Introduction
The Providence Health & Services mission is to provide compassionate care to all people in need, including a special concern for those who are poor and vulnerable. The new tower and additional beds are urgently needed by PEMC to fulfill this mission in Northwest Washington. The hospital has set up all of its currently licensed beds and is operating at capacity. PEMC’s emergency room is the second busiest in the state and because of bed shortages, patients often have to wait hours for care. This problem will grow steadily worse until construction on the new tower is complete and open to patients—currently projected for late 2010 or early 2011. The additional beds and new hospital tower received widespread support from the community, including nurses, physicians, and one competing hospital. Some of this support is reflected in a recent editorial by The Herald. Even the SEIU Campaign states “it is not opposed to the renovation and modernization of PEMC, nor does it oppose an appropriate expansion of the facility to meet the growing health care needs in Snohomish County.” (Excerpt from a September 18, 2006 SEIU Campaign Letter to Janis Sigman, manager of the Certificate of Need program). The SEIU Campaign raises two concerns about the decision: PEMC’s expansion will unnecessarily drive up health care costs for Snohomish County residents, and that DOH should have used a planning horizon to forecast the need for additional beds as of 2012—one year after the new hospital tower is projected to open—not 2015, the date used for the decision. PEMC’s new medical tower will result in care that is more accessible, higher quality and more cost efficient. As the decision concluded, the new tower will lower the costs of providing patient care, not drive up costs as the SEIU Campaign asserts. SEIU’s assertions are based on an incorrect analysis of hospital costs that did not consider the higher patient volumes that would allow more efficient care in a new, state-of-the-art facility. A planning horizon of at least four years after the new hospital tower opens is essential for a major project like PEMC’s, which represents the largest capital expenditure in the 150 year history of Providence Health & Services. The SEIU Campaign’s suggestion that the planning horizon should be just one year after the opening of the new hospital tower would severely fragment planning and development of hospital services by PEMC. The Department of Health properly exercised its authority to consider these issues in concluding that PEMC’s request for 106 additional beds should be approved. Accordingly, the SEIU Campaign’s request for reconsideration should be denied. Good cause does not exist for reconsideration.
The SEIU Campaign has failed to meet its burden of establishing good cause to qualify for reconsideration. The party seeking reconsideration must establish that good cause exists by showing that there is:
• significant relevant information that was not previously considered by the Department and which, with reasonable diligence, could not have been presented before the Department made its decision;
• significant changes in factors or circumstances relied upon by the Department in making its findings and decision; or
• evidence that the Department materially failed to follow adopted procedures in reaching its decision. As the criteria above make clear, reconsideration is appropriate when, due to circumstances beyond the party’s control, relevant information is available or events have occurred that render DOH’s decision erroneous, or when DOH made material errors in its decision. It is not a vehicle for a party to get a “second bite at the apple” just because it is unsatisfied with DOH’s decision. The SEIU Campaign’s request for reconsideration fails to raise any issues that warrant reconsideration. Each of its arguments was raised by the SEIU Campaign in the hearing and rebuttal process. Each argument was in turn addressed by PEMC in its rebuttal submission and then by DOH in its analysis and decision. The approved project will not increase costs or charges to the public.
The Legislature has directed the Department of Health to consider several issues in determining whether to grant a Certificate of Need. The DOH properly considered all relevant CON provisions. It sought and obtained significant volumes of information from PEMC, took public testimony, and properly considered all of the issues raised by SEIU, including cost containment. The project will result in lower costs when increased patient volumes are considered.
Contrary to the claims made by the SEIU Campaign, the new tower and addition of 106 new acute care beds will reduce PEMC’s costs of providing care. Total costs per patient day decrease as the hospital begins to realize higher volumes and efficiencies with the new tower. By 2014 total costs will be lower with the new tower than without. Once all 106 beds are fully utilized in 2016, total costs per patient day will actually decrease by $240. With each passing year after 2014, the cost savings increase with the new tower. 
The DOH analyzed this expense data in the decision, concluding that total expenses decreased on a per patient day basis after 2011. Based on the total expenses associated with the project, DOH concluded that PEMC is similar to the Washington statewide averages and the project is not expected to have a remarkable impact on the cost and charges. The SEIU Campaign, however, ignores these total expense figures and instead misleadingly focuses on the change in capital expenses. It argues that capital costs ultimately get passed on to patients, either in the form of higher health insurance premiums, increased co-pays, or higher deductibles. This argument, however, is based on the incorrect premise that an increase in capital costs results in a dollar for dollar increase in the total expenses of operating the hospital. As shown above, the costs of this project do not work in such a manner. Instead, increased capital investment leads to a reduction of costs in other areas due to increased efficiencies. Moreover, capital expenses are a very small percentage of the total expenses associated with operating a hospital. For example, in 2016, capital expenses at PEMC are projected to account for only 9 percent of the total expenses, up from 7 percent in 2006. Capital Expenses Are a Small Percentage of Total Expenses 2006 Expenses
 | 2016 Expenses
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The SEIU Campaign’s argument that PEMC’s capital expenses in 2005 are already higher than the other Snohomish County hospitals gives a misleading impression that PEMC is a high cost provider. Expenses per adjusted case max value unit adjusts hospital expenses to reflect the different types of care provided at institutions in the state. PEMC’s expenses using this statistic show that its costs are comparable, and in many cases lower, than hospitals with which it competes in the Puget Sound region. 
Finally, the SEIU Campaign misleadingly implies that PEMC expects to raise charges to patients after the new tower opens. For example, the SEIU Campaign points out that net income is projected to increase by $37,299,000 by 2020 as a result of building the tower. Total reductions in expenses per patient day by 2020 attributable to the expansion are more than $100 million. Thus, while margin may be increasing, it is due entirely to a reduction in costs—not any increase in what patients pay. Moreover, PEMC is a non-profit entity. Any increase in margins is used to further its mission, through such things as increased charity care, and not to pass on returns to shareholders. The new hospital tower is a reasonable and cost effective method for expanding the hospital in a constrained, urban environment.
In reviewing a CON application, DOH is required to consider the availability of less costly or more effective alternative methods of providing such services. A proposed project will foster cost containment if, among other considerations, superior alternatives, in terms of cost, efficiency or effectiveness, are not available or practicable.
It is undisputed in the record—and the SEIU Campaign has provided no contrary evidence—that the proposed 12-story hospital tower is the most cost effective construction method for PEMC to replace its antiquated facilities and provide urgently needed new hospital beds. In addition, it is undisputed in the record that the hospital tower is the only practicable way to provide for PEMC’s future needs. Providence Everett’s Colby Campus is located in an urban neighborhood surrounded by single-family homes. The DOH cited the reasons PEMC rejected the other alternatives that were reviewed, including: “Requirement for the purchase of additional properties …; Displacement of home owners; Closure of City Streets; Longer implementation time; Higher costs and financial risks; Greater disruptions to existing operations during construction.” The DOH correctly concluded “that the basis for rejecting these alternatives was reasonable.” The bed need forecast and support of a competing hospital show no impact on costs or charges by other providers.
The DOH is required to consider the costs and methods of the proposed construction on the cost and charges to the public of providing health services by other persons. In addition, DOH considers whether a project will foster cost containment by looking at, among other items, whether the costs, scope, and methods of construction and energy conservation are reasonable. The DOH specifically concluded the costs, scope and methods of construction are reasonable. It cited an Office of Hospital Patient Data Systems report that concluded the costs shown are within past construction costs reviewed by this office. The SEIU Campaign has offered no information to rebut the undisputed testimony in the record that PEMC’s proposed construction methods are reasonable. It is also undisputed in the record that the construction methods for the new hospital tower will have no impact on other providers. As the decision found, PEMC is the only provider of acute care in the Central Snohomish planning area and has experienced an increase in their ED admissions. In addition, the bed need methodology assumed a continuation of the current referral patterns. There is no indication that Central Snohomish will be taking a disproportional degree of service obligations if the growth materializes as reported. The conclusion that other providers will not bear any impact from the tower is supported by the fact that no other hospital opposed PEMC’s application, and Valley General in Monroe specifically supported it. A $450 million hospital expansion is a major project that should not be reviewed under a planning horizon that ends one year after it opens.
The SEIU Coalition asserts that DOH failed to follow its own procedures by applying a bed need forecast that exceeded a seven year planning horizon. The Department has adopted the State Health Plan as the guideline for determining bed need. The State Health Plan provides that bed forecasts should generally be made for seven years from the last available data unless the project presents a major policy question. Major policy questions include issues such as whether a community should have a hospital or additional hospitals. In these instances, long range forecasts should be used. The Department has clearly determined that new hospital and replacement hospital projects are major policy issues warranting long range forecasts. The DOH has consistently and repeatedly determined that the expense of building acute care bed capacity is such that the lifecycle of the bed space should be evaluated over a time period similar to the amortization of the expense. This longer review period is needed and appropriate due to the high capital costs and long useful life of a replacement or major expansion project. PEMC’s development of a new hospital tower is a major policy question. The overall project as proposed involves an investment by Providence of over $450 million dollars and a 45 percent increase in its current bed capacity. It represents the single largest construction project and investment in Providence’s 150 year history. Limiting the bed need forecast to seven years—a planning horizon that ends only one year after the new tower opens—is inconsistent with the applicable standard found in the State Health Plan and the Department’s past decisions The DOH does not have the authority to regulate PEMC’s rates and charges.
The SEIU Campaign argues that the Department of Health should assume—under the guise of “cost containment”—the rate review functions of the now defunct Hospital Commission, which the Legislature decided to sunset in 1990. It argues the Department of Health should delay approval of a pending Certificate of Need application until Providence agrees to put price caps in place on its services, asking that the application be conditioned on specific cost control measures, subject to ongoing monitoring by CON staff. The SEIU Campaign has every right to make these policy arguments to the Legislature, and can do so this session as bills have been introduced to create a process for amending Certificate of Need. The SEIU Campaign, however, should not be allowed to hold up a pending Certificate of Need application for the purpose of pursuing its political agenda. The DOH was given certain limited power—which it cannot enlarge without legislative action—to review Certificate of Need applications. Its authority is limited to considering the impact of a project on costs and charges. It has been given no power to regulate or limit hospital rates.
Many years ago, the Legislature created a rate-setting board for hospital and other providers (“Hospital Commission”). The Hospital Commission had exclusive control over hospital and certain other rates. The Legislature eliminated the Hospital Commission effective in 1990. In sunsetting the Hospital Commission, the Legislature did not in any way express an intent to expand DOH’s mandate to reviewing or regulating hospital rates. To the contrary, the Legislature indicated that rates should be set by market forces and decisions of health care providers, not through government regulation. Market forces in Snohomish County are robust. PEMC’s 2005 share of Snohomish County patients is less than 40 percent, and a full 36 percent of Snohomish County patients choose to receive their care in King County hospitals.
The Legislature’s expressed desire to end state rate review and return competition to health care markets would be frustrated if DOH assumed the role of reviewing or approving rate levels under the guise of a “cost containment” or any other analysis. The SEIU Campaign should take its rate regulation arguments to the Legislature. A reconsideration hearing is an entirely inappropriate forum for these arguments.
Conclusion.
PEMC is prepared to accept DOH’s decision to approve 106 new acute care beds and move forward with its plans to build the urgently needed new hospital tower in Everett. Even under the current timetable, a significant shortage of beds will occur before the hospital tower opens. Any additional delay will have serious consequences for the community served by PEMC, including limiting access to care, increasing costs, and delaying realization of improved efficiency and quality of care. PEMC must be allowed to promptly proceed with the new hospital tower to serve its mission of providing compassionate care to all people in need, with a special concern for those who are poor and vulnerable. The SEIU Campaign’s efforts to delay this project for its own political concerns by seeking reconsideration should be denied.
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