William I. Babchuk, M.D., P.C. v. Indiana University Health, Inc

In the

United States Court of Appeals
For the Seventh Circuit
____________________
No. 15-1816
WILLIAM I. BABCHUK, et al.,
Plaintiffs-Appellants,

v.

INDIANA UNIVERSITY HEALTH, INC., et al.,
Defendants-Appellees.
____________________

Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:13-cv-01376-JMS-DML — Jane E. Magnus-Stinson, Judge.
____________________

ARGUED OCTOBER 2, 2015 — DECIDED JANUARY 11, 2016
____________________

Before POSNER, SYKES, and HAMILTON, Circuit Judges.
POSNER, Circuit Judge. Dr. William Babchuk, a radiologist,
brought this suit against Indiana University Health Tipton
Hospital, Inc. (Tipton Hospital for short), under 42 U.S.C.
§ 1983, which creates a federal remedy for violations of con-
stitutional rights by what are called “state actors.” See West
v. Atkins, 487 U.S. 42, 49–50 (1988). In 2003 Tipton awarded
Babchuk medical staff privileges, and either then or later al-
so gave his professional corporation an exclusive contract to
2 No. 15-1816

provide radiology services at the hospital. The suit charges
that the hospital and its administrators deprived him of
property without due process of law, in violation of the
Fourteenth Amendment, when in 2012 it cancelled both his
medical privileges and his corporation’s contract. His pro-
fessional corporation is an additional plaintiff. The defend-
ants include besides Tipton Hospital the hospital’s owner,
Indiana University Health, Inc., plus some persons em-
ployed by the corporate defendants—but we can ignore
those persons.
The district judge granted summary judgment in favor of
all the defendants. She reasoned that the plaintiffs had failed
to prove they had a federally protected property interest in
Dr. Babchuk’s hospital privileges or in the contract between
his professional corporation and the hospital. An alternative
ground for affirmance urged by the defendants is that the
conduct of which Babchuk complains is not state action and
is therefore not actionable under 42 U.S.C. § 1983.
The hospital’s medical-staff bylaws provide that a physi-
cian’s privileges may be summarily suspended “whenever
action must be taken immediately in the best interest of pa-
tient care or … the failure to take prompt action may result
in imminent danger to the life, health, or safety of any such
person in the Hospital … and such summary suspension
shall become effective immediately upon imposition.” In
June 2012 Dr. Babchuk’s staff privileges, and thus his author-
ity to provide medical services at the hospital, were sum-
marily suspended by a four-member peer review committee
(although the bylaws required only a three-member commit-
tee) on the ground that he had delayed for eight days in dic-
tating a report on the result of an ultrasound performed on a
No. 15-1816 3

patient in the hospital’s emergency room. The hospital de-
fendants claim that the patient had been in the thirtieth week
of her pregnancy when she arrived in the emergency room
and that shortly after she had the ultrasound she was trans-
ferred by ambulance to another hospital, where she gave
birth prematurely. During the eight days in which Dr. Bab-
chuk was dithering, he allegedly had instructed members of
the hospital’s staff to make the ultrasound results “go away”
or (what amounts to the same thing) delete the record of the
results of the ultrasound. Dr. Babchuk disputes these allega-
tions.
The summary suspension of his privileges was quickly
followed by the cancellation of his professional corporation’s
contract with the hospital. And the following month (July
2012) the hospital’s Medical Executive Committee voted to
continue Babchuk’s suspension. A hearing before an ad hoc
committee was held in October at Babchuk’s request. The
committee voted unanimously to make the suspension per-
manent. Babchuk was told he could appeal the committee’s
decision to the hospital’s board of directors, but he declined
to do so, and so the cancellation of his medical privileges
was made permanent.
His principal argument is that by reporting the suspen-
sion of his medical privileges to Indiana’s medical licensing
board and the National Practitioner Data Bank, as required
by both federal and Indiana law, see 42 U.S.C.
§§ 11133(a)(1)(A), 11134(c)(2); 45 C.F.R. § 60.12; Ind. Code
§ 16-21-2-6, the hospital had “blemished” his medical license
and by doing so had deprived him of property. A medical
license is deemed property within the meaning of the due
process clause if state law not only creates an entitlement to
4 No. 15-1816

the license but also establishes criteria for imposing profes-
sional discipline should the license be abused by its holder.
See Fleury v. Clayton, 847 F.2d 1229, 1232 (7th Cir. 1988);
Abcarian v. McDonald, 617 F.3d 931, 942 (7th Cir. 2010); cf.
Board of Regents v. Roth, 408 U.S. 564, 577 (1972); Cain v. Lar-
son, 879 F.2d 1424, 1426–27 (7th Cir. 1989). But a harm to
reputation caused by a state official’s statements is a denial
of due process only if the harm is to an interest that the law
recognizes as an interest in property. See Paul v. Davis, 424
U.S. 693, 701–12 (1976).
If possession of a medical license is recognized by state
law to be a property interest, a “blemish” on such a license
could be compared to a seizure of a portion of one’s land,
but this would depend on what exactly the “blemish” con-
sisted of and whether it would seriously harm the licensee’s
medical practice. And a physician has no due process right
to be exempt from formal procedures of a hospital that can
result in his being disciplined. Abcarian v. McDonald, supra,
617 F.3d at 942. But we needn’t pursue that issue, because
Indiana’s medical licensing board has not censured Babchuk;
nor is there evidence that his career has been hindered by
the hospital’s reporting the suspension of his medical privi-
leges to Indiana’s medical licensing board and the National
Practitioner Data Bank.
Babchuk goes way overboard in arguing that the hospi-
tal’s action in suspending his privileges has rendered his li-
cense “virtually worthless” and as a result has prevented
him from ever again obtaining staff privileges in a hospital.
He argues that because before granting such privileges a
hospital must check the National Practitioner Data Bank for
adverse peer-review information, 42 U.S.C. § 11135(a)(1),
No. 15-1816 5

and “defendants’ summary suspension of Dr. Babchuk has
been reported to the NPDB and the Indiana medical licens-
ing board, Dr. Babchuk is ’blackballed’ with respect to future
employment and his license to practice medicine has been
rendered virtually worthless.” Not so; for though it’s been
more than three years since his termination by Tipton Hospi-
tal, he has presented no evidence that he’s been “’black-
balled’” and his license to practice medicine “rendered vir-
tually worthless.” He is on the physician list of Indiana’s Lo-
gansport Memorial Hospital, as his lawyer acknowledged at
oral argument (see also www.logansportmemorial.
org/pages/Physician-Detail/?Name=Babchuk&physicianID=
3205 (visited January 9, 2016)), and the hospital website that
we just cited says that he and his professional corporation
occupy a suite at the hospital and are accepting new pa-
tients.
He argues in the alternative that he has a property inter-
est not only in his license but also in his medical privileges at
Tipton Hospital, because the hospital’s bylaws establish pro-
cedures for terminating medical privileges of doctors work-
ing at the hospital. But the existence of such procedures cre-
ates no entitlement to continued privileges. “Process is not
an end in itself. Its constitutional purpose is to protect a sub-
stantive interest to which the individual has a legitimate
claim of entitlement.” Olim v. Wakinekona, 461 U.S. 238, 250
(1983); see also Cain v. Larson, supra, 879 F.2d at 1426. So
while it’s true that an employee who has tenure—a statutory
or contractual entitlement to retain his job for a specific peri-
od (which can be life) conditioned on good behavior—has
therefore a property interest in his job, Board of Regents v.
Roth, supra, 408 U.S. at 576; Cleveland Board of Education v.
6 No. 15-1816

Loudermill, 470 U.S. 532, 538–39 (1985), Dr. Babchuk did not
have tenure at Tipton Hospital.
It is true that an Indiana statute provides procedural pro-
tections, similar to those in Tipton Hospital’s bylaws, for
disciplinary charges that if sustained by the hospital’s gov-
erning board would have to be reported to the state licensing
board. Ind. Code § 34-30-15-5. But that is a procedural provi-
sion. It no more creates a property interest than the require-
ment of proof beyond a reasonable doubt in a criminal case
gives a criminal defendant a liberty interest. The reasonable-
doubt standard is procedural, conferring a degree of protec-
tion of a liberty that a criminal conviction would impair. In
contrast, hospital privileges terminable at will are not a con-
stitutionally protected entitlement. See Lim v. Central DuPage
Hospital, 871 F.2d 644, 647 (7th Cir. 1989); Illinois Psychological
Association v. Falk, 818 F.2d 1337, 1344 (7th Cir. 1987). To hold
otherwise would turn every at-will contract into a tenure
contract.
Tipton Hospital’s bylaws declare that the grant of medi-
cal privileges is “not a contract” and that appointment to the
medical staff is “a privilege which may be extended by the
Board [of Directors] only to professionally competent, fully
licensed physicians … who continuously meet the qualifica-
tions, standards, and requirements set forth in these bylaws
and as established by the Board” (emphasis added). The by-
laws don’t define specific criteria for the removal or reten-
tion of privileges but instead provide a list of general qualifi-
cations and skills that a physician must demonstrate to
maintain privileges, including “demonstrated competence,”
“good reputation[],” “ability to work with others” and “abil-
ity and willingness to make efficient use of Hospital facili-
No. 15-1816 7

ties.” A physician must “continuously maintain and demon-
strate the appropriate level of competence, skill, training,
and aptitude which would justify the continuance of those
clinical privileges.” And finally and critically, the bylaws
provide that nothing in them “shall in any way limit the ul-
timate authority of the Board to take action with respect
to … the status [of] clinical privileges.”
As if this were not enough, the defendants have a com-
pelling alternative ground for affirmance: that they are not
state actors—that the actions of the hospital which Dr. Bab-
chuk claims harmed him and his professional corporation
cannot be attributed to the State of Indiana and thus were
not committed under color of state law and so cannot be a
basis for a constitutional suit. About this defense the district
judge said that “a reasonable jury could conclude either that
Defendants were acting under color of state law or that they
were not.” That was incorrect; clearly they were not acting
under color of law.
The defendant that comes closest to being an arm of the
state is Indiana University Health, Inc. (IU Health, the par-
ties call it), the owner of Tipton Hospital. Actually IU Health
is at least formally private, as the “Inc.” at the end of its
name implies, but some members of its governing board are
elected by the trustees of Indiana University, a state univer-
sity. And the operating expenses of the university’s medical
school are paid from IU Health’s revenues, which in turn de-
rive in part from Tipton Hospital. So there are connections
between the hospital and the state university. But those con-
nections do not make the hospital’s termination of Dr. Bab-
chuk’s privileges state action. Tipton Hospital is private and
everyone involved in the termination of his privileges was a
8 No. 15-1816

physician on the hospital’s medical staff except the hospital’s
CEO, who is an employee of IU Health but whose vote on
the summary suspension was unnecessary because three
qualified members of the medical staff had already agreed
on suspension. Although Babchuk had a right to appeal to
the hospital’s board of directors, some of whom had been
appointed by IU Health, he did not appeal.
So this is not a case in which “it can be said that the State
is responsible for the specific conduct of which the plaintiff
complains.” Blum v. Yaretsky, 457 U.S. 991, 1004 (1982) (em-
phasis in original). The fact that some of Tipton Hospital’s
revenues are siphoned off to the state university no more
makes the hospital a state actor than the fact that tax laws
siphon income from private companies and individuals to
state and federal treasuries. The university may well exert
pressure direct and indirect on Tipton Hospital, just as fed-
eral and state governments in manifold ways exert pressure
on private institutions. Government is omnipresent; that
doesn’t make all employees of private entities state actors.
The judgment in favor of the defendants is
AFFIRMED.