Court Opinion

ID: 3165862
Source: CourtListenerOpinion
Date Created: 2015-12-28 22:09:17.660532+00
Date Added: 2024-06-11T12:01:08.208524
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

 DAVITA HEALTHCARE PARTNERS,
 INC.,                                                    No. 73630-2-1

                      Appellant,                          DIVISION ONE

               v.                                         PUBLISHED OPINION

WASHINGTON STATE DEPARTMENT
OF HEALTH and NORTHWEST KIDNEY
 CENTERS,

                      Respondents.                        FILED: December 28, 2015
                                                                                  CO

       Appelwick, J. — Both DaVita and Northwest Kidney Centers (Ni£C)
submitted certificate of need applications for five kidney dialysis stations in s^iith

King County. DaVita sought to build a new facility to accommodate the stations

whereas NKC sought to expand an existing facility. The Department of Health's

Certificate of Need Program concluded that DaVita's application satisfied more of

WAC 246-310-288's criteria than NKC's application.           It awarded DaVita the

certificate of need. The health law judge reversed and granted NKC's certificate

of need application. He reasoned that the program erred in utilizing the tie breaker

criteria in WAC 246-310-288, because NKC's application met all of the review

standards under WAC 246-310-210, -220, -230, and -240 and DaVita's did not.

We affirm.

                                   BACKGROUND

       In 1979, the Washington legislature enacted the State Health Planning and

Resources Development Act (Act), chapter 70.38 RCW. Univ. of Wash. Med. Ctr.

v. Dep't of Health, 164 Wash. 2d 95, 99, 187 P.3d 243 (2008).           The Act allows
No. 73630-2-1/2

Washington to control the number of healthcare providers entering the market by

requiring the facility or program to obtain a certificate of need (CN). King County

Public Hosp. Dist. No. 2. v. Dep't of Health, 178 Wash. 2d 363, 366, 309 P.3d 416

(2013). The legislature intended the CN requirement to provide accessible health

services and assure the health of all citizens in the state while controlling costs.

Id; RCW 70.38.015(1), .015(2).

       CN applications for new health care facilities, new services, and expansion

of existing health care facilities are subject to concurrent review.          RCW

70.38.115(7). Concurrent review is "for the purpose of comparative analysis and

evaluation of competing or similar projects in order to determine which of the

projects may best meet identified needs." ]a\ During the review process, the
Department of Health (Department) is required to evaluate CN applications based
on criteria set forth in its regulations. WAC 246-310-200(2). All CN applications

are reviewed bythe Department on the basis of need, financial feasibility, structure

and process ofcare, and cost containment. WAC 246-310-210 (need); WAC 246-
310-220 (financial feasibility); WAC 246-310-230 (structure and process of care);

WAC 246-310-240 (cost containment).

       Kidney dialysis facilities are among those facilities required to obtain CN
approval.    RCW 70.38.105(4)(a), (4)(h); RCW 70.38.025(6); WAC 246-310-
020(1 )(a), (1)(e); WAC 246-310-010(26). The Department has also adopted
additional CN criteria that apply to only kidney disease treatment centers. See

WAC 246-310-280 through -289. WAC 246-310-282 states that kidney dialysis

facilities are, like other CN applications, to be reviewed concurrently.       RCW
No. 73630-2-1/3

70.38.115(7). The facilities competing to provide services in the same planning

area are reviewed simultaneously by the Department.         WAC 246-310-280(3).

Applications to establish kidney disease treatment centers are reviewed on one of

four quarterly review cycles, which allows the Department to compare the

competing applications for specific planning areas. WAC 246-310-282; WAC 246-

310-280(9).

      Like other CN applications, a kidney dialysis facility must meet the

applicable review criteria in WAC 246-310-210, -220, -230, and -240. WAC 246-
310-284. If two or more applications "meet all applicable review criteria and there

is not enough station need projected for all applications to be approved, the
department will use tie-breakers to determine which application orapplications will
be approved." WAC 246-310-288.

       The tie breaker system awards points for various criteria. See WAC 246-
310-288. The first five criteria (training services, private rooms for isolating

patients, permanent bed stations, evening shift, and meeting the projected need)
allow multiple applicants to receive points. WAC 246-310-288(1 )(a), (b), (c), (d),
(e). The remaining four tie breaker points (economies of scale, historical provider,
patient geographical access, and provider choice) may be awarded to only one
applicant. WAC 246-310-288(2)(a), (b), (c), (d).

                                      FACTS

       NKC is a Washington not for profit 501(c)(3) corporation that owns and

operates 14 dialysis facilities in Washington. Thirteen of NKC's Washington
dialysis facilities are in King County including one facility in SeaTac. DaVita is a
No. 73630-2-1/4

publicly held, for-profit corporation that provides dialysis services in multiple states

including Washington. DaVita owns or operates 24 kidney dialysis centers in

Washington and four are in King County.

            In May2011, NKC applied for a CN to add five dialysis stations to its SeaTac

facility.     The application proposed to increase the existing SeaTac facility's

capacity from 25 dialysis stations to 30 stations. NKC's initial estimated capital

expenditure for the project was $100,969. That same month, DaVita applied for a

CN to build a new, five station dialysis facility in Des Moines. DaVita's initial capital

expenditure was estimated at $1,824,465. DaVita amended its application in June

2011 and revised the capital expenditure estimate to $1,992,705.

            Both NKC's and DaVita's CN applications sought to add dialysis stations

located in King County Planning Area No. 4. King County Planning Area No. 4 is
a geographic area south of Seattle that includes SeaTac, Burien, Normandy Park,
Tukwila, and Des Moines. WAC 246-310-280(9)(a). The planning area is currently

served by one kidney disease treatment center—NKC's 25 station facility in

SeaTac.

            Because both applicants proposed to serve residents in the same planning

area within King County, the Program reviewed the applications concurrently.1
The Program considered whether both applicants satisfied the WAC 246-310-210,
-220, -230, and -240 requirements. The Program concluded that both NKC and

DaVita satisfied the need, financial feasibility, and structure and process of care

        1 Because the health law judge's decision is ultimately the Department's
final decision, we refer to the Program's initial decision as the Program's decision.
 See DaVita. Inc. v.Dep't of Health, 137 Wash. App. 174, 181, 151 P.3d 1095 (2007).
No. 73630-2-1/5

requirements.      But, it concluded that only DaVita's project met the cost

containment criteria in WAC 246-310-240(1) and (2).2

      As to the cost containment criteria, the Program noted that it performs its

analysis by taking a multi-step approach. It stated that step one is determining

whether the application has met the criteria of WAC 246-310-210, -220, and -230.

Because it found both NKC and DaVita met the applicable review criteria, the

Program proceeded to step two.

      In step two, the Program stated that it assesses the other options the

applicant or applicants considered prior to submitting their applications. The
Program explained that if it determines that the proposed project is better or equal
to other options the applicant considered before submitting its application, it
proceeds to step three. Here, the Program found that there were no superior
alternatives that either NKC or DaVita considered or should have considered.

       2 WAC 246-310-240(1) through -240(2) states:

       A determination that a proposed project will foster cost containment
       shall be based on the following criteria:

                (1) Superior alternatives, in terms of cost, efficiency, or
       effectiveness, are not available or practicable.

                (2) In the case of a project involving construction:
                (a) The costs, scope, and methods of construction and
       energy conservation are reasonable; and
              (b) The project will not have an unreasonable impact on the
       costs and charges to the public of providing health services by other
       persons.
No. 73630-2-1/6

       Consequently, the Program continued to its third step—applying the tie

breaker criteria under WAC 246-310-288. The Program awarded both NKC and

DaVita five tie breaker points for those points that may be allotted to multiple

applicants: training services, private rooms for isolating patients, permanent bed

stations at the facility, evening shift, and meeting the projected need. But, for those

points that only one applicant may receive, the Program awarded DaVita two

points (patient geographical access and provider choice) and NKC only one

(economies of scale). Because DaVita received more tie breaker points than NKC,

on March 5, 2012, the Program awarded DaVitathe CN for its proposed five station

facility. It denied NKC's application.

       On March 8, 2012, NKC requested an adjudicative proceeding. Among

other things, NKC argued that instead ofevaluating which of the applications under

review represented the superior alternative in terms of cost, efficiency, and

effectiveness as required by WAC 246-310-240, the Program improperly jumped

directly to a tie breaker analysis under WAC 246-310-288. Citing to the plain

language ofWAC 246-310-288, NKC claimed that a tie breaker analysis is relevant

only after a determination is made that the competing applications satisfied all

criteria—including the criteria listed under WAC 246-310-240. NKC argued that

only its application satisfied all criteria—DaVita's application failed the financial

feasibility criteria in WAC 246-310-220(2) and NKC's application was the superior

application under WAC 246-310-240.

       At an administrative hearing before a health law judge (HLJ), the parties

presented evidence and argument. The HLJ issued an order on March 22, 2013
No. 73630-2-1/7

effectively reversing the Program's decision and awarding the CN to NKC. The

HLJ found that the Program properly determined that both NKC and DaVita met

the WAC 246-310-210 determination of need requirement and the WAC 246-310-

230 structure and process of care requirement. But, the HLJ found that financial

feasibility under WAC 246-310-220 was where the differences between the two

applications became the most distinct.3

       The HLJ found that both applicants could finance their projects. He next

turned to whether operating costs could be met. NKC projected that its net profit

for the five dialysis stations after three years4 would be $76,465. DaVita initially

reported that in its third year it would have a net loss of $22,717. But, DaVita
revised its pro forma to show a net gain of $21,841 in its third year. It did so by
removing landlord operating expenses (landlord taxes, common area maintenance

charges, and insurance charges).

         WAC 246-310-220 provides:

               The determination of financial feasibility of a project shall be
       based on the following criteria.

               (1) The immediate and long-range capital and operating
       costs of the project can be met.

               (2) The costs of the project, including any construction costs,
       will probably not result in an unreasonable impact on the costs and
       charges for health services.

               (3) The project can be appropriately financed.
      4 The HLJ recognized that the Program has developed a practice of
considering the income and expenses for the third year of operations as an
indicator of financial feasibility.
No. 73630-2-1/8

        Applying either DaVita's initial third year projection or the revised third year

projection, the HLJ commented that he was struck by the difference in net

revenues. He noted that both applications involved the same number of dialysis

stations and both have a high percentage of Medicare/Medicaid patients who

would provide the same fixed reimbursement for dialysis service to both facilities.5
The HLJ assumed that because the geographical area covered by the five

additional dialysis stations would be the same, the projected need for the dialysis

is the same, the ratio of Medicare/Medicaid to commercial payor reimbursement

patients would be the same, and thus the income should be the same for both

facilities.

         But, he noted that DaVita's income was projected to be much higher and

found that DaVita would only achieve this higher income by charging commercial

insurance carriers more. The HLJ thus found this would have an impact on the

cost of health services, because insurance companies would adjust their premiums

to cover the increased cost of dialysis at DaVita's facility. But, he reasoned that

whether this would have an "unreasonable impact" on the costs of health services

under WAC 246-310-220 depended upon the available alternatives.

         Thus, the HLJ stated that whether the applicants met the criteria of WAC

246-310-220 was dependent upon WAC 246-310-240's superior alternative

analysis. In other words, the HLJ reasoned that WAC 246-310-220(2)'s financial

         5 In terms of revenue, the majority of patients who seek dialysis treatment
pay through Medicare/Medicaid. The resteither have other insurance (commercial
payors) or private funding. Medicare/Medicaid reimbursement rates for health
services are fixed by the federal government, but commercial rates are negotiated
by each facility.

                                                8
No. 73630-2-1/9

feasibility criteria—whether the costs of the project will result in an unreasonable

impact on the costs and charges for health services—could not be considered in

isolation of WAC 246-310-240(1 )'s criteria that the Department must consider

superior alternatives in terms of cost, efficiency, and effectiveness. The HLJ

reasoned that the "superior alternative" prong of the cost containment analysis was

not only a comparison of each individual applicant's proposal to its own

alternatives, but also a comparison of the applicants' proposals to each other.

       After considering the first "superior alternative" prong of WAC 246-310-

240's cost containment analysis, the HLJ found that given the alternative, NKC's

project, DaVita's project had an unreasonable impact on health care costs and
thus did not meet the criteria in WAC 246-310-220. He reasoned that because

DaVita was reporting higher revenues, either patients would be paying more or

insurance companies would be paying more and passing those costs onto their
insureds. The HLJ then considered the other two prongs of WAC 246-310-240's

cost containment criteria.

       The HLJ ultimately found that NKC's application met all four required criteria

whereas DaVita's met only the need and structure and process of care criteria

(WAC 246-310-220 and -230). Consequently, the HLJ awarded NKC the CN.
DaVita and the Program moved for reconsideration.                In its motion for
reconsideration DaVita argued that the HLJ improperly elevated the importance of

cost over access to health care. And, it claimed that the HLJ's order erroneously

rejected the Program's three step approach for comparing applications under WAC
246-310-240. DaVita asserted that the order effectively invalidates the tie breaker
No. 73630-2-1/10

rule by replacing the objective tie breakers with a standardless and open-ended

comparison. The HLJ denied the motions for reconsideration.

       On July 31, 2013, DaVita petitioned for review to the superior court. The

superior court affirmed the HLJ's decision. It concluded that the HLJ correctly

interpreted and applied the CN statutes and regulations and that substantial

evidence supports the HLJ's findings. It reasoned that the language in WAC 246-

310-288 is clear that the tie breakers are to be reached only in the event that the

two applicants first satisfy all ofthe applicable review criteria in WAC 246-310-210,

-220, -230, and -240. DaVita appeals.

                                   DISCUSSION

       In reviewing administrative action, this court sits in the same position as the

superior court, applying the Washington Administrative Procedure Act (WAPA),
chapter 34.05 RCW, to the record before the agency. DaVita. Inc. v. Dep't of
Health. 137 Wash. App. 174, 180, 151 P.3d 1095 (2007). The agency decision is
presumed correct and the party challenging the validity of the agency's action
bears the burden of showing the action was invalid.           RCW 34.05.570(1)(a);

Providence Hosp. of Everett v. Dep't of Social & Health Servs., 112 Wash. 2d 353,

355, 770 P.2d 1040 (1989). All the parties agree that the HLJ's written order is the

final decision of the agency that is the subject of this court's review—not the

Program's written evaluation.

       Under WAPA, this court grants relief in only limited circumstances. DaVita,
137 Wash. App. at 181. This court may grant relief where the agency engaged in
unlawful procedure, RCW 34.05.570(3)(c); the agency has erroneously interpreted

                                             10
No. 73630-2-1/11

or applied the law, RCW 34.05.570(3)(d); or substantial evidence does not support

the agency's order.      RCW 34.05.570(3)(e).       Id     This court reviews the

interpretation of agency rules de novo using the same principles it applies to

interpreting statutes. Grays Harbor Energy. LLC v. Grays Harbor County, 175 Wn.

App. 578, 583-84, 307 P.3d 754 (2013).

  I.   When to Apply WAC 246-310-288

       DaVita argues the HLJ failed to apply the standards set forth in the

Department's CN regulations, because he did not use the tie breaker criteria set

forth in WAC 246-310-288 to decide between competing kidney dialysis facility

applications. It first argues that under the plain language of the regulations, the
regulatory tie breakers are the only permissible basis tocompare competing kidney
dialysis facility applications. And, it argues that the Department is required to use
these tie breakers when choosing between competing applications.

       If the meaning of a rule is plain and unambiguous on its face, the court

should give effect to that plain meaning. Overtake Hosp. Ass'n v. Dep't of Health.
170 Wash. 2d 43, 52, 239 P.3d 1095 (2010). If there is more than one reasonable

interpretation of a regulation, an ambiguity exists. Id If a regulation is deemed
ambiguous, this court may resort to statutory construction, legislative history, and
relevant case law in order to resolve the ambiguity. ]d,

       Therefore, we first look to the plain language of WAC 246-310-288. WAC

246-310-288 states in part:

             If two or more applications meet all applicable review criteria
       and there is not enough station need projected for all applications to
       be approved, the department will use tie-breakers to determine

                                             11
No. 73630-2-1/12

      which application or applications will be approved. The department
      will approve the application accumulating the largest number of
      points.

       DaVita relies on the language that the "department wNI use tiebreakers" and

that the "department wjN approve the application accumulating the largest number

of points" to argue that the plain language of the regulation is clear and the tie

breakers must always be applied. Id. (emphasis added). But, in so arguing, DaVita

ignores the opening clause ofthe regulation: "If two or more applications meet all
applicable review criteria." ]d (emphasis added). WAC 246-310-200 provides the

applicable review criteria for the Department to follow when reviewing certificate of
need applications. And, WAC 246-310-284 provides the applicable review criteria
and standards for review of kidney treatment facility CN applications specifically.

They both mandate consideration of the criteria in WAC 246-310-210, -220, -230,
and -240. WAC 246-310-200(2); WAC 246-310-284. We conclude that the plain

language is clear that the tie breakers are applied only if both applications first
satisfy all other review criteria in WAC 246-310-210, -220, -230, and -240. Thus,
the HLJ did not errsimply because he never reached the tie breakers.6

       6 Because we conclude that the language of WAC 246-310-288 is plain on
its face and unambiguous, we do not reach DaVita's arguments thatthe legislative
and agency intent favor its interpretation. Nor do we reach any of DaVita's
arguments based on other canons of construction. But, we note that since WAC
246-310-288 became effective on January 1, 2007, two other HLJs have similarly
interpreted WAC 246-310-288. Ruling Granting in Part Motion for Summary
Judgment &Den. Cross-Motion for Summary Judgment, In re Certificate of Need
on the Applications of Puoet sound Kidney Centers and DaVita, Inc., No. M2008-
118573 (Dep't of Health Feb. 27, 2009); Ruling on Motion for Summary Judgment
& Order on Motion for Partial Summary Judgment, In re Evaluation of Two
Certificate of Need Applications Submitted by Cent. Wash. Health Servs. &DaVita,
Inc., M2008-118469 (Dep't of Health April, 15, 2009). And, WAC 246-310-288
remains unchanged.

                                             12
No. 73630-2-1/13

 II.   Comparative Review

       Next, DaVita argues that the HLJ erred as a matter of law by directly

comparing NKC's and DaVita's applications when determining whether DaVita's

project would have an unreasonable impact on health care costs. The HLJ
concluded as compared to NKC's project, DaVita's project has an unreasonable

impact on health care costs, because it does not meet the criteria in WAC 246-

310-220. He therefore found that NKC was the superior alternative under WAC

246-310-240.

       WAC 246-310-220 is the "financial feasibility" criteria. One criterion under

-220 is that the costs of the project will probably not result in an unreasonable

impact on the costs and charges for health services. WAC 246-310-220(2). Here,
the HLJ found that NKC's expenses are reasonable. By contrast he found that

because DaVita's expenses were 19times that ofNKC's, it would have to increase
its billing to non-Medicare patients who have insurance or other funding in order to
account for its higher expenses and in order to reach its projected revenues. He
found that this would have an impact on the costs of health services. But, he stated

that the remaining question of whether DaVita's impact on the costs of health
services were unreasonable depended upon the costs of health services

attributable to the alternative applications—here, NKC.

       WAC 246-310-240 is the "cost containment" criteria. WAC 246-310-240(1)

states that superior alternatives in terms of cost, efficiency, or effectiveness are

not available or practicable. The HLJ concluded that NKC was the superior

                                            13
No. 73630-2-1/14

alternative   under WAC     246-310-240,    because    DaVita's   project had   an

unreasonable impact on health care costs.

        DaVita argues that the HLJ erred as a matter of law when he improperly

converted a reasonableness standard into a binary comparison between the

applications. In other words, DaVita argues that each application should have

been evaluated based on whether they would individually have an objectively

unreasonable impact on health care costs. But, both the general CN application

process and the specific kidney treatment center CN application process are, by
law, concurrent review processes. RCW 70.38.115(7); WAC 246-310-282; WAC

246-310-280(3).    The processes are considered to be and designed to be
competitive review processes. RCW 70.38.115(7). Thus, we conclude that the
HLJ did not err to the extent he directly compared the two applications under the

relevant review criteria and determined reasonability comparatively.

 III.   Tvoe of Evidence Considered During Comparative Review

        Next, DaVita argues that the HLJ erred when he considered commercial
reimbursement rates7 when comparing the two applications. DaVita also argues

that the HLJ erred when he considered capital costs, because capital costs are

only appropriately considered as a tie breaker criterion.

        The HLJ considered both the estimated capital costs and commercial

reimbursement rates when analyzing and comparing the two applications under

        7 Commercial reimbursement rates represent the amount of money the
facility receives from insurance companies for various health services and
procedures. There is a difference between the gross charge to an insurance
company for a health service and what each facility actually collects from the
insurance company.

                                            14
No. 73630-2-1/15

WAC 246-310-220 and WAC 246-310-240. He reasoned that the only way DaVita

would be able to generate enough income to meet operational expenses by its

third year—because of its higher capital costs—would be to receive higher

reimbursements from non-Medicare patients who have insurance or other funding.

He stated this was so, because the dollar amount of Medicare reimbursements for

dialysis are fixed by federal law so that the only area where profit can be increased

is by increasing billing to those non-Medicare patients who have insurance or other

private funding. He concluded this, by definition, has an impact on the costs of

health services.

       DaVita contends that the commercial reimbursement rate is not a proper

basis for comparison, because the Department chose not to include it as one of

the tie breaker criteria.    But, as stated by the HLJ, the commercial payor

reimbursement rates have the capability of directly impacting the cost of health

services and the cost of the project to the public—criteria directly enumerated in

WAC 246-310-220 and -240.

       DaVita also contends that its higher commercial reimbursement rate is an

improper consideration, because it is an inaccurate measurement of actual cost of

health services. DaVita asserts that commercial insurers pay it more not because

they need to do so to make up for a higher actual cost of health services, but

because of the strong quality of dialysis care DaVita provides. DaVita cites to its

vice president's testimony that most of the health care costs for a patient needing

dialysis is not for dialysis, but for hospitalizations and more expensive care. DaVita

relies on that testimony and asserts that a higher commercial reimbursement rate

                                             15
No. 73630-2-1/16

may reflect the fact that an insurer is willing to pay more for dialysis services,

because it will reduce a patient's total health care costs. But, the HLJ specifically

found that basic dialysis procedures are standardized and similar and that there

would be no reason why commercial payors would expect DaVita's dialysis care

to result in fewer health care costs later on. DaVita does not challenge this specific

finding nor does it submit controverting evidence. Therefore, we conclude that

DaVita did not satisfy its burden of showing that the HLJ's consideration of

commercial reimbursement rates was invalid.

       DaVita also argues that consideration of capital costs is only an appropriate

basis for comparison as one of the tie breakers. DaVita provides no additional
argument or authority to support this assertion. While there is an "economies of
scale" tie breaker in WAC 246-310-288, both WAC 246-310-220 and -240

specifically direct that the costs of the project be taken into consideration. And,
WAC 246-310-240(1) specifically directs the superior alternative be determined by
considering cost, efficiency, or effectiveness. Capital costs are relevant to this
analysis. Therefore, we conclude that DaVita did not satisfy its burden ofshowing
that the HLJ's consideration of capital costs during its comparison of the

applications was invalid.

 IV.   Substantial Evidence

       Finally, DaVita argues that the HLJ's finding that its project would have an
unreasonable impact on health care costs was not supported by substantial

                                              16
No. 73630-2-1/17

evidence.8 DaVita argues that there was no evidence in the record of the actual

impact of the costs to build DaVita's facility or the impact of the differential between

the commercial reimbursement rates received by DaVita and NKC on health care

costs. DaVita contends that the HLJ's finding was based on mere speculation that

does not constitute substantial evidence.

       This court reviews an agency's factual findings to determine whether they

are supported by substantial evidence sufficient to persuade a fair minded person

of the declared premise. DaVita. 137 Wash. App. at 181. We overturn an agency's

factual findings only ifthey are clearly erroneous. ]d As the party challenging the

HLJ's findings, DaVita must establish that the findings are erroneous. Univ. of

Wash. Med. Ctr.. 164 Wash. 2d at 104. The court will review the evidence in the light

most favorable to the party who prevailed in the highest forum that exercised fact

finding authority—here, NKC. Id.

       Evidence in the record indicates that DaVita's capital costs were 19 times

that of NKC's ($1,992,705 as compared to $100,969). NKC's revenue would

exceed its expenses in every year of operation while DaVita's revenue would not

if DaVita included all necessary operating expenses in its profit and loss statement.

There was evidence that NKC's expenses per treatment would thus be significantly

lower than DaVita's. And, there was evidence of the differential between NKC's

       8 DaVita also argues the HLJ's WAC 246-310-240(2)(b) analysis was legally
flawed. And, it argues that the HLJ's finding that DaVita's application failed WAC
246-310-240(2)(b) is not supported by substantial evidence. But, DaVita raises
these arguments for the first time in its reply brief. This court does not consider
arguments raised for the first time in a reply brief. Nakatani v. State, 109 Wash. App.
622, 625 n.1, 36 P.3d 1116 (2001).

                                               17
No. 73630-2-1/18

and DaVita's commercial reimbursement rates in the record. DaVita stipulated to

the fact that it negotiates and receives higher commercial reimbursement rates

than NKC.    And, there was evidence in the record—in the form of estimated

calculations—that DaVita received $1,187.60 per treatment from commercial

payors whereas NKC received only $1,048.82 from commercial payors.9

      Substantial evidence in the record shows that DaVita's more expensive

proposal will result in significantly greater costs to provide the dialysis services

than NKC. The inference that those costs will be passed to private pay patients

and/or their insurers is not unreasonable.

       DaVita argues that notwithstanding the evidence that DaVita's commercial

reimbursement rates are higher than NKC's, that the HLJ's determination still

requires additional evidence: (1) that reimbursement rates for one service (kidney

dialysis) would have a material effect on the overall cost of health insurance and

(2) that opening one five station facility in Des Moines would cause an increase in

the premiums charged by health insurers.          But, this misstates the standard.

Instead, the Department should find that the costs of the project will probably not

result in an unreasonable impact on the costs and charges for health services.

WAC 246-310-220(2). DaVita provides no authority that the unreasonable impact

contemplated in this regulation applies to anything more than the services to be

offered pursuant to the CN process.      Substantial evidence demonstrates that

      9 The CN application process is based on the submission of pro formas
based largely on estimates. Much of the documentation of costs to be incurred
and charges to be made contained in materials submitted to the Department are
merely estimates. This fact does not render the calculations made from those
numbers speculative.

                                             18
No. 73630-2-1/19

significantly higher rates for dialysis services will be charged to private pay patients

and/or their insurers under DaVita's proposal. This evidence strongly undercuts a

required finding that the costs of the project will probably not result in an

unreasonable impact on the costs and charges for health services. Viewing the

evidence in the light most favorable to NKC, the HLJ's finding of a probable

unreasonable impact on costs or charges was not clearly erroneous.

       We affirm.

WE CONCUR:

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