OVERLAKE Hosp. Ass'n v. Dep't of HEALTH of The State of Wash.

• Decision Date: 23 September 2010
• Docket Number: No. 82728-1.,82728-1.
• Court: Washington Supreme Court
• Parties: OVERLAKE HOSPITAL ASSOCIATION and Overlake Hospital Medical Center, a Washington nonprofit corporation; and King County Public Hospital District No. 2, d/b/a Evergreen Healthcare, a Washington Public Hospital District, Respondents, v. DEPARTMENT OF HEALTH OF the STATE OF WASHINGTON, and Swedish Health Services, Petitioners.

239 P.3d 1095

OVERLAKE HOSPITAL ASSOCIATION and Overlake Hospital Medical Center, a Washington nonprofit corporation; and King County Public Hospital District No. 2, d/b/a Evergreen Healthcare, a Washington Public Hospital District, Respondents,

v.DEPARTMENT OF HEALTH OF the STATE OF WASHINGTON, and Swedish Health Services, Petitioners.

No. 82728-1.

Supreme Court of Washington,En Banc.

Argued May 20, 2010.

Decided Sept. 23, 2010.

COPYRIGHT MATERIAL OMITTED.

Richard Arthur McCartan, Anne Elizabeth Egeler, Michael Steven Tribble, Office of the Attorney General, Olympia, WA, Peter Scott Ehrlichman, Dorsey & Whitney, L.L.P., Brian William Grimm, Bennett Bigelow & Leedom, Seattle, WA, for Petitioner/Appellant.

James Scott Fitzgerald, Gregory A. McBroom, Livengood Fitzgerald & Alskog, P.L.L.C., Kirkland, WA, for Appellee/Respondent.

Scott Easter, Benjamin I. VandenBerghe, Kristiana Farris O'Brien, Montgomery Purdue Blankinship & Austin, Seattle, WA, for amicus counsel for Proliance Surgeons Incorporated.

ALEXANDER, J.

¶ 1 Swedish Health Services (Swedish) and the Washington State Department of Health (Department) seek review of a decision of the Court of Appeals, in which that court concluded that the Department used flawed methodology in determining that there was need for an additional ambulatory surgical facility (ASF) in East King County. ¹ Swedish and the Department's principal argument is that the Court of Appeals did not accord sufficient deference to the Department's interpretation of the regulatory language relating to the process for obtaining a certificate of need. We agree with Swedish and the Department and, consequently, reverse the Court of Appeals.

I

¶ 2 In 1979 the legislature created the certificate of need (CN) program, which authorizes the Department to control the number and types of health care services and facilities that are provided in a given planning area. See RCW 70.38.015(2). The purpose behind this legislation was to ensure that such services and facilities are developed in a manner consistent with identified priorities and without unnecessary duplication. Under this statutory regime, in order for certain health care providers to establish or expand health care facilities within this state, including ASFs, they must obtain a CN from the Department. See WAC 246-310-020(a)(i).

¶ 3 In determining whether there is need for an additional ASF in a given area, the Department employs the three-step methodology set forth in WAC 246-310-270(9). The steps, denominated in WAC 246-310-270(9)(a), (b), and (c), are designed to determine: (a) the existing capacity of operating rooms in the planning area, (b) the anticipated number of surgeries in the area three years into the future, and (c) whether existing operating room capacity is sufficient to accommodate the projected number of future surgeries.

¶ 4 Facilities in the offices of private physicians or dentists, whether for individual or group practice, are exempt from the definition of an ASF if the privilege of using the facility is not extended to physicians or dentists outside the individual or group practice. WAC 246-310-010(5). Historically, and in the instant case, the Department excludes exempt surgical facilities in calculating step one of the methodology-existing capacity. It does, however, include surgeries performed in the exempt facilities in calculating step two-projected future need.

¶ 5 In November 2002, Swedish applied for a CN to establish a new ASF in Bellevue, Washington. Overlake Hospital Association (Overlake) and Evergreen Healthcare (Evergreen) each obtained “affected part[y]” status and submitted comments to the Department in opposition to Swedish's application. Clerk's Papers (CP) at 219. Using the methodology described above, the Department determined that there was need in East King County for an additional ASF with 5.39 outpatient operating rooms. Accordingly, it issued a CN to Swedish to build a five-room ASF in Bellevue.

¶ 6 Overlake and Evergreen requested an adjudicative proceeding before a health law judge to determine whether the Department erred by issuing the CN to Swedish. They contended that the Department failed to properly apply WAC 246-310-270(9) and that, as a result of the alleged error, the need for an additional ASF in East King County was overstated. In upholding the Department's decision, the health law judge acknowledged that, in calculating existing capacity and future need, the applicable language in sections (a) and (b) of WAC 246-310-270(9) “appears to be all inclusive” of ASFs and exempt facilities. CP at 29. The health law judge went on to say, however, that the language of the WAC “cannot be read in isolation” and that its “plain meaning may be ascertained by an examination of the statute in which the provision is found, as well as related statutes or other provisions of the same act in which the provision is found.” Id. (citing City of Olympia v. Drebick, 156 Wash.2d 289, 295, 126 P.3d 802 (2006)). Following that approach, the health law judge determined that exempt facilities should be excluded from the calculation of existing capacity under WAC 246-310-270(9)(a), but included in the calculation of future need under subsection (b) of that regulation. In holding that Swedish established need for an additional five operating room ASF in Bellevue, the health law judge took particular note of the legislature's emphasis on assuring “that all citizens have accessible health services” and indicated that “[i]f the more inclusive approach were followed, the calculation of available operating rooms would include [exempt facilities] that would not be available to many of the individuals within the health planning area.” CP at 29 (emphasis added). ²

¶ 7 Overlake and Evergreen appealed the health law judge's decision to King County Superior Court, which upheld the health law judge. The decision of the superior court was then reviewed by the Court of Appeals, which reversed the superior court, holding that “the Department's decision to issue Swedish the CN was arbitrary and capricious because it was based on an erroneous interpretation of the governing statutes and a misapplication of its own regulations.” Overlake Hosp. Ass'n v. Dep't of Health, 148 Wash.App. 1, 7, 200 P.3d 248 (2008). We granted the petition of Swedish and the Department to review the Court of Appeals' decision. Overlake, 166 Wash.2d 1010, 210 P.3d 1018 (2009).

II

¶ 8 The standard of review in CN cases is that the agency decision is presumed correct and that the challengers have the burden of overcoming that presumption. Univ. of Wash. Med. Ctr. v. Dep't of Health, 164 Wash.2d 95, 102, 187 P.3d 243 (2008). Insofar as questions of law are concerned, we may substitute our interpretation of the law for that of the agency. We do, however, accord substantial deference to the agency's interpretation of law in matters involving the agency's special knowledge and expertise. An agency's decision is arbitrary and capricious if the decision is the result of willful and unreasoning disregard of the facts and circumstances.

III

¶ 9 The CN program was created as part of Washington's health planning strategy to “promote, maintain, and assure the health of all citizens in the state, provide accessible health services, health manpower, health facilities, and other resources while controlling increases in costs, and recognize prevention as a high priority in health programs.” RCW 70.38.015(1). Pursuant to RCW 70.38.105(1), the Department is authorized to administer the CN program. The Department's secretary is authorized to promulgate rules setting up the process for obtaining a CN. RCW 70.38.135(3). In determining whether to issue a CN for a new health care facility, the Department is to consider the following factors: (1) need, (2) financial feasibility, (3) structure and process of care, and (4) cost containment. WAC 246-310-210 through -240. Factors two, three, and four have not been at issue in this case. Rather, the focus has been on factor one-whether the Department used the proper methodology for calculating need.

¶ 10 More specifically, the question before us is whether the Department erred in the manner in which it factored exempt facilities in its calculation of existing capacity and future need as a prelude to determining net need under the aforementioned three-step process set forth in WAC 246-310-270(9). Under WAC 246-310-270(9)(a), to determine existing capacity, the Department is to

[a]ssume the annual capacity of one operating room located in a hospital and not dedicated to outpatient surgery is ninety-four thousand two hundred fifty minutes....

... Assume the annual capacity of one operating room dedicated to ambulatory surgery is sixty-eight thousand eight hundred fifty minutes.... [A]ssume fifty minutes per outpatient surgery....

... Calculate the total annual capacity (in number of surgeries) of all dedicated outpatient operating rooms in the area.

... Calculate the total annual capacity (in number of minutes) of the remaining inpatient and outpatient operating rooms in the area.

WAC 246-310-270(9)(a). For future need, it must

[p]roject number of inpatient and outpatient surgeries performed within the hospital planning area for the third year of operation. This shall be based on the current number of surgeries adjusted for forecasted growth in the population served and may be adjusted for trends in surgeries per capita....

... Subtract the capacity of dedicated outpatient operating rooms from the forecasted number of outpatient surgeries....

... Determine the average time per inpatient and outpatient surgery in the planning area....

... Calculate the sum of inpatient and remaining outpatient ... operating room time needed in the third year of operation.

WAC 246-310-270(9)(b). Net need, the ultimate question for the Department, is determined by calculating the difference, if any, between existing capacity and...