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PARK EAST CORP. v. CALIFANO

April 28, 1977;

PARK EAST CORPORATION d/b/a Park East Hospital, Plaintiff,
v.
Joseph CALIFANO, Secretary of United States Department of Health, Education and Welfare, et al., Defendants.



The opinion of the court was delivered by: OWEN

OWEN, District Judge.

This is a motion for a preliminary injunction by Park East Hospital to restrain certain New York State officials from in effect ending its existence by acts alleged to be malicious, discriminatory and unlawful.

 Park East Hospital, at 112 East 83rd Street, New York, New York, is a small proprietary hospital of 106 beds built in the 1930's. In 1973 there was a transfer of ownership to seven physicians connected with the hospital. Subsequently, four of the doctors dropped out of the partnership, leaving as the present owners Doctors Shaw, Diamond and Thomas. *fn1" The hospital has also been the subject of ongoing hearings before a State Hearing Officer, Earle Zaidens, regarding alleged violations of the State Hospital Code and Life Safety Code.

 In October 1976, the hospital was informed that it was being considered for termination of its participation in the Department of Health, Education and Welfare (HEW) Medicare/Medicaid program. A meeting was held between the hospital and HEW on October 28, 1976, a plan of correction was later submitted and inspection visits to the hospital were made. *fn2" Finally, on March 2, 1977, the hospital was informed that its participation as a provider of services was to be terminated as of April 1, 1977 and that notice of that termination would be published on March 17 in the New York Times. Because the alleged deficiencies, relating to the Life Safety Code and to the Pharmacy Conditions of Participation, were considered by HEW to create "a serious life threatening situation," *fn3" it was asserted that any hearing protesting HEW's decision would have to be conducted after the termination of the hospital.

 On March 15, 1977, Park East filed its original complaint herein together with an order to show cause seeking to enjoin HEW, as well as various state officials who administer Medicare/Medicaid money, from terminating the hospital participation in the Medicare and Medicaid programs prior to a hearing. On that date, I signed a temporary restraining order *fn4" with attorneys for all parties present, and set a hearing for March 17 on whether the hearing should be pre or post-termination.

 On the morning of March 17, I personally toured the Park East Hospital with attorneys for all parties as well as various experts, *fn5" who pointed out or disputed certain alleged violations. The hearings were continued in the courtroom that afternoon, as well as on March 18, 21 and 24, with considerable testimony being taken.

 On April 4, 1977, Park East served an amended verified complaint adding Blue Cross/Blue Shield as a party *fn6" and a fourth cause of action. *fn7"

 During the pendency of the case before me, Park East and HEW entered into settlement negotiations and a stipulation of settlement was signed on April 4, 1977, giving Park East 60 days in which to make certain corrections. Therefore, the only controversy remaining before me is between Park East and the various State defendants.

 In the original complaint, jurisdiction over the State defendants was based on a claim of pendent jurisdiction. The State has moved to dismiss this complaint for lack of subject matter jurisdiction. However, I need not reach that question, for the fourth cause of action in the amended complaint *fn8" alleges facts which clearly give this court "federal question" jurisdiction over the State defendants. *fn9"

 The fourth cause of action is based on the National Health Planning and Development Act, 42 U.S.C. §§ 300k et seq. (the Act) which was enacted to provide for comprehensive health planning. *fn10"

 The Act calls for the setting up of local Health System Agencies (HSAs), *fn11" with mandated requirements for their legal structure, staff size, composition and the public nature of their meetings, § 300l- 1(b). The primary function of an HSA is health planning, including "preventing unnecessary duplication of Health resources...." § 300l- 2(a)(4). The HSA is to develop a Health Systems Plan (HSP) including an Annual Implementation Plan (AIP), § 300l- 2(b). The HSA is also to review at least every five years "all institutional health services offered in the health service area of the agency and... make recommendations to the State health planning and development agency designated under section 300m... respecting the appropriateness in the area of such services." § 300l- 2(g)(1).

 The Act also calls for creation of State Health Planning and Development Agencies and Statewide Health Coordinating Councils, § 300m, which, inter alia, coordinate the HSPs and AIPs submitted by the various HSAs, and form State Health Plans. The Act finally calls for the promulgation of guidelines for and the general supervision of the entire system by the Secretary of HEW. See, e.g., §§ 300k-1, 300k-2, 300n-1(a).

 In order for the State to close Park East as an excess facility in accordance with the Act, the HSA, after written notification to Park East, § 300n-1(b)(1), study and public hearings, would have to make its recommendations to the State Health Planning and Development Agency. Park East could again demand public hearings before the State agency. § 300n-1(b)(8).

 While "the purpose of findings by the State Agency is to inform the public and providers of health services as to the appropriateness of particular services and what, if any, voluntary remedial actions are advisable" Conf. Rep. No. 93-1640 (93d Cong., 2d Sess. 1974) 77, and therefore New York State would not be bound by a recommendation to keep Park East open as not excess, the State could not make its determination until after the mandated review under the Act, and ...


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