I’ve been interested in the public v. private and not-for-profit v. for-profit differences since working at Humana in the early 1980’s and New England Journal of Medicine editor Arnold Relman described the for-profit industry as the medico-industrial complex arguing that the profit motive endangers the physician-patient relationship. In the 1987 Harvard Business Review, Herzlinger and Krasker concluded that there was very little difference in the amount of community benefits provided by not-for-profit and for-profit hospitals. The public-private dichotomy is a precursor to understanding how the federal constitution is interpreted and applied. The federal constitution regulates public conduct, not private conduct. While public organizations must ensure certain constitutional rights included in the Bill of Rights (freedom of speech and religion, right to bear arms, freedom from unreasonable search and/or seizure); private organizations (though federal and state laws may in some cases dictate otherwise) could historically impinge on such freedoms (for instance, in the past private universities and private hospitals could discriminate in admission policies—for instance, Baptist hospitals could admit only Baptists, Catholic universities could accept only Catholic students, and men’s and women’s universities could accept only those in a certain gender). The differences between public (both not-for-profit and government-owned) and private organizations were clear as recently as the 1940’s—you could tell the organization by its appearance. For instance, private organizations were as opulent as the owners desired whereas public organizations looked austere; private organizations were led by CEOs whose salaries were considerable and whose motivation was profit to the owner whereas public organizations were led by CEOs whose salaries were minimal and whose motivation was service to the community; and the mission statements of private organizations were to acquire wealth for the owner whereas the mission statements of public organizations were service to the community. [The tax code also includes differences but those differences will be the subject of a future blog.]. So somewhere along the way the distinctions between private and public organizations became blurred so that today sometimes it is difficult to determine whether the organization is private or public. While there are many reasons for this blurred dichotomy, I will focus on one—state action.
Courts can determine that private organizations act like public organizations and therefore must ensure constitutional rights in question. In order to do this, the courts must find state action (that the private organization is acting like the state (or any level of government). The state action doctrine uses the equal protection clause of the 14th amendment (1868) and the court must find state action before the court hears the merits of the case (in this regard, state action is the threshold question). Early state action cases appeared to favor private organizations. In a group of five civil right cases known as The Civil Rights Cases (1883), the Supreme Court found part of the Civil Rights Act of 1875 unconstitutional because not only did the act prohibit discrimination in public organizations, but it also prohibited discrimination in private organizations and individuals. The majority opinion (8-1) noted while the 13th amendment abolishes slavery, the 14th amendment did not give Congress the authority to outlaw private acts of racial discrimination.
Many if not most universities started as private organizations serving private interests. The oldest university, Harvard, was established in 1636 by John Harvard to first train clergy and later to train professionals and public servants. College of William and Mary was established in 1693 by King William III and Queen Mary II to provide the Virginia Colony with education in divinity, languages, and other arts and sciences. St. John’s College was chartered in 1696 by King William to provide a liberal education by studying the Great Books of the Western Civilization. Yale was established in 1701 by a group of clergy to train clergy.
Over time, dozens of state action cases have involved private universities and have changed the nature of how they operate. Proving a private university is acting like a public university is complicated and often difficult to prove. In the case of Burton v. Wilmington Parking Authority (1961), the Supreme Court said “Only by sifting facts and weighing circumstances can the non-obvious involvement of the State in private conduct be attributed its true significance.”
Regarding state action cases in higher education, Trustees of Dartmouth College v. Woodward (1819), New Hampshire’s attempt to control Dartmouth which was founded by charter was found to violate the contracts clause. In three subsequent cases, Meyer v. Nebraska (1923), Pierce v. Society of Sisters (1925), and Farrington v. Tokushige (1927), the Supreme Court used the due process clause to limit government interference with teaching and learning in private schools. In Powe v. Miles (2d Cir. 1968), Alfred University’s liberal arts college (private) students and ceramics college students (established by contract with the state) protested at an ROTC ceremony. All of the protesting students were suspended and the court determined that the suspension of the ceramics college students was state action and the suspension of the liberal arts students was not state action (the court required the university to give the ceramics students a hearing (due process) and the liberal arts students were not afforded due process).
Over time, the courts have developed three approaches for finding state action. The nexus approach (sometimes referred to as government contracts) may be present if the state and the private entity have a collaborative relationship making the distinction between private and public difficult to determine. In Jackson v. Metropolitan Edison (1974), Metropolitan Edison, a private utilities company, turned off Jackson’s electricity for delinquent payments after repeated notices. Jackson sued Metropolitan Edison claiming that she was not given a hearing (due process). The Supreme Court noted that while Metropolitan was regulated by a public board, it did not constitute state action and therefore Jackson was not entitled due process.
The second approach for finding state action is the “symbiotic relationship” approach (sometimes referred to government contacts) and is considered broader than the specificity required in the nexus approach. The symbiotic approach looks at the full range of contacts between the private and public organization to determine if the contacts make an interdependent relationship. Burton v. Wilmington Parking Authority (1961) is an example of the symbiotic approach. Wilmington Parking Authority was a government agency that built a public parking deck including a strip of private shops. The bonds used to build the parking deck and private shops stipulated that the rental income from the private shops would be used to service the public bond debt. One of the shops discriminated and the Supreme Court found that the parking deck (public) and the shop (private) had a symbiotic relationship in the discrimination and therefore the discrimination claim was allowed under the equal protection clause of the 14th amendment.
The third approach for finding state action is the “public function” approach focuses on the specific function(s) performed by the private organization. Providing services to the public or providing essential services or providing services also provided by public organizations is seldom enough for the court to find state action in a private organization. The services must be services that are traditionally reserved to public organizations. The courts have rejected this rationale in several cases that were decided in the 1970’s. A second public function test has been that certain areas of the private organization have been open to the public like a library at a private university that is open to the public. In Brown v Mitchell 409 F2d. 593 (10th Cir., 1968), the court seemed open to this rationale, but several cases since then have rejected the rationale.
One private university, Hillsdale College in Western Michigan, established in 1844, is a good example of a private organization resisting state action. According to their website, Hillsdale is the first American college or university to prohibit discrimination in their charter. During the 1970’s, the federal government demanded that all universities and colleges start counting and reporting their enrollments by race or risk losing federal assistance for student loans. Hillsdale refused citing its independence as a private organization and the absence of any discrimination complaints. Following a decade of litigation, the U.S. Supreme Court found Hillsdale in non-compliance. In response, Hillsdale announced that it would no longer take federal or state funds in any form and would replace those funds with private donations (see Hillsdale.edu/about/history). Hillsdale and their podcast network and their newsletter Imprimis continue to represent and defend private organizations.
Regarding state action cases in hospitals, in 1964 the U.S. Supreme Court declined to hear Simkins v. Moses Cone Memorial Hospital (323 F.2d 959 (4th Cir. 1963) which let stand a lower court ruling that two private hospitals which had participated in the Hill-Burton program (Hospital Survey and Construction Act of 1946) of federal assistance to hospitals were sufficiently involved with governmental state action, both federal and state, to bring the private hospitals conduct within the 5th and 14th amendment protections. This decision impacted the 3,346 private, non-profit hospitals which had received Hill-Burton federal assistance. [The passage of Medicare and Medicaid legislation in 1965 certainly reinforced this decision.]. According to the Michigan Law Review, this decision highlighted, and resolved in part, the conflict between two lines of authority—the expansion of state action as a federal constitutional construct and, and state law case law precedents which had established that private hospitals had complete discretion to determine who may use their facilities (see Long’s “State Action, State Law, and the Private Hospital” published in the Michigan Law Review 62(8): 1964). In summary, through state action, most universities and colleges and virtually all private hospitals have now become quasi-public organizations and must ensure the same constitutional rights as public organizations.
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