Shenango Valley Osteopathic Hosp. v. Department of Health

Decision Date21 October 1982
Citation451 A.2d 434,499 Pa. 39
PartiesSHENANGO VALLEY OSTEOPATHIC HOSPITAL, on its own behalf and on behalf of its medical staff and patients, v. DEPARTMENT OF HEALTH of the Commonwealth of Pennsylvania, Appellants.
CourtPennsylvania Supreme Court

Daniel M. Mullholland, III, Barbara Blackmond, John S. Hoff, pro hac vice, for appellee.



NIX, Justice.

The Health Care Facilities Act (Act), 35 P.S. § 448.101 et seq. was enacted to insure the orderly and economical distribution of health care resources to prevent needless duplication of services and to enhance the health and welfare in this Commonwealth. The Legislature charged the Department of Health (Department) with fostering a sound, coordinated health care system. This litigation concerns the validity of the Department's ruling that a certificate of need must first be obtained by the Shenango Valley Osteopathic Hospital (Hospital) before purchase and use of a Computerized Tomography scanner (C.T. scanner). The principal question on appeal 1 is whether the hospital had a clear right to the special relief from the Department's ruling afforded it by the Commonwealth Court.

The facts, as adduced from the record, reveal that on July 29, 1981 the Hospital entered into a binding contract of purchase for a full body C.T. scanner 2 from Technicare Corporation of Cleveland, Ohio and paid 25% ($67,125.00) of the total purchase price of $268,500.00. The Hospital accepted delivery of the C.T. scanner on August 20, 1981 and made an additional payment leaving a balance of 10% due upon installation. The Act required certificates of need for new institutional health services, 3 including (at that time) capital expenditures in excess of $150,000.00, and/or an operating expense in excess of a $82,200 threshold. 4 The Act mandates the filing of a notice of intent prior to the institution of a project for services or the acquisition of equipment which require a certificate of need. 5 On August 4, 1981, the Hospital supplied the Department and Health Systems Inc. of N.W. Pennsylvania with a notice of intent to purchase the C.T. scanner. The notice of intent sent by the hospital did not refer to the contract entered into on July 29, 1980 or the subsequent performance under that contract.

Almost two months later (September 29, 1981), the Hospital sought to withdraw without prejudice its letter of intent. The letter of withdrawal assumed that the new thresholds of $600,000 for capital expenditures and $250,000 for operating expenses established under the federal Omnibus Budget Reconcilation Act of 1981, P.L. 97-35, § 936 (effective October 1, 1981) (Omnibus Act) automatically negated the necessity of a certificate of need review for this transaction. The letter, ignoring the reality that the contract had been entered into and substantially performed prior to the increase of those thresholds, implied that an intended acquisition would be made under the new thresholds. The Department, relying on the facts set forth in the letter of withdrawal, nevertheless contended that the obtaining of a certificate of need was still required under section 701(a)(3), supra, relating to a capital expenditure which results in the addition of a health service not provided in the previous 12 months. Moreover, the Department did not address the applicability of the new Omnibus Act thresholds to completed transactions because the Hospital had withheld the fact of its completed purchase of the C.T. scanner. On November 2, 1981 the Department learned for the first time the true facts surrounding the purchase of the scanner.

On November 6, 1981, the Hospital filed an appeal of the Department's reviewability decision with the State Health Facility Hearing Board (Board). On November 19, 1981 the Department notified the Hospital that under the circumstances its acquisition of the C.T. scanner was a violation of the Act and operation of the scanner would be deemed a wilfull violation subject to penalties. On December 17, 1981 counsel for the Department informed the Hospital that in order to cease violating the Act, the Hospital should divest itself of ownership and possession of the scanner or obtain a certificate of need. Thereafter, on January 25, 1982 the Hospital filed an application for a certificate of need and also moved for a continuance of its appeal from the determination of reviewability. The motion for continuance was granted.

On March 1, 1982, while the application for a certificate of need was, and still is, pending, the Hospital filed a petition for review seeking declaratory and injunctive relief. The thrust of the Hospital's constitutional objection was that the delegation of authority to the Department under the Act contravenes Art. 2, Section 1 of the Pa. Constitution, and that the denial of interim use of the C.T. scanner was arbitrary and capricious.

The Hospital requested that the Department be enjoined from enforcing the Act against it with respect to the Hospital's operation of the C.T. scanner and sought the right to use the equipment pending a determination of the issues presented.

On March 15, 1982 the Hospital filed an Application for Special Relief with the Commonwealth Court. A hearing was scheduled for April 13, 1982. Preliminary objections raising a question of jurisdiction, in the nature of a demurrer and a motion to strike on the grounds of impertinency were filed by the Department. No disposition was made of the preliminary objections.

After hearing held on the appointed date, the Honorable David W. Craig entered an order, dated April 14, 1982, (a) authorizing the Hospital to use the C.T. scanner pending final disposition of the certificate of need or petition for review, whichever is later, (b) holding that the operation of the scanner shall not be deemed to be in violation of the Act and (c) enjoining the Department from bringing any enforcement or penalty action based on operation of the C.T. scanner or otherwise interfering with its operation during the pendency of the application or the petition for review. The following day, April 15, 1982, the Department filed a notice of appeal to this Court, which operated as an automatic supersedeas pursuant to Pa.R.A.P. 1736(b). 6 On motion of the Hospital, Judge Craig vacated the supersedeas on April 22, 1982.


At the outset, we address the propriety of the Commonwealth Court's exercise of jurisdiction. Appellant questions the Commonwealth Court's exercise of jurisdiction because of the Hospital's alleged failure to exhaust available administrative remedies. 7

A significant factor in considering the appropriateness of judicial intervention is the doctrine of exhaustion of administrative remedies. Canonsburg Gen. Hospital v. Dept. of Health, 492 Pa. 68, 422 A.2d 141 (1980); Delaware Valey Convalescent Center, Inc. v. Beal, 488 Pa. 292, 412 A.2d 514 (1980). See, e.g., Commonwealth v. Glen Alden Corp., 418 Pa. 57, 210 A.2d 256 (1965); Collegeville Borough v. Philadelphia Suburban Water Co., 377 Pa. 636, 105 A.2d 722 (1954). In Canonsburg we stated:

Well settled case law of this Court precludes a party's challenging administrative decision making from obtaining judicial review, ..., without first exhausting administrative remedies.... Judicial review without either a proper record or an administrative adjudication would constitute "premature interruption of the administrative process." (Citation omitted).

Id., 492 Pa. at 73, 422 A.2d at 144.

The legislature has made it clear that statutorily-prescribed remedies are to be strictly pursued.

In all cases where a remedy is provided, or a duty enjoined, or anything direct to be done by any act or acts of assembly of this commonwealth, the directions of the said acts shall be strictly pursued, and no penalty shall be inflicted, or anything done agreeably to the provisions of the common law, in such cases, further than shall be necessary for carrying such act or acts in effect.

Act of March 21, 1806, P.L. 558, 4 Sm.L. 326, § 13, 46 P.S. § 156. 8

The doctrine of exhaustion of administrative remedies as a restraint upon the exercise of a court's equitable powers not only reflects a recognition of the general assembly's directive of strict compliance with statutorily-prescribed remedies, it also acknowledges that an unjustified failure to follow the administrative scheme undercuts the foundation upon which the administrative process was founded. This premise was succinctly set forth in our decision in T. Mendelson Co., Inc. v. Pennsylvania R.R. Co., 332 Pa. 470, 474, 2 A.2d 820, 822 (1938).

The technical nature of the subject, and the peculiar ability of an administrative body to examine it, suffice as a matter of public policy to displace preliminary court action.

The premature interruption of the administrative process restricts the agency's opportunity to develop an adequate factual record, limits the agency in the exercise of its expertise and impedes the development of a cohesive body of law in that area. McKart v. U.S., 395 U.S. 185, 89 S.Ct. 1657, 23 L.Ed.2d 194 (1969). See also, Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975); Parisi v. Davidson, 405 U.S. 34, 92 S.Ct. 815, 31 L.Ed.2d 17 (1973). It is therefore clearly appropriate to defer judicial review when the question presented is one within the agency's specialization and when the administrative remedy is as likely as the judicial remedy to provide the desired result. However, a distinctly different situation is presented where the remedy afforded through the administrative process is inadequate. Feingold v. Bell of Pa., 477 Pa. 1, 383 A.2d 791 (1978); Borough of Green Tree v. Board of Property Assessments, 459 Pa. 268, 328 A.2d 819 (1974) (plurality opinion); ...

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