St. Michael's Convalescent Hospital v. State of Cal.

• Decision Date: 01 May 1981
• Docket Number: No. 79-4195,79-4195
• Citation: 643 F.2d 1369
• Parties: ST. MICHAEL'S CONVALESCENT HOSPITAL, a California corporation, St. Therese Convalescent Hospital, a California corporation, Margaret Carlson, doing business as St. Luke's Convalescent Hospital, and all others similarly situated, Plaintiffs-Appellants, v. The STATE OF CALIFORNIA, Edmund G. Brown, Jr., in his official capacity as the Governor of the State of California; the California Department of Health, the California Department of Benefit Payments, and the California Health Facilities Commission, the Department of Health, Education and Welfare, and Joseph Califano, in his official capacity as the Secretary of Health, Education and Welfare, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1369

643 F.2d 1369

ST. MICHAEL'S CONVALESCENT HOSPITAL, a California

corporation, St. Therese Convalescent Hospital, a California

corporation, Margaret Carlson, doing business as St. Luke's

Convalescent Hospital, and all others similarly situated, Plaintiffs-Appellants, v. The STATE OF CALIFORNIA, Edmund G. Brown, Jr., in his

official capacity as the Governor of the State of

California; the California Department of Health, the

California Department of Benefit Payments, and the

California Health Facilities Commission, the Department of

Health, Education and Welfare, and Joseph Califano, in his

official capacity as the Secretary of Health, Education and

Welfare, Defendants-Appellees.

No. 79-4195.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted June 9, 1980.

Decided May 1, 1981.

Orrin L. Grover, San Francisco, Cal., for plaintiffs-appellants.

Ralph M. Johnson, Deputy Atty. Gen., San Francisco, Cal., John M. Fredenburg, Gen. Counsel, Sacramento, Cal., for defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before ANDERSON and TANG, Circuit Judges, and MURRAY, ^* District Judge.

J. BLAINE ANDERSON, Circuit Judge:

The plaintiffs-appellants are three health care providers who are reimbursed by the state through Medi-Cal, the Medicare program in California, for services they perform. They sought to enjoin the defendants-appellees, the California Department of Health Services (DHS), and the California Health Facilities Commission (the Commission), from releasing to the requesting public certain cost information which the plaintiffs had provided to the defendants. The plaintiffs also named the Department of Health, Education and Welfare (HEW) and its Secretary as defendants; however, HEW and its Secretary were never served and the plaintiffs ultimately voluntarily dismissed the federal defendants. Therefore, the only appellees are the state parties, and the only information involved is the information that was submitted to and is held by DHS and the Commission.

I. FACTS

DHS is the state agency that has responsibility for administering the Medi-Cal program. California Welfare and Institutions Code section 10722. Under Medi-Cal, DHS reimburses health care providers who extend covered services to eligible Medi-Cal recipients. To determine rates of reimbursement for the services, DHS requires providers to provide the type of cost information which is the subject of this suit. These records are then open to inspection by the public.

Apart from the requirements of DHS and Medi-Cal, health care providers are also required to submit the same or similar cost information to the Commission pursuant to the California Health Facilities Disclosure Act. California Health and Safety Code section 440 et seq. The Health Facilities Disclosure Act was enacted in response to rapidly increasing health care costs. Wilson v. California Health Facilities Commission, 110 Cal.App.3d 317, 167 Cal.Rptr. 801 (Ct. of App. 1st Applt. Div., 1980). "The disclosure aspects, based upon a uniform accounting and reporting system, were an attempt to provide the public and the government with the necessary data to make sound judgments for the planning and purchase of hospital services." Id.

Plaintiffs' complaint was dismissed for failure to state a claim upon which relief could be granted. The court ruled that:

1. the provisions of the Freedom of Information Act, 5 U.S.C. § 552, did not apply to a state administering a program like Medi-Cal, even though the program was partially funded by federal grants;

2. the provisions of the Federal Privacy Act, 5 U.S.C. § 552a, did not apply to a state administering a program like Medi-Cal because it only applied to federal agencies; it prohibited disclosure of records of individuals and not entities; and state grantees of Medicaid funds were specifically exempt from the Privacy Act;

3. there was no cognizable right of privacy created by the First, Fourth, Fifth, or Fourteenth Amendments to the United States Constitution that would prohibit the public disclosure of the cost information.

The district court also denied the plaintiffs' motion for a summary judgment, motion to amend the complaint, and motion to certify the class. Additionally, because it found that the plaintiffs had not alleged valid federal claims, the district court declined to exercise its pendent jurisdiction over the plaintiffs' state claims.

On appeal, the appellants contend that federal laws governing the disclosure of government-held information, 5 U.S.C. § 552, the Freedom of Information Act (FOIA), 5 U.S.C. § 552a, the Privacy Act (Privacy Act), 18 U.S.C. § 1905 (providing criminal sanctions for the disclosure of confidential information by federal employees) (§ 1905), 42 U.S.C. § 1306 (concerning the disclosure of information in the possession of the Department of Health, Education and Welfare) (§ 1306), are applicable to the state agencies involved and that those laws prohibit the disclosure of the cost information.

Appellants also argue that the Constitution protects their right of privacy and their property interest in the information and prohibits the disclosure of the information. By raising the argument concerning the property interest, a claim which was only alleged in their proffered amended complaint, we regard this appeal as also challenging the denial of the motion to amend.

We affirm the district court's dismissal of the complaint as to the federal statutory claims and the constitutional privacy claim; however, we remand to allow plaintiffs to amend their complaint regarding the alleged property interest in the cost information.

II. DISCUSSION

A. Standard of Review

This appeal is before us from an order dismissing the complaint for failure to state a claim upon which relief can be granted. Therefore, the complaint will be construed favorably to the appellants and the standard we apply is "whether or not it appears to a certainty under existing law that no relief can be granted under any set of facts that might be proved in support of (appellants') claims." De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir.), cert. denied, 441 U.S. 965, 99 S.Ct. 2416, 60 L.Ed.2d 1072 (1979).

B. The Federal Laws

The FOIA, generally, provides for the mandatory disclosure of information held by federal agencies, unless the requested material is exempt from mandatory disclosure by one of the nine exemption provisions in the FOIA. NLRB v. Robbins Tire & Rubber Co., 437 U.S. 214, 220-221, 98 S.Ct. 2311, 2316, 57 L.Ed.2d 159 (1978); 5 U.S.C. § 552.

The Privacy Act, on the other hand, generally prevents a federal agency's disclosure of information pertaining to an individual unless the individual has made a request or has given consent to disclosure in writing, or unless disclosure is provided for under the exceptions to the Privacy Act. 5 U.S.C. § 552a, § 552a(b)(1)-(11).

Section 1306 states, in pertinent part, that neither the Secretary of HEW nor any of its officers or employees shall disclose any information obtained by them in the discharge of their duties under the Social Security Act except as the Secretary of HEW may by regulations prescribe. Criminal sanctions are authorized for its enforcement. 42 U.S.C. § 1306.

Section 1905 makes criminal the disclosure of confidential information by officers or employees of the United States unless such disclosure is authorized by law. 18 U.S.C. § 1905.

Appellants contend that under these statutes, the cost information was prohibited from being disclosed and the district court erred in dismissing the suit and denying injunctive relief. We determine, however, that these statutes provided no basis upon which relief could have been granted.

First, the Privacy Act only applies to records of individuals a citizen of the United States or an alien lawfully admitted for permanent residence. 5 U.S.C. § 552a(a)(2); 5 U.S.C. § 552a(g)(1). The appellants, who are corporations or sole proprietorships, are not "individuals" and thus lack standing to raise a claim under the Privacy Act. Cell Associates v. National Institutes, etc., 579 F.2d 1155, 1157 (9th Cir. 1978).

Second, there is no private right of action to enjoin agency disclosures of information under either the FOIA or § 1905. Chrysler Corp. v. Brown, 441 U.S. 281, 99 S.Ct. 1705, 60 L.Ed.2d 208 (1979). And, it is very doubtful that a private right of action may be inferred under § 1306. See, Id. at 316-317, 99 S.Ct. at 1725.

Moreover, the FOIA and the Privacy Act apply only to "agencies" as that term is defined under 5 U.S.C. § 551(1) ¹ and 5 U.S.C. § 552(e). ² Under these definitions, "agency" does not encompass state agencies or bodies.

Appellants, however, argue that the federal funds received through the Medicaid program and Medicaid's pervasive statutory and regulatory scheme necessarily subjects the DHS and the Commission to the provisions of the FOIA and the Privacy Act.

Federal funding reaches a countless number of activities of local and state governments. To assure that the federal funds are spent for the purposes for which they were intended, extensive federal regulations are promulgated and must be complied with. However, those regulations do not convert acts of local and state governmental bodies into federal governmental acts. United States v. Orleans, 425 U.S. 807, 816, 96 S.Ct. 1971, 1976, 48 L.Ed.2d 390 (1976); Forsham v. Harris, 445 U.S. 169, 100 S.Ct. 977, 63 L.Ed.2d 293 (1980). "(E)xtensive, detailed and virtually day-to-day supervision" by the federal government is needed before "agency" status could be said to attach. Forsham v. Harris, 100 S.Ct. at 984, 63 L.Ed.2d at 304; United States v. Orleans; see, Housing Authority of City of Seattle v. State of Washington, 629 F.2d 1307 (9th Cir. 1980).

Medi-Cal, the Medicaid program in California, is a state-administered program which receives federal financial support and which is also...