Facts

In November 1996, plaintiff CHMG, LLC contracted with the Heffernan Memorial Hospital District to manage Calexico Hospital. In June 1997, after finding it met all requirements for state licensure, the State of California Department of Health Services (DHS) issued Calexico Hospital a license to operate as a general acute care hospital. In 1997, Medicare certification was controlled by the federal government through the Health Care Financing Administration (HCFA), a federal agency.

In August 1997, during a Medicare certification survey, DHS officials found the facility failed to meet eight Conditions of Participation under the Code of Federal Regulations and recommended to HCFA, its principal, that the hospital's application for Medicare certification be denied. Without Medicare certification, Calexico Hospital could not obtain reimbursement for most of the services it was providing to Medicare and MediCal patients, and lost revenue. By January 1998, seven months after first receiving its license, CHMG and the hospital had run out of money, and CHMG closed the hospital.

PLAINTIFF'S CONTENTIONS:
CHMG alleged that defendants - current and former DHS officials - violated the federal civil rights statute (42 U.S.C. Section 1983) by refusing to certify Calexico Hospital as a Medicare provider after DHS conducted a Medicare certification survey of the hospital in August 1997, and by failing to return to Calexico Hospital to perform another certification survey, even after promising to do so within three-to-four weeks. Plaintiff also contended that defendants falsified reports, destroyed documents, and had a hidden agenda to close Calexico Hospital by any means necessary.

DEFENDANTS' CONTENTIONS:
The defendants contended that Calexico Hospital failed to meet the requirements for participation in the Medicare program by failing the August 1997 certification survey with eight Conditions of Participation unmet; the implementation of a new form implemented by the federal government in the summer of 1997 and applicable to the requested second survey in the fall of 1997, was not completed by the provider and approved by the providers' fiscal intermediary, Blue Cross. Because the form was not approved pursuant to HCFA guidelines, a second survey tentatively scheduled by DHS for Dec. 17, 1997 had to be canceled consistent with HCFA directives.

Settlement Discussions

On the eve of trial, the Hon. Richard J. Haden (Ret.) presided over a settlement conference. CHMG demanded $9 million. Defendants offered $25,000. Discussions ended.

Damages

The plaintiff sought compensation for lost profits for the term of its management agreement with the hospital district.

Result

The jury found in favor of plaintiff and awarded it $12 million.

Other Information

The plaintiff's motion for an award of attorney's fees and costs (per 42 U.S.C. Section 1988) is pending. The defense has filed a motion for Judgment Notwithstanding the Verdict and a motion for a new trial and, if the motions are denied, intends to file an appeal.

Deliberation

seven hours.

Length

eight weeks