King County Public Hospital District No. 2 v. Washington State Department of Health (Division 1, February 21, 2012) (published May 7, 2012), involves the review of Odyssey Healthcare’s application to the Department of Health to provide hospice care services in Washington.
Before providing hospice care, a provider must obtain a “Certificate of Need” (“CN”) from the Department. The provider applies, notice is given to “certain interested parties,” which include competitors, and then there is a period of public comment, after which the Department decides the application. If the application is denied, then the provider has the right to an adjudicative proceeding before a Health Law Judge, for which notice is also provided to competitors. The Department can settle the adjudicative dispute with the provider, but again, that settlement is subject to notice and comment before approval (or rejection) by the HLJ.
Anyway, Odyssey applied for a CN in 2003. It was denied. Odyssey applied again in 2006. It was denied again in 2007. So Odyssey (a) sought adjudication before an HLJ and (b) filed suit against the Department in federal court claiming antitrust violations and violations of the dormant Commerce Clause. Odyssey and the Department then began talking settlement. (Seems like the Department wanted nothing to do with that federal lawsuit!)
The Department and Odyssey reached a settlement agreement, pursuant to which the adjudicative proceeding and the federal lawsuit were both resolved. Not surprisingly, Odyssey’s competitors, including Respondent Evergreen, challenged the settlement before the HLJ. The HLJ approved. So the challengers appealed to the Superior Court, which rejected the settlement.
The Court of Appeals, reviewing the Superior Court’s rejection, reversed the Superior Court and reinstituted the settlement over Evergreen’s objections: First, the Court of Appeals concluded that it was fine for the Department to use 2008 evidence in approving the settlement, despite the general rule that the Department did not consider “new” evidence in adjudicative proceedings. As long as the Department is using its settlement authority, it has the discretion to consider new evidence.
Second, the Department property considered “non-need” criteria for approving a CN application. Sure, the Department’s initial denial stated that Odyssey had not met the non-need criteria, and the Department made no different/additional findings regarding the non-need criteria in connection with the settlement. However, the original denial made clear (at least according to the Court of Appeals’ analysis) that the “non-need” findings were all intertwined with the “need” findings — in other words, Odyssey failed the “non-need” findings because it had failed the need findings. So a flip on the “need” findings would support a flip on the other findings as well, without further discussion.
And on the “need” findings, the Court of Appeals approved of the HLJ’s conclusion that the findings were sufficient. Based on the updated 2008 information that Odyssey provided during settlement negotiations, the Department determined that there was in fact a need for more hospice services. So the “need” criteria were met. The Court of Appeals did not disturb that determination.