BATH MEMORIAL HOSP. v. Maine Health Care Finance Commission, Civ. No. 86-0140-P.

• Decision Date: 09 November 1987
• Docket Number: Civ. No. 86-0140-P.
• Parties: BATH MEMORIAL HOSPITAL, et al., Plaintiffs, v. MAINE HEALTH CARE FINANCE COMMISSION, et al., Defendants.
• Court: U.S. District Court — District of Maine

673 F. Supp. 628

BATH MEMORIAL HOSPITAL, et al., Plaintiffs, v. MAINE HEALTH CARE FINANCE COMMISSION, et al., Defendants.

Civ. No. 86-0140-P.

United States District Court, D. Maine.

November 9, 1987.

Joseph M. Kozak, Pierce, Atwood, Scribner, Allen, Smith & Lancaster, Augusta, Me., and Jay H. Krall, for plaintiffs.

Lucinda E. White, Gordon E. Stein, Charles F. Dingman, Health Care Finance Commission, Augusta, Me., and Suzanne M. Gresser, for defendants.

John P. Doyle, Jr., Portland, Me., and Arlyn H. Weeks, and William F. Julavits, Maine Hosp. Ass'n, Augusta, Me., for Maine Hosp. Ass'n.

Leigh Ingalls Saufley, Sr., Asst. Atty. Gen., Dept. of Human Service, Augusta, Me., and T. Christopher Beach, Asst. Atty. Gen., for Me. Dept. Human Services.

GENE CARTER, District Judge.

MEMORANDUM OF DECISION AND ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

I. Introduction

This action raises constitutional and statutory challenges to the Maine Health Care Finance Act (the "Act"), 22 M.R.S.A. §§ 381-399 (Supp.1985). Plaintiffs are nine hospitals located within the State of Maine.¹ Defendants are the Maine Health Care Finance Commission ("Commission"), a state executive agency created to regulate hospital cost increases, and its seven members and officers.² The Maine Department of Human Services, which administers the Medicare program in Maine, was permitted to intervene.

Pursuant to the Act, Defendant Commission sets annual limits on the revenue each hospital can collect from its patients for patient care and hospital overhead. Plaintiffs claim that the Act violates the U.S. Constitution and 42 U.S.C. § 1983 by permitting the Commission to calculate the hospitals' annual revenue limits on improper bases. Defendants have moved to dismiss the action on the grounds that abstention is warranted. In the alternative, Defendants have moved for summary judgment. Defendant DHS has also moved for summary judgment. Plaintiffs York Hospital and Mount Desert Island Hospital have moved for partial summary judgment on Counts I-VII, IX and X of the Complaint.

For the reasons set forth herein, the Court grants Defendant Commission's Motion to Dismiss on the basis that abstention is appropriate.

II. Overview

In an attempt to limit hospital cost increases, Defendant Commission sets annual limits on the amount of revenue Maine hospitals can collect from their patients. The Commission does this in a statutorily complex but mathematically simple manner.³ First, it calculates a hospital's annual financial requirements, including debt service, anticipated capital improvements and a forecast of actual financial outlays for patient care based on outlays for prior years.⁴ Then it ascertains and totals the hospital's non-patient sources of income, such as third-party payors' reimbursements (Blue Cross, Medicare and Medicaid), gifts and grants, and interest on accumulated income.⁵ It then subtracts this available income from the hospital's financial requirements, arriving at a Gross Patient Service Revenue Limit ("GPSRL"). It apportions a share of the GPSRL to each major third-party payor, and allows the hospital to collect the balance from its patients.

Plaintiffs challenge the Act that empowers the Commission on 10 constitutional and statutory grounds. Eight of those claims arise from step two of the Commission's revenue limit calculations, wherein the Commission determines the hospital's non-patient income sources. The Act permits the Commission to consider, inter alia, profits the hospitals earn under the federal Medicare prospective payment system ("PPS"),⁶ gifts the hospitals use for purposes specified by their donors, and interest hospitals earn on funds set aside for servicing debts, a portion of which funds are donated.⁷

Plaintiffs claim that the Act, by permitting the Commission to include these three sources of income in its annual limit calculations, violates the Supremacy Clause of the U.S. Constitution, impairs their contracts with Medicare and with gift donors, and unconstitutionally takes without compensation their Medicare profits, restricted gifts and debt service fund interest. They claim that the Commission's administration of the Act violates 42 U.S.C. § 1983.

Plaintiffs' remaining two claims arise from separate provisions in the Act. Count VIII alleges that the Act's cap on total spending for capital improvements prevents Plaintiffs from completing projects that have already been approved under the state's certificate of need system ("C.O. N.").⁸ Plaintiffs claim this cap violates the Equal Protection and Due Process clauses of the U.S. Constitution by creating arbitrary distinctions between equally meritorious C.O.N.-approved projects.

Finally, they claim that the Commission's annual revenue limit calculation denies them Due Process because it fails to consider, in calculating each hospital's annual financial requirements, the cost of challenging the Commission's decisions. This, Plaintiffs claim, prevents them from raising the funds with which to exercise their due process rights to challenge rulings that effect their property interests.

In their Answer, Defendants set up six defenses. They claim, most importantly, that the Court lacks subject matter jurisdiction over Counts I-IV and VII-IX due to absence of standing in the Plaintiffs, and that, if the Court determines that it has jurisdiction, abstention is appropriate and, therefore, the exercise of jurisdiction is not. In Defendant's Motion to Dismiss or, in the Alternative, for Summary Judgment, currently before the Court, Defendant raises standing issues as to Counts II and III only.

The Court will address the standing and abstention claims in turn.

A. Standing

Defendants claim the Court lacks subject matter jurisdiction over Counts II and III because Plaintiffs lack standing. Defendants claim none of the Plaintiffs have suffered a direct injury from the alleged loss of profits earned under Medicare's PPS, because the amount of Medicare profits earned is unaffected by the Act. Defendants claim, further, that the alleged loss of Medicare profits Plaintiffs allege is outside the "zone of interests" protected by the Medicare Act,⁹ because that act was designed to protect and benefit Medicare beneficiaries, not health care providers. Finally, Defendants claim that Plaintiffs have no private cause of action to enforce their alleged rights under the Medicare Act.

Plaintiffs claim, and the Court agrees, that Defendants' allegations lack merit. Plaintiffs have a legitimate property interest in the profits they earn under Medicare's PPS, whether or not the Medicare Act guarantees them. Further, the express provisions of the MHCFC Act may impact upon those Medicare profits and may constructively affect Plaintiffs' control over them, whether or not the provisions increase or decrease the size of the profits. Plaintiffs have therefore alleged a sufficient personal stake in the outcome of their constitutional challenges to warrant the Court's intervention. Warth v. Seldin, 422 U.S. 490, 498-499, 95 S.Ct. 2197, 2204-05, 45 L.Ed.2d 343 (1975).

The Court agrees, further, that the alleged loss of Medicare profits Plaintiffs allege is not outside the "zone of interests" the Medicare Act is intended to protect. Congress expressly switched to a PPS to create economic incentives for hospitals to provide health care to Medicare beneficiaries more inexpensively and efficiently. See H.R.Rep. No. 25, 98th Cong., 1st Sess., 132, Reprinted in 2 U.S.Code Cong. & Ad.News 143, 219, 351 (1983); 49 Fed.Reg. 1, 301-302. The single greatest incentive created by the PPS is the hospital's right to keep all profits they earn by providing health services to Medicare beneficiaries for less than the Medicare reimbursements to which those services entitle them. Sen. Rep. No. 23, 98th Cong., 1st Sess., 47, Reprinted in 2 U.S.Code Cong. & Ad.News 143, 147 (1983). If that incentive is jeopardized, the health of the PPS—and with it Congress' intent to lower health care costs —is threatened. The hospitals' right to keep Medicare profits is therefore a critical element of the PPS, and falls within the zone of interests protected by the Medicare Act.

Finally, the Court finds no merit in Defendants' argument that Plaintiffs' Counts II and III, alleging violations of the Supremacy Clause of the U.S. Constitution, must fail because the Medicare Act affords Plaintiffs no private cause of action. Plaintiffs' claims do not arise under the Medicare Act, but under the Supremacy Clause. Plaintiffs do not seek to enforce the provisions of the Medicare Act itself. They seek to halt enforcement of a state statute they believe impinges upon the Medicare Act and their rights under it. They are entitled to invoke the Supremacy Clause to assist them in doing so, even if the federal statute they address affords no private cause of action. See White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980); Western Airlines, Inc. v. Port Authority of New York and New Jersey, 817 F.2d 222 (2nd Cir. 1987).

The Court therefore finds that Plaintiffs have standing to raise the claims in their Complaint, and that the Court may properly exercise subject matter jurisdiction over this action.

III. Abstention

Defendant next claims that this Court should dismiss Plaintiffs' action because abstention is warranted. The Court agrees. Five actions challenging provisions of the MHCFC Act are currently pending in Maine state courts, four of which involve Plaintiffs in this action. Three of the five actions raise issues identical to those raised here.¹⁰ Abstention is appropriate where state court determination of state law may obviate the need to address federal constitutional questions. Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).

Further, since Plaintiffs filed their Complaint, the Maine State Legislature has amended the Act...