Capen v. Shewry

Physician-Owned Specialty Clinics

Capen v. Shewry, No. C047172 (Cal. Ct. App. Sept. 19, 2007)

The California Court of Appeal, Third District upheld a lower court decision that determined that an interpretive regulation of the California Department of Health Services ("DHS"), the agency in charge of licensing hospitals in the state, was null and void and held that physician-owned and operated ambulatory surgical clinics were excluded from licensing by DHS, leaving them to be accredited and regulated by the Medical Board of California ("Board"). The lawsuit involved a licensed physician who was building a surgical clinic that he planned on wholly owning and operating. Non-owner, non-lessee physicians would also be permitted to practice at the surgical clinic. DHS informed the physician that a license was required because the clinic would be used by physicians who did not share in its ownership and operation. That interpretation was based upon a state law which required clinics which are not part of a hospital and which provide ambulatory surgical care for patients who remain less than 24 hours to be licensed unless the clinic is "owned or leased and operated as a clinic or office by one or more physicians … in individual or group practice."

The court determined that DHS’s interpretation of the provision was actually a regulation which was subject to the Administrative Procedure Act ("APA") and was void because it did not comply with the APA’s notice and comment requirements. However, the court decided that it could resolve the grammatical ambiguity in the provision because the section did not require administrative expertise for its interpretation. Examining the legislative history, the court concluded that physician-owned and operated surgical clinics, regardless of whether non-owner, non-lessee physicians were practicing there, were to be regulated by the Board and did not require a license through the department.