Providence Physician Servs. Co. v. Wash. State Dep't of Health

• Decision Date: 15 November 2016
• Docket Number: No. 47885–4–II,47885–4–II
• Citation: 196 Wash.App. 709,384 P.3d 658
• Court: Washington Court of Appeals
• Parties: Providence Physician Services Co., Appellant, v. Washington State Department of Health; Rockwood Health System d/b/a Valley Hospital, Respondents.

196 Wash.App. 709

384 P.3d 658

Providence Physician Services Co., Appellant,

v.Washington State Department of Health; Rockwood Health System d/b/a Valley Hospital, Respondents.

No. 47885–4–II

Court of Appeals of Washington, Division 2.

November 15, 2016

Brian William Grimm, Perkins Coie LLP, 1201 3rd Ave., Ste. 4900, Seattle, WA, 98101–3099, for Appellant.

Richard Arthur McCartan, Atty. Gen. Ofc./AHCR Div., 7141 Cleanwater Dr. S.W., P.O. Box 40109, Olympia, WA, 98504–0109, John Francis Sullivan, Law Offices of John F. Sullivan, 1420 N.W. Gilman Blvd., Ste. 2–2206, Issaquah, WA, 98027–5394, for Respondents.

Bjorgen

, C.J.

¶1 Providence Physician Services Co. (PPSC) appeals the superior court decision affirming the final order by the Department of Health (Department) ruling that PPSC did not qualify for an exemption from the Certificate of Need (CN) Program for its proposed ambulatory surgical facility. WAC 246–310–010(5)

provides the exemption at issue, which permits an ambulatory surgical facility “in the offices of private physicians ... whether for individual or group practice” without CN approval, as long as “the privilege of using the facility is not extended to physicians ... outside the individual or group practice” (the ASF exemption).

¶2 PPSC, a physician group entirely owned by Providence Health and Services—Washington (Providence), requested a determination as to whether the ASF exemption applied to it and its proposed facility. After an adjudicative process, the Department ultimately concluded that PPSC did not qualify for the ASF exemption. The superior court affirmed the Department. PPSC now appeals to this court, arguing that (1) the Department erred because the ASF exemption does not require a physician group (a) to be separately and independently owned and (b) to possess its own facility space; and (2) the Department engaged in improper rule making without abiding by the required formal rule making procedures.

¶3 We hold that the Department did not err in finding that Providence's ownership of PPSC disqualified it from the ASF exemption, although it did err to the extent it ruled that PPSC must own the facility space to qualify for the exemption. Furthermore, we hold that the Department did not engage in rule making with its interpretation of the ASF exemption. Accordingly, we affirm.

FACTS

¶4 Providence is a large nonprofit health care conglomerate that operates healthcare facilities in and outside of Washington. Through one of its subsidiaries, Providence is the sole shareholder and owner of PPSC. PPSC is a separately created for-profit corporation that employs 27 surgeons.

¶5 Recently, Providence built the Providence Sacred Heart Medical Center (Medical Center) in Spokane, a 134,000 square feet medical park with two separate buildings connected by an adjoining bridge. The Medical Center provides a wide range of health care services, including ambulatory surgical facilities. An ambulatory surgical facility is “any free-standing entity ... that operates primarily for the purpose of performing surgical procedures to treat patients not requiring hospitalization.” WAC 246–310–010(5)

. PPSC proposed to lease from Providence a portion of the Medical Center's building that contained the ambulatory surgical center and to limit that facility's privileges to PPSC surgeons.

¶6 PPSC submitted this proposal to the Department's CN Program for a determination as to whether it would be subject to CN approval. WAC 246–310–050

. The CN Program initially decided that PPSC was not required to obtain a CN for the new facility because the proposed facility did not qualify as an ambulatory surgical facility under the ASF exemption. That exemption reads:

Th[e] term [ambulatory surgical facility] does not include a facility in the offices of private physicians or dentists, whether for individual or group practice, 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)

. Rockwood Health System objected to the CN Program's determination and requested an adjudicative proceeding to determine the applicability of the ASF exemption. WAC 246–310–610. The parties agreed that this issue could be fully resolved through a summary judgment proceeding, since there were no genuine issues of material fact and the legal issue was whether the ASF exemption applied to PPSC's proposed facility.

¶7 The Department's hearing officer presiding over the initial adjudicative proceeding ruled that PPSC's proposed interpretation of the ASF exemption was too broad and rendered the term “private” meaningless. Administrative Record (AR) at 228. In addition, the hearing officer noted that a statutory provision should be construed in accordance with the CN's purpose to control health care costs by ensuring better utilization of existing medical services and to limit the expansion of new medical services. The hearing officer construed the ASF exemption narrowly because the legislature had not created any specific exemption for ambulatory surgery centers. The hearing officer concluded that if PPSC surgeons owned the proposed ambulatory surgery center, it would qualify for the ASF exemption. However, because Providence owned PPSC's ambulatory surgery center, the hearing officer held the ASF exemption inapplicable.

¶8 PPSC sought review of the Department's initial order before a departmental review officer. WAC 246–10–608

, –701(1). The review officer concluded that PPSC did not qualify for the ASF exemption on two grounds: first, because PPSC's proposed ambulatory surgical center would be located in the Medical Center, which is a mixed use ambulatory health care facility, and second, because PPSC surgeons are employees of Providence, and even if they were not employees, PPSC is entirely owned by Providence. Thus, both the hearing officer and the review officer relied on Providence's ownership as a reason for denying the exemption.

¶9 In reaching his decision, the review officer relied on the definition of “private practice” in Merriam Webster's Online Dictionary , which is the “practice of a profession (as medicine) independently and not as an employee.” AR at 310; http://www.merriam-webster.com . The review officer also noted that PPSC was not a private practice because “PPSC itself characterized its practice as neither a solo nor group practice.” AR at 310 n.7. Thus, the review officer concluded that to allow PPSC's proposed facility to qualify for the ASF exemption would “undermine the statutory requirement that [ambulatory surgical facilities] be subject to CN review.” AR at 310. Along with the above conclusions, the review officer also incorporated the hearing officer's initial order into the Department's final order.

¶10 The superior court affirmed the Department's final order, and PPSC appeals.

ANALYSIS

I. STANDARD OF REVIEW

¶11 In reviewing an administrative action, we sit in the same position as the superior court and apply the Administrative Procedure Act (APA), chapter 34.05 RCW, standards directly to the agency's administrative record. Shaw v. Dep't of Ret. Sys ., 193 Wash.App. 122, 128, 371 P.3d 106 (2016)

. Thus, we do not review the superior court's decision; rather, we examine the agency's final order, except to the extent that the review officer adopts the hearing officer's initial order. See

Darkenwald v. Emp't Sec. Dep't , 183 Wash.2d 237, 244, 350 P.3d 647 (2015) ; RCW 34.05.570(3). The Department's decision in a CN case is presumed correct, and the challenger has the burden to overcome that presumption. Overlake Hosp. Ass'n v. Dep't of Health , 170 Wash.2d 43, 49–50, 239 P.3d 1095 (2010).

¶12 Because questions of law are the only issues in this appeal, we review the Department's actions—whether characterized as adjudicative or “rule making”—under the error of law standard. See Verizon Nw., Inc. v. Wash. Emp't Sec. Dep't , 164 Wash.2d 909, 915, 194 P.3d 255 (2008)

(citing RCW 34.05.570(3)(d) ). This standard allows us to substitute our view of the law for that of the Department's. Id. If, however, the particular law was promulgated by the Department or is within the scope of its expertise, we accord substantial weight to the Department's interpretation. Id .

II. INTERPRETATION OF THE ASF EXEMPTION

¶13 PPSC argues that the Department erred in interpreting the ASF exemption because the exemption does not require a physician group to be separately and independently owned and to possess its own facility space. As explained below, we find that the Department did not err in its interpretation to the extent it determined that Providence's ownership of PPSC disqualified it from the ASF exemption, but did err to the extent it determined that PPSC must own the facility space to qualify for the exemption.

1. Legal Principles

¶14 The legislature has authorized the Department, through an appointed secretary, to administer the CN Program. RCW 70.38.105(1)

, .025(4); RCW 43.70.030. “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.’ ” Overlake Hosp. Ass'n , 170 Wash.2d at 50, 239 P.3d 1095

(quoting RCW 70.38.015(1) ).

¶15 In order for an entity to construct, develop, or establish a new “health care facility,” it must obtain a CN from the Department. RCW 70.38.105(4)(a)

. Health care facilities include ambulatory surgical facilities. RCW 70.38.025(6)

; WAC 246–310–010(26). While the legislature did not define “ambulatory surgical facility,” the Department defined the term 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. This term does not include a facility...