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      IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

KING COUNTY PUBLIC HOSPITAL                 )
DISTRICT NO. 2, d/b/a EVERGREEN             )       No. 66304-6-I
HEALTHCARE, a Washington public             )
Hospital district; SWEDISH HEALTH           )
SERVICES, d/b/a SWEDISH VISITING            )
NURSE SERVICES, a Washington                )
non-profit corporation; PROVIDENCE          )
HOSPICE AND HOME CARE OF                    )
SNOHOMISH COUNTY, a Washington )
non-profit corporation; and HOSPICE         )
OF SEATTLE, a Washington non-profit )
corporation,                                )
                                            )
                      Respondents,          ) 
                                            )
       v.                                   )
                                            )       ORDER GRANTING MOTION 
TO
                                            )       PUBLISH
WASHINGTON STATE DEPARTMENT )
OF HEALTH, a Washington                     )
Governmental agency; SECRETARY              )
MARY SELECKY, Secretary of                  )
Washington's Department of Health in        )
her official and individual capacity;       )
ODYSSEY HEALTHCARE                          )
OPERATING B, LP, a Delaware                 )
Corporation; and ODYSSEY                    )
HEALTHCARE, INC., a Delaware                )
Corporation                                 )
                                            )
                                            ) 
                      Appellants.           ) 

       Appellants Department of Health ("Department") and Odyssey Healthcare 

Operating B, LP and Odyssey Healthcare, Inc. ("Odyssey") filed a motion to 

publish the opinion filed on February 12, 2012 in the above matter and  

No. 66304-6-I/2

respondents filed an answer to the motion.  

       A majority of the panel has determined the motion to publish the opinion 

should be granted. Now, therefore, it is hereby 

       ORDERED that appellants' motion to publish is granted.

       DATED this ____ day of ______________________, 2012.

                                     FOR THE PANEL: 

                                     Acting Presiding Judge  

                                           2 

No. 66304-6-I/3

      IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

KING COUNTY PUBLIC HOSPITAL                 )
DISTRICT NO. 2, d/b/a EVERGREEN             )       No. 66304-6-I
HEALTHCARE, a Washington public             )
Hospital district; SWEDISH HEALTH           )
SERVICES, d/b/a SWEDISH VISITING            )       DIVISION ONE
NURSE SERVICES, a Washington                )
non-profit corporation; PROVIDENCE          )
HOSPICE AND HOME CARE OF                    )
SNOHOMISH COUNTY, a Washington )
non-profit corporation; and HOSPICE         )
OF SEATTLE, a Washington non-profit )
corporation,                                )
                                            )
                      Respondents,          ) 
                                            )
       v.                                   )
                                            ) 
                                            )
WASHINGTON STATE DEPARTMENT )                       UNPUBLISHED OPINION
OF HEALTH, a Washington                     )
Governmental agency; SECRETARY              )
MARY SELECKY, Secretary of                  )
Washington's Department of Health in        )
her official and individual capacity;       )
ODYSSEY HEALTHCARE                          )
OPERATING B, LP, a Delaware                 )
Corporation; and ODYSSEY                    )
HEALTHCARE, INC., a Delaware                )
Corporation                                 )
                                            )
                                            ) 
                      Appellants.           )       FILED: February 21, 2012

       Spearman, J.  --  We are asked to determine whether a Health Law Judge 

(HLJ) acted arbitrarily and capriciously in entering a final order approving a 

                                           3 

No. 66304-6-I/4

settlement between the Department of Health (Department) and Odyssey 

Healthcare. The central component of the settlement was the Department's 

approval of Odyssey's 2006 Certificate of Need (CN) application to provide 

hospice care in King County. Evergreen and other competing providers filed a 

petition for review of the HLJ's order in superior court. The superior court 

reversed the HLJ's order on the grounds that (1) Evergreen had not received a 

full adjudicative hearing; (2) the Department acted arbitrarily and capriciously in 

settling Odyssey's federal lawsuit by granting Odyssey's 2006 CN application 

based on evidence obtained long after the record for that application was 

closed; and (3) the HLJ acted arbitrarily and capriciously in adopting the 

settlement without finding that Odyssey had met all four of the CN criteria. The 

court revoked the CN and remanded to the HLJ. Odyssey appeals. We hold that 

the HLJ's approval of the settlement was not arbitrary and capricious for the 

reasons asserted by Evergreen on appeal. We reverse and remand.

                                        FACTS

       In Washington, hospice care can be offered only by holders of CNs, 

which are nonexclusive licenses. RCW 70.38.025(6); RCW 70.38.105. To obtain 

a CN, a provider's proposal must meet four criteria: (1) need for the proposed 

program, (2) financial feasibility of the program, (3) structure and process of 

care, and (4) cost containment. WAC 246-310-210 through -240. The CN 

process involves an application by a provider; notification to certain interested 

parties, such as competitors, and an opportunity for public comment (including a 

hearing, if requested); and a decision by the Department. See RCW 70.38.115. 

                                           4 

No. 66304-6-I/5

An applicant denied a CN has the right to an adjudicative proceeding. RCW 

70.38.115(10)(a). If the Department wishes to settle with an applicant prior to the 

conclusion of the adjudicative proceeding, the Department must inform 

competitors and afford them an opportunity to comment, in advance, on the 

proposed settlement. RCW 70.38.115(10)(c).

       In October 2006, Odyssey filed CN applications to offer hospice services 

in King, Snohomish, and Pierce counties. This was Odyssey's second attempt to 
obtain CNs for these counties; its 2003 applications had been denied.1 The 

Department denied the 2006 applications in August 2007. Odyssey requested 

adjudicative proceedings to appeal the denials before an HLJ. Evergreen's 

request to intervene was granted. The HLJ, John F. Kuntz, granted various 

stays, one due to Odyssey's plan to file a federal lawsuit. On April 7, 2009, 

Odyssey filed a lawsuit against the Department in federal district court, alleging 

violations of the Sherman Anti-Trust Act, 15 U.S.C. § 1; the dormant commerce 
clause, U.S. Const. art. I, § 8, Cl. 3; and 42 U.S.C. § 1983.2.

       1 The Department had denied Odyssey's 2003 applications because, among other 
reasons, the methodology for the "need" criterion under WAC 246-310-290 showed a surplus of 
hospice agencies in those counties. Odyssey challenged the Department's decision, which was 
eventually affirmed by this court in Odyssey Healthcare Operating B, LP v. Dep't of Health, 145 
Wn. App. 131, 185 P.3d 652 (2008). We stated in a footnote:

       Odyssey's contention that the WAC 246-310-290(7) methodology contains 
       significant flaws is not without merit. But because the methodology is 
       ambiguous, we must defer to the interpretation of the Department as the agency 
       responsible for the methodology's administration and enforcement. . . . The 
       judicial appeal process is not the appropriate venue for addressing Odyssey's 
       arguments about the inherent defects in WAC 246-310-290(7)'s methodology. 
       Instead, Odyssey should raise its concerns through administrative rulemaking 
       avenues.

Id. at 145 n.6. Accordingly, Odyssey petitioned for rulemaking in October 2008, requesting the 
Department to correct alleged flaws in the methodology for assessing need. The Department 
denied the petition.
       2 The complaint also named the secretary of health and three other Department of 
                                           5 

No. 66304-6-I/6

       The Department and Odyssey entered into settlement negotiations to 

resolve the federal lawsuit and the adjudicative proceedings. On September 25, 

2009 they reached an agreement, memorialized in two documents: (1) a 

settlement to resolve the federal lawsuit and (2) a proposed settlement and 

stipulation to resolve the adjudicative proceeding. The settlement in the federal 

lawsuit required the parties to enter into the settlement and stipulation in the 
adjudicative proceeding.3 The settlement also contained a release provision to 

ensure that the Department would act in good faith in deciding whether to 

present the proposed settlement in the adjudicative proceeding to the HLJ and
support the HLJ's approval of it.4

       Under the proposed settlement in the adjudicative proceeding, the parties 

proposed approval of Odyssey's CN application based on more recent data 

showing that need now existed for a new hospice in King County (2008 

Health employees in their individual capacities.
       3 Other terms of the federal settlement were that (1) Odyssey would dismiss its federal 
lawsuit within two days of the parties' signing of the stipulation; (2) no later than May 1, 2010, the 
Department would initiate rule-making under chapter 34.05 RCW to consider whether to amend 
WAC 246-310-290, and allow Odyssey to participate in advising the Department on amending 
the rule; (3) the Department would pay Odyssey $10,000 as consideration for all of its claims, to 
resolve the federal lawsuit without further litigation expense. 
       4 The provision stated:

       Nothing in this Agreement prohibits Odyssey from bringing a new lawsuit against 
       the State of Washington, the Department of Health, or any of its employees or 
       former employees, related to the denial of a Certificate of Need application, 
       including a denial by the Health Law Judge of the King County Certificate of 
       Need awarded under paragraph 2 of the proposed Settlement and Stipulation in 
       the pending adjudicative proceeding before the Department of Health. However, 
       in such case, with one exception, Odyssey is precluded from seeking damages, 
       costs, or attorneys' fees related to any event allegedly occurring prior to the date 
       of signing of this Settlement. This preclusion will not apply if the Certificate of 
       Need Program, pursuant to Paragraph 4 of the attached Stipulation and 
       Settlement, makes a decision not to present the Stipulation and Settlement to 
       the Health Law Judge for approval of the King County application, and in 
       subsequent litigation, Odyssey proves that the decision was made in bad faith. 
       No showing of bad faith is required in order for Odyssey to seek prospective 
       injunctive relief in any future lawsuit.
                                           6 

No. 66304-6-I/7
methodology).5 The Department agreed to provide appropriate entities notice 

and an opportunity to comment on the proposed settlement. The proposed 

settlement stated that the Department would then "(i) present the Stipulation to 

the Health Law Judge for entry of an Order approving the proposed settlement 

and granting the King County application . . . , or (ii) notify Odyssey of its 

decision not to present the Stipulation to the Health Law Judge . . . ." Odyssey 

agreed to withdraw its request for adjudicative proceedings to appeal the denials 

for CNs for Pierce and Snohomish counties.

       On September 29, 2009, the Department issued a "Notice of Possible 

Settlement and Opportunity to Comment," announcing that the Department and 

Odyssey proposed a settlement that would approve of Odyssey's 2006 CN 

application for King County. The notice requested comment within 14 days. The 

Department received comments from several competing providers, including 

Evergreen and the other appellants, opposing approval of a CN for Odyssey. 

The competitors contested the Department's use of the 2008 methodology, 

arguing that the Department could not use data obtained 15 months after its 

decision in order to grant the 2006 application. They contended that the 

Department properly evaluated Odyssey's application in August 2007 using the 

same methodology upheld by this court in the appeal of Odyssey's 2003 CN 

application and that a deviation would require rulemaking. They also claimed 

that the Department failed to include some approved hospice providers and 

       5 The proposed settlement stated that since Odyssey's King County CN application had 
been denied, the Department conducted in 2008 a survey of existing King County providers 
based on services offered in 2007. Applying the need methodology contained in WAC 246-310-
290, the data showed a current need for two additional hospice agencies in King County.
                                           7 

No. 66304-6-I/8

artificially extended the forecast horizon applicable for the need methodology. 

Finally, they asserted that the Department failed to evaluate how Odyssey 

satisfied the non-need criteria.

       Providence renewed its motion to intervene, and Swedish and Franciscan 

also filed motions to intervene. The HLJ granted the motions, but only for the 

limited purpose of submitting written evidence and legal argument on the 

proposed settlement. The HLJ stated:

       The only issue currently before the Presiding Officer is whether to 
       accept the Proposed Settlement in the event it is offered by the 
       Program. There are no issues regarding discovery, cross-
       examination, or other participation in the adjudicative proceeding at 
       this time. Limiting intervention to the submission of comments and 
       argument on the September 2009 Proposed Settlement is 
       appropriate at this time. The plain language of RCW 
       70.38.115(10)(c) requires nothing more.

       On October 30, 2009, the Department submitted its proposed settlement 

to the HLJ and recommended approval of Odyssey's CN application. The 

Department noted that the need criterion was the only contested issue in the 

approval of Odyssey's 2006 CN application and that the competitors did not 

contest the non-need criteria. It stated that the application failed the three other 

criteria "only because Odyssey had not demonstrated need" and that "the 

Program would have approved the application had Odyssey demonstrated 

need." The Department then analyzed why the need criterion was met based on 

the 2008 methodology. The competitors filed responses opposing the proposed 

settlement, arguing that it contravened CN laws and departmental policy. 

       The HLJ approved the proposed settlement and the Department's 

                                           8 

No. 66304-6-I/9

proposed order to grant Odyssey's CN application for King County, issuing a 

final order on December 8, 2009. The HLJ found:

       For reasons stated by the Program in its evaluation and settlement 
       proposal:

       (a) Odyssey's hospice application for King County meets the 
       requirements of WAC 246-310-210, 246-310-220,  246-310-230, 
       and 246-310-240; and

       (b) In the exercise of discretion, the Program's 2008 WAC 246-310-
       290 methodology  --         showing  "need"    for an additional hospice 
       agency in King County in 2009  --  may be used in deciding that 
       need exists for Odyssey's proposed hospice in King County; . . .

The HLJ held: (1) there was proper notice and opportunity to comment on the 

proposed settlement and the proposed settlement was properly presented to the 

HLJ; (2) Odyssey's hospice application met all four criteria for the issuance of a 

CN under RCW 70.38.115(2) and WAC 246-310-210 through -240; (3) the 

Department, in an "exercise of discretion," could use the 2008 methodology to 

decide "that need exists for Odyssey's proposed hospice in King County"; and 

(4) Odyssey's requests for adjudicative proceedings to challenge the denials for 

CNs in Pierce and Snohomish counties would be voluntarily dismissed. Id. The 

HLJ ordered that "[w]ith the stated conditions in the proposed settlement,"

Odyssey's CN application for a hospice agency in King County was approved.

       The competitors filed a petition for review of the HLJ's final order in 

superior court on January 7, 2010. On January 13, the Department issued a CN 

to Odyssey. On October 29, the superior court reversed the HLJ's final order, 

entering findings of fact and the following conclusions of law:

       1. RCW 70.38.115(10)(c) authorizes the Department to settle with 
       an applicant prior to the conclusion of the adjudicative proceeding. 
                                           9 

No. 66304-6-I/10

       However, it is clear that the intent of the Legislature in enacting this 
       provision was not to allow a "settlement" to circumvent established 
       evaluation procedures or to modify a decision of the Department 
       without an adjudicative hearing, especially if the primary settlement 
       arose from an entirely separate lawsuit and proceeding.

       2. The Department's decision to settle the Federal Lawsuit by 
       granting Odyssey a CN in King County under the guise of "special 
       circumstance" and based upon its 2009 methodology long after the 
       record was closed on a 2006 application, was arbitrary and 
       capricious.

       3. The Health Law Judge's subsequent summary adoption of the 
       settlement agreement without an adjudication or finding that 
       Odyssey had actually met all four of the CN criteria was similarly 
       arbitrary and capricious and thus, error as a matter of law. 

       4. The request on judicial review to reverse the Final Order 
       Approving Settlement and Granting Odyssey's King County 
       Hospice Application, dated December 8, 2010 (the "Final Order") 
       should be granted.

       5. The Department's issuance of Certificate of Need #1416 to 
       Odyssey for establishing a hospice agency in King County based 
       upon the Final Order and the Department's settlement should be 
       revoked. 

       6. The matter should be remanded to the Department's Health Law 
       Judge for a determination, based on the applicable law and the 
       relevant evidence available at the time the record was open, 
       whether or not Odyssey's CN application satisfied all of the 
       applicable criteria for approval of its 2006 application.

Odyssey appeals, assigning error to all of the superior court's conclusions of 
law. The Department submits briefing to defend its final order.6

                                    DISCUSSION 7

       6 The Department does not agree with all of Odyssey's arguments, but agrees that the 
superior court erred in overturning the approval of Odyssey's application for a CN.

       7 The Department proposed to settle the adjudicative proceeding with Odyssey pursuant 
to RCW 70.38.115(10)(c), which provides:

       If the department desires to settle with the applicant prior to the conclusion of 
       the adjudicative proceeding, the department shall so inform the health care 
                                           10 

No. 66304-6-I/11

       In reviewing the HLJ's final order, we "sit in the same position as the 

superior court, applying [Washington's Administrative Procedure Act] to the 

record before the agency." DaVita, Inc. v. Wash. State Dep't of Health, 137 Wn. 

App. 174, 180, 151 P.3d 1095 (2007) (citing Towle v. Dep't of Fish and Wildlife, 

94 Wn. App. 196, 203, 97 P.2d 591 (1999)). The standard of review for CN 

cases specifically is stated as follows:

       1. We review the entire administrative record.

       2. The agency decision is presumed correct and the challenger 
       bears the burden of proof.

       3. We do not retry factual issues and accept the administrative 
       findings unless we determine them to be clearly erroneous, that is, 
       the entire record leaves us with a definite and firm conviction that a 
       mistake has been made. Important here is the corollary principle 
       that the existence of credible evidence contrary to the agency's 
       findings is not sufficient in itself to label those findings clearly 
       erroneous.

       4. The error of law standard permits this court to substitute its 
       interpretation of the law for that of the agency, but we accord 
       substantial deference to the agency's interpretation, particularly in 
       regard to the law involving the agency's special knowledge and 
       expertise.

       5. To find an agency's decision to be arbitrary and capricious we 

       facility or health maintenance organization and afford them an opportunity to 
       comment, in advance, on the proposed settlement.

The statute does not expressly require a proposed settlement to be approved by an HLJ. 
Nonetheless, the Department sought the HLJ's approval of the settlement agreement. Nor does 
the statute expressly require the HLJ to make findings that a proposed settlement agreement 
resulting in the issuance of a CN is in compliance with RCW 70.38.115(2) and WAC 246-310-
210 through .240. Nonetheless, the Department requested the HLJ to make findings that the 
issuance of the CN was consistent with the statutory criteria and that the Department's use of the 
2008 methodology was proper, which the HLJ did. The HLJ also conducted a hearing prior to its 
determination to approve the proposed settlement, although RCW 70.38.115(10) does not 
expressly require such a hearing. On appeal, neither party addresses these procedural issues or 
assigns error to them. We therefore limit our review to the HLJ's final order and the narrow 
questions of whether the HLJ's factual findings are clearly erroneous, whether the HLJ 
committed an error of law, and whether approval of the settlement agreement was arbitrary and 
capricious.
                                           11 

No. 66304-6-I/12

       must conclude that the decision is the result of willful and 
       unreasoning disregard of the facts and circumstances.

Univ. of Wash. Med. Ctr. v. Dep't of Health, 164 Wn.2d 95, 102-03, 187 P.3d 

243 (2008) (UWMC) (internal citations omitted). Thus, the challenger has the 

burden of showing the department misunderstood or violated the law, or made 

decisions without substantial evidence. We do not reweigh the evidence. Id.

       The scope of review under the arbitrary and capricious standard "is very 

narrow," "highly deferential" to the agency and the party challenging an agency 

decision carries "a heavy burden." Alpha Kappa Lambda Fraternity v. Wash. St. 

Univ., 152 Wn. App. 401, 418-22, 216 P.3d 451 (2009) (citing Pierce County 

Sheriff v. Civil Serv. Comm'n, 98 Wn.2d 690, 695, 658 P.2d 648 (1983)). 

"[W]here there is room for two opinions, an action taken after due consideration 

is not arbitrary and capricious even though a reviewing court may believe it to be 

erroneous." Wash. Indep. Tel. Ass'n v. Wash. Utils. & Transp. Comm'n, 148 

Wn.2d 887, 904, 64 P.3d 606 (2003).

       Evergreen contends the HLJ's final order was arbitrary and capricious 

because: (1) in approving Odyssey's 2006 CN application, the Department relied 

on evidence not available until long after the application was made; (2) 

notwithstanding the use of the 2008 methodology, the Department did not 

conduct any analysis of the three non-need criteria for a CN application; and (3) 

notwithstanding the use of the 2008 methodology, the need criterion was not 
met.8 We consider these arguments in turn.

       8 While one of the bases of the superior court's reversal of the HLJ's order was that 
Evergreen was not accorded a full adjudicatory proceeding, Evergreen does not rely on this 
basis on appeal. Evergreen asserts in a footnote that, although the court need not reach the 
                                           12 

No. 66304-6-I/13

                           Considering 2008 methodology

       Evergreen contends that, in approving Odyssey's CN application, the 

Department impermissibly relied on the 2008 methodology, evidence that was 

not available until two years after the original application was made and more 

than a year after the record closed. Evergreen claims this violated the 

Department's general policy -- as explained in a memorandum from the 

Department's secretary and in the Department's answer in the federal 
lawsuit -- and case law, citing UWMC.9 It also argues that considering new data 

is contrary to the legislative goal, stated in RCW 70.38.015(2), of overseeing the 

development of health and medical resources in a planned, orderly fashion 

because providers would be unable to rely on the Department to apply CN rules 

in a planned, orderly fashion. 

       Odyssey argues that prohibiting consideration of the new evidence would 

thwart the Department's broad authority to settle under RCW 70.38.115(10)(c); 

improperly limit an HLJs' discretion to consider new evidence under UWMC; 

allow use of the Department's prior, incorrect projections of need; and preclude 

Odyssey from presenting evidence showing its need projections were accurate. 

constitutional issue, the Department violated procedural due process by failing to solicit 
comments in advance of the federal settlement and depriving Evergreen of its right to challenge 
the decision in an adjudicative proceeding. We do not consider this de minimis briefing to 
constitute a due process challenge.
       9 In a October 22, 2007 memorandum issued by Department of Health Secretary Mary 
Selecky to HLJ Laura Farris, Selecky wrote that "[allowing] evidence to be submitted . . . that did 
not exist at the time the program made its decision . . . is contrary to the department's long 
practice of not allowing new evidence to come into the record at the adjudicative proceeding."
Selecky wrote that "evidence that did not exist and was not part of the record at the time the 
Certificate of Need Program made its decision should not be admitted into the adjudicative 
proceeding." In the Department's answer to the federal lawsuit, the Department stated that the 
2009 methodology could not be used as a basis for granting Odyssey's 2006 application.

                                           13 

No. 66304-6-I/14

Odyssey argues that neither the Secretary's memorandum nor the Department's 

denials of liability in an answer to the complaint have the force of law to overrule 

UWMC. 

       We conclude that the HLJ's order approving the settlement was not 

arbitrary and capricious on the ground that the Department agreed to consider 

the 2008 methodology. The critical fact is that the Department considered this 
new evidence in the context of a settlement.10 Evergreen cites no authority 

precluding the Department, in a situation where it desires to settle a case, from 

deviating from its general policy in adjudicative proceedings of not considering 

evidence available after the review period. Furthermore, chapter 70.38 RCW, as 

we have noted, imposes no substantive or evidentiary limitations on settlements. 

Finally, the Department described, in its notice of possible settlement, the 

"special circumstances" that existed for considering the new evidence:

       In 2008, the Program conducted its survey of existing King County 
       providers for 2007 use data. Applying the hospice need 
       methodology to this data showed a current need for two additional 
       hospice agencies. Due to a special circumstance, the Program will 
       consider this new data in deciding whether to approve the 
       Odyssey's King County application. The special circumstance is 
       that this new need data was not available to Odyssey by the 
       deadline for applications in 2008. When the Department adopted 
       the hospice need method, it had intended that current need data 
       would be available to prospective applicants prior to the application 
       deadline to provide them with guidance on whether to submit an 
       application.

       10 We note that while UWMC describes the "considerable discretion" of HLJs to 
"determine the scope of admissible evidence," including evidence that comes into existence after 
the close of the public comment period, UWMC, 164 Wn.2d at 104, that case is not precisely on 
point here because the HLJ in this case did not make the decision to admit or exclude evidence 
in the adjudicative proceeding. It was the Department that agreed, during settlement, to consider 
the new evidence in determining whether the CN criteria were met.
                                           14 

No. 66304-6-I/15

Given this explanation and the circumstances under which the new evidence 

was considered, Evergreen does not meet its burden of overcoming the 

presumption that the HLJ's approval of the settlement was correct.

                                   Non-need criteria

       Evergreen next contends that, notwithstanding the use of the 2008 

methodology, the Department did not conduct any analysis of the three non-

need criteria and the record does not support the HLJ's findings that those 

criteria were met. It contends the Department did not address the concerns it 

had about these criteria when it rejected Odyssey's applications in 2007 and, to 

the extent it articulated certain requirements in 2007, did not explain how they 

had since been met or no longer needed to be met.

       Odyssey contends the HLJ found that its application met all four CN 

criteria. It contends that the Department's initial evaluation states that the non-

need criteria were not satisfied solely because the need criterion had not been 

satisfied. The Department agrees with Odyssey. 

       We conclude the record supports Odyssey's (and the Department's) 

contention that the three non-need criteria were initially found to be unmet in 

2007 because the need criterion was not met. Though the Department was 

required to make findings regarding Odyssey's CN application, there is no 

apparent requirement for how detailed the findings must be. WAC 246-310-490 

states, "The findings of the department's review of a certificate of need 

application shall be stated in writing and include the basis for the decision of the 

secretary's designee as to whether a certificate of need is to be issued or denied 

                                           15 

No. 66304-6-I/16

for the proposed project." Here, the HLJ found in his final order: "For reasons 

stated by the [CN] Program in its evaluation and settlement proposal . . . 

Odyssey's hospice application for King County meets the requirements of WAC 

246-310-210, 246-310-220, 246-310-230, and 246-310-240." The cited WAC 

provisions contain the four CN criteria. In its settlement proposal, the 

Department stated:

       "Need" is the only contested issue in the approval of the King 
       County application.
       . . . 
       The Program failed Odyssey's King County application on the need 
       criterion. The Program also failed the application on financial 
       feasibility, structure and process of care, and cost containment, but 
       only because Odyssey had not demonstrated need. In other words, 
       the Program would have approved the application had Odyssey 
       demonstrated need.

       Intervenors maintain Odyssey cannot demonstrate need. They do 
       not contest that Odyssey's application fails any of the three non-
       need criteria.11

       The Department's written evaluation initially denying the CN in August 

2007 supports the foregoing statement. In its evaluation, the Department first 

explained why the need criterion was not met. It then addressed the financial 

feasibility criterion, with its three sub-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) and the project can be 

appropriately financed. The evaluation found that the first and second of these 

       11 The Department's evaluation and settlement proposal did not analyze why the non-
need criteria were met; rather, it focused on the need criterion.

                                           16 

No. 66304-6-I/17

sub-criteria were not met. The first was not met, the evaluation explained, 

because:

       [I]n the need section of this evaluation the department concluded 
       that need for an additional Medicare certified hospice agency has 
       not been demonstrated. As a result,12 the department concludes 
       that Odyssey's projected number of patient days is not reliable and 
       the department cannot conclude that sufficient revenue would be 
       generated to meet the expenses of the proposed project.

As for the second sub-criterion, the evaluation explained: 

       The department concludes that, while the initial capital expenditure 
       of $45,000 proposed to establish this agency may be small, the 
       applicant has not been able to show need for additional hospice 
       services in King County except through significant modification of 
       the department's need projection methodology.  Absent sufficient 
       unmet need to support a new hospice agency, the department 
       concludes    that any capital or operating expenditures incurred 
       pursuing this project would be an unnecessary duplication of those 
       made by existing providers and may result in an increase in the 
       costs and charges for health services in the county.

       Next, regarding the "structure and process (quality) of care" criterion, the 

Department's 2007 evaluation concluded that only the following sub-criterion, 

out of five, was not met: "The proposed project will promote continuity in the 

provision of health care, not result in an unwarranted fragmentation of services, 

and have an appropriate relationship to the service area's existing health care 

system." The evaluation explained:

       Odyssey asserts that there is need for additional Medicare certified 
       hospice agencies in King County. However, in the need section of 
       this evaluation, the department concluded that the existing 
       providers are both available and accessible to adequately provide 
       current and future hospice need in the county through 2011. 
       Additionally, a number of the existing providers indicated that they 
       have capacity to serve the patients within the service area without 
       adding staff.

       12 Emphases in the Department's evaluation are ours.
                                           17 

No. 66304-6-I/18

       Therefore, the department concludes that approval of this project 
       has the potential of fragmentation of Medicare certified hospice 
       services within the service area, and this sub-criterion is not met.

       Finally, with respect to the cost containment criterion, the 2007 evaluation 

concluded: 

       The department concurs with the applicant's assertion that there 
       has been no information available that would indicate any of the 
       current hospices area available for acquisition. Further, approval of 
       this project would allow an additional Medicare certified hospice 
       agency in King County. However, as previously concluded in this 
       evaluation, no need has been demonstrated for additional services.

       On the basis of the information provided within this application, the 
       department concludes that adding another hospice agency is not 
       the best available alternative for King County. This sub-criterion is 
       not met. 

       Evergreen does not show that the HLJ's approval of the settlement was 

arbitrary and capricious given that the record supports the Department's 

statement to the HLJ that had the need criterion been met in the initial 

evaluation, the other criteria would have been met as well.

                                    Need criterion

       Finally, Evergreen argues that, notwithstanding the consideration of the 

2008 methodology, the Department's analysis of the need criterion was 
incomplete and faulty.13 Odyssey and the Department disagree, claiming that 

Odyssey's application satisfied the need criteria under WAC 246-310-210 and

       13 Specifically, it contends that (1) the Department did not include all hospice providers in 
evaluating current hospice capacity (by not including Kline Galland); (2) the Department 
arbitrarily extended the planning horizon by two years (it contends the planning horizon for 2009 
should be 2009-2011, and if Kline Galland is included, the need for one more hospice agency 
disappears); and (3) the Department's 2008 methodology demonstrates no need in King County 
during the 2007-2009 planning horizon. 

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No. 66304-6-I/19
246-210-290.14

       Regarding whether the need criterion was or was not met, we note that 

we do not retry factual issues but instead accept administrative findings "unless 

we determine them to be clearly erroneous, that is, the entire record leaves us 

with a definite and firm conviction that a mistake has been made." UWMC, 164

Wn.2d at 102-03. The record reflects that the Department submitted to the HLJ 

an extensive analysis as to why the need criterion was met based on more 

recent data. Evergreen presented arguments as to why the criterion was not met 

to both the Department and the HLJ. Evergreen repeats those arguments on 

appeal but fails to meet its burden of showing that the Department's finding of 

need for an additional hospice agency was clearly erroneous or that the HLJ 

acted arbitrarily and capriciously in finding that the need criterion had been met 

where the Department's analysis showed that it was. 

       We conclude that the HLJ's final order approving the settlement between 

       14 Odyssey specifically argues that under RCW 70.38.111(9)(b), Kline Galland's patient 
census could only be counted when calculating need for hospice CN applications submitted after 
October 2009; therefore, its future census was properly excluded for Odyssey's 2006 application. 
Odyssey responds to Evergreen's contention that the Department arbitrarily considered the 
corrected December 2008 calculation rather than prior calculations by arguing that the HLJ had 
discretion to consider any of the Department's various need calculations.
       The Department also responds to Evergreen's specific arguments. It contends that, 
based on the record, Kline Galland is only a proposed King County hospice that may one day 
become a hospice exempt from CN review under RCW 70.38.111(9). The Department points out 
that the CN program presented three reasons for not counting Kline Galland in the adjudicative 
proceeding. It also disputes Evergreen's contention that Odyssey cannot show need within the 
three-year planning horizon. It points out the HLJ approved the settlement in 2009, making 2012 
the earliest possible third year of operation. For 2012, it contends, the methodology showed an 
unmet need of 64 ADC and therefore indicated a need for another hospice in King County. The 
Department notes that during the stay of the adjudicative proceeding, it performed an updated 
2008 methodology that used new 2007 hospice-use data from existing providers. The 2008 
methodology found, beginning in 2009, a projected unmet need of 37 "average daily census"
(meaning the average number of persons actually receiving care by an agency on one day) in 
King County. Because the number was over 35, need existed for one additional hospice in King 
County. 
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No. 66304-6-I/20

the Department and Odyssey was not arbitrary and capricious for the reasons 

asserted by Evergreen, and therefore reverse the trial court and remand for 

further proceedings.

       Reversed and remanded.

WE CONCUR:

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