Providence Physician Services Co. v. Department of Health
196 Wash. App. 709
Wash. Ct. App.2016Background
- Providence Health wholly owns Providence Physician Services Co. (PPSC), a for-profit physician group employing surgeons.
- Providence built a medical center containing ambulatory surgical facilities; PPSC proposed to lease part of that space and limit use to PPSC surgeons.
- The Department of Health’s Certificate of Need (CN) rule excludes from the definition of ambulatory surgical facility “a facility in the offices of private physicians…whether for individual or group practice” if use isn’t extended outside the practice (the ASF exemption, WAC 246-310-010(5)).
- The Department’s hearing and review officers concluded PPSC did not qualify for the ASF exemption because PPSC is owned and controlled by Providence (a hospital system); the review officer also referenced a dictionary definition of “private practice.”
- The superior court affirmed the Department. PPSC appealed, arguing the exemption does not require independent ownership or space ownership, and that the Department engaged in rule making without following APA procedures.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PPSC qualifies as "private physicians" in a "group practice" for ASF exemption | PPSC: exemption applies to group practices regardless of ownership; no requirement of independence from hospital owner | Dept./Rockwood: "private practice" means physicians practicing independently (not employed or controlled by a larger hospital); hospital ownership defeats exemption | Court: Dept. did not err—Providence’s ownership disqualifies PPSC from the ASF exemption |
| Whether ASF exemption requires the physician group to own facility space | PPSC: no ownership of physical space required by text | Dept.: arguably read an ownership/space requirement into exemption | Court: Dept. erred if it required space ownership—ownership of space not required by exemption |
| Whether the Department’s interpretation was invalid "rule making" requiring formal APA rule making | PPSC: Department’s adjudicative interpretation created a new rule and needed formal rule making | Dept./Rockwood: interpretation was adjudicative and within agency authority; previous inconsistent initial determinations are nonbinding | Court: PPSC did not waive the claim, but the Department’s interpretation was permissible adjudication, not rule making requiring formal procedures |
| Standard of review / deference to agency interpretation | (N/A) PPSC argued error of law; sought substitution of court’s view | Dept.: interpretation within agency expertise merits deference if reasonable | Court: reviewed as error of law; upheld agency interpretation as a plausible construction consistent with CN purposes |
Key Cases Cited
- Overlake Hosp. Ass’n v. Dep’t of Health, 170 Wn.2d 43 (state CN program purpose and presumption favoring agency decisions)
- Budget Rent A Car Corp. v. Dep’t of Licensing, 144 Wn.2d 889 (agency may interpret broadly written law without formal rule making)
- Failor’s Pharmacy v. Dep’t of Soc. & Health Servs., 125 Wn.2d 488 (agency may not add new requirements to a well-defined regulation without formal rule making)
- Safeco Ins. Co. v. Meyering, 102 Wn.2d 385 (courts disfavor interpretations that exalt form over substance)
- McGee Guest Home, Inc. v. Dep’t of Soc. & Health Servs., 96 Wn. App. 804 (interpretation of vague terms by agency is adjudicative, not rule making)