and competitive value, and the very essence of our private enterprise system is disserved. Senator Dole's proposed amendment does not assure nondisclosure,

but it does

provide a uniform, orderly procedure to assure that before disclosure occurs the private party presumably entitled to protection has a reasonable opportunity to protect such Simply put, in contrast to the current risks

information.

of the death penalty for private business information and technology without a trial or a hearing, the Dole amendment provides clear and orderly procedure to avoid unwarranted capital punishment.

nation.

Gentlemen,

we are an enterprising and energetic

Our courts, after extensive probing and analysis, tell us that private development of information is a big plus in the overall competitive scheme and in our inter

national

technology

licensing. One of the profoundly unfortunate consequences of indiscriminate FOIA disclosure of trade secrets and confidential business information has been putting such information unfairly into the hands not just of domestic competitors, which is bad enough, but into the hands of a number of foreign enterprises and even

Governments.

underscore that the

Events of the past decade United States economy is hardly immune to world developments. How can we justify requiring private parties to submit sensitive competitive and technological information to the Government which may then make it available not only to direct competitors here, thereby eroding the competitive mechanism that best drives our economy, but to foreign enterprises and foreign nations, and not necessarily friendly ones?

Senator HATCH. Mr. Perito?

STATEMENT OF PAUL L. PERITO, ESQ., REPRESENTING ADVANCED HEALTH SYSTEMS INC., AND RALEIGH HILLS HOSPITALS

Mr. PERITO. Mr. Chairman, I am appearing here today on behalf of a client of the firm, Raleigh Hills Hospitals and Advanced Health Systems.

You undoubtedly, Mr. Chairman, are familiar with the laudatory work being done by Raleigh Hills Hospitals, located in many Western States including Utah, in the area of alcohol treatment. Advanced Health Systems is a corporate entity with a broader umbrella encompassing multiphasic health service delivery.

It is in that capacity that I, as a trial lawyer, was retained and became involved in a series of administrative pieces of litigation that caused our firm to take a very strong position on behalf of our client in favor of the continued viability of the Freedom of Information Act.

We agree very much with Mr. Rose's statement that the act ought to be revisited; and we commend you, Mr. Chairman, for the excellent remedial approaches suggested in S. 1730. However, we have some strong reservations about certain language in the proposed administration bill that I will touch upon.

In light of the limited timeframe, I would ask that my entire statement be included in the record; and I will simply summarize salient portions of my statement and then respond to any questions you may have.

Insofar as any questions you may have about my law enforcement background and related professional experiences in that area, and also unrelated trial experiences, obviously, Mr. Chairman, those are my views and not those of either my client or my law firm.

Senator HATCH. I understand. Without objection, your statement will be included in the record.

Mr. PERITO. Mr. Chairman, our involvement with what occurred with our client is perhaps the most poignant example of why attempting to draw a delineation that the Department of Justice has suggested of precluding the use of FOIA during administrative proceedings would result in terrific inequities and would deprive third parties, corporate individuals, as well as private individuals, of the very underlying purposes to which the act was directed in 1966 and the amendments were added in 1974.

When we became involved in the Raleigh Hills Hospitals HHS reviews there was an ongoing investigation within six offices and agencies in HHS. The primary lead agency was the National Center for Health Care Technology. Its alleged role was to do an efficacy evaluation of a treatment system involving comparative costs for the treatment of the disease of alcoholism.

As it developed, the purpose of the inquiry was to preclude reimbursement to medicare patients who chose the multimodality system offered by Raleigh Hills and chemical aversion therapy, which is an approach to the treatment of alcoholism that has been proven-and I believe there are ample scientific data to support this-perhaps one of the most efficacious systems of health care

intervention in an area where we do not have a definitive answer for the treatment of the disease of alcoholism.

I was faced with a very pragmatic problem as a trial lawyer. There was no proceeding formally pending under the APA insofar as an adjudicatory inquiry was concerned. There was no formal rulemaking with the usual protections of notice and comment. Yet my client's rights were being adjudicated, nonetheless.

You might say, Senator, why did I not go into Federal district court and seek a temporary restraining order or a preliminary injunction? The reason I did not-and I considered that route-is that I would have been precluded, one, because there was not an exhaustion of administrative remedies, which there could not be until a final decision was made; and, two, had I gone into court, I would have been faced with that which trial lawyers fear-namely, a nonripe, nonjusticiability argument by the Government in that the controversy had not ripened into an adjudicatory form so that it was a judiciable controversy.

The only avenue that I had, as a trial lawyer, available to me was to ferret out what was happening on behalf of my client and thousands of patients throughout the United States through the use of FOIA as an appropriate discovery tool.

Yet the Government creatively thwarted attempts by spuriously invoking the (b)(5) exemption in that the alleged proceedings were under consideration and "predecisional"-the word used in several of the cases.

The FOIA provided the only difference between discovering what, in fact, was happening; and what was happening was that the entire governmental inquiry, as we ultimately ferreted out, had started on the basis of erroneous factual and scientific assumptions wherein my client's rights would be adjudicated without any participation by my client in the process. The one difference was, we believe, the creative use of the FOIA for the purpose intended by Congress.

Fortunately, my client could afford the luxury of creative intervention through FOIA. Others out there cannot.

In the desire and zeal of the administration-which we applaud-to revisit the act, I trust that this committee will not allow its emasculation through revisitation.

My deep concern is, if you talk in terms, as the administration does in its bill, of precluding the use of the FOIA during the pendency of an administrative and/or judicial proceeding, what do you mean by those terms?

Does that mean that the agency, simply by going forward with informal rulemaking or an adjudication, can preclude the use of the FOIA? There are several instances, which we found, where the only alternative to finding out what the Government was about— which was infamy-was the use of the FOIA.

So I strongly recommend, Mr. Chairman, to this subcommittee that in reviewing the (b)(5) exemptions, particularly those suggested by the administration, the question you put to Mr. Rose be considered in a nondramatic and thoughtful fashion. You might, by adopting the administration's proposals without modification, preclude the type of discovery which took place here, which led ultimately to a favorable result and the saving of perhaps a full 40

years of treatment efficacy in the delivery of health services to medicare patients who had no other alternative but to seek that type of reimbursement for their treatment for the disease of alcoholism.

I would say, Mr. Chairman, that your bill addresses several of the concerns which I, as a litigator, have had with the act. The act has to be revisited, not emasculated as suggested in the administration's bill.

I would be happy to respond to any questions that you may have in this or other areas. I do not think that I need burden the committee with our specific proposals which I have addressed in my lengthy presentation. We will supplement that presentation, since we now have the administration's bill, so the committee can have consideration of our comments on that bill, in addition to your most recent bill, S. 1730.

One final comment: Perhaps one of the most misunderstood uses of FOIA by the business community is not necessarily in the area of so-called competitive advantage. It is in the area of health care; it is in the area of affirmative action and inquiries relating thereto; it is in many areas where the Government is involved with contracting with private parties where the procedural protections have been flawed by irresponsible or substantive violations of due process rights of people dealing with the Government.

In those areas it is critical that the FOIA continue to be a viable instrument of discovery, because there are several instances-one of which I have pointed out in the proceedings that I have been involved with and other proceedings I have been involved with-in the contract area where to preclude the use of the FOIA during a pending Government administrative proceeding or something similar thereto would preclude the type of discovery which was the very intent of this Congress and I know to which you, Senator, are deeply committed-namely, to ferret out Government waste, fraud, and wrongdoing.

Senator HATCH. Thank you, Mr. Perito. We appreciate your written statement and of course the excellent remarks you have made today, as we have all witnessed.

[The prepared statement of Mr. Perito follows:]

PREPARED STATEMENT OF PAUL L. PERITO

Mr. Chairman, Members of the Subcommittee:

It is an honor to be requested to testify before your distiguished Subcommittee on a subject of great significance -- the potential restructuring of the Freedom of Information Act. I am appearing here this morning on behalf of our clients, Advanced Health Systems, Inc. and Raleigh Hills Hospitals. I am a practicing trial lawyer who is a member of a Washington law firm and in such capacity represent both Advanced Health Systems and Raleigh Hills Hospitals.

I sincerely appreciate the opportunity which you, Mr. Chairman and members of your Subcommittee and competent staff, have afforded us in allowing for an expression of our views on this critical subject. In short, our purpose for appearing here today is to share with you our experiences under the Freedom of Information Act. We respectfully submit that our experiences amply demonstrate that a strong and viable FOIA (perhaps with certain needed modifications) is absolutely essential for corporate and/or individual persons who deal with the government on a continuing basis.

I. BACKGROUND

A. Advanced Health Systems, Inc., and the Raleigh Hills
Hospitals.

Advanced Health Systems, Inc. (AHS) is the fastest growing consolidated subsidiary of Petrolane, Inc., a corporation which is listed on the New York Stock Exchange and which is one of the 500 largest U.S. corporations. AHS's corporate offices are located in Irvine, California.

AHS is a specialized health care provider, management and service company. Its activities are organized into three major operating groups: 1) Health Services, 2) Health Care