CHICAGO — A federal appeals court has handed a group of Illinois nursing home operators a win in their fight to demand Medicaid payments from the state, upholding a Chicago federal district judge who had also sided with the care facilities.

The August decision was authored by U.S. Seventh Circuit Court of Appeals Chief Judge Diana P. Wood, with Circuit Judges Joel M. Flaum and Diane S. Sykes concurring.

The plaintiffs included 10 groups who purchased and took over operation of existing nursing homes in Illinois in 2012. 

According to the court of appeals opinion, the majority of the nursing homes' patients were covered under Medicaid. The Illinois Department of Healthcare and Family Services (IDHFS) administers state Medicaid funds, and under state law, the IDHFS is supposed 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." 

However, the plaintiffs claimed in their lawsuit that their reimbursements were not properly adjusted, which allegedly cost the operators an estimated $12 million in unreimbursed costs. The operators named Felicia Norwood, IDHFS director, as the defendant.

The operators claimed in their 2016 suit that IDHFS violated the law by failing to calculate the reimbursements. The plaintiffs asked the court for a declaration that their rights had been violated, that Norwood "be compelled to publish the methodology and justifications supporting IDHFS’s refusal to treat the operators as new owners" and issue an injunction requiring the IDHFS to "establish and process the appropriate reimbursement rate(s)."

Norwood filed a motion to dismiss, arguing federal Medicaid law "does not support a private right of action" under and that the U.S. Constitution's 11th Amendment bars the plaintiffs from seeking money from the state.

The Medicaid Act requires states use a public plan for medical payment rates, which must come with a notice and provide an opportunity for comment. Prior to a1997 amendment, the Medicaid Act stated Medicaid reimbursement rates must be "reasonable and adequate." However, when Congress amended the act, all references to "reasonable and adequate" rates were eliminated. Norwood argues this means the operators "no longer enjoy any substantive rights under the act."

The district court denied Norwood's motion and concluded that though the language of the law had been changed, it was "immaterial for its purposes" and still "contains a clear and unambiguous right, though one that is procedural only." 

The district court concluded the 11th Amendment did not bar the lawsuit since the operators were "alleging an ongoing violation of federal law and the relief they requested did not necessarily embrace money damages." The defense appealed.

Wood, however, sided with the district court, finding that its "language is clear" when it reads that "'a state plan for medical assistance must' provide the public process described in the law." 

Additionally, Wood found the 11th Amendment does not bar the suit because the operators are seeking "prospective, non-monetary relief" and their main request is for a declaration and injunction that will require the IDHFS director to provide the public process in setting medical rates.

Wood added in the decision that the 11th Amendment may bar some of the relief the plaintiffs are seeking if it is found that the operators were underpaid, but that this decision is for the district court to resolve.

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Illinois Department of Healthcare and Family Services U.S. Court of Appeals for the Seventh Circuit U.S. District Court for the Northern District of Illinois

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