AN ACT Relating to health care; amending RCW 70.39.010, 70.39.020, 70.39.030, 70.39.040, 70.39.100, 70.39.130, 70.39.140, 70.39.150, 70.38.025, 43.131.253, and 43.131.254; reenacting and amending RCW 70.39.050; adding new sections to chapter 70.39 RCW; creating new sections; repealing RCW 70.38.085, 70.38.035, 70.38.045, 70.38.055, 70.38.065, 70.39.070, and 70.39.160; and prescribing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1. Section 2, chapter 5, Laws of 1973 1st ex. sess. as amended by section 1, chapter 288, Laws of 1984 and RCW 70.39.010 are each amended to read as follows:

The primary purpose of this chapter is to promote the economic delivery of high quality, necessary, and effective health care services to the people by establishing a ((~~hospital~~)) Washington state health commission with authority over financial disclosure, budget, prospective rate approval, and other related matters, ((~~including authority to develop a hospital reimbursement control system,~~)) which will assure all purchasers of health care services that ((~~total~~)) hospital ((~~costs~~)) rates are reasonably related to ((~~total~~)) the types of services provided by the hospitals, that ((~~costs~~)) rates do not exceed those that are necessary for prudently and reasonably managed hospitals, ((~~that hospital rates are reasonably related to aggregate costs,~~)) and that such rates are set equitably among all purchasers of these services without undue discrimination.

The legislature finds and declares that rising hospital costs are a vital concern to the people of this state because of the danger which is posed that hospital and health care services are fast becoming out of the economic reach of the majority of our population. ((~~It is further declared that health care is a right of the people and one of the primary purposes for which governments are established, and~~)). It is, therefore, essential that an effective ((~~cost~~)) rate control program be established. It is the legislative intent, in pursuance of this declared public policy, to provide for ((~~uniform measures on a state-wide basis to control hospital rates~~)) a market-based system of controlling the growth in hospital rates, with public review and ratesetting applicable to exceptional rates of increase, and without the sacrifice of quality of service or reasonable access to necessary health care.

The legislature further finds and declares that: (1) There is an increased need for comprehensive public oversight of the ((~~costs of and expenditures~~)) rates for hospital health care services; (2) no one should be denied access to necessary health care because of poverty or unemployment; (3) ((~~access to necessary health care in rural areas must be assured; (4)~~)) the ((~~hospital~~)) health commission and the public need additional information to make better-informed decisions about health care ((~~costs and charges~~)) rates; ((~~(5)~~)) (4) there is a need to encourage market penetration of alternative health care delivery systems that have internal incentives to control costs and stimulate market competition, ((~~and~~)) that some regulatory policies have impeded health care cost containment by unduly restricting competition, and that some regulatory policies have impeded the ability of competition to result in reductions in hospital rates by insulating hospitals from the cost-containment incentives of price competition; ((~~(6)~~)) and (5) there is a need for more effective assessment of the impact of technology on the cost and delivery of health care services so that appropriate public policies may be adopted((~~; and (7) the hospital commission should be more representative of a diversity of public interests so that it can more effectively carry out its mission~~)).

((It is the intent of the 1984 amendments to this chapter to strengthen certain regulatory policies which have had limited success in containing hospital costs since this chapter was enacted, and to promote constructive competition among health care delivery systems)) It is the intent of the legislature to promote appropriate use of health care resources so as to increase access to appropriate health care services and decrease costs for those services. The legislature understands that the rapidly increasing costs of health care are limiting access to care and are creating a severe financial burden on many people in the state. To promote effective health care cost containment the commission shall:

(a) Establish maximum hospital rates;

(b) Administer the certificate of need program;

(d) Evaluate health services and utilization management services for outcome and effectiveness; and

(e) Promote guidelines that encourage necessary services and discourage unnecessary or ineffective services.

Sec. 2. Section 3, chapter 5, Laws of 1973 1st ex. sess. as amended by section 2, chapter 288, Laws of 1984 and RCW 70.39.020 are each amended to read as follows:

As used in this chapter:

(1) "Commission" means the ((~~hospital~~)) Washington state health commission ((~~of the state of Washington~~)) as created by this chapter;

(2) "Consumer" means any person whose occupation is other than the administration of health activities or the providing of health services, who has no fiduciary obligation to a health facility or other health agency, and who has no material financial interest in the rendering of health services;

(3) "Hospital" means any health care institution which is required to qualify for a license under RCW 70.41.020(2); or as a psychiatric hospital under chapter 71.12 RCW, but shall not include beds utilized by a comprehensive cancer center for cancer research, or any health care institution conducted for those who rely primarily upon treatment by prayer or spiritual means in accordance with the creed or tenets of any church or denomination.

(4) "Diagnosis-related groups" is a classification system that groups hospital patients according to principal and secondary diagnosis, presence or absence of a surgical procedure, age, presence or absence of significant comorbidities or complications, and other relevant criteria, an example of which has been adopted as the basis for prospective payment under the federal medicare program by the social security amendments of 1983, Public Law 98-21.

(5) "Medical technology" means the drugs, devices, and medical or surgical procedures used in the delivery of health care, and the organizational or supportive systems within which such care is provided.

(6) "Technology assessment" means a comprehensive form of policy research that examines the medical, technical, economic, and social consequences of technological applications, including the indirect, unintended, or delayed medical, social, or economic impacts. In health care, such analysis must evaluate efficacy and safety as well as efficiency.

(7) "Charity care" means necessary hospital health care rendered ((~~to indigent persons, to the extent that the persons are unable to pay for the care or to pay deductibles or co-insurance amounts required by a third-party payer, as determined by the commission~~)) to persons qualified as charity care-indigent and charity care-other as defined as follows:

(a) "Charity care-indigent" means necessary hospital health care rendered to persons who are unable to pay for that care which is not sponsored by private or public payors and who have family income of less than two hundred percent of the currently applicable federal poverty income guidelines.

(b) "Charity care-other" means necessary hospital health care rendered to persons who have family income equal to or greater than two hundred percent of the currently applicable federal poverty income guidelines but who are unable to pay for that care which is not sponsored by private or public payors due to documented financial hardship.

(8) "Rate" means the maximum revenue which a hospital may ((~~receive~~)) charge for each unit of service, as determined by the commission.

(9) "Comprehensive cancer center" means an institution and its research programs as recognized by the National Cancer Institute prior to April 20, 1983.

(10) "Region" means one of the health service areas ((~~established pursuant to RCW 70.38.085, except that King county shall be considered a separate region for the purposes of this chapter~~)) established by the commission by rule.

(11) "Net revenue" means the sum of hospital charges, ambulatory services charges, and ancillary service charges, less contractual allowances.

(12) "Market basket index" means the revised market basket index used to measure the inflation in hospital input prices as employed on January 1, 1988, by the secretary of the United States department of health and human services for medicare reimbursement. If the measure ceases to be calculated in this manner, the inflation index shall be the index approved by rule adopted by the commission. The method used in determining the index approved by rule shall be substantially the same as the method employed on January 1, 1988, for determining the inflation in hospital input prices by the secretary of the United States department of health and human services for purposes of medicare reimbursement.

(13) "Maximum allowable rate of increase" or "MARI" means the maximum rate at which a hospital is normally expected to increase its rates for a given period. The commission, using the most recent audited actual experience for each hospital, shall calculate the MARI for each hospital as follows: The projected rate of increase in the market basket index shall be divided by a number which is determined by subtracting the sum of one-quarter of the proportion of medicare reimbursement to total revenue and the sum of one-half proportion of medicaid reimbursement from the number one. The portion of charity care shall be added to this quotient. The formula to be employed by the commission to calculate the MARI shall take the following form:

NHIPI

MARI = (-----------------------------)!sc ,10+ Cc

1-[(Me x .25) + (Md x .5)]

!ixwhere:

MARI = maximum allowable rate of increase applied to net revenue.

NHIPI = national hospital input price index, which shall be the projected rate of change in the market basket index.

Me = proportion of medicare reimbursement to total net revenue.

Md = proportion of medicaid reimbursement to total net revenue.

Cc = proportion of charity care charges to total net revenue.

(14) "Operating expenses" mean the sum of daily hospital service expenses, ambulatory service expenses, ancillary expenses, and other operation expenses.

(15) "Rate of return" shall be defined by the commission in rule.

(16) "Rural hospital" means a hospital:

(a) In an area that is:

(i) Not within a twenty-mile radius of an urban area exceeding thirty thousand people; and

(ii) Not in Bellingham, Aberdeen-Hoquiam, Longview-Kelso, Wenatchee, Yakima, Sunnyside, Richland-Pasco-Kennewick, or Walla Walla; or

(b) That elects to be considered rural if (i) the hospital is located in a class one through nine county, (ii) the hospital is located in a city or town having fewer than twenty-five thousand people, (iii) the hospital has fewer than one hundred acute care beds, and (iv) the total annual hospital revenues are less than ten million dollars.

Sec. 3. Section 4, chapter 5, Laws of 1973 1st ex. sess. as amended by section 3, chapter 288, Laws of 1984 and RCW 70.39.030 are each amended to read as follows:

(1) ((~~There is hereby created a hospital~~)) The Washington state health commission is hereby created, which shall be a separate and independent commission of the state. The commission shall be composed of ((~~nine~~)) three full-time members appointed by the governor ((~~as follows:~~)), with the consent of the senate, who shall serve at the pleasure of the governor. Not more than two members of said commission shall belong to the same political party.

((~~(a)~~)) The three members ((~~representing~~)) shall represent consumers of health care services((~~, at least one of whom represents the interests of low-income persons;~~

~~(b) One member representing private employers;~~

~~(c) One member representing labor;~~

(d) One member representing hospitals, but in cases in which rates for an osteopathic hospital are to be considered, the representative of osteopathic hospitals on the technical advisory committee shall replace the hospital representative on the commission;

~~(e) One member representing health care professionals licensed under Title 18 RCW;~~

~~(f) One member representing commercial health insurers or health care service contractors; and~~

(g) The secretary of social and health services, representing the interests of the state as a major purchaser of health care services. The secretary may delegate a permanent designee in the secretary's absence.

~~(2) Except for the members designated in subsection (1) (d) and (e) of this section,~~)). Members shall not have any fiduciary obligation to any health care facility or any material financial interest in the provision of health care services.

(2) The main administrative office of the commission shall be located in the city of Olympia. The commission may establish administrative facilities in other locations if deemed necessary for the efficient operation of the commission.

Sec. 4. Section 5, chapter 5, Laws of 1973 1st ex. sess. as last amended by section 4, chapter 288, Laws of 1984 and RCW 70.39.040 are each amended to read as follows:

((~~Except for the secretary of social and health services or the secretary's designee,~~)) Members of the commission shall serve for four-year terms. ((~~Appointments shall require senate confirmation.~~)) No member shall serve on the commission for more than two consecutive terms. A vacancy shall be filled by appointment for the remainder of the unexpired term and the initial appointments and vacancies shall not require senate confirmation until the legislature next convenes. ((~~Of the three additional members, other than the secretary, appointed after June 7, 1984, two shall initially be appointed for two-year terms and one for a three-year term.~~))

Sec. 5. Section 6, chapter 5, Laws of 1973 1st ex. sess. as amended by section 104, chapter 287, Laws of 1984 and by section 5, chapter 288, Laws of 1984 and RCW 70.39.050 are each reenacted and amended to read as follows:

A member ((~~representing consumers of health care services and~~)) designated by the governor shall serve as chairman. The commission shall elect from its members a vice-chairman biennially. Meetings of the commission shall be held as frequently as its duties require. The commission shall keep minutes of its meetings and adopt procedures for the governing of its meetings, minutes, and transactions.

((~~Five~~)) Two members shall constitute a quorum, but a vacancy on the commission shall not impair its power to act. No action of the commission shall be effective unless ((~~five~~)) two members concur therein.

((~~The~~)) Each member((s)) of the commission shall receive ((no compensation for their service as members but, with the exception of the secretary of social and health services or the secretary's designee, the members shall be reimbursed for their expenses while attending meetings of the commission in the same manner as legislators engaged in interim committee business as in RCW 44.04.120)) a salary as may be fixed by the governor in accordance with the provisions of RCW 43.03.040.

Sec. 6. Section 11, chapter 5, Laws of 1973 1st ex. sess. as amended by section 10, chapter 288, Laws of 1984 and RCW 70.39.100 are each amended to read as follows:

(1) The commission, after study and in consultation with advisory committees, if any, shall establish by the promulgation of rules and regulations pursuant to the Administrative Procedure Act, chapter ((~~34.04~~)) 34.05 RCW, a uniform system of accounting and financial reporting, including such cost allocation methods as it may prescribe, by which hospitals shall record and report to the commission their revenues, expenses, other income, other outlays, assets and liabilities, and units of service. All hospitals shall adopt the system for their fiscal year period to be effective at such time and date as the commission shall direct. In determining the effective date for reporting requirements, the commission shall be mindful both of the immediate need for uniform hospital reporting information to effectuate the purposes of this chapter and the administrative and economic difficulties which hospitals may encounter in conversion, but in no event shall such effective date be later than two and one-half years from the date of the formation of the commission.

(2) In establishing such accounting systems and uniform reporting procedures, the commission shall take into consideration:

(a) Existing systems of accounting and reporting presently utilized by hospitals;

(b) Differences among hospitals according to size; financial structure; methods of payment for services; and scope, type, and method of providing services; and

(3) The commission shall, where appropriate, provide for modification, consistent with the purposes of this chapter, of reporting requirements to correctly reflect these differences among hospitals, and to avoid otherwise unduly burdensome costs in meeting the requirements of the uniform system of accounting and financial reporting.

(4) The accounting system, where appropriate, shall be structured so as to establish and differentiate costs incurred for patient-related services rendered by hospitals, as distinguished from those incurred with reference to educational research and other nonpatient-related activities including but not limited to charitable activities of such hospitals.

(5) The commission shall collect and maintain patient discharge data, including data necessary for identification of discharges by diagnosis-related groups and by specific payers. So far as possible, the data collection procedures shall be coordinated with any similar procedures or requirements of the federal department of health and human services for the medicare program and the needs of the department of social and health services in gathering public health statistics, in order to minimize any unduly burdensome reporting requirements imposed on hospitals: PROVIDED, That the data shall include all necessary information to assist the commission in identifying changes in practice patterns which cause changes in hospital rates per admission.

Sec. 7. Section 14, chapter 5, Laws of 1973 1st ex. sess. as last amended by section 58, chapter 505, Laws of 1987 and RCW 70.39.130 are each amended to read as follows:

Subject to RCW 40.07.040, the commission shall prepare and transmit each biennium to the governor and to the legislature a report of commission operations and activities for the preceding fiscal period. This report shall include such findings and recommendations as the commission believes will further the legislative goal of cost containment in the delivery of good quality health care services, including cost-containment programs that have been or might be adopted, and issues of access to good quality care. The report shall also include data on the amount and proportion of charity care provided by each hospital. ((The commission's report for 1986, to be submitted in January 1987, shall include an analysis of the impacts of RCW 70.39.165 on (1) the use by indigent persons of health care settings other than hospitals and (2) the caseloads and costs associated with the limited casualty program for medical indigents under RCW 74.09.700. The department of social and health services and the health systems agencies established under chapter 70.38 RCW shall provide such information and assistance as the commission may reasonably require in preparing the report on the impact of RCW 70.39.165.))

Sec. 8. Section 15, chapter 5, Laws of 1973 1st ex. sess. as last amended by section 1, chapter 118, Laws of 1988 and RCW 70.39.140 are each amended to read as follows:

(1)(((a) From and after a date not less than twelve months but not more than twenty-four months after the adoption of the uniform system of accounting and financial reporting required by RCW 70.39.100, as the commission may direct,)) The commission shall have the power to initiate such reviews or investigations as may be necessary to assure all purchasers of health care services that the ((~~total costs~~)) rates of a hospital are reasonably related to the ((~~total~~)) type of services offered by that hospital, that ((~~costs~~)) rates do not exceed those that are necessary for prudently and reasonably managed hospitals, and that the hospital's rates are reasonably related to the hospital's aggregate costs((~~; and that rates are set equitably among all purchasers or classes of purchasers of services without undue discrimination or preference. Effective July 1, 1985,~~)). This chapter does not preclude any hospital from negotiating with and charging any particular payer or purchaser rates that are less than those approved by the commission, if((:

~~(i) 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 year; and~~

~~(ii)~~)) all the terms of such negotiated rates are filed with the commission within ten working days and made available for public inspection: PROVIDED, That no purchaser shall be charged rates in excess of the maximum allowable rates as determined in accordance with this chapter: PROVIDED FURTHER, That the maximum allowable rates as determined in accordance with this chapter shall not include deductions from revenue or any other means of adding the value of such negotiated discounts, except for those that may be related to governmental programs such as medicare and medicaid, into the rates charged to and paid by purchasers which have not negotiated specific discounts or rates with the hospitals.

((~~(b) The commission may retrospectively disapprove such negotiated rates in accordance with procedures established by the commission if such rates are found to contravene any provision of this section.~~

(c) Any hospital may charge rates as negotiated with or established by the department of social and health services. Rates negotiated or established under this subsection (c) are not subject to (a) or (b) of this subsection. Rates negotiated or established under this subsection (c) are not subject to any review or approval by the commission under this chapter.

(2) In order to properly discharge these obligations, the commission shall have full power to review projected annual revenues and approve the reasonableness of rates proposed to generate that revenue established or requested by any hospital subject to the provisions of this chapter. No hospital shall charge for services at rates exceeding those established in accordance with the procedures established hereunder. After June 30, 1985, rates for inpatient care shall be expressed using an appropriate measure of hospital efficiency, such as that based on diagnosis-related groups, and, if necessary for federal medicare participation in a hospital reimbursement control system, hospitals shall charge for such care at rates prospectively established and expressed in terms of a comparable unit of total payment, such as diagnosis-related groups. In the event any hospital reimbursement control system is implemented, children's hospitals shall be exempted until such time as a pediatric based classification system which reflects the unique resource consumption by patients of a children's hospital is perfected. For the purposes of this exemption, children's hospitals are defined as hospitals whose patients are predominantly under eighteen years of age.

(3) In the interest of promoting the most efficient and effective use of health care service, and providing greater promise of hospital cost containment, the commission may develop a hospital reimbursement control system in which all payers or purchasers participate, that includes procedures for establishing prospective rates, that deals equitably with the costs of providing charity care, and that shall include the participation of the federal medicare program under the social security amendments of 1983, Public Law 98-21. The commission shall have the authority to require utilization reviews of patient care to ensure that hospital admissions and services provided are medically justified. The commission may seek approval, concurrence, or participation in such a system from any federal agency, such as the department of health and human services, prior to securing legislative approval pursuant to concurrent resolution for implementation of any hospital reimbursement control system developed pursuant to this section. The commission shall involve the legislature in the development of any plan for a hospital reimbursement control system.

~~(4)~~)) (2) The commission is authorized to charge fees for the review of certificate of need applications and requests for exemptions from certificate of need review. The fees shall be sufficient to cover the full cost of review and exemption, which may include the development of standards, criteria, and policies. The commission shall assure that no hospital or its medical staff either adopts or maintains admission practices or policies which result in:

(a) A significant reduction in the proportion of patients who have no third-party coverage and who are unable to pay for hospital services;

(b) A significant reduction in the proportion of individuals admitted for inpatient hospital services for which payment is or is likely to be less than the anticipated charges for or costs of such services; or

(c) The refusal to admit patients who would be expected to require unusually costly or prolonged treatment, or for whom payment is or is expected to be less than the anticipated charges for such services, for reasons other than those related to the appropriateness of the care available at the hospital.

(((5) The commission shall serve as the state agency responsible for coordinating state actions and otherwise responding and relating to the efforts of the federal department of health and human services in planning and implementing federal cost containment programs with respect to hospitals and related health care institutions as authorized by the social security amendments of 1983, as now or hereafter amended, or other federal law, and any rules or regulations promulgated thereto. In carrying out this responsibility, the commission may assume any function or role authorized by appropriate federal regulations implementing the social security amendments of 1983; or assume any combination of such roles or functions as it may determine will most effectively contain the rising costs of the varying kinds of hospitals and related health care institutions in Washington state. In determining its functions or roles in relation to federal efforts, the commission shall seek to ensure coordination, and the reduction of duplicatory cost containment efforts, by the state and federal governments, as well as the diligent fulfillment of the purposes of this chapter and declared public policy and legislative intent herein.))

(3) The commission shall adopt rules to implement this section including procedures for notifying the department of social and health services and the federal department of health and human services with regard to individual hospitals or hospital medical staffs that have engaged in such practices.

(4) No hospital which maintains an emergency department shall turn away, discharge, or transfer any person from the emergency department without performing an appropriate medical screening examination to determine if an emergency medical condition or active labor exists. If an emergency medical condition or active labor exists, the patient must be stabilized prior to any transfer unless the transfer is performed at the request of the patient or is due to the limited medical resources of the transferring hospital. Hospitals must follow reasonable procedures in making transfers to other hospitals including confirmation of acceptance of the transfer by the receiving hospital.

(5) The commission shall develop definitions by rule, as appropriate, for subsection (2) of this section and, with reference to federal requirements, subsection (4) of this section. The commission shall monitor hospital compliance with subsection (2) of this section. The commission shall report to the legislature and the governor on hospital compliance with these requirements and shall report individual instances of possible noncompliance to the state attorney general, the department of social and health services, the Washington health care facilities authority, and the appropriate federal agency. No hospital which is found to be in violation of subsection (2) or (4) of this section shall be allowed to:

(a) Participate in the medicaid or state medical assistance programs, and to issue tax exempt bonds under the authority of the Washington health care facilities authority, for a period of three years following the termination of the violation for a first offense;

(b) Participate in the medicaid or state medical assistance programs, and to issue tax-exempt bonds under the authority of the Washington health care facilities authority, for a period of five years following the termination of the violation for a second offense; and

(c) Participate in the medicaid and medical assistance programs, and to issue tax-exempt bonds under the authority of the Washington health care facilities authority for a period of ten years following the termination of the violation for a third or subsequent offense.

(6) The commission shall establish and maintain by rule, consistent with the definition of charity care in RCW 70.39.020, the following:

(a) Uniform procedures, data requirements, and criteria for identifying patients receiving charity care;

(b) A definition of residual bad debt including reasonable and uniform standards for collection procedures to be used in efforts to collect the unpaid portions of hospital charges that are the patient's responsibility.

(7) For the purpose of providing charity care, each hospital shall develop, implement, and maintain a charity care policy and a sliding fee schedule for determination of discounts from charges for persons who qualify for such discounts, as defined in this chapter, by January 1, 1990. Discounts should first apply to copayments and deductibles. The following sliding fee schedule shall be used by all hospitals:

!tp1,1 !ixPercentage!sc ,1of !tlPercentage!sc ,1of

!ixfederal!sc ,1poverty!sc ,1level: !tlpayment!sc ,1owed:

!sc ,2Two hundred percent !tl!sc ,2One hundred percent

!sc ,3or greater

!sc ,2One hundred fifty to !tl!sc ,2Fifty percent

!sc ,3one hundred ninety-

!sc ,3nine percent

!sc ,2One hundred one to one !tl!sc ,2Twenty-five percent

!sc ,3hundred forty-nine

!sc ,3percent

!sc ,2One hundred percent !tl!sc ,2Zero percent

!sc ,3or less

Persons who may be eligible for charity care shall be notified by the hospital. No person who has been determined to meet the charity care criteria consistent with this section and the hospital's charity care policy, or who has submitted information to the hospital which shows that they may meet the charity care criteria, shall be required to pay deposits to the hospital as a condition of receiving hospital services. All hospitals shall classify amounts owed by persons qualifying as charity care-indigent under this chapter as charity care, subject to the hospital sliding fee schedule.

(8) Each hospital shall make every effort to determine the existence or nonexistence of private or public sponsorship which might cover in full or part the charges for care rendered by the hospital to a patient; the family income of the patient as classified under federal poverty income guidelines; and the eligibility of the patient for charity care as defined in this chapter and in accordance with hospital policy. This initial determination of sponsorship status shall precede collection efforts directed at the patient. In no event shall the hospital attempt to collect from a patient who has been classified as a charity care case an amount in excess of sliding fee schedule amounts.

(9) The commission shall monitor the distribution of charity care among hospitals, with reference to factors such as relative need for charity care in hospital service areas and trends in private and public health coverage. The commission shall report to the legislature and the governor any problems in distribution which are in contradiction of the intent of this chapter. The report shall include an assessment of the effects of the provisions of this chapter on access to hospital and health care services, as well as an evaluation of the contribution of all purchasers of care, including the state, to hospital charity care.

(10) The commission shall issue a report on the subjects addressed in this section at least annually, with the first report due on July 1, 1990.

Nothing in this chapter limits the ability of the department of social and health services to establish or negotiate hospital payment rates pursuant to RCW 74.09.120 or in accord with a federally approvable state plan under Title XIX of the federal social security act.

Sec. 9. Section 16, chapter 5, Laws of 1973 1st ex. sess. as last amended by section 18, chapter 288, Laws of 1984 and RCW 70.39.150 are each amended to read as follows:

To properly carry out its authority the commission shall:

(1) Compile and maintain all relevant financial, accounting, and patient discharge data in order to have available the statistical information necessary to properly ((~~conduct rate review and approval~~)) establish rates. Such data shall include necessary operating expenses, appropriate expenses incurred for charity care and for rendering services to patients who do not pay, all properly incurred interest charges, and reasonable depreciation expenses based on the expected useful life of the property and equipment involved. ((The commission shall define and prescribe by rule and regulation the types and classes of charges which cannot be changed except as provided by the procedure contained in RCW 70.39.160 and it shall also obtain from each such hospital a current rate schedule as well as any subsequent amendments or modifications of that schedule as it may require.)) So far as possible, the commission shall compile and maintain the same patient discharge data with respect to all patients as that required under the federal medicare program and the uniform billing procedures applicable to third-party payers: PROVIDED, That the data must include, but is not limited to, the charges and units of service for each hospital revenue center for each discharge contained within the data.

(2) ((~~Permit any hospital subject to the provisions of this chapter to charge reasonable rates which will permit the hospital to render necessary, effective, and efficient service in the public interest.~~)) Take into account, in the determination of reasonable rates under this section, that the legislature intends for the hospitals to retain the benefits of effective competition on the basis of price, and to suffer the penalties of ineffective price competition, while protecting those purchasers which do not participate in hospital price competition from any increases in rates that may result from hospital discounting to private purchasers.

(3) Take into account, in the determination of reasonable rates under this section, that it is its obligation to assure access to necessary, effective, economically viable, and efficient hospital health care capability throughout the state, rather than the solvency or profitability of any individual hospital subject to this chapter ((~~except where the insolvency of a hospital would seriously threaten the access of the rural public to basic health care services.~~

(4) Take into account, in the determination of reasonable rates under this section for each hospital, the recommendations of appropriate area-wide and state comprehensive health planning agencies to ensure compliance with Washington comprehensive health planning law, chapter 70.38 RCW)).

((~~(5)~~)) (4) Permit any hospital, whether proprietary, district, public, or not-for-profit, to retain the excess of its revenues, if any, that exceed the actual cost of providing services, generated as a result of cost-effective practices, if the hospital charges do not exceed rates permitted by the commission.

(((6) On or before October 1 of each year, after notice and public hearing, and in full consideration of the intent and purpose of this chapter as expressed in RCW 70.39.010, adopt a target dollar amount of total state-wide hospital revenue for the ensuing calendar year. To set the target amount, the commission shall develop a standard methodology that considers such factors as changes in the economy, affordability of hospital care, cost of hospital-purchased goods, numbers and age of the population, technology, and severity of illness of hospital patients. The commission shall endeavor, in establishing rates, to assure that total hospital revenues do not exceed the target amount for the applicable year.))

NEW SECTION. Sec. 10. A new section is added to chapter 70.39 RCW to read as follows:

(1) It is the intent of this chapter that a hospital does not discriminate among purchasers within a defined class. For the purpose of this section there shall be three classes of purchaser: (a) Purchaser of medicaid hospital services; (b) purchaser of medicare hospital services; (c) purchaser of nonmedicaid or nonmedicare hospital services. No hospital may charge a purchaser a rate in excess of one hundred ten percent of a rate charged any other purchaser within the same class for the same service, as defined by the commission by rule.

(2) Upon the determination by the commission that a rate in excess of one hundred ten percent has been charged, the hospital shall refund the excess amount to the purchaser in a timely manner as prescribed by the commission by rule.

(3) It is the intent of this chapter that the difference in rates charged purchasers within a defined class reflect documented increased efficiency in the operations of the hospital. The commission shall review research and other documented information regarding feasible amount of reduction in rate due to increased efficiency and may, from time to time, recommend modification in this provision to the legislature.

NEW SECTION. Sec. 11. A new section is added to chapter 70.39 RCW to read as follows:

(1) At least ninety days prior to the commencement of its next fiscal year, each hospital requesting approval of a rate of increase in net revenue per adjusted admission in excess of its applicable maximum allowable rate of increase for the next fiscal year shall file with the commission, on forms adopted by the commission and based on the uniform system of accounting and financial reporting:

(a) Its budget for the next fiscal year, including projected expenditures, projected revenues, and statistical measures necessary for the commission to evaluate these projections. Any hospital the final budget of which requires public review and approval may submit its budget prior to public review and approval and shall subsequently file any amendments adopted during the public review process at least forty-five days prior to the beginning of the fiscal year of the hospital.

(b) Its actual experience for the first six months of its current fiscal year, including actual expenditures, actual revenues, and statistical measures necessary for the commission to evaluate the actual experience.

(c) Its estimated experience for the last six months of its current fiscal year, including estimated expenditures, estimated revenues, and statistical measures necessary for the commission to evaluate these estimates.

(d) Information necessary for the commission to evaluate the effectiveness of current services and the justification of the hospital for increased costs to continue current services, improve existing services, and provide new services.

(e) Its schedule of projected rates which will be implemented to generate projected revenues.

(2) Within one hundred twenty days after its fiscal year ends, each hospital shall file with the commission, on forms adopted by the commission and based on the uniform system of accounting and financial reporting, its actual audited experience for that fiscal year, including expenditures, revenues, and statistical measures.

(3) The commission may require other reports based on the uniform system of accounting and financial reporting necessary to accomplish the purposes of this chapter.

NEW SECTION. Sec. 12. A new section is added to chapter 70.39 RCW to read as follows:

(1) The base for hospital budget review for the fiscal year beginning in 1990 shall be the hospital's fiscal year 1988 actual net revenues per adjusted admission inflated forward by the hospital's applicable current year's maximum allowable rate of increase or the commission-approved budgeted net revenues per adjusted admission, whichever is higher, provided that, in cases where the commission has approved a rate of increase below the MARI, the commission-approved maximum allowable rate of increase shall apply.

(2) (a) Except for hospitals filing a budget pursuant to subsection (3) of this section, each hospital, at least ninety days prior to the commencement of its next fiscal year, shall file with the commission a certified statement, hereafter known as the "budget letter," acknowledging its applicable maximum allowable rate of increase in net revenue per adjusted admission from the previous fiscal year as calculated pursuant to RCW 70.39.020(13), and its maximum projected net revenue per adjusted admission for the next fiscal year, and shall affirm that the hospital shall not exceed such applicable maximum allowable rate of increase. Such letter shall be deemed to be the budget for the hospital for that fiscal year and shall be automatically approved by operation of law. However, the commission shall have thirty days from receipt of the budget letter to determine if the gross revenues per adjusted admission submitted by the hospital are within the maximum allowable rate of increase for that hospital.

(b) If a hospital's net revenues per adjusted admission, as determined by its audited actual experience in any one year, increases at a percentage rate less than the maximum allowable rate of increase or commission-approved rate of increase, whichever is lower, the hospital may carry forward the difference, and earn up to a cumulative maximum of three "banked" percentage points which may be banked to be used in the future. Such banked percentage points may be added to the hospital's maximum allowable rate of increase to increase the gross revenues per adjusted admission in future years, or such points may be used in the current fiscal year if a budget amendment would have been required to keep the hospital out of a penalty situation, provided that the hospital shall use its original approved maximum allowable rate of increase as its base. The hospital shall specify in the budget letter, or in an amendment to the budget letter submitted before the end of the hospital's fiscal year, the number of banked percentage points it intends to add to its maximum allowable rate of increase to increase its gross revenues per adjusted admission. A hospital shall be required to use banked percentage points before submitting a budget for detailed review or before submitting a request for a budget amendment. The commission shall adopt rules which specify procedures for hospitals to bank and use any percentage points as authorized under this section.

(3) At least ninety days prior to the beginning of its fiscal year, each hospital requesting a rate of increase in net revenue per adjusted admission in excess of the maximum allowable rate of increase for the hospital's next fiscal year, or each hospital utilizing banked percentage points pursuant to subsection (2)(b) of this section and requesting a rate of increase in excess of the maximum allowable rate of increase plus the available banked percentage points, shall be subject to detailed budget review and shall file its projected budget with the commission for approval. In determining the base, the hospital's prior year audited actual experience shall be used, unless the hospital's prior year audited actual experience exceeded the applicable rate of increase, in which case the base shall be the gross revenue per adjusted admission from the year before the prior year, increased by the applicable rate of increase for the prior year, and then inflated by the applicable rate of increase for the current year. As used in this subsection, "applicable rate of increase" means the MARI unless the commission has approved a different rate of increase, in which case such rate of increase shall apply. The projected budget filed under RCW 70.39.150 shall be deemed approved unless it is disapproved by the commission within ninety days after filing. Upon agreement by the commission and the hospital, the ninety-day period may be waived or extended. As part of the review process conducted by the commission, the commission may approve, disapprove, or disapprove in part the projected budget. No hospital submitting a budget for approval shall operate at a level of expenditures or revenues which exceeds the maximum allowable rate of increase minus one percentage point, unless a higher rate of increase has been approved by the commission. However, a hospital with banked percentage points requesting a rate of increase which exceeds the maximum allowable rate of increase plus the banked percentage points shall not operate at a level of expenditures or revenues in excess of one percentage point below the maximum allowable rate of increase plus the banked percentage points.

NEW SECTION. Sec. 13. A new section is added to chapter 70.39 RCW to read as follows:

(1) For purposes of budget review and comparison and to assist in making determinations pursuant to subsection (5) of this section, the commission shall consider measures which explain the variation in patient care costs, including, but not limited to, each hospital's case mix, the severity of its patients, its input costs, and its teaching status.

(2) The commission shall review each budget filed pursuant to section 12(3) of this act and amendments filed pursuant to subsection (3) of this section to determine whether the rate of increase contained in the budget or amendment is just, reasonable, and not excessive. In making such determination, the commission shall consider and the hospital may use the following criteria in the following priority, with (a) of this subsection the highest priority, and (k) of this subsection the lowest priority:

(a) The impact of patient days attributable to the medically indigent;

(b) The impact of patient days reimbursed by medicaid;

(d) The ability of the hospital to earn a reasonable rate of return;

(e) The cost and efficiency of providing the current level of services;

(f) The change in hospital costs as measured by changes in the severity of illness, including changes in the case mix;

(g) The actions taken by or the ability of a hospital to reduce the cost of services;

(h) The cost of providing new services or facilities. The cost of these services may not be included until these services or facilities have been approved for a certificate of need by the commission;

(i) The accuracy of previous budget submissions compared to the actual experience of the hospital;

(j) The research and educational services provided by the hospital if it is a teaching hospital;

(k) For psychiatric hospitals, the impact on hospital gross revenues associated with changes in the average length of stay of patients, changes in admissions to hospital units, and changes in admissions to specific services and, when available, case mix.

(3) After a hospital budget is approved, approved as amended, or disapproved for a given fiscal year, no amendment to such budget shall be made, except in accordance with the following procedures:

(a) A request by a hospital to amend its budget shall be filed in writing with supporting documents no later than ninety days before the end of the hospital's fiscal year. The budget amendment shall be approved, disapproved, or disapproved in part by the commission within one hundred twenty days after such filing. Upon agreement by the commission and the hospital, the one hundred twenty-day period may be waived or extended.

(b) After a hospital requests a budget amendment, but before the final decision by the commission on the amendment, the commission may extend provisional approval to any part of the amendment. This provisional approval shall be superseded by the final decision of the commission.

(c) If approved by the commission as part of a budget amendment, the following items shall be applied retroactively for the entire budget year of the hospital:

(i) Increased case mix, including increased severity of illness; and

(ii) Unforeseen and unforeseeable increases in malpractice insurance premiums, prior-year medicare cost-report settlements, and retroactive changes in medicare reimbursement methodology.

(4) The commission shall disapprove any budget or amendment or part thereof as excessive that contains a rate of increase which is not necessary to maintain total hospital costs at a level reasonably related to total services provided and which is not necessary to maintain a prudently managed hospital.

(5) The commission shall disapprove, in its entirety or in part, any budget or any budget amendment that contains a rate of increase which the commission finds, pursuant to subsection (2) of this section, to be unjust, unreasonable, or excessive.

(6) (a) Upon receipt of a budget or an amendment to a budget, the staff of the commission shall review the budget and executive staff members designated by the commission shall make preliminary findings and recommendations in writing as to whether the budget should be approved, disapproved, or disapproved in part. The staff shall send the preliminary findings by certified mail to the hospital. The hospital shall have fourteen days from the receipt of the preliminary findings and recommendations to file written objections and request a hearing with the commission if a hearing is desired, or to file written objections if a hearing is not requested by the hospital.

(b) If a hearing is requested, it shall be conducted by the commission or, at the election of the commission, by an administrative law judge.

(d) The failure of a hospital to request a hearing within fourteen days of the receipt of the preliminary findings of the staff constitutes a waiver of the right of the hospital to contest the final decision of the commission, and the commission is authorized to enter a final order consistent with the staff's preliminary findings without further proceedings.

(e) During the pendency of any hearing or an appeal of a final order of the commission, no hospital shall operate at a level of expenditures and revenues which exceeds the maximum allowable rate of increase minus one percentage point, unless a higher rate of increase has been approved by the commission. However, a hospital with banked percentage points requesting a rate of increase which exceeds the maximum allowable rate of increase plus the banked percentage points shall not operate at a level of expenditures or revenues in excess of one percentage point below the maximum allowable rate of increase plus the banked percentage points.

(7) The commission may publish its findings in connection with any review conducted under this section in a newspaper of general circulation in the county in which the hospital is located.

(8) Notwithstanding any other provisions of this section, any rural hospital shall be exempt from filing a budget, shall be exempt from budget review and approval for exceeding the maximum allowable rate of increase, and shall be exempt from any penalties arising therefrom. However, each such hospital shall be required to submit to the commission its audited, actual experience, as required by RCW 70.39.150 and section 11(2) of this act.

(9) The review and approval of hospital budgets pursuant to this chapter shall apply to hospital budgets for fiscal years which begin on or after January 1, 1990.

NEW SECTION. Sec. 14. A new section is added to chapter 70.39 RCW to read as follows:

(1) The commission shall annually compare the audited actual experience of each hospital to the audited actual experience of that hospital for the previous year.

(a) For hospitals submitting budget letters, if the commission determines that the audited actual experience of a hospital exceeded its previous year's audited actual experience by more than the maximum allowable rate of increase as certified in the budget letter, the amount of such excess shall be determined by the commission and a penalty shall be levied against such hospital pursuant to subsection (2) of this section.

(b) For hospitals subject to budget review, if the commission determines that the audited actual experience of a hospital exceeded its previous year's audited actual experience by more than the most recent approved budget or the most recent approved budget as amended, the amount of such excess shall be determined by the commission, and a penalty shall be levied against such hospital pursuant to subsection (2) of this section.

(c) For hospitals submitting a budget letter and for hospitals subject to budget review, the commission shall annually compare each hospital's audited actual experience for net revenues per adjusted admission to the hospital's audited actual experience for net revenues per adjusted admission for the previous year. If the rate of increase in net revenues per adjusted admission between the previous year and the current year was less than the MARI, the hospital may carry forward the difference and earn up to a cumulative maximum of three banked net revenue percentage points. Such banked net revenue percentage points shall be available to the hospital to offset in any future-year penalties for exceeding the approved budget or the maximum allowable rate of increase as set forth in subsection (2) of this section. Nothing in this subsection shall be used by a hospital to justify the approval of a budget or a budget amendment by the commission in excess of the maximum allowable rate of increase.

(2) Penalties shall be assessed as follows:

(a) For the first occurrence within a five-year period, the commission shall prospectively reduce the current budget of the hospital by the amount of the excess up to five percent; and, if such excess is greater than five percent over the maximum allowable rate of increase, any amount in excess of five percent shall be levied by the commission as a fine against such hospital, to be deposited in the health access account.

(b) For the second occurrence within the five-year period following the first occurrence as set forth in (a) of this subsection, the commission shall prospectively reduce the current budget of the hospital by the amount of the excess up to two percent; and, if such excess is greater than two percent over the maximum allowable rate of increase, any amount in excess of two percent shall be levied by the commission as a fine against such hospital, to be deposited in the health access account.

(c) For the third occurrence within the five-year period following the first occurrence as set forth in (a) of this subsection, the commission shall:

(i) Levy a fine against the hospital in the total amount of the excess, to be deposited in the health access account.

(ii) Notify the hospital of the violation, whereupon the commission shall not accept any application for a certificate of need from or on behalf of such hospital until such time as the hospital has demonstrated, to the satisfaction of the commission, that, following the date the penalty was imposed under (c)(i) of this subsection, the hospital has stayed within its projected or amended budget or its applicable maximum allowable rate of increase for a period of at least one year. However, this provision does not apply with respect to a certificate-of-need application filed to satisfy a life or safety code violation.

(iii) Upon a determination that the hospital knowingly and willfully generated such excess, initiate disciplinary proceedings to revoke the license of such hospital or impose an administrative fine on such hospital not to exceed twenty thousand dollars.

The determination of the amount of any such excess shall be based upon net revenues per adjusted admission. It is the intent of this section that the commission, in levying any penalty imposed against a hospital for exceeding its maximum allowable rate of increase or its approved budget pursuant to this subsection, consider the effect of changes in the case mix of the hospital. It is the responsibility of the hospital to demonstrate, to the satisfaction of the commission, any change in its case mix.

(3) Unforeseen and unforeseeable events which affect the net revenue per adjusted admission and which are beyond the control of the hospital, such as prior-year medicare cost-report settlements, retroactive changes in medicare reimbursement methodology, and increases in malpractice insurance premiums, which occurred in the last three months of the hospital fiscal year during which the hospital generated the excess may be used by the commission to reduce the amount of excess of the hospital as determined pursuant to this section.

(4) If the commission finds that any hospital chief executive officer, or any person who is in charge of hospital administration or operations, has knowingly and willfully allowed or authorized actual operating revenues or expenditures that are in excess of projected operating revenues or expenditures in the hospital's approved hospital budget as approved by the commission, the commission shall order such officer or person to pay an administrative fine not to exceed five thousand dollars.

NEW SECTION. Sec. 15. A new section is added to chapter 70.39 RCW to read as follows:

(1) It is the policy of this state that philanthropic support for health care should be encouraged and expanded, especially in support of experimental and innovative efforts to improve the health care delivery system.

(2) For purposes of determining reasonable costs of services furnished by hospitals, unrestricted grants, gifts, and income from endowments shall not be deducted from any operating costs of such hospitals, and, in addition, the following items shall not be deducted from any operating costs of such hospitals:

(a) An unrestricted grant or gift, or income from such a grant or gift, which is not available for use as operating funds because of its designation by the hospital's governing board.

(b) A grant or similar payment which is made by a governmental entity and which is not available, under the terms of the grant or payment, for use as operating funds.

(c) The sale or mortgage of any real estate or other capital assets of the hospital which the hospital acquired through a gift or grant and which is not available for use as operating funds under the terms of the gift or grant or because of its designation by the hospital's governing board, except for recovery of the appropriate share of gains and losses realized from the disposal of depreciable assets.

NEW SECTION. Sec. 16. A new section is added to chapter 70.39 RCW to read as follows:

When a hospital alleges that a factual determination made by the commission is incorrect, the burden of proof shall be on the hospital to demonstrate that such determination is, in light of the total record, not supported by a preponderance of the evidence. The burden of proof remains with the hospital in all cases involving administrative agency action.

Sec. 17. Section 2, chapter 161, Laws of 1979 ex. sess. as last amended by section 1, chapter 20, Laws of 1988 and RCW 70.38.025 are each amended to read as follows:

When used in this chapter, the terms defined in this section shall have the meanings indicated.

(1) "Board of health" means the state board of health created pursuant to chapter 43.20 RCW.

(2) "Capital expenditure" is an expenditure, including a force account expenditure (i.e., an expenditure for a construction project undertaken by a facility as its own contractor) which, under generally accepted accounting principles, is not properly chargeable as an expense of operation or maintenance. Where a person makes an acquisition under lease or comparable arrangement, or through donation, which would have required review if the acquisition had been made by purchase, such expenditure shall be deemed a capital expenditure. Capital expenditures include donations of equipment or facilities to a health care facility which if acquired directly by such facility would be subject to certificate of need review under the provisions of this chapter and transfer of equipment or facilities for less than fair market value if a transfer of the equipment or facilities at fair market value would be subject to such review. The cost of any studies, surveys, designs, plans, working drawings, specifications, and other activities essential to the acquisition, improvement, expansion, or replacement of any plant or equipment with respect to which such expenditure is made shall be included in determining the amount of the expenditure.

(3) "Commission" means the Washington state health commission as defined in RCW 70.39.020.

(4) "Continuing care retirement community" means an entity which provides shelter and services under continuing care contracts with its members and which sponsors or includes a health care facility or a health service. A "continuing care contract" means a contract to provide a person, for the duration of that person's life or for a term in excess of one year, shelter along with nursing, medical, health-related, or personal care services, which is conditioned upon the transfer of property, the payment of an entrance fee to the provider of such services, or the payment of periodic charges for the care and services involved. A continuing care contract is not excluded from this definition because the contract is mutually terminable or because shelter and services are not provided at the same location.

((~~(4) "Council" means the state health coordinating council created in RCW 70.38.055 and described in Public Law 93-641.~~))

(5) "Department" means the state department of social and health services.

(6) "Expenditure minimum" means, for the purposes of the certificate of need program, one million dollars adjusted by the department by rule to reflect changes in the United States department of commerce composite construction cost index; or a lesser amount required by federal law and established by the department by rule.

(7) "Federal law" means Public Law 93-641, as amended, or its successor.

(8) "Health care facility" means hospices, hospitals, psychiatric hospitals, tuberculosis hospitals, nursing homes, kidney disease treatment centers, ambulatory surgical facilities, rehabilitation facilities, continuing care retirement communities, and home health agencies, and includes such facilities when owned and operated by the state or by a political subdivision or instrumentality of the state and such other facilities as required by federal law and implementing regulations, but does not include Christian Science sanatoriums operated, listed, or certified by the First Church of Christ Scientist, Boston, Massachusetts. In addition, the term does not include any nonprofit hospital: (a) Which is operated exclusively to provide health care services for children; (b) which does not charge fees for such services; (c) whose rate reviews are waived by the state hospital commission; and (d) if not contrary to federal law as necessary to the receipt of federal funds by the state. In addition, the term does not include a continuing care retirement community which: (i) Offers services only to contractual members; and (ii) provides its members a contractually guaranteed range of services from independent living through skilled nursing, including some form of assistance with activities of daily living; and (iii) contractually assumes responsibility for costs of services exceeding the member's financial responsibility as stated in contract, so that, with the exception of insurance purchased by the retirement community or its members, no third party, including the medicaid program, is liable for costs of care even if the member depletes his or her personal resources; and (iv) has offered continuing care contracts and operated a nursing home continuously since January 1, 1988, or has obtained a certificate of need to establish a nursing home; and (v) maintains a binding agreement with the department assuring that financial liability for services to members, including nursing home services, shall not fall upon the department; and (vi) does not operate, and has not undertaken, a project which would result in a number of nursing home beds in excess of one for every four living units operated by the continuing care retirement community, exclusive of nursing home beds; and (vii) has undertaken no increase in the total number of nursing home beds after January 1, 1988, unless a professional review of pricing and long-term solvency was obtained by the retirement community within the prior five years and fully disclosed to members.

(9) "Health maintenance organization" means a public or private organization, organized under the laws of the state, which:

(a) Is a qualified health maintenance organization under Title XIII, section 1310(d) of the Public Health Services Act; or

(b)(i) Provides or otherwise makes available to enrolled participants health care services, including at least the following basic health care services: Usual physician services, hospitalization, laboratory, x-ray, emergency, and preventive services, and out-of-area coverage; (ii) is compensated (except for copayments) for the provision of the basic health care services listed in (b)(i) to enrolled participants by a payment which is paid on a periodic basis without regard to the date the health care services are provided and which is fixed without regard to the frequency, extent, or kind of health service actually provided; and (iii) provides physicians' services primarily (A) directly through physicians who are either employees or partners of such organization, or (B) through arrangements with individual physicians or one or more groups of physicians (organized on a group practice or individual practice basis).

(10) "Health services" means clinically related (i.e., preventive, diagnostic, curative, rehabilitative, or palliative) services and includes alcoholism, drug abuse, and mental health services and as defined in federal law.

(11) "Health service area" means a geographic region appropriate for effective health planning which includes a broad range of health services and a population of at least four hundred fifty thousand persons.

(12) "Institutional health services" means health services provided in or through health care facilities and entailing annual operating costs of at least five hundred thousand dollars adjusted by the department by rule to reflect changes in the United States department of commerce composite construction cost index; or a lesser amount required by federal law and established by the department by rule: PROVIDED, That no new health care facility may be initiated as an institutional health service.

(13) "Major medical equipment" means medical equipment which is used for the provision of medical and other health services and which costs in excess of one million dollars, adjusted by the department by rule to reflect changes in the United States department of commerce composite construction cost index; or a lesser amount required by federal law and established by the department by rule; except that such term does not include medical equipment acquired by or on behalf of a clinical laboratory to provide clinical laboratory services if the clinical laboratory is independent of a physician's office and a hospital and it has been determined under Title XVIII of the Social Security Act to meet the requirements of paragraphs (10) and (11) of section 1861(s) of such act.

(14) "Person" means an individual, a trust or estate, a partnership, a corporation (including associations, joint stock companies, and insurance companies), the state, or a political subdivision or instrumentality of the state, including a municipal corporation or a hospital district.

(15) "Provider" generally means a health care professional or an organization, institution, or other entity providing health care but the precise definition for this term shall be established by rule of the department, consistent with federal law.

(16) "Public health" means the level of well-being of the general population; those actions in a community necessary to preserve, protect, and promote the health of the people for which government is responsible; and the governmental system developed to guarantee the preservation of the health of the people.

(((17) "Regional health council" means a public regional planning body or a private nonprofit corporation which is organized and operated in a manner that is consistent with the laws of the state and which is capable of performing each of the functions described in RCW 70.38.085. A regional health council shall have a governing body for health planning which is composed of a majority (but not more than sixty percent of the members) of persons who are residents of the health service area served by the entity; who are consumers of health care; who are broadly representative of the social, economic, linguistic, and racial populations, and geographic areas of the health service area, and major purchasers of health care; and who are not, nor within the twelve months preceding appointment have been, providers of health care. The remainder of the members shall be residents of the health service area served by the agency who are providers of health care.

(18) "Regional health plan" means a document which provides at least a statement of health goals and priorities for the health service area. In addition, it sets forth the number, type, and distribution of health facilities, services, and manpower needed within the health service area to meet the goals of the plan.

~~(19) "State health plan" means a document developed in accordance with RCW 70.38.065.~~))

NEW SECTION. Sec. 18. A new section is added to chapter 70.39 RCW to read as follows:

The powers and duties of the department of social and health services regarding the certificate of need program established in accordance with chapter 70.38 RCW are hereby transferred to the Washington state health commission.

NEW SECTION. Sec. 19. A new section is added to chapter 70.39 RCW to read as follows:

Except where otherwise prescribed, every person who shall violate or knowingly aid and abet the violation of this chapter or any valid orders, rules, or regulations thereunder, or who fails to perform any act which it is herein made his or her duty to perform shall be guilty of a gross misdemeanor. Following official notice to the accused by the commission of the existence of an alleged violation, each day upon which a violation occurs shall constitute a separate violation. Any person violating the provisions of this chapter may be enjoined from continuing such violation. The commission has authority to levy civil penalties not exceeding one thousand dollars for violations of this chapter.

NEW SECTION. Sec. 20. If House Bill No. 1324 or Senate Bill No. 5454 is adopted, for the purpose of supporting the certificate of need process, the state health plan developed in accordance with RCW 70.38.065 and in effect on the effective date of this act, shall remain effective until June 30, 1990, or until superseded by rules adopted by the department of health for this purpose. The governor may amend the state health plan, as the governor finds appropriate, until the final expiration of the plan.

Sec. 21. Section 9, chapter 223, Laws of 1982 as amended by section 25, chapter 288, Laws of 1984 and RCW 43.131.253 are each amended to read as follows:

The hospital commission and its powers and duties shall be terminated on June 30, ((~~1989~~)) 1993, as provided in RCW 43.131.254.

Sec. 22. Section 10, chapter 223, Laws of 1982 as amended by section 26, chapter 288, Laws of 1984 and RCW 43.131.254 are each amended to read as follows:

The following acts or parts of acts, as now existing or hereafter amended, are each repealed, effective June 30, ((~~1990~~)) 1994:

(1) Section 2, chapter 5, Laws of 1973 1st ex. sess., section 1, chapter 288, Laws of 1984 and RCW 70.39.010;

(2) Section 3, chapter 5, Laws of 1973 1st ex. sess., section 2, chapter 288, Laws of 1984 and RCW 70.39.020;

(3) Section 4, chapter 5, Laws of 1973 1st ex. sess., section 3, chapter 288, Laws of 1984 and RCW 70.39.030;

(4) Section 5, chapter 5, Laws of 1973 1st ex. sess., section 1, chapter 36, Laws of 1977, section 4, chapter 288, Laws of 1984 and RCW 70.39.040;

(5) Section 6, chapter 5, Laws of 1973 1st ex. sess., section 104, chapter 287, Laws of 1984, section 5, chapter 288, Laws of 1984 and RCW 70.39.050;

(6) Section 7, chapter 5, Laws of 1973 1st ex. sess., section 1, chapter 35, Laws of 1977, section 6, chapter 288, Laws of 1984 and RCW 70.39.060;

(7) ((~~Section 8, chapter 5, Laws of 1973 1st ex. sess., section 7, chapter 288, Laws of 1984 and RCW 70.39.070;~~

~~(8)~~)) Section 9, chapter 5, Laws of 1973 1st ex. sess., section 8, chapter 288, Laws of 1984 and RCW 70.39.080;

((~~(9)~~)) (8) Section 10, chapter 5, Laws of 1973 1st ex. sess., section 9, chapter 288, Laws of 1984 and RCW 70.39.090;

((~~(10)~~)) (9) Section 11, chapter 5, Laws of 1973 1st ex. sess., section 10, chapter 288, Laws of 1984 and RCW 70.39.100;

((~~(11)~~)) (10) Section 12, chapter 5, Laws of 1973 1st ex. sess., section 11, chapter 288, Laws of 1984 and RCW 70.39.110;

((~~(12)~~)) (11) Section 13, chapter 5, Laws of 1973 1st ex. sess., section 12, chapter 288, Laws of 1984 and RCW 70.39.120;

((~~(13)~~)) (12) Section 14, chapter 5, Laws of 1973 1st ex. sess., section 82, chapter 75, Laws of 1977, section 13, chapter 288, Laws of 1984, section 58, chapter 505, Laws of 1987 and RCW 70.39.130;

((~~(14)~~)) (13) Section 15, chapter 5, Laws of 1973 1st ex. sess., section 1, chapter 163, Laws of 1974 ex. sess., section 14, chapter 288, Laws of 1984, section 1, chapter 118, Laws of 1988 and RCW 70.39.140;

(14) Section 1, chapter 262, Laws of 1988 and RCW 70.39.144;

(15) Section 16, chapter 5, Laws of 1973 1st ex. sess., section 1, chapter 154, Laws of 1977 ex. sess., section 18, chapter 288, Laws of 1984 and RCW 70.39.150;

(16) ((~~Section 17, chapter 5, Laws of 1973 1st ex. sess., section 19, chapter 288, Laws of 1984 and RCW 70.39.160;~~

~~(17)~~)) Section 18, chapter 5, Laws of 1973 1st ex. sess., section 67, chapter 57, Laws of 1985 and RCW 70.39.170;

((~~(18)~~)) (17) Section 19, chapter 5, Laws of 1973 1st ex. sess. and RCW 70.39.180;

((~~(19)~~)) (18) Section 20, chapter 5, Laws of 1973 1st ex. sess. and RCW 70.39.190;

((~~(20)~~)) (19) Section 21, chapter 5, Laws of 1973 1st ex. sess., section 20, chapter 288, Laws of 1984 and RCW 70.39.200;

((~~(21)~~)) (20) Section 22, chapter 5, Laws of 1973 1st ex. sess. and RCW 70.39.900;

((~~(22)~~)) (21) Section 23, chapter 5, Laws of 1973 1st ex. sess. and RCW 70.39.910;

((~~(23)~~)) (22) Section 15, chapter 288, Laws of 1984 and RCW 70.39.165;

((~~(24)~~)) (23) Section 23, chapter 288, Laws of 1984 and RCW 70.39.195; and

((~~(25)~~)) (24) Section 24, chapter 288, Laws of 1984 and RCW 70.39.125.

NEW SECTION. Sec. 23. The following acts or parts of acts are each repealed:

(1) Section 8, chapter 161, Laws of 1979 ex. sess., section 6, chapter 139, Laws of 1980, section 6, chapter 235, Laws of 1983 and RCW 70.38.085;

(2) Section 3, chapter 161, Laws of 1979 ex. sess., section 3, chapter 235, Laws of 1983 and RCW 70.38.035;

(3) Section 4, chapter 161, Laws of 1979 ex. sess., section 3, chapter 139, Laws of 1980, section 4, chapter 235, Laws of 1983 and RCW 70.38.045;

(4) Section 5, chapter 161, Laws of 1979 ex. sess., section 4, chapter 139, Laws of 1980 and RCW 70.38.055;

(5) Section 6, chapter 161, Laws of 1979 ex. sess., section 5, chapter 139, Laws of 1980, section 5, chapter 235, Laws of 1983 and RCW 70.38.065;

(6) Section 8, chapter 5, Laws of 1973 1st ex. sess., section 17, chapter 125, Laws of 1984, section 7, chapter 288, Laws of 1984 and RCW 70.39.070; and

(7) Section 17, chapter 5, Laws of 1973 1st ex. sess., section 19, chapter 288, Laws of 1984 and RCW 70.39.160.

NEW SECTION. Sec. 24. The commission shall conduct or contract to conduct the following studies:

(1) The study of the certificate of need process established pursuant to chapter 70.38 RCW. This study shall examine the need for the process in view of the changes in the health care system in recent years. It shall consider the advantages and disadvantages of termination or modification.

(2) The study of the feasibility of increasing, on a phase-in basis, medicaid hospital reimbursement rates to that of private purchaser of hospital services.

(3) The study of professional liabilities on health care access and costs.

The commission shall report to the appropriate committee of the legislature with its recommendations by July 1, 1990.