Birchansky Real Estate v. Department

• Decision Date: 10 August 2007
• Docket Number: No. 05-2019.,05-2019.
• Parties: BIRCHANSKY REAL ESTATE, L.C., and Fox Eye Surgery, L.L.C., Appellees, v. IOWA DEPARTMENT OF PUBLIC HEALTH, STATE HEALTH FACILITIES COUNCIL, Respondent, St. Luke's Hospital and Mercy Medical Center, Appellants.
• Court: Iowa Supreme Court

737 N.W.2d 134

BIRCHANSKY REAL ESTATE, L.C., and Fox Eye Surgery, L.L.C., Appellees, v. IOWA DEPARTMENT OF PUBLIC HEALTH, STATE HEALTH FACILITIES COUNCIL, Respondent St. Luke's Hospital and Mercy Medical Center, Appellants.

No. 05-2019.

Supreme Court of Iowa.

August 10, 2007.

Michael A. Dee and Rebecca A. Brommel of Brown, Winick, Graves, Gross, Baskerville and Schoenebaum, P.L.C., Des Moines, for appellant St. Luke's Hospital.

Edwin N. McIntosh and Heather L. Campbell of Dorsey & Whitney, LLP, Des Moines, for appellant Mercy Medical Center.

Douglas A. Fulton of Brick, Gentry, Bowers, Swartz, Stoltze & Levis, P.C., West Des Moines, for appellees.

Maureen Keehnle, Des Moines, for amicus curiae Iowa Hospital Association.

STREIT, Justice.

An ophthalmologist wants to open an outpatient surgical facility in Cedar Rapids. Iowa law requires the sponsor of such a facility to first obtain a certificate of need ("CON") from the Iowa Department of Public Health ("Department") before the facility can be developed unless a statutory exemption is applicable. Because we find the ophthalmologist's proposed facility required a CON, we reverse the decision of the district court. Moreover, the Department's decision to deny the ophthalmologist's CON application was reasonable.

I. Facts and Prior Proceedings.

This case centers on Dr. Lee Birchansky's efforts to establish an outpatient surgical facility¹ in Cedar Rapids. Under Iowa law, the Department must first issue a CON before an outpatient surgical facility can be developed. Iowa Code §§ 135.61(14)-(15), .63 (2005); see Greenwood Manor v. Iowa Dep't of Pub. Health, 641 N.W.2d 823, 831-32 (Iowa 2002) (providing an overview of Iowa's CON law); Lauretta Higgins Wolfson, State Regulation of Health Facility Planning: The Economic Theory and Political Realities of Certificates of Need, 4 DePaul J. Health Care L. 261 (2001) (providing historical background for the enactment of CON laws across the country). Dr. Birchansky initially sought to obtain a CON for a proposed facility on H Avenue in 1996. The Department² denied his application. Thereafter, in 1998, Dr. Birchansky, through Birchansky Real Estate, L.C., entered into a business arrangement with St. Luke's Hospital whereby the latter would create a surgery center at the H Avenue location and operate it as an off-campus department of the hospital. St. Luke's was not required to obtain a CON because the facility was considered an extension of St. Luke's hospital license. Under the arrangement, St. Luke's rented the H Avenue facility from Birchansky Real Estate for five years and provided the support staff and equipment. Dr. Birchansky was the medical director. Dr. Birchansky and his partner, Dr. Richard Stangler, who comprised Fox Eye Laser & Cosmetic Institute, P.C., performed the vast majority of surgeries at the facility. Four other doctors (three podiatrists and a hand surgeon) utilized the facility on occasion.

The initial lease agreement expired in 2003 and the parties were unable to agree to a new contract. Nevertheless, the facility remained in operation with St. Luke's occupying the space on a month-to-month basis.

Dr. Birchansky recognized the uncertainty of his arrangement with St. Luke's. He created Fox Eye Surgery, L.L.C. ("Fox Eye"). On August 24, 2004, Fox Eye submitted an application for a CON in the event the arrangement with St. Luke's ended. Fox Eye's application sought to obtain a CON for what it described as the "continued operation" of the facility. It noted it "will negotiate to purchase" from St. Luke's the equipment currently in place and employ any current staff not retained by St. Luke's.

The Department responded by sending Fox Eye a letter stating it had determined "the project proposed in the application does not require a Certificate of Need to proceed." (Emphasis added.) The Department explained Fox Eye's proposal fell within one of the exemptions to the CON requirement. See Iowa Code § 135.63(2)(o). On November 19, 2004, the Department issued a memorandum to "All Affected and Interested Parties" regarding the Department's determination of nonreviewability.

St. Luke's disagreed with the Department's determination. On December 6, 2004, St. Luke's ceased operations at the facility and requested the removal of the H Avenue location from its hospital license. In its letter to the Department of Inspections and Appeals, St. Luke's stated "[a]ll equipment and personnel at this site will be relocated to St. Luke's main location at 1026 A Avenue NE at the close of business on December 6." At a hearing before the Department, St. Luke's admitted it pulled out of the H Avenue facility in order "to create a break in service" and cause the Department to reconsider its decision not to require Fox Eye to obtain a CON.

St. Luke's plan worked. Two days later, the Department informed Fox Eye its CON application was reviewable. The Department reasoned the exemption for a CON was no longer applicable because St. Luke's had ceased to provide services at the H Avenue facility and Fox Eye would not be performing surgeries at this location for at least forty-five days. On February 26, 2005, the Department denied Fox Eye's CON application, finding the additional surgery suites were not needed in the Cedar Rapids area.

Fox Eye and Birchansky Real Estate filed a petition for judicial review in the Polk County District Court. They argued (1) Fox Eye's application was non-reviewable under Iowa Code § 135.63(2)(o); and (2) if the application was reviewable, the Department arbitrarily and unreasonably denied Fox Eye's CON application. St. Luke's and Mercy were allowed to intervene. The district court ruled the Department's "determination that the exemption found at Iowa Code § 135.63(2)(o) was no longer applicable under the circumstances of this proceeding was wholly unjustifiable." The district court reversed the Department's determination and remanded the matter to the Department "for such proceedings as may be required to complete the process started when it was initially determined that a certificate of need was not necessary." St Luke's and Mercy appeal.³ They argue Fox Eye's proposal required a CON and contend the Department properly denied Fox Eye's application.

II. Scope of Review.

We review the district court's decision for errors at law. Iowa R.App. P. 6.4. The Iowa Administrative Procedure Act provides specific judicial review provisions for appeals concerning agency action. See Iowa Code § 17A.19. The Department is a government agency.

The first question we must address is whether the Department's interpretation of the statute at issue, Iowa Code § 135.63(2)(o), is entitled to deference. The answer depends on whether the interpretation of the statute is "clearly... vested by a provision of law in the discretion of the agency." Id. § 17A.19(10)(c), (l). If the interpretation is so vested, then the court may reverse only upon a finding the agency's interpretation was "irrational, illogical, or wholly unjustifiable." Id. § 17A.19(10)(l). "If the legislature has not clearly vested the interpretation of the statute at issue with the agency, we are free to substitute our judgment de novo for the agency's interpretation and determine if the interpretation is erroneous." Auen v. Alcoholic Beverages Div., 679 N.W.2d 586, 589-90 (Iowa 2004) (citing Iowa Code § 17A.19(10)(c)).

In order for an interpretation to be clearly vested with an agency, we "`must have a firm conviction from reviewing the precise language of the statute, its context, the purpose of the statute, and the practical considerations involved, that the legislature actually intended (or would have intended had it thought about the question) to delegate to the agency interpretive power with the binding force of law over the elaboration of the provision in question.'" Mosher v. Dep't of Inspections & Appeals, 671 N.W.2d 501, 509 (Iowa 2003) (quoting Arthur E. Bonfield, Amendments to Iowa Administrative Procedure Act, Report on Selected Provisions to Iowa State Bar Association and Iowa State Government 63 (1998)). The Department was expressly created by the legislature to, among other things, make the final decision on all CON applications. Iowa Code § 135.62(2)(d). The Department is also statutorily mandated with the responsibility for adopting all rules "necessary to enable [the Department] to implement this division," including procedures and criteria for reviewing CON applications. Id. § 135.72(1); see also id. § 135.62(2)(d)(5). We have found similar statutory language sufficient to conclude the matter under consideration was vested in the discretion of the agency. ABC Disposal Sys., Inc. v. Dep't of Natural Res., 681 N.W.2d 596, 602 (Iowa 2004); Auen, 679 N.W.2d at 590; City of Marion v. Dep't of Revenue & Fin., 643 N.W.2d 205, 207 (Iowa 2002). Thus, the district court correctly concluded the interpretation of the statutory exemption for a CON, Iowa Code § 135.63(2)(o), was clearly vested in the discretion of the Department. Consequently, we may only reverse the Department's interpretation if we find it to be "irrational, illogical, or wholly unjustifiable." Iowa Code § 17A.19(10)(l).

Although we give weight to the Department's interpretation, the meaning of any statute is always a matter of law to be determined by the court. City of Marion, 643 N.W.2d at 206. The goal in interpreting a statute "is to determine the legislature's intent when it enacted the statute." ABC Disposal Sys., 681 N.W.2d at 603 (citing State v. Tague, 676 N.W.2d 197, 201 (Iowa 2004)). "If the statute's language is clear and unambiguous, we apply a plain and rational meaning consistent with the subject matter of the statute." Id. (citing City of Waukee v. City Dev. Bd., 590 N.W.2d 712, 717 (Iowa 1999)).

III. Merits.

A. Whether Fox Eye's Proposal Required a CON.

The crux of this case concerns the Department's interpretation of Iowa Code § 135.63(2)(o). This...