Monumental Health Plan v. DEPT. OF HEALTH, ETC.

• Decision Date: 30 March 1981
• Docket Number: Civ. A. No. J-81-387.
• Citation: 510 F. Supp. 244
• Parties: MONUMENTAL HEALTH PLAN, INC., Plaintiff, v. DEPARTMENT OF HEALTH AND HUMAN SERVICES, etc. et al., Defendants.
• Court: U.S. District Court — District of Maryland

510 F. Supp. 244

MONUMENTAL HEALTH PLAN, INC., Plaintiff, v. DEPARTMENT OF HEALTH AND HUMAN SERVICES, etc. et al., Defendants.

Civ. A. No. J-81-387.

United States District Court, D. Maryland.

March 30, 1981.

David R. Cohan and Charles J. Piven, Baltimore, Md., for plaintiff.

Russell T. Baker, Jr., U. S. Atty., Andre Davis, Asst. U. S. Atty., Baltimore, Md., and David E. Benor and Peter A. Pavarini, Rockville, Md., for defendants.

MEMORANDUM AND ORDER

SHIRLEY B. JONES, District Judge.

Plaintiff Monumental Health Plan, Inc. is a health maintenance organization (H.M.O.) which has been qualified by the Department of Health and Human Services under the Public Health Service Act, 42 U.S.C. § 300e et seq. On February 26, 1981 this Court entered a temporary restraining order which enjoined defendants from revoking Monumental's federal qualification. That TRO has subsequently expired. The case originally came before the Court on a motion for preliminary injunction but pursuant to F.R.Civ.P. 65(a)(2) has been consolidated with a hearing on the merits.

Findings of Fact

In April of 1977, Monumental applied to the Secretary of the Department of Health and Human Services (the Secretary) and more specifically, the Office of Health Maintenance Organizations (O.H.M.O.) to obtain federal qualification as an H.M.O. In October of 1977, Monumental applied for an Operating Cost Loan from the Department of Health and Human Services for 2.5 million dollars. In November of 1979, Monumental received federal qualification as an H.M.O. and was granted the Operating Cost Loan. Monumental received the first installment of the loan of 1 million dollars at that time. Another installment of 1 million dollars was due to be received in early December of 1980.

In July of 1980, O.H.M.O. became concerned that Monumental was experiencing serious financial problems. An informal evaluation of Monumental was ordered by O.H.M.O. and was performed by Touche Ross & Co. The Touche Ross report revealed that Monumental was indeed having financial problems. The report criticized the manner in which Monumental was organized and was being run. Pursuant to this report, O.H.M.O. in August of 1980 initiated a formal evaluation, and by letter dated August 20, 1980, Monumental was specifically advised of the areas of concern. The evaluation team was made up of outside consultants as well as members of O.H. M.O. The evaluation resulted in a number of reports on all aspects of Monumental's operations. The reports were generally complimentary on the quality of health services which Monumental provided. However, this evaluation also revealed that Monumental was having serious administrative and financial problems. At the conclusion of the site visit, an exit conference was conducted at which it is alleged that Sharley Chen, O.H.M.O. compliance officer, stated that the evaluation would not affect Monumental's receipt of the second installment on the loan.

On November 30, 1980 Monumental's state license to operate as an H.M.O. in Maryland expired and was not renewed by the Maryland State Insurance Commissioner.

On December 3, 1980, Monumental was informed by letter that O.H.M.O. had determined that it was out of compliance with federal requirements. Specifically, Monumental was informed that it had failed to maintain a fiscally sound operation, that it had failed to maintain satisfactory administrative and managerial arrangements, and that it had failed to submit reports as required by the National Data Reporting Act. Specific details were provided as to how Monumental was out of compliance and it was given 30 days to submit a proposed Corrective Action Plan (C.A.P.).

On December 8, 1980 Monumental was informed by a letter from Theodore Weinberg, Director, Division of Compliance O.H. M.O. that it was deemed to be in default on its loan by virtue of its failure to pay a late charge on an overdue interest payment. The letter stated that this would prevent the payment of the second installment of the loan of one million dollars. On December 19, 1980, Howard Veit, Director of O.H. M.O. informed Monumental by letter that it was additionally in default on its loan by virtue of the fact that it had been out of compliance with federal regulations for more than 15 days. Testimony showed that the withholding of the second loan installment was a suspension action which could be lifted in the event that Monumental was brought back into compliance.

Monumental's proposed C.A.P. was submitted to O.H.M.O. on January 5, 1981. On January 6, 1981, O.H.M.O. Deputy Director John O'Rourke and Theodore Weinberg met with representatives of Baltimore area hospitals which were creditors of Monumental and were owed substantial sums. This was done in order to keep the hospitals informed as to Monumental's financial condition. On that same day, Christine C. Boesz, Deputy Director of the Division of Compliance, and Compliance Officer Sharley Chen met with officials of the Maryland State Insurance Commission. There was some controversy as to whether the representatives of O.H. M.O. stated that the decision not to make the second installment of the loan was final. The Court finds that this statement was not made. On January 5, John O'Rourke talked with Joe Calderone, a reporter for the Baltimore News American. The interview resulted in an article published on January 6, 1981 which quoted O'Rourke as stating that the government was going to put Monumental out of business.

On January 16, 1981, Monumental was informed by letter that O.H.M.O. had declared a third event of default as to its loan, as a number of required financial reports had not been submitted.

By letter of January 19, 1981, Veit informed Monumental that its proposed C.A.P. was unacceptable. Monumental was directed to take certain corrective actions, including submitting a revised financial plan and obtaining sufficient private financing to cover operating deficits over and above that provided by the federal loan. These actions were directed to be taken within 30 days of the date of the letter. By letter of January 23, 1981, Veit supplemented the corrective actions which had been directed, including providing additional information and making certain administrative changes. The letter specifically warned that failure to take the directed corrective actions could result in the revocation of Monumental's federal qualification.

On February 19, 1981, Monumental submitted a revised financial plan, enrollment projections, reduced operating expenses, and evidence of financing as directed by O.H.M.O. The evidence of financing consisted of a letter from a Dr. Saul Kay of International Diversifications Financing Associates of Atlanta, Georgia to the effect that 1.3 million dollars in funds was being processed by it for the benefit of Monumental.

Upon examination by O.H.M.O., Monumental's revised financial plan was deemed to be insufficient. Although examination of the plan was done in a brief time, it was sufficient to clearly reveal that the figures of the revised financial plan were inconsistent with other figures that had previously been submitted by Monumental, as well as the fact that certain underlying assumptions of the plan were insufficiently supported by facts. For example, a projected 26% increase in medicaid payments was not supported by documentation. Also, the letter from International Diversifications Financing Associates was deemed to be an insufficient commitment of funds. Sharley Chen attempted to contact International Diversifications in order to clarify the terms of the loan agreement. She spoke to someone who identified himself as International's attorney in Atlanta, but he did not know any of the details of the loan, and directed her to contact Funding International of Timonium, Maryland, through whom the arrangements had been made. She was unable to contact Funding International. On February 25, 1981 she contacted Retailers Commercial Agency of McLean, Virginia and requested a credit check on International Diversifications. The existence of International could not be confirmed.

On February 20, 1981, Monumental was informed by letter that its federal qualification was being revoked effective five working days from the date of the letter. This action was subsequently filed.

The relief which Monumental seeks is essentially two-fold. First, Monumental seeks to enjoin the revocation of its federal qualification. Second, Monumental seeks to require the government to pay the second installment of the loan of 1 million dollars. Monumental's attack on the decision of the Secretary to revoke its qualification and suspend its loan is two-pronged. First, Monumental challenges the Secretary's decision procedurally, in that it was not in accordance with the Administrative Procedure Act, and was a denial of due process. Second, Monumental challenges the decision substantively as being arbitrary, capricious and an abuse of discretion.

Procedural Issues

The Court will deal first with Monumental's procedural arguments. The first point raised is that the actions of the Secretary were not in accordance with the Administrative Procedure Act, 5 U.S.C. § 554. The fallacy which runs throughout Monumental's arguments relating to the A.P.A. is the assumption that it is applicable to the instant case. The Act simply provides procedures to be followed when a hearing is required by some statute or regulation. "The Act does not create a right to a hearing where none otherwise exists." State of Colorado v. Veterans Administration, 602 F.2d 926, 928 (10th Cir. 1979); Robertson v. Federal Trade Commission, 415 F.2d 49 (4th Cir. 1969). An examination of the relevant statutory provisions and regulations discloses that no right to a hearing is provided for in any step in the procedure which was followed by the Secretary. In the absence of any provision for a hearing, the A.P.A. procedures relating to a hearing are inapplicable....