Barney v. Holzer Clinic, Ltd.

• Decision Date: 08 April 1997
• Docket Number: No. 95-4263,95-4263
• Citation: 110 F.3d 1207
• Parties: , Medicare & Medicaid Guide P 45,163 Teresa BARNEY and Randy Barney, Plaintiffs-Appellants, Bonita Waldron, on behalf of themselves and others similarly situated, Intervenor-Appellant, v. HOLZER CLINIC, LTD., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1207

110 F.3d 1207

37 Fed.R.Serv.3d 149, Medicare & Medicaid Guide P 45,163

Teresa BARNEY and Randy Barney, Plaintiffs-Appellants Bonita Waldron, on behalf of themselves and others similarly situated, Intervenor-Appellant, v. HOLZER CLINIC, LTD., Defendant-Appellee.

No. 95-4263.

United States Court of Appeals,Sixth Circuit.

Argued Oct. 24, 1996.

Decided April 8, 1997.

Edward A. Icove (argued), Lustig, Icove & Lustig, Cleveland, OH, Timothy J. Foran (briefed), Gary M. Smith, and Ann Sessums Rubin, Southern Ohio Legal Services, New Philadelphia, OH, for Appellants.

David M. Selcer (argued and briefed) and Joseph C. Devine, Baker & Hostetler, Columbus, OH, for Appellee.

Thomas W. Osborne (briefed), American Association of Retired Persons, Wsahington, DC; John S. Marshall, Spater, Gittes, Schulte & kolman, Columbus, OH; and Jack R. Bierig (briefed), Sidley & Austin, Chicago, IL, for Amici Curiae.

Before: WELLFORD, DAUGHTREY, and MOORE, Circuit Judges.

MOORE, Circuit Judge.

This class action presents the novel question of whether the Equal Credit Opportunity Act's antidiscrimination provisions prohibit a medical clinic from refusing to accept new patients whose bills will be paid by Ohio's Medicaid program. For the reasons discussed below, we hold that they do not. We do, however, believe that clear violations of Federal Rule of Civil Procedure 23 demand that we take the unusual step of addressing sua sponte the scope of the class certified below.

I. FACTS AND PROCEDURAL HISTORY

Plaintiffs-Appellants Teresa and Randy Barney and intervenor-appellant Bonita Waldron [hereinafter "plaintiffs"] are all residents of Vinton County, Ohio, who receive Aid to Families with Dependent Children and are therefore eligible for medical treatment under Medicaid. Defendant-Appellee Holzer Clinic is a "for-profit physician's organization which generally provides non emergency medical services and treatment in various Ohio and West Virginia counties." Appellee's Br. at 3. The clinic presently has a policy under which it will accept new patients under the Medicaid program only if those patients live in counties in which Holzer has clinics. Holzer Clinic does not have any facilities in Vinton County and admits that "[p]laintiffs were not accepted as patients because they were non-emergency new Medicaid patients who live in Vinton County." J.A. at 22-23 (Memorandum Contra Plaintiffs' Motion for Class Certification).

Plaintiffs brought this action in federal district court claiming that Holzer, by refusing to treat them, had denied them incidental credit because they received public assistance, in violation of the Equal Credit Opportunity Act, Pub.L. No. 90-321, 82 Stat. 146 (1968) [hereinafter ECOA] and amendments, as interpreted by the Federal Reserve Board's Regulation B (Equal Credit Opportunity), 12 C.F.R. § 202. The complaint requested injunctive and declaratory relief as well as compensatory and punitive damages on behalf of a broad plaintiff class under the ECOA and pendent state-law claims. The district court certified the class under FED.R.CIV.P. 23(b)(2), J.A. at 50, and then, after both parties had briefed the merits of the case, granted Holzer's motion to dismiss for failure to state a claim under the ECOA and dismissed the pendent state law claims without prejudice, id. at 106-07. Plaintiffs appeal.

II. JURISDICTION

The district court had jurisdiction under 15 U.S.C. § 1691e(f) (providing jurisdiction in ECOA cases) and 28 U.S.C. § 1367(a) (supplemental jurisdiction over pendent state law claims). We have jurisdiction over this timely appeal under 28 U.S.C. § 1291.

III. DISCUSSION

A. ECOA and Medicaid

The ECOA makes it "unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction ... because all or part of the applicant's income derives from any public assistance program." 15 U.S.C. § 1691(a)(2) (emphasis added). Plaintiffs argue that Holzer is a creditor ¹ under the ECOA because it regularly extends "incidental credit" to patients by providing them with medical services and billing them later. ² They further argue that because Holzer will treat privately insured residents of Vinton County, but will not accept new Medicaid patients from that county, it thereby discriminates against them because part of their income derives from public assistance. ³ We need not address either of these propositions, however, because plaintiffs are not "applicants" under the ECOA and therefore cannot invoke the Act's protections.

The ECOA defines an "applicant" as "any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit." 15 U.S.C. § 1691a(b). Regulation B provides a slightly different definition: "Applicant means any person who requests or who has received an extension of credit from a creditor, and includes any person who is or may become contractually liable regarding an extension of credit." 12 C.F.R. § 202.2(e). Both definitions refer to "credit," which itself has a statutory definition: "[T]he right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its [sic] payment or to purchase property or services and defer payment therefor." 15 U.S.C. § 1691a(d). Again, Regulation B differs slightly: "Credit means the right granted by a creditor to an applicant to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment therefor." ⁴ 12 C.F.R. § 202.2(j) (emphasis added).

Plaintiffs do not argue that they were granted a right "to defer payment of a debt" or to "incur debt and defer its payment"; indeed, they seem to concede that if debt were a prerequisite for the ECOA's protections they would fall outside the Act's scope. See Appellants' Br. at 22 ("[P]laintiffs were 'applicants' under the ECOA, irrespective of whether the requested arrangement would or would not have resulted in a traditional debt relationship with Holzer."); id. at 26 ("Only the first two alternatives specify 'debt' as a necessary element. The third alternative does not; it requires only the deferral of 'payment,' not the existence of 'debt.' "). They argue instead that the requisite credit transaction occurs when Holzer extends to patients a right to "purchase ... services and defer payment therefor." Id. at 27 ("If the right to purchase property or services and defer payment therefor does not constitute 'credit' irrespective of whether debt will be created, then this criterion could be satisfied only where debt is created."). Plaintiffs, however, have not asked Holzer to give them a right to purchase anything or to defer payment. Rather, as discussed below, they have asked the clinic to provide them with medical services under an agreement between Holzer and the State of Ohio, to which plaintiffs are third-party beneficiaries. This is not a request for credit under the ECOA, and that Act's protections do not apply.

Congress created Medicaid ⁵ in 1965 to provide medical services to families and individuals who would otherwise not be able to afford necessary care. See 42 U.S.C. § 1396; Pennsylvania Med. Soc'y v. Snider, 29 F.3d 886, 888-89 (3d Cir.1994). The federal law allows the states considerable discretion in administering the program; so long as a state's program meets federal statutory and regulatory standards, the federal government provides the bulk of the program's funding. See 42 U.S.C. § 1396d(b); Pennsylvania Med. Soc'y, 29 F.3d at 888-89. See generally 42 U.S.C. § 1396a (standards).

Ohio has chosen to participate in the Medicaid program. See OHIO REV.CODE.ANN. § 5111.01 (Banks-Baldwin West 1996). Under federal law, medical service providers must accept the state-approved Medicaid payment as payment-in-full, and may not require that patients pay anything beyond that amount. 42 C.F.R. § 447.15 ("A State plan must provide that the Medicaid agency must limit participation in the Medicaid program to providers who accept, as payment in full, the amounts paid by the agency plus any deductible, coinsurance or copayment required by the plan to be paid by the individual."); Rehabilitation Ass'n of Virginia, Inc., v. Kozlowski, 42 F.3d 1444, 1447 (4th Cir.1994) ("Service providers who participate in the Medicaid program are required to accept payment of the state-denoted Medicaid fee as payment in full ... and may not attempt to recover any additional amounts elsewhere."), cert. denied, --- U.S. ----, 116 S.Ct. 60, 133 L.Ed.2d 23 (1995); Pennsylvania Med. Soc'y, 29 F.3d at 889; New York City Health and Hosps. Corp. v. Perales, 954 F.2d 854, 856 (2d Cir.), cert. denied, 506 U.S. 972, 113 S.Ct. 461, 121 L.Ed.2d 369 (1992). See 42 U.S.C. § 1320a-7b(d) (prohibiting Medicaid service providers from charging "money or other consideration at a rate in excess of the rates established by the State").

Federal law allows states to pay either the provider or, in some circumstances, the patient. See 42 U.S.C. § 1396d(a) (allowing Medicaid payment "for individuals, and ... to individuals" who meet certain eligibility requirements) (emphasis added); 42 C.F.R. § 447.25(a), (b) (implementing 42 U.S.C. § 1396d "by prescribing requirements applicable to States making direct payments to certain recipients for physicians' or dentists' services"); 42 C.F.R. § 447.10(d)(2). In Ohio, however, all Medicaid payments flow from the state directly to the medical provider; a provider is absolutely barred from requesting any payment from patients for treatment provided under the program. See OHIO ADMIN.CODE § 5101:3-1-131(A) ("The department's payment constitutes payment-in-full for any covered service. The provider may not bill the recipient for any difference between that payment and the provider's charge. The provider may not charge the recipient any copayment,...