14 F.4th 768
7th Cir.2021Background
- Three Illinois nursing-home providers sued the Illinois Department of Healthcare and Family Services after the Department retroactively recalculated their Medicaid nursing-component per diem rates for Jan–Mar 2016, reducing rates by large percentages.
- Rates are set quarterly under a state RUG-IV, case-mix–based formula using providers’ submitted Minimum Data Set (MDS) assessments; the Illinois Administrative Code authorizes on-site audits to verify MDS accuracy.
- The Code (89 Ill. Admin. Code § 147.340) requires auditors to request residents’ charts, identify MDS items needing further documentation, notify facilities of preliminary conclusions, and permit facilities to produce additional documentation within 24 hours; reconsideration is available but bars evidence not produced during the initial review.
- Providers allege auditors systematically failed to identify deficiencies or preliminary conclusions during audits and therefore never gave them an opportunity to respond to evidence gathered by auditors before final recalculation.
- The district court dismissed the procedural due process claim, finding no protected property interest in a particular per diem rate because rates are contingent on audit verification; the Seventh Circuit reversed as to procedural due process and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether providers have a property interest triggering due process | Providers are entitled to payment at the legally prescribed rate (the rate set by statute and MDS submissions), so they have a legitimate entitlement to that payment. | Department says any entitlement is contingent on audit verification under regulations, so no protectable property interest in a particular rate. | Court: Property interest exists in being paid the rate established by law/MDS submissions; contingencies do not defeat an entitlement. |
| Whether auditing procedures satisfied due process (notice and opportunity to be heard) | Auditors gathered their own evidence and failed to notify providers of deficiencies or preliminary conclusions, denying providers a meaningful chance to respond to evidence relied on. | Department contends audits follow the Code and recalculation is authorized; compliance with Code determines adequacy. | Court: Minimum constitutional due process requires notice of the evidence against a party and an opportunity to respond; allegations that auditors withheld deficiencies and prevented factual rebuttal state a due-process claim. |
| Whether prohibition on submitting new documentation at reconsideration renders the process inadequate | Providers: bar on submitting evidence not previously produced forecloses meaningful response to new auditor-gathered evidence, increasing risk of erroneous deprivation. | Department: reconsideration process and audit framework are the established procedures for disputes. | Court: The restriction contributes to risk of erroneous deprivation when auditors introduce new evidence without giving providers chance to address it; thus plaintiffs adequately alleged insufficient process. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard for Rule 12(b)(6))
- Mathews v. Eldridge, 424 U.S. 319 (three-factor due-process balancing test)
- Bd. of Regents v. Roth, 408 U.S. 564 (property interests originate in state law)
- Goldberg v. Kelly, 397 U.S. 254 (statutory beneficiaries entitled to hearing before termination)
- Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532 (required notice, explanation of evidence, and chance to respond)
- Goss v. Lopez, 419 U.S. 565 (even short suspensions require notice and opportunity to respond)
- Gonzales v. United States, 348 U.S. 407 (decisionmakers may not rely on evidence unknown to the party)
- Fuentes v. Shevin, 407 U.S. 67 (secret, one-sided factfinding undermines fairness)
- Americana Healthcare Corp. v. Schweiker, 688 F.2d 1072 (procedures adequate where providers were informed of deficiencies and allowed resurvey)