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Cospito v. Heckler

August 10, 1984


On Appeal from the United States District Court for the District of New Jersey

Author: Garth

Before: SEITZ, GARTH, and BECKER, Circuit Judges


GARTH, Circuit Judge:

Appellants Douglas Cospito, et al., ("the Patients") are or have been patients at the Trenton Psychiatric Hospital ("TPH"). In 1975, TPH lost its accreditation from codefendant Joint Commission on Accreditation of Hospitals ("JCAH"). As a result, codefendant Secretary of the Department of Health, Education, and Welfare (now the Department of Health and Human Services) terminated various federal benefits which were conditioned upon the beneficiaries being treated at a qualified psychiatric hospital. Those benefits were denied until TPH reacquired its accreditation several years later.

The Patients brought this action in district court challenging the loss of their federal benefits on several constitutional grounds. After lengthy discovery, cross motions were made for summary judgment on various legal issues. The district court found in favor of the defendants on sufficient issues to dismiss all claims made by the Patients. For the reasons expressed below, we will affirm the dismissal of the action.



Trenton Psychiatric Hospital is a state facility located in Trenton, New Jersey, and is operated as a component of the Division of Mental Health and Hospitals, New Jersey State Department of Human Services. It treats both voluntarily and involuntarily committed patients for mental disease. The facilities itself consist of a complex of buildings, divided into Units for adult patients, geriatric patients, and children (ages 6 through 17).

Beginning in 1973, TPH was surveyed under the standards for "psychiatric facilities" recently promulgated under the auspices of JCAH.*fn1 Following the 1973 survey, major deficiencies were disclosed in several areas, including patient treatment, staffing, environment, and fire safety. TPH was accredited for only one year, and was notified that these deficiencies must be corrected to maintain accreditation. In 1974, however, many of the same deficiencies were found again. A preliminary decision was made by JCAH not to accredit. At TPH's request, a resurvey was conducted in May, 1975, which again resulted in a preliminary decision not to accredit. TPH did not appeal from that decision, and the deaccreditation became final.

In 1976, TPH requested that the Children's Unit of the hospital be evaluated separately. JCAH thereupon reviewed the data which had been collected during the previous 1975 survey, and concluded that, standing alone, the Children's Unit had met the requisite standards, and therefore retroactively restored its accreditation. TPH also sought reaccreditation of the Adult Unit of the hospital in 1977 and 1979, but both times JCAH determined that accreditation should not be granted. Finally, in 1981, following another survey by JCAH, the Adult Unit regained its accreditation, and continues to operate under that approval today.


JCAH is an Illinois not-for-profit corporation formed in 1951 for the purpose of creating and maintaining professional standards for evaluating hospital performance. The body is governed by a twenty-two member Board of Commissioners. Its constituent members consist of the American College of Physicians, the American College of Surgeons, the American Dental Association, the American Hospital Association, and the American Medical Association.

Prior to the events at TPH, JCAH had formed various accreditation councils to advise the Board of Commissioners on the establishment of standards for accreditation of health care facilities. It was the Accreditation Council for Psychiatric Care which presented to the Board the criteria for inspection of psychiatric hospitals under which TPH was examined in 1975.*fn2 The survey itself consists of an on-site visit conducted by a team of surveyors designated by JCAH. The surveyors evaluate the quality of the facility's environment and review its administrative records to determine whether they conform to applicable standards.*fn3 From the information collected during this survey, the Accreditation Committee makes a preliminary decision to accredit or not to accredit. Should the preliminary decision be adverse to the facility, it is entitled to review by the Accreditation Council and to ultimate review by JCAH's Board of Commissioners.

JCAH accreditation, however, must be distinguished from certification by the Secretary for eligibility in federal assistance programs. While JCAH accreditation may, depending on the circumstances, be a component of certification, the two are not necessarily coextensive, and at least as a matter of terminology, we will refer to the two separately.


The Patients at TPH had, before decertification by the Secretary, been the beneficiaries of three types of federally funded benefits: (1) Medicare, (2) Medicaid, and (3) Supplemental Social Security Income.

1. Medicare

Medicare is a federally funded health insurance program for those over the age of 65, which provides basic protection against the costs of hospital and related post-hospital services. 42 U.S.C. §§ 1395-1395x. Among the institutions eligible to participate in this program are "psychiatric hospitals," as defined in 42 U.S.C. § 1395x(f):

The term "psychiatric hospital" means an institution which --

(1) is primarily engaged in providing, by or under the supervision of a physician, psychiatric services for the diagnosis and treatment of mentally ill persons;

(2) satisfied the requirements of paragraphs (3) through (9) of subsection (e) of this section;

(3) maintains clinical records on all patients and maintains such records as the Secretary finds to be necessary to determine the degree and intensity of the treatment provided to individuals entitled to hospital insurance benefits under part A;

(4) meets such staffing requirements as the Secretary finds necessary for the institution to carry out an active program of treatment for individuals who are furnished services in the institution; and

(5) is accredited by the Joint Commission on Accreditation of Hospitals.

(Emphasis added).

The statute further provides, however, that:

In the case of an institution which satisfied paragraphs (1) and (2) of the preceding sentence and which contains a distinct part which also satisfies paragraphs (3) and (4) of such sentence, such distinct part shall be considered to be a "psychiatric hospital" if the institution is accredited by the Joint Commission on Accreditation of Hospitals or if such distinct part meets requirements equivalent to such accreditation requirements as determined by the Secretary.

Id. (emphasis added). Under this "distinct part survey, an institution may bypass JCAH accreditation and seek certification directly from the Secretary for such of its parts that qualify. Indeed, nothing precludes the certification of an entire institution through successive "distinct part" surveys.

2. Medicaid

Medicaid is a joint federal/state program in which the federal government extends financial assistance directly to the State in order that the State may provide a medical program of its own design. 42 U.S.C. §§ 1396-1396p. To participate, the State must submit a medical assistance plan which meets with the approval of the Secretary. Id. §§ 1396-1396a.

Among the expenses Medicaid will cover are "inpatient hospital services in an institution for mental diseases," for patients over the age of 65. 42 U.S.C. § 1396d(a)(14). The statute itself does not define "inpatient hospital services," but apparently leaves that definition to administrative regulation.42 C.F.R. § 440.140, in turn, incorporates into the Medicaid provisions the definitions established by Medicare:

(a) Inpatient hospital services. (1) "Inpatient hospital services for individuals age 65 or older in institutions for . . . mental diseases" means services provided under the direction of a physician for the care and treatment of recipients in --

(ii) An institution for mental diseases that meets the requirements under Medicare. §§ 405.1035 and 405.1036 of this chapter. . . .

(2) "Institution for mental diseases" means an institution that is primarily engaged in providing diagnosis, treatment, or care of individuals with mental diseases, including medical care, nursing care, and related services.

(Emphasis added). Thus, the Secretary's regulations would allow a psychiatric hospital for adult patients to be deemed qualified for Medicaid either through JCAH accreditation, or by "distinct part" survey as allowed under Medicare.

Medicaid will also cover inpatient psychiatric hospital services for individuals under the age of 21.42 U.S.C. § 1396d(a)(16). Here, the statute provides an explicit definition for "inpatient psychiatric hospital services:"

For purposes of paragraph (16) of subsection (a) of this section, the term "inpatient psychiatric hospital services for individuals under age 21" includes only --

(A) inpatient services which are provided in an institution which is accredited as a psychiatric hospital by the Joint Commission on Accreditation of Hospitals;

(B) inpatient services which, in the case of any individual (i) involve active treatment which meets such standards as may be prescribed in regulations by the Secretary, and (ii) a team, consisting of physicians and other personnel qualified to make determinations with respect to mental health conditions and the treatment thereof, has determined are necessary on an inpatient basis and can reasonably be expected to improve the condition, by reason of which such services are necessary, to the extent that eventually such services will no longer be necessary. . . . 42 U.S.C. § 1396d(h)(1). Read literally, this section would require accreditation by JCAH in order to be certified for Medicaid participation, without the possibility of certification through the alternative procedure of the "distinct part" survey allowed under Medicare. Appellees contended, ...

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