First Circuit: Requiring Hospital To Provide "Free" Medical Services Not A Taking

In a case that's highly topical given the current health care debate, in Franklin Memorial Hospital v. Harvey, No. 08-2550 (Aug. 5, 2009), the U.S. Court of Appeals for the First Circuit held that Maine's requirement that hospitals provide free medical services to certain low income patients is not a regulatory taking.

The not-for-profit hospital sought a declaration that Maine's "free care laws" effected a taking because "Maine's free care laws do not reimburse the hospitals for their expenses incurred in delivering care to low income patients, and the amount of free care that the hospitals must provide is not limited under the statute." Slip op. at 2. Maine statutes require hospitals to provide free inpatient and outpatient services to residents who earn at or below 150% of the federal poverty level, upon pain of fines and private enforcement suits by the state attorney general or any affected patient. If a hospital's "economic viability...would be jeopardized by compliance," it may avoid liability if an enforcement action is instituted. The relevant details of the free care laws are:

(1) the laws mandate that a hospital provide free/uncompensated care to persons deemed eligible by the state through a penalty enforcement scheme, (2) the hospital is not reimbursed any amount for the provision of care, [and (3)] the provision of free care is not a license condition or is not linked to the state's certificate of need process.

Slip op. at 4. The hospital spent $890,212 to meet the free care obligations, but this expenditure did not threaten its economic viability.

The District Court granted the state's motion for summary judgment. The Court of Appeals affirmed, holding there was no per se taking and that upon balance, the Penn Central factors cut in the state's favor.

First, the court held the free care laws did not mandate a physical occupation of the hospital's property. The court relied upon Yee v. City of Escondido, 503 U.S. 519, 527-28 (1992), a case rejecting a physical occupation challenge to a mobile home rent control ordinance because the ordinance did not require the mobile home park owner to use her land as a mobile home park. See slip op. at 9 (citing Yee, 503 U.S. at 528). The First Circuit concluded that the free care laws did not require the hospital to allow non-paying patients to occupy its property because the hospital was free to stop using its property as a hospital. The distinction relied upon by the First Circuit is a fine one. Yee noted that a regulation cannot require even a minor physical invasion of property without running afoul of the Takings Clause. Yee, 503 U.S. at 528 (citing Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 439 n.17 (1982)). But when a property owner voluntarily opens her property to occupation, the government can regulate occupancy without it being deemed a per se taking.

Second, the court examined the three Penn Central factors: economic impact of the regulation, the interference with distinct investment-backed expectations, and the character of the government action. Slip op. at 10-15. The highlights of the analysis are the court's conclusion that requiring the hospital to donate its services does not adversely impact the hospital's bottom line. Id. at 11. With scant analysis, the court suggested that because the free care laws do not -- in this instance -- threaten the hospital's economic viability, there is no taking.  The court left open the possibility that free care could become so burdensome that compensation would be required:

We do not suggest that there can never be a taking based upon an adverse economic effect short of jeopardizing the economic viability of a plaintiff; we only note that this case is not at that end of the spectrum.

Slip op. at 12. In other words the hospital can afford it, so it loses this Penn Central factor. Also interesting was the court's rejection of the state's argument that the second factor -- investment-backed expectations -- were somehow lessened because the hospital is a not-for-profit organization. A non-profit has property rights, and may acquire property "with the expectation that it may use it for a particular purpose." Slip op. at 13. The court's conclusion on the second Penn Central factor is muddled, however, and seems to indicate (without expressly concluding) that because the hospital operates a highly regulated business, its investment-backed expectations are lower. See id. at 14-15. If there's a conclusion there, we can't find it.

Finally, the third Penn Central factor cut against the hospital because:

Maine's free care laws merely require that hospitals not refuse to treat patients based on their ability to pay and that they provide those services freely to those with incomes at or below 150% of the federal poverty level. [The hospital] may otherwise set the terms on which it provides access to its facilities and services.

Slip op. at 15. The court viewed the regulations as not overly onerous, even though it places nearly the entire burden of treating low income patients on hospitals. While the provision of medical services is undoubtedly a public good, the Takings Clause was designed to keep property owners from being forced to shoulder a disproportionate share of public burdens, if it cannot be shown individually they caused the problem. The Fifth Amendment's protections are "designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole." Armstrong v. United States, 364 U.S. 40 (1960).