Valley Hospital contesting Providence center

Valley Hospital is fighting its rival’s effort to build a large outpatient surgical center on its Spokane Valley turf even as construction crews continue work.

The state’s Certificate of Need program, with a duty to contain medical costs and scrutinize redundant facilities, has granted Providence Health Care’s request for an exemption from the program’s scrutiny.

Yet Valley Hospital has appealed. Its CEO, Dennis Barts, said Tuesday that the Spokane area has enough operating rooms.

“I question the big arms races in terms of building more and more and more, when, in Providence’s own words, we need to provide better quality at lower cost,” Barts said.

He questioned whether there’s a need for Providence’s new $58 million medical park “that people in the Spokane Valley will end up having to pay for through higher medical fees.” The cost for more brick and mortar, he explained, likely will get passed on to consumers.

The state has an appropriate process to consider issues like these, he said, and Providence ought to be subject to it.

Providence replied that its medical park is more than an outpatient surgery center; it will offer Valley residents a comprehensive set of outpatient services from primary care to urgent care, imaging and pharmacy services.

Sharon Fairchild, Providence vice president for planning and marketing, said more than 50 percent of Valley residents already receive services from a Providence facility, a fact that led Providence to think it should extend a physical presence to the Valley. The new center, she said, is “designed to offer a more coordinated and less expensive alternative.”

The $58 million construction price tag won’t necessarily increase costs to patients, she said. “We are seeing a dramatic shift from inpatient setting to outpatient setting … a choice that is more affordable.”

A hearing on the Valley Hospital’s appeal isn’t scheduled until February.

Meanwhile, Providence continues construction on the project north of Interstate 90 and east of Sullivan Road “at its own risk,” said Janis Sigman, manager of the Facility Certification Program at the Washington state Department of Health.

The dispute adds a new chapter to the decades-long competition between the Spokane area’s two leading hospital systems: Providence Health and Services, owner of Sacred Heart and Holy Family hospitals; and Community Health Systems, owner of Valley and Deaconess hospitals.

The last time the two systems clashed over Sacred Heart’s expansion efforts, Sacred Heart lost. Providence had asked the state for another 152 beds at Sacred Heart, the state’s largest hospital and one of its most profitable. But Community Health, which had just acquired the money-losing Deaconess and was investing in upgrades there, viewed the Providence expansion attempt as a direct competitive challenge, and fought. In 2011 the state concluded Spokane had enough hospital beds but said it would allow Providence to move beds from Holy Family to Sacred Heart.

While Community Health worked to bring Deaconess back from the brink, it also presided over a turnaround at Valley Hospital, where profits and admissions have grown with a focus in such areas as outpatient and inpatient joint replacement surgery.

For 2012, the 123-bed Valley Hospital reported a $9.3 million operating profit; 644-bed Sacred Heart reported an operating profit of $50 million, plus $26 million in non-operating investment income. Valley Hospital pays taxes on its net income; as a nonprofit, Sacred Heart doesn’t. When Providence expands and renovates, it can draw on its system’s net assets, valued in 2011 at $5.4 billion, including a $2.7 billion investment fund.

While the last battle involved inpatient beds, the new battle involves outpatient surgery, a fuzzy area under the state’s Certificate of Need law.

The law does require a certificate for construction of an ambulatory surgery center. But it allows an exemption if a center would be run by a “group practice” of “private physicians.” According to rulings in a similar case from Gig Harbor, state regulations do not define those terms – which opens the door to regulatory conflict..

In the surgery center at 16808 E. Desmet Court, Sacred Heart seeks to build four operating rooms and three endoscopy procedure rooms. Twenty-seven physicians would use them. The physicians all work for Providence, which in recent years has been buying medical practices – as has its rival, Community Health. The 27 physicians also have offices at 11 other locations around Spokane.

According to the state’s analysis of Sacred Heart’s proposal, the 27 physicians would perform surgical procedures in the following areas, all of which are listed among the surgical services performed at Valley Hospital: gynecology, orthopedics, gastroenterology, breast, vascular and urology. In addition they would work in general, pediatric and ear-nose-throat surgery.

In March, the state ruled – over Valley’s opposition – that Sacred Heart’s proposal fit the exemption allowed for a group practice of private physicians, since no outside physicians could practice there.

In Valley’s written notice of appeal, Barts argues that the exemption for a private physicians group does not extend “to a large, non-physician health care entity such as Providence Health and Services. … Rather than being owners of the proposed ambulatory surgery facility, the Providence physicians are corporate employees of Providence and, as such, will not be in control of the facility’s operation without corporate oversight and ultimate control.”

Valley’s attorneys point to decisions by the state Health Department and Thurston County Superior Court, in a 2007 case involving a surgical center proposed in Gig Harbor. In that case, the state held that if “large, non-physician health care entities” could use the exemption from the requirement to get a Certificate of Need, it “would create an enormous exemption for hospitals or other non-physician corporations that would defeat the very purpose” of the Certificate of Need law.

However, those rulings in the Gig Harbor case eventually were nullified by the state Court of Appeals – not on the merits, but on procedural grounds related to the deadlines for filing an appeal. In this case, Valley appears to have filed its appeal in time.