The U.S. Seventh Circuit Court of Appeals has overturned an earlier ruling from some of its members, now finding Saint Anthony Hospital can't sue Illinois to force the state government to increase and expedite payment for Medicaid claims.
The new 9-3 ruling came from a so-called en banc panel of the court, including 12 of the court's judges.
In April 2024, Judges David Hamilton and Diane Wood — against the objection of Judge Michael Brennan — found a recent U.S. Supreme Court ruling didn’t change their conclusion that federal law requires Illinois to ensure hospitals and health care organizations serving Medicaid patients are paid in full and in a reasonable amount of time by its managed care organization, a network of private insurers known as MCOs.
“We read the Medicaid Act … as ensuring that providers like (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 at the time.
The dispute dates to 2020, when Saint Anthony sought permission to sue the state because it believed Blue Cross Blue Shield and other MCOs “repeatedly and systematically delayed and reduced Medicaid payments.” Saint Anthony serves as one of 40 Illinois “safety net” hospitals, which generally provide health care services to poorer communities and lower income patients who may rely on government aid, compared to other hospitals.
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 are delivered under Medicaid. The MCO keeps the difference between its state income and expenses paid to providers. But Saint Anthony asserted payments through MCOs have come in slow and allegedly less than full. The hospital claims the situation forced it to burn through nearly all its cash reserves.
After the April 2024 ruling, Illinois moved to dismiss the complaint for failure to state a claim and asked the full U.S. Seventh Circuit to consider its request.
Brennan wrote the new opinion, issued March 14; Judges Diane Sykes, Frank Easterbrook, Michael Scudder, Amy St. Eve, Thomas Kirsch, John Lee, Doris Pryor and Joshua Kolar concurred.
Judge Hamilton dissented, along with Judges Candace Jackson-Akiwumi, and Nancy Maldanado.
Echoing his April 2024 dissent, Brennan noted hospitals have independent contractual relationships with MCOs and said Saint Anthony’s agreements specifically include arbitration clauses. He said the court agreed to hear the case en banc because “whether a hospital can sue a state in federal court to obtain relief and thereby alter the administration of a multibillion-dollar Medicaid program is an enormous question.”
The dominating U.S. Supreme Court precedent comes from its 2023 opinion in Hospital Corporation of Marion County v Talevski, in which a 7-2 majority ruled patients can sue nursing homes for enforcement of Medicaid guarantees as privately enforceable rights. The decision rejected Indiana state officials arguing the Federal Nursing Home Reform Act gave the ability to enforce those provisions exclusively to states through administrative processes.
By contrast, Saint Anthony sued under the Medicaid Act’s timely payment provision, which Brennan said was not found to contain “rights-creating, individual-centric language with an unmistakable focus on the benefited class,” whereas the nursing home law “repeatedly and explicitly referred to rights” focusing on individual parties
“The timely payment provision is not unmistakably focused on providers like Saint Anthony,” Brennan wrote. “It is instead expressly focused on what a contract between a state and MCO must contain — namely, the default 30-day/90-day payment schedule.”
That framing puts the primary concern on a contractual relationship between the state and MCOs, Brennan wrote, not federal rights given to medical providers. Saint Anthony argued the provision stipulates the contracts between states and MCOs shall provide MCOs pay providers, but the court rejected the hospital’s conclusion that such a clause established Congress’ intent for providers to be direct beneficiaries.
“The statutory text of the timely payment provision speaks only to contracts between states and MCOs,” Brennan wrote. “Nobody disputes Saint Anthony benefits from Illinois including payment schedules in its contracts with MCOs. But students benefit from (the Family Educational Rights and Privacy Act) limiting funding to institutions that obtain consent before releasing records, too. A beneficiary is not necessarily a right-holder.”
Brennan said Congress could’ve imposed a prompt payment duty on MCOs, noting there are other obligations such as documentation of providers or anti-discrimination rules. When it instead required prompt payment provisions in contracts with states, the panel said, it gave rights to contractual obligations between only those parties. The panel further said agreeing with Saint Anthony would strip the state of its discretionary authority to terminate contract with MCOs.
While acknowledging the hospital’s policy arguments for being allowed to sue the state, the court said the legislative branch has exclusive province over creating new pathways for litigation and said ruling in the hospital’s favor would “raise serious federalism concerns” by potentially upending a system in which a state agrees to abide by a federal program in order to qualify for funding.
“It would turn federal trial courts into de facto Medicaid claims processors,” Brennan wrote. “Thousands of claims worth millions of dollars could be routed to the district courts. Thrusting federal tribunals into payment processing is a dubious solution to the alleged late-payment problem. This is especially so when Congress has provided the states with the tools to address MCOs’ failures to comply with contractual terms — including payment schedules.”
The full panel also addressed a procedural issue. With the state’s motion to dismiss pending much earlier in the litigation, Saint Anthony sought to supplement its complaint, alleging a violation of due process rights because it said Illinois didn’t provide information on calculating fees under the fee-for-service program while also failing to ensure MCOs provided the same data.
U.S. District Judge Steven Seeger ultimately denied that motion. A Seventh Circuit panel agreed the denial was an abuse of judicial discretion and maintained that position after the Supreme Court remanded the complaint, but with the earlier appellate opinion ultimately vacated the en banc panel had to resolve the question.
Although the panel affirmed Seeger’s ruling, finding the “proposed supplement would have done far more than update the case,” Brennan wrote, it did not do so based on the state’s position the new arguments would be futile. Rather, Saint Anthony would be allowed to proceed with that claim in separate litigation.
In dissent, Hamilton said it was important to clarify “Saint Anthony is not seeking and could not seek damages from the state or the defendant state officials named in their official capacities,” but instead is pursuing “a federal injunction to make state officials do what the law requires them to do anyway.”
Hamilton also called the lawsuit “a desperate measure” noting that in February 2020 MCOs owed Saint Anthony at least $20 million. He said a proper understanding of federal law is that states have a duty to ensure MCOs actually pay, not just placing prompt payment clauses in contracts.
“The Medicaid Act is an exercise of Congress’ power under the Spending Clause, which allows Congress to provide states with strings-attached funding,” Hamilton wrote. “Such ‘strings’ can create rights for intended beneficiaries of that funding.”
He framed as “mistaken” the majority’s reading of Talevski and said hospitals are the intended beneficiaries of the law’s prompt payment term as “no one benefits more directly from a requirement for timely payments to providers than the providers themselves: they are the ones who receive the money.”
Detailing the statutory and applied history of Medicaid funding, Hamilton noted how states were directly responsible for prompt payments until the advent of MCOs and said the payment schedule assigned to MCOs is borrowed from the original law imposing the same “schedule on state payments directly to providers in the fee-for-service system.”
Hamilton said MCOs are strongly incentivized to delay and reduce payments and said the majority opinion, along with Illinois’ officials arguments, “is that the statute requires only that a provision in the paper contract specify the timely payment obligation. The state may then, at its unfettered discretion, try to ensure the MCOs’ compliance — or not.”
Addressing federalism concerns, Hamilton said the federal government hasn’t ever deployed the “doomsday power” of cutting off all Medicaid funds to a state and argued “district courts have ample means to require state officials to do their jobs without taking over administration of claims.” While acknowledging the intent of MCOs was relieving administrative burdens on state governments, and that the relief Saint Anthony seeks could reduce some of those benefits, the Medicaid Act “does not allow states to wash their hands of effective oversight.”
Hamilton agreed with the majority’s stance on Saint Anthony’s request to supplement its complaint.
Saint Anthony did not respond to a request for comment.
The Illinois Department of Healthcare and Family Services said it was reviewing the matter.