In King County Public Hospital District No. 2 v. Wash. State Dep’t of Health, the Washington State Supreme Court recognized that administrative law judges have broad discretion to admit evidence in challenges to agency actions. Further, administrative law judges’ decisions on underlying agency actions are reviewed under the arbitrary and capricious standard, and the record supported the administrative law judge’s decision here that the Department of Health’s action was neither arbitrary nor capricious.
The Washington State Supreme Court upheld a health law judge’s (“HLJ’s”) decision to grant a certificate of need to a hospice provider. The provider twice applied for such a certificate in King County, with each application denied due to a lack of need. While the provider was awaiting its appeal of the second rejected certificate, a state-wide hospice care need calculation revealed need for one additional King County hospice provider the next year. The applicant provider initially asked the Washington Department of Health (“Department”) to consider the new state-wide calculation, but the Department refused as the new calculation was not part of the record on review.
Rather than applying a third time, the provider filed a federal lawsuit against the Department, alleging that the Department’s certificate of need program violated both the Sherman Act and Commerce Clause. As part of settling the federal lawsuit, the Department agreed to consider the new state-wide calculation of need so long as interested entities received notice and opportunity to comment. Though the Department’s “informal practice” was to “always look at the facts that existed during review,” it made an exception based on “special circumstances” present in the case.
The Department provided notice to interested entities and opportunity to comment on the settlement. Competitors of the provider opposed the settlement, yet the Department submitted the proposed settlement to the HLJ for approval. The HLJ approved the settlement, finding 1) there was proper notice to interested parties and opportunity to comment; 2) in the HLJ’s exercise of its discretion it would consider the new need calculation; and 3) the provider’s application met all certificate of need criteria. The Department then issued the certificate of need to the applicant provider.
The same competitors who opposed the settlement petitioned for judicial review of the HLJ’s order. The King County Superior Court reversed the HLJ’s order. The Court of Appeals reversed the Superior Court, and the competitors petitioned for the Supreme Court’s review.
The Washington Supreme Court upheld the Court of Appeals 7-2, holding that the HLJ did not abuse its discretion by considering the new state-wide need calculation. Justice González wrote for the majority which held that 1) administrative law judges, such as the HLJ, have “considerable discretion” to determine the scope of admissible evidence, including evidence that came into existence after the close of the comment period; 2) the competitors’ due process rights were not violated as they were provided notice and an opportunity to be heard; and 3) the Department’s need analysis was proper.
The dissent (authored by Justice Charles Johnson and joined by Justice Stephens) questioned the “special circumstances” identified by the Department then relied upon by the HLJ for justifying the Department’s consideration of the new state-wide need calculation. It also identified a “loophole” in the APA that it believed the Department created in settlement negotiations with the provider.