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Alaska Spine Center, LLC v. Mat-Su Valley Medical Center, LLC

Supreme Court of Alaska

March 29, 2019

MAT-SU VALLEY MEDICAL CENTER, LLC, an Alaska limited liability company d/b/a Mat-Su Regional Medical Center; SURGERY CENTER OF WASILLA, LLC; and STATE OF ALASKA, Appellees.

          Appeal from the Superior Court No. 3AN-16-10186 CI of the State of Alaska, Third Judicial District, Anchorage, Frank A. Pfiffner, Judge.

          Susan Orlansky, Reeves Amodio LLC, Anchorage, for Appellant.

          Jennifer M. Coughlin, Landye Bennett Blumstein LLP, Anchorage, for Appellee Mat-Su Valley Medical Center, LLC.

          Danielle M. Ryman, Perkins Coie LLP, Anchorage, and David B. Robbins, Kathleen M. O'Sullivan, and Luke Rona, Perkins Coie LLP, Seattle, Washington, for Appellee Surgery Center of Wasilla, LLC.

          Notice of nonparticipation filed by Dario Borghesan, Assistant Attorney General, Anchorage, and Jahna Lindemuth, Attorney General, Juneau, for Appellee State of Alaska.

          Before: Bolger, Chief Justice, Winfree, Stowers, and Carney, Justices. [Maassen, Justice, not participating.]


          CARNEY, Justice.


         The state agency responsible for regulating the operation of healthcare facilities throughout Alaska requires most such facilities to document the need for proposed services before the state approves construction of a new facility. The agency determined that an ambulatory surgical facility seeking to relocate from Anchorage to Wasilla did not need to submit such documentation because it was moving within the same community as defined by the relevant statute. Competing medical facilities in the Matanuska-Susitna Borough objected to the determination, arguing that Anchorage and Wasilla are not the "same community" and that the proposed relocation required the usual certification of need. Because Anchorage and Wasilla are not the same community as contemplated by the statute, we reverse the determination that the facility was exempt from the required certification process.


         A. Background

         The Alaska Department of Health and Social Services is responsible for the regulation and provision of numerous health and social services programs. In order to promote the balanced development and operation of such facilities throughout the state, the legislature established a "Certificate of Need" program to be administered by the Department.[1] Pursuant to statute and regulation, program staff determine the healthcare needs of an area by using a number of general and service-specific review standards and calculations.[2] The standards address "Alaska's distinctive operational environment" by taking into account accessibility and the needs of local stakeholders. The program's goal is to ensure that no area receives more or fewer services than it needs.

         Most healthcare facilities are required to obtain a certificate of need (CON) before beginning construction:

(a) Except as provided in (c) and (d) of this section, a person may not make an expenditure of $1, 000, 000[3] or more for any of the following unless authorized under the terms of a certificate of need issued by the department:
(1) construction of a health care facility;
(2) alteration of the bed capacity of a health care facility; or
(3) addition of a category of health services provided by a health care facility.[4]

         Preparing and submitting a CON application is a time-consuming process. The CON application must contain all of the information required in the Department's Certificate of Need Application Packet, which includes: a project description with detailed cost estimates and construction timelines; estimates of the population to be served and in what capacity; analysis of the need for these services; documented efforts of community outreach; comparison to community, state, and federal plans; analysis of alternatives; calculations of the impact the facility will have on the existing healthcare system; and evidence that the facility will be accessible to users. The applicant must also pay an application fee, agree to participate in a statewide reporting system required by statute, and state whether the proposed CON is intended to change the bed capacity of the service area.[5]

         But a statutory exemption allows an existing ambulatory surgery facility to relocate within the same community as long as it does not increase the services that it offers:

Notwithstanding (a) of this section, a person who is lawfully operating a health care facility that is an ambulatory surgical facility at a site may make an expenditure of any amount in order to relocate the services of that facility to a new site in the same community without obtaining a certificate of need as long as neither the bed capacity nor the number of categories of health services provided at the new site is greater.[6]

         The relocation exemption was added to the CON statute in 2000 after an ambulatory surgical center that wished to relocate two blocks from its existing location in Anchorage lobbied for an exemption to allow it to avoid the costs of the CON process.[7] The Anchorage facility's move was exempted shortly after the legislation passed. Fifteen years later a Wasilla facility relocated within Wasilla, and was granted the same exemption. Alaska Spine is the third applicant for an exemption from the CON requirement.

         To determine whether it qualifies for an exemption or must expend the time and resources needed to prepare a CON application, a healthcare facility may submit a Request for Determination (RFD) to the Department prior to beginning the CON process.[8] Once the Department makes a determination, it must publish notice of its decision online and in a statewide newspaper.[9]

         B. Facts

         Alaska Spine Center is an ambulatory surgical facility located in Anchorage. Alaska Spine was not required to obtain a CON when it first constructed its facility, nor when it later built an addition, because each of those projects cost less than the threshold amount at the time.

         In early August 2016 Alaska Spine submitted an RFD to the Department seeking a determination that its relocation to Wasilla was exempt from CON requirements under AS 18.07.031(c). It requested the exemption because it would be relocating within the "same community" and would not increase its service capacity.[10]The RFD acknowledged that costs "will exceed the current CON monetary threshold of $1.5 million." Alaska Spine explained that further cost details were unnecessary because the relocation exemption permitted expenditures of any amount.

         The Department's CON program staff sent a letter to Alaska Spine seeking additional information: a certified cost estimate, a more specific location description, and a description of specific services to be offered. In response to Alaska Spine's claim that a more detailed cost estimate was unnecessary, the letter stated that "the Department cannot make that [determination on the information provided."

         Alaska Spine met with CON program staff to discuss the RFD, then submitted additional information on October 11. Following the meeting, program staff agreed with Alaska Spine that no cost estimate was necessary and accepted the acknowledgment that the cost would exceed $1.5 million because "there is no issue regarding whether this project will exceed the CON cost threshold." Program staff also determined that accepting such an estimate was in line with past CON determinations.

         C. Proceedings

         In October 2016 the Department published its determination: "For the purposes of CON, Wasilla is considered to be in the same service area as Anchorage. Therefore, the proposed relocation is considered to be within the same community." The determination also noted "neither capacity nor the number of categories of health services provided at the site will be greater." The Department concluded that Alaska Spine satisfied the exemption requirements of AS 18.07.031(c) and did not require a CON to relocate its facility to Wasilla.

         In November 2016 Mat-Su Valley Medical Center, LLC filed suit in Anchorage superior court challenging the Department's determination, seeking declaratory and injunctive relief against the Department and Alaska Spine. Mat-Su Medical operates five surgery suites in the Matanuska-Susitna Valley at a Palmer facility. Mat-Su Medical argued that Anchorage and the Matanuska-Susitna Valley are not the "same community," that Alaska Spine therefore did not qualify for a relocation exemption, and that the Department's determination that it was exempt from a CON did not comply with the RFD regulation and was therefore void. Mat-Su Medical also sought both preliminary and permanent injunctions against the construction and operation of Alaska Spine's proposed Wasilla facility unless and until a CON was obtained. Both Alaska Spine and the Department answered the complaint, arguing the Department's determination was entitled to deference and that it had properly interpreted the CON laws and regulations.

         In April 2017 Alaska Spine moved for summary judgment, arguing that the Department's determination and its acceptance of the RFD were owed deference because both were within the Department's specialized expertise. In response Mat-Su Medical filed a cross-motion for summary judgment, arguing that the meaning of "same community" was an issue of statutory interpretation committed to the court's independent judgment. It also argued that the statutory language, legislative history, and the Department's own regulations did not support the determination that Anchorage and Wasilla are in the "same community." Mat-Su Medical argued in addition that a certified cost estimate was explicitly required by regulation and could not be waived in an RFD.

         The Department supported Alaska Spine's motion for summary judgment and opposed Mat-Su Medical's cross-motion. Alaska Spine opposed Mat-Su ...

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