Court Opinion

ID: 4250142
Source: CourtListenerOpinion
Date Created: 2018-02-28 21:23:29.117711+00
Date Added: 2024-06-11T13:27:19.099035
License: Public Domain

IN THE SUPREME COURT OF IOWA
                            No. 73 / 05-2019

                          Filed August 10, 2007

BIRCHANSKY REAL ESTATE, L.C.,
AND FOX EYE SURGERY, L.L.C.,

      Appellees,

vs.

IOWA DEPARTMENT OF PUBLIC
HEALTH, STATE HEALTH
FACILITIES COUNCIL,

      Respondent,

ST. LUKE’S HOSPITAL AND
MERCY MEDICAL CENTER,

      Appellants.

________________________________________________________________________
      Appeal from the Iowa District Court for Polk County, Michael D.

Huppert, Judge.

      Two hospitals appeal the district court’s determination a certificate

of need was not required for an ophthalmologist’s proposed outpatient
surgical facility. REVERSED.

      Michael A. Dee and Rebecca A. Brommel of Brown, Winick, Graves,

Gross, Baskerville and Schoenebaum, P.L.C., Des Moines, for appellant

St. Luke’s Hospital.

      Edwin N. McIntosh and Heather L. Campbell of Dorsey & Whitney,

LLP, Des Moines, for appellant Mercy Medical Center.
                                    2

      Douglas A. Fulton of Brick, Gentry, Bowers, Swartz, Stoltze &

Levis, P.C., West Des Moines, for appellees.

      Maureen Keehnle, Des Moines, for amicus curiae Iowa Hospital

Association.
                                            3

STREIT, Justice.

         An ophthalmologist wants to open an outpatient surgical facility in

Cedar Rapids. Iowa law requires the sponsor of such a facility to first

obtain a certificate of need (“CON”) from the Iowa Department of Public

Health (“Department”) before the facility can be developed unless a

statutory exemption is applicable. Because we find the ophthalmologist’s

proposed facility required a CON, we reverse the decision of the district

court.          Moreover,     the    Department’s        decision      to    deny      the

ophthalmologist’s CON application was reasonable.
         I.     Facts and Prior Proceedings.

         This case centers on Dr. Lee Birchansky’s efforts to establish an

outpatient surgical facility 1 in Cedar Rapids.                Under Iowa law, the

Department must first issue a CON before an outpatient surgical facility

can be developed.           Iowa Code §§ 135.61(14)–(15), .63 (2005); see

Greenwood Manor v. Iowa Dep’t of Pub. Health, 641 N.W.2d 823, 831–32

(Iowa 2002) (providing an overview of Iowa’s CON law); Lauretta Higgins

Wolfson, State Regulation of Health Facility Planning: The Economic

Theory and Political Realities of Certificates of Need, 4 DePaul J. Health

Care L. 261 (2001) (providing historical background for the enactment of

CON laws across the country). Dr. Birchansky initially sought to obtain

a CON for a proposed facility on H Avenue in 1996. The Department 2

         1An“outpatient surgical facility” is “a facility which as its primary function
provides, through an organized medical staff and on an outpatient basis to patients who
are generally ambulatory, surgical procedures not ordinarily performed in a private
physician’s office, but not requiring twenty-four hour hospitalization, and which is
neither a part of a hospital nor the private office of a health care provider . . . .” Iowa
Code § 135.61(21) (2005).

         2TheState Health Facilities Council, a division of the Iowa Department of Public
Health, is charged with reviewing CON applications and deciding when a CON should
be issued. Iowa Code § 135.62(2)(d). For simplicity, we will not distinguish the actions
of the Council from the actions of the Department.
                                     4

denied his application.     Thereafter, in 1998, Dr. Birchansky, through

Birchansky Real Estate, L.C., entered into a business arrangement with

St. Luke’s Hospital whereby the latter would create a surgery center at

the H Avenue location and operate it as an off-campus department of the

hospital.    St. Luke’s was not required to obtain a CON because the

facility was considered an extension of St. Luke’s hospital license. Under

the arrangement, St. Luke’s rented the H Avenue facility from

Birchansky Real Estate for five years and provided the support staff and

equipment. Dr. Birchansky was the medical director. Dr. Birchansky

and his partner, Dr. Richard Stangler, who comprised Fox Eye Laser &

Cosmetic Institute, P.C., performed the vast majority of surgeries at the

facility.   Four other doctors (three podiatrists and a hand surgeon)

utilized the facility on occasion.
         The initial lease agreement expired in 2003 and the parties were

unable to agree to a new contract. Nevertheless, the facility remained in

operation with St. Luke’s occupying the space on a month-to-month

basis.

         Dr. Birchansky recognized the uncertainty of his arrangement with

St. Luke’s. He created Fox Eye Surgery, L.L.C. (“Fox Eye”). On August

24, 2004, Fox Eye submitted an application for a CON in the event the

arrangement with St. Luke’s ended.       Fox Eye’s application sought to

obtain a CON for what it described as the “continued operation” of the

facility.   It noted it “will negotiate to purchase” from St. Luke’s the

equipment currently in place and employ any current staff not retained

by St. Luke’s.

         The Department responded by sending Fox Eye a letter stating it

had determined “the project proposed in the application does not require
                                    5

a Certificate of Need to proceed.” (Emphasis added.) The Department

explained Fox Eye’s proposal fell within one of the exemptions to the

CON requirement.       See Iowa Code § 135.63(2)(o).    On November 19,

2004, the Department issued a memorandum to “All Affected and

Interested Parties” regarding the Department’s determination of non-

reviewability.

        St. Luke’s disagreed with the Department’s determination.      On

December 6, 2004, St. Luke’s ceased operations at the facility and

requested the removal of the H Avenue location from its hospital license.

In its letter to the Department of Inspections and Appeals, St. Luke’s

stated “[a]ll equipment and personnel at this site will be relocated to St.

Luke’s main location at 1026 A Avenue NE at the close of business on

December 6.” At a hearing before the Department, St. Luke’s admitted it

pulled out of the H Avenue facility in order “to create a break in service”

and cause the Department to reconsider its decision not to require Fox

Eye to obtain a CON.
        St. Luke’s plan worked. Two days later, the Department informed

Fox Eye its CON application was reviewable. The Department reasoned

the exemption for a CON was no longer applicable because St. Luke’s

had ceased to provide services at the H Avenue facility and Fox Eye

would not be performing surgeries at this location for at least forty-five

days.    On February 26, 2005, the Department denied Fox Eye’s CON

application, finding the additional surgery suites were not needed in the

Cedar Rapids area.

        Fox Eye and Birchansky Real Estate filed a petition for judicial

review in the Polk County District Court.     They argued (1) Fox Eye’s

application was non-reviewable under Iowa Code § 135.63(2)(o); and (2) if
                                         6

the   application    was   reviewable,       the   Department   arbitrarily   and

unreasonably denied Fox Eye’s CON application. St. Luke’s and Mercy

were allowed to intervene.       The district court ruled the Department’s

“determination that the exemption found at Iowa Code § 135.63(2)(o) was

no longer applicable under the circumstances of this proceeding was

wholly unjustifiable.”      The district court reversed the Department’s

determination and remanded the matter to the Department “for such

proceedings as may be required to complete the process started when it

was initially determined that a certificate of need was not necessary.” St

Luke’s and Mercy appeal. 3       They argue Fox Eye’s proposal required a

CON and contend the Department properly denied Fox Eye’s application.

      II.    Scope of Review.

      We review the district court’s decision for errors at law. Iowa R.

App. P. 6.4.    The Iowa Administrative Procedure Act provides specific

judicial review provisions for appeals concerning agency action. See Iowa

Code § 17A.19. The Department is a government agency.

      The first question we must address is whether the Department’s

interpretation of the statute at issue, Iowa Code § 135.63(2)(o), is entitled

to deference. The answer depends on whether the interpretation of the

statute is “clearly . . . vested by a provision of law in the discretion of the

agency.” Id. § 17A.19(10)(c), (l). If the interpretation is so vested, then

the court may reverse only upon a finding the agency’s interpretation

was “irrational, illogical, or wholly unjustifiable.” Id. § 17A.19(10)(l). “If

the legislature has not clearly vested the interpretation of the statute at

issue with the agency, we are free to substitute our judgment de novo for

the agency's interpretation and determine if the interpretation is

      3Neither the Iowa Department of Public Health nor the State Health Facilities

Council appealed.
                                    7

erroneous.”   Auen v. Alcoholic Beverages Div., 679 N.W.2d 586, 589–

90 (Iowa 2004) (citing Iowa Code § 17A.19(10)(c)).

      In order for an interpretation to be clearly vested with an agency,

we “ ‘must have a firm conviction from reviewing the precise language of

the statute, its context, the purpose of the statute, and the practical

considerations involved, that the legislature actually intended (or would

have intended had it thought about the question) to delegate to the

agency interpretive power with the binding force of law over the

elaboration of the provision in question.’ ” Mosher v. Dep’t of Inspections

& Appeals, 671 N.W.2d 501, 509 (Iowa 2003) (quoting Arthur E. Bonfield,

Amendments to Iowa Administrative Procedure Act, Report on Selected

Provisions to Iowa State Bar Association and Iowa State Government 63

(1998)).   The Department was expressly created by the legislature to,

among other things, make the final decision on all CON applications.

Iowa Code § 135.62(2)(d). The Department is also statutorily mandated

with the responsibility for adopting all rules “necessary to enable [the

Department] to implement this division,” including procedures and

criteria for reviewing CON applications.    Id. § 135.72(1); see also id.

§ 135.62(2)(d)(5). We have found similar statutory language sufficient to

conclude the matter under consideration was vested in the discretion of

the agency. ABC Disposal Sys., Inc. v. Dep’t of Natural Res., 681 N.W.2d
596, 602 (Iowa 2004); Auen, 679 N.W.2d at 590; City of Marion v. Dep’t of

Revenue & Fin., 643 N.W.2d 205, 207 (Iowa 2002).        Thus, the district

court correctly concluded the interpretation of the statutory exemption

for a CON, Iowa Code § 135.63(2)(o), was clearly vested in the discretion

of the Department. Consequently, we may only reverse the Department’s
                                        8

interpretation if we find it to be “irrational, illogical, or wholly

unjustifiable.” Iowa Code § 17A.19(10)(l).

         Although we give weight to the Department’s interpretation, the

meaning of any statute is always a matter of law to be determined by the

court.     City of Marion, 643 N.W.2d at 206.       The goal in interpreting a

statute “is to determine the legislature’s intent when it enacted the

statute.” ABC Disposal Sys., 681 N.W.2d at 603 (citing State v. Tague,

676 N.W.2d 197, 201 (Iowa 2004)). “If the statute’s language is clear and

unambiguous, we apply a plain and rational meaning consistent with the

subject matter of the statute.” Id. (citing City of Waukee v. City Dev. Bd.,

590 N.W.2d 712, 717 (Iowa 1999)).
         III.   Merits.

         A.     Whether Fox Eye’s Proposal Required a CON.

         The crux of this case concerns the Department’s interpretation of

Iowa Code § 135.63(2)(o). This section provides a CON is not required in

the event of a

         change in ownership, licensure, organizational structure, or
         designation of the type of institutional health facility [as long
         as] the health services offered by the successor institutional
         health facility are unchanged.

         When Fox Eye applied for a CON in 2004, the Department initially

determined a CON was not required under section 135.63(2)(o).

However, after St. Luke’s pulled out of the facility, the Department

notified Fox Eye a CON was necessary. The Department reasoned:

         In construing section 135.63(2)“o” in the past, the
         Department has approved this exemption only in those
         circumstances in which the change in the designation of type
         of institutional health facility (from hospital to outpatient
         surgical facility) was a seamless change in which the
         cessation of hospital outpatient surgical services occurred
         simultaneously with the offering of the surgical services by the
                                           9
       outpatient surgical facility. In this situation, . . . the hospital
       has removed this location from its license and is no longer
       offering these services in this setting. In addition, the
       providers of these outpatient surgical services are not
       currently, and will not in the immediate future, be in a
       position to offer these services at this location [due to the
       need to purchase equipment and hire support staff]. Hence
       there will clearly be a significant gap in time during which no
       outpatient surgical services will be offered by Fox Eye . . . at
       this location.      For this reason, the Department has
       determined that the exemption previously cited is no longer
       applicable.

(Emphasis added.)
       The district court found the Department’s interpretation of section

135.63(2)(o) “wholly unjustifiable” because “the [temporal] gap in services

relied upon by the agency is not a factor to be considered under the

exemption at issue and the defined terms found therein.”                     We agree.

Although the statute may contemplate a seamless transition or change in

ownership, it does not expressly state or imply any temporal aspect to

the change in ownership. The Department may not, under the guise of

interpretation, add lack of “a significant gap in time” between services to

the requirements for the exemption. 4

       Nevertheless, we find Fox Eye’s proposal required a CON for a

different reason: there was no “change in ownership, licensure,

organizational structure, or designation of the type of institutional health

facility.” Iowa Code § 135.63(2)(o). Instead, St. Luke’s simply moved its

       4We note our ruling is largely confined to this case because during the pendency
of this appeal the legislature amended section 135.63(2)(o) by adding the following
language:

       This exclusion is applicable only if the institutional health facility
       consents to the change in ownership, licensure, organizational structure,
       or designation of the type of institutional health facility and ceases
       offering the health services simultaneously with the initiation of the
       offering of health services by the successor institutional health facility.

2006 Iowa Acts ch. 1184, § 78.
                                      10

surgery center back to the hospital’s main campus. It maintained the

ownership, licensure, organizational structure, and designation of the

type of facility. The only thing that changed was the facility’s location.

The exemption with its use of the term “successor” contemplates a

transfer of operations between parties.     See id. § 135.63(2)(o); Black’s

Law Dictionary 1473 (8th ed. 2004) (defining successor as “[a]

corporation    that,   through    amalgamation,      consolidation,   or   other

assumption of interests, is vested with the rights and duties of an earlier

corporation”). Nothing was transferred here. As St. Luke’s employee and

landlord, Dr. Birchansky did not gain the right to operate a similar

surgery center at the H Avenue location without obtaining a CON. See

Catonville Nursing Home, Inc. v. Loveman, 709 A.2d 749 (Md. Ct. App.

1998).
      The Department’s confusion on whether a CON was required may

have stemmed from the application itself. Fox Eye’s application implied

the facility was going to be transferred from St. Luke’s to Fox Eye. The

application indicated Fox Eye planned to purchase St. Luke’s equipment

and planned to hire any of the support staff St. Luke’s did not retain.

Neither proposal occurred. After St. Luke’s informed the Department it

had no intention of transferring its H Avenue operations to Fox Eye, the

Department ruled a CON was required based on the temporal gap in

services.   It never specifically addressed whether it believed Fox Eye’s

proposal    still   constituted   a   “change   in     ownership,     licensure,

organizational structure, or designation of the type of institutional health

facility.” We find it does not. Thus, a CON was required.
                                       11
      B.     Whether the Department’s Decision to Deny Fox Eye’s
             CON Application was Unreasonable.
      Alternatively, Fox Eye argues the Department’s decision to deny

Fox Eye’s CON application was unreasonable. On review, we will reverse

the Department’s decision to deny a CON only if the decision was

“unreasonable, arbitrary, capricious, or an abuse of discretion.”        Iowa

Code § 17A.19(10)(n); Greenwood Manor, 641 N.W.2d at 831.

      Iowa Code section 135.64(1) provides a list of eighteen factors the

Department     shall   consider    when     reviewing   a   CON   application.

Additionally, the Department shall grant a CON for a new or changed

institutional health service only if it finds:

      a.    Less costly, more efficient, or more appropriate
      alternatives to the proposed institutional health service are
      not available and the development of such alternatives is not
      practicable;

      b.     Any existing facilities providing institutional health
      services similar to those proposed are being used in an
      appropriate and efficient manner;

      c.   In the case of new construction, alternatives including
      but not limited to modernization or sharing arrangements
      have been considered and have been implemented to the
      maximum extent practicable;

      d.     Patients will experience serious problems in obtaining
      care of the type which will be furnished by the proposed new
      institutional health service or changed institutional health
      service, in the absence of that proposed new service.

Iowa Code § 135.64(2). The Department found none of these four criteria

existed in the Cedar Rapids area. It concluded two local hospitals and

an existing surgery center (Surgery Center of Cedar Rapids) had

sufficient operating room capacity to accommodate the procedures that

had been performed at the H Avenue location for the past six years.

Specifically, it found patients would not be affected by a denial of Fox

Eye’s CON application because the Surgery Center of Cedar Rapids
                                          12

provided a similar atmosphere to Fox Eye’s proposed facility at similar

costs.

         Fox Eye does not dispute these findings. Instead, Fox Eye argues

the Department should not have based its decision in part on the

existence of the Surgery Center of Cedar Rapids because that facility

came into existence after St. Luke’s opened its surgery center on H

Avenue. Even more offputting to Fox Eye is the fact the Surgery Center

of   Cedar     Rapids   was   a   joint   venture   between   St.   Luke’s   and

approximately eighty medical practitioners.         It did not require a CON.

Fox Eye argues St. Luke’s should not be able to block competitors by

“artificially munipulat[ing] the market.” While we understand Fox Eye’s

frustration, there is nothing unlawful about St. Luke’s participating in

the Surgery Center of Cedar Rapids.            Based on the aforementioned

criteria, the Department acted reasonably when it denied Fox Eye’s CON

application.
         IV.   Conclusion.

         We agree with the district court the exemption for a CON does not

require a successor entity to offer services concurrently with its

predecessor. Nevertheless, we find the exemption was not applicable to

Fox Eye’s proposal because there was no “change in ownership” of the

facility. Rather, St. Luke’s simply moved its surgery center back to the

hospital’s main campus.       Consequently, Iowa law required Fox Eye to

obtain a CON for its proposed outpatient surgical facility and the

Department did not act unreasonably in denying Fox Eye’s application.

         REVERSED.

         All justices concur except Ternus, C.J., who takes no part.