40 F.4th 492
7th Cir.2022Background
- Illinois shifted Medicaid from fee-for-service to managed care; State pays MCOs a capitation and MCOs pay providers. Saint Anthony Hospital alleges MCOs repeatedly delayed, reduced, and provided opaque payments, depleting its cash reserves.
- Federal law requires states’ contracts with Medicaid managed care organizations to require MCOs to pay providers on a 30/90 schedule for clean claims (42 U.S.C. § 1396u-2(f) (incorporating § 1396a(a)(37)(A))).
- Saint Anthony sued the Illinois HFS Director in her official capacity under 42 U.S.C. § 1983 (Count I: §1396u-2(f) enforcement; Count II: §1396a(a)(8) reasonable promptness), seeking injunctive relief to compel state action to ensure timely, transparent payments and, if necessary, contract termination.
- The district court dismissed both counts and denied leave to supplement with a due-process claim; several MCOs intervened and sought arbitration stays. Saint Anthony appealed.
- The Seventh Circuit (majority) reversed dismissal of Count One (holding §1396u-2(f) creates an individual right enforceable under §1983 for systemic failures), affirmed dismissal of Count Two (§1396a(a)(8) does not grant providers §1983 rights), reversed denial of supplementation, declined to stay for arbitration, and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 42 U.S.C. §1396u-2(f) creates a private right enforceable under §1983 | Saint Anthony: §1396u-2(f) gives providers a right to timely, transparent payments and requires the State to act to ensure MCO compliance; enforceable under Blessing/Gonzaga. | HFS: The statute only requires a contractual clause in MCO contracts (a "paper" requirement); enforcement belongs to contract remedies and state discretion; no §1983 right. | Reversed dismissal: §1396u-2(f) satisfies Blessing factors and creates a §1983-enforceable right to have the State try to ensure timely, transparent payments (at least for systemic failures). |
| Scope of the State's duty under §1396u-2(f) (hands-off contract clause vs. affirmative oversight/remedy) | Saint Anthony: State must use oversight and remedial tools to secure timely payments; systemic failures warrant court-ordered actions. | HFS: Duty is only to include contract provisions; mandating state enforcement would conflict with statutory discretion (e.g., termination) and make courts de facto claims processors. | Majority: State has a binding obligation to try to ensure prompt payment and may be ordered to act; but extreme remedies (e.g., forced contract termination or micro-managing claim-by-claim processing) raise concerns and may be limited. |
| Whether 42 U.S.C. §1396a(a)(8) grants providers enforceable rights under §1983 | Saint Anthony: The term “individuals” and definition of medical assistance (includes payment) could encompass providers. | HFS: §1396a(a)(8) protects natural persons (applicants/beneficiaries), not providers; not rights-creating for providers. | Affirmed dismissal: §1396a(a)(8) does not confer §1983-enforceable rights to providers (fails Blessing factor one). |
| Whether district court abused discretion by denying leave to supplement with a due-process claim and whether arbitration stays should issue | Saint Anthony: New discovery supports a due-process transparency claim; denial was premature and prejudicial; arbitration of thousands of claims would not address systemic relief. | HFS & MCOs: Supplement is futile or would expand scope; arbitration clauses require claim-level resolution and favor stays. | Reversed denial of supplementation (district court abused discretion); Seventh Circuit declined to order a stay for arbitration and left arbitration issues for district court to manage. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard for Rule 12(b)(6): accept well-pleaded facts as true and draw reasonable inferences)
- Blessing v. Freestone, 520 U.S. 329 (1997) (three-factor test for whether a statute creates enforceable rights under §1983)
- Gonzaga Univ. v. Doe, 536 U.S. 273 (2002) (statute must contain rights-creating, individualized language to support §1983 claim)
- Wilder v. Va. Hosp. Ass'n, 496 U.S. 498 (1990) (Spending Clause Medicaid provision recognized as creating a private right enforceable under §1983)
- Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1 (1981) (Spending Clause: conditions on federal funds must be unambiguous)
- Talevski v. Health & Hosp. Corp. of Marion Cnty., 6 F.4th 713 (7th Cir. 2021) (applying Blessing to find Medicaid-based rights enforceable under §1983)
- O.B. v. Norwood, 838 F.3d 837 (7th Cir. 2016) (district courts may order states to "do something" when statutory duties are unmet and craft equitable relief)
- Armstrong v. Exceptional Child Ctr., Inc., 575 U.S. 320 (2015) (courts cautioned in implying §1983 remedies in Spending Clause contexts)
- Miller v. Whitburn, 10 F.3d 1315 (7th Cir. 1993) (Medicaid state-plan provisions can create privately enforceable rights)