Citizens Health Corp. v. Sebelius

• Decision Date: 02 August 2013
• Docket Number: No. 12–3924.,12–3924.
• Parties: CITIZENS HEALTH CORPORATION, Plaintiff–Appellant, v. Kathleen SEBELIUS, Secretary of Health and Human Services, et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

725 F.3d 687

CITIZENS HEALTH CORPORATION, Plaintiff–Appellant,

v.Kathleen SEBELIUS, Secretary of Health and Human Services, et al., Defendants–Appellees.

No. 12–3924.

United States Court of Appeals,Seventh Circuit.

Argued May 28, 2013.

Decided Aug. 2, 2013.

Aaron E. Haith, Attorney, Choate & Haith, Indianapolis, IN, for Plaintiff–Appellant.

Jill Z. Julian, Attorney, Office of the United States Attorney, Jon B. Laramore, Attorney, Harmony Ann Mappes, Attorney,Faegre Baker Daniels LLP, Indianapolis, IN, for Defendants–Appellees.

Before EASTERBROOK, Chief Judge, and WILLIAMS and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

Defendant Health and Hospital Corporation of Marion County, Indiana (“Health and Hospital”) is a municipal corporation that operates a major hospital and numerous health care facilities. This appeal arises from one of those facilities, a federally funded health center that Health and Hospital operated in partnership with plaintiff Citizens Health Corporation (“Citizens”) to serve the medically underserved population in Indianapolis. The health center was funded in part by a federal grant awarded to Health and Hospital by the federal Health Resources and Services Administration (“HRSA”), which is part of the Department of Health and Human Services. In 2012, after Citizens and Health and Hospital had a falling out, Health and Hospital decided to terminate its partnership with Citizens and relinquish the federal grant, which still had several years of funding remaining.

In response, Citizens filed this suit against Health and Hospital, HRSA, and other defendants in federal district court in an effort to retain the grant funds. The district court granted summary judgment in favor of all defendants, concluding that Citizens had no contractual, statutory, or constitutionally cognizable interest in the grant, and that Health and Hospital and HRSA were free to terminate the grant without Citizens' approval. Citizens appeals this decision, and we affirm.

I. Factual and Procedural BackgroundA. Section 330 Grants

Section 330 of the Public Health Services Act makes federal funding available to qualifying health centers that provide primary health care services to medically underserved populations. 42 U.S.C. § 254b. An entity becomes eligible for section 330 grant funds by submitting an application to HRSA. In addition to establishing that the entity provides health care to a medically underserved population area, the entity must satisfy a number of additional requirements. See 42 U.S.C. § 254b(k)(3). Of particular relevance to this case, a qualified entity must be able to demonstrate its financial responsibility, § 254b(k)(3)(D), and must establish a governing board composed of a majority of individuals who are being served by the health center, § 254b(k)(3)(H). Entities that satisfy these requirements and receive section 330 grant funds are designated federally qualified health centers.

Federally qualified health centers may be public or not-for-profit entities. Since public entities sometimes have difficulty establishing an independent patient-controlled board, HRSA permits public entities to form health centers with a private not-for-profit co-applicant. See Health Resources and Services Administration, Policy Information Notice 1999–09, Implementation of the Balanced Budget Act Amendment of the Definition of Federally Qualified Health Center Look–Alike Entities for Public Entities (1999). Under a co-applicant structure, the public agency partners with a co-applicant to satisfy the statutory requirements. The co-applicant typically provides the patient-controlled board to oversee the provision of health care services while the public agency retains fiscal and general policy-making authority. The entities have flexibility to determine their responsibilities, but HRSA requires that the entities memorialize the agreed allocation of responsibilities in a written contract. Id. at 6–7. This contract is known as a co-applicant agreement.B. Citizens and Health and Hospital

Plaintiff Citizens is an Indiana not-for-profit corporation. Since 1974, Citizens has operated a health center that provides primary health care services to the medically underserved population in Indianapolis. In 1994, Citizens began receiving section 330 grant funds as a federally qualified health center. In 2001, however, Citizens ran into managerial and financial difficulties. These difficulties threatened Citizens' eligibility for the section 330 grant.

To continue operating the health center with federal funding, Citizens partnered with Health and Hospital, which is again a public entity. Health and Hospital's health centers were all controlled by a central board. This meant that Health and Hospital was not eligible to operate a federally qualified health center on its own because it did not satisfy the section 330 requirement of having the center controlled by a board composed of a majority of health center patients. Health and Hospital and Citizens were therefore natural complements for each other. Citizens was able to provide the necessary patient-controlled governing board and Health and Hospital the financial management responsibility.

As required by HRSA, Health and Hospital and Citizens formalized this relationship in a written co-applicant agreement. Under the terms of the agreement, Citizens was responsible for the general governance of the health center, providing primary care medical services, and achieving several specified performance improvement goals. Health and Hospital was to provide financial management, approve the health center's budget, develop sound management procedures, assist the Citizens' board, and “Receive, manage, and disburse” the section 330 grant funds, for which Health and Hospital had “ultimate fiscal accountability....” HRSA approved the arrangement and awarded the section 330 grant to Health and Hospital as grantee. The parties later renewed both the grant and the co-applicant agreement.

In February 2011, the fourth of these co-applicant agreements expired. Unlike in the past, Citizens and Health and Hospital did not immediately enter into a new agreement. Health and Hospital maintains that it was reluctant to enter into a new agreement because, among other reservations, it was concerned about Citizens' financial health and stability, and Citizens had failed to provide it with the financial statements necessary to alleviate its concerns. Because HRSA requires the public entity and the co-applicant to operate the center under a co-applicant agreement, HRSA sent both Citizens and Health and Hospital notice that the health center was no longer in compliance with the grant program requirements and would lose eligibility for the grant funds unless they entered into a new co-applicant agreement.

On September 23, 2011, Citizens and Health and Hospital entered into a new co-applicant agreement. Unlike the previous multi-year agreements, though, the new agreement was to be in effect only through February 28, 2012. The agreement provided options for renewal for up to four successive one-year terms, through the end of the current grant period. The new co-applicant agreement, however, imposed no obligation on either party to renew the agreement. The new agreement explicitly provided that the agreement could be renewed only by “written notice sent by either Party and written acceptance by the other.”

After Health and Hospital and Citizens signed the new agreement, their relationship did not improve. Health and Hospital remained troubled by Citizens' accounting and management practices, and proposed restructuring the relationship to give Health and Hospital greater control over the health center staff and the provision of medical services. Citizens was not receptive to the proposed changes. HRSA visited the center during November 2011 and attempted to resolve the disagreements, but the attempt at mediating the dispute proved unsuccessful.

Health and Hospital then concluded that the current arrangement was unsatisfactory. Health and Hospital told Citizens that it would not be renewing the co-applicant agreement and that it would accordingly relinquish the section 330 grant to HRSA when the agreement expired. Health and Hospital also notified HRSA on February 14, 2012 that it intended to relinquish the grant on November 30, 2012. (The lag between expiration of the agreement and termination of the grant was to prevent disruption of medical services.)

Citizens, fearing loss of the grant funds and invoking federal question and supplemental jurisdiction, filed this suit on June 1, 2012 seeking to enjoin the defendants from terminating the section 330 grant.¹ Citizens asserted constitutional and contractual claims. Citizens alleged that HRSA's decision to permit Health and Hospital to relinquish the grant was both contrary to law and a violation of Citizens' procedural due process rights. Citizens also alleged that Health and Hospital's release of the grant breached the co-applicant agreement. The district court granted summary judgment in favor of all defendants, finding that Citizens had no right to the grant under federal law and that the co-applicant agreement did not prevent Health and Hospital from relinquishing the grant after the contract expired. Citizens Health Corp. v. Sebelius, No. 1:12–cv–00748, 2012 WL 5985592 (S.D.Ind. Nov. 29, 2012). Citizens appeals. We have jurisdiction under 28 U.S.C. § 1291.

II. Analysis

Summary judgment is appropriate if there are no genuine issues of material fact such that the moving parties are entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). We review the district court's grant of summary judgment de novo, and we give the non-moving party the benefit of reasonable inferences that could be drawn from the record. See Good v. Univ. of Chicago Med. Ctr., 673 F.3d 670, 673 (7th Cir.2012).

Citizens appeals the grant of summary judgment in favor of...