12

The results in subsequent proceedings have been mixed. On cross-motions for summary judgment, the district court in Perry stated that it could not decide the question of what constitutes a reasonable volume of services to persons unable to pay, and, accordingly, it dismissed the case. Conversely, when the defendanthospitals in Louisiana moved to dismiss the Cook case, citing the action of the Perry court, the court held that it did not fully agree with the Perry decision and denied the motion. That decision opened the way for settlement in the form of a consent judgment. With the issuance of a

13

14

regulation pending, seven of the eight hospitaldefendants remaining in the case agreed to furnish $983,000 worth of free and below-cost services over the next 12 months. They were ordered to submit reports to the court and to plaintiffs stating their plans for delivery of the free and below-cost services and their plans for participation in the Medicaid program. The eighth hospital had already rendered over $845,000 worth of free and below-cost services in 1971. Plaintiffs, however, objected to restrictions in its eligibility chart which excluded care to the poorest people. The hospital changed the provisions and also eliminated its deposit requirements, resulting in a withdrawal of the complaint against it without prejudice. Cook, however, was not the first settlement. Last winter, plaintiffs in Organized Migrants settled when defendants agreed to furnish care to Medicaid beneficiaries and free care to others in an amount equal to 11% of gross revenues. The Regulation

Lurking in the background as the litigation developed was the promise of a regulation which would, after 25 years, enforce the long-ignored commitments. In September 1971, a draft regulation was circulated by the Health Care Facilities Service, the operating unit for the Hill-Burton Program within HEW, to regional HCFS offices and to all state agencies. The draft, which was also circulated to representatives of the American Hospital and American Medical Associations, but not to representatives of the poor, set a presumptive compliance level of five percent of patient revenues to be devoted to free and below-cost services. As with all subsequent versions, major enforcement responsibilities were to be placed upon the state agencies, which would establish criteria for evaluating each facility's compliance, annually evaluate their performance, establish sanctions for non-compliance and report to the Secretary.

16

17

In April 1972, a more elaborate regulation appeared in the Federal Register, with invitation for public comment. The substantive standard for presumptive compliance was changed to five percent of cost of operations or 25% of net profits, whichever would be higher. "Cost of operations" was defined as the actual operating costs of the institution as determined according to the requirements and principles under the Medicare program, less reimbursements under both Medicare and Medicaid.

In addition, hospitals would be permitted to appeal to the state agency for reductions in free services during a

14.

The regulation to be issued was known to be a watered-down version of the earlier proposed regulation which appeared in the Federal Register for public comment on April 18, 1972 (37 Fed. Reg. 7632).

15. See MODERN HOSPITAL, October 1971, at 45.

16.

A protest by NHELP on this matter, addressed to Dr. Wilson, Administrator of the Health Services and Mental Health Administration, was not answered.

17. 37 Fed. Reg. 7632 (1972). The 30-day comment period was extended for 30 more days, until June 17, in response to the request of the American Hospital Association.

18.

This deduction is justified under the rationale that, since those programs do not permit charity to be added to the per diem

ght to

mit e

off

ded

t particular year due to financial difficulty; community

groups would be permitted to appeal for raises in service levels if the area is one of greater need and the facility is financially able to provide higher levels of free service.

Another important addition to the April regulation provided that Hill-Burton facilities would be able to count as qualifying service only that service provided to persons for whom the facility made a formal written determination, prior to the provision of the service, that the person was unable to pay under the criteria established by the state agency, except in emergency situations.

Procedurally, most of the enforcement was left on the state level. The state would establish the criteria for determining who could not pay, receive proposed levels of service to be offered by each facility, set the levels of services which each would be required to render, and afford an opportunity for the facility and other persons to object to rates which it set. The state agency was also empowered to establish evaluation procedures, investigate complaints and establish sanctions for non-compliance. HEW would only intervene if an appeal from a state agency's determination of the facility's level of services was filed, but no hearing of right before the Secretary was provided or apparently contemplated by the the draftsmen of the regulation.

HEW did not propose any detailed regulations with respect to the companion section of the statute concerning the obligation of Hill-Burton facilities to serve all persons within the territorial area of the facility, nor did it propose Hill-Burton hospitals be required to participate in the Medicaid program.

19

cost, it is unfair for paying patients to bear the cost of all charity patients, and it should be proportionately reduced. It might be argued that prior to those programs the amount of charity needed was much higher, and, in fact, that those programs have reduced the burden on paying patients.

In 1945, Senator Taft, in discussing the possibility of amending the bill then being considered before the committee to add the "free service" requirement (which was not in the bill originally), commented in response to the suggestion of Senator Pepper that they might require a hospital to take a fixed number of indigent patients in order to obtain federal aid under the program: "That is what I mean. I imagine every hospital of a general nature would be lucky if they did not have 20% of indigent patients." Hearings on S. 191 Before the Committee on Education and Labor, 79th Cong., 1st Sess., at 190 (1945).

On June 13, 1972, the Federal Hospital Council, a 12-member body with authority under the Act to approve regulations proposed by the Secretary, met and agreed to a modified regulation, described by the media as a "sell-out." The meeting was challenged as legally defective in a motion for a temporary restraining order in Perry. 22 On July 22, 1972, HEW issued the regulation in interim form, stating

One of the most serious loopholes in the regulation, which would operate to discourage poor people from applying for services at Hill-Burton facilities, is the provision which permits a hospital to bill patients and eliminates the requirement set forth in the proposed regulation of April 1972, 25 that a hospital, where feasible, make a prior determination of eligibility for free and/or below-cost services. The provision, section (f), now states that:

In determining the amount of uncompensated
services provided by an applicant, there shall be
included only those services provided to an
individual with respect to whom the applicant
has made a written determination prior to any
collection effort other than the rendition of
bills that such individual is unable to pay
therefor....

This provision effectively nullifies the statute. Since a hospital need not make a determination until after the service is rendered, poor persons lacking health insurance or deposit money could be denied admission. Also, since other provisions set an absolute maximum on the amount of free service a hospital is required to give (discussed infra), no poor person would choose to be served at a non-profit hospital except in an emergency, since he would not know whether he would be treated free or whether the hospital would successfully claim that it had already met its free care obligation.

admission. Judge Gesell, after orally dismissing Perry on June 28, seriously questioned the legality of the procedure of the truncated Council.

23.

37 Fed. Reg. 142 (1972). The preface comment to the HEW announcement clearly indicated that this action was being taken because of Judge Gesell's criticism, and it stated that a full Council would be appointed prior to the approval date. In addition, the preface stated that the final regulation would be published in accordance with Section 13 of Executive Order 11671, and that the meeting would be open to the public.

24. Filed by Marilyn G. Rose, NHELP and co-counsel for plaintiffs in Cook, supra, note 1 (Jeffrey Schwartz, National Tenant Organization), and Perry, supra, note 5 (Joseph Onek and Margaret Ewing); Louise Lander, co-counsel for plaintiffs in Corum, supra, note 5; Jean Dubofsky, counsel for plaintiffs in Euresti, supra, note 1; Judith Mazo, Lawyers Committee for Civil Rights; Edward Sparer, Faculty Director of National Health and Environmental Law Project; Charles Warden plaintiff's counsel in Johnson, supra, note 5; William Clendenen and Frank Cochran, counsel for defendant in Yale-New Haven Hosp. v. Matthews.

25. Supra, note 17.

Section (d) sets the presumptive compliance guidelines at a level not less than the lesser of three percent of operating costs, minus Medicare and Medicaid reimbursement, or ten percent of all grants, or certification by a hospital that it will not turn away any persons because of inability to pay. Section (h) establishes the presumptive compliance guidelines as a maximum. Both provisions are unfair to poor people.

First, the certification procedure permits hospitals in more affluent areas to avoid providing services to the poor as long as they do not turn anyone away, regardless of the health needs of the general community or the inability of the ghetto hospitals to meet those needs.

Second, with respect to the three or ten percent alternatives, the hospital has a choice without regard to equity. The relationship of the size of the free care commitment to the size of the grant was strongly urged by the hospital establishment as being fair, the argument being that a large hospital with a small Hill-Burton grant should not have as large a burden as a comparably-sized hospital with a larger grant or a smaller hospital with a larger grant. If that argument has merit, then the size of the grant should be the determinative standard, and the standard of "operating costs," which is a more difficult standard to administer, should not be available to hospitals. If a hospital claims financial difficulty in meeting the percentage of grant standard, this should be established affirmatively. Alternatively, if the focus is on the public obligation of hospitals receiving federal funds to serve the poor, the financial ability of the hospitals to meet community needs is the appropriate standard without regard to the size of the grant.

Third, the regulation sets an absolute maximum on free services without regard to the ability of certain hospitals to give greater service or the need of the community for additional services. The Act was promulgated in order that hospital services would be available to all the people. The maximum amount set forth in the regulation is an effective and illegal limitation on the Act's purpose and on the statutory provisions. In addition, since hospitals may petition the state agency for lower amounts of free service, it is unfair to deny poor people the opportunity to establish that greater amounts of service are justified.

Fourth, the level of presumptive compliance guidelines is inordinately low, no matter whether cost of operations or amount of grant is the standard used. At a press conference on July 21, 1972, Dr. Vernon Wilson, the Administrator of Health Services and Mental Health Administration, and Dr. Harold Graning, the Director of HillBurton services, made it clear that the choice of three percent of operating costs was not the result of empirical evidence but the product of an American Hospital Association survey, which indicated that the vast majority of

hospitals would be in compliance with that standard. 26 On the other hand, Dr. Wilson indicated that the original standard of five percent was the figure used by the Internal Revenue Service for years as the amount which would be reasonably expected of a charitable hospital in order to retain its tax-exempt status. On that basis, and in view of the fact that poor people represent over 20% of the population of the United States, it is unconscionable to set the standard at less than five percent of gross revenues or 20% of the total of the grants.

27

III. Pre-Admission Deposit Requirements

There is no mention of pre-admission deposits in the interim regulation. One of the most effective barriers poor people face in receiving necessary hospital services is the existence of pre-admission deposit requirements for persons without approved health insurance and/or the money necessary for deposit. Even those who may be able to pay for part of their hospital services on an installment basis may not have the large sum necessary for deposit. The regulation should be clarified to specify that persons who are eligible for free and below-cost services are not required to pay pre-admission deposits. Otherwise, the benefits to be gained from the regulation might be nullified in practice.

The regulation restricts the applicability of the provision to 20 years upon completion of construction, but there is nothing in the statute or its legislative history to support such a provision. The statute provides that the United States may recover its proportionate share of the grant from a facility which ceases to be a hospital or transfers the operation to an ineligible party-for example, a proprietary organization-within 20 years after completion of construction. That provision anticipates relief for hospitals which have found it impossible, for financial or other reasons, to continue operating as hospitals, but it does not relieve the on-going Hill-Burton hospitals from their obligations to serve their communities. A provision in the regulation requiring that the applicant assure a fee simple estate for a period of not less than 50 years underscores the fact that Hill-Burton hospitals are expected to honor their commitments to the poor for a period longer than 20 years.

28

In addition, no provision is made for those hospitals which have failed to live up to their free care assurances and have turned away poor people during the 20 years of their

26. The AHA publicly states that 85% would meet that standard, whereas Dr. Wilson, without indicating the basis of his information, states 60 to 80%.

27. It should be noted that not only the Internal Revenue Service but also the courts which interpreted the IRS Code over a 27-year period set a minimum between five and eight percent of gross revenues (which is greater than cost of operations).

28. With over 6,000 projects and over $4 billion in the program, HEW has sought to recover less than $500,000 from some 25 projects under this provision. Obviously, as intended, most hospitals and other Hill-Burton facilities have retained their original function.

operation under their grant. If the 20-year limitation has any validity, those hospitals which have failed to provide free services should not be relieved of any future obligation simply because they were built 20 years ago, while other, more recently-constructed hospitals are obligated. Aside from the inequity to poor people, it would be unfair to treat two hospitals differently simply because of the date of their grants. If there is to be any time limitation imposed, shorter than the life of the facility, it should start from the effective date of the regulation.

The interim regulation makes no provision for HillBurton hospitals' participation in the Medicaid program, despite the obvious absurdity that hospitals built with government money are not required to assist the government in providing health services to persons for whom the government pays. In the preface to the regulation, HEW states that it will consider comments on the Medicaid issue to relate to a request for consideration under the community service commitment. However, HEW has taken the position in court that it is not considering regulations under that provision. This omission is a serious defect in the interim regulation.

Moreover, Section (c) (1) authorizes the waiver of any responsibility to provide free care where the hospital can demonstrate that it would be financially infeasible. Sections (e) and (h) permit a hospital's compliance level to be set below the regulatory maximum upon a showing that the lower level of free care is "reasonable under the circumstances." However, HEW has nowhere recognized the relationship between under-utilization of services and financial hardship, which may lead a hospital to request complete or partial exemption from its obligation to provide free services. When a hospital refuses to participate in the Medicaid program, it may be choosing to leave beds empty rather than fill them with people who qualify for Medicaid. The regulation should stipulate that no hospital will be allowed to provide less than the maximum level of free services on grounds of economic hardship, if it does not fully participate in the Medicaid program.

VI. Compliance Reports

Section (e) provides that each applicant for whom a level of uncompensated services has been set shall file a compliance report listing the amount of uncompensated services provided in each year. This requirement is grossly inadequate and, unless amplified, will permit hospitals to escape any real reporting responsibilities, and it will prevent state agencies from adequately enforcing and investigating their activities.

First, the section appears to relieve those hospitals which certify that they will not turn anyone away from any obligation to report their activities. The burden is upon the beneficiary to establish in fact that a hospital does not treat poor people for free or at below cost.

Second, in the context of the evaluation requirements of the state agency as set forth in Section (i) of the