HURON VALLEY HOSP. v. City of Pontiac, Civ. A. No. 78-72970.
| Decision Date | 30 April 1984 |
| Docket Number | Civ. A. No. 78-72970. |
| Citation | 585 F. Supp. 1159 |
| Parties | HURON VALLEY HOSPITAL, INC., a Michigan Non-Profit Corporation, Plaintiff, v. CITY OF PONTIAC, a Michigan municipal corporation; City of Pontiac Hospital Building Authority, a Michigan municipal corporation; Pontiac Osteopathic Hospital, a Michigan non-profit corporation; Crittenton Hospital, a Michigan non-profit corporation; Sisters of Mercy Corporation, a Michigan non-profit corporation; Comprehensive Health Planning Council of Southeastern Michigan, a health systems agency; North Oakland County Planning Steering Committee, a planning group under the auspices of Greater Detroit Area Health Council, Inc., a Michigan corporation; United States Department of Health and Human Services, an executive agency of the United States; Margaret Heckler, as Secretary of the Department of Health and Human Services; Bailus Walker, Jr.; Maurice S. Reizen, M.D.; Herman A. Ziel, M.D.; Richard Reihmer; Paul Masseron and Terence E. Carroll, Defendants. |
| Court | U.S. District Court — Western District of Michigan |
James C. Foresman, Southfield, Mich., Reed, Goldstein & Jenkins-Reed by Kenneth R. Reed and John P. Morris, P.C., Tempe, Ariz., for plaintiff.
Miller, Canfield, Paddock & Stone by Larry J. Saylor, Detroit, Mich., for defendants City of Pontiac and City of Pontiac Hosp. Bldg. Authority.
Dykema, Gossett, Spencer, Goodnow & Trigg by Roger K. Timm, Detroit, Mich., for defendants Pontiac Osteopoathic Hosp. and Crittenton Hosp.
Martin, Maxwell, Smith, Buhl & Hanson, P.C. by Robert A. Maxwell, Bloomfield Hills, Mich., for defendant Sisters of Mercy Corp.
Riley & Roumell by Timothy M. Guerriero, Detroit, Mich., for defendants Comprehensive Health Planning Council of Southeastern Mich., Paul Masseron and Terence E. Carroll.
Long, Preston, Kinnaird & Avant by Grady Avant, Jr., Detroit, Mich., for Defendants North Oakland County Planning Steering Committee and Greater Detroit Area Health Council, Inc.
Charles Sorenson, Dept. of Justice, Civil Div., Washington, D.C., for defendants U.S. Dept. of Health and Human Services and Margaret Heckler.
Edwin M. Bladen, Asst. Atty. Gen., Lansing, Mich., for defendants Balius Walker, Jr., Maurice S. Reizen, M.D., Herman A. Ziel, M.D. and Richard Reihmer.
Plaintiff Huron Valley is a Michigan non-profit corporation organized to construct and operate a medical/surgical acute-care facility in Oakland County, Michigan. It has been issued a certificate of need (CON) for a 153 bed hospital, and is presently in the process of arranging for the financing and construction of this facility.
Count I of the complaint is a claim under Section 1 of the Sherman Act alleging that, beginning in April 1976, the non-federal defendants engaged in a conspiracy in restraint of trade to reduce and eliminate competition in the hospital services business by preventing plaintiff from entering the market.1 The plaintiff alleges that defendants conspired to prevent plaintiff from getting the necessary certificate of need from the Michigan Department of Public Health. Plaintiff alleges anti-competitive effects and monopoly, and damages in excess of $200,000,000 in connection with the denial of a first certificate of need, and more than $170,000,000 in connection with the denial of a second certificate of need.
Count II is a claim under 42 U.S.C. § 1983 against the state officials and state hospitals involved alleging a conspiracy to deny plaintiff's Fourteenth Amendment due process rights.
Count III, with which this opinion is concerned, is a request for a writ of mandamus against the Department of Health and Human Services and its secretary, Margaret Heckler, in her official capacity, directing HHS to reinstate a previously-issued decision approving plaintiff for capital expenditure approval, pursuant to Section 1122 of the Social Security Act, 42 U.S.C. § 1320a-1. For all practical purposes, the denial of Section 1122 approval is the only obstacle preventing plaintiff from beginning construction of its hospital, an effort which began in 1976. Both plaintiff and the Secretary have filed motions for summary judgment in Count III. For the reasons given, the writ of mandamus will issue, and the Secretary will be ordered to reinstate its Section 1122 approval.
To make a complicated story short, in order for plaintiff to build its hospital it must obtain a CON from the State of Michigan and capital expenditure approval from HHS under Section 1122 of the Social Security Act, supra. The Section 1122 program, along with the National Health Planning and Resources Development Act of 1974, 42 U.S.C. § 300k et seq., are major federal programs established to cut down unnecessary medical costs. Under this legislation, states, including Michigan, have established CON programs to insure that new hospital construction or expansion of existing facilities are not undertaken in areas where they are not needed. The Michigan Department of Public Health (MDPH) is the agency of the State of Michigan which administers both the CON program and the Section 1122 program, pursuant to a contract with HHS. MDPH is a state designated planning agency (DPA) under Section 1122.
Section 1122 is a federal program designed to supplement state CON programs and to insure that federal funds are not expended on extensive health care projects that have not undergone local planning review and approval from the appropriate state health planning agency. Once a facility has received approval by a state DPA under Section 1122, the facility can be reimbursed with federal funds for that portion of a patient's bill constituting capital costs, that is, depreciation, interest, or return on equity capital.
In 1976, plaintiff filed its joint application for CON and Section 1122 approval. In July 1977, the MDPH notified plaintiff that its CON application was denied.2 The parties agreed to stay decision on the Section 1122 application pending resolution of the CON issue. A year later, in June 1978, plaintiff had a hearing on the denial of its CON. In April 1979, the MDPH issued a report, and in January 1980, a final report was issued denying plaintiff the CON. Plaintiff appealed this decision to the Oakland County Circuit Court, and in March 1981 the Circuit Court entered an order requiring MDPH to issue plaintiff its CON immediately. Huron Valley Hospital, Inc. v. Michigan State Health Facilities Commission, No. 80-20439-AA (Oakland County Circuit Court, March 27, 1981). This was appealed and affirmed by the Michigan Court of Appeals. Huron Valley Hospital, Inc. v. Michigan State Health Facilities Commission, 110 Mich.App. 236, 312 N.W.2d 422 (1981). Leave to appeal was denied by the Michigan Supreme Court. 413 Mich. 853 (1982).
MDPH issued a CON to plaintiff, but only for $14,000,000. Plaintiff claimed that this amount was far too low, because this was a five-year-old figure, and again sought relief in Oakland County Circuit Court. On October 21, 1982, the Circuit Court upheld plaintiff's position and ordered MDPH to issue a new CON based on new amounts found by MDPH to be reasonable. Finally, on October 26, 1982, MDPH issued a certificate of need to plaintiff in the amount of $44,651,000. Thus, after six years, plaintiff had its CON, and presently has another CON application pending to build an additional 150 beds to its approved 153 bed base.
The Court has already outlined the difficulty plaintiff had in obtaining its CON. The Oakland County Circuit Court, in its opinion of March 1981 reversing the decision of MDPH and ordering the issuance of a CON immediately, found MDPH's denial of a CON to be arbitrary and capricious and based not upon any finding that plaintiff's facility was not needed, but instead upon a preference for already existing facilities. The court dealt at length with the issue of overbedding, and found assertions about overbedding to be false, pointing out that the plaintiff's rivals were allowed to build new beds while plaintiff was not. It found that MDPH had a "predisposition" to protect Pontiac General Hospital, and that plaintiff's plan would allow for a "redistribution of existing beds at cost savings," slip opinion at 7, and that plaintiff had met the requirements for a finding of need.3 It specifically rejected the argument that any further proceedings were necessary in the matter, including further administrative findings. Slip opinion at 11.
The Michigan Court of Appeals also rejected any argument that plaintiff's plan presented a danger of overbedding, holding that the record reflected agency bias for existing hospitals, and that the state's denial of plaintiff's CON was merely a "post hoc rationalization." 110 Mich.App. at 247, 312 N.W.2d 422. That court rejected remanding the case for further administrative action, finding that it would be futile. Id. at 250, 312 N.W.2d 422.
Meanwhile, plaintiff was engaged in discussions with MDPH regarding its pending Section 1122 approval. After much discussion, including the intervention of the Michigan Attorney General, MDPH, issued a recommendation for Section 1122 approval, and on February 24, 1983, Dr. Frank Ellis, the Regional Health Administrator for Region V of HHS, and the individual charged by statute with making the decision, issued Section 1122 approval on behalf of HHS. Comprehensive Health Planning Council of Southeastern Michigan and other hospitals that are defendants in this lawsuit then filed a series of ex parte requests for reconsideration of Dr. Ellis' Section 1122 approval. These were filed with Dr. Robert Graham, an administrator and Assistant Surgeon General in Washington, D.C.
On September 13, 1983, Dr. Graham reversed and vacated the original Section 1122 approval. Dr. Graham had three suggestions for plaintiff—1) complete an appeal of the 1977 Section 1122 denial by MDPH; 2) submit an entirely new Section 1122 application; or 3) ask the state to reconsider its...
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Huron Valley Hosp., Inc. v. City of Pontiac
...by directing the Secretary of Health and Human Services to reinstate plaintiff's Section 1122 approval. Huron Valley Hospital, Inc. v. City of Pontiac, 585 F.Supp. 1159 (E.D.Mich.1984). There was no In addition to a summary judgment motion in which all defendants join, four individual motio......
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