Parkridge Hospital, Inc. v. Califano

• Decision Date: 29 April 1980
• Docket Number: 78-3171.,No. 77-1576,77-1576
• Citation: 625 F.2d 719
• Parties: 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.
• Court: U.S. Court of Appeals — Sixth Circuit

625 F.2d 719

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.

Argued November 29, 1979.

Decided and Filed April 29, 1980.

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. § 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. § 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) § 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. §§ 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 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. § 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. § 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. § 1306(a) (1976), in the "housekeeping statute" 5 U.S.C. § 301 (1976), and in the agency's adherence to formal rulemaking (see 5 U.S.C. § 553 (1976)) in the adoption of 20 C.F.R. § 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. § 552(b)(3), (4) (1976),¹ and is prohibited by the Trade Secrets Act, 18 U.S.C. § 1905 (1976).

This case would be much more difficult to decide but for the opinion of the Supreme Court in Chrysler Corporation v. Brown, 441 U.S. 281, 99 S.Ct. 1705, 60 L.Ed.2d 208 (1979). This opinion, issued after both District Court decisions which we now review, has dealt extensively and authoritatively with several of the more difficult questions presented to the District Judges below. In the first instance, Chrysler establishes that the plaintiffs in this case cannot rely upon the exemption sections of the Freedom of Information Act as providing a cause of action to enjoin the disclosure of exempted information. The Freedom of Information Act, the Court held, "is exclusively a disclosure statute." Chrysler Corporation v. Brown, supra at 292, 99 S.Ct. at 1712, 1713.

In Chrysler, Mr. Justice Rehnquist said for the Court:

"Chrysler contends that the nine exemptions in general, and Exemption 4 in particular, reflect a sensitivity to the privacy interests of private individuals and nongovernmental entities. That contention may be conceded without inexorably requiring the conclusion that the exemptions impose affirmative duties on an agency to withhold information sought. In fact, that conclusion is not supported by the language, logic, or history of the Act.

* * * * * *

"The Act is an attempt to meet the demand for open government while preserving workable confidentiality in governmental decision-making. Congress appreciated that, with the expanding sphere of governmental regulation and enterprise, much of the information within Government files has been submitted by private entities seeking Government contracts or responding to unconditional reporting obligations imposed by law. There was sentiment that Government agencies should have the latitude, in certain circumstances, to afford the confidentiality desired by these submitters. But the congressional concern was with the agency's need or preference for confidentiality; the FOIA by itself protects the submitters' interest in confidentiality only to the extent that this interest is endorsed by the agency collecting the information.

Enlarged access to governmental information undoubtedly cuts against the privacy concerns of nongovernmental entities, and as a matter of policy some balancing and accommodation may well be desirable. We simply hold here that Congress did not design the FOIA exemptions to be mandatory bars to disclosure." Id. at 292-293, 99 S.Ct. at 1712, 1713. (Emphasis added). (Footnotes omitted).

The Court concluded:

"Congress did not limit an agency's discretion to disclose information when it enacted the FOIA. It necessarily follows that the Act does not afford Chrysler any right to enjoin agency disclosure."

Id. at 294, 99 S.Ct. at 1714.

Secondly, Chrysler holds that a criminal statute, 18 U.S.C. § 1905 (1976),² relied upon by plaintiffs, which generally forbids the disclosure of governmental information "unless authorized by law" is applicable to cases like our instant case. (See discussion in Chrysler, supra at 299-301, 99 S.Ct. at 1716-1717.) On this score the Court said:

"§ 1905 does address formal agency action and that the appropriate inquiry is whether OFCCP's regulations provide the `authorization by law' required by the statute." Id. at 301, 99 S.Ct. at 1717.

Thirdly, the Chrysler opinion discusses the standards for determining whether or not a disclosure regulation has been "authorized by law." The regulation must be one which is "substantive" in character. The Chrysler opinion defines a substantive regulation as one "affecting individual rights and obligations." Chrysler, supra at 302, 99 S.Ct. at 1718. We believe that the facts of this case, as well as the statutory language involved, serve to make clear that 20 C.F.R. § 422.435 (1979) does concern individual rights and obligations and is substantive in character.

In order to be "authorized by law" the regulation must also be promulgated in accordance with the formal rulemaking requirements set forth in 5 U.S.C. § 553 (1976). It is clear that 20 C.F.R. § 422.435 (1979) was the product of formal rulemaking. See 40 Fed.Reg. 27,648-27,651 (1975).

Over and above these requirements, in order for the regulation to have "the `force and effect of law,'" it is necessary to establish a "nexus between the regulations and some delegation of the requisite legislative authority by Congress." Chrysler, supra at 304, 99 S.Ct. at 1719.

None of these standards had been as specifically delineated by the Supreme Court at the time the District Judges who decided these two cases below were grappling with them. As far as statutory interpretation is concerned, we believe that Chrysler has left for this court only the question of whether or not the disclosure regulation adopted by the Secretary was "authorized by law"...