Overlake Hosp. v. Department of Health

• Decision Date: 13 October 2008
• Docket Number: No. 60554-2-I.,60554-2-I.
• Citation: 200 P.3d 248,148 Wn. App. 1
• 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, Appellants, v. DEPARTMENT OF HEALTH of the State of Washington, Respondent.
• Court: Washington Court of Appeals

200 P.3d 248

148 Wn. App. 1

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, Appellants, v. DEPARTMENT OF HEALTH of the State of Washington, Respondent.

No. 60554-2-I.

Court of Appeals of Washington, Division 1.

October 13, 2008.

Publication Ordered January 20, 2009.

James Scott Fitzgerald, Gregory A. McBroom, Kirkland, WA, for King County Public Hosp.

Donald W. Black, Jeffrey Duane Dunbar, E. Ross Farr, Ogden Murphy Wallace, Seattle, WA, for Overlake Hosp. Ass'n and Overlake Hosp. Medical Center.

Brian William Grimm, Peter Scott Ehrlichman, Seattle, WA, for Swedish Health Services.

Richard Arthur McCartan, Atty. Gen., Olympia, WA, for Dept. of Health.

GROSSE, J.

¶1 Although a high level of deference is accorded to an agency's determination under the Administrative Procedure Act,¹ such deference will not lie where an agency's decision is based on an implausible interpretation of its regulations. Here, the Department of Health promulgated rules for determining whether a need exists for additional ambulatory surgical facilities in Bellevue that employ a flawed mathematical formula to establish the number of current and projected surgeries. That flawed formula included exempt surgical procedures in calculating demand, but excluded the facilities where exempt surgical procedures are performed from the calculation of existing capacity. Hence, in an area where there is much private, exempt care, as Bellevue, the calculation will inevitably be biased toward need. Accordingly, we reverse the determination that Swedish Health Services could establish a five-bed ambulatory surgical facility on the eastside.

FACTS

¶2 The Washington Legislature enacted the State Health Planning and Resources Development Act in 1979, creating the certificate of need (CN) program to oversee health care development.² The CN program is an office within the Department of Health (Department) designed to effectuate the goals and principles of the Act. In order to establish or expand health care facilities, a provider must obtain a CN.³ For that, a health care provider must establish a need for a particular health care service or facility in that health care planning area. CN applications are evaluated based on specific criteria set forth in the statute and applicable rules.⁴

¶3 To determine whether additional inpatient and outpatient operating rooms are needed in a health planning area, the Department uses the mathematical formula set forth in WAC 246-310-270(9). This formula is a means to compare current operating room capacity in a particular health planning area against anticipated future need, if any. Essentially, the methodology requires three steps:

• Existing Capacity: calculate the capacity of existing operating rooms in the planning area;

• Future Need: project the anticipated number of surgeries in the planning area three years into the future; and

• Net Need: calculate whether the existing operating room capacity is sufficient to accommodate the projected number of future surgeries. If not, then a need exists for more ambulatory surgical facilities in the planning area.

¶4 Here, the Department issued a CN to Swedish Health Services (Swedish) to establish an ambulatory surgical facility with five operating rooms in Bellevue. An ambulatory surgical facility is defined as "any free-standing entity, including an ambulatory surgery center that operates primarily for the purpose of performing surgical procedures to treat patients not requiring hospitalization."⁵

¶5 Evergreen Healthcare and Overlake Hospital Medical Center (collectively, Overlake) filed an objection to the issuance of the CN to Swedish alleging that there was no need for additional ambulatory surgical facilities in the area. The health law judge rejected Overlake's appeal, upholding the methodology employed by the Department in granting Swedish the CN. Overlake appealed to the superior court which upheld the health law judge. Overlake appeals.

ANALYSIS

¶6 Certain surgical facilities are exempt under the CN scheme. Exempt facilities include those located in the offices of private physicians that are unavailable for outside use.⁶ In determining current operating room capacity under the Existing Capacity step, the Department does not include exempt facilities where surgeries are currently performed. However, when computing whether additional operating rooms are needed under Future Need, the Department does include surgeries performed at exempt ambulatory surgical facilities. In short, the formula either undercounts the number of surgeries in the first step or over-counts the number of surgeries to be performed in the second step.

¶7 Overlake objects to the inclusion of surgeries at exempt facilities when the Department excludes those facilities to determine capacity. Both Existing Capacity and Future Need in the methodology use the terms "operating rooms" and "surgeries." As noted by the health law judge, the plain language of the governing WAC rule does not differentiate surgeries in exempt facilities from surgeries in nonexempt facilities. Nonetheless, the health law judge acquiesced in the Department's interpretation, permitting it to include surgeries performed at exempt facilities when calculating projected surgeries, but exclude those very same facilities when calculating the number of operating rooms needed to meet the demand for projected surgeries. Such an application makes no logical sense and is contrary to the basic canons of statutory interpretation. Indeed, we can envision no scenario where the Department's application of the formula will not result in a showing of need (except where there are no exempt facilities).

¶8 Testimony at the administrative hearing indicated that the Department's rationale for this unsound practice lay in the Legislature's policy directive to provide "accessible" health care. But, access to health care, though important, was only one reason motivating the Legislature in creating the CN program. The Legislature's primary purpose was to control costs by limiting competition.⁷ The Legislature clearly enunciated its goals in its declaration of public policy:

That strategic health planning efforts must be supported by appropriately tailored regulatory activities that can effectuate the goals and principles of the statewide health resources strategy developed pursuant to chapter 43.370 RCW. The implementation of the strategy can 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.[⁸]

As the Supreme Court in Saint Joseph Hospital v. Department of Health noted:

While the Legislature clearly wanted to control health care costs to the public, equally clear is its intention to accomplish that control by limiting competition within the health care industry. The United States Congress and our Legislature made the judgment that competition had a tendency to drive health care costs up rather than down and government therefore needed to restrain marketplace forces. The means and end here are inextricably tied.[⁹]

The formula as interpreted and applied here by the...