Ozlu v. Lock Haven Hospital, Civ. No. 72-608.

• Decision Date: 21 January 1974
• Docket Number: Civ. No. 72-608.
• Citation: 369 F. Supp. 285
• Parties: Cavit OZLU, Plaintiff, v. LOCK HAVEN HOSPITAL, Defendant.
• Court: U.S. District Court — Middle District of Pennsylvania

369 F. Supp. 285

Cavit OZLU, Plaintiff, v. LOCK HAVEN HOSPITAL, Defendant.

Civ. No. 72-608.

United States District Court, M. D. Pennsylvania.

January 21, 1974.

Robert L. Martin, Litke, Gettig & Flood, Bellefonte, Pa., for plaintiff.

J. Thomas Menaker, McNees, Wallace & Nurick, Harrisburg, Pa., for defendant.

OPINION

MUIR, District Judge.

Plaintiff Dr. Cavit Ozlu brought this diversity action on a breach of contract theory claiming that in November, 1970, he was discharged from his employment as a pathologist with the Defendant Lock Haven Hospital without notice or a hearing as allegedly provided by the contract between the parties. At the first trial held between September 25 and October 1, 1973, the Hospital defended on the ground that Plaintiff substantially breached his contract prior to discharge. On October 1, 1973, a jury verdict in favor of Plaintiff was set aside as being against the great weight of evidence, and the case was reset for trial. By Order dated November 7, 1973, the Court permitted Plaintiff to file an amended complaint, Count I of which added a constitutional claim against the Defendant under the Civil Rights Act. The claim in Count I, that Plaintiff was discharged from his employment without due process, was based upon the same set of facts as the breach of contract claim in Count II of the amended complaint. At the second trial in this case held between December 21, 1973 and January 4, 1974, the jury found in favor of Defendant Hospital on Count II.

Both parties agreed that Plaintiff's civil rights claim in Count I of the complaint was a matter for the Court to decide. Of initial concern to the Court was whether Dr. Ozlu's dismissal was action taken "under color of any statute, ordinance, regulation, custom, or usage, of any State," as required by 42 U.S.C. § 1983. Following a hearing on this issue, the Court concluded that the requisite "state action" was not present, and the parties were informed that Count I would be dismissed for lack of subject matter jurisdiction. This Opinion and Order confirm that conclusion.

Defendant Lock Haven Hospital is chartered as a private, non-profit corporation. Plaintiff contends that Defendant's receipt of substantial funds under the Hill-Burton Act, 42 U.S.C. § 291 et seq., and payments under the federal Medicare and state Medicaid programs, together with the minimum standards imposed upon the Hospital by the Pennsylvania Department of Welfare, render Defendant's dismissal of Dr. Ozlu "state action."

The Hill-Burton Act establishes a program for the disbursement of funds for the construction and modernization of governmentally owned hospitals and voluntary nonprofit hospitals. The programs in each state are administered by designated state agencies pursuant to state-wide plans approved by the Surgeon General of the United States. In 1952, Lock Haven Hospital submitted to the Pennsylvania Department of Health, Education and Welfare, the state agency designated to administer the Hill-Burton program, an application for Hill-Burton funds to aid in defraying costs of constructing a new hospital. The application was approved for $886,627.55, or approximately one-third of the eligible project cost of $2,632,400. The funds were received in the following years: $445,796.20 in 1960; $338,169.01 in 1961; $84,662.34 in 1963 upon completion of the project. The $886,627.55 in Hill-Burton funds represented 4.2% of the Hospital's gross receipts from 1959-1970. The only condition placed upon receipt of the funds was that the Hospital remain a nonprofit health related facility for twenty years following completion of the new hospital. During construction, the state required the submission of reports demonstrating that the funds were in fact being used for construction costs. Since completion of the project, the Hospital has been required to file a yearly certification that title to the Hospital has not been transferred to a proprietary organization. The Hospital is subjected to no other state involvement as a consequence of participation in the Hill-Burton program.

Defendant Hospital receives substantial amounts of federal and state money for services rendered to individual patients through the Medicare and Medicaid programs. Both of these programs are administered through insurance companies such as Blue Cross. Approximately 35% of the Hospital's income is derived from payments under the Medicare and Medicaid programs. While this appears to be a large figure, it should be noted that over 90% of the Hospital's income comes from insurance companies making payment on behalf of policyholders. (This 90% figure includes Medicare and Medicaid payments). In order to participate in the Medicare and Medicaid programs, the Hospital must meet certain minimum standards of care. These standards are essentially the same as those required for approval by the Pennsylvania Department of Welfare and explained in the following paragraph.

While nonprofit hospitals need no license to operate in Pennsylvania, they must be "approved" by the Pennsylvania Department of Welfare. The Department of Welfare has established minimum...