U.S. v. Baylor University Medical Center

Decision Date19 July 1984
Docket NumberNo. 83-1398,83-1398
Citation736 F.2d 1039
CourtU.S. Court of Appeals — Fifth Circuit
Parties, Medicare&Medicaid Gu 34,057 UNITED STATES of America, Plaintiff-Appellee, v. BAYLOR UNIVERSITY MEDICAL CENTER, Defendant-Appellant.

Smith, Smith & Florsheim, Robert W. Smith, Bowen L. Florsheim, Robert B. Cook, Jr., Dallas, Tex., for defendant-appellant.

James A. Rolfe, U.S. Atty., Cheryl B. Wattley, Asst. U.S. Atty., Dallas, Tex., Mark Gross, William Bradford Reynolds, Walter W. Barnett, Appellate Sect., Civil Rights Div., U.S. Dept. of Justice, Washington, for plaintiff-appellee.

Herbert Semmel, New York City, for amicus American Public Health Assn.

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

Before BROWN, GEE and RUBIN, Circuit Judges.

GEE, Circuit Judge:

Does the receipt of Medicare and Medicaid payments subject a hospital to the coverage of Section 504 of the Rehabilitation Act, 29 U.S.C. Sec. 794 (Supp.1982), prohibiting discrimination based on handicap in programs or activities that receive federal financial assistance? Today we decide this question--one of first impression in the courts of appeal, 1 but one foreshadowed by Supreme Court authority--in the affirmative. We hold that Baylor University Medical Center (Baylor), whose inpatient and emergency room services receive Medicaid and Medicare payments, must allow the Department of Health and Human Services (HHS) access to the facility and information requested for the purposes of investigating a complaint of discrimination on the basis of handicap. In so holding, we affirm the decision of the district court. However, we find that the district court's immediate suspension of all Medicare and Medicaid payments to Baylor until it allows HHS the statutorily required access unduly penalizes beneficiaries of programs supported by these forms of federal assistance--i.e., patients and would-be patients in Baylor's inpatient and emergency programs. Vacating the district court's order as an abuse of discretion, we substitute our own order: that Baylor comply with HHS's request within 30 days or face termination of Medicare and Medicaid funds.


In May 1980, HHS received a complaint that Baylor refused to allow a deaf patient to bring an interpreter into the hospital (at no expense to the hospital) so that she could understand her pre- and post-operative discussions with the medical staff. HHS informed Baylor by letter that, as a recipient of federal financial assistance, it was obliged to comply with Section 504 of the Rehabilitation Act of 1973, 29 U.S.C. Sec. 794 (Supp.1982), and that HHS had received a complaint that Baylor's actions may have violated the Act. Section 504 states, in relevant part:

No otherwise qualified handicapped individual in the United States ... shall, solely by reason of his handicap, be excluded from the participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance.

HHS stated in the letter that it was responsible for investigating the complaint of discrimination and that an on-site review would be necessary. Baylor responded that, in its view, it is not a recipient of federal assistance for purposes of coverage of Section 504 and refused to allow the investigation. Further negotiation failed to resolve the impasse.

In March 1982, the United States filed suit, alleging that Baylor's refusal to permit HHS access to the Center's facilities in order to investigate the complaint HHS had received violated Section 504 and federal regulations implementing the Act. Baylor moved for summary judgment on the ground that none of the federal funds it received constituted federal financial assistance for the purposes of Section 504. The United States cross-moved for summary judgment; noting that Baylor had stipulated that it received Medicare and Medicaid funds, 2 the United States argued that these funds constituted federal financial assistance to Baylor, assistance that empowered HHS to investigate Baylor's compliance with Section 504.

The district court granted the government's motion, 564 F.Supp. 1495 (N.D.Tex.1983). It held: (a) the government had the right to sue to enforce Baylor's contractual assurance that it would comply with Section 504, thus creating federal jurisdiction, (b) the rights and duties of Section 504 apply to recipients of federal financial assistance; since Baylor received Medicare and Medicaid funds, it is the "recipient" of the funds and so must honor those rights and duties if the funds are federal financial assistance, and (c) Medicare and Medicaid are "federal financial assistance" for the purposes of Section 504. In reaching the last conclusion, the court noted that the substantive provisions of the Rehabilitation Act were modeled on Title VI, 42 U.S.C. Sec. 2000d et seq., and Title IX, 20 U.S.C. Sec. 1681; therefore, in interpreting the Act, courts must look to the judicial interpretation of those two major civil rights statutes. The court found support for holding that Medicare and Medicaid trigger Section 504 in HHS regulations which explicitly state that Medicare and Medicaid are "federal financial assistance for Section 504 purposes," see 45 C.F.R. Sec. 80, App. A p 121 (Medicare), and 45 C.F.R. Sec. 84, App. A Subpart A, Def. 1 (Medicaid), in district court holdings in this and other circuits, and in the legislative history of Section 504, Title VI, and the Medicare/Medicaid legislation. Citing Flemming v. Nestor, 363 U.S. 603, 80 S.Ct. 1367, 4 L.Ed.2d 1435 (1960), for the proposition that government benefits are not a contractual interest or property right, the court rejected Baylor's argument that Medicare and Medicaid come under the exception in the Rehabilitation Act for contracts of insurance. Last, the court found that HHS had properly targeted a "program"--Baylor's inpatient and emergency room services--for investigation, and noted that the fact that the actual complainant was not a Medicare or Medicaid recipient did not prevent HHS's investigation since the Rehabilitation Act is intended to prohibit discrimination in "programs which receive federal financial assistance" without limiting that protection to the direct beneficiaries of the federal assistance. The court determined that Baylor had violated Section 504 and applicable regulations in denying HHS access to the information requested and ordered that all future Medicare and Medicaid payments be suspended so long as Baylor continues to deny HHS access. This Court stayed the order pending appeal. 711 F.2d 38, 39 (5th Cir.1983).


In granting a stay pending appeal, we recognized that "[w]hether Medicare and Medicaid payments constitute federal financial assistance within the meaning of the Rehabilitation Act is a serious legal question that could have a broad impact upon federal/state relations" and, therefore, "a court ... would want to make a detailed and in-depth examination of this ... issue" before authorizing the investigation requested here. Baylor, 711 F.2d at 40. This appeal also requires us to define the scope of coverage: did the district court properly define the "program or activity" receiving federal assistance in permitting the HHS investigation to cover inpatient and emergency room services? Finally, is the remedy ordered by the district court--immediate termination of all Medicare and Medicaid payments until Baylor allows HHS the requested access--within the court's power and within the judicious exercise of its discretion?

We hold that Medicare and Medicaid are federal financial assistance for the purpose of Section 504, and that the district court did not err in defining inpatient and emergency room services as the "program or activity" that would be the appropriate target of HHS's investigation as the result of the alleged violation of Section 504. However, we conclude that, in the circumstances of this case, the district court abused its discretion 3 in ordering immediate termination of payments, and we accordingly revise its order so as to grant the hospital a reasonable grace period to comply with HHS investigatory requests.

A. We ground our determination that the receipt of Medicare and Medicaid payments triggers Section 504 coverage on three congruent sources: the legislative history of that group of statutes prohibiting discrimination in federally funded programs--Title VI, Title IX and the Rehabilitation Act, judicial interpretation of these, and regulations adopted pursuant to them. Our examination of these sources indicates that this court could not excuse from the coverage of Section 504 and its counterparts hospitals that participate in Medicare and Medicaid without frustrating Congress' clear and consistent purpose to protect handicapped persons and members of minority groups from discrimination in programs receiving federal assistance.

Section 504 of the Rehabilitation Act, set out above, is one piece of a larger statutory structure designed to prevent invidious discrimination in federally funded programs. The section was explicitly patterned on the seminal discrimination prohibitions of Title VI of the Civil Rights Act of 1964 4 which prohibits discrimination on the basis of race or national origin in federally funded programs and echoes verbatim the prohibitions of Title IX of the Education Amendments of 1972 5 against discrimination on the basis of sex in federally funded educational programs. See S.Rep. No. 93-1297, 93d Cong., 2d Sess., reprinted at [1974] U.S.Code Cong. & Ad.News 6373, 6390 ("Section 504 was patterned after, and is almost identical to, the anti-discrimination language of section 601 of the Civil Rights Act of 1964)"; Lloyd v. Regional Transportation Authority, 548 F.2d 1277, 1280 & n. 9 (7th Cir.1977); 119 Cong.Rec. S6144-S6145 (daily ed. March 1, 1973) (remarks of Sen. Humphrey, indicating that Section 504 represented...

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