Could a Washington public hospital district offer a percentage discount from Hospital Commission approved rates in 1986?

Plain-English summary

The Washington Attorney General concluded in 1986 that a public hospital district could negotiate a percentage discount from a rate approved by the State Hospital Commission if it met the then-current statutory conditions. The discount had to be cost justified, avoid shifting costs to other payers in current or later years, and have all terms filed with the commission within the specified period for public inspection. The opinion said the district commissioners made the initial judgment about cost justification, subject to commission review.

The representative also asked whether a discount would be an unconstitutional gift of public funds. The AG declined to decide that question, explaining that doing so would require an opinion on the constitutionality of the statute authorizing the discount. It observed that an economic benefit might bear on the analysis, without deciding the constitutional issue.

Currency note

This opinion was issued in 1986. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could a district charge below an approved hospital rate?
The AG said yes, provided the discount satisfied the conditions in the statute it reviewed.

Who initially assessed whether the lower rate was cost justified?
The opinion assigned that initial assessment to the public hospital district’s commissioners, based on the hospital’s financial situation.

Did the opinion approve any percentage discount a district chose?
No. It required cost justification, no shifting of costs, and timely filing of the negotiated terms with the Hospital Commission.

Did the AG decide that discounted rates were constitutional?
No. The office declined to opine on the constitutionality of the authorizing legislative enactment.

Background and statutory framework

The opinion compared the earlier rule requiring hospitals to charge approved rates with a 1984 amendment that made approved rates a ceiling and permitted negotiated lower rates on stated conditions. It then addressed the constitutional question only to explain why the office would not resolve it.

Citations and references

• Statutes discussed: RCW 70.39.140; RCW 70.44.060(3).

Source

• Landing page: https://www.atg.wa.gov/ago-opinions/percentage-discount-rates-approved-state-hospital-commission

Original opinion text

Attorney General Ken Eikenberry

DISTRICTS ‑- PUBLIC HOSPITALS ‑- PUBLIC RATES ‑- PERCENTAGE DISCOUNT ON RATES APPROVED BY STATE HOSPITAL COMMISSION

A public hospital district, meeting the statutory requirements set out in RCW 70.39.140, may give a percentage discount on its public rates approved by the State Hospital Commission.

June 13, 1986

The Honorable Clyde Ballard
State Representative
1790 North Baker
East Wenatchee, WA 98801

Cite as: AGO 1986 No. 8

Dear Representative Ballard:

By letter previously acknowledged you have requested our opinion on the following two questions:

(1) May a public hospital district, organized and existing pursuant to chapter 70.44 RCW, give a percentage discount on its public rates as approved by the Hospital Commission in accordance with chapter 70.39 RCW?

(2) Would such action by the public hospital district constitute a gift of public funds and thus be unconstitutional under article VIII, section 7 of the Washington Constitution?

For the reasons set forth in our analysis, we answer your first question in the qualified affirmative and your second question in the manner set forth below.

ANALYSIS

Question (1):

The starting point for our analysis is chapter 70.44 RCW. In summary, that chapter authorizes the establishment and operation of public hospital districts, which provide public health services both to residents of the district and to other persons. Such districts are municipal corporations. RCW 70.44.010. They are [[Orig. Op. Page 2]] governed by a board of elected commissioners who have the power, inter alia, to set rates to be charged for the services provided by the district. RCW 70.44.060(3).

Prior to July 16, 1973, there were no statutory constraints upon the rates that hospital district commissioners established for services provided by their respective districts. However, on that date, chapter 5, Laws of 1973, First Extraordinary Session (subsequently codified as chapter 70.39 RCW) became effective. This statute created the Washington Hospital Commission and invested it with general regulatory authority over the rates charged by hospitals, both public and private, in the State of Washington.1/

In 1984, the legislature enacted numerous amendments to chapter 70.39 [chapter 70.39 RCW]. See generally chapter 288, Laws of 1984. Particularly pertinent to your inquiry is section 14, chapter 288, Laws of 1984, which amended RCW 70.39.140 in two significant ways.

Prior to the 1984 legislation, RCW 70.39.140 had prohibited hospitals from charging rates "other than" those approved by the Hospital Commission. However, by the 1984 legislation, the words "other than" were deleted, and the word "exceeding" was substituted, so that RCW 70.39.140 now prohibits a hospital from charging rates "exceeding" those approved by the Hospital Commission. Thus, the rates approved by the Commission have been converted from established rates, which must be charged, to rates that may not be exceeded by a particular hospital district.

A further, and more significant change is found in the following language added to the first paragraph (now denominated the first subsection) of RCW 70.39.140:

Effective July 1, 1985, this chapter does not preclude [[Orig. Op. Page 3]] any hospital from negotiating with and charging any particular payer or purchaser rates that are less than those approved by the [hospital] commission, if:

(a) the rates are cost justified and do not result in any shifting of costs to other payers or purchasers in the current or any subsequent years;

(c) all the terms of such negotiated rates are filed with the [hospital] commission within 10 working days and made available for public inspection.2/

(Emphasis added)

The legislature has, in the above enactment, given specific authorization for any hospital, including those operated by public hospital districts, to negotiate a discounted rate where the statutory conditions are met‑-i.e., the discounted rates are "cost justified", do not result in a shifting of costs, and all terms are timely filed with the Hospital Commission so as to be available for public inspection.

Therefore, we answer your first question in the qualified affirmative‑-to wit, a public hospital district may, pursuant to RCW 70.39.140, as amended by section 14, chapter 288, Laws of 1984, give a percentage discount on its public rates if such a discount meets the aforementioned statutory requirements.

Before leaving this question, we do note that the legislature did not define the phrase "cost justified", but did authorize the Hospital Commission to establish a procedure for review of rates negotiated pursuant to the above‑quoted authorizing language, and to "retrospectively disapprove" rates which were found to contravene the provisions of RCW 70.39.140. We further note that the Hospital Commission has exercised that authority by enacting WAC 261-40-170, which allows negotiated rates to be reviewed by the Commission upon the request of "any concerned party."

Finally, we note that, consistent with AGLO 1977 No. 48, the initial decision as to whether a particular discount meets the statutory criteria‑-i.e., is "cost justified" and does not result in a shifting of costs‑-is that of the commissioners of the particular hospital district in question. If such commissioners [[Orig. Op. Page 4]] determine, based upon their own analysis of their hospital's financial situation, that such a discount is not cost justified, then the above‑quoted language from RCW 70.39.140 would not authorize the granting of discount.

Question (2):

We turn now to your second question, in which you inquire whether the giving of a percentage discount by a hospital district would constitute a gift of public funds and thus be unconstitutional under article VIII, section 7 of the Washington Constitution. In view of our answer to your first question‑-i.e., that such a discount is authorized by the 1984 amendments to RCW 70.39.140‑-an answer to your second question would necessarily involve our opinion on the constitutionality of that statute. It has been the long-standing policy of this office not to opine upon the constitutionality of legislative enactments, for the simple reason that, as the state's legal counsel, the Attorney General's Office is required to defend any legislative enactment against an attack on constitutional grounds.

We would point out, however, that in AGO 1980 No. 25, our office did issue an opinion on a somewhat analogous question relating to the operation of a county transportation authority. The question there addressed was whether the establishment of a rate schedule providing for reduced or eliminated fares during certain periods of the day so as to encourage a more evenly balanced use of the transportation system would be permissible. In our opinion, we noted that under such a system, the transportation authority would derive an economic benefit from the more balanced overall use of its equipment resulting from the adoption of such a rate schedule and concluded for that reason, that such a system would be constitutionally permissible.3/

The subject matter of your inquiry‑-rates discounted pursuant to the authority of RCW 70.39.140‑-presents, in our opinion, a similar situation, in that such rates must be cost justified in order to meet the statutory criteria. Such cost justification, it appears to us, may equate to an economic benefit to the hospital [[Orig. Op. Page 5]] district, and, thus, the rationale underlying AGO 1980 No. 25 may likewise be applicable in analyzing the issue raised by your second question.

We trust the foregoing will be of assistance to you.

Very truly yours,
KENNETH O. EIKENBERRY
Attorney General

WILLIAM L. WILLIAMS
Assistant Attorney General

ROBERT E. PATTERSON
Assistant Attorney General

*** FOOTNOTES ***

1/In AGLO 1977 No. 7, this office opined that the provisions of chapter 70.39 RCW were applicable to hospitals maintained and operated by public hospital districts formed under chapter 70.44 RCW. In addition, in AGLO 1977 No. 48, we noted that, although the rates charged by hospitals operated by public hospital districts were subject to theapproval of the Hospital Commission, the initial responsibility for establishing those rates remained with the hospital district commissioners, in accordance with procedures set forth in chapter 70.44 RCW.

2/Subparagraph (b) of subsection (1) of section 14, chapter 288, Laws of 1984 was vetoed.

3/Since the question addressed in AGO 1980 No. 25 dealt with county, as opposed to state legislative action, the above‑cited policy did not preclude our consideration of the constitutionality of the scheme therein presented.