A split federal appeals court has ruled that Saint Anthony Hospital and other so-called "safety net" health care providers can use federal Medicaid law to potentially sue the state for alleged underpayments and slow payments for services provided to patients using Medicaid.
On April 25, a three-judge panel of the U.S. Seventh Circuit Court of Appeals said a recent ruling from the U.S. Supreme Court did not change their conclusion that federal law requires the state to ensure hospitals and health care organizations serving Medicaid patients are paid in full and in a reasonable amount of time by the state's network of private insurers, known as managed care organizations (MCOs).
"We read the Medicaid Act ... as ensuring that providers like plaintiff (Saint Anthony Hospital) have contractual rights against MCOs, but also federal rights to have state officials use the State's contractual rights and do their jobs by implementing procedures and systems to ensure that MCOs actually make the promised timely payments," the majority decision said.
Circuit Judge Michael B. Brennan dissented, saying his colleagues badly misinterpreted the Medicaid Act's so-called "timely payment provision" to give health care providers, like Saint Anthony, the right to sue and potentially impose massive new risks and obligations on the state.
"Granting states oversight of MCOs could serve several purposes, but one of them is not to legislatively require Illinois to enforce the prompt payment provision through anything other than the contractual enforcement mechanisms provided in the Medicaid Act," Brennan wrote.
"Imposing reporting and oversight responsibilities does not show that Congress prescribes a privately enforceable duty on states to guarantee that healthcare providers are timely paid."
The dispute has simmered in federal court in Chicago since 2020.
At that time, Saint Anthony petitioned the courts for permission to sue the state because it believed Blue Cross Blue Shield and other MCOs contracted by the state to manage Medicaid payments "have repeatedly and systematically delayed and reduced Medicaid payments."
Saint Anthony serves as one of 40 "safety net" hospitals in Illinois, which generally provide health care services to poorer communities and lower income patients who may rely on government aid, compared to other hospitals.
Since 2006, Illinois has relied upon a network of private insurer MCOs to process and pay Medicaid claims from such hospitals and health care providers. According to court documents, at the time Saint Anthony filed suit, Illinois $12.7 billion on managed care, up from $251 million in 2010. During that same timeframe, however, the number of MCOs dropped from 12 to just seven, court documents said.
Under the program, the state pays a flat, per-patient monthly fee to a private insurer, and the insurer then pays the providers for whichever services it delivers under Medicaid. The MCO then keeps the difference between its state income and expenses paid to providers.
Saint Anthony, however, has asserted the state's MCO system has left it short funds, as payments through MCOs have come in slow and allegedly less than full. The hospital claims the situation allegedly forced the hospital to burn through nearly all of its cash reserves.
Saint Anthony claims this alleged systemic underpayment violates the Medicaid Act, which requires 90% of Medicaid claims to be paid within 30 days and 99% within 90 days.
While Saint Anthony can pursue MCOs directly for payment, the hospital has claimed the responsibility for ensuring payment under the Act ultimately lies with the state.
A federal district court judge disagreed, and dismissed their lawsuit.
On appeal in 2022, however, the Seventh Circuit sided with Saint Anthony.
That decision was vacated by the U.S. Supreme Court in 2023. The high court directed the Seventh Circuit judges to take another look at the case, in light of the Supreme Court's holding in a different case, but which similarly addressed the abilities to sue under the Medicaid Act.
In that case, known as Hospital Corporation of Marion County v Talevski, a 7-2 Supreme Court majority ruled patients have a right to sue nursing homes for enforcement of their Medicaid guarantees as privately enforceable rights. The decision shot down contentions from Indiana state officials that the Federal Nursing Home Reform Act gave the ability to enforce those provisions exclusively to the states through their administrative processes.
That decision had also upheld a ruling from a Seventh Circuit panel, which had sided with patients.
In the Saint Anthony case, the majority said its opinion has not changed on the belief that the Medicaid Act's timely payment provisions similarly empower hospitals and healthcare providers to sue the state for enforcement of their rights to get paid promptly and as close to as full as possible.
The majority said it reached this decision recognizing a final decision in favor of Saint Anthony could result in a court order requiring the state to make substantial changes to its Medicaid claims processing system.
But the majority said the stakes in the matter are also large for Saint Anthony Hospital and its patients.
"This is a hard case with high stakes for the State, for Medicaid providers, and especially for Medicaid patients," the majority wrote.
They added: "The State has tools available to remedy systemic slow and short payment problems - problems alleged to be so serious they 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."
Brennan, though, indicated the decision represented overreach on the part of his colleagues.
Unlike the law in Talevski, Brennan said the Medicaid Act provisions relied upon by Saint Anthony to back its lawsuit do not explicitly include any so-called "private right of action'" clearly empowering them to directly sue the state - much less over a claim that could require the state to rework its entire Medicaid system.
Brennan noted the value of the state's contracts with the seven MCOs is $63 billion, which he described as "the largest single procurement in Illinois history."
He said a private right of action to sue must be clearly granted under laws, like Medicaid, which were enacted by Congress under the so-called Spending Clause of the U.S. Constitution.
"In those rare cases in which this court has recognized a private right of action under Medicaid, none has imposed a duty on states as broad in scope, ongoing in nature, and difficult to enforce as here," Brennan wrote. "Nor has any other federal circuit ever recognized a state's privately enforceable duty to guarantee timely payment under (the Medicaid Act).
"To find such a new and expansive duty ... stretches that statute, doing so in the context of Spending Clause legislation where Congress must 'unambiguously' confer an individual right."
Saint Anthony is represented in the action by attorneys Michael L. Shakman, Edward W. Feldman, William J. Katt and Mary Eileen Cunniff Wells, of the firm of Miller Shakman Levine & Feldman, of Chicago.
The state of Illinois is represented by the office of Attorney General Kwame Raoul.