Signature Healthcare Services Llc, V Wa State Dept Of Health ( 2018 )

Filed
Washington State
Court of Appeals
Division Two
May 15, 2018
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
SIGNATURE HEALTHCARE SERVICES, No. 50109-1-II
LLC, a Michigan limited liability company,
Respondent,
v.
WASHINGTON STATE DEPARMENT OF
HEALTH, a Washington governmental
agency;
Petitioner,
SPRINGSTONE, LLC, a Delaware UNPUBLISHED OPINION
limited liability company,
Respondent Intervenor.
WORSWICK, J. — In 2014, both Signature Healthcare Services LLC (Signature) and
Springstone LLC (Springstone) filed certificate of need (CN) applications with the Department
of Health (Department) to build psychiatric hospitals in Clark County. The Department
conducted concurrent reviews of the two CN applications and subsequently denied Signature’s
application but approved Springstone’s application.
Signature filed a petition for administrative review. Springstone intervened to defend the
Department’s decision. Signature and Springstone both moved for summary judgment. The
Department issued a final order granting Springstone’s motion for summary judgment and
denying Signature’s motion. The Department concluded that Signature failed to meet its burden
No. 50109-1-II
of proving the financial feasibility and cost containment of its proposed hospital and that
Springstone met all relevant CN application requirements.
Signature appeals, arguing that the Department erroneously denied its application
because the Department misinterpreted and misapplied the application form and that the
Department’s decision was arbitrary and capricious. Signature also argues that there are genuine
issues of material fact concerning Springstone’s CN application and that the Department’s
decision to grant Springstone’s CN application was arbitrary and capricious.1 We disagree and
affirm the Department’s final order.
FACTS
I. BACKGROUND
A. The CN Application Process
The State Health Planning and Resources Development Act, chapter 70.38 RCW,
regulates the number of “healthcare” providers entering the market. Univ. of Wash. Med. Ctr. v.
Dep’t of Health, 164 Wash. 2d 95, 99, 187 P.3d 243 (2008). Healthcare providers may open certain
healthcare facilities only when the Department issues the provider a CN. RCW 70.38.105. The
provider must submit an application to the Department to begin the CN review process. WAC
246-310-090(1)(a). After a CN application is submitted to the Department, the Department
screens the application to determine whether it is complete. WAC 246-310-090(2)(a). If the
Department determines that the application is incomplete, the Department issues a screening
1
If the Department denies a CN application, the applicant has the right to an adjudicative
proceeding. King County Pub. Hosp. Dist. No. 2 v. Dep’t of Health, 178 Wash. 2d 363, 366, 309
P.3d 416 (2013). A competing healthcare facility is provided an opportunity to present oral or
written testimony and argument in the adjudicative proceeding. 178 Wash. 2d at 366.
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No. 50109-1-II
letter to the applicant that includes a request for supplemental information. WAC 246-310-
090(2).
The Department concurrently reviews CN applications for proposed facilities that are
competing to provide services in the same planning area. DaVita HealthCare Partners, Inc. v.
Dep’t of Health, 192 Wash. App. 102, 107, 365 P.3d 1283 (2015). When considering a healthcare
provider’s CN application, the Department considers the need for the proposed hospital, the
financial feasibility of the hospital, and containment of the costs. RCW 70.38.115(2)(a), (c);
WAC 246-310-200(1). If the Department denies a healthcare provider’s CN application, the
provider has the right to an adjudicative proceeding. RCW 70.38.115(10)(a).
The Department’s CN application form provides that a healthcare provider must have
sufficient interest in the proposed hospital. To demonstrate sufficient interest, the provider must
present documentation of (1) clear legal title for the proposed hospital, (2) a lease for at least five
years with options to renew for no less than a total of 20 years, or (3) a legally enforceable
agreement to give such title or such lease in the event that a CN is issued for the proposed
hospital. The Department’s CN application also contains a provision requiring “[c]opies of each
lease or rental agreement related to the proposed [hospital].” Administrative Record (AR) at
1848.
B. Signature’s and Springstone’s Clark County CN Applications
On November 5, 2014, Signature filed a CN application to build a 100-bed psychiatric
hospital in Clark County. Signature’s application provided that its proposed psychiatric hospital,
Vancouver Behavioral Healthcare Hospital, would lease its facilities from Vancouver Life
Properties LLC and pay approximately $2 million in rent to Vancouver Life Properties each
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No. 50109-1-II
year. Signature’s application did not include a lease agreement or documentation regarding the
length of the lease. Instead, Signature supplemented its application with a purchase and sale
agreement.
Signature purchased the property on which Vancouver Life Properties would build the
hospital facility. Vancouver Life Properties would own the hospital facility and would lease the
facility to Vancouver Behavioral Healthcare Hospital. Both Signature and Vancouver Life
Properties are entirely owned by Dr. Soon K. Kim. Signature has a 100 percent ownership
interest in Vancouver Behavioral Healthcare Hospital.
The Department screened Signature’s CN application to determine whether it was
complete and issued a screening letter. See WAC 246-310-090(2)(a). In the screening letter, the
Department requested that Signature identify the lease costs for its proposed hospital. Signature
did not supply the requested information. Later, the Department sent Signature a second
screening letter, requesting a copy of the lease agreement between Vancouver Life Properties,
the lessor, and Vancouver Behavioral Healthcare Hospital, the lessee. In response, Signature
provided a draft lease agreement for a five-year lease and no option to renew the lease. The draft
lease agreement did not include Vancouver Behavioral Healthcare Hospital’s annual or monthly
lease costs.
On December 29, Springstone filed a CN application on behalf of Rainier Springs LLC
for a 72-bed psychiatric hospital in the same planning area as Signature. Springstone’s proposed
psychiatric hospital included a 24-bed chemical dependency unit. The beds in the chemical
dependency unit were to be licensed as psychiatric beds, and the unit would have the ability to
treat patients with dual diagnoses or co-occurring disorders.
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No. 50109-1-II
The Department screened Springstone’s application and sent a screening letter requesting
that Springstone clarify the identity of the CN applicant and provide Rainier Springs’s draft lease
agreement. Springstone clarified that Rainier Springs was entirely owned by Springstone Inc.,
which was entirely owned by Springstone LLC. Springstone also stated that Rainier Springs
would be entirely funded by Welsh, Carson, Anderson & Stowe (WCAS), an equity investment
firm. In addition, Springstone supplied a draft lease agreement for a 10-year term with the
option to renew the lease for two additional five-year terms. The draft lease agreement also
included Rainier Springs’s annual and monthly lease costs.
The Department then concurrently reviewed Signature’s and Springstone’s CN
applications. On September 23, 2015, the Department denied Signature’s CN application. The
Department reasoned that Signature failed to demonstrate that its proposed hospital was
financially feasible and that it would foster containment of healthcare costs because Signature
failed to provide documentation of a lease with a 20-year total term and because Signature’s
draft lease agreement did not contain Vancouver Behavioral Healthcare Hospital’s monthly and
annual lease costs.
That same day, the Department conditionally approved Springstone’s CN application.2
The Department determined that because Springstone LLC was the ultimate parent company of
Rainier Springs, Springstone LLC was the true CN applicant. The Department also concluded
that although WCAS would provide 100 percent of the capital investment for Springstone’s
proposed hospital, financial investment companies are neither a parent company nor an
2
The Department notified Springstone that it would not issue the CN until the Department
received a copy of an approved conditional use permit for Springstone’s proposed psychiatric
hospital.
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No. 50109-1-II
applicant. The Department ultimately concluded that Springstone established the need for its
proposed hospital, the financial feasibility of the hospital, and containment of the project’s costs.
C. Signature’s Pierce County & Spokane County CN Applications
Signature also submitted a CN application in Pierce County in 2014. When the
Department reviewed the applications submitted in Pierce County, it declared a pivotal
unresolved issue (PUI) because all CN applications submitted were deficient, and the
Department could not move forward with its review. As a result, the Department requested
additional information from Signature and extended the review period. The Department later
denied Signature’s Pierce County CN application and granted the competing healthcare facility’s
CN application. The competing facility’s application provided that it would own the site of its
proposed hospital and that it had clear legal title to that site.
Signature also submitted a CN application for a proposed psychiatric hospital in Spokane
County. The Department also denied Signature’s Spokane County CN application.
II. PROCEDURE
Signature filed a Request for Adjudicative Proceeding to appeal the Department’s
decision to approve Springstone’s CN application and deny Signature’s application. Springstone
intervened to defend the Department’s decision. Springstone then filed a motion for summary
judgment, contending that there were no genuine issues of material fact concerning the
deficiencies in Signature’s application or the integrity of Springstone’s application. Signature
filed a cross-motion for summary judgment, arguing that there were genuine issues of material
fact regarding Springstone’s application and that Signature was entitled to judgment as a matter
of law because it demonstrated sufficient interest in its proposed hospital.
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No. 50109-1-II
The Department issued an initial order, granting Springstone’s motion for summary
judgment and denying Signature’s cross-motion. Signature filed a petition for administrative
review of the initial order. The Department then issued its final order. The Department granted
Springstone’s motion for summary judgment, determining that Signature failed to meet its
burden in showing the financial feasibility and cost containment of its proposed psychiatric
hospital and that there were no genuine issues of material fact concerning Springstone’s CN
application. The Department denied Signature’s cross-motion for summary judgment on the
same basis.
First, the Department determined that there were no genuine issues of material fact
concerning the true applicant for Springstone’s CN application. The Department reasoned that
only Springstone was the true applicant because Springstone was the parent company of Rainier
Springs and owned Rainier Springs and related entities in their entirety. The Department also
noted that WCAS was not an applicant to the proposed Rainier Springs project because it
provided only funding for the project.
In addition, the Department concluded that there was no genuine issue of material fact
regarding Springstone meeting the CN application requirements. The Department reasoned that
Springstone provided a proper methodology for determining the need for psychiatric beds in
Clark County. The Department determined that because all 72 beds in Springstone’s proposed
hospital would operate as psychiatric beds, the 24-bed chemical dependency unit did not reduce
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No. 50109-1-II
the number of beds available to the public. As a result, the Department reasoned that the
chemical dependency unit did not require a separate need methodology.3
The Department also determined that there was no genuine issue of material fact
regarding Signature’s lack of sufficient interest in its proposed psychiatric hospital because
Signature failed to comply with the Department’s requirements. First, the Department
determined that Signature failed to establish sufficient interest in its proposed hospital because it
provided documentation of only a five-year lease. The Department reasoned that because
Vancouver Behavioral Healthcare Hospital would lease its facilities, Signature could not
demonstrate sufficient interest unless it provided documentation of a legally enforceable
agreement establishing a 20-year total term lease. Moreover, the Department determined that the
fact that Dr. Kim had full ownership of both Signature and Vancouver Life Properties did not
establish Signature’s sufficient interest in Vancouver Behavioral Healthcare Hospital.
The Department also determined that Signature failed to establish sufficient interest in its
proposed hospital because it did not provide a lease agreement that included Vancouver
Behavioral Healthcare Hospital’s annual and monthly lease costs. The Department reasoned that
a draft lease agreement containing lease costs was necessary to determine whether Signature’s
proposed hospital would have an impact on the cost and charges of healthcare and be financially
feasible. Additionally, because Signature could not demonstrate the financial feasibility of its
3
The Department’s CN application requires that applicants complete a mathematic methodology
to calculate the unmet need for a proposed facility in a given planning area. See Odyssey
Healthcare Operating B, LP v. Dep’t of Health, 145 Wash. App. 131, 144, 185 P.3d 652 (2008).
The Department also considers the population to be served and the services to be offered when
evaluating the need for a proposed facility. WAC 246-310-210(1).
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No. 50109-1-II
project, the Department concluded that Signature could not establish that the costs of the project
were contained.
Signature petitioned for judicial review of the Department’s final order denying its CN
application in the Thurston County Superior Court. The Department subsequently petitioned this
court for direct review of the final order. A commissioner of this court granted the Department’s
petition. Ruling Accepting Direct Review, Signature Healthcare Servs., LLC v. Dep’t of Health,
et al., No. 50109-1-II, at 2 (Wash. Ct. App. May 26, 2017).
ANALYSIS
Signature argues that the Department erroneously denied its CN application because the
Department misinterpreted and misapplied the application form and because the Department’s
decision was arbitrary and capricious. Signature also argues that there is a genuine issue of
material fact concerning the true applicant in Springstone’s CN application, there is a genuine
issue of material fact regarding whether Springstone provided an appropriate need methodology
in its CN application, and the Department’s decision to grant Springstone’s CN application was
arbitrary and capricious. We disagree.
I. LEGAL PRINCIPLES
An appeal of the denial of a CN application is governed by the Administrative Procedure
Act (APA), chapter 34.05 RCW. RCW 70.38.115(10)(a); King County Pub. Hosp. Dist. No. 2 v.
Dep’t of Health, 178 Wash. 2d 363, 371-72, 309 P.3d 416 (2013). The Department’s decision is
presumed correct, and the party challenging the Department’s decision bears the burden of
showing that the Department’s action is invalid. Univ. of Wash. Med. Ctr., 164 Wash. 2d at 102-03.
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No. 50109-1-II
Under the APA, we may grant relief from an invalid agency action only in limited
circumstances. RCW 34.05.570(1)(b); DaVita HealthCare Partners, 192 Wash. App. at 113. We
may grant relief where the Department engaged in unlawful procedure or erroneously interpreted
or applied the law. RCW 34.05.570(3)(c)-(d). We may also grant relief when the Department’s
decision is arbitrary and capricious. RCW 34.05.570(3)(i). A decision is arbitrary and
capricious when it is the result of willful and unreasoning disregard of the facts and
circumstances. King County Pub. Hosp. Dist. No. 2, 178 Wash. App. at 372.
Where, as here, the administrative decision was on summary judgment, we overlay the
APA standard of review with the summary judgment standard of review. Verizon Nw., Inc. v.
Emp’t Sec. Dep’t, 164 Wash. 2d 909, 916, 194 P.3d 255 (2008). In reviewing summary judgment,
we evaluate the facts in the administrative record de novo and in the light most favorable to the
nonmoving party. 164 Wash. 2d at 916. We review the Department’s legal conclusions under the
APA’s “error of law” standard, which allows us to substitute our view of the law for that of the
Department. 164 Wash. 2d at 916. “Summary judgment is appropriate only where the undisputed
facts entitle the moving party to judgment as a matter of law.” 164 Wash. 2d at 916.
II. THE DEPARTMENT CORRECTLY APPLIED THE LAW
Signature argues that the Department misinterpreted and misapplied the law in denying
its CN application. Specifically, Signature argues that because the Department interpreted the
CN application form in the conjunctive instead of the disjunctive, the Department misapplied the
law in determining that Signature was required to provide a 20-year lease to establish sufficient
interest in its proposed psychiatric hospital. We disagree.
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No. 50109-1-II
A. Sufficient Interest in the Proposed Hospital
Signature argues that tenets of statutory interpretation apply to the Department’s CN
application form, which is derived from a Department rule that is based on a statute. However,
Signature does not cite a statute or rule for this court to interpret. We do not use statutory
interpretation principles to determine the meaning of the Department’s form.
Under RCW 70.38.115(6), the Department must specify the information that is required
in a CN application. Those submitting a CN application must submit the application “in such
form and manner and containing such information as the [D]epartment has prescribed and
published as necessary to such a [CN] application.” WAC 246-310-090(1)(a). “‘An agency
acting within the ambit of its administrative functions normally is best qualified to interpret its
own rules, and its interpretation is entitled to considerable deference by the courts.’” D.W. Close
Co., Inc. v. Dep’t of Labor & Indus., 143 Wash. App. 118, 129, 177 P.3d 143 (2008) (quoting Pac.
Wire Works, Inc. v. Dep’t of Labor & Indus., 49 Wash. App. 229, 236, 742 P.2d 168 (1987)).
RCW 70.38.115(6) clearly provides that the Department may require whatever
information it deems reasonably necessary to review a CN application. Because the Department
acts within the scope of its administrative functions in assessing CN applications, we give the
Department deference in construing the requirements of its CN application form. See D.W.
Close Co., 143 Wash. App. at 129. We do not use principles of statutory interpretation to
determine the meaning of the Department’s CN application form. Instead, we review the
Department’s application of the form requirements to Signature’s CN application.
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No. 50109-1-II
The Department’s CN application form states:
Provide documentation that the applicant has sufficient interest in the site or facility
proposed. Sufficient interest shall mean one of the following:
(a) Clear legal title for the proposed site; or
(b) Lease for at least five years with options to renew for no less than a total
of twenty years in the case of a hospital or psychiatric hospital . . . or
....
(d) Legally enforceable agreements to give such title or such lease in the
event that a Certificate of Need is issued for the proposed [hospital].
AR at 1821-22.
The facts involving Signature’s CN application are undisputed. Signature’s CN
application provided that its proposed psychiatric hospital, Vancouver Behavioral Healthcare
Hospital, would lease its facilities from Vancouver Life Properties and that Vancouver Life
Properties would own the hospital facility. Signature’s application contained only a purchase
and sale agreement for Signature’s purchase of the property that would later house Vancouver
Behavioral Healthcare Hospital’s leased facilities.
Upon review, the Department determined that Signature’s application was incomplete
and requested a copy of the lease agreement between Vancouver Life Properties and Vancouver
Behavioral Healthcare Hospital. Signature provided a draft lease agreement for a five-year term
and no option to renew the lease. Because Vancouver Life Properties would own the proposed
facilities, the Department concluded that “[t]he only way that Signature Healthcare Services LLC
(the applicant) can exercise [sufficient interest] is by leasing the facility from Vancouver Life
Properties LLC.” Clerk’s Papers (CP) at 48. The Department also concluded that Signature
failed to provide a 20-year lease agreement. As a result, the Department determined that there
was no genuine issue of material fact regarding Signature’s lack of sufficient interest and granted
Springstone’s summary judgment motion.
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No. 50109-1-II
Viewing the undisputed facts in this case and viewing Signature’s CN application in the
same manner as the Department, we hold that Signature failed to provide the documentation
required to demonstrate sufficient interest in its proposed psychiatric hospital. The Department’s
CN application form instructed Signature to provide documentation of clear legal title, a lease
with options to renew for no less than a 20-year total term, or legally enforceable agreements
regarding the title or lease. Although Signature provided a purchase and sale agreement for the
land on which its proposed hospital would be built, Vancouver Behavioral Healthcare Hospital
did not have clear title to the proposed hospital because it did not own the hospital facility.4
Instead, Signature’s application stated that Vancouver Behavioral Healthcare Hospital would
lease the facility from Vancouver Life Properties. Because Signature provided that its proposed
hospital would lease its facilities, the Department requested that Signature provide
documentation regarding a lease with a 20-year total term. Consequently, Signature was
required to provide documentation of a 20-year lease to demonstrate sufficient interest, but
Signature provided a lease agreement with only a five-year total term.
Signature failed to demonstrate sufficient interest in its proposed hospital because it
failed to provide documentation of a 20-year lease. Accordingly, Signature fails to meet its
burden in showing that the Department misapplied the law, and Signature is not entitled to
judgment as a matter of law. Thus, Signature’s argument fails.
4
Signature also argues that it established sufficient interest in its proposed psychiatric hospital
when it provided the purchase and sale agreement because Dr. Kim entirely owns both Signature
and Vancouver Life Properties, and Signature owns Vancouver Behavioral Healthcare Hospital
in its entirety. Signature contends that because Dr. Kim entirely owns all entities involved, it
demonstrated that Vancouver Behavioral Healthcare Hospital had clear legal title to the proposed
site. Despite this, the purchase and sale agreement provides that only Signature has title to the
proposed site. Accordingly, Signature’s argument fails.
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No. 50109-1-II
B. Providing a Draft Lease Agreement
Signature appears to argue that the Department misapplied the law by requiring that
Signature provide a draft lease agreement with the annual and monthly lease costs Vancouver
Behavioral Healthcare Hospital would pay. Signature conflates the Department’s CN application
form requirement of providing documentation regarding sufficient interest in the proposed
hospital and the Department’s requirement of providing a draft lease agreement that includes
annual and monthly lease costs. The Department and Springstone respond to Signature’s
argument that the Department misinterpreted the CN application by arguing that the
Department’s action in requiring a draft lease was proper because a draft lease agreement,
including lease costs, was necessary to establish the financial feasibility of Signature’s proposed
hospital under RCW 70.38.115(2). We determine that the Department properly applied the law
in requiring a draft lease agreement that included lease costs.
Under WAC 246-310-090(1)(a), an applicant submitting a CN application must submit
the application “in such form and manner and containing such information as the [D]epartment
has prescribed and published as necessary to such a [CN] application.” An applicant must also
demonstrate that its proposed hospital is financially feasible. See WAC 246-310-200(1). To
demonstrate financial feasibility, the applicant must show that the immediate and long-range
capital and operating costs of the proposed hospital will be met. WAC 246-310-220(1). In
addition, the applicant must show that the costs of its proposed hospital will not result in an
unreasonable impact on the costs and charges for healthcare services. WAC 246-310-220(2).
The Department’s CN application contains a provision requiring “[c]opies of each lease
or rental agreement related to the proposed [hospital].” AR at 1848. When Signature submitted
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No. 50109-1-II
its CN application, it provided that Vancouver Behavioral Healthcare Hospital would lease its
facilities from Vancouver Life Properties. Signature’s application stated that it would pay
approximately $2 million in rent each year, but the application did not include a lease agreement.
The Department screened Signature’s CN application and requested that Signature
provide the monthly and annual lease costs of its proposed hospital. Signature did not supply
any additional information. The Department sent Signature a second screening letter, requesting
a copy of the lease agreement between Vancouver Behavioral Healthcare Hospital and
Vancouver Life Properties. Signature provided a draft lease agreement, but the agreement did
not include the amount of rent Vancouver Behavioral Healthcare Hospital would owe each
month or each year.
The Department concluded that the need for a “draft lease is one factor in deciding if the
project will have an impact on the costs and charges for health services.” CP at 50. The
Department also concluded that the Department could not evaluate whether Signature’s proposed
hospital would have an impact on the cost of healthcare without knowing Vancouver Healthcare
Hospital’s lease costs. As a result, the Department determined that there was no genuine issue of
material fact regarding Signature’s failure to demonstrate financial feasibility and granted
Springstone’s motion for summary judgment.
The Department’s application form clearly requires that an applicant submit a copy of a
lease agreement for a proposed hospital. The Department requires a copy of a lease agreement
that includes annual and monthly lease costs to determine whether a proposed hospital is
financially feasible. Signature failed to demonstrate the financial feasibility of its proposed
psychiatric hospital because it did not provide the monthly or annual lease costs for Vancouver
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No. 50109-1-II
Behavioral Healthcare Hospital. Because Signature did not provide a draft lease agreement with
the lease costs, it did not show that the capital and operating costs of the hospital would be met
or that the costs of its proposed hospital would not have an impact on healthcare costs. As a
result, Signature failed to submit a CN application that contained the information required by the
Department. Accordingly, Signature fails to show that the Department misapplied the law in
denying Signature’s CN application for failing to demonstrate financial feasibility. Therefore,
Signature is not entitled to judgment as a matter of law.
III. THE DEPARTMENT’S DENIAL OF SIGNATURE’S APPLICATION WAS NOT ARBITRARY &
CAPRICIOUS
Signature also argues that the Department’s decision to deny its CN application was
arbitrary and capricious when compared to the Department’s review of Signature’s CN
applications for proposed facilities in Pierce County and Spokane County because the
Department maintained varying standards in reviewing the applications. Specifically, Signature
argues that the Department’s review of Signature’s Clark County CN application was arbitrary
and capricious because Signature submitted a 20-year lease, while the competing healthcare
facility submitted a 15-year lease, the Department declared a PUI in Pierce County, and
Signature was not required to provide a draft lease agreement as part of its Spokane County
application. We determine that the Department’s denial was not arbitrary and capricious when
compared to its review of Signature’s CN application in Pierce County, but we do not review
Signature’s argument concerning the Department’s review in Spokane County.
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No. 50109-1-II
A. Pierce County
Signature argues that the Department’s decision to deny its CN application was arbitrary
and capricious when compared to the Department’s review of its application for proposed
facilities in Pierce County because Signature submitted a lease with a 20-year term, while the
competing healthcare facility submitted a 15-year lease, and because the Department declared a
PUI during the Pierce County review but not during the Clark County review. We disagree.
In 2014, Signature submitted CN applications in both Clark County and Pierce County.
During its review of the Pierce County applications, the Department declared a PUI. The
Department declared a PUI because it was unable to move forward in concurrently reviewing all
CN applications in Pierce County due to deficiencies in each of the applications submitted.
Because the Department declared a PUI, it was permitted to request additional information, and
it extended its review period. WAC 246-310-090(1)(a)(iii). The Department eventually denied
Signature’s Pierce County CN application and granted the competing healthcare facility’s
application. The competing facility’s application provided that it would own the site of its
proposed hospital and had clear legal title to that site.
The Department also denied Signature’s Clark County CN application, determining that
Signature failed to show that its proposed hospital was financially feasible and that the costs of
the proposed hospital would be contained. Specifically, the Department reasoned that Signature
could not show either financial feasibility or cost containment because Signature failed to
provide documentation of a 20-year total lease term for the Clark County proposed hospital and
because Signature failed to supply a draft lease agreement with the proposed hospital’s monthly
and annual lease costs. The Department did not declare a PUI during its review of Signature’s
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No. 50109-1-II
Clark County CN application because only Signature’s CN application was deficient—
Springstone’s CN application was complete.
Signature contends that the Department maintained varying standards in reviewing its CN
applications in Clark County and Pierce County because Signature submitted a lease with a 20-
year term, while the competing healthcare facility submitted a 15-year lease, and because the
Department did not declare a PUI during its review of the Clark County application. Signature’s
argument fails.
The Department declared a PUI in reviewing the Pierce County applications because
none of the CN applications submitted were complete. These circumstances were not present
during the Department’s review of the Clark County applications because Springstone submitted
a sufficient application. Moreover, our review of the administrative record reveals that the
competing healthcare facility in Pierce County owned its proposed psychiatric hospital and had
clear legal title to the proposed site. Because the competing facility had clear title, it was not
required to submit a 20-year lease. Here, Vancouver Behavioral Healthcare Hospital does not
own its own facilities and does not have clear legal title.
Viewing the evidence available in our record on appeal, the Department has consistently
applied its CN standards in reviewing Signature’s CN application for a proposed hospital in
Clark County. The Department’s denial was the result of due consideration of the facts and
circumstances in Signature’s Clark County CN application. Accordingly, Signature fails to meet
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No. 50109-1-II
its burden in showing that the Department’s denial of its Clark County application was arbitrary
and capricious.5 Therefore, Signature is not entitled to judgment as a matter of law.
B. Spokane County
Signature argues that the Department’s decision to deny its CN application was arbitrary
and capricious when compared to the Department’s review of its application for a proposed
hospital in Spokane County because Signature was not requested to provide a draft lease
agreement as part of its Spokane County application. We do not review this issue.
Generally, an insufficient record on appeal precludes our review of alleged errors.
Cuesta v. Emp’t Sec. Dep’t, 200 Wash. App. 560, 568, 402 P.3d 898 (2017). The record on appeal
does not contain any evidence regarding the requirements for Signature’s CN application in
Spokane County or the Department’s review of Signature’s application. Moreover, there is no
evidence in the record concerning whether Signature was required to submit a draft lease
agreement for its Spokane County application. As a result, the record in insufficient to review
whether the Department maintained varying standards in reviewing Signature’s CN applications
in Clark County and in Spokane County. Therefore, we do not review this issue.
IV. SPRINGSTONE’S CN APPLICATION
Signature also argues that there is a genuine issue of material fact concerning the true
applicant in Springstone’s CN application, there are genuine issues of material fact regarding the
true applicant for Springstone’s CN application and whether Springstone provided an appropriate
5
It appears that Signature seeks our review of the Department’s actions during its review of the
Pierce County CN application. Nothing in this opinion should be read as a determination of the
validity of the Department’s review of Signature’s CN application in Pierce County.
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No. 50109-1-II
need methodology in its CN application, and the Department’s decision to grant Springstone’s
CN application was arbitrary and capricious. We disagree.
A. No Genuine Issue of Material Fact Regarding the True Applicants for Springstone’s
Application
Signature argues that there is a genuine issue of material fact concerning the true
applicant in Springstone’s CN application because Springstone misrepresented the facts
concerning the true applicant. Specifically, Signature argues that WCAS, Springstone LLC, and
Springstone Inc. should have been considered applicants for the proposed hospital because each
entity has an ownership interest in the proposed hospital, Rainier Springs.6 We determine that
there is no genuine issue of material fact concerning the true applicant in Springstone’s CN
application.
Springstone’s CN application on behalf of Rainier Springs provided that Rainier Springs
was entirely owned by Springstone Inc., which was entirely owned by Springstone LLC.
Springstone also stated that the Rainier Springs proposed hospital would be entirely funded by
WCAS.
In its CN application review, the Department determined that Springstone LLC was the
ultimate parent company of Rainier Springs because it entirely owned all related entities.
Because Springstone LLC was the ultimate parent company, the Department decided to treat
Springstone LLC as the applicant for the proposed Rainier Springs facility. The Department also
6
Signature asserts that “[i]t should be presumed that WCAS owns a 10% or greater interest” in
Rainier Springs because WCAS was funding 100 percent of the Rainier Springs proposed
hospital. Br. of Appellant at 32. Signature’s assertion is not well taken. Even assuming all facts
in Signature’s favor, there is no evidence that WCAS owned any interest in Rainier Springs.
Johnson v. Recreational Equip., Inc., 159 Wash. App. 939, 956, 247 P.3d 18 (2011) (Appellants
“cannot rely on speculation and conjecture to raise a genuine issue of material fact.”).
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No. 50109-1-II
noted that WCAS was the funding source for the proposed hospital and stated that the
Department does not consider funding sources to be applicants.
In its final order, the Department determined that there were no genuine issues of
material fact concerning the true applicant for Springstone’s CN application. The Department
reasoned that only Springstone LLC was the true applicant because Springstone LLC was the
parent company of Rainier Springs, and parent companies are considered the applicant for CN
application purposes.
Although Signature contends that Springstone misrepresented facts regarding the
ownership interest in Rainier Springs, Signature does not provide any evidence to support this
accusation. The uncontested evidence presented to the Department shows that Rainier Springs
and any related entities were entirely owned by Springstone LLC. The uncontested evidence
also shows that the Department treats parent companies as the true applicant in a CN application.
Because Springstone LLC owns Rainier Springs in its entirety, Springstone LLC is the parent
company of Rainier Springs. Accordingly, there is no genuine issue of material fact regarding
the true applicant in Springstone’s CN application.
B. No Genuine Issue of Material Fact Regarding Springstone’s Need Methodology
Signature also argues that there is a genuine issue of material fact regarding whether
Springstone provided an appropriate need methodology in its CN application. Specifically,
Signature argues that Springstone failed to show sufficient need for a 24-bed chemical
dependency unit in its proposed hospital. We determine that there is no genuine issue of material
fact regarding whether Springstone demonstrated an unmet need for its proposed hospital.
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No. 50109-1-II
Springstone filed a CN application for a 72-bed psychiatric hospital. Springstone’s CN
application included its methodology for determining the number of psychiatric beds required to
meet the need for care in Clark County. Springstone’s application also provided that its 72-bed
proposed hospital would include a 24-bed chemical dependency unit. The beds in the chemical
dependency unit were to be licensed as psychiatric beds, and the unit would have the ability to
treat patients with dual diagnoses or co-occurring disorders. During screening, the Department
determined that Springstone’s proposed hospital was a full psychiatric hospital and that the
chemical dependency unit did not require a separate need methodology because the unit satisfied
the need for psychiatric care in Clark County.
In its cross-motion for summary judgment, Signature argued that Springstone failed to
provide a proper need methodology for the 24 chemical dependency beds. The Department
determined that Signature’s argument failed because Springstone provided a proper methodology
for ascertaining the need for psychiatric beds in Clark County. The Department reasoned that
because all 72 beds in Springstone’s proposed hospital would operate as psychiatric beds, the
chemical dependency unit did not reduce the number of beds available to meet the community’s
needs and did not require a separate need methodology.
The evidence in the administrative record shows that Springstone provided a need
methodology for its 72-bed facility. Although Springstone’s proposed hospital would include a
chemical dependency unit, the Department determined that Springstone’s facility would function
as a full psychiatric hospital and did not require an additional need methodology. Signature fails
to show that there is a genuine issue of material fact regarding whether Springstone provided an
appropriate need methodology for its proposed hospital. Assessing a CN applicant’s need
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No. 50109-1-II
methodology is within the scope of the Department’s administrative functions. Giving
substantial deference to the Department, we hold that there is no genuine issue of material fact
concerning Springstone’s need methodology for its 24-bed chemical dependency unit.
C. The Department’s Review of Springstone’s Financial Feasibility was Not Arbitrary &
Capricious
Signature also argues that the Department’s decision to grant Springstone’s CN
application was arbitrary and capricious because the Department considered only the financial
feasibility of Rainier Springs and not the financial fitness of Springstone or WCAS.7 Signature
contends that the Department did not apply the same standard in reviewing its CN application
because the Department reviewed the financial feasibility of both Signature and Vancouver
Behavioral Healthcare Hospital. We disagree.
When conducting its concurrent review of both Signature’s and Springstone’s CN
applications, the Department reviewed the capital and operating costs of only Vancouver
Behavioral Healthcare Hospital and Rainier Springs. The Department also reviewed whether
each hospital could be appropriately financed. The proposed Vancouver Behavioral Healthcare
Hospital facility was funded in part by Signature, and Signature provided its current and
historical financial statements to demonstrate that it had the funds to support financing its
7
Signature also argues that Springstone failed to establish the containment of the costs of its
proposed hospital because Springstone failed to establish that its project was financially feasible.
Under RAP 10.3(a)(6), an appellant’s brief must include arguments supporting the issues
presented for review and citations to legal authority. An appellant waives an assignment of error
that is unsupported by argument or authority. Bercier v. Kiga, 127 Wash. App. 809, 824, 103 P.3d
232 (2004). Signature does not provide an analysis regarding Springstone’s failure to establish
cost containment and does not cite any authority. Because Signature’s brief does not contain
argument and authority concerning this issue, we determine that this issue is precluded from our
review.
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No. 50109-1-II
proposed hospital. Springstone’s proposed Rainier Springs facility was funded entirely by
WCAS, and Springstone submitted independent auditor’s reports regarding WCAS to
demonstrate funding.
Contrary to Signature’s assertion, the Department assessed the financial feasibility of
only Signature’s project, Vancouver Behavioral Healthcare Hospital. Similarly, the Department
assessed the financial feasibility of only Rainier Springs. The Department reviewed Signature’s
financial information only to determine whether Signature could properly fund Vancouver
Behavioral Healthcare Hospital. The Department similarly reviewed financial information for
WCAS in assessing the financing for Rainier Springs.
As a result, Signature fails to meet its burden in showing that the Department’s action in
granting Springstone’s application was the result of willful or unreasoning disregard for the facts
and circumstances. From the record available to this court on appeal, it appears that the
Department consistently applied its CN application review standards and that its decision
granting Springstone’s CN application was the result of due consideration of the facts and
circumstances. Therefore, Signature is not entitled to judgment as a matter of law.
D. The Department’s Review of Springstone’s Sufficient Interest was Not Arbitrary &
Capricious
Signature appears to argue that the Department’s decision to grant Springstone’s CN
application was arbitrary and capricious because Springstone did not establish that it had
sufficient interest in its proposed hospital. Specifically, Signature argues that Springstone failed
to demonstrate sufficient interest because its CN application did not specify the cost for the
renewal terms in its lease. Signature misunderstands the requirements of sufficient interest, and
therefore, its argument fails.
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No. 50109-1-II
To demonstrate sufficient interest in a proposed hospital, a CN applicant is required to
provide documentation of:
(a) Clear legal title for the proposed site; or
(b) Lease for at least five years with options to renew for no less than a total
of twenty years in the case of a hospital or psychiatric hospital . . . or
....
(d) Legally enforceable agreements to give such title or such lease in the
event that a Certificate of Need is issued for the proposed [hospital].
AR at 1821-22. CN applicants are not required to provide lease costs to satisfy the sufficient
interest requirement. Instead, applicants must provide a lease with monthly and annual lease
costs so that the Department can assess the financial feasibility of the proposed hospital.
Springstone’s CN application stated that Rainier Springs would lease its facilities for a
10-year term with the option to renew the lease for an additional two years. The Department
screened Springstone’s application and notified Springstone that its application was incomplete
because the lease did not extend for a 20-year total term. Springstone supplied the Department
with a revised draft lease agreement for a 10-year term with the option to renew the lease for two
additional 5-year terms. WAC 246-310-090
Springstone provided documentation of a 20-year total term lease. As a result,
Springstone demonstrated sufficient interest in its proposed facilities. Accordingly, Signature
fails to meet its burden in showing that the Department’s action was arbitrary and capricious.
Moreover, Signature is not entitled to judgment as a matter of law.
We affirm the Department’s final order.
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No. 50109-1-II
A majority of the panel having determined that this opinion will not be printed in the
Washington Appellate Reports, but will be filed for public record in accordance with RCW
2.06.040, it is so ordered.
Worswick, P.J.
We concur:
Bjorgen, J.
Sutton, J.
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