Flagstaff Medical Center, Inc. v. Sullivan

POOLE, Circuit Judge,

concurring in part and dissenting in part:

I concur with Parts I, II, and III(A) and (B) of the majority opinion. I cannot agree, however, with the analysis in Part III(C) of the majority opinion, which grants “retrospective” remedies to the class plaintiffs.

The majority has misread the relevant statutes and regulations in such a way that the $420,163 in Hill-Burton Funds received by the Flagstaff Medical Center could end up costing the hospital over $9,000,000. Nevertheless, the majority reassures itself that it has done the right thing by noting that this procrustean penalty is “proportional to the substantial length of time during which Flagstaff ignored its Hill-Burton obligation.” I am certain the irony of this rationalization will not be lost on Flagstaff, since the very same majority opinion endorses Flagstaff’s interpretation of the regulations which led the hospital to ‘flout its statutory duty’ and ‘ignore its obligation.’ See Majority Opinion at 887, 889.

As the majority notes, the class plaintiffs are only authorized by law to bring a suit to “effectuate compliance with ... assurances” made by Flagstaff at the time it received Hill-Burton funds. 42 U.S.C. § 300s-6. The majority also correctly concludes that “Flagstaff has ... discharged its Hill-Burton obligation to the satisfaction of the Secretary,” thereby complying with its assurances. Majority Opinion at 884-885. This determination should be the end of the case.

*893 The majority proceeds, however, to grant to the plaintiff class a “retrospective remedy,” arguing that 42 C.F.R. § 124.512 authorizes such relief. This is a mistaken reading of that regulation, which merely allows a hospital to avoid having the Secretary disallow all the uncompensated services provided during the preceding fiscal year. The majority instead concludes that § 124.512(b) provides for an additional penalty over and above disallowance. Such an interpretation ignores the context of the regulations, as well as the purpose behind amending the regulations in 1987 to allow health care facilities to receive credit for care provided while in “substantial compliance” with the regulations.

As the majority recognizes, the 1987 regulations “ushered in an era of ‘substantial compliance.’ ” Majority Opinion at 883. These regulations were not intended to expose hospitals to new and potentially devastating penalties, but rather were meant to benefit them. Toward that end, § 124.-511 was included to make clear when a facility was to be certified as substantially complying with the regulations. To prevent a hospital from losing credit for a failure which could be remedied, § 124.-512(b) was added. See § 124.-511(b)(l)(iii)(A). As noted in the commentary accompanying the regulations:

The purpose of these provisions is to minimize harm, both to eligible persons and to facilities. In the context of the uncompensated services assurance, the issue to be addressed is financial: Who will bear the cost of the medical services that are provided? And, generally speaking, an error in resolving that issue produces harm that can be remedied. For example, where a facility erroneously requests full payment from a person who was eligible for discounted services under its allocation plan, it can remedy that error by ceasing collection on the amount erroneously charged, refunding any erroneous payments, and so on. Similarly, where a facility provides uncompensated services to persons whose care is covered by third party payors and charges those amounts to its uncompensated services obligation, the error can be remedied by reducing the uncompensated services claimed by the amount of the ineligible accounts. In such situations, where a remedy is available and is provided, it is the Department’s view that the intent of the statute has been met — uncompensated services have been provided to those who qualify for them— and the facility should receive appropriate credit therefor.

52 Fed.Reg. 46,028 (1987). This explanation of the new “remedy” provision came with an important limitation:

While these provisions do not directly remedy the injury to persons who would have sought uncompensated services but for the deficiencies in the facility’s program, they do ensure that the class of persons eligible for services does not lose them through inappropriate crediting where such basic deficiencies in a facility’s uncompensated services program exists.

Id. (emphasis supplied). Finally, it was noted that:

the stress on corrective action ensures both groups [service providers and consumers] that a finding of substantial compliance is made only where past noncompliance is appropriately remedied for consumers and that it reflects and appropriately treats such remedial action in terms of a facility’s uncompensated serv[ic]es obligation as a whole.

Id. at 46,029 (emphasis supplied).

Thus, the penalty for failing to remedy noncompliance remained unchanged: “if the facility fails to remedy prior noncompliance where corrective action is prescribed, it is subject to losing credit for all uncompensated services it provided in the period covered by the corrective action.” Id. at 46,028. In other words, the “retrospective” remedy was never intended to provide for “personal redress,” nor was it to penalize a health care facility beyond its obligations as a whole. To the contrary, the “retrospective” remedy was only ever meant as a remedy for hospitals; i.e. as a means for a health care facility to remedy or correct errors which would otherwise result in the facility losing all credit for *894 services provided during the preceding fiscal year.

In this case, Flagstaff has refused to undertake corrective action in order to effectuate substantial compliance for the fiscal years in question, and consequently the retroactive corrective measures outlined in § 124.512(b) have no bearing on this case. Instead, this case is governed by § 124.-512(c), since the hospital was clearly in substantial noncompliance during those years. The penalty for being in substantial noncompliance is that “all of the uncompensated services claimed” are disallowed. § 124.512(e). The deficit incurred by disallowing those claims, as the majority recognizes, has already been made up as required under § 124.503(b)(2)(h). Because the majority has misread the regulations to allow appellees to state an additional claim for “retrospective” relief over and above that provided for by statute and regulation, I must respectfully dissent.