BT Bourbonnais Care, LLC v. Norwood

866 F.3d 815

BT BOURBONNAIS CARE, LLC, et al., Plaintiffs–Appellees,

v.Felicia F. NORWOOD, Director, Illinois Department of Healthcare and Family Services, Defendant–Appellant.

Nos. 16-3655 & 16-3968

United States Court of Appeals, Seventh Circuit.

Argued April 26, 2017

Decided August 8, 2017

Jeffrey Dan, Attorney, Arthur G. Simon, Attorney, Brian P. Welch, Attorney, David K. Welch, Attorney, CRANE, HEYMAN, SIMON, WELCH & CLAR, Chicago, IL, for Plaintiffs–Appellees.

Frank Henry Bieszczat, Attorney, OFFICE OF THE ATTORNEY GENERAL, Civil Appeals Division, Chicago, IL, for Defendant–Appellant.

Before Wood, Chief Judge, and Flaum and Sykes, Circuit Judges.

Wood, Chief Judge.

This case represents an effort by ten operators of nursing homes in Illinois to be paid what they believe they are owed. Providers that depend on Medicaid funding must go through an administrative process in which their reimbursement rate is calculated. The plaintiffs contend that their rates were not properly adjusted after a change in ownership of the nursing homes they run. Before that issue can be resolved, however, there are two significant hurdles plaintiffs must clear: first, they must show that they have a private right of action for a violation of the relevant part of the Medicaid statute, 42 U.S.C. § 1396a(a)(13)(A) ; and, second, they must show that the Eleventh Amendment does not categorically bar this case from going forward.

I

Our plaintiffs are ten operators of long-term care facilities, generally called nursing homes, located in Illinois. For ease of exposition, we'll call them the Operators. In 2012 each of them purchased existing nursing homes and took over all operations and services. Each Operator obtained a new license from the state and a new Medicare provider number from the federal government; the old licenses and Medicare numbers were retired. Most of the residents in the affected nursing homes qualify for Medicaid assistance. Through the Illinois Department of Healthcare and Family Services (IDHFS), the state administers the Medicaid funds in accordance with a complex array of federal statutes and regulations. See 42 U.S.C. §§ 1396 to 1396w-5 ; Wilder v. Virginia Hosp. Ass'n , 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990) ; Bontrager v. Indiana Family & Soc. Servs. Admin. , 697 F.3d 604, 605 (7th Cir. 2012). IDHFS reimburses nursing homes for Medicaid-eligible expenses on a per diem basis, but the rate itself must be calculated annually based on the costs of running the facility. ILL. ADMIN. CODE tit. 89, § 140.561 –3. When ownership of a home changes, state law requires IDHFS to calculate a new rate based on the new owner's report of the costs it has accrued during at least the first six months of operation. Id. § 140.560(a).

The Medicaid Act, 42 U.S.C. § 1396a, requires states to use a public process, complete with notice and an opportunity to comment, when it determines payment rates. The relevant language of the statute reads as follows:

(a) ....

A State plan for medical assistance must—

....

(13) provide—

(A) for a public process for determination of rates of payment under the plan for ... nursing facility services, ... under which—

(i) proposed rates, the methodologies underlying the establishment of such rates, and justifications for the proposed rates are published,

(ii) providers, beneficiaries and their representatives, and other concerned State residents, are given a reasonable opportunity for review and comment on the proposed rates, methodologies, and justifications,

(iii) final rates, the methodologies underlying the establishment of such rates, and justifications for such final rates are published ....

....

42 U.S.C. § 1396a(a)(13)(A). At issue in this case are the questions whether these requirements are enforceable by parties such as the Operators and, if so, whether the Director of IDHFS complied with them.

In this suit, filed in 2016, the Operators contend that IDHFS has violated—and is still violating— section 1396a(a)(13)(A) by failing to recalculate their reimbursement rates in the wake of the 2012 change in ownership. The Director (whom they have sued in her official capacity) failed, they say, to provide an adequate notice-and-comment process, and IDHFS also allegedly failed to comply with the provisions of the Illinois state plan requiring a recalculation of rates after a change of ownership, see ILL. ADMIN. CODE tit. 89, § 140.560(a). The Operators' theory is that this failure to comply with the state plan itself violates the federal law. They assert that the recalculation process never began, and so there was never any notice, never any chance to comment, and obviously in the end never any revised rates. The Operators contend that the state's laxness in these respects has cost them $12 million in unreimbursed costs. They asked for a declaration that their rights have been violated by the Director's refusal to provide a public process and a limited injunction "retroactive to July 1, 2012," ordering that such a process take place. They also asked that the Director be compelled to publish the methodology and justifications supporting IDHFS's refusal to treat the Operators as new owners, and they want an opportunity to comment on whatever the Director says. Finally, and most controversially, they asked for an injunction "retroactive to July 1, 2013," requiring IDHFS to "establish and process the appropriate reimbursement rate(s)."

The Director filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) ; she argued that section 1396a(a)(13)(A) does not support a private right of action under 42 U.S.C. § 1983, and that to the extent the suit seeks money from the state, the Eleventh Amendment bars it. Her motion did not distinguish between a substantive right to adequate payment and a procedural right to notice and comment. She argued only that, as a result of a 1997 amendment to the Medicaid Act, any substantive right was extinguished. Before that amendment, section 1396a(a)(13)(A) (then known as the Boren Amendment) had required that Medicaid reimbursement rates be "reasonable and adequate." The Supreme Court had interpreted that language to provide operators a private right of action to enforce this obligation. Wilder , 496 U.S. at 509–10, 512, 110 S.Ct. 2510. In 1997, Congress amended the Act to repeal the Boren Amendment and eliminate any reference to "reasonable and adequate" rates. See Pub. L. No. 105-33, § 4711, 11 Stat. 251, 507–08 (1997); H.R. Rep. No. 105-149, at 1230 (1997). The Director argued that the elimination of the reference to "reasonable and adequate" rates meant that Operators no longer enjoy any substantive rights under the Act.

Moreover, the Director contended, the Eleventh Amendment bars this suit for two reasons. First, to the extent that the Operators are really trying to enforce Illinois's state plan, she asserts that they are making an argument under the state's administrative code, which raises only a question of state law. See Pennhurst State Sch. & Hosp. v. Halderman , 465 U.S. 89, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984) (federal courts have no power to order state officials to comply with state law). In addition, the Director argues that the relief the Operators want, in the end, is retroactive reimbursement at the recalculated rates, and that such a payment from the state treasury cannot be compelled consistently with the Eleventh Amendment. See Edelman v. Jordan , 415 U.S. 651, 664, 677, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974).

In response to the Director's first point, the Operators said that they were seeking only to enforce their procedural rights under the current statute. They urged that there is an independent value in the public process the statute affords, because without it they cannot know why the Director is refusing to treat them as new owners and failing to recalculate their rates. Armed with that information, they would be able to ask the federal Department of Health and Human Services (HHS) to force Illinois to honor its statutory obligations. The Secretary of HHS has the authority to withhold funds if a state does not act in compliance with an approved plan. See 42 U.S.C. § 1396c ; 42 C.F.R. § 430.35. The information produced by an open process may also have some utility in state proceedings. Thus, they said, this is not a case of an effort to enforce an empty procedural right for its own sake; it is essentially a request for information that has concrete value. As for the Director's Eleventh Amendment point, the Operators contended that they have asked only for prospective relief with respect to their public-process claim, and that it is too early to say (despite their $12 million estimate) whether the public process would change their reimbursement rates at all. They might stay the same; they might go down; or they might go up. Only if the last of those possibilities comes to pass will the Eleventh Amendment issue be ripe to decide.

The district court denied the Director's motion. It held that Wilder is "alive and well," and given that fact, it saw little to discuss. It acknowledged that the language of section 1396a(a)(13)(A) has changed since Wilder was decided, but it found that change to be immaterial for its purposes. The new language, the court thought, also contains a clear and unambiguous right, though one that is procedural only. With respect to the Eleventh Amendment, the court essentially agreed with the ripeness argument: it said that the suit was not barred because the Operators were alleging an ongoing violation of federal law and the relief they requested did not "necessarily" embrace money damages. It concluded that "[i]f such a possibility were to arise at a future date, it could be dealt with at that time."

The Director found this disposition a bit confusing, and so she asked the court to clarify its order denying her motion to dismiss. She contended that at least some of the Operators' requested relief is impermissible under the ...