King County Pub. Hosp. 2 v. Dep't of Health ( 2013 )

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IN CLERKS OFFICE
SUPREME COURT, STATE OF WASHINGTON
DATE SFP Q~ 2013
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IN THE SUPREME COURT OF THE STATE OF WASHINGTON
KING COUNTY PUBLIC HOSPITAL)
DISTRICT No.2, d/b/a EVERGREEN )
HEALTHCARE, a Washington public ) No. 87574-0
hospital district, SWEDISH HEALTH )
SERVICES, d/b/a SWEDISH )
VISITING NURSE SERVICES, a )
Washington non-profit corporation, )
PROVIDENCE HOSPICE AND )
HOME CARE OF SNOHOMISH ) EnBanc
COUNTY, a Washington non-profit )
corporation, and HOSPICE OF )
SEATTLE, a Washington non-profit )
corporation, )
)
Petitioners, )
)
v. )
)
WASHINGTON STATE )
DEPARTMENT OF HEALTH, a )
Washington governmental agency, )
SECRETARY MARY SELECKY, )
Secretary of Washington's Department)
of Health in her official and individual )
capacity, ODYSSEY HEAL THCARE )
OPERATING B, LP, a Delaware )
corporation, and ODYSSEY ) Filed - - - - 06 - - -
:SEP 2013
-
HEALTHCARE, INC., a Delaware )
corporation, )
)
Respondents. )
_______________________)
King County Pub. Hasp. No. 2 et al. v. Wash. State Dep 't of Health, et al., No. 87574-0
GONZALEZ, J.-Rival hospice organizations challenge the Washington State
Department of Health's decision (approved by a health law judge) to grant a
certificate of need to Odyssey in connection with settling a federal lawsuit. The King
County Superior Court revoked the certificate and remanded. The Court of Appeals
reversed and reinstated Odyssey's certificate of need. We affirm that decision.
I. BACKGROUND
Since 1979, Washington has controlled the number of healthcare providers
entering the market. Ch. 70.38 RCW; Univ. of Wash. Med. Ctr. v. Dep't a,[ Health,
164 Wn.2d 95, 99, 187 P.3d 243 (2008) (UWMC). Providers may open certain
healthcare facilities only after receiving a certificate of need from the Department of
Health. RCW 70.38.105. The legislature intended the certificate of need requirement
to provide accessible health services and assure the health of all citizens in the state
while controlling costs. RCW 70.38.015(1), (2). When reviewing a certificate of
need application, the department must provide notice to interested parties (such as
providers that offer similar services), take public comment, and if requested, hold a
public hearing. WAC 246-310-160, -170, -180; RCW 70.38.115(9). Ifthe
department denies a certificate of need application, the applicant has the right to an
adjudicative proceeding governed by the Administrative Procedure Act, chapter 34.05
RCW. RCW 70.38.115(10)(a). A health law judge (HLJ) presides over this
adjudicative proceeding and issues a final order resolving whether the certificate of
need application should be approved. See WAC 246-10-102 (definition of "presiding
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officer"). Any competing health care facility that participated in a public hearing
"shall be provided an opportunity to present oral or written testimony and argument"
in such an adjudicative proceeding. RCW 70.38.115(10)(b )(iii); WAC 246-310-610.
If the department desires to settle with the applicant before the end of an adjudicative
proceeding, the department must notify the competitors and "afford them an
opportunity to comment, in advance, on the proposed settlement." RCW
70.38.115(10)(c).
Hospice care agencies, such as Odyssey Healthcare Operating B, LP and
Odyssey Healthcare Inc. (Odyssey), are required to obtain a certificate of need. RCW
70.38.105(4)(a), .025(6). When determining whether to grant a certificate, the
department considers four criteria: need for the proposed project, financial feasibility
of the project, structure and process of care, and containment of the costs of health
care. WAC 246-31 0-200(1 ). These criteria are defined in WAC 246-310-210, -220,
-230, and -240, respectively.
The department also adopted particular standards and need forecasting methods
for hospice agencies. WAC 246-310-290. To determine whether need exists for
additional hospice care providers, the department considers the statewide hospice care
use rate, the number of resident deaths in the applicant's planning area, the projected
population growth, and the current hospice capacity. WAC 246-310-290(7). If
existing providers in a planning area will offer services at a rate that is 3 5 patients
below the state average daily census-the average number of hospice patients per
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day-under this methodology there is need for one additional hospice provider in that
area. WAC 246-310-290(l)(a), (7)(g). A hospice agency applying for a certificate of
need must demonstrate that it can meet a minimum average daily census of 35 patients
by its third year of operation. WAC 246-310-290(6).
According to the department, it assumed need findings would be available
before the October deadline to apply for a certificate of need. Clerk's Papers (CP) at
338; WAC 246-310-290(2). However, need information for the year is not generally
available by October, so applicants must prepare an application and pay a large fee
without knowing whether there is actually need for a hospice agency. CP at 338; see
WAC 246-310-990. After a potential hospice provider applies for a certificate of need
in a planning area, the department conducts a statewide need analysis based in part on
surveys it sends to existing providers. See CP at 53, 338. The results of this analysis
are apparently made available to existing providers.
This case primarily concerns the need criterion to start a hospice care agency.
The department denied Odyssey's 2003 applications to provide hospice care in King,
Pierce, and Snohomish counties, finding there was no need for additional providers.
CP at 74; Odyssey Healthcare Operating B, LP v. Dep 't ofHealth, 145 Wn. App. 131,
135, 185 P.3d 652 (2008) (Odyssey I). Odyssey challenged the department's denial of
its 2003 applications, arguing in part that the department had misapplied the need
methodology. Odyssey I, 145 Wn. App. at 137-38. The Court of Appeals disagreed
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with Odyssey and did not modify the department's decision to deny the 2003
applications. Id. at 146.
In 2006 Odyssey again applied for certificates of need in King, Pierce, and
Snohomish counties. Administrative Record (AR) at 13-14, 53-54, 92-93. Odyssey
anticipated its King County hospice facility would become operational by July 1,
2008. AR at 25. To analyze need for a new hospice care provider, the department
surveyed existing providers about services they had provided in 2003 through 2005.
AR at 17. Using this and other data, the department concluded Odyssey had not
established need for another hospice provider or met any of the other three criteria.
AR at 11, 15.
Odyssey started an adjudicative proceeding to contest the department's
decision before an HLJ. AR at 1. The HLJ allowed King County Public Hospital
District No. 2, d/b/a Evergreen Healthcare (Evergreen) to intervene. AR at 151-54.
The adjudicative proceeding was continued pending the outcome of Odyssey I and
resolution of a petition Odyssey filed to amend the rules. AR at 175-86, 189.
In 2008, while Odyssey's adjudicative proceeding was pending, other entities
applied for certificates of need to provide hospice care in a different county, triggering
a new statewide hospice care need calculation. CP at 78, 146-54. This 2008 need
analysis, which included data from existing providers based on services offered in
2005 through 2007, showed need for one additional King County hospice provider by
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2009 and two by 2013. CP at 147, 154. 1 In February 2009 Odyssey asked the
department to grant it a certificate of need in light of the recent need finding in King
County, but the department refused, observing that "we always look at the facts that
existed during review. So, we can't approve your application based on a
Methodology run long after the record closed. In such cases, applicants must re-
apply." CP at 877.
Odyssey did not reapply, but it did file a federal lawsuit in April2009 alleging
that the certificate of need program violated the Sherman Act, 15 U.S.C. § 1, and the
commerce clause of the United States Constitution, actionable under 42 U.S.C. §
1983. CP at 69-90. In its complaint, Odyssey claimed that since adopting the need
methodology in 2003, the department had not found need for any new hospice agency
in any county for which an application was submitted. CP at 80. The department
denied this allegation in its answer but admitted that whenever need had been found in
a county other than one for which an application had been submitted, by the time
another provider applied for the county with need, the department determined that
need no longer existed. CP at 80, 235. This suggests that existing providers expand
their capacity to meet any unmet need. The department also reasserted that it could
not use the 2008 calculation to evaluate the 2006 application. CP at 84-85, 236.
1
The finding of need in 2009 conflicts both with the department's original evaluation of
Odyssey's 2006 application and with the results of an evaluation conducted in response to a 2007
hospice certificate of need application, which found no need in King County through 2012. AR
at 38, 1329-42.
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The department and Odyssey negotiated to settle both the adjudicative proceeding and
the federal lawsuit. Among the settlement terms, Odyssey agreed to dismiss its
federal lawsuit and the department agreed to initiate rule making to consider
amending WAC 246-310-290 and to enter into a proposed settlement in the
adjudicative proceeding before the HLJ. CP at 265-66. The federal court settlement
also precludes Odyssey from seeking damages, costs, or attorney fees related to any
event occurring before the settlement date, but that condition would not apply if the
department decided in bad faith not to present the proposed settlement of the
adjudicative proceeding to the HLJ. CP at 266.
Under the proposed settlement in the adjudicative proceeding, the department
would consider stipulating to the approval of Odyssey's certificate of need application
for King County in light of the recent finding of need in that area, but only after
providing interested entities notice and opportunity to comment. CP at 95-96.
Although the department does not generally consider evidence collected after the
public comment period has ended, it referred to special circumstances that prompted it
to consider approving Odyssey's 2006 application. CP at 337-39. The special
circumstances are that Odyssey did not know about the need finding until after the
2008 application deadline had passed; Odyssey's 2003 and 2006 applications had
been denied in part because of a finding of no need, so it was reasonable for the
company not to reapply in 2008 when it did not know whether need would exist; the
new calculation showed need for a provider in 2009, which is within the three-year
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window included in Odyssey's 2006 application; and no entities applied for a King
County certificate of need in 2007, so applying the 2008 calculation to Odyssey's
2006 application would not prejudice any other potential providers. CP at 338-39.
Odyssey agreed to withdraw its request for an adjudicative proceeding regarding the
Pierce County and Snohomish County applications. CP at 95-96.
In accord with the proposed settlement, the department provided notice to
interested entities and gave them the opportunity to comment. See CP at 92-93.
Evergreen, Providence Hospice and Home Care of Snohomish County, and Hospice
of Seattle (collectively Providence), and two other existing hospice care providers
opposed the settlement in written comments sent to the department. AR at 1104-29.
The department then submitted the proposed settlement to the HLJ for approval. CP
at 330-42.
The HLJ allowed Providence and the two other providers to intervene for the
limited purpose of commenting on the proposed settlement. 2 AR at 1002, 1009. The
existing providers submitted briefs to the HLJ opposing the settlement. AR at 1179-
1527, 1700-20. On December 8, 2009, the HLJ approved the settlement, finding (1)
there was proper notice and opportunity to comment, as required by RCW
70.38.115(1 0)( c); (2) "[i]n the exercise of discretion," the December 2008 need
calculation could be used in evaluating need for Odyssey's proposed service; and (3)
2
Evergreen intervened earlier in the proceeding. AR at 151-53.
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the application met all certificate of need criteria. CP at 346-4 7. The department
issued a certificate of need to Odyssey. CP at 347, 972.
Evergreen, Providence, and another provider filed a petition for judicial review
of the HLJ's order in King County Superior Court. CP at 1-20. The Superior Court
reversed the HLJ's order approving the settlement, revoked Odyssey's ce1iificate of
need, and remanded the matter to the HLJ for a determination based on evidence
available at the time the record was open. CP at 974. Odyssey appealed, and the
Court of Appeals reversed the Superior Court. King County Pub. Hasp. Dist. No. 2 v.
Dep 't of Health, 167 Wn. App. 740, 275 P.3d 1141 (2012). Evergreen and
Providence petitioned for review, which this court granted. 175 Wn.2d 1013, 287
P.3d 10 (2012).
II. STANDARDS OF REVIEW
The standards of review in certificate of need cases stem from the
Administrative Procedure Act (APA). RCW 70.38.115(10)(a); Providence Hasp. of
Everett v. Dep 't of Soc. & Health Servs., 112 Wn.2d 353, 355, 770 P.2d 1040 (1989)
(referring to former RCW 34.04.130 (1977), recodified as RCW 34.05.570). "The
agency decision is presumed correct and the challenger bears the burden of proof."
Providence, 112 Wn.2d at 355 (citing In re All-State Constr. Co., 70 Wn.2d 657, 659,
425 P.2d 16 (1967)). This court sits in the same position as the superior court and
applies the APA standards directly to the record before the agency. Tapper v. Emp 't
Sec. Dep't, 122 Wn.2d 397,402,858 P.2d494 (1993). Under the error oflaw
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standard, the court may substitute its interpretation of the law for that of the agency,
but it substantially defers to the agency's interpretation, particularly where the agency
has special expertise. Providence, 112 Wn.2d at 356 (citing Franklin County Sheriff's
Office v. Sellers, 97 Wn.2d 317, 325, 646 P.2d 113 (1982)). The court affirms an
agency's factual findings unless they are not supported by substantial evidence. RCW
34.05.570(3)(e); Tapper, 122 Wn.2d at 402. 3 The court may also grant relief from an
agency order that is arbitrary and capricious, meaning that "the decision is the result
of willful and unreasoning disregard of the facts and circumstances." Providence, 112
Wn.2d at 356 (citing Barrie v. Kitsap County, 93 Wn.2d 843,850,613 P.2d 1148(1980)). 4 We review an administrative law judge's evidentiary decisions for abuse of
discretion. See UWMC, 164 Wn.2d at 104.
III. ANALYSIS
Evergreen and Providence first claim the HLJ should not have considered the
2008 need calculation because that finding was not available when Odyssey's
certificate of need application was first evaluated and that even if the HLJ could rely
on the 2008 calculation, the department's finding of need was arbitrary and
3
In Providence we stated that the court applies the clearly erroneous standard of review to
factual issues, 112 Wn.2d at 355, but the APA has since been amended to apply the substantial
evidence standard, RCW 34.05.570(3)(e).
4
Evergreen and Providence contend that the court should overlay the AP A standard for review
with the summary judgment standard, meaning that the court should view the facts in the light
most favorable to the nomnoving party and review facts de novo. Joint Suppl. Br. ofPet'rs at
16-17 (quoting Verizon Nw., Inc. v. Emp 't Sec. Dep't, 164 Wn.2d 909, 915-16, 194 P.3d 255(2008)). Unlike in Verizon, however, the administrative law judge did not resolve this case at
summary judgment, so we do not overlay the summary judgment standard here. See Verizon,
164 Wn.2d at 915-16.
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capricious. Next, Evergreen and Providence allege the HLJ's approval of the
certificate was arbitrary and capricious because other, non-need, criteria were not met.
Finally, Evergreen and Providence claim their due process rights were violated
because the HLJ did not hold an adjudicative proceeding before approving the
settlement.
1. The 2008 Need Calculation
Evergreen and Providence argue that the department's decision to consider
Odyssey's 2006 application in light of the 2008 calculation conflicts with certificate
of need laws and the department's long standing policy. Joint Suppl. Br. ofPet'rs at
17-29. Indeed, the department does not claim that its original finding of no need for
the 2006 calculation was incorrect. Moreover, the department's informal policy
generally forbids new evidence to come into the record at the adjudicative proceeding.
See CP at 877; AR at 1260.
Nevertheless, the HLJ did not abuse his discretion by considering the new
finding of need. Administrative law judges, such as HLJ s, have considerable
discretion to determine the scope of admissible evidence. UWMC, 164 Wn.2d at 104
(citing Port of Seattle v. Pollution Control Hearings Bd., 151 Wn.2d 568, 597, 90
P.3d 659 (2004)). In UWMC, a medical center opposing another provider's certificate
of need contested the HLJ' s evidentiary cutoff, which excluded evidence the medical
center sought to admit. 164 Wn.2d at 101-02. The department responded that the
decision to grant a certificate of need is based on a "'snapshot"' of facts that existed
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around when the application was filed. 164 Wn.2d at 103. But the department is not
necessarily limited to that snapshot. We noted that nothing in the rules or statutes
specifically addresses the record before an HLJ, concluding that "[i]t was within the
sound discretion of the health law judge to admit, or not admit, evidence that came
into existence after the close of the public comment period." 164 Wn.2d at 103-04. 5
In light of the special circumstances described by the department, the HLJ did
not abuse his discretion by considering the 2008 need calculation. Certificate of need
applications are due in October, but the 2008 need finding was not available until
December, so Odyssey was not able to apply for a certificate in 2008 after need had
been found in King County. See CP at 154; WAC 246-31 0-290(3)(b ). Odyssey could
have reapplied in 2009, but as the department admitted in federal court, each time
need has been found in a county for which no providers had applied that year, that
need was eliminated by the time a provider applied for a certificate in that planning
area. CP at 80, 235.
Odyssey also could have applied for a certificate of need in 2008, without
knowing whether there would be need for a new hospice provider in King County, but
that would have required it to wager a substantial expense for a benefit that was far
5
Department Secretary Mary C. Selecky drafted a memo while UWMC was pending, affirming
"the department's long practice of not allowing new evidence to come into the record at the
adjudicative proceeding." AR at 1260. Although Evergreen and Providence rely on this memo
to support their claim that the HLJ in this case violated department policy, Secretary Selecky
expressly limited the statement in the memo to the time while UWMC was pending. Id. We
found that an HLJ has considerable discretion over the admission of evidence, so Secretary
Selecky's memo is of little authority.
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from guaranteed. In 2008 the certificate of need application fee for a hospice agency
was over $18,000. Former WAC 246-310-990 (2008). That fee does not include the
cost of preparing an application or defending it through the approval process.
Considering that the department had already denied Odyssey's applications twice for
lack of need and that Odyssey was challenging the certificate of need rules in federal
court, it is reasonable that the company would choose to avoid the extensive and
perhaps fruitless expense of applying again in 2008.
We also find it significant that no certificate of need applicants were prejudiced
by the department's decision to rely on the later need finding. If another entity had
applied for a certificate of need to offer hospice care in King County in 2007, our
analysis might have been different.
Evergreen and Providence imply that the department must conduct need
analysis consistently with how it interpreted the methodology in Odyssey I. Joint
Suppl. Br. ofPet'rs at 18-19. In Odyssey I, the department evaluated Odyssey's 2003
applications apparently in light of hospice use data from the prior three years, see 145
Wn. App. at 139, so Evergreen and Providence argue that the department should
consider Odyssey's 2006 applications using data from only 2003 through 2005. But
the Odyssey I court did not bind the department to considering data from any specific
time. The court merely held that the department did not act in an arbitrary and
capricious manner by using survey data collected after Odyssey had filed its
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applications and relying on historical hospice use data for counties that did not
respond to the survey. Id. at 145-46.
Evergreen and Providence refer to UWMC for the certificate of need program's
objectives of meaningful public input and expeditious decision making, arguing that
the settlement in this case deviates from those goals. Joint Suppl. Br. ofPet'rs at 27-
28. Although it is unusual for the department to rely on data from a different time
span after the public comment period and public hearing have passed, the situation
was itself unusual and the department and the HLJ both invited interested parties to
submit written comments. Furthermore, allowing the department to rely on its most
recent need findings when negotiating with a certificate of need applicant serves the
goal of expeditious decision making. The department's desire to settle the federal
lawsuit apparently motivated it to consider the more recent need finding, but the
HLJ' s use of that information was not an abuse of discretion.
Evergreen and Providence also argue that no need exists under the 2008
calculation, when properly applied. Id. at 30-32. Specifically, they claim the
department failed to include Kline Galland and Providence ElderPlace 6 in its need
calculation and that the department improperly extended the planning horizon to make
it seem as though the 2008 calculation would support two providers. According to
6
Evergreen and Providence essentially raise a factual dispute regarding whether ElderPlace is a
hospice care agency. Before the HLJ, the department argued that ElderPlace is not a licensed
hospice, but instead coordinates Providence-based services for the elderly. CP at 336-37. The
department also submitted a description of ElderPlace from the Providence web site, which does
not seem to describe a hospice provider. AR at 1024-25, 1142-50. The department's finding
that ElderPlace is not a hospice provider is supported by substantial evidence.
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Evergreen and Providence, Kline Galland should have been included in the need
analysis because it received an exemption to provide hospice services before the
department granted a certificate to Odyssey. Id. at 31 (citing AR at 1191-92, 1194).
The department did not receive Kline Galland's application until August 18, 2009,
however, months after it had completed the 2008 need calculation. AR at 1191.
Moreover, the department contends Kline Galland had no patient census even at the
time of settlement because it was not yet licensed or operating. The department did
not act arbitrarily or capriciously by excluding Kline Galland from its calculation.
We affirm the department's decision not to consider Kline Galland and
Providence ElderPlace. 7
2. Non-need Criteria
Evergreen and Providence assert that approval of the certificate of need was
arbitrary and capricious because the department did not resolve deficiencies that are
unrelated to need. ld. at 32-34. In its original evaluation denying Odyssey's
certificate of need application, the department found Odyssey's application was not
consistent with any of the four certificate of need criteria. AR at 11. The HLJ did not
include a reevaluation of the four criteria in his order but instead referred to the
department's evaluation and settlement proposal, concluding that Odyssey's hospice
application met the requirements of the four applicable regulations. CP at 347. The
department contends the HLJ's conclusion regarding the non-need criteria was not
7
We do not consider Evergreen and Providence's claim the department improperly extended the
need projection to 2013. There was need for at least one more provider through 2012.
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arbitrary or capricious because each of those criteria would have been met, but for the
lack of need. Suppl. Br. ofDep't of Health at 20.
In its original review of Odyssey's 2006 certificate of need application, the
department found Odyssey had not met two subcriteria of the financial feasibility
factor. First, the department concluded Odyssey had not shown the immediate and
long-range capital and operating costs of the project could be met. Odyssey
anticipated it would operate at a profit by the end of its second full year of business,
but the department observed that the average length of patient stay that Odyssey
predicted was higher than the state average and higher than the numbers Odyssey
provided in its own forecasts in another part of the application-resulting in an
inaccurately high average daily census and, in turn, an inflated projected profit. AR at
25. The department was also concerned because some of Odyssey's projected patient
data was exactly the same for each of the three counties for which Odyssey submitted
an application. AR at 25. The department suspected Odyssey's projections "may not
be reflective of what the applicant actually expects to provide but instead is what is
needed to project having an average daily census by the 3rd year of operation as
required by rule." AR at 25. However, Odyssey's projected average daily census was
inaccurate in light of the 2006 finding that there would not be enough patients in need
of hospice services to warrant an additional hospice provider. Because the department
found in the 2008 need analysis that need would exist for another provider in King
County (meaning the average daily census was higher than predicted in 2006), the
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department's decision to consider that new need finding also satisfied this sub-
criterion of the financial feasibility factor. See AR at 26 ("need for an additional
Medicare certified hospice agency has not been demonstrated. As a result, the
department concludes that Odyssey's projected number of patient days is not reliable .
. . "(emphasis added)).
Under the second subcriterion of the financial feasibility factor, the department
found in its initial review that Odyssey had failed to show the costs of the project
would probably not have an unreasonable impact on the costs of health services. AR
at 26. Again, the department found this subcriterion had not been met because no
need existed: "Absent sufficient unmet need to support a new hospice agency, the
department concludes that any capital or operating expenditures incurred pursuing this
project would be an unnecessary duplication of those made by existing providers and
may result in an increase in the costs and charges for health services in the county."
AR at 26 (emphasis added). Thus, the department's updated 2008 need analysis
resolved the financial feasibility issues, and the HLJ did not act arbitrarily or
capriciously by finding this factor had been satisfied.
Next, Evergreen and Providence contend the HLJ acted arbitrarily and
capriciously by finding that Odyssey's application met the structure and process of
care criterion because the department failed to reassert conditions it proposed in the
original evaluation. Joint Suppl. Br. ofPet'rs at 33. At the Court of Appeals, both the
department and Odyssey agreed that those conditions still applied, however, so this
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argument lacks merit. Reply Br. ofDep't of Health at 8-9; Reply Br. of Appellants
Odyssey at 22-23. 8
Finally, Evergreen and Providence cite the HLJ's failure to address testimony
from the public hearing, which was allegedly strongly opposed to Odyssey's
application. Evergreen and Providence do not refer to any authority requiring an HLJ
to expressly address public hearing testimony, so this argument lacks merit as well.
In sum, although the department had earlier criticized deficiencies in Odyssey's
application concerning non-need factors, the 2008 need calculation resolved the issues
and the HLJ' s finding that those factors were satisfied is not arbitrary or capricious.
3. Due Process
Evergreen and Providence contend the HLJ violated their due process rights by
refusing to allow them to provide oral or written testimony and argument in a hearing
on the merits. Joint Suppl. Br. ofPet'rs at 34-36. Evergreen and Providence argue
that RCW 70.38.115(1 O)(b )(iii) and long standing policy guarantee them this right.
The Court of Appeals did not consider this due process claim because it found
the issue was not adequately raised before the court. 167 Wn. App. at 750 n.8.
Although the providers discussed the issue in only a footnote, the footnote extends
8
Although Evergreen and Providence do not directly discuss subcriteria within the structure and
process of care and cost containment factors that the department found were unmet in 2006, we
note that the 2008 need analysis also resolved these issues. Under structure and process of care,
the department concluded Odyssey's project had the potential to fragment hospice services
because there was no need through 2011. AR at 29-30. For the same reason, the department
found Odyssey had not satisfied the cost containment subcriterion of showing superior
alternatives were not available. AR at 30. The 2008 need finding resolved the issue behind both
of these previously unmet subcriteria.
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over two pages and thoroughly describes the argument. Br. ofResp'ts at 20 n.S. The
due process claim was sufficiently briefed.
However, the providers' due process rights were not violated. The basic
requirements of procedural due process are notice and the opportunity to be heard.
Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306,314-15,70 S. Ct. 652,
94 L. Ed. 2d 865 (1950). Certificate of need laws provide that any applicant denied a
certificate of need has the right to an adjudicative proceeding, and similar existing
providers within the applicant's service area that participated in a public hearing
"shall be provided an opportunity to present oral or written testimony and argument"
at the proceeding. RCW 70.38.115(10)(a), (b). And "[i]fthe department desires to
settle with the applicant prior to the conclusion of the adjudicative proceeding, the
department shall so inform the health care facility or health maintenance organization
and afford them an opportunity to comment, in advance, on the proposed settlement."
RCW 70.38.115(10)(c). 9 Evergreen and Providence argue this authority to settle does
not authorize the department to circumvent established evaluation procedures or
modify its decision without an adjudicative proceeding. Joint Suppl. Br. ofPet'rs at
9
Evergreen and Providence refer to the final bill report accompanying this provision, which
states that an interested party may "present testimony and argument at any adjudicative
proceeding of the application on appeal. . . . The interested party must also be afforded an
opportunity to comment in advance of any proposed settlement." Joint Suppl. Br. of Pet'rs at
App. D, Ex. A (emphasis added). Because the bill report indicates that interested parties also
have the right to comment on any proposed settlement, Evergreen and Providence imply that the
HLJ must hold an adjudicative proceeding, even though the parties chose to settle. See id at 22.
A more likely reading of this statement is simply that interested parties must be given a chance to
participate-whether that means arguing at an adjudicative proceeding or commenting on a
proposed settlement.
19
King County Pub. Hasp. No. 2 et al. v. Wash. State Dep 't of Health, et al., No. 87574-0
21-22; CP at 973. But it is unclear what purpose settlement would serve if a
competing provider could simply request a full adjudicative proceeding whenever the
department attempted to negotiate with an applicant.
Moreover, although we have held that competing health care providers have
standing to obtain judicial review of a certificate of need the department grants to
another provider, it does not follow that a competitor has the right to demand an
adjudicative proceeding before an HLJ. In St. Joseph Hospital & Health Care Center
v. Department ofHealth, 125 Wn.2d 733,735, 887 P.2d 891 (1995), we considered a
competitor's challenge to the grant of a certificate of need to open a kidney dialysis
center. Concluding the competitor was within the zone of interests of the certificate
of need statute, we reasoned: "While an applicant who is denied a CN [(certificate of
need)] has both a motive and a statutory right to seek review of the Department's
determination, no comparable motivation or statutory authority to seek review exists
when the Department grants a CN. Practically, this review can only be achieved if
competitors have standing." !d. at 742. 10 Regarding a competitor's right to
participate in certificate of need litigation, we considered the procedures the
department must follow. !d. The competitor claimed the department erred by failing
to provide notice of the applicant's request for adjudicative proceedings following the
initial denial of its application, failing to notify the competitor of a stipulation
10
Odyssey argues that interested parties are not allowed full judicial review of certificate of need
settlements, Suppl. Br. of Resp't Odyssey at 11 n.4, but this conflicts with the reasoning behind
St. Joseph. See 142 Wn.2d at 742.
20
King County Pub. Hasp. No. 2 et al. v. Wash. State Dep 't of Health, et al., No. 87574-0
reopening review of the application, and not affording the competitor a hearing when
its request for reconsideration was denied and a certificate issued to the applicant. !d.
Significantly, of these three alleged errors, we found only the failure to provide notice
of the stipulation reopening review violated the statutory procedures. !d. We
concluded that the department's failure to afford the challenger a hearing when its
request for reconsideration was denied did not violate the statutory procedures
governing certificates of need. !d.
Evergreen and Providence were allowed to seek judicial review of the grant of
a certificate to Odyssey. Although they assert they were also entitled to an
adjudicative proceeding, we considered a similar claim in St. Joseph and declined to
find there was such a statutory right.
IV. CONCLUSION
The HLJ did not abuse his discretion under these circumstances by relying on
new evidence in approving the previously denied certificate of need. The
department's 2008 need analysis was proper, and the providers had sufficient notice
and opportunity to participate in the settlement process to satisfy their statutory and
due process rights. We affirm the Court of Appeals.
21
King County Pub. Hasp. No. 2 eta!. v. Wash. State Dep 't of Health, et al., No. 87574-0
WE CONCUR:
{)
22
King County Pub. Hosp. Dist. No. 2 v. Dep 't ofHealth
Dissent by C. Johnson, J.
No. 87574-0
C. JOHNSON, J. (dissenting)-The majority allows the Washington State
Department of Health to essentially reward an applicant with the license to which it
was not legally entitled because the department was sued. Here, until the federal
lawsuit was filed, the department's consistent and correct legal position in this case
was that historical data up to the application deadline determined future need. This
position is compelled by the applicable statutes and regulations. The department
applied and defended this position in reaching its initial decision and throughout
agency adjudications and appeals. That decision was challenged and correctly
upheld in the trial court and the Court of Appeals in Odyssey I. 1 Yet, when
confronted with a separate federal lawsuit for monetary damages, the department
changes its position and decides it is not bound by the decision it has steadfastly
defended, even though nothing about the statutes or regulations changed. And this
1
Odyssey Healthcare Operating B, LP v. Dep't ofHealth, 145 Wn. App. 131, 135, 185
P.3d 652 (2008).
No. 87574-0- C. Johnson, J., dissenting
about-face is especially egregious here because this change in position denied
interested parties their statutory rights and their opportunity for meaningful
participation. Such action is the very definition of arbitrary and capricious decision
making and is contrary to the law. The trial court correctly recognized the
peculiarity of the State's argument, vacated the certificate of need, and remanded
with directions to, in essence, follow the law. We should do the same.
The majority applies the wrong standard of review and resolves this case
under the discretion generally afforded administrative law judges to determine
what evidence to consider. Within this discretion, reasons the majority, the health
law judge (HLJ) could consider the "special circumstance" that "2008 need data"
was not available until after the application deadline. But this is not remarkable or
special and is largely irrelevant to the actual "special circumstance" in this case.
The question, properly framed, is whether the settlement of a separate lawsuit,
claiming monetary damages, can be a "special circumstance" that allows the
agency to abandon the statutory and regulatory requirements, the "facts" of the
case, and the agency's consistent legal position throughout.
The "special" circumstance relied on by both the agency and the majority,
and the unavailability of the 2008 data by the application deadline, is not actually
special at all. Circumstances will often change after the fact and cannot be
"special." As the department admits and the majority recognizes, when WAC 246-
2
No. 87574-0- C. Johnson, J., dissenting
310-290 was adopted, it provided that need data would be available before the
application deadline, not at some future date. However, in the department's own
words, these "assumptions proved incorrect, meaning that applicants unfortunately
had to apply without knowing whether need existed." Clerk's Papers at 338. This
situation was not unique to Odyssey Healthcare Operating B, LP and Odyssey
Healthcare Inc. (Odyssey) and, as such, the department's after-the-fact reliance on
the lack of timely 2008 data was an improper departure from specific department
rules and regulations. Ch. 70.38 RCW; ch. 246-310 WAC.
But more importantly, even if this were a special circumstance, whether
Odyssey was somehow prevented from submitting a 2008 application should have
no bearing on whether need existed when the application was filed. The agency
had determined years earlier that no need existed, basing that decision on the 2006
data, a proposition that remains undisputed. The HLJ was not considering facts that
somehow changed this underlying information. Rather, Odyssey was able, in
exchange for settling a lawsuit, to achieve something to which it was not legally
entitled. Essentially, any "new" finding of need was not triggered by a change in
the original data, but by the threat of federal litigation. The majority now allows
Odyssey to use the leverage gained by litigation as a way to bypass the application
process and delay the proceedings until a time when favorable data is produced, a
3
No. 87574-0 ·-C. Johnson, J., dissenting
tactic which not only prejudices other interested parties but also completely
abandons the statutory and regulatory requirements.
The majority's reliance on University of Washington Medical Center v.
Department a,[ Health, 164 Wn.2d 95, 187 P.3d 243 (2008) (UWMC), is also
misplaced. There, we answered the question of whether an HLJ could set an
evidentiary cutoff, finding that these decisions fell within the HLJ' s discretion.
Importantly, however, UWMC involved limiting the record, not expanding it
indefinitely. Thus, it has little relevance on our case today other than for the
undisputed proposition that an HLJ has discretion on evidentiary determinations.
Additionally, the excluded evidence in UWMC that applied to the time period
covered by the initial application. But, as discussed above, the 2008 need data is
not additional evidence bearing on the 2006 application. Accordingly, UWMC is
inapplicable in this case.
The majority's reasoning also skirts the issue as to the meaning ofRCW
70.38.115(1 0)( c), which was the foundation of the Court of Appeals' decision. 2
The provision permits the department to settle with an applicant prior to the
conclusion of an adjudicative proceeding, provided that notice and an opportunity
to comment are given to other interested parties. None of this applies here. The
2
King County Pub. Hasp. Dist. No.2 v. Dep 't of Health, 167 Wn. App. 740, 751-52,275
P.3d 1141 (2012).
4
No. 87574-0- C. Johnson, J., dissenting
majority reasons that because the petitioners were given notice and an opportunity
to comment, the department's settlement stands. But this reasoning creates a
loophole in the application procedures and allows circumvention of the legal
requirements. Had Odyssey been granted a certificate of need when it first applied,
petitioners would likely have been entitled to an adjudication under the
Administrative Procedure Act, chapter 34.05 RCW. RCW 70.38.115(10)(b)(iii); St.
Joseph Hasp. & Health Care Crr. v. Dep 't ofHealth, 125 Wn.2d 733, 742, 887
P .2d 891 (1995). Now, however, petitioners are denied the opportunity for an
adjudication because the approval comes in the form of a "settlement" rather than
outright approval of the application.
This result is especially troubling when the legislative history ofRCW
70.38.115(1 0)( c) is considered. The provision was passed roughly seven months
after we issued our decision in St. Joseph Hospital and appears to have simply
codified our holding that the department must notify opponents of any settlement
and allow them an opportunity to comment. In addition to the striking similarity
between the holding in St. Joseph Hospital and RCW 70.38.115(10)(c), the final
bill report states that the "interested party must also be afforded an opportunity to
comment in advance of any proposed settlement." FINAL B. REP. on Engrossed
Second Substitute H.B. 1908, at 8, 54th Leg., 1st Spec. Sess. (Wash. 1995)
(emphasis added). The use of "also" means that the rights in RCW
5
No. 87574-0- C. Johnson, J., dissenting
70.38.115(10)(c) are additional to an opponent's right to a full adjudication when
an application is approved. That statutory requirement was avoided here.
When these issues are considered in tandem with the department's clear
disregard for the regulations and policies regarding the use of past data to
determine future need, the HLJ's decision is especially egregious. The department
has consistently considered and relied upon data from prior years in determining
whether a current need exists. This was the practice used by the department for
years, affirmed in Odyssey I, 3 and advocated by the department in the federal
litigation. Odyssey and all interested parties understood and relied on these
practices. Then, when confronted with a separate lawsuit, the department
acquiesces, creates an irrelevant "special circumstance," and allows circumvention
of the legal requirements. The HLJ then summarily, without allowing statutorily
required process, rubber stamps the department's decision. Approval of Odyssey's
application is completely inconsistent with the department's established and,
before now, ardently defended practices required under the law. It was arbitrary
and capricious and contrary to the law. We should reverse the Court of Appeals'
decision, revoke the certificate of need, and remand to the agency with instructions
to follow the law.
3
Odyssey I, 145 Wn. App. at 135.
6
No. 87574-0- C. Johnson, J., dissenting
7