St. Anthony Hosp. v. Whitehorn

100 F.4th 767

SAINT ANTHONY HOSPITAL, Plaintiff-Appellant, v. Elizabeth M. WHITEHORN, in her official capacityas Director of the Illinois Department of Healthcare andFamily Services, Defendant-Appellee,^*andMeridian Health Plan of Illinois, Inc., et al., Intervening Defendants-Appellees.

No. 21-2325

United States Court of Appeals, Seventh Circuit

Submitted December 29, 2023

Decided April 25, 2024

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. On Remand from the Supreme Court of the United States. No. 1:20-cv-02561 — Steven C. Seeger, Judge.

Edward W. Feldman, Michael L. Shakman, Mary Eileen Cunniff Wells, William J. Katt, Rachel Ellen Simon, Attorneys, Miller Shakman Levine & Feldman LLP, Chicago, IL, for Plaintiff-Appellant.

Richard S. Huszagh, Attorney, Office of the Attorney General, Civil Appeals Division, Chicago, IL, for Defendant-Appellee.

Hugh S. Balsam, Ashlee Marie Knuckey, Steven T. Whitmer, Attorneys, Locke Lord LLP, Chicago, IL, for Intervening Defendant-Appellee Meridian Health Plan of Illinois, Inc.

Kirstin Beth Ives, Attorney, Falkenberg Ives LLP, Chicago, IL, for Intervening Defendant-Appellee Illinicare Health Plan.

Martin J. Bishop, Kevin D. Tessier, Attorneys, Reed Smith LLP, Chicago, IL, for

Intervening Defendant-Appellee Blue Cross and Blue Shield of Illinois.

Silvia Mercado Masters, Attorney, Office of the Cook County State's Attorney, Chicago, IL, for Intervening Defendant-Appellee Cook County, Illinois.

Martha Jane Perkins, Attorney, National Health Law Program, Chapel Hill, NC, for Amici Curiae National Health Law Program, Shriver Center on Poverty Law, Legal Council for Health Justice.

Before Wood, Hamilton, and Brennan, Circuit Judges.

Hamilton, Circuit Judge.

We first addressed this appeal in 2022, when we reversed in part the district court's dismissal of the case and remanded for further proceedings. Saint Anthony Hospital v. Eagleson, 40 F.4th 492 (7th Cir. 2022). Defendant petitioned for a writ of certiorari. The Supreme Court held the case while it considered Health & Hospital Corp. of Marion County v. Talevski, 599 U.S. 166, 143 S.Ct. 1444, 216 L.Ed.2d 183 (2023), which presented similar issues concerning the use of 42 U.S.C. § 1983 to enforce certain provisions in the Federal Nursing Home Reform Act amendments to the Medicaid Act. After deciding Talevski, the Court granted defendant's petition in this case, vacated our earlier decision, and remanded for reconsideration in light of Talevski. — U.S. —, 143 S. Ct. 2634, 216 L.Ed.2d 1222 (2023) (mem.). Such a "GVR" order calls for further thought, but it does not necessarily imply that the lower court's previous result should be changed. E.g., Klikno v. United States, 928 F.3d 539, 544 (7th Cir. 2019); see generally Lawrence v. Chater, 516 U.S. 163, 166-70, 116 S.Ct. 604, 133 L.Ed.2d 545 (1996) (per curiam) (discussing GVR practices). Upon remand, the parties submitted statements of position and we ordered further briefing. We have taken a fresh look at the appeal in light of Talevski. We again reverse the dismissal of plaintiff's central claim and remand for further proceedings.

By way of introduction, in recent years, Illinois moved its Medicaid program from a fee-for-service model, where a state agency pays providers' medical bills, to one dominated by managed care, where the state pays private insurers to pay medical bills for Medicaid patients. Most patients of plaintiff Saint Anthony Hospital are covered by Medicaid, so Saint Anthony depends on full, timely Medicaid payments to keep its doors open and provide care to patients. Saint Anthony says it is now in a dire financial state. Over four years from 2015 to 2019, it lost roughly 98% of its cash reserves, allegedly because managed-care organizations (MCOs) repeatedly and systematically delayed and reduced payments it was owed for treating patients covered by Medicaid managed care.

Saint Anthony contends in this lawsuit that Illinois officials owe it a duty under the federal Medicaid Act to act to push MCOs to make timely and full payments. In a thoughtful opinion, the district court dismissed the suit for failure to state a claim for relief. Saint Anthony Hospital v. Eagleson, 548 F. Supp. 3d 721 (N.D. Ill. 2021). We continue to see the case differently, however, especially at the pleadings stage. Under the standards of Talevski and related precedents, Saint Anthony has alleged a viable claim for relief under 42 U.S.C. § 1396u-2(f) and may seek injunctive relief under 42 U.S.C. § 1983 against the state official who administers the Medicaid program in Illinois. We appreciate the potential magnitude of the case and the challenges it may present. Like the district judge, we can imagine forms of judicial relief that would be hard to justify. We can also imagine some poor ways to handle this case going forward in the district court. But we should not decide this case by assuming that the worst-case scenarios are inevitable.

The State has tools available to remedy systemic slow and short payment problems—problems alleged to be so serious that they threaten the viability of a major hospital and perhaps even of the managed-care Medicaid program as administered in Illinois. If Saint Anthony can prove its claims, the chief state official could be ordered to use some of those tools to remedy systemic problems that threaten this literally vital health care program. We therefore again reverse in part the dismissal of the case and remand for further proceedings.

I. Factual and Procedural Background

In reviewing the grant of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, we accept as true all well-pled factual allegations in the complaint and draw all reasonable inferences in Saint Anthony's favor. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). We are not vouching for the truth of Saint Anthony's account of the facts at this point. Rather, because the defense moved to dismiss on the pleadings, it chose to accept for now the truth of Saint Anthony's factual allegations.

A. The Illinois Medicaid Program

The federal Medicaid Act established a cooperative arrangement between the federal government and states to provide medical services to poor residents. 42 U.S.C. § 1396 et seq.; Bria Health Services, LLC v. Eagleson, 950 F.3d 378, 380 (7th Cir. 2020); see also National Federation of Independent Business v. Sebelius, 567 U.S. 519, 541-42, 132 S.Ct. 2566, 183 L.Ed.2d 450 (2012). By agreeing to participate in Medicaid, a state receives financial assistance to help administer the program in exchange for complying with detailed statutory and regulatory requirements. Bria Health Services, 950 F.3d at 380. Those requirements are found in the Medicaid Act itself (Title XIX of the Social Security Act) and in Department of Health and Human Services (HHS) regulations. See id. at 380, 382; Rock River Health Care, LLC v. Eagleson, 14 F.4th 768, 771 (7th Cir. 2021).

Before discussing the relevant statutory requirements at issue here, it is important to understand how the Illinois Department of Healthcare and Family Services (HFS) administers the State's Medicaid program. There are two major ways for states to pay providers for services provided to patients covered by Medicaid: fee for service and managed care. In a fee-for-service program, the state pays providers directly based on a set fee for a particular service. See 42 U.S.C. § 1396a(a)(30)(A); Medicaid Program; Medicaid Managed Care: New Provisions, 67 Fed. Reg. 40989, 40989 (June 14, 2002). Under a managed-care program, by contrast, HFS contracts with MCOs (which are private health insurance companies) to deliver Medicaid health benefits to beneficiaries. See 42 U.S.C. § 1396u-2; see also 42 U.S.C. § 1396b(m); 42 C.F.R. § 438 (2020). The state typically pays the MCO a flat fee per patient per month. The MCO then pays providers for services actually provided to covered Medicaid patients. Bria Health Services, 950 F.3d at 381, citing 305 ILCS 5/5-30.1; see also 42 U.S.C. §§ 1396u-2, 1396b(m). Like insurance companies, MCOs are generally entitled to keep as profits the difference between the money they receive from the state and the amounts they pay providers for care of covered patients.

In recent years, Illinois has changed from fee-for-service to a system dominated by managed care. Illinois introduced managed care in its Medicaid program in 2006. In 2010, the State spent just $251 million on managed care. By 2019, that number had grown to $12.73 billion. In the meantime, the number of MCOs in Illinois has fallen from twelve to seven.

Federal law establishes requirements for timely Medicaid payments to health care providers. When a state pays claims directly, it must pay 90% of so-called "clean claims" within 30 days and 99% within 90 days. See 42 U.S.C. § 1396a(a)(37)(A). (A "clean claim" is one for which the payor has all information needed to determine the proper payments. Id.) When a state relies on MCOs to pay providers, federal law requires that the state's contract with an MCO contain a provision that requires the same 30/90 pay schedule for MCO reimbursements to providers. 42 U.S.C. § 1396u-2(f). (MCOs and providers can opt for a different pay schedule, but Saint Anthony has not agreed to a different schedule with any MCOs.) The focus of this case is the payment schedule provision, section 1396u-2(f).¹

B. Plaintiff Saint Anthony Hospital

Saint Anthony is a so-called "safety-net hospital" on the southwest side of Chicago. It provides health care regardless of patients' financial means. See 305 ILCS 5/5-5e.1. Most Saint Anthony patients are on Medicaid. As the Illinois Medicaid system has shifted from fee for service to managed care, the hospital has become ever more dependent on timely payments from MCOs. In recent years, according to Saint Anthony, those payments have repeatedly arrived late, if they arrived at...