Rock River Health Care, LLC v. Eagleson

14 F.4th 768

ROCK RIVER HEALTH CARE, LLC, et al., Plaintiffs-Appellants,

v.Theresa A. EAGLESON, Defendant-Appellee.

No. 19-2750

United States Court of Appeals, Seventh Circuit.

Argued October 1, 2020

Decided October 4, 2021

Amy Baughman, Kimberly Watt, Attorneys, SB2, Inc., Harrisburg, PA, for Plaintiffs-Appellants Rock River Health Care, LLC, Island City Rehabilitation Center, LLC.

Amy Baughman, Attorney, SB2, Inc., Harrisburg, PA, for Plaintiff-Appellant International Nursing & Rehab Center, LLC.

Christina T. Hansen, Attorney, Office of the Attorney General, Civil Appeals Division, Chicago, IL, for Defendant-Appellee.

Before Easterbrook, Manion, and Rovner, Circuit Judges.

Rovner, Circuit Judge.

Plaintiffs Rock River Health Care, LLC, International Nursing & Rehab Center, LLC, and Island City Rehabilitation Center, LLC, (collectively the "Providers") brought suit under 42 U.S.C. § 1983 and the Medicaid Act, 42 U.S.C. § 1396a et seq ., alleging that the Illinois Department of Healthcare and Family Services (the "Department") violated constitutional and statutory law in retroactively recalculating their Medicaid reimbursement rates for the three-month period of January through March 2016. The district court granted the Department's motion to dismiss the case. The Providers now appeal that decision only as to the dismissal of the procedural due process claim. Accordingly, we do not address the other claims raised in the district court.

The Providers in this case operate long-term nursing care facilities in Illinois, and receive per diem reimbursement for Medicaid beneficiaries from the Department, which administers the state's Medicaid program. Medicaid is a voluntary program that operates through a state and federal partnership, for the purpose of providing medical care for indigent, elderly, and disabled persons. States participating in Medicaid must administer their programs in compliance with the requirements of Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq ., known as the Medicaid Act. The Department provides per diem reimbursements to state-licensed care facilities for the care provided to Medicaid recipients, at a reimbursement rate calculated based on the type and amount of services furnished to each resident. 89 Ill. Admin. Code § 140.530(a). The reimbursement consists of three components: (1) support cost; (2) nursing cost; and (3) capital cost.

This case concerns only the nursing component, which covers the wages and benefits for the nursing staff and social workers, payments for direct care consultants, and payment for health care supplies used by or for residents. As the district court noted, by the time that the state reimburses nursing facilities under the program, those facilities have already provided the services to the residents and generally have also already paid the nursing staff. The calculation of the proper rate of reimbursement for nursing facilities is updated on a quarterly basis.

The reimbursement rate for nursing facilities is calculated using a model called the Resource Utilization Group reimbursement system, which is characterized as a "resident-based, facility-specific, cost-based" methodology. 305 ILCS § 5/5-5.2(d). Under that system, each facility submits Minimum Data Set assessments to the Department on a quarterly basis, which provide information as to the intensity of care and services for each resident in the facility. 305 ILCS § 5/5-5.2 ; 89 Ill. Admin. Code §§ 147.310, 147.320. The Department uses that data to classify each resident and establish the facility's "case mix." Id . at §§ 147.325, 147.340. With that information, the Department calculates the nursing component of the reimbursement rate, which "shall be the product of the statewide RUG-IV [Resource Utilization Group] nursing base per diem rate, the facility average case mix index, and the regional wage adjustor." 305 ILCS § 5/5-5.2(e-2).

At times, the Department conducts on-site reviews to verify the accuracy of those Minimum Data Set assessments. The contours for that review are set forth in detail in 89 Ill. Admin. Code § 147.340 (the "Code"). The Code provides that the Department "may select, at random" facilities in which to conduct quarterly on-site reviews, and also may select them based on a number of enumerated circumstances. Id . at § 147.340(b)–(d). Reviews can be conducted electronically or on-site at the facility. Id . at § 147.340(a). On-site reviews can include examination of "resident records and documentation, ... observation and interviews of residents, families and/or staff" to determine the accuracy of the submitted data, and the "[r]eview and collection of information necessary to assess the resident's need for a specific services or care area." Id . at § 147.340(g). Department staff are required to request in writing the current charts of individual residents that are needed to begin the review process. Id . at § 147.340(l). If further documentation is needed by the reviewers in order to validate an area, "the team shall identify the MDS [Minimum Data Set] item requiring additional documentation and provide the facility with the opportunity to produce that information" within 24 hours. Id . at § 147.340(m).

Finally, throughout that review, the Department is required to identify any preliminary conclusions regarding Minimum Data Set items or areas that could not be validated. Id . at § 147.340(o). If the facility disagrees with those preliminary conclusions, it can present the Department with any documentation to support its position. Id . As we will discuss later, although the Code provides for all of these procedures, the Providers argue that for each of their audits, the Department failed to identify items requiring further documentation and provide an opportunity to respond with such documentation, as is required under § 147.340(m), and failed to identify preliminary conclusions or areas that could not be validated, as is mandated by § 147.340(o).

Once the review is concluded, under the Code the Department provides the final determination to the facility, including its conclusions as to the accuracy of the data, and as to any reclassification of residents and recalculation of the reimbursement rates. Id . The facility can request reconsideration of any reclassification within 30 days. In that appeal, the facility can include explanations as to how the submitted data supported the classification of the resident and requires reconsideration, but cannot submit documentation that was not provided to the Department during the initial review. Id . at § 147.340(u). The reconsideration is conducted by individuals that were not directly involved in the initial review, and the reconsideration decision is made within 120 days. Id . at § 147.340(v).

I.

Following an audit by the Department, the reimbursement rates for the plaintiffs were recalculated. According to the Providers, the nursing component rates for the facilities were retroactively decreased by 83%, 57%, and 20%. The Providers sued the Department, alleging that the retroactive rate adjustments violated federal Medicaid laws and both substantive and procedural due process. The district court granted the defendant's motion to dismiss, and the Providers appeal.

In an appeal from the grant of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), we review the claim de novo , accepting all well-pleaded allegations as true and taking all reasonable inferences in the plaintiffs’ favor. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Only the procedural due process claim is raised in this appeal. As to that claim, the Providers allege that the auditors did not follow certain procedures mandated in the Code and that such failure was not an isolated occurrence for one audit, but rather was the experience for the audits as to each of the Providers. Specifically, the Providers claim that in the audits of each of them, the auditors did not provide the preliminary results, and did not identify allegedly missing or deficient documents or provide an opportunity to respond, as is required by Code sections 147.340(m) and (o). In addition, the Providers allege that the procedure for reconsideration is inadequate to provide due process because it prohibits the submission of any evidence not provided to the auditors at the initial stage.

In dismissing the claim, the district court held that the Providers lacked a property interest in their per diem Medicaid reimbursement rate and therefore did not merit due process protection. In so holding, both the court and the defendant on appeal characterize the Providers’ claim as asserting a property interest in a particular per diem Medicaid reimbursement rate. Based on that characterization, the district court held that there was no legitimate claim of entitlement sufficient to constitute a property interest, because the Department "did not retroactively change a duly promulgated reimbursement rate for payments already made; instead, ‘it retroactively changed a reimbursement rate contingent upon quarterly patient data that was subject to MDS audits and resulting adjustments per the terms of the Illinois state plan.’ " Dist. Ct. Order at 10. In other words, the court held—and defendants argue here—that there was no threat to a property interest because the Department's actions were consistent with the law governing reimbursement rates, which allows for the auditing of the Providers and a recalculation of the rates. We turn, then, to an analysis of the procedural due process claim.

II.

The Due Process Clause of the Fourteenth Amendment prohibits the deprivation of life, liberty or property by the government without due process of law. In analyzing a due process claim, we consider first whether the plaintiff has been deprived of a protected interest in property or liberty, and if that is established, we consider whether the state's procedures comport with due process....