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Northlake Community Hospital v. United States

decided: July 21, 1981.

NORTHLAKE COMMUNITY HOSPITAL, PLAINTIFF-APPELLANT,
v.
THE UNITED STATES OF AMERICA, THE DEPARTMENT OF HEALTH AND HUMAN SERVICES AND RICHARD S. SCHWEIKER, *FN* SECRETARY OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANTS-APPELLEES .



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 80 C 4157-George N. Leighton, Judge .

Before Bauer and Cudahy, Circuit Judges, and Bartels, Senior District Judge.*fn**

Author: Cudahy

Plaintiff-appellant, Northlake Community Hospital ("Northlake"), appeals from the district court's dismissal of its suit for injunctive relief against the United States of America, the Department of Health and Human Services ("DHHS") and Richard S. Schweiker, Secretary of Health and Human Services (the "Secretary").*fn1 Northlake's complaint, filed on August 6, 1980, claimed that the Federal Defendants violated the hospital's right to due process by failing to conduct a hearing prior to the termination of Northlake's Medicare provider agreement. On August 20, 1980, the district court dismissed the complaint with prejudice on the grounds that Northlake failed to establish subject matter jurisdiction and failed to state a claim upon which relief could be granted. Northlake seeks review of both the district court's final judgment dismissing its complaint and a subsequent order denying reconsideration of the dismissal. We affirm.

I.

Title XVIII of the Social Security Act, 42 U.S.C. § 1395 (1979), sets forth the statutory requirements for participation in the federally funded Medicare program. This program, administered by the Department of Health and Human Services (formerly the Department of Health, Education and Welfare) provides health insurance benefits for aged and disabled persons by making payments directly to the institution or individual providing the health service or care (rather than to the individual beneficiary). 42 U.S.C. § 1395c and f (1979). In order to receive payment for services rendered to a Medicare patient, an institution must meet the conditions of participation prescribed by the Social Security Act and accompanying regulations. See 42 U.S.C. § 1395 (1979) and 42 CFR § 405.1011 et seq. (1980). The institution then becomes eligible to execute a one year renewable provider agreement with the government. 42 U.S.C. § 1395cc (1979). Institutions certified as Medicare providers are subject to periodic surveys by state agencies designated by the Secretary to evaluate compliance with federal standards. 42 U.S.C. § 1395aa (1979) and 42 CFR § 405.1904 (1980). If the institution fails to maintain compliance with the prescribed conditions of participation, the Secretary has the authority to terminate the institution's provider agreement at any time. 42 U.S.C. § 1395cc(b)(2) (1979) and 42 CFR § 489.53(a)(3) (1980).

Northlake, the plaintiff-appellant here, is a full-service 115 bed hospital, which has been certified as a Medicare provider since the program's inception in 1967. The hospital, which employs a staff of 350 doctors, nurses and support personnel, receives more than $2,000,000 a year from the federal government in payment for Medicare services. This payment represents approximately 20% of the hospital's total yearly revenue.

In late November 1979, the hospital administrator received written notice that the Federal Defendants were initiating action to terminate Northlake's Medicare provider agreement because the hospital no longer qualified for participation in the program. Included in the letter of notification was a list of deficiencies found by inspectors from the Illinois Department of Public Health during post-certification visits to Northlake in July, August and September 1979. According to the state survey, Northlake failed to comply with four conditions of participation: Physical Environment, 42 CFR § 405.1022 (1980); Medical Staff, 42 CFR 405.1023 (1980); Dietary Department, 42 CFR § 405.1025 (1980); and Laboratories, 42 CFR 405.1028 (1980). The most serious deficiencies cited by the inspectors involved violations of the National Fire Protection Association's Life Safety Code, which is incorporated in the Medicare Physical Environment condition. See 42 CFR § 405.1022B (1980). The letter urged Northlake to contact the Federal Defendants if the hospital had taken steps to correct the deficiencies or had definite plans for doing so, but warned that, absent compliance, notice of a termination date was imminent.

Six months passed before Northlake responded to the Federal Defendants' notice of deficiencies. On June 1, 1980, the hospital administrator informed the DHHS Regional Health Standard Quality Office that "substantial progress (had) been made toward compliance." Although the administrator explained that Northlake had corrected or eliminated most of the deficiencies, two major Life Safety Code violations remained. First, the hospital failed to provide "at least two exits (on each floor or fire section) which are remote from each other and one of which is a door leading directly outside the building or to an interior stairway leading outside the building." Defendants' Br., App. C. Second, "every aisle, passageway, corridor exit discharge, exit location and access (did) not have a readily available egress leading to an exit." Id. In response to the first deficiency, the administrator could only report that plans for an additional stairway from the fourth floor to the first floor had been submitted to the state "some time back" and would be "completed as soon as funds (were) available." Correction of the second deficiency, however, required such extensive and costly repair that the administrator requested a waiver of this condition because "the safety benefit to be derived (did) not justify the cost."

After reviewing the hospital administrator's response and the results of an additional survey conducted in January 1980, the Federal Defendants notified Northlake on July 18, 1980, that its Medicare provider agreement would be terminated effective August 8, 1980, due to "the existence of serious deficiencies which limit the capacity of your facility to render care without hazard to the health and safety of your patients." The letter of termination explained that the Life Safety Code violations found in both the July-September 1979 and January 1980 surveys formed the basis for the Federal Defendants' decision. Since several of the deficiencies found during the January 1980 survey had not previously been reported to the hospital, a list of these deficiencies was attached to the letter. The Federal Defendants also informed Northlake that it could challenge the decision by submitting a written request for a hearing within 60 days of the notice of termination.

The hospital administrator immediately demanded that the Federal Defendants rescind the termination order. While readily admitting that certain Life Safety Code violations had not been corrected, the administrator argued that "none of the deficiencies cited have a bearing on the quality of care provided to patients in our hospital, nor is the safety of our patients in jeopardy." He suggested that the Federal Defendants meet with Northlake administrators to formulate a mutually agreeable plan for correcting the deficiencies. In the event that the Federal Defendants chose not to rescind the order, the administrator also made a separate request for a prompt hearing on the matter.

When no hearing was scheduled prior to the August 8 termination date, the hospital filed suit for injunctive relief. In a verified complaint dated August 6, 1980, Northlake charged that the Federal Defendants had violated the hospital's constitutional rights by failing to conduct a hearing prior to the termination of Northlake's Medicare provider agreement. The hospital claimed that the court had jurisdiction pursuant to 28 U.S.C. § 1331(a) (1976).*fn2 Shortly thereafter, the Federal Defendants filed a motion to dismiss the action on the grounds that federal jurisdiction was precluded by 42 U.S.C. § 405(h) (1976).*fn3 See Weinberger v. Salfi, 422 U.S. 749, 95 S. Ct. 2457, 45 L. Ed. 2d 522 (1975). In addition, the Federal Defendants argued that Northlake was not entitled to a hearing prior to the termination of its provider agreement and that Northlake had failed to exhaust the administrative remedies available to it.

The district court heard argument on the jurisdictional issue at a hearing on August 15, 1980. During these arguments, Northlake maintained that the court had jurisdiction over its constitutional claims pursuant to 42 U.S.C. § 405(g) (1976)*fn4 even though the complaint stated that the court's jurisdiction was based on 28 U.S.C. § 1331(a) (1976). Moreover, Northlake admitted that the hospital was not entitled to a full evidentiary hearing prior to the termination of its provider agreement, but insisted that the Federal Defendants were required to provide preliminary pre-termination procedures which conformed with due process. See O'Bannon v. Town Court Nursing Center, Inc., 447 U.S. 773, 778 n. 6, 100 S. Ct. 2467, 2471, 65 L. Ed. 2d 506 (1980); Town Court Nursing Center, Inc. v. Beal, 586 F.2d 266 (3d Cir. 1978). At the close of the hearing, the district court dismissed Northlake's complaint with prejudice on the grounds that the hospital failed to establish subject matter jurisdiction and failed to state a claim upon which relief could be granted.

Northlake submitted an amended complaint to the district court on September 4, 1980, and renewed its motion for injunctive relief. In the amended complaint, Northlake revised its jurisdictional statement to conform to the position that it had taken during oral argument on defendants' motion to dismiss. The hospital also revised and clarified its due process claim. The amended complaint thus alleged that the Federal Defendants violated the hospital's constitutional rights by: 1) failing to provide Northlake with prior notification of the new set of deficiencies (i. e., deficiencies found during the January 1980 survey); 2) failing to allow Northlake to submit a plan for achieving compliance with those deficiencies; 3) failing to provide an "exit interview;" and 4) failing to permit Northlake to submit additional evidence after notification of the new deficiencies.

When the court refused to accept the amended complaint because the previous action had been dismissed with prejudice, Northlake made an oral motion pursuant to Rule 59(e) of the Federal Rules of Civil Procedure to have the court reconsider its August 20 judgment dismissing the complaint. Since Rule 59(e) requires that a motion to alter or amend a judgment be filed within 10 days of the judgment, the Federal Defendants argued that Northlake's motion was untimely. Northlake responded that the relief it requested could also be granted under Rule 60(b). The district ...


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