Title: OHA: The Assn. for hosp. & Health Sys. v. Ohio Dept. of Human Serv.

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as OHA:  The Assn. for hosp. & Health Sys. v. Ohio Dept. of Human Serv., 96 Ohio St.3d 
301, 2002-Ohio-4209.] 
 
 
OHA:  THE ASSOCIATION FOR HOSPITALS AND HEALTH SYSTEMS ET AL., 
APPELLANTS, v. OHIO DEPARTMENT OF HUMAN SERVICES ET AL., APPELLEES. 
[Cite as OHA:  The Assn. for Hosp. & Health Sys. v. Ohio Dept. of Human 
Serv., 96 Ohio St.3d 301, 2002-Ohio-4209.] 
Sovereign immunity — Public-duty rule — Judgment reversed and cause 
remanded to the court of appeals on authority of Wallace v. Ohio Dept. of 
Commerce. 
(No. 2001-0265 — Submitted February 6, 2002 — Decided September 4, 2002.) 
APPEAL from the Court of Appeals for Franklin County, No. 99AP-614. 
__________________ 
{¶1} 
The judgment of the court of appeals is reversed, and the cause is 
remanded to the court of appeals on the authority of Wallace v. Ohio Dept. of 
Commerce, Div. of State Fire Marshal, 96 Ohio St.3d 266, 2002-Ohio-4210, 773 
N.E.2d 1018, decided today. 
 
DOUGLAS, F.E. SWEENEY, PFEIFER and COOK, JJ., concur. 
 
MOYER, C.J., dissents. 
 
RESNICK and LUNDBERG STRATTON, JJ., dissent. 
__________________ 
 
LUNDBERG STRATTON, J., dissenting. 
{¶2} 
I dissented in Wallace v. Ohio Dept. of Commerce, Div. of State 
Fire Marshal, 96 Ohio St.3d 266, 2002-Ohio-4210, 773 N.E.2d 1018, because I did 
not believe that the language in R.C. 2743.02 conflicts with the public-duty rule.  I 
continue to believe in the viability of the public-duty rule.  Moreover, I believe that 
the public-duty rule applies in this case and that this case presents a clear example 
of how the lack of the defense exposes the state to more potential lawsuits than 
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2 
private parties are exposed to because of the state’s unique duty to regulate and 
monitor many aspects of society and business. 
{¶3} 
The fact pattern in this case reflects the problem with this court’s 
recent abrogation of the public-duty rule in Wallace.  Nothing now prevents anyone 
from using any state regulation as a basis for bringing a civil action against the state 
for damages.  I believe that the General Assembly never intended the phrase “suits 
between private parties” of R.C. 2743.02 to abrogate the public-duty rule and 
expose the state to liability for failing to properly carry out its regulatory duties. 
{¶4} 
Because the majority reverses the judgment of the court of appeals 
by entry without an opinion, and because the facts of this case are important to 
understand why I believe that the public-duty rule applies, I have set forth the 
following relevant facts. 
{¶5} 
The Association for Hospitals and Health Systems, Meridia Health 
System, the Ohio State Medical Association, Central Ohio Newborn Medical, Inc., 
and the Emergency Medical Physicians of Barberton Ltd. (“appellants”) filed a 
class action suit against appellees, Department of Human Services (“ODHS”)1 and 
the Ohio Department of Insurance (“ODI”), alleging that their negligence in 
monitoring the financial status of a health care entity resulted in its insolvency and 
in turn damages to appellants. 
{¶6} 
Medicaid is a federal program administered by the states for the 
purpose of providing health care to eligible individuals.  In order to receive federal 
funding for Medicaid, a state must comply with certain federal standards set out in 
Section 1396a, Title 42, U.S.Code, and have a federally approved plan.  Section 
1396, Title 42, U.S.Code.  However, a state may seek a waiver of certain federal 
requirements, and still receive federal funding.  In order to do this, a state must 
                                          
 
1. 
After the filing of this lawsuit, appellee, Ohio Department of Human Services, was 
renamed Ohio Department of Job and Family Services.  However, for the purposes of this dissent, 
I will continue to refer to the appellee as the Ohio Department of Human Services, or ODHS. 
January Term, 2002 
3 
apply to the Secretary of the United States Department of Health and Human 
Services (“HHS”) for a waiver pursuant to Section 1315, Title 42, U.S.Code.  HHS 
has broad discretion whether to grant a waiver and may impose conditions upon a 
state if the waiver is granted. 
{¶7} 
Appellants’ complaint made the following allegations.  In 1994, 
the state of Ohio sought a waiver to implement its own plan, called OhioCare.  
OhioCare required Medicaid-eligible individuals to enroll in a managed-care plan 
(“MCP”).  The state would then pay the MCPs a certain amount per enrollee.  The 
MCPs contracted with medical service providers, like appellants, to provide 
medical care to the MCPs’ enrollees. 
{¶8} 
HHS granted Ohio’s waiver request contingent upon certain 
conditions, including a requirement that the state monitor the financial status of the 
MCPs.  ODHS agreed to these terms.  ODHS also adopted administrative rules that 
required it to monitor the financial status of the MCPs.  ODHS therefore had a duty 
to monitor the financial status of all MCPs. 
{¶9} 
Personal Physicians Care, Inc. (“PPC”), was an Ohio Medicaid 
MCP.  Appellants provided medical services to Medicaid recipients enrolled in 
PPC’s Medicaid program.  However, PPC failed to reimburse appellants for the 
medical services they provided to PPC’s enrollees, due to PPC’s insolvency. 
{¶10} Appellants alleged that ODHS and ODI negligently failed to 
monitor the financial status of PPC.  Appellants claimed that the negligence of 
ODHS and ODI was the proximate cause of appellants’ losses in that if ODHS and 
ODI had properly monitored the financial status of PPC, PPC would not have 
become insolvent.  Appellants ask that ODHS and ODI pay all amounts due under 
the contracts with PPC that remain unpaid.   
{¶11} ODHS and ODI each moved the Court of Claims to dismiss the 
appellants’ complaint for failing to state a claim upon which relief could be granted, 
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pursuant to the public-duty rule.  The court granted the motions to dismiss.  The 
court of appeals affirmed the trial court’s judgment, based on the public-duty rule. 
{¶12} The majority reverses the appellate court’s judgment without 
opinion on the authority of Wallace, 96 Ohio St.3d 266, 2002-Ohio-4210, 773 
N.E.2d 1018.  Contrary to Wallace, I believe that R.C. 2743.02 does not conflict 
with the public-duty rule and that the public-duty rule is applicable to the facts of 
this case. 
{¶13} In Sawicki v. Ottawa Hills (1988), 37 Ohio St.3d 222, 525 N.E.2d 
468, this court adopted the public-duty rule.  Under the public-duty rule, “[w]hen a 
duty which the law imposes upon a public official is a duty to the public, a failure to 
perform it, or an inadequate or erroneous performance, is generally a public and not 
an individual injury,” and thus there can be no recovery by an individual for a 
public official’s negligence. Sawicki at paragraph two of the syllabus.  Conversely, 
pursuant to the special-duty exception to the public-duty rule, recovery against a 
government entity for a negligent act or omission of a public official may occur if 
there is “(1) an assumption by the [governmental entity] through promises or 
actions, of an affirmative duty to act on behalf of the party who was injured; (2) 
knowledge on the part of the [governmental entity’s] agents that inaction could lead 
to harm; (3) some form of direct contact between the [governmental entity’s] agents 
and the injured party; and (4) that party’s justifiable reliance on the [governmental 
entity’s] affirmative undertaking.”  Id. at paragraph four of the syllabus.  For 
purposes of determining whether a special-duty exception exists, “[t]he assumption 
of an affirmative duty on a municipality’s part requires that the municipality do 
more than adhere to its statutory duty.  It must voluntarily assume some additional 
duty.”  Commerce & Industry Ins. Co. v. Toledo (1989), 45 Ohio St.3d 96, 101, 543 
N.E.2d 1188. 
{¶14} The public-duty rule coexisted at common law with the doctrine of 
sovereign immunity.  Sawicki, 37 Ohio St.3d at 230, 525 N.E.2d 468.  Sovereign 
January Term, 2002 
5 
immunity of political subdivisions is an absolute defense defined by statute and 
based on a policy to limit the tort exposure of political subdivisions.  See R.C. 
Chapter 2744.  In contrast, the public-duty rule is based on negligence principles 
and arises from common law.  Id. at 229-230, 525 N.E.2d 468.  The public-duty 
rule applies to “the determination of the extent to which a statute may encompass 
the duty upon which negligence is premised.  If a special relationship is 
demonstrated, then a duty is established, and the inquiry will continue into the 
remaining negligence elements.”  Id. at 230, 525 N.E.2d 468. 
{¶15} Appellants first argue that because an administrative rule is 
adopted by an agency, it cannot impose a public duty on an agency for purposes of 
the public-duty rule.  I disagree. 
{¶16} “Administrative rules enacted pursuant to a specific grant of 
legislative authority are to be given the force and effect of law.”  (Emphasis added.)  
Doyle v. Ohio Bur. of Motor Vehicles (1990), 51 Ohio St.3d 46, 554 N.E.2d 97, at 
paragraph one of the syllabus; see, also, Kroger Grocery & Baking Co. v. Glander 
(1948), 149 Ohio St. 120, 125, 36 O.O. 471, 77 N.E.2d 921; Youngstown Sheet & 
Tube Co. v. Lindley (1988), 38 Ohio St.3d 232, 234, 527 N.E.2d 828.  And 
administrative rules can impose duties upon agencies.  See, e.g., State ex rel. 
Haddox v. Indus. Comm. (2000), 88 Ohio St.3d 279, 725 N.E.2d 635.  Therefore, I 
believe that a public duty can be imposed by an administrative rule.  Thus, I would 
find that the administrative rules in this case imposed a public duty on ODHS to 
monitor the financial status of the MCPs, including PPC. 
{¶17} Citing Ohio Hosp. Assn. v. Ohio Dept. of Human Serv. (1991), 62 
Ohio St.3d 97, 579 N.E.2d 695, the appellants claim that the public-duty rule does 
not apply because, pursuant to the special-duty exception, ODHS owed appellants a 
special duty to monitor the financial status of PPC.  I disagree. 
{¶18} At the time Ohio Hosp. Assn. was decided, the state of Ohio 
reimbursed medical service providers for the services they provided to Medicaid-
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eligible individuals.  See Ohio Hosp. Assn., 62 Ohio St.3d at 102-103, 579 N.E.2d 
695.  Under current law, the state’s (ODHS’s) only contract is to hire MCPs.  The 
MCPs in turn contracted with medical care providers to provide health care services 
for the MCPs’ Medicaid enrollees.  Thus, under current law, the state (ODHS) has 
no duty to the medical care providers.  In fact, as admitted by appellants at oral 
argument, the contract between appellants and PPC contained a clause that required 
the parties to hold the state harmless if PPC failed to pay appellants.  See Ohio 
Adm.Code 5101:3-26-05(D)(10). 
{¶19} Thus, I would find that Ohio Hosp. Assn. is distinguishable from 
this case and does not preclude application of the public-duty rule as a defense 
because appellants have failed to prove any special duty. 
{¶20} The appellants also argue that the state’s acceptance of the waiver 
and accompanying conditions, requiring the ODHS to monitor the financial status 
of the MCPs, constituted a voluntary assumption of a duty to monitor the financial 
status of the MCPs, thereby precluding application of the public-duty rule.  
Appellants’ argument reveals a fundamental misunderstanding of the public-duty 
rule. 
{¶21} In effect, appellants’ argument attacks the state’s decision-making 
process in enacting legislation or adopting administrative rules.  Accepting 
appellants’ argument would in effect eliminate the public- duty rule because almost 
every act by a government entity, whether it be enacting legislation or adopting an 
administrative rule, would constitute a voluntary undertaking. 
{¶22} The public-duty rule does not inquire into the motivation for a 
decision to enact a law or adopt a rule.  Its only inquiry is whether a public official 
has voluntarily undertaken a duty beyond the duty imposed by the law. Commerce 
& Industry Ins. Co. v. Toledo, 45 Ohio St.3d at 101, 543 N.E.2d 1188.  A voluntary 
undertaking is merely one of the elements of the special-duty exception. Sawicki, 37 
Ohio St.3d 222, 525 N.E.2d 468, at paragraph four of the syllabus. 
January Term, 2002 
7 
{¶23} Appellants’ complaint made no allegation that ODHS voluntarily 
assumed any duty to monitor the financial status of the MCPs in addition to those 
set out in the Administrative Code.  Once the state of Ohio accepted the waiver by 
HHS of some federal requirements, it was required to accept the conditions and 
restrictions imposed by HHS.  Accordingly, I would find that the state’s decision to 
accept the waiver conditions did not preclude application of the public-duty rule. 
{¶24} Appellants alleged that ODI owed a special duty to appellants, as 
creditors, to monitor the financial status of PPC pursuant to R.C. Chapter 3903, and 
thus the public-duty rule did not bar recovery against ODI. 
{¶25} It is true that if a statute identifies a specific group to which the 
public official owes a duty, the public-duty rule may not be raised as a defense to 
the negligent implementation of that duty.  See Brodie v. Summit Cty. Children 
Serv. Bd. (1990), 51 Ohio St.3d 112, 554 N.E.2d 1301, at paragraph two of the 
syllabus.  Here, however, while certain groups are named in R.C. 3903.02(D), they 
are included in a broad category that encompasses just about every interested 
person, including the general public.  See Anderson v. Ohio Dept. of Ins. (1991), 58 
Ohio St.3d 215, 219, 569 N.E.2d 1042.  Thus, I would find that pursuant to 
Anderson, ODI’s duty to monitor the financial status of PPC pursuant to R.C. 
Chapter 3903 was a duty to the general public and did not create a special 
relationship with creditors specifically. 
{¶26} Neither ODHS nor ODI had any contract with appellants.  Their 
only duty was to monitor the financial status of PPC for the benefit of the general 
public.  In a private lawsuit, a plaintiff may recover against a tortfeasor only if the 
tortfeasor has a duty to that plaintiff.  Shelton v. Indus. Comm. (1976), 51 Ohio 
App.2d 125, 130, 5 O.O.3d 286, 367 N.E.2d 51.  The public-duty rule merely 
applies that concept to lawsuits against the government.  Wallace misses the mark 
by failing to acknowledge this basic first premise in establishing a duty. 
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{¶27} In this case, ODHS and ODI had a duty to monitor the financial 
health of Medicaid MCPs for the benefit of the general public, not for the benefit of 
the appellants.  When appellants were unable to collect their fees from PPC because 
it went bankrupt, they went looking for a deep pocket and consequently sued the 
state despite the fact that there was no contractual agreement between appellants 
and the state.  In fact, PPC had agreed to hold the state harmless.  With the 
abrogation of the public-duty rule, the state becomes fair game for entities, such as 
appellants herein, seeking a deep pocket despite the fact that they have no 
contractual ties with the state and the state has no specific obligation to that entity.  
Therefore, I would find that the public-duty rule applies and that appellants can 
present no set of facts that would permit them to recover against ODHS or ODI.  I 
believe that the majority’s holding has opened another Pandora’s Box and now 
invites all disgruntled parties to sue the state for failure to follow any number of 
public duties or regulatory responsibilities.  Thus, I respectfully dissent. 
 
RESNICK, J., concurs in the foregoing dissenting opinion. 
__________________ 
 
Vorys, Sater, Seymour & Pease, L.L.P., Duke W. Thomas, Anthony J. 
O’Malley and Marcel C. Duhamel, for appellants. 
 
Betty D. Montgomery, Attorney General, Susan M. Sullivan and Peggy 
W. Corn, Assistant Attorneys General, for appellee Ohio Department of Human 
Services. 
 
Betty D. Montgomery, Attorney General, Lawrence D. Pratt and Scott W. 
Meyers, Assistant Attorneys General, for appellee Ohio Department of Insurance. 
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