William I. Babchuk, M.D., P.C. v. Indiana University Health, Inc

In the

United States Court of Appeals

For the Seventh Circuit

____________________

No. 15-1816

WILLIAM I. BABCHUK, et al.,

Plaintiffs-Appellants,

v.

INDIANA UNIVERSITY HEALTH, INC., et al.,

Defendants-Appellees.

____________________

Appeal from the United States District Court for the

Southern District of Indiana, Indianapolis Division.

No. 1:13-cv-01376-JMS-DML — Jane E. Magnus-Stinson, Judge.

____________________

ARGUED OCTOBER 2, 2015 — DECIDED JANUARY 11, 2016

____________________

Before POSNER, SYKES, and HAMILTON, Circuit Judges.

POSNER, Circuit Judge. Dr. William Babchuk, a radiologist,

brought this suit against Indiana University Health Tipton

Hospital, Inc. (Tipton Hospital for short), under 42 U.S.C.

§ 1983, which creates a federal remedy for violations of con-

stitutional rights by what are called “state actors.” See West

v. Atkins, 487 U.S. 42, 49–50 (1988). In 2003 Tipton awarded

Babchuk medical staff privileges, and either then or later al-

so gave his professional corporation an exclusive contract to

2 No. 15-1816

provide radiology services at the hospital. The suit charges

that the hospital and its administrators deprived him of

property without due process of law, in violation of the

Fourteenth Amendment, when in 2012 it cancelled both his

medical privileges and his corporation’s contract. His pro-

fessional corporation is an additional plaintiff. The defend-

ants include besides Tipton Hospital the hospital’s owner,

Indiana University Health, Inc., plus some persons em-

ployed by the corporate defendants—but we can ignore

those persons.

The district judge granted summary judgment in favor of

all the defendants. She reasoned that the plaintiffs had failed

to prove they had a federally protected property interest in

Dr. Babchuk’s hospital privileges or in the contract between

his professional corporation and the hospital. An alternative

ground for affirmance urged by the defendants is that the

conduct of which Babchuk complains is not state action and

is therefore not actionable under 42 U.S.C. § 1983.

The hospital’s medical-staff bylaws provide that a physi-

cian’s privileges may be summarily suspended “whenever

action must be taken immediately in the best interest of pa-

tient care or … the failure to take prompt action may result

in imminent danger to the life, health, or safety of any such

person in the Hospital … and such summary suspension

shall become effective immediately upon imposition.” In

June 2012 Dr. Babchuk’s staff privileges, and thus his author-

ity to provide medical services at the hospital, were sum-

marily suspended by a four-member peer review committee

(although the bylaws required only a three-member commit-

tee) on the ground that he had delayed for eight days in dic-

tating a report on the result of an ultrasound performed on a

No. 15-1816 3

patient in the hospital’s emergency room. The hospital de-

fendants claim that the patient had been in the thirtieth week

of her pregnancy when she arrived in the emergency room

and that shortly after she had the ultrasound she was trans-

ferred by ambulance to another hospital, where she gave

birth prematurely. During the eight days in which Dr. Bab-

chuk was dithering, he allegedly had instructed members of

the hospital’s staff to make the ultrasound results “go away”

or (what amounts to the same thing) delete the record of the

results of the ultrasound. Dr. Babchuk disputes these allega-

tions.

The summary suspension of his privileges was quickly

followed by the cancellation of his professional corporation’s

contract with the hospital. And the following month (July

2012) the hospital’s Medical Executive Committee voted to

continue Babchuk’s suspension. A hearing before an ad hoc

committee was held in October at Babchuk’s request. The

committee voted unanimously to make the suspension per-

manent. Babchuk was told he could appeal the committee’s

decision to the hospital’s board of directors, but he declined

to do so, and so the cancellation of his medical privileges

was made permanent.

His principal argument is that by reporting the suspen-

sion of his medical privileges to Indiana’s medical licensing

board and the National Practitioner Data Bank, as required

by both federal and Indiana law, see 42 U.S.C.

§§ 11133(a)(1)(A), 11134(c)(2); 45 C.F.R. § 60.12; Ind. Code

§ 16-21-2-6, the hospital had “blemished” his medical license

and by doing so had deprived him of property. A medical

license is deemed property within the meaning of the due

process clause if state law not only creates an entitlement to

4 No. 15-1816

the license but also establishes criteria for imposing profes-

sional discipline should the license be abused by its holder.

See Fleury v. Clayton, 847 F.2d 1229, 1232 (7th Cir. 1988);

Abcarian v. McDonald, 617 F.3d 931, 942 (7th Cir. 2010); cf.

Board of Regents v. Roth, 408 U.S. 564, 577 (1972); Cain v. Lar-

son, 879 F.2d 1424, 1426–27 (7th Cir. 1989). But a harm to

reputation caused by a state official’s statements is a denial

of due process only if the harm is to an interest that the law

recognizes as an interest in property. See Paul v. Davis, 424

U.S. 693, 701–12 (1976).

If possession of a medical license is recognized by state

law to be a property interest, a “blemish” on such a license

could be compared to a seizure of a portion of one’s land,

but this would depend on what exactly the “blemish” con-

sisted of and whether it would seriously harm the licensee’s

medical practice. And a physician has no due process right

to be exempt from formal procedures of a hospital that can

result in his being disciplined. Abcarian v. McDonald, supra,

617 F.3d at 942. But we needn’t pursue that issue, because

Indiana’s medical licensing board has not censured Babchuk;

nor is there evidence that his career has been hindered by

the hospital’s reporting the suspension of his medical privi-

leges to Indiana’s medical licensing board and the National

Practitioner Data Bank.

Babchuk goes way overboard in arguing that the hospi-

tal’s action in suspending his privileges has rendered his li-

cense “virtually worthless” and as a result has prevented

him from ever again obtaining staff privileges in a hospital.

He argues that because before granting such privileges a

hospital must check the National Practitioner Data Bank for

adverse peer-review information, 42 U.S.C. § 11135(a)(1),

No. 15-1816 5

and “defendants’ summary suspension of Dr. Babchuk has

been reported to the NPDB and the Indiana medical licens-

ing board, Dr. Babchuk is ’blackballed’ with respect to future

employment and his license to practice medicine has been

rendered virtually worthless.” Not so; for though it’s been

more than three years since his termination by Tipton Hospi-

tal, he has presented no evidence that he’s been “’black-

balled’” and his license to practice medicine “rendered vir-

tually worthless.” He is on the physician list of Indiana’s Lo-

gansport Memorial Hospital, as his lawyer acknowledged at

oral argument (see also www.logansportmemorial.

org/pages/Physician-Detail/?Name=Babchuk&physicianID=

3205 (visited January 9, 2016)), and the hospital website that

we just cited says that he and his professional corporation

occupy a suite at the hospital and are accepting new pa-

tients.

He argues in the alternative that he has a property inter-

est not only in his license but also in his medical privileges at

Tipton Hospital, because the hospital’s bylaws establish pro-

cedures for terminating medical privileges of doctors work-

ing at the hospital. But the existence of such procedures cre-

ates no entitlement to continued privileges. “Process is not

an end in itself. Its constitutional purpose is to protect a sub-

stantive interest to which the individual has a legitimate

claim of entitlement.” Olim v. Wakinekona, 461 U.S. 238, 250

(1983); see also Cain v. Larson, supra, 879 F.2d at 1426. So

while it’s true that an employee who has tenure—a statutory

or contractual entitlement to retain his job for a specific peri-

od (which can be life) conditioned on good behavior—has

therefore a property interest in his job, Board of Regents v.

Roth, supra, 408 U.S. at 576; Cleveland Board of Education v.

6 No. 15-1816

Loudermill, 470 U.S. 532, 538–39 (1985), Dr. Babchuk did not

have tenure at Tipton Hospital.

It is true that an Indiana statute provides procedural pro-

tections, similar to those in Tipton Hospital’s bylaws, for

disciplinary charges that if sustained by the hospital’s gov-

erning board would have to be reported to the state licensing

board. Ind. Code § 34-30-15-5. But that is a procedural provi-

sion. It no more creates a property interest than the require-

ment of proof beyond a reasonable doubt in a criminal case

gives a criminal defendant a liberty interest. The reasonable-

doubt standard is procedural, conferring a degree of protec-

tion of a liberty that a criminal conviction would impair. In

contrast, hospital privileges terminable at will are not a con-

stitutionally protected entitlement. See Lim v. Central DuPage

Hospital, 871 F.2d 644, 647 (7th Cir. 1989); Illinois Psychological

Association v. Falk, 818 F.2d 1337, 1344 (7th Cir. 1987). To hold

otherwise would turn every at-will contract into a tenure

contract.

Tipton Hospital’s bylaws declare that the grant of medi-

cal privileges is “not a contract” and that appointment to the

medical staff is “a privilege which may be extended by the

Board [of Directors] only to professionally competent, fully

licensed physicians … who continuously meet the qualifica-

tions, standards, and requirements set forth in these bylaws

and as established by the Board” (emphasis added). The by-

laws don’t define specific criteria for the removal or reten-

tion of privileges but instead provide a list of general qualifi-

cations and skills that a physician must demonstrate to

maintain privileges, including “demonstrated competence,”

“good reputation[],” “ability to work with others” and “abil-

ity and willingness to make efficient use of Hospital facili-

No. 15-1816 7

ties.” A physician must “continuously maintain and demon-

strate the appropriate level of competence, skill, training,

and aptitude which would justify the continuance of those

clinical privileges.” And finally and critically, the bylaws

provide that nothing in them “shall in any way limit the ul-

timate authority of the Board to take action with respect

to … the status [of] clinical privileges.”

As if this were not enough, the defendants have a com-

pelling alternative ground for affirmance: that they are not

state actors—that the actions of the hospital which Dr. Bab-

chuk claims harmed him and his professional corporation

cannot be attributed to the State of Indiana and thus were

not committed under color of state law and so cannot be a

basis for a constitutional suit. About this defense the district

judge said that “a reasonable jury could conclude either that

Defendants were acting under color of state law or that they

were not.” That was incorrect; clearly they were not acting

under color of law.

The defendant that comes closest to being an arm of the

state is Indiana University Health, Inc. (IU Health, the par-

ties call it), the owner of Tipton Hospital. Actually IU Health

is at least formally private, as the “Inc.” at the end of its

name implies, but some members of its governing board are

elected by the trustees of Indiana University, a state univer-

sity. And the operating expenses of the university’s medical

school are paid from IU Health’s revenues, which in turn de-

rive in part from Tipton Hospital. So there are connections

between the hospital and the state university. But those con-

nections do not make the hospital’s termination of Dr. Bab-

chuk’s privileges state action. Tipton Hospital is private and

everyone involved in the termination of his privileges was a

8 No. 15-1816

physician on the hospital’s medical staff except the hospital’s

CEO, who is an employee of IU Health but whose vote on

the summary suspension was unnecessary because three

qualified members of the medical staff had already agreed

on suspension. Although Babchuk had a right to appeal to

the hospital’s board of directors, some of whom had been

appointed by IU Health, he did not appeal.

So this is not a case in which “it can be said that the State

is responsible for the specific conduct of which the plaintiff

complains.” Blum v. Yaretsky, 457 U.S. 991, 1004 (1982) (em-

phasis in original). The fact that some of Tipton Hospital’s

revenues are siphoned off to the state university no more

makes the hospital a state actor than the fact that tax laws

siphon income from private companies and individuals to

state and federal treasuries. The university may well exert

pressure direct and indirect on Tipton Hospital, just as fed-

eral and state governments in manifold ways exert pressure

on private institutions. Government is omnipresent; that

doesn’t make all employees of private entities state actors.

The judgment in favor of the defendants is

AFFIRMED.