625 F.2d 719 (6th Cir. 1980), 77-1576, Parkridge Hospital, Inc. v. Califano

Docket Nº:77-1576, 78-3171.
Citation:625 F.2d 719
Party Name:PARKRIDGE HOSPITAL, INC., Plaintiff-Appellee, v. Joseph A. CALIFANO, Secretary of Health, Education and Welfare, Defendant-Appellant. The DIPLOMAT LAKEWOOD, INC., dba The Aristocrat Nursing Home Lakewood, Plaintiff-Appellee, v. BLUE CROSS OF NORTHEAST OHIO, Defendant,and Department of Health, Education and Welfare, Intervenor-Appellant.
Case Date:April 29, 1980
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 719

625 F.2d 719 (6th Cir. 1980)

PARKRIDGE HOSPITAL, INC., Plaintiff-Appellee,

v.

Joseph A. CALIFANO, Secretary of Health, Education and Welfare, Defendant-Appellant.

The DIPLOMAT LAKEWOOD, INC., dba The Aristocrat Nursing Home Lakewood, Plaintiff-Appellee,

v.

BLUE CROSS OF NORTHEAST OHIO, Defendant,and

Department of Health, Education and Welfare, Intervenor-Appellant.

Nos. 77-1576, 78-3171.

United States Court of Appeals, Sixth Circuit.

April 29, 1980

Argued Nov. 29, 1979.

Page 720

John L. Bowers, Jr., U. S. Atty., Chattanooga, Tenn., and Barbara A. Babcock, App. Section Civil Div. Dept. of Justice, for defendant-appellant in case no. 77-1576.

William D. Beyer, U. S. Atty., and Thomas H. Baughman, Cleveland, Ohio, for defendant-appellant in case no. 78-3171.

Leonard Schaitman and Anthony J. Steinmeyer, Dept. of Justice, Civil Div., Washington, D.C., for defendant-appellant in both cases.

Roger W. Dickson, Stopel, Caldwell & Heggie, Jan T. Hall, Chattanooga, Tenn., for plaintiff-appellee in case no. 77-1576.

Morton B. Icove, Lustig, Icove & Lustig, Cleveland, Ohio, for plaintiff-appellee in case no. 78-3171.

Charles E. Hill, Institute for Public Interest Representation, Georgetown University Law Center, Washington, D.C., for amicus Consumer Federation of America.

Carl Weissburg, Robert A. Klein and David K. Replogle, Los Angeles, Cal., for amicus Federation of Amer. Hospitals.

Before EDWARDS, Chief Judge, and KEITH and KENNEDY, Circuit Judges.

EDWARDS, Chief Judge.

These two appeals raise the same legal issues and were assigned for oral argument at the same time. They deal with somewhat complicated problems concerning HEW Regulation 20 C.F.R. s 422.435 (1979), which allows public disclosure of a financial report, called a Provider Cost Report, which is required to be filed by Medicare providers operating under financial reimbursement through the Federal Medicare Program, 42 U.S.C. s 1395 (1976).

Plaintiffs, Parkridge Hospital (Parkridge) in Chattanooga, Tennessee, and Diplomat Lakewood, Inc., (Diplomat) in Lakewood, Ohio, are, respectively, a hospital and a nursing home which provide health care services to patients for which they receive reimbursement under Medicare. The Medicare statute, 42 U.S.C. (Supp. V) s 1395f(b) (1976), allows payment to providers for such services to qualified patients for the lesser of "the reasonable cost of such services" or "the customary charges with respect to such services."

In order to receive reimbursement under the appropriate formula, providers of care such as Parkridge and Diplomat are required to file annual Provider Cost Reports. See 42 C.F.R. ss 405.406, 405.435 (1977). These Provider Cost Reports are filed with designated "fiscal intermediaries." In the instance of Parkridge, the fiscal intermediary is defendant Blue Cross and Blue Shield of Tennessee; in the instance of Diplomat, it is defendant Blue Cross of Northeast

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Ohio. In each of these cases the Department of Health, Education and Welfare has intervened as a defendant.

The disputed regulation, 20 C.F.R. s 422.435 (1979), allows the Secretary to disclose the Provider Cost Reports when a written request for disclosure is made. Such requests have been filed as to both Parkridge's and Diplomat's Provider Cost Reports and the Secretary has given notice that the disclosure requests will be granted. Both Parkridge and Diplomat in widely separated District Courts filed complaints which have resulted in injunctive relief restraining disclosure. It is from these injunctions that appellant Secretary appeals.

These appeals present the same two controlling legal issues: 1) is a regulation issued by the Secretary of Health, Education and Welfare (20 C.F.R. s 422.435 (1979)) which allows disclosure to the public upon written request of Provider Cost Reports "authorized by law"?; and 2) if so, is the regulation nonetheless invalid as an abuse of the Secretary's discretion?

The arguments of the opposing parties are closely balanced. Appellant Secretary relies upon authorization for the regulation which he claims to find in the Medicare statute, 42 U.S.C. s 1306(a) (1976), in the "housekeeping statute" 5 U.S.C. s 301 (1976), and in the agency's adherence to formal rulemaking (see 5 U.S.C. s 553 (1976)) in the adoption of 20 C.F.R. s 422.435 (1979). On the abuse of discretion issue, the Secretary offers the rationale that the regulation is well within his discretion because of the need for public participation in keeping honest the use by providers of nearly seven billion dollars of public funds.

Appellees mount a multifaceted attack upon the regulation claiming that as private entrepreneurs they will be seriously damaged by public disclosure of their Provider Cost Reports. They claim that other nursing homes and hospitals will have access to the Provider Cost Reports and can thereupon make use of their financial data to deduce operating methods and practices which the competitors can then copy. They assert that such disclosure violates exemption clauses of the Freedom of Information Act, 5 U.S.C. s 552(b)(3), (4) (1976), 1 and is prohibited by the Trade Secrets Act, 18 U.S.C. s 1905 (1976).

This case would be much more difficult to decide but for the opinion of the...

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