Citizens Health Corp. v. Sebelius
| Decision Date | 21 December 2012 |
| Docket Number | No. 1:12-cv-00748-SEB-TAB,1:12-cv-00748-SEB-TAB |
| Court | U.S. District Court — Southern District of Indiana |
| Parties | CITIZENS HEALTH CORPORATION by: Lula Journey, Chair, Citizens Health Corporation Board of Directors, Plaintiff, v. KATHLEEN SEBELIUS Secretary, US Department of Health and Human Services, US DEPARTMENT OF HEALTH AND HUMAN, HEALTH RESOURCES ADMINISTRATION, JAMES D. MINER, M.D. Chair, Board of Trustees of the Health & Hospital Corporation of Marion County, IN, MATTHEW GUTWEIN Executive Director, Health & Hospital Corporation of Marion County, IN, HEALTH & HOSPITAL CORPORATION OF MARION COUNTY, INDIANA, Defendants. |
This cause is before the Court on Defendants' Motion to Dismiss [Docket No. 42], filed on August 20, 2012; Defendants' Motions for Summary Judgment [Docket Nos. 54 and 57], filed on September 25, 2012; and Plaintiff's Motion to Strike [Docket No. 79], filed onNovember 9, 2012.2 Plaintiff Citizens Health Corporation ("Citizens") brings this action against Defendants Health Resources and Services Administration ("HRSA")3 and the Secretary of Health and Human Services ("HHS" or "the Secretary") (collectively, "the Federal Defendants") alleging violations of its procedural and substantive due process rights. Citizens also alleges a state law breach of contract claim against Defendants Health and Hospital Corporation of Marion County, Indiana ("HHC"); James D. Miner, M.D., Chair of the Board of Trustees of HHC; and Matthew Gutwein, Executive Director of HHC (collectively, "the HHC Defendants").
On June 1, 2012, Citizens filed a Motion for Preliminary Injunction [Docket No. 4], but failed to file a brief in support of that motion until September 4, 2012. Subsequently, a preliminary injunction hearing was set for October 29, 2012. However, on October 17, 2012, the Court vacated the preliminary injunction hearing in order to permit the pending summary judgment motions to become fully briefed and ruled upon. The fully briefed summary judgment motions are now before the Court for our decision.
This litigation involves a dispute regarding a "Section 330" grant from the United States Health Resources and Services Administration ("HRSA"), an agency of the Department of Health and Human Services ("HHS"). The "Section 330" designation refers to Section 330 of the Public Health Service Act, 42 U.S.C. § 254b ("the Act"). Through the Section 330 grant program, HRSA provides funding for the costs of operation of public and nonprofit private entities ("health centers") to provide primary health care services to medically underserved populations. At issue in this litigation is the Section 330 grant which provides funds forcommunity health care in a particular geographic area of Indianapolis, Indiana ("the catchment area").
For a number of years, Citizens, a not-for-profit Indiana corporation, had been the sole operator of a federally qualified health center4 ("the Health Center") providing primary healthcare services to the catchment area with financial support from the federal Section 330 grant.5 However, in 2001, due to managerial and financial difficulties facing Citizens, the HRSA transferred the Section 330 grant to Defendant Health and Hospital Corporation ("HHC"), a municipal corporation established pursuant to Indiana Code § 16-22-8,6 and Citizens became a co-applicant for these funds with HHC.
Over the ensuing approximately eleven years, as co-applicants, Citizens and HHC jointly applied for and received Section 330 funds. The Section 330 grants issued throughout that time period designated HHC as the grantee of record, making HHC accountable to HRSA for management of the grant funds. Pursuant to a series of affiliation and co-applicant agreements, Citizens was responsible for providing the primary health care services designated in the Section 330 grants. Since 2001, Citizens and HHC have entered into five successive co-applicant agreements which define and govern their relationship as it pertained to administration of the Section 330 grants. These co-applicant agreements were each published to and administratively approved by HRSA.
The Section 330 grant at issue in this litigation is for a term of four years expiring on or about February 28, 2016. When HHC applied for the grant, a program narrative was submitted with the application that identified HHC and Citizens as co-applicants, under the project title "Citizens Health Corporation." A.R. at 135. The program narrative identified HHC as the grantee of record for the grant funds and acknowledged that HHC maintained fiscal oversight for the Section 330 grant. A.R. at 146, 173. At the time HHC filed the grant application, the relationship between HHC and Citizens was governed by a Co-Applicant Agreement that the parties had entered into in the fall of 2008 for the period of November 14, 2008 through February 28, 2011. Under the terms of that Agreement, HHC's responsibilities included "[r]eceiving, managing and disbursing Section 330 grant funds consistent with the Health Center's budget approved in accordance with this agreement" and ensuring that Citizens "receives Section 330 grant funds for current month costs." A.R. at 8. HHC and Citizens agreed that "HHC shall have ultimate fiscal accountability for the Section 330 grant funds." Id.
When the 2008 Co-Applicant Agreement expired in February 2011, HHC and Citizens did not immediately forge a new agreement. The parties did not renew the co-applicant agreement that ended in February 2011 until HRSA forced the issue by informing the parties that, without a valid co-applicant agreement, the Section 330 grant was out of compliance. Thus, HHC and Citizens entered into the most recent co-applicant agreement ("the Fifth Agreement") on September 23, 2011. A.R. at 254-76. Unlike their prior agreements, which had been multi-year agreements, the Fifth Agreement was for a one-year period (February 28, 2011 through February 28, 2012), renewable by the parties' mutual agreement for up to four additional one-year terms. But like the parties' previous co-applicant agreements, the Fifth Agreement addressed, inter alia, the parties' joint operating goals, their respective roles and responsibilities,and the operational and managerial structure used to administer the Section 330 grant. Pursuant to the Fifth Agreement, Citizens was responsible for most of the day-to-day operating functions of the Health Center, and HHC was responsible for managerial functions, including but not limited to approval of Citizens' annual budget, lease agreements, and disbursements of funds. A.R. at 262-64.
Differing views between HHC and Citizens regarding the future direction for the health center contributed to the parties' delay in signing the new co-applicant agreement after the previous agreement had expired. On November 9 and 10, 2011, HRSA7 conducted a site visit of HHC and Citizens in an attempt to mediate their differences. Following the visit, HRSA issued a Consolidated Team Report ("the Report") detailing the purpose of the visit and the results of the mediation. A.R. 331-348. Based on conversations with a number of individuals associated with both parties, the report stated that, although both HHC and Citizens had clearly indicated their commitment to continuing services within the catchment area, each had different views as to the manner in which that could best be accomplished. A.R. at 333.
HHC's opinion was that services would be provided most effectively by bringing Citizens into the HHC system of health centers and obtaining federally qualified health center status for the system as a whole. As an alternative, HHC indicated a willingness to continue the co-applicant arrangement with Citizens and to apply for look-alike status for its other ten clinics, with a separate board of directors. However, HRSA informed HHC that HRSA policies prohibit one organization from having both a Section 330 co-applicant and a look-alike with separate boards. A.R. at 339. Thus, HHC regarded its only options to be deciding whether to continuethe co-applicant relationship with Citizens or to sever the relationship in order to apply for look-alike status for the ten clinics it operates. Id. Citizens, on the other hand, believed it could best serve the catchment area by maintaining local community governance of the clinic, whether through a continuation of the co-applicant arrangement with HHC, and a reversion to its previous status as an independent Section 330-funded health center, or by entering into a new partnership as a sub-recipient to another federally qualified health center. A.R. at 333, 340.
Following its site visit, HRSA recommended that HHC and Citizens continue to meet to discuss options to preserve health services for the catchment area. The Report described a variety of potential options for going forward that had been discussed during the site visit, while making clear that no final commitments had been made. The Report further noted: "Short of relinquishing the 330 grant, which HHC can do without HRSA approval, both HHC and Citizens are aware that any compromise proposal will require HRSA[] review and approval." A.R. at 341.
In addition to their divergent views regarding the future direction for the Health Center, other disagreements between HHC and Citizens existed. HHC contends it was concerned about Citizens's financial stability for several reasons, based on the findings of a 2009 audit performed by the accounting firm Blue & Co., LLC, which detailed problems with financial and accounting controls, including material weaknesses in a number of areas; Citizens's subsequent failure to address the issues identified by the audit; and Citizens's failure to provide HHC with audits from 2010 or 2011 or unaudited financial statements that HHC had requested. HHC alleges that it was also concerned that Citizens was not complying with a condition HRSA had placed...
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