Flagstaff Medical Center, Inc. v. Sullivan, s. 91-16583
| Decision Date | 02 June 1992 |
| Docket Number | 91-16624,Nos. 91-16583,s. 91-16583 |
| Citation | 962 F.2d 879 |
| Parties | FLAGSTAFF MEDICAL CENTER, INC., Plaintiff, v. Louis W. SULLIVAN, Secretary, Department of Health and Human Services, Defendant. Elizabeth MAZON, Leon Salazar, Jack Sabo, Maria Sandoval, Ruth Havatone, Quade Uqualla, and Aurora Petty, individually and on behalf of all other persons similarly situated, Plaintiffs-Appellees, v. FLAGSTAFF HEALTH MANAGEMENT CORPORATION; Flagstaff Medical Center, Inc.; Louis W. Sullivan, Secretary, Department of Health and Human Services, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
John P. Schnitker, U.S. Dept. of Justice, Washington, D.C., for defendant-appellant Secretary of the Dept. of Health and Human Services.
John P. Frank and Barbara A. Anstey, Lewis and Roca, Phoenix, Ariz., Kathleen O'Brien, Magnum, Wall, Stoops & Warden, Flagstaff, Ariz., for defendants-appellants Flagstaff Health Management Corp. and Flagstaff Medical Center, Inc.
Michele Melden, Nat. Health Law Program, Los Angeles, Cal., Susan Slasor, Coconino County Legal Aid, Flagstaff, Ariz., for plaintiff-appellee class.
Ronald N. Sutter, Powers, Pyles & Sutter, Washington, D.C.; Jeffrey M. Teske, American Hosp. Ass'n, Chicago, Ill., for amicus American Hosp. Ass'n.
Leslie E. Wallis, Tuttle & Taylor, Los Angeles, Cal., for amici Families, U.S.A. and Arizona Citizen Action.
Appeal from the United States District Court for: the District of Arizona.
Before: GOODWIN, FARRIS, and POOLE, Circuit Judges.
This appeal requires us to answer important and pressing questions affecting the provision of free medical care to indigent people under the Hill-Burton Act. Flagstaff and the Secretary argue that this case is moot, that the district court erred in striking down the Secretary's 1988 regulation, and that the district court's remedies are inconsistent with the Act and underlying regulations. Flagstaff makes the additional argument that the plaintiff class' pendent contract claim is preempted. We affirm in part and reverse in part.
In 1946, Congress enacted the Hospital Survey and Construction Act, better known as the Hill-Burton Act. Pub.L. No. 79-725, 60 Stat. 1040. The Hill-Burton Act authorized grants for the construction and modernization of health care facilities. Id. § 621. In exchange for grant monies, facilities were required to give assurances to provide "a reasonable volume of" uncompensated indigent care to the community. Id. § 622(f)(2).
Regulations issued between 1947 and 1974 essentially tracked the statute's language. During that time, enforcement of assurances was lax, and the provision of uncompensated indigent care was minimal. Responding to these inadequacies, Congress in 1975 replaced Title VI of the Public Health Service Act, the title containing the Hill-Burton Act, with a new Title XVI. Pub.L. No. 93-641, 88 Stat. 2225, 2258. This statute followed the pattern of the Hill-Burton Act, but provided teeth by requiring the Secretary of what is now the Department of Health and Human Services to prescribe regulations to ensure that assurance obligations are met. 42 U.S.C. § 300s(3). See also id. § 300s-6 ().
In 1979, the Secretary promulgated regulations to ensure compliance with assurances given under the Hill-Burton Act or the new Title XVI. 44 Fed.Reg. 29,372-410 (1979). These regulations (1) specified annual levels for the provision of indigent care, (2) set eligibility criteria, (3) mandated a procedure for review of applications for uncompensated care, including a requirement that eligibility for Hill-Burton care be determined within two working days of application and (4) provided for the maintenance of certain records. Until 1987, these regulations were enforced under a regime of "strict compliance:" even "technical" violations of the standards set out in the regulations resulted in nonrecognition of care for Hill-Burton purposes.
In 1987, the Secretary ushered in an era of "substantial compliance" when he promulgated a new set of regulations to ensure compliance with indigent care assurances. 52 Fed.Reg. 46,022-039 (1987). These regulations preserved much of the substance of the 1979 regulations, but they permitted receipt of full credit toward assurance obligations despite a failure to comply with the regulations in particular cases.
In 1988, the Secretary promulgated a regulation, without prior notice and comment, to permit "crediting towards a facility's Hill-Burton obligation, during the period for which the 1979 regulations applied to the facility, accounts in which an eligibility determination was made but the two-working-day requirement was not met." 53 Fed.Reg. 44,954, 44,955 (1988). The effect of this regulation nationwide was to restore credits worth approximately $31 million to obligated facilities for provision of care where the eligibility determination was untimely under the 1979 regulations.
In 1959 and 1964, Flagstaff Medical Center, Inc., received Hill-Burton funds totalling $420,163 and gave the required assurances.
In fiscal year 1980, Flagstaff decided to buy out its remaining Hill-Burton obligation, as it was permitted to do by regulation. To do so, Flagstaff provided over $220,000 in uncompensated care to eligible patients. It then notified HHS that it had fulfilled its Hill-Burton obligation and cancelled its program.
Shortly after, an HHS audit uncovered a shortfall of about $25,000 due to an error in computing allowable credit under Medicaid. Another, fuller audit in June, 1981, revealed that, in providing uncompensated services, Flagstaff did not comply with regulations requiring it to provide Hill-Burton applicants with a written determination of eligibility within two days of a request for services. Instead, applicants were provided only with oral notification, and often only after a period longer than two days. Flagstaff's FY 1980 program also violated regulations governing recordkeeping and specifying permissible income criteria to be used in assessing a Hill-Burton application. As a result, and consistent with its strict compliance policy, HHS determined in July, 1982, that Flagstaff could not take Hill-Burton credit for any of the care provided in FY 1980. Flagstaff was assessed with a deficiency for that year and was ordered to reimplement its Hill-Burton program.
Flagstaff did not reimplement its program then or later, even though HHS again ordered it to resume the program in May, 1984. Instead, it filed an administrative appeal some 27 months after the original order, in October, 1984. HHS denied the appeal in January, 1985.
Five indigent patients, including class representatives Mazon, Salazar, Havatone and Uqualla, filed administrative complaints with HHS in 1987, alleging that Flagstaff had failed to provide them with Hill-Burton care. Each of them had received care but had been denied an opportunity to apply for Hill-Burton care. Some of them had made payments for care received. HHS ordered Flagstaff to accept Hill-Burton applications from these individuals, and, if they proved eligible, to cease all collection efforts and provide reimbursements for payments received. Flagstaff did not comply with the orders.
In July, 1988, HHS reiterated its position that Flagstaff must resume its program. In November, 1988, Flagstaff filed suit against HHS for a declaration of its Hill-Burton obligation.
In March, 1989, Coconino County Legal Aid and the National Health Law Program filed a class action against Flagstaff and the Secretary on behalf of all indigent persons residing in Coconino County who had been, were being or would be denied Hill-Burton care. The class plaintiffs alleged that the 1987 and 1988 regulations were invalid, and they sought relief under the Fifth and Fourteenth Amendments, the Hill-Burton Act and various state laws for Flagstaff's failure to provide Hill-Burton care.
The district court consolidated these cases and certified the class in the second suit. In January, 1990, the court dismissed the first suit with prejudice based on a settlement agreement between Flagstaff and the Secretary.
Under the settlement agreement, Flagstaff undertook to reinstate its Hill-Burton program and to provide $382,763 in care to liquidate its assurance obligation. Pursuant to those undertakings, Flagstaff provided more than $650,000 in uncompensated indigent care between March and May, 1990.
By an amended order dated August 22, 1991, the district court granted partial summary judgment in favor of the class plaintiffs. Flagstaff Medical Center, Inc. v. Sullivan, 773 F.Supp. 1325, 1363-65 (D.Ariz.1991). The court invalidated the 1988 regulation for failure to comply with the notice and comment provisions of the Administrative Procedure Act and ordered the Secretary to direct Flagstaff to provide uncompensated care in an amount equal to all the credit it received as a result of the 1988 regulation. Id. at 1363-64. The court also held that the class plaintiffs were entitled to judgment on their Hill-Burton and state law contract claims and ordered the following relief: (a) refunds to named class plaintiffs of all payments made to Flagstaff for services rendered after cancellation of the Hill-Burton program in 1980; (b) publication of notices inviting persons who received medical services at Flagstaff between cancellation and reimplementation of its Hill-Burton program to apply for benefits; (c) refunds, without credit, to persons eligible for Hill-Burton care during the program hiatus; (d) reinstitution of the program at a dollar amount that does not give credit for FY 1980 violations of the two-day written determination requirement; (e) permanent cessation, without credit, of collection efforts against those eligible for Hill-Burton services when they received care during the program hiatus; (f)...
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