Overlake Hospital Association v. Department of Health

Swedish Health Services (Swedish) (defendant) wanted to build a new ambulatory surgical facility for same-day or outpatient surgeries. In Washington, anyone wanting to build this type of surgical facility had to get a certificate of need (CON) from the Washington State Department of Health (the department) (defendant). The stated legislative purpose of the CON program was to guide healthcare-facility planning in a way that would provide accessible health services and promote citizen health. This meant balancing the need for more health facilities against the risk that excess facilities would drive up costs and actually reduce access to medical care. To assess the need for a proposed new same-day surgical facility, the department determined (1) the existing capacity and (2) the area’s projected surgical needs in three years. The department then calculated whether additional capacity was required to meet the estimated future needs. Private doctors and dentists sometimes had facilities for same-day surgeries that were available only to those providers’ patients. The department did not include these facilities in its count of existing surgical capacity for all citizens. However, the department did include the surgeries currently being performed at those facilities in its future-public-need calculations. Using this system, the department calculated that there was a need for 5.39 more same-day surgical beds in the area and granted Swedish a CON to build a five-bed ambulatory surgical facility. Overlake Hospital Association (Overlake) (plaintiff) and Evergreen Healthcare (Evergreen) (plaintiff) were medical providers that would be impacted by a new surgical facility in the area. Overlake and Evergreen sued, claiming that the department’s method was impermissibly arbitrary and capricious because it counted the private facilities in one part of its need calculation but not in the other part. The administrative health-law judge upheld the department’s process as a reasonable way to meet the goals of the CON program. The court of appeals reversed, finding that the methodology was arbitrary and capricious. The department and Swedish appealed the case to the Washington Supreme Court.