Westchester Gen. Hosp., Inc. v. DEPT. OF HEW

• Citation: 434 F. Supp. 435
• Decision Date: 27 June 1977
• Docket Number: No. 77-364-Civ-J-T.,77-364-Civ-J-T.
• Parties: WESTCHESTER GENERAL HOSPITAL, INC., Plaintiff, v. DEPARTMENT OF HEALTH, EDUCATION & WELFARE et al., Defendants.
• Court: U.S. District Court — Middle District of Florida

434 F. Supp. 435

WESTCHESTER GENERAL HOSPITAL, INC., Plaintiff, v. DEPARTMENT OF HEALTH, EDUCATION & WELFARE et al., Defendants.

No. 77-364-Civ-J-T.

United States District Court, M. D. Florida, Jacksonville Division.

June 27, 1977.

Peter L. Dearing, Mahoney, Hadlow & Adams, Jacksonville, Fla., Robert H. Neuman, Washington, D. C., for plaintiff.

Ernst D. Mueller, Asst. U. S. Atty., Jacksonville, Fla., for defendants.

OPINION

CHARLES R. SCOTT, District Judge.

Plaintiff has moved for a preliminary injunction which the Court referred to the Unted States Magistrate for hearing, pursuant to 28 U.S.C. § 636(b)(1)(B) and (C). Plaintiff and defendants have entered into a stipulation by which they agreed to waive their right under § 636(b)(1)(C) to a ten-day period within which to file objections to the Magistrate's findings and recommendation.

After reviewing the Magistrate's findings, conclusions and recommendation, the Court finds them to be neither clearly erroneous nor contrary to law. The Court therefore expressly approves them and adopts them as its own for issuing a preliminary injunction.

FINDINGS AND RECOMMENDATION

HARVEY E. SCHLESINGER, United States Magistrate.

Plaintiff Westchester General Hospital, Inc., owns and operates a one hundred-bed proprietary general care hospital in Miami, Florida, known as Westchester General Hospital. On May 9, 1977, plaintiff brought this action against defendants United States Department of Health, Education and Welfare (HEW), Joseph A. Califano, Jr., Secretary of Health, Education and Welfare (the Secretary), and Blue Cross of Florida, Inc. (Blue Cross), for declaratory and injunctive relief. On June 2, 1977, plaintiff filed a motion for a preliminary injunction. This case is before the Court on that motion.

Plaintiff alleges the following facts. HEW and the Secretary are responsible for administering the federal program of health insurance for the aged and disabled, known as "Medicare".¹ Plaintiff is a provider of health care services to Medicare beneficiaries in the Miami metropolitan area. HEW, through its fiscal intermediary, defendant Blue Cross,² reimburses plaintiff for expenses it incurs in providing Medicare services. Plaintiff is required to submit cost reports to Blue Cross annually.³ The cost reports are submitted on forms prescribed by defendants and include a detailed breakdown and departmental allocation of plaintiff's costs and revenues for the preceding fiscal year. Blue Cross has in its possession plaintiff's 1975 Cost Report. In April 1977, a reporter for the National Enquirer requested that Blue Cross disclose plaintiff's 1975 Cost Report. On May 2, 1977, plaintiff was informed that Blue Cross would disclose the report on or about May 9. Plaintiff faces competition from numerous health care institutions in its service area, including at least sixteen hospitals. The information contained in plaintiff's 1975 Cost Report is confidential commercial and financial information, disclosure of which would cause substantial harm to plaintiff's competitive position.

Plaintiff contends that the 1975 Medicare Cost Report which it submitted to Blue Cross is exempted from required disclosure under the Freedom of Information Act (FOIA) within the meaning of 5 U.S.C. § 552(b)(4),⁴ and that disclosure of the report would violate 18 U.S.C. § 1905.⁵ Once the cost report is released, plaintiff argues, the injury to plaintiff will be complete and irreparable; because the harm which will be done to its competitive position cannot be satisfactorily measured in money damages, plaintiff has no adequate remedy at law. Hence, plaintiff concludes, disclosure of the cost report should be enjoined pending resolution of the controversy on the merits.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331. See Westinghouse Electric Corp. v. Schlesinger, 542 F.2d 1190, 1209 (4th Cir. 1976), cert. denied, Brown v. Westinghouse Electric Corp., ___ U.S. ___, 97 S.Ct. 2199, 53 L.Ed.2d 239 (1977); Chrysler Corp. v. Schlesinger, 412 F.Supp. 171, 174 (D.Del. 1976); Burroughs Corp. v. Schlesinger, 403 F.Supp. 633, 634 (E.D.Va.1975).

From a consideration of the pleadings, affidavits, and testimony, and from an in camera inspection of plaintiff's 1975 Cost Report, I find that examination or analysis of plaintiff's 1975 Cost Report would reveal the following information: a detailed breakdown and departmental allocation of Westchester General Hospital's income and expenditures for the preceding fiscal year; identity and financial interest of one of plaintiff's owners; expenditures for contracted services; costs of acquisition or depreciation of plaintiff's capital assets; revenues from disposal of plaintiff's capital assets; cost of professional services rendered by hospital-based physicians in the fields of nuclear medicine, radiology, pathology, and cardiology (including average salary of hospital-based physicians in those fields); departmental salary (seventeen departments) and other direct departmental costs; average departmental salary; allocation of indirect costs by department; average costs experienced by certain special cost centers, namely, x-ray, laboratory, pathology, cost of drugs sold; departmental patient revenues (twenty-eight departments) and operating expenses (twenty-two departments); investment and other non-patient income (e. g., gift shop, meals sold to employees and guests, rental of non-patient facilities); monthly return on equity capital; and plant expansion allocations.

In order to obtain preliminary injunctive relief, a plaintiff must satisfy each of four criteria:

1. Irreparable injury because of the unavailability of an adequate remedy at law;

2. Substantial likelihood of success on the merits;

3. Threatened injury to the plaintiff outweighs any possible harm to the defendant;

4. Granting a preliminary injunction will not disserve the public interest.

Granny Goose Foods, Inc. v. Brotherhood of Teamsters and Auto Truck Drivers Local 70, 415 U.S. 423, 441, 94 S.Ct. 1113, 1125, 39 L.Ed.2d 435, 451 (1974); Sampson v. Murray, 415 U.S. 61, 84 n. 53, 94 S.Ct. 937, 950, 39 L.Ed.2d 166, 183 n. 53 (1974); Canal Authority of State of Fla. v. Callaway, 489 F.2d 567, 572 (5th Cir. 1974); Jets Services, Inc. v. Hoffman, 420 F.Supp. 1300 (M.D.Fla. 1976). For the reasons which follow, I conclude that plaintiff has met each of these criteria.

I. Success on the Merits

Plaintiff seeks to enjoin disclosure of its 1975 Medicare Cost Report. As a fiscal intermediary of HEW, Blue Cross has the authority to disclose plaintiff's Cost Report only by virtue of 20 C.F.R. § 422.435, a regulation promulgated by the Secretary which requires disclosure of Medicare cost reports upon written request.⁶ Thus, plaintiff's action is an attack upon the validity of 20 C.F.R. § 422.435.

Plaintiff contends, first, that § 422.435 is invalid because it requires the disclosure of information which is exempt from disclosure under the Freedom of Information Act within the meaning of 5 U.S.C. § 552(b)(4). The Freedom of Information Act was enacted by Congress in 1966. Its purpose is to make agency records more accessible to the public. Renegotiation Board v. Bannercraft Clothing Co., 415 U.S. 1, 17, 94 S.Ct. 1028, 1037, 39 L.Ed.2d 123, 136 (1974). 5 U.S.C. § 552(a)(3) provides that, in general, government agencies shall make identifiable records available to members of the public on request. Section 552, however, exempts nine types of information from operation of the statute. Specifically, § 552(b)(4) exempts from required disclosure "trade secrets and commercial or financial information obtained from a person and privileged or confidential." There is no contention or evidence that the information contained in plaintiff's Cost Report constitutes trade secrets.

Commercial or financial information is "confidential" within the meaning of § 552(b)(4) if disclosure would either (1) impair the Government's ability to obtain necessary information in the future, or (2) cause substantial harm to the competitive position of the person from whom the information was obtained. National Parks and Conservation Association v. Morton, 162 U.S.App.D.C. 223, 498 F.2d 765, 770 (1974). Chrysler Corp. v. Schlesinger, supra, 412 F.Supp. at 176; Save the Dolphins v. United States Department of Commerce, 404 F.Supp. 407, 411-12 (N.D.Cal.1975); Burroughs Corp. v. Schlesinger, supra, 403 F.Supp. at 637; McCoy v. Weinberger, 386 F.Supp. 504, 507 (W.D.Ky.1974); Sears, Roebuck & Co. v. General Services Administration, 384 F.Supp. 996, 1005 (D.D.C.1974).

Plaintiff's second contention is that § 422.435 is invalid because it conflicts with 18 U.S.C. § 1905. Section 422.435 requires disclosure of Medicare cost reports. Section 1905 makes it a crime for any employee of the government or any agency of the government to disclose

". . . 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 a regulation promulgated by an administrative agency, 20 C.F.R. 422.435 is agency action which must, to be valid, comply with the requirements of the Administrative Procedure Act. The standards by which a reviewing court is to test the validity of an agency regulation are set forth in 5 U.S.C. 706(2)(A). That section provides in pertinent part:

"To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall—

(2) hold unlawful and set aside agency action, findings, and

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