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American Hospital Association v. Schweiker

decided: November 1, 1983.

AMERICAN HOSPITAL ASSOCIATION, PLAINTIFF-APPELLANT,
v.
RICHARD S. SCHWEIKER, ET AL., DEFENDANTS-APPELLEES, AND ILLINOIS MIGRANT COUNCIL, ET AL., INTERVENING DEFENDANTS-APPELLEES



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 79 C 2669 -- Nicholas J. Bua, Judge.

Cudahy and Coffey, Circuit Judges, and Wisdom, Senior Circuit Judge.*fn*

Author: Cudahy

CUDAHY, Circuit Judge.

This case involves a challenge to certain regulations issued on May 18, 1979, by the Secretary of Health, Education and Welfare (now Health and Human Services) (the "Secretary") pursuant to Title VI (the "Hill-Burton Act") and Title XVI of the Public Health Service Act, 42 U.S.C. §§ 291, 300 o et seq. (1976). The regulations, published at 42 C.F.R. § 124, Subparts F and G, impose specified obligations for community service and uncompensated care upon hospitals which received funds under the Hill-Burton Act. The American Hospital Association ("AHA"), on behalf of those hospitals, sued to have the 1979 regulations declared invalid, arguing that they violated statutory, contractual and constitutional rights. The district court granted summary judgment in favor of the Secretary. We affirm.

I

In 1946, in response to President Truman's call to enact legislation which would ensure adequate health care for all Americans, see President Truman's Message to Congress on Health Legislation, 1945 U.S. CODE CONG. SERV. 1143, Congress passed the Hospital Survey and Construction Act, Pub. L. No. 79-725, 60 Stat. 1040 (1946), presently codified as Title VI of the Public Health Service Act, 42 U.S.C. § 291. Title VI, commonly known as the Hill-Burton Act, was intended to address post-Depression and post-war problems with respect to the adequacy and distribution of health service facilities by means of a program of grants-in-aid to the states. See Statement of Senator Hill, in Hearings on S. 191 Before the Senate Comm. on Education and Labor, 79th Cong., 1st Sess. 6-9 (1945). The stated purpose of the Hill-Burton Act, in addition to the development and improvement of physical facilities and the promotion of research, was:

to assist the several States in the carrying out of their programs for the construction and modernization of such public or other non-profit community hospitals and other medical facilities as may be necessary, in conjunction with existing facilities, to furnish adequate hospital, clinic, or similar services to all their people. . . .

42 U.S.C. § 291. States wishing to obtain the federal financial assistance -- outright grants, loans and loan guaranties -- were required to submit to the Surgeon General for his approval a state plan for carrying out the congressional purpose. 42 U.S.C. § 291d.

Most importantly to the issues involved in this litigation, the Hill-Burton Act provided that:

The Surgeon General . . . shall by general regulations prescribe --

(e) that the State plan shall provide for adequate hospitals, and other facilities for which aid under this part is available, for all persons residing in the State, and adequate hospitals (and such other facilities) to furnish needed services for persons unable to pay therefor. Such regulations may also require that before approval of an application for a project is recommended by a State agency to the Surgeon General for approval under this part, assurance shall be received by the State from the applicant that (1) the facility or portion thereof to be constructed or modernized will be made available to all persons residing in the territorial area of the applicant; and (2) there will be made available in the facility or portion thereof to be constructed or modernized a reasonable volume of services to persons unable to pay therefor, but an exception shall be made if such a requirement is not feasible from a financial viewpoint.

42 U.S.C. § 291c(e).*fn1 Thus the statute required the state plan (1) to make provision for adequate health facilities for all persons residing in the state and (2) to furnish necessary services to persons unable to pay. The regulation or regulations which the Surgeon General (later the Secretary*fn2) was directed to issue could require as a condition of approval of a project that the state give certain "assurances": (1) that the facility would be made available to all persons residing in the territorial area of the applicant and (2) that there would be made available in the facility a reasonable volume of services to persons unable to pay. These two assurances have become known, respectively, as the "community service assurance" and the "reasonable volume" or "uncompensated care assurance."

The regulations issued from 1947 to 1972 in implementation of this statutory provision essentially tracked the language of the statute, see 42 C.F.R. §§ 53.61-53.63 (Supp. 1947); and, although over $4.4 billion in grants and $2 billion in loans and loan guaranties were authorized between 1947 and 1974, see S. Rep. No. 1285, 93d Cong., 2d Sess., reprinted in 1974 U.S. CODE CONG. & AD. NEWS 7860, the hospitals receiving aid displayed a marked reluctance to give even the most token charitable care. See Comment, Provision of Free Medical Services by Hill-Burton Hospitals, 8 Harv. C.R.-C.L. L. REV. 351, 352 (1973). After -- and apparently in response to -- a series of lawsuits brought by several private citizens and public interest groups against federally assisted hospitals to enforce compliance with the Hill-Burton obligations, see, e.g., Euresti v. Stenner, 458 F.2d 1115 (10th Cir. 1972); Cook v. Ochsner Foundation Hospital, 61 F.R.D. 354 (E.D.La. 1972), the Secretary began in 1972 to issue regulations which defined standards for compliance with the assurances. These regulations specified what was to be deemed a "reasonable volume of services" in terms of a quantitative presumptive compliance level, defined "persons unable to pay," established standards for compliance with the community service assurance and initiated various reporting requirements to ensure compliance. See 42 C.F.R. §§ 53.111, 53.113 (1974).

In 1975 a new federal assistance program for hospital construction and modernization was established to replace Title VI. This later program, Title XVI of the Public Health Service Act, now codified at 42 U.S.C. § 300q et seq., provides for assurances similar to those in Title VI but adds teeth to the Title VI requirements as well. Thus, Title XVI requires applicants for federal aid to give:

reasonable assurance that at all times after such application is approved (i) the facility or portion thereof to be constructed, modernized, or converted will be made available to all persons residing or employed in the area served by the facility, and (ii) there will be made available in the facility or portion thereof to be constructed, modernized, or converted a reasonable volume of services to persons unable to pay therefor and the Secretary, in determining the reasonableness of the volume of services provided, shall take into consideration the extent to which compliance is feasible from a financial viewpoint.

42 U.S.C. § 300s-1(b) (1) (K). Apparently in recognition of the compliance problems which had arisen under the Hill-Burton program, Title XVI mandates, rather than permits, the Secretary to prescribe by regulation the manner in which all recipients of financial assistance under either Title VI or Title XVI "shall be required to comply with the assurances required to be made at the time such assistance was received and the means by which such entity shall be required to demonstrate compliance with such assurances." 42 U.S.C. § 300s(3). The Secretary is also given extensive investigative and enforcement power by Title XVI. 42 U.S.C. § 300s-6.

The regulations which have given rise to the instant litigation were issued by the Secretary in response to this mandate. See 44 Fed. Reg. 29,372-29,410 (1979). The sections of the regulations relevant here are set forth in the Appendix to this opinion. Briefly, the 1979 regulations apply to all health facilities which gave assurances under either Title VI or Title XVI. The obligations under Title VI are made to continue for twenty years after the completion of construction or until the amount of the grant or loan is repaid,*fn3 42 C.F.R. § 124.501(b) (1), although they have no retroactive application to the period prior to the effective date of the regulations. See 44 Fed. Reg. 29,372-29,374 (1979). In carrying out the uncompensated care assurance, Subpart F of the regulations sets a quantitative annual standard of compliance by requiring uncompensated care equal to the lesser of either 3% of the facility's operating cost for the last fiscal year or 10% of all federal assistance received by the facility, adjusted to make allowance for inflation for each year after 1979 (in effect prescribing the meeting of the obligation in the equivalent of 1979 dollars). 42 C.F.R. § 124.503(a). If in any year a facility is financially unable to meet this standard, the deficit may be made up in the following year, or in years subsequent to that, and, if necessary, at the end of the twenty-year period of obligation. 42 C.F.R. § 124.503(b). Excesses will similarly be applied as credits against subsequent years' obligations. 42 C.F.R. § 124.503(c). The regulations also specify that amounts received as reimbursement from insurance programs or under Medicare or Medicaid may not be counted in computing the amount of uncompensated services rendered. 42 C.F.R. § 124.509.

With respect to the community service assurances, Subpart G of the regulations requires that the federally assisted health facilities be made available to all residents and prohibits the exclusion of anyone in the area served by the hospital on the basis of any factor unrelated to need. The facility may, however, deny services to individuals unable to pay for them if the facility is not required to accept these patients under the uncompensated care requirements of Subpart F. 42 C.F.R. § 124.603(a) (1). The regulations also specifically address certain denials of medical services which are impermissible. These denials include refusals to participate in the Medicare and Medicaid programs or discrimination against individuals who are recipients of aid under those programs. 42 C.F.R. § 124.603(c). The regulations also prohibit adherence to certain admissions policies which would have the effect of excluding individuals on impermissible grounds. 42 C.F.R. § 124.603(d). As an example of such prohibited practices, the regulations cite a policy of accepting only patients with private physicians who have staff privileges at the hospital. The rules require that the facility make alternative arrangements to ensure that its services are available to patients of this kind, and the regulations contain illustrative examples of such arrangements -- the extension of temporary privileges to the person's physician; the referral of patients to a doctor with staff privileges; the establishment of a clinic through which such patients may be treated and, if necessary, admitted; the entering into contracts with qualified physicians and other arrangements. 42 C.F.R. § 124.603(d) (1). Similarly, if most physicians on the staff of a Hill-Burton hospital refuse to accept Medicare and Medicaid patients, so that beneficiaries of such aid are effectively excluded from admission, the hospital must establish alternative arrangements to make facilities available to such persons. 42 C.F.R. § 124.603(d) (2). The requirement of a pre-admission deposit which acts to exclude otherwise eligible individuals is also prohibited. 42 C.F.R. § 124.603(d) (3). The regulations also contain provisions regarding notice to patients of the facilities' obligations, reporting and record-keeping requirements and mechanisms for investigation and enforcement. 42 C.F.R. §§ 124.604-124.606.

On June 27, 1979, the AHA filed suit against the Secretary seeking to have the 1979 regulations enjoined, and moved on August 27, 1979, for a temporary restraining order. On August 31, 1979, the district court denied the motion for a temporary restraining order and granted leave to intervene as defendants to various individuals and public interest organizations concerned with health care, rights of welfare recipients and the status of migrant workers. On October 1, 1979, the AHA's motion for a preliminary injunction was also denied. On July 2, 1980, this court affirmed the denial of preliminary relief. American Hospital Ass'n v. Harris, 625 F.2d 1328 (7th Cir. 1980).

Thereafter, on September 24, 1980, the AHA filed a motion for summary judgment, and defendants subsequently filed cross-motions to the same effect. On January 8, 1982, the district court denied the AHA's motion and granted summary judgment in favor of the defendants. American Hospital Ass'n v. Schweiker, 529 F. Supp. 1283 (N.D.Ill. 1982). The AHA appeals from this denial, arguing, as it did below, that the 1979 regulations exceed the Secretary's statutory authority, that they violate contractual agreements between the federal government and the assisted hospitals by altering and expanding their obligations under those agreements and that they violate the due process clause by impairing the hospitals' contractual rights.

II

This case involves review of these administrative regulations pursuant to the Administrative Procedure Act, 5 U.S.C. §§ 701-706. No challenge has been raised to the procedural adequacy of the administrative proceeding. Setting aside for a moment the contractual and constitutional claims, which we shall discuss in Part III, infra, our consideration is limited to certain specific questions. We must first inquire whether the Secretary, in promulgating the 1979 regulations, acted within the scope of his statutory authority. 5 U.S.C. § 706(2) (C); Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 415, 28 L. Ed. 2d 136, 91 S. Ct. 814 (1971). If we conclude that he was so acting, the regulations cannot be set aside unless we find that they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706 (2) (A); Batterton v. Francis, 432 U.S. 416, 426, 53 L. Ed. 2d 448, 97 S. Ct. 2399 (1977). Put another way, a reviewing court will sustain any regulation promulgated under a statute if it is "'reasonably related to the purposes of the enabling legislation. '" Mourning v. Family Publications Service, Inc., 411 U.S. 356, 369, 36 L. Ed. 2d 318, 93 S. Ct. 1652 (1973), quoting Thorpe v. Housing Authority of the City of Durham, 393 U.S. 268, 280-81, 21 L. Ed. 2d 474, 89 S. Ct. 518 (1969). This standard of review is highly deferential; it begins with a presumption that the agency action is valid and affirms the agency decision if it has any rational basis, thereby refusing to substitute the court's own judgment for that of the agency, Ethyl Corp. v. Environmental Protection Agency, 176 U.S. App. D.C. 373, 541 F.2d 1, 34 (D.C. Cir.), cert. denied, 426 U.S. 941, 96 S. Ct. 2662, 49 L. Ed. 2d 394 (1976).

We note, first of all, that the authority conferred upon the Secretary under the Hill-Burton Act is very broad. He was required to issue general regulations to ensure that the various state plans provide that the facilities established with the aid of federal funds be made available to all residents of the community and that they furnish services to persons unable to pay, 42 U.S.C. § 291c(e), and he was directed to approve only applications for aid which were in compliance with the regulations issued pursuant to his authority under section 291c, 42 U.S.C. § 291e(b) (2). Under the statutory scheme, therefore, Congress expressly delegated to the Secretary the authority to set standards of compliance with the Act's goals; in establishing these standards the Secretary engages in what is commonly called "legislative rulemaking." See, e.g., Batterton v. Francis, 432 U.S. at 425; 2 K. DAVIS, ADMINISTRATIVE LAW TREATISE § 7:8 (2d ed. 1979).

We think it is clear that the Secretary was acting within the scope of his statutory mandate*fn4 when he promulgated the regulations here. Although the AHA contends that the Hill-Burton Act was merely a construction statute with a non-discrimination clause attached, such a contention is difficult to reconcile with the specific statutory language requiring assurances that the facilities constructed be available to all residents and in particular to those unable to pay for medical services.

Moreover, the legislative history of the Hill-Burton Act, both in its origins and as it has evolved through amendment, indicates that it was intended to be more than a construction statute. Although the assurances were not in the original bill introduced by Senator Hill in 1945, Hearings on S. 191 Before the Senate Comm. on Education and Labor, 79th Cong., 1st Sess. 1-6 (1945) [hereinafter "1945 Hearings"], the records of the Senate hearings demonstrate that the provision of medical services to indigents was a recurrent theme. See 1945 Hearings at 177 (statement of Senator Murray); at 190, 212, 245 (remarks of Senator Ellender); at 30 (remarks of Senator Chavez). A particularly revealing colloquy took place among Senator Ellender, Senator Pepper, Senator Taft and Dr. Frederick D. Mott, an official of the Department of Agriculture, on March 12, 1945:

Senator Taft. Let me suggest something else. You would say a hospital accepting aid of this kind should have an obligation to take care of a certain number of indigent patients. Most of them do, but I mean if they are going to have Federal money, should there not be a definite obligation to handle a certain number of indigent patients?

Dr. Mott. Senator, I would think there would certainly be an obligation to meet the needs of all the people of that hospital service area for which the hospital was designed, which would, of course, include many indigent and medically indigent.

Senator Pepper. This is what occurred to me, Senator . . . that in determining the burden which the hospital would be expected to carry, they might not be able to get Federal aid unless they agreed to take a fixed number of indigent patients.

Senator Taft. That is what I mean. I imagine every hospital of a general nature would be lucky if they did not have 20 percent of indigent patients.

Senator Ellender. If people in all localities were able to pay for hospitalization there would be no need for this bill. It seems to me that our primary purpose should be to devise means to take care of those who cannot take care of themselves. My reason for supporting a bill providing for Federal aid to build hospitals is to make it easy for the community in which a hospital may be built to give aid to the indigent. . . .

Senator Taft. My interest in it is like in a public works bill, just to provide construction. But beyond that, these facilities ...


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