative hearing. Donald Reppy, the director of health

planning for HCR ManorCare, Inc., testified about the various reasons why ManorCare

believed that there was a need for a new nursing home in Crystal Lake. Those reasons were

consistent with what ManorCare had emphasized in its application (the projected need for 469

additional beds by 2018, the aging population, the lack of private rooms, the below-average

number of beds per 1000 residents over the age of 65, the 2010 finding that there was a lack of

nursing home options in the county, and ManorCare’s conclusion that residents were leaving

the county for nursing care). Reppy also explained that the 90% target utilization rate reflects

past utilization, because it is based on information from previous years. Accordingly, an area

might need nursing homes in the future even though existing facilities are operating below

target utilization.

¶ 16 Michael Constantino, a senior project reviewer with the Department of Public Health,

detailed the staff reports that were prepared in connection with ManorCare’s application.

When asked about the 161 unused nursing-care beds within 30 minutes of the proposed

facility, he acknowledged that this number could be skewed by “dead beds,” which are

licensed beds that are not set up for use. Furthermore, Constantino acknowledged that the

“service accessibility,” “unnecessary duplication/maldistribution,” and “impact on other area

providers” criteria all deal with the utilization rates of existing facilities. However, utilization

rate is a completely separate consideration from bed need. According to Constantino, no single

factor, including bed need, is controlling.

¶ 17 At the conclusion of the administrative hearing, the ALJ submitted a report finding that

ManorCare had failed to establish compliance with the “service accessibility,” “unnecessary

duplication/maldistribution,” and “impact on other area providers” criteria. The ALJ

recommended that the Board render a final administrative decision denying the application. On

August 27, 2014, the Board accepted the ALJ’s report and issued its final decision, denying

ManorCare’s application for a certificate of need.

¶ 18 ManorCare filed an action for administrative review in the trial court. On November 13,

2015, the trial court entered an order reversing the Board’s decision and directing it to issue a

certificate of need. The Springs, Crystal Pines, and Fair Oaks filed a notice of appeal, and the

Board and its members subsequently filed a separate notice of appeal. This court consolidated

the two appeals. Crystal Pines thereafter requested leave to withdraw as an appellant, and we

granted the motion.

¶ 19 II. ANALYSIS

¶ 20 The appellants argue that the Board’s decision to deny ManorCare’s application was

neither clearly erroneous nor arbitrary and capricious. They also argue that the ALJ acted

within his discretion by prohibiting ManorCare from introducing evidence of unrelated

projects.

¶ 21 We review the Board’s final decision, not the trial court’s order. Mercy Crystal Lake

Hospital & Medical Center v. Illinois Health Facilities & Services Review Board, 2016 IL App

(3d) 130947, ¶ 17. Reviewing the Board’s ultimate decision to grant or deny a permit requires

us to examine the legal effect of the facts, which presents a mixed issue of law and fact. Mercy

Crystal Lake Hospital, 2016 IL App (3d) 130947, ¶ 17. Under the “clearly erroneous”

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standard, we will not reverse unless the entire record leaves us “ ‘with the definite and firm

conviction that a mistake has been committed.’ ” AFM Messenger Service, Inc. v. Department

of Employment Security, 198 Ill. 2d 380, 395 (2001) (quoting United States v. United States

Gypsum Co., 333 U.S. 364, 395 (1948)). Furthermore, an administrative decision may be

overturned where it is arbitrary and capricious. Marion Hospital Corp. v. Illinois Health

Facilities Planning Board, 324 Ill. App. 3d 451, 455 (2001). An administrative decision is

arbitrary and capricious where the agency “(1) relies on factors which the legislature did not

intend for the agency to consider; (2) entirely fails to consider an important aspect of the

problem; or (3) offers an explanation for its decision which runs counter to the evidence before

the agency, or which is so implausible that it could not be ascribed to a difference in view or the

product of agency expertise.” Greer v. Illinois Housing Development Authority, 122 Ill. 2d

462, 505-06 (1988). “While an agency is not required to adhere to a certain policy or practice

forever, sudden and unexplained changes have often been considered arbitrary.” Greer, 122

Ill. 2d at 506. The “arbitrary and capricious” standard of review is the least demanding

standard, the equivalent of the “abuse of discretion” standard. Greer, 122 Ill. 2d at 497.

¶ 22 In reviewing an application for a permit to construct a new nursing home facility, the Board

must consider the numerous factors that are outlined in the administrative regulations. The

Board has the discretion to approve an application even though the proposed project does not

comply with all review criteria. See 77 Ill. Adm. Code 1130.660(a), amended at 30 Ill. Reg.

14852 (eff. Sept. 1, 2006). No single criterion is more important than any other (Mercy Crystal

Lake Hospital, 2016 IL App (3d) 130947, ¶ 22), and the Board uses its judgment and expertise

to consider and balance the applicable criteria (Charter Medical of Cook County, Inc. v. HCA

Health Services of Midwest, Inc., 185 Ill. App. 3d 983, 989 (1989)).

¶ 23 The Board ultimately determined that ManorCare’s application did not meet the “service

accessibility,” “unnecessary duplication/maldistribution,” and “impact on other area

providers” criteria. At the hearing before the ALJ, ManorCare attempted to demonstrate why a

certificate of need should be issued despite the fact that the application did not comply with all

applicable criteria. Reppy, ManorCare’s own witness, even acknowledged that the application

did not meet multiple criteria and was not “entitled” to approval. ManorCare now changes its

tune and argues that it complied with these three criteria, which it refers to collectively as the

“Current Utilization criteria.” In support of that position, ManorCare emphasizes that it

presented evidence that the population of McHenry County was aging, that there was a lack of

nursing home options and private rooms in the county, that the county had a below-average

number of beds per 1000 seniors, and that calculations derived from Medicare data suggested

that residents were leaving the county for nursing care. ManorCare also notes that “dead beds”

could have affected the utilization rates of existing facilities in the area.

¶ 24 The Board’s conclusion that ManorCare’s application did not meet all applicable criteria

was not clearly erroneous. Reppy acknowledged that the application did not meet all

applicable criteria. Additionally, the Board detailed the number of existing facilities within 30

and 45 minutes of the proposed project that were operating below the target utilization rate.

Although ManorCare introduced some evidence to support its position that there was a need

for the proposed facility, it is not our role to reweigh the evidence. Provena Health v. Illinois

Health Facilities Planning Board, 382 Ill. App. 3d 34, 47 (2008).

¶ 25 ManorCare further argues that the Board’s decision was arbitrary and capricious because

the Board rejected its own bed-need calculation. By statute, the Board is required to project

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future bed need by planning area. When ManorCare filed its application, the statute called for

10-year projections. 20 ILCS 3960/12.5 (West 2010). Accordingly, the Board had projected in

2008 that McHenry County would need 469 additional beds by 2018. The statute was amended

in August 2012 to require five-year projections. Pub. Act 97-1115 (eff. Aug. 27, 2012)

(amending 20 ILCS 3960/12.5).

¶ 26 Emphasizing certain comments made by Board members at the meetings in July and

December 2012, ManorCare proposes that the Board rejected its own bed-need determination.

However, it is apparent that the Board was merely refusing to find that the 10-year bed-need

projection was dispositive on the issue of whether there was a need for ManorCare’s project.

“The stated bed-need in a planning area is a projection; it does not create a fixed pool of beds or

bind the Board.” Provena Health, 382 Ill. App. 3d at 47. Although projected bed need is “a

critical factor in determining need,” the Board may “deny a proposed project if not needed

even though there is a projected bed need.” Charter Medical, 185 Ill. App. 3d at 988.

¶ 27 ManorCare offered numerous reasons why it believed that there was a need for another

nursing home in Crystal Lake, even though competitors were operating below the target

utilization rate. On the other hand, The Springs, Fair Oaks, and Crystal Pines vehemently

opposed the application and insisted that there was no need for this particular project. In light

of the conflicting evidence, the Board’s assessment of need was not clearly erroneous, and the

record does not support ManorCare’s argument that the Board rejected its own bed-need

determination. Moreover, we note that the comments that ManorCare highlights were made at

the meetings when the Board initially considered the application; they were not part of the final

administrative decision. We review the Board’s final administrative decision denying the

application. Mercy Crystal Lake Hospital, 2016 IL App (3d) 130947, ¶17; see 77 Ill. Adm.

Code 1125.140 (2011) (“final administrative decision” means the action taken by the Board

after an administrative hearing or the waiver of such hearing).

¶ 28 ManorCare also argues that the Board’s decision was arbitrary and capricious because the

Board had a practice of granting applications despite noncompliance with the “Current

Utilization criteria.” To that end, ManorCare wanted to introduce evidence showing that in the

four years preceding its application—and again during the pendency of these

proceedings—the Board had universally approved other projects that did not comply with

those criteria. ManorCare notes that the regulations provide that the parties may present

evidence and arguments that are “relevant to the question of consistency and conformity of the

proposed project with the adopted standards, criteria or plans upon which the finding and

decision of [the Board] was made.” 77 Ill. Adm. Code 1130.1110(f), adopted at 30 Ill. Reg.

14852, 14971 (eff. Sept. 1, 2006). According to ManorCare: “Evidence regarding the Board’s

own practice of approving new nursing home [certificate-of-need] applications despite

non-conformance with the Current Utilization criteria is clearly relevant to the question of the

‘consistency and conformity’ of the ManorCare project with the Board’s standards, criteria,

plans and prior findings and decisions.” (Emphasis added.) Similarly, ManorCare contends

that such evidence supports its theory that “non-conformance with Current Utilization criteria

is no impediment to the Board’s granting new nursing home applications, and that the Board’s

denial of ManorCare’s application was an abrupt and irrational departure from past practice.”

¶ 29 The ALJ granted the motion in limine, preventing ManorCare from introducing evidence

along these lines. We review for an abuse of discretion an administrative agency’s decisions

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regarding the admission of evidence. Wilson v. Department of Professional Regulation, 344

Ill. App. 3d 897, 909 (2003).

¶ 30 We find no abuse of discretion. No two applications will ever be truly identical, and the

decision whether to overlook noncompliance necessarily requires the Board to evaluate each

project individually and as a whole. There are any number of circumstances that might

influence the Board’s decision to overlook noncompliance for one project but not another. For

example, there might be a particular need for a specialized service within a given area. See

Marion Hospital Corp., 324 Ill. App. 3d at 457 (the Board’s decision to overlook

noncompliance with a review criterion was justified where no facility in that particular part of

the state could have met all criteria so as to offer open-heart-surgery services). There are also

varying degrees of compliance and noncompliance. An unopposed project in an unpopulated

area of the state might not meet the “Current Utilization criteria” where the few existing

facilities in the region operate at 89% capacity; another project in a more populated area might

encounter numerous objecting competitors that are operating significantly below target

capacity.

¶ 31 ManorCare contends that there is no indication in the record that the Board exercised its

discretion in this fashion. According to ManorCare, instead of weighing the applicable criteria,

the Board “rejected half the scale and only considered one side—Current Utilization.” We

disagree. The Board heard evidence both in favor of and against ManorCare’s application. The

Board ultimately denied the application and articulated its bases for doing so. As explained

above, that decision was not clearly erroneous. ManorCare does not cite any authority that

would require the Board to justify here its decisions to issue permits to other applicants.

¶ 32 Additionally, the regulations are clear about what evidence is relevant at an administrative

hearing:

“In a hearing to consider the denial of a permit ***, the applicant shall have the burden

of establishing that the proposed project *** for which application for permit *** is

made is consistent with the standards, criteria, or plans adopted by [the Board] upon

which the finding and decision of [the Board] was made; only such testimony and

evidence as is relevant shall be offered or accepted.” 77 Ill. Adm. Code 1130.1110(e),

adopted at 30 Ill. Reg. 14852, 14971 (eff. Sept. 1, 2006).

Section 1130.1110(f) similarly provides that “[a]ll parties to an administrative hearing shall

have the right to give testimony, produce evidence, cross-examine adverse witnesses and

present arguments relevant to the question of consistency and conformity of the proposed

project with the adopted standards, criteria or plans upon which the finding and decision of [the

Board] was made.” 77 Ill. Adm. Code 1130.1110(f), adopted at 30 Ill. Reg. 14852, 14971 (eff.

Sept. 1, 2006). Instead of showing that its application was consistent with the Board’s

standards, criteria, or plans, ManorCare wanted to show that noncompliance with such

standards, criteria, or plans was “no impediment” to approval. Contrary to ManorCare’s

suggestion, section 1130.1110 does not mention a given project’s consistency and conformity

with the Board’s “prior findings and decisions.” The regulations specify the burden that

ManorCare had to meet, and the proffered evidence was not relevant to meeting that burden.

¶ 33 Furthermore, if the ALJ had allowed ManorCare to introduce the proffered evidence, this

court might now be reviewing dozens of unrelated projects to determine whether they were

indeed comparable to ManorCare’s proposal. The record reflects that defendants were

prepared to dispute whether those projects were actually similar to ManorCare’s proposed

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project. However, none of this is relevant to the issue of whether ManorCare’s proposal

conformed to the Board’s adopted standards, criteria, or plans.

¶ 34 We find support in Caliendo v. Martin, 250 Ill. App. 3d 409 (1993). In that case, two

officers were discharged by a police board for accepting bribes during traffic stops. Caliendo,

250 Ill. App. 3d at 411. On appeal, the officers argued that the board’s decision was arbitrary

and unreasonable because, in unrelated cases, the board had suspended rather than discharged

other officers who engaged in similar conduct. Caliendo, 250 Ill. App. 3d at 418. Although this

evidence had not been presented to the police board, the court determined that the proffered

evidence did not merit a remand to the board because the cited cases “did not involve the same

surrounding circumstances.” Caliendo, 250 Ill. App. 3d at 421. The court distinguished this

from a prior case in which the police board had entered grossly disparate sanctions against two

officers for violations arising out of the same incident. Caliendo, 250 Ill. App. 3d at 420. Like

the officers in Caliendo, ManorCare wants to analogize its proposal to unrelated projects to

show that the Board’s action was arbitrary and capricious. We find that such evidence is

irrelevant because the other projects do not involve the same circumstances.

¶ 35 ManorCare’s reliance on Commonwealth Edison Co. v. Illinois Commerce Comm’n, 180

Ill. App. 3d 899 (1988), is misplaced. ManorCare cites Commonwealth Edison for the

proposition that “an agency action that represents an abrupt departure from past practice is not

entitled to the same degree of deference by a reviewing court.” Commonwealth Edison, 180 Ill.

App. 3d at 909. However, Commonwealth Edison bears no similarity to the matter at hand. In

that case, Commonwealth Edison wanted to reduce the seasonal differential between its rates

while maintaining revenue neutrality. Commonwealth Edison, 180 Ill. App. 3d at 901-02. After

a two-year legal battle, the Illinois Commerce Commission (ICC) entered a rate schedule in

April 1988; that schedule would achieve revenue neutrality within 12 months from the date of

the decision rather than during the calendar year. Commonwealth Edison, 180 Ill. App. 3d at

902. After the appellate court stayed the April 1988 decision, Commonwealth Edison filed a

petition to revise the schedule, on an expedited basis and without notice to interested parties.

Commonwealth Edison, 180 Ill. App. 3d at 902-03. The ICC allowed the petition and entered

an order in June 1988, setting a modified rate schedule that was based on a calendar year.

Commonwealth Edison, 180 Ill. App. 3d at 903.

¶ 36 The appellate court reversed the June 1988 order, finding that the ICC’s decision was

arbitrary and capricious. Commonwealth Edison, 180 Ill. App. 3d at 906. Among the reasons

was that, in previous published decisions dating back to 1979, the ICC had always used a

12-month revenue-neutralization period rather than a calendar-year period when setting

Commonwealth Edison’s rates. Commonwealth Edison, 180 Ill. App. 3d at 908. The ICC had

even admitted in a brief that “ ‘[i]t is a fundamental principle of utility regulation that rates are

set by the [ICC] through use of a 12-month measuring period.’ ” Commonwealth Edison, 180

Ill. App. 3d at 908. Under these circumstances, the court concluded that the ICC had “radically

altered its past practice regarding the time-frame for analyzing revenue neutrality without

notice to interested parties, a hearing, or any readily apparent reason.” Commonwealth Edison,

180 Ill. App. 3d at 909.

¶ 37 Unlike in Commonwealth Edison, the method the Board used to evaluate ManorCare’s

application was not different from the method it had applied in the past. Instead, because

ManorCare’s application did not comply with all applicable review criteria, the Board had the

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discretion to grant or deny the permit. There is ample support in the record for the Board’s

decision to deny the permit.1

¶ 38 ManorCare also argues that the ALJ erred in refusing to allow it to present an offer of

proof. However, the record on appeal contains ManorCare’s detailed written offer of proof.

The parties also supplemented the record in the trial court with the documents that ManorCare

intended to introduce into evidence. The purpose of an offer of proof is “to preserve error in the

exclusion of evidence by disclosing the nature of offered evidence to which an objection is

successfully interposed.” Board of Education of Community Unit School District No. 337 v.

Board of Education of Community Unit School District No. 338, 269 Ill. App. 3d 1020,

1030-31 (1995). The record is clear as to what evidence ManorCare wanted to introduce and

why it wanted to do so. Accordingly, any error by the ALJ in refusing to allow the offer of

proof does not justify reversing the Board’s decision.

¶ 39 Finally, ManorCare complains about the ALJ’s statement that the application “does not

meet all of the review criteria considered by the Board.” ManorCare notes that the regulations

indicate that “[t]he failure of a project to meet one or more review criteria *** shall not

prohibit the issuance of a permit.” 77 Ill. Adm. Code 1130.660(a), amended at 30 Ill. Reg.

14852, 14936 (eff. Sept. 1, 2006). We find no error in the ALJ’s statement. As explained

above, the Board’s finding that ManorCare did not meet three of the review criteria was not

clearly erroneous. Moreover, it is clear that the ALJ understood that the Board had discretion to

approve the project despite noncompliance with all of the criteria. Indeed, the ALJ specifically

acknowledged that “[t]he Board had discretion to approve Respondent’s application, despite

non-compliance with all review criteria, but the Board did not determine that Respondent’s

factors outweighed non-compliance with the Board’s criteria.”

¶ 40 III. CONCLUSION

¶ 41 For the reasons stated, we reverse the judgment of the circuit court of McHenry County and

affirm the decision of the Illinois Health Facilities and Services Review Board.

¶ 42 Circuit court judgment reversed.

1

Having determined that the proffered evidence was irrelevant, there is no need to address the

parties’ dispute as to whether ManorCare was attempting to engage in “comparative review.”

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