Humana Hosp. Corp., Inc. v. Blankenbaker

Decision Date24 May 1984
Docket NumberNo. 83-1830,83-1830
Citation734 F.2d 328
Parties, Medicare&Medicaid Gu 33,981 HUMANA HOSPITAL CORP., INC., Plaintiff-Appellant, v. Ronald BLANKENBAKER, as Commissioner of the Indiana State Board of Health, and Indiana State Board of Health, Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

Frank P. Doheny, Jr., Woodward, Hobson & Fulton, Louisville, Ky., for plaintiff-appellant.

Michael Schaefer, Asst. Atty. Gen. of Indiana, Indianapolis, Ind., for defendant-appellee.

Before WOOD and CUDAHY, Circuit Judges, and KELLEHER, Senior District Judge. **

HARLINGTON WOOD, Jr., Circuit Judge.

Humana Hospital Corporation brings this appeal from the district court's dismissal of its complaint for lack of jurisdiction due to failure to exhaust administrative remedies. Humana seeks judicial review of a state agency decision, affirmed by a state hearing officer, to recommend to the Secretary of Health and Human Services (HHS) that she deny Humana's application for federal reimbursement of its capital expenses for construction of a new hospital. We affirm the district court.

I. Statutory Framework

Section 1122 of the Social Security Act, as amended in 1972, 1 provides the statutory authority under which the Secretary of HHS 2 may exclude the costs of a medical facility's capital expenditures from the facility's rates that are reimbursed under the federal Medicare and Medicaid programs. The congressional goal of this section is twofold: to limit federal reimbursements for health care capital expenditures to those that are necessary, thereby discouraging duplicative projects that increase the costs of medical care; and to encourage rational health care planning under the control of state and local agencies. See Wilmington United Neighborhoods v. HEW, 615 F.2d 112, 119-20 (3d Cir.), cert. denied, 449 U.S. 827, 101 S.Ct. 90, 66 L.Ed.2d 30 (1980) (citing H.R.Rep. No. 231, 92d Cong., 2d Sess., reprinted in 1972 U.S.Code Cong. & Ad.News 4989, 5065-66).

The Secretary of HHS may enter into a "1122 agreement" with a state under which a state "designated planning agency" (DPA) is authorized to make findings and recommendations to the Secretary regarding proposed health care capital expenditures. 42 U.S.C. Sec. 1320a-1(b)(1). Under such an agreement, a proponent of a health care capital expansion project must submit its proposal to the DPA for review. The DPA must make findings and recommend to the Secretary approval or disapproval of the project for reimbursement. If the DPA recommends approval, the Secretary is obliged to follow that positive recommendation. See id. at Sec. 1320a-1(d). If, however, the DPA recommends disapproval of the project, the proponent is entitled to appeal the negative recommendation in a "fair hearing" before a state-appointed hearing officer under procedures established and maintained by the DPA. Id. at Sec. 1320a-1(b)(3). The regulations promulgated under this section in 1973, 42 C.F.R. Part 100 (1983), provide that the findings and recommendations of a hearing officer supersede those of the DPA. 42 C.F.R. Sec. 100.106(c)(4). Thus, a hearing officer's decision reversing the DPA's adverse recommendation again would require the Secretary to approve reimbursement.

The Secretary may disapprove reimbursement for a project only if: (1) the proponent failed to notify the DPA of its proposal at least sixty days prior to its obligation for expenditures, 42 U.S.C. Sec. 1320a-1(d)(1)(A); 42 C.F.R. Sec. 100.108(a)(1); or (2) the DPA has notified the proponent that the expenditure does not conform with the standards, criteria, or plans developed by the DPA, and has granted the proponent an opportunity for a fair hearing, 42 U.S.C. Sec. 1320a-1(d)(1)(B); 42 C.F.R. Sec. 100.108(a)(2). However, even if the Secretary could disapprove reimbursement under section 1320a-1(d)(1), the Secretary may conclude that exclusion of these capital expenditures would discourage the operation or expansion of an efficient facility or would be otherwise inconsistent with the effective organization and delivery of health care. Upon so concluding, the Secretary shall not exclude such expenses. 42 U.S.C. Sec. 1320a-1(d)(2); 42 C.F.R. Sec. 100.108(b). Thus, the Secretary must follow the positive recommendation of the DPA or hearing officer unless the proponent made an untimely application; but the Secretary may disregard a negative recommendation if certain procedures were not followed or if the Secretary determines on the merits that denial of reimbursements would be harmful to health care delivery. Any person dissatisfied with the Secretary's determination may request reconsideration by the Secretary. 42 U.S.C. Sec. 1320a-1(f); 42 C.F.R. Sec. 100.108(d).

II. Humana's Dilemma

On September 30, 1981, Humana filed an application with the designated planning agency named in Indiana's 1122 agreement with HHS, the Indiana State Board of Health (Board), proposing to construct a 150-bed hospital in Indianapolis. The Board asked twice for additional information, which Humana provided, and deemed Humana's application complete for its review on December 23, 1981. Dr. Blankenbaker, Board commissioner, notified Humana on February 21, 1982, that the Board would recommend against inclusion of Humana's proposed capital expenses in the reimbursed rates. Humana sought a fair hearing to appeal the Board's action. The hearing officer affirmed the recommendation of the Board, notifying Humana of its decision on April 9, 1983.

Humana filed this lawsuit in the Southern District of Indiana two days later, charging Dr. Blankenbaker and the Board with violations of section 1122, the regulations promulgated thereunder, federal and Indiana administrative law, and due process, for alleged procedural and substantive failures by the Board and in the fair hearing. 3 Humana sought declaratory and injunctive relief to prevent the Board from forwarding its negative recommendation to the Secretary of HHS. When considering Humana's request for a preliminary injunction, Judge Dillin advanced to the merits and held that he lacked jurisdiction to review the state agency actions due to Humana's failure to exhaust its administrative remedies before the Secretary of HHS. Humana Hospital Corp. v. Blankenbaker, 83 C 516 (S.D.Ind. April 28, 1983). Humana herein appeals Judge Dillin's decision.

Although the statute contemplates four possible stages of agency action (the DPA recommendation, the hearing officer's action, the Secretary's initial determination, and the Secretary's final determination after reconsideration), section 1122 speaks only to judicial review of the Secretary's determination. "A determination by the Secretary under this section shall not be subject to administrative or judicial review." 42 U.S.C. Sec. 1320a-1(f). The regulations, while following the statutory language expressly proscribing judicial review of the Secretary's determination, 42 C.F.R. Sec. 100.108(e), suggest that courts may review the decisions of hearing officers. "[W]here judicial review of such decision[s] is obtained, the final decision of the reviewing court, to the extent that it modifies the findings and recommendations of the designated planning agency, shall to such extent supersede the findings and recommendations of the designated planning agency." Id. at .106(c)(4). Further, the regulations provide that reconsideration by the Secretary will be based upon the record of the proceedings, which includes the record of any judicial proceedings. Id. at .108(d)(2).

The Board and Dr. Blankenbaker argue that a court may not review administrative action at any stage of the 1122 process short of the Secretary's final determination, because administrative remedies remain available and because the court's decision would be subject to review by a federal agency, an unconstitutional result. Yet, as Humana aptly points out, denial of judicial review prior to the Secretary's final determination could leave the courthouse doors forever closed to Humana, due to the clear statutory prohibition against judicial review of the Secretary's determination.

III. Exhaustion of Administrative Remedies

Humana argues that the Eighth Circuit's recent case, First Federal Savings and Loan Association of Lincoln v. Casari, 667 F.2d 734 (8th Cir.), cert. denied, 458 U.S. 1106, 102 S.Ct. 3484, 73 L.Ed.2d 1367 (1982), involves facts "indistinguishable" from the case at hand and is precedent for allowing federal court review at this stage of the administrative process. We note preliminarily that both federal and state courts have been called upon to review administrative actions under section 1122 and the regulations and agreements thereunder, on complaints brought by both proponents of disapproved projects and opponents of approved projects. A consistent path of judicial review has yet to emerge.

In Casari, the plaintiff, titleholder of a defunct nursing home, proposed to reopen the facility but was met with an adverse recommendation from the state DPA and affirmance of that decision by the fair hearing officer. Shortly after the plaintiff filed suit in federal court, the Secretary of HHS accepted the DPA's recommendation and decided to exclude the nursing home capital expenditures from reimbursement. The plaintiff sought review of only the state agency proceedings, although the relief granted by the Eighth Circuit, enjoining transmission of the negative recommendation to the Secretary, would impact ultimately on the Secretary's determination.

As in the instant action, the plaintiff in Casari asserted that the DPA lacked authority to act on the plaintiff's application for failure to establish and disseminate procedures for administering its 1122 agreement. Finding this a procedural rather than a substantive challenge to DPA action, 4 the Eighth Circuit agreed with the plaintiff that judicial review was appropriate. 5 The court...

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4 cases
  • Rapides General Hosp. v. Robinson
    • United States
    • Court of Appeal of Louisiana — District of US
    • March 18, 1986
    ... ... action pursuant to the rationale expressed by the court in Lifemark Corp. v. Guissinger, 416 So.2d 1279 (La.1982). The trial court also decreed ... The court in Psychiatric Institutes of America, Inc. v. Heckler, 596 F.Supp. 1311 (E.D.La.1984), provides, ... 827, 101 S.Ct. 90, 66 L.Ed.2d 30 (1980); and, compare with Humana Hospital Corp., Inc. v. Blankenbaker, 734 F.2d 328 (7th Cir.1984) ... ...
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    ... ... Hospital, Lutheran General Hospital, Inc., and St ... Therese Medical Center, Appellants, ... The HEALTH ... ("Humana"), which was described as a Virginia for-profit corporation that is a ... process until administrative remedies are exhausted" (Humana Hospital Corp. v. Blankenbaker (7th Cir.1984), 734 F.2d 328, 332), nevertheless ... ...
  • Greenbriar Nursing Home, Inc. v. Pilley
    • United States
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    • May 23, 1994
    ... ... Humana Hosp. Corp v. Blankenbaker, 734 F.2d 328 (7th Cir.1984); Wilmington ... ...
  • Greenbriar Nursing Home, Inc. v. Pilley
    • United States
    • Court of Appeal of Louisiana — District of US
    • July 2, 1993
    ... ... 827, 101 S.Ct. 90, 66 L.Ed.2d 30 (1980); and compare with Humana Hospital Corp., Inc. v. Blankenbaker, 734 F.2d 328 (7th Cir.1984) ... ...

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