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Dialysis Centers v. Richard S. Schweiker Sec'y of U.S. Department of Health and Human Services

decided: August 18, 1981.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 80-C-1710 -- Marvin E. Aspen, Judge .

Before Cummings, Chief Judge, Bauer, Circuit Judge, and Hoffman,*fn** Senior District Judge.

Author: Cummings

Plaintiff Dialysis Centers, Ltd., an Illinois corporation, operates four kidney dialysis facilities in the Chicago area for the treatment of patients with end-stage renal disease and is an approved supplier of such treatment under the Medicare Act's End-Stage Renal Disease Program. On April 8, 1980, plaintiff brought this action for declaratory and injunctive relief against the Secretary and Department of Health and Human Services (HHS), alleging that the Secretary's approval of another dialysis facility in the Chicago area was arbitrary and capricious, violative of the applicable statute and regulations promulgated thereunder, and violative of plaintiff's Fifth Amendment right to due process. The Secretary moved to dismiss the suit for want of subject matter jurisdiction, lack of standing, and failure to state a claim upon which relief can be granted. The district court held that it lacked subject matter jurisdiction and dismissed the action with prejudice. We conclude that plaintiff failed to state a claim upon which relief can be granted and for that reason affirm the district court's dismissal.

On July 1, 1973, pursuant to amendments to the Social Security Act which established the End-Stage Renal Disease (ESRD) Program, virtually all persons suffering from chronic renal disease became eligible for reimbursement through Medicare of 80% of the reasonable costs of dialysis treatment, beginning three months after a course of treatment has begun.*fn1 These reimbursement payments are made directly to treatment facilities that have obtained approval for coverage and been issued federal provider numbers. A facility that wishes to be approved for coverage must "meet such requirements as the Secretary shall by regulation prescribe." 42 U.S.C. § 1395rr(b)(1).

Under the Secretary's final regulations, which became effective September 1, 1976, an existing facility applying for approval must, inter alia, show that its services are needed in the area it seeks to serve (42 C.F.R. § 405.2132) and that it meets the "minimal utilization rate," which is computed in terms of dialysis treatments per station per week (42 C.F.R., § 405.2130). The facility must also be certified for operation by the state in which it is located. Beginning in September 1976, the Secretary also established, through a series of letters to state health agencies and regional HHS offices, a procedure for "advance approval" of proposed ESRD facilities. Advance approval is granted upon the applicant's submission of satisfactory evidence that the proposed services are needed and a satisfactory plan to show that the minimal utilization rate requirements will be met. A federal provider number is not issued until HHS receives certification from the relevant state agency that the facility is licensed for operation pursuant to state law.

As part of the ESRD Program, Congress also authorized the Secretary to establish ESRD "network" organizations throughout the country. 42 U.S.C. § 1395rr(c)(1)(A). Each qualified ESRD facility must supply a representative to the network for its geographical area. 42 C.F.R. § 405.2111. The networks are required by statute to provide certain services and information to assist the Secretary in administering the ESRD Program. Among these obligatory services is the submission of an annual report which sets forth the network's recommendations and goals with respect to additional services in its area. 42 U.S.C. § 1395rr(c)(2)(E). In determining whether to approve additional facilities the Secretary is required "to take into account the network's goals and performance as reflected in the network's annual report." 42 U.S.C. § 1395rr(c)(4). The regulations further provide that "data furnished by the network organizations * * * shall be considered by the Secretary in determining whether to approve a facility for coverage" under the program. 42 C.F.R. § 405.1912(a). The determination of whether a facility should be approved, however, is the Secretary's alone. 42 C.F.R. § 405.1912.


Plaintiff in this action seeks to enjoin what it terms the Secretary's "wrongful" approval of a dialysis facility located on the northwest side of Chicago in close proximity to one of plaintiff's facilities. The facts as alleged by plaintiff are that a Dr. Walid Ghantous on May 23, 1978, sought advance approval of an ESRD facility with 28 dialysis stations to serve patients from the suburban area north of Chicago. In accordance with the agency's usual practice, the HHS regional office submitted the Ghantous application for comment by "Network 15," the ESRD network organization for Illinois, which recommended approval with certain limitations on the number of dialysis stations. The HHS regional office initially denied the application because of insufficient showing of need, but, on March 26, 1979, after receiving additional information from the applicant, gave advance approval for a facility with six dialysis stations. Approximately five months later, the HHS regional office was notified that construction of the Ghantous facility was underway at 4848 West Belmont Avenue on the northwest side of Chicago and granted a requested extension of the advance approval.*fn2 On February 6, 1980, the Illinois Department of Public Health, the state licensing agency, conducted an on-site inspection of the new facility and, on February 8, 1980, certified it for operation. However, at the time the complaint was filed, HHS had not yet issued the Ghantous facility its federal provider number, and it was this event that plaintiff's suit was intended to prevent.

Plaintiff alleged that the original advance approval of the Ghantous application contemplated a facility to serve the suburban area north of Chicago, not a facility located on the northwest side of Chicago, so that the agency's extension of advance approval to the facility without a new inquiry into need and a resubmission of the application to Network 15 was arbitrary and capricious, an abuse of discretion, and in violation of the applicable statute, regulatory provisions, and agency practices. Plaintiff further alleged that it would suffer irreparable harm through loss of patients, revenue and investment monies if the approval was permitted to stand and that the agency's wrongful approval violated plaintiff's due process rights under the Fifth Amendment. In its original complaint, plaintiff sought a temporary restraining order prohibiting the Secretary from issuing the Ghantous facility a federal provider number, preliminary and permanent injunctions to the same effect, and a declaration that the approval was unlawful.*fn3 Jurisdiction was alleged under the Federal Declaratory Judgment Act, 28 U.S.C. § 2201; the Administrative Procedure Act, 5 U.S.C. §§ 702, 703 and 706; and 28 U.S.C. § 1331(a).

On April 9, 1980, the day after the complaint was filed, District Judge Aspen held a hearing on plaintiff's request for a temporary restraining order. During the hearing, counsel for the Secretary informed the court that a federal provider number had been issued to the Ghantous facility the previous day, after the complaint was filed but before it was received by defendants. Counsel also challenged orally the jurisdiction of the district court and plaintiff's standing to sue. At the conclusion of the hearing, Judge Aspen ordered the Secretary to re-submit the Ghantous application to Network 15.*fn4 On June 17, 1980, defendants filed their motions to dismiss for lack of subject matter jurisdiction, lack of standing, and failure to state a claim. On August 18, plaintiff moved for leave to file an amended complaint. The amended complaint asserts as an additional jurisdictional ground the Mandamus Act, 28 U.S.C. § 1361, and seeks to enjoin the Secretary from making Medicare reimbursement payments to the Ghantous facility. On August 22, Judge Aspen entered a memorandum opinion and order dismissing the complaint and denying leave to file the amended complaint on the ground that none of the jurisdictional provisions alleged, including 28 U.S.C. § 1361, conferred subject matter jurisdiction on the district court. Plaintiff appeals, contending that jurisdiction lies under both 28 U.S.C. § 1331 and 28 U.S.C. § 1361. Because we find that plaintiff failed to state a claim upon which relief can be granted, it is unnecessary to consider the question of subject matter jurisdiction.


As plaintiff recognizes (Br. 19), neither the Social Security Act nor regulations promulgated pursuant thereto give an ESRD facility the right to challenge the Secretary's approval of another facility under the ESRD program.*fn5 Nor is such a right conferred on plaintiff by the Administrative Procedure Act (APA), 5 U.S.C. §§ 701, 702.

In order to assert a cognizable claim or "standing to sue" under the APA, a plaintiff must demonstrate that it has suffered or will suffer "injury in fact" sufficient to establish Article III standing and that the alleged injury is to an interest "arguably within the zone of interests protected or regulated" by the statute that has allegedly been violated. United States v. SCRAP, 412 U.S. 669, 686, 93 S. Ct. 2405, 2415, 37 L. Ed. 2d 254. Assuming that plaintiff's claimed potential loss of patients is sufficient to constitute "injury in fact," it is not an injury to an interest intended to be protected by the ESRD Program. The stated objectives and obvious purposes of the program are to provide needed treatment to persons suffering from chronic renal disease and to do so as efficiently as possible. While individual health care suppliers are undoubtedly beneficiaries of the program, these benefits are "wholly incidental to the purpose and design of the program." Geriatrics v. Harris, 640 F.2d 262, 265 (10th Cir. 1980); Northlake Community Hospital v. The United States of America, 654 F.2d 1234 at 1242 (7th Cir. 1981); see also Town Court Nursing Center v. Beal, 586 F.2d 266, 277 (3d Cir. 1978).

Moreover, recourse to the APA is unavailable where Congress intends to insulate the action complained of from judicial review. 5 U.S.C. § 701. That Congress so intended in this instance is manifest from the ...

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