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SOCIETY OF THE NEW YORK HOSP. v. ASSOCIATED HOSP.

October 4, 1973

The SOCIETY OF the NEW YORK HOSPITAL, Plaintiff,
v.
ASSOCIATED HOSPITAL SERVICE OF NEW YORK et al., Defendants


Tenney, District Judge.


The opinion of the court was delivered by: TENNEY

MEMORANDUM

TENNEY, District Judge.

 Defendants have moved for a stay of this action pending administrative resolution of certain issues arising under the Economic Stabilization Act of 1970, as amended, 12 U.S.C.A. § 1904 Note (1973) ("the Act") and regulations promulgated thereunder pertaining to institutional providers of health services, 6 C.F.R. § 300.18 (1973). Plaintiff, The Society of the New York Hospital, has moved for an order of summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure ("Fed. R. Civ. P."). For the reasons cited infra, both motions are denied.

 Facts1

 Subject matter jurisdiction of this action is based upon sections 210 and 211 of the Economic Stabilization Act of 1970, *fn2" as amended, 12 U.S.C.A. § 1904 Note (1973); 28 U.S.C. § 1331 (1970) (matter in controversy exceeds the sum of $10,000 and arises under the laws of the United States); 28 U.S.C. §§ 2201, 2202 (1970) (Declaratory Judgment Act); 42 U.S.C. § 1983 (1970); and principles of pendent jurisdiction.

 Plaintiff is a New York voluntary teaching hospital which, among other things, provides health care treatment to Blue Cross and Medicaid patients for which it is reimbursed. Defendant Associated Hospital Service of New York ("AHS"), more commonly known as Blue Cross, prospectively reimburses plaintiff and other hospitals for inpatient, premature nursery and emergency room care treatment rendered to AHS subscribers. The rate of reimbursement is regulated, in the first instance, by New York law. AHS first computes the reimbursement rates and then submits the proposed rates to the New York State Commissioner of Health as required by the Commissioner's regulations under Part 86 of the New York Administrative Rules and Regulations, 10 N.Y.C.R.R. § 86.2. N.Y. Public Health Law § 2807 (McKinney 1972) requires the Commissioner of Health, defendant Hollis S. Ingraham ("Ingraham"), to certify that the reimbursement rates are reasonably related to the costs of efficient production of hospital service. Thereafter, the Superintendent of Insurance, defendant Benjamin Schenck ("Schenck"), must approve the reasonableness of the rates. N.Y. Insurance Law § 254(2) (McKinney 1972). Approval of prospective Medicaid *fn3" reimbursement rates follows a similar procedure. First, Ingraham must certify that the rates are reasonably related to the efficient production of hospital services and then the New York State Director of the Budget, defendant Richard L. Dunham ("Dunham"), must approve the reasonableness of the rates. N.Y. Public Health Law § 2807 (McKinney 1972).

 The present controversy stems from the institution of economic controls by the federal government in 1971. On August 15, 1971, President Nixon announced a 90-day freeze upon wages, salaries, rents and prices. Executive Order Nos. 11615 and 11627. On November 14, 1971, Phase II went into effect and the agencies charged with its enforcement promulgated a series of regulations, including regulations pertaining to institutional providers of health care ("ESP regulations"). 6 C.F.R. § 300.18 (1973). When, on January 11, 1973, Phase III was announced, the Cost of Living Council ("CLC") issued new regulations providing that the regulations pertaining to institutional providers of health care were to remain in effect. 38 F.R. 1487 (Jan. 12, 1973).

 Because this suit involves the setting of health care reimbursement rates for the years 1972 and 1973, the ESP regulations appearing at 6 C.F.R. § 300.18 are applicable. Without explaining these regulations in detail, it is sufficient to note that the regulations set forth the circumstances under which a hospital may increase prices. If, under the ESP regulations, a proposed price increase, which is "cost justified", will lead to an increase in aggregate annual revenues of 2.5% but not more than 6% over the base period, no administrative action is required. All the hospital need do is submit to the District Director of the Internal Revenue Service ("I.R.S.") a Form S-52 which reports the proposed price adjustments. If, however, the proposed price increase will lead to an increase in aggregate annual revenues at an annualized rate of more than 6%, then the hospital must receive an administrative "exception". 6 C.F.R. § 300.18(b), (c).

 Plaintiff alleges that for the years 1972 and 1973, during which the ESP regulations discussed supra were in effect, the defendants calculated, certified and approved two separate sets of reimbursement rates for both AHS and Medicaid payments. The first set of rates, which included price increases ("Public Health Law rates"), were computed under the N.Y. Public Health Law and regulations issued thereunder. Plaintiff also alleges that the defendants separately computed what they regarded as the maximum rates payable under the Act and ESP regulations ("the ESP Maximum rates") and that it is the second sets of rates which have been used for purposes of reimbursement. It is alleged, and defendants admit, that the ESP Maximum rates are not based upon a strict interpretation of the ESP regulations.

 Plaintiff claims that it is entitled under the Act and ESP regulations to receive AHS and Medicaid reimbursements at rates at least as high as those under the N.Y. Public Health Law, as shown by its S-52 Forms for 1972 and 1973; *fn4" that the ESP Maximum rates calculated by defendants *fn5" are an incorrect application of the Act and ESP regulations; and that defendants' actions in calculating the ESP Maximum rates violate the Act, federal Medicaid legislation, the supremacy clause, and the due process clause of the fourteenth amendment. Plaintiff seeks a judgment (1) declaring incorrect and unlawful defendants' use of the ESP Maximum rates; (2) declaring that plaintiff is entitled to reimbursements at rates at least as high as those calculated under the N.Y. Public Health Law; (3) ordering defendants to pay any sums owed to plaintiff under the Public Health Law rates; and (4) enjoining defendants from violating the Act and the ESP regulations.

 Motion to Stay

 Shortly after plaintiff commenced this action, defendants submitted two separate but similar "petitions" to the Cost of Living Council requesting that the CLC assume jurisdiction of this and related *fn6" matters and hold a hearing to determine whether defendants' "anti-inflation efforts" in imposing the ESP Maximum rates violated the Act. Their request for a hearing was made pursuant to section 207 of the Act. Thereupon, and before the CLC had granted their requests, defendants moved in this Court for an order to stay proceedings on the grounds that the CLC was "considering" the issues raised in this action and that the CLC, because of its expertise and "primary responsibility" in the area of price controls, should be permitted to consider the matter first. In a letter to AHS dated August 23, 1973, the General Counsel of the CLC indicated that: "The Council does not feel it appropriate in this case to conduct a hearing and declines at this time to exercise its discretionary powers to conduct a hearing as to the matters raised by the AHS petition." AHS requested clarification of CLC's decision and, in response, received a letter dated September 28, 1973 stating that the CLC agreed to consider AHS' petition as a request for interpretation of its regulations.

 As plaintiff has argued, the legal basis for defendants' motion is unclear. However, because defendants rely upon cases which involve the doctrines of (1) exhaustion of remedies and (2) primary jurisdiction, the Court will discuss the applicability of the two doctrines to this case.

 With respect to the first of the two doctrines, it is a "long-settled rule of judicial administration that no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted." Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-51, 58 S. Ct. 459, 463, 82 L. Ed. 638 (1938) (emphasis supplied). After examining both the Act and the ESP regulations, the Court is of the opinion that there are no prescribed administrative remedies to exhaust. Section 207(b) of the Act, upon which defendants rely, merely provides that the agencies charged with enforcement of the Act "shall . . . establish procedures which are available to any person for the purpose of seeking an interpretation, modification, or rescission of, or seeking an exception or exemption from, such rules, regulations and orders." The CLC has, pursuant to this section, created several procedures. *fn7" However, CLC regulations do not provide for the kind of hearing defendants have requested. That the CLC has no procedure for determining the issues in this case is supported by the Act itself. Section 210 of the Act, which permits suits for damages and other relief, and ...


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