ST. JOSEPH'S HOSPITAL v. BLUE CROSS, ETC.

• Decision Date: 11 July 1979
• Docket Number: No. 79-CV-416.,79-CV-416.
• Citation: 489 F. Supp. 1052
• Parties: ST. JOSEPH'S HOSPITAL HEALTH CENTER, Plaintiff, v. BLUE CROSS OF CENTRAL NEW YORK, INC., Service Employees International Union, AFL-CIO and Joseph A. Califano, Jr., as Secretary of the United States Department of Health, Education and Welfare, Defendants.
• Court: U.S. District Court — Northern District of New York

489 F. Supp. 1052

ST. JOSEPH'S HOSPITAL HEALTH CENTER, Plaintiff, v. BLUE CROSS OF CENTRAL NEW YORK, INC., Service Employees International Union, AFL-CIO and Joseph A. Califano, Jr., as Secretary of the United States Department of Health, Education and Welfare, Defendants.

No. 79-CV-416.

United States District Court, N. D. New York.

July 11, 1979.

Charles E. Cooney, Jr., Costello, Cooney & Fearon, Syracuse, N.Y., for plaintiff.

Bruce G. Soden, Hancock, Estabrook, Ryan, Shove & Hust, Syracuse, N.Y., for defendant Blue Cross of Central New York, Inc.

Charles E. Blitman, Blitman & King, Syracuse, N.Y., for defendant Service Employees International Union, AFL-CIO.

George H. Lowe, U.S. Atty., Syracuse, N.Y., Gustave J. DiBianco, Asst. U.S. Atty., Syracuse, N.Y., for defendant Califano.

MEMORANDUM—DECISION AND ORDER

MUNSON, District Judge.

This is an action to enjoin agency disclosure in response to a Freedom of Information Act request. The information to be disclosed is arguably exempt from the Act's mandatory disclosure requirements, but a regulation promulgated by the Secretary of Health, Education and Welfare would nevertheless compel its release. St. Joseph's Hospital challenges the validity of this rule, arguing that it is "arbitrary, capricious, an abuse of discretion," and otherwise "not in accordance with the law." The Court's jurisdiction over this dispute is properly founded upon 28 U.S.C. § 1331. See Califano v. Sanders, 430 U.S. 99, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977).

St. Joseph's Hospital is a "provider" of medicare services. 42 U.S.C. § 1395 et seq. As a medicare participant, the hospital is reimbursed for these services by the Health Care Finance Administration.¹ However, neither the Health Care Finance Administration nor the Department of Health, Education and Welfare provides payment and accounting services. These functions are performed by Blue Cross of New York.²

As a participant in the Medicare program, St. Joseph's Hospital is required to file an annual financial report with Blue Cross and the Department of Health, Education and Welfare. This "cost report" outlines the Hospital's financial standing and details its areas of expenditure during the preceding year. Once submitted, the report, of course, becomes agency data which is subject to disclosure under the Freedom of Information Act.

St. Joseph's Hospital is currently being solicited by organizers of the Service Employees International Union, AFL-CIO. This labor organization hopes to attain recognition as the exclusive bargaining representative of the Hospital's nonsupervisory employees. Believing that statistics concerning the employer's salary schedules, priorities, and profits would be useful in its organizing campaign, the union has demanded a copy of the 1978 St. Joseph's Hospital "cost report" pursuant to the Freedom of Information Act. H.E.W. regulations authorize full disclosure of this information,³ and the Secretary promptly notified the Hospital of the Department's intention to comply with the union's request. The present action was then commenced, seeking preliminary and permanent injunctive relief to restrain compliance by either H.E.W. or its agent Blue Cross. This Court granted a temporary restraining order and the government moved to dismiss plaintiff's complaint for failing to state a claim upon which relief could be granted. Since matters outside the pleadings were submitted by the parties, the Court announced its intention to treat the government's motion as one for summary judgment. F.R.Civ.P. 12(b).

The 1978 St. Joseph's Hospital cost report contains, among other things, a balance sheet, a profit and loss statement, a schedule allocating each cost item to a revenue producing department, a schedule setting forth the revenues and costs of each department, and schedules showing out-patient revenues, hospital based physician remuneration, employee benefits and administrative costs. Plaintiff argues that the Freedom of Information Act, 5 U.S.C. § 552, prohibits disclosure of this information because it is exempted by 5 U.S.C. § 552 (b)(4). As noted below, the exemptions contained in the Freedom of Information Act do not themselves forbid voluntary compliance with a "FOIA" request. The Court must therefore address plaintiff's argument that the H.E.W. regulation mandating disclosure of medicare provider "cost reports" contravenes the Trade Secrets Act—a provision in Title 18 which broadly prohibits government disclosure of commercial or financial information, except as otherwise authorized by law. 18 U.S.C. § 1905.

The United States Supreme Court has recently stated that administrative regulations may exempt agency disclosure from the prohibition of 18 U.S.C. § 1905 if (a) the regulations are substantive in nature, (b) the disclosure which they authorize is contemplated by a grant of congressional authority, and (c) the requisite procedural formalities were observed during their promulgation. Chrysler Corp. v. Brown, 441 U.S. 281, 99 S.Ct. 1705, 60 L.Ed.2d 208 (1979). Inasmuch as 20 C.F.R. § 422.435(c) satisfies each of these criteria, the regulation under attack does not contravene the Trade Secrets Act, and the final section of this opinion shall be devoted to plaintiff's argument that the Secretary's disclosure regulation is "arbitrary, capricious, and an abuse of discretion."

I.

The Freedom of Information Act was enacted in 1966, and became effective one year later. It was the culmination of a continuing congressional effort to improve public access to information held by government agencies. The Freedom of Information Act amended the public information provisions of the Administrative Procedure Act by eliminating direct interest as a condition of obtaining information,⁴ narrowing the standards for concealing information, and providing for judicial review of agency decisions to withhold information. See Generally, Note, The Freedom of Information Act: A Seven Year Assessment, 74 Colum.L.Rev. 895, 896-898 (1974).

The Freedom of Information Act embodies a general philosophy of full agency disclosure. See Department of Air Force v. Rose, 425 U.S. 352, 360-361, 96 S.Ct. 1592, 1598-1599, 48 L.Ed.2d 11 (1976); Environmental Protection Agency v. Mink, 410 U.S. 73, 80 & n.6, 93 S.Ct. 827, 832 & n.6, 35 L.Ed.2d 119 (1973). Section 552(a) provides that each agency shall make its records available to the public, subject to the requirement that the parties seeking disclosure reasonably describe the information being sought and assume the cost of its reproduction. The Act also exempts nine categories of agency records from the rule of mandatory disclosure. 5 U.S.C. § 552(b). Although several earlier opinions had concluded that these exemptions precluded agency release of exempted data, see Continental Oil Co. v. Federal Power Commission, 519 F.2d 31 (5th Cir. 1975); Westinghouse Electric Corp. v. Schlesinger, 542 F.2d 1190 (4th Cir. 1976), it is now clear that these exemptions merely remove certain classes of information from the Act's otherwise mandatory disclosure requirements. Chrysler Corporation v. Brown, 441 U.S. 281, 290-293, 99 S.Ct. 1705, 1711-1713, 60 L.Ed.2d 208 (1979). An agency is therefore free to disclose exempted materials, subject to the usual limitations on agency action, Pennzoil v. Federal Power Commission, 534 F.2d 627 (5th Cir. 1976); General Dynamics Corp. v. Marshall, 572 F.2d 1211 (8th Cir. 1978); Chrysler Corp. v. Schlesinger, 565 F.2d 1172 (3d Cir. 1977); Charles River Park "A", Inc. v. Dept. of Housing and Urban Development, 171 U.S.App.D.C. 286, 519 F.2d 935 (1975); and the Freedom of Information Act would not bar disclosure of the Hospital's cost report even if it fell within the exemption for confidential commercial or financial information.⁵

II.

The Department of Health, Education and Welfare has specifically authorized disclosure of cost reports filed by hospitals participating in the Medicare program. 20 C.F.R. § 422.435(c). The applicable provision states:

The following shall be made available to the public under the conditions specified:

. . . . .

(c) Upon request in writing, cost reports submitted by providers of services pursuant to section 1815 of the Act to enable the Secretary to determine amounts due such providers.

Plaintiff, however, argues that the regulation is invalid because it contravenes the Trade Secrets Act, 18 U.S.C. § 1905, which forbids government employees from disclosing:

. . . to any extent not authorized by law any information coming to him in the course of his employment or official duties . . . or any report or record made to or filed with, such department . . . which information concerns or relates to the trade secrets, . . . operations, . . . or . . . confidential statistical data, amount or source of any income, profits, losses, or expenditures of any . . . corporation . .

As in past cases, the Secretary contends that H.E.W.'s regulation mandating disclosure is entitled to the force and effect of law thereby providing the authorization necessary to legalize release of hospital cost reports under the Trade Secrets Act.⁶

In precisely this context the United States Supreme Court has recently indicated that properly promulgated agency regulations may provide the authorization necessary to exempt an otherwise illegal disclosure from the Trade Secrets Act. Chrysler Corp. v. Brown, 441 U.S. 281, 99 S.Ct. 1705, 60 L.Ed.2d 208 (1979). However, to enjoy the "force and effect of law," the Court has indicated that the regulation must be authorized by Congress, possess certain "substantive" characteristics, and be the product of certain procedural requisites. Id. at 301, 99 S.Ct. at 1717. Thus, in determining whether the Trade Secrets Act precludes disclosure in this case, the Court must determine whether § 422.435(c) satisfies each of these criteria.

A.

The Administrative Procedure Act does not define "substantive" agency rules. The Act does, however,...