INTHE SUPREME COURT OF THE STATE OF WASHINGTON

WASHINGTON STATE HOSPITAL ASSOCIATION, Respondent,

v. ) ) ) ) ) ) ) WASHINGTON STATE DEPARTMENT OF) HEALTH, ) Appellant.

·-------·--- ) ) ) ) No. 90486-3 EnBanc

Filed

## ___lUi 09 2015

GONZALEZ, J.-UnderWashington law, Department ofHealth approval is ') required for certain types ofhospital ownership changes. We are asked today whether the department exceeded its authority when it, byrule, significantly expanded the types ofownership changes thatrequire department approval. Finding that it did, we affirm. FACTS The Washington Legislature enacted the certificate ofneed program in 1979 to "promote, maintain, and assure the health ofall citizens in the state, provide accessible health services, health manpower, health facilities, and other resourcesWash. State Hasp. Ass 'n v. Wash. Dep 'tofHealth, No. 90486-3 while controlling increases in costs." RCW 70.38.015(1). Underthis program, those seeking to enter the health care market have long beenrequired to establishthere is a need for their services. See Univ. ofWash. Med. Ctr. v. Dep 't of Health, 164 Wn.2d 95, 100, 187 P.3d 243 (2008). The department administers the certificate ofneed program and is authorized to adopt rules to implementthe certificate ofneed statute. RCW 70.38.105(1), .135(3)(c). In 1984, the legislature adopted RCW 70.38.105(4)(b), which, in its current form, provides that certificate ofneed review is also triggered by [ t]he sale, purchase, or lease ofpart or all ofany existing hospital as defined in RCW 70.38.025 including, butnot limited to, a hospital sold, purchased, or leasedby a health maintenance organization or by a combination ofhealth maintenance organizations except as provided in subsection (7)(b) ofthis section. The terms "sale," "purchase," and "lease" are not det1ned in the statute. To assist parties in determining whether a certificate ofneed is required for a transaction, parties may "submit a writtenrequest to the certificate ofneedprogram requesting a formal determination ofapplicability ofthe certificate ofneed requirements to the action." WAC 246-310-050(1). The department's responses to those requests are "bindingupon the department'' for that transaction. WAC 246-310- 050(5). Since 1984, the department oftenruled that a certificate ofneed is required for only "sale, purchase, or lease" transactions, not other forms ofchanges ofcontrol. In one such ruling, the department stated certificate ofneed review is required for the sale, purchase, or lease ofa hospital. The terms

2Wash. State Hosp. Ass 'n v. Wash. Dep 't of Health, No. 90486-3 "purchase" and "sale" are not defined in either the [certificate ofneed] statute orrule. However in RCW 70.37
... "acquisition" is defined to include acquiring by "purchase, merger, lease,jointventure, or otherwise;" Therefore, its [sic] reasonable to assume that had the [certificate ofneed] law been intended to apply to mergers it would have specifically so stated. The department concludes that the [certificate ofneed] law was not intended to apply to merger transactions. Clerk's Papers at 87. The department's interpretation of"sale, purchase, or lease," however, has not beenuniform: the department issued several binding opinions that concluded "sale, purchase, or lease" did not extend to other forms ofchange of control, but the department also reviewed six hospital related mergers through the certificate ofneed process between 1979 and 1989. OnJune 28,2013, Governor Inslee, noting thatthe certificate ofneed process "has not kept current with the changes inthe health care delivery system," directed the department to considerhowthe structure ofaffiliations, corporate restructuring, mergers, and other arrangements among health care facilities results in outcomes similarto the traditional methods ofsales, purchasing, and leasing ofhospitals, particularly when control ofpart or all ofan existing hospital changes from one party to another. Admin. Record (AR) at 1. The department initiated rule making on July 3, 2013. The departmentproposed an expansive rule defining "sale, purchase, or lease" ofpart or all ofany existing hospital as "any transaction in which the control, either directly or indirectly, ofpart or all ofany existing hospital changes to a different person including, butnot limited to, by contract, affiliation, corporate membership restructuring, or any othertransaction." Id. at 154 (underline omitted) (now codified

3Wash. State Hasp. Ass 'n v. Wash. Dep 't of Health, No. 90486-3
at WAC 246-310-010(54) (hereinafterNew Rule). The department received over 1,000 comments on its proposal. In its response to the comments, the department explained that certificate ofneed review should be performed

### inrelation to hospital transactions ''regardless ofthe terms used in the transactional documents." 

### !d. at 1188. After considering the comments, the department adopted the NewRule as proposed. The Washington State Hospital Association (the Association) is a not-for-profit corporation that advocates for its members on issues that affect health care. Its members include 98 Washingtonhospitals. The Association challenged the New Rule in Thurston County Superior Court, arguing, among otherthings, that the department exceeded its statutory authority in promulgating the NewRule. The trial court found that the department exceeded its statutory authority in promulgating the NewRule and invalidated it on that basis withoutreaching the Association's other arguments. The department appealed directly to this court. We granted review. Order Granting Review, Wash. State Hasp. Ass'nv. Dep'tof Health, No. 90486-3 (Dec. 3, 2014). ANALYSIS Our review is de novo because "[i]nreviewing administrative action, this court sits in the same position as the superior court." Tapper v. Emp 't Sec. Dep 't, 122 Wn.2d 397, 402, 858 P.2d 494 (1993) (citingMacey v. Dep 'tof Emp 'tSec., 110 Wn.2d 308, 312, 752 P.2d 372 (1988)). We also review questions ofstatutory interpretation de novo. State v. Wentz, 149 Wn.2d 342, 346, 68 P.3d 282 (2003)

4Wash. State Hasp. Ass 'n v. Wash. Dep 't of Health, No. 90486-3 (citing City of Pasco v. Pub. Emp 'tRelations Comm 'n, 119 Wn.2d 504, 507, 833 P.2d 381 (1992)). An agency's rules are presumed valid. St. Francis ExtendedHealth Care v. Dep 't of Soc. &Ilealth Servs., 115 Wn.2d 690, 702, 801 P.2d 212 (1990). The Association bears the burden ofproving that the NewRule is invalid. RCW · 34.05.570(1)(a). The courtmay declare the New Rule invalid "only ifit finds that: The rule violates constitutional provisions; the rule exceeds the statutory authority of the agency; the rule was adopted without compliance with statutory rule-making procedures; or the rule is arbitrary and capricious." RCW 34.05.570(2)(c). We conclude the New Rule is invalid because it interprets terms in RCW 70.38.105(4)(b) in a maru1er that is too broad to be consistent withthe statute. As we have recently summarized, Administrative "[r]ules must be written within the framework and policy ofthe applicable statutes/'Dep'to.fLabor &.Indus. v. Gongyin, 154 Wn.2d 38, 50, 109 P.3d 816 (2005), and so long as the rule is "reasonably consistent with the controlling statute[s]," an agency does not exceed its statutory authority. Wash. Pub. PortsAss'n v. Dep 't of Revenue, 148 Wn.2d 637,646,62 P.3d 462 (2003). However, '"[a]dministrative rules orregulations cannot amend or change legislative enactments."' Dep 't of Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 

### 1., 19, 43 P.3d 4 (2002) (quoting Dep 't of Ecology v. Theodoratus, 135 Wn.2d 582, 600, 957 P.2d 1241 (1998)). Rules that are not consistent with the statutes that they implement are invalid. Bostain v. FoodExpress, Inc., 159 Wn.2d 700, 715, 153 P.3d 846 (2007).

' ' . . . ' Swinomish Indian Tribal Cmty. v. Dep 't of Ecology, 178 Wn.2d 571, 580-81, 311 P.3d 6 (2013) (alterations in original). The overriding purpose ofthe certificate ofneed program is to "'promote, maintain, and assure the health ofall citizens in the state,

5Wash. State Hasp. Ass 'n v. Wash. Dep 't o.fHealth, No. 90486-3 [and] provide**acc~ssible** health**services~** health manpower, [and] health facilities.'" OverlakeHasp. Ass 'n v. Dep 'tof Health, 170 Wn.2d 43, 55, 239 P.3d 1095 (2010)

. . (second alteration in original) (quoting RCW 70.38.015(1)). We acknowledge that the New Rule may further the purpose ofthe certificate ofneed program and that broad dictionary definitions of"sale" and "purchase" 1 supportthe department's review of transactions beyond those that are.described in the transactional documents as "sales," "purchases," or "leases," such as mergers. The New Rule, however, interprets "sale, purchase, or lease" in RCW 70.38.105(4)(b) to mean "anytransaction in which the control, either directly or indirectly, ofpart or all ofany existing hospital changes to a different person,', which encompasses much more thanjustmergers. WAC 246-310- 010(54). As the Association correctlypoints out, the NewRule applies to any change ofcontrol because "[a]n indirect change ofcontrol would include things like changes in the stock ownership ofa publicly-held corporation, or a simple change in the composition ofa board ofdirectors managing the affairs ofan entity." Corrected Answering Br. ofResp'tWash. State Hospital Ass'n at 21. 2 Hence, as one example

1 11Sale" has been defined to mean "the act ofselling : a contract transferring the absolute or general ownership ofproperty from one person or corporate bodyto another for a price (as a sum ofmoney or any other consideration)." WEBSTER'S THIRDNEW INTERNATIONAL DICTIONARY 2003 (2002). 11Purchase" has been defined to mean 11to get into one'spossession
... by any means other than descent or inheritance," WEBSTER'S, supra, at 1844, and**~'[t]he** act or an instance ofbuying," BLACK'S LAW DICTIONARY 1429 (10th ed. 2014). 2 The department contends thatthe New Rule is not "intendedto reach these ancillary aspects of hospital administration." Reply Br. ofAppellant at 8. Nonetheless, the NewRule does reach such aspects because, by its plain language, it applies to "any transaction in which the control, either directly orindirectly, ofpart or all ofany existing hospital changes to a different person." WAC 246-310-010(54). 6Wash. State Hasp. Ass 'n v. Wash. Dep 't of Health, No. 90486-3 ofwhy the New Rule's interpretation of"sale, purchase, or lease" is too broad, the New Rule requires that any change in theboard ofdirectors ofa hospital is subjectto certificate ofneed review, which is not consistent with RCW70.38.105(4)(b)'s requirement that a 'Gsale, purchase, or lease" ofpart or all ofa hospital is subjectto certificate ofneed review. Accordingly, the NewRule interprets "sale, purchase, or lease" in RCW 70.38.105(4)(b) in a manner that departs too far fromtheplain meaning oJthoseterms. See Swinomish, 178 Wn.2d at 586-87; Bostain, 159 Wn.2d at 713, 715-16. Therefore, the department exceeded its scope ofauthority by promulgating the NewRule because the New Rule expands the meaning ofterms in RCW 70.38.105(4)(b) in a manner that is not consistent with the statute. CONCLUSION We hold that the department exceeded its statutory authority inpromulgating the NewRule and the New Rule is consequentially invalid. Accordingly, we affirm.

7Wash. State Hosp. Ass 'n v. Wash. Dep 't of Health, No. 90486-3



### WE CONCUR:

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