Hospitals’ Medicaid appeal options may be more limited after court ruling

A recent appeals-court ruling restricts options for hospitals seeking to use litigation to ensure prompt Medicaid payment.

The March 14 ruling by the U.S. Court of Appeals for the Seventh Circuit in Saint Anthony Hospital v. Whitehorn essentially states that hospitals do not have a legal right to sue state Medicaid programs under federal law to obtain timely payment.

Chicago-based Saint Anthony Hospital, a safety-net facility, brought litigation against the state of Illinois in April 2020 over a lack of timely payments from Medicaid managed care organizations (MCOs), which constitute the large majority of Medicaid coverage in the state. The hospital said reimbursement routinely is delayed by anywhere between 90 days and two years. When the lawsuit was filed, the MCOs allegedly owed the hospital more than $20 million.

At issue was whether, under the Medicaid statute, Illinois was obligated to enforce the payment provisions of hospital contracts with Medicaid MCOs.

“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 court stated in the published opinion.

In a dissent, one judge noted that Saint Anthony’s days cash on hand had dwindled from 72 to two between 2015 and 2019.

“We should understand this lawsuit is a desperate measure,” the dissent states.

Initial court decisions

In a winding series of decisions on the case, the state first secured a dismissal in federal district court. The 2021 ruling stated, “The Hospital asserts that it has a right to prompt payment, and that the state has a duty to make sure that the MCOs pay as they should. And when reading the statute, that right simply isn’t there. … The statute sets prompt payment as a goal, but it stops short of creating a right to prompt payment for the providers.”

Saint Anthony appealed to the Chicago-based Seventh Circuit and prevailed the next year in a 2-1 panel decision, thus winning the right to pursue its legal claims.

“We agree with Saint Anthony that [federal law] grants providers a right to timely payment from the MCOs that the State must safeguard,” according to the initial appellate ruling.

The circuit court also wrote, “The State has tools available to remedy systemic slow payment problems — problems alleged to be so serious that they threaten the viability of a major hospital and 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 healthcare program.”

To illustrate that the concerns extended beyond a single hospital, the court noted that Rockford, Ill.-based Mercyhealth recently had announced it would stop accepting patients from four of the seven in-state MCOs. The health system reported losing $30 million per year on Medicaid patients.

A twist in the case

The Supreme Court intervened before Saint Anthony could get back to pursuing its case in district court. In June 2023, the high court accepted the state’s request to vacate the Seventh Circuit’s decision and remand the case to that court.

The decision hinged on a separate case decided that same year, Health and Hospital Corporation of Marion County v. Talevski.

In that case, the Supreme Court ruled individuals had a right to sue publicly owned nursing homes for alleged violations of the Medicaid statute. But the court also said determining whether that option pertains in other cases and circumstances involves “a demanding standard.” Lower courts should more closely scrutinize those circumstances using the criteria described in the opinion, the Supreme Court indicated.

Hence the remand back to the Seventh Circuit, which at first continued to support Saint Anthony’s position. In a 2024 decision, the same panel as in 2022 ruled 2-1 that the key statutory conclusions from its prior ruling remained, and thus Saint Anthony had a right to litigate the case.

The statute “confers on plaintiff a right enforceable … to have state officials use their powers to assure timely payments by MCOs,” the panel majority wrote. “Saint Anthony has plausibly alleged a violation of the right that could, if proven, support injunctive relief.”

A decisive setback

The tide turned after Illinois requested an en banc review by the full Seventh Circuit. In a 9-3 decision, the court said the hospital does not have a legal claim to prompt payment under federal law.

Written by Judge Michael B. Brennan, a Trump nominee who issued a dissenting opinion in the two earlier panel rulings, the court said the relevant statute is applicable only if there is a violation of an established federal right, not merely violation of a federal law.

Per the majority’s reading of the Medicaid statute, the timely-payment provision does not confer a federal right to healthcare providers. The court’s interpretation is that the right to prompt payment is contractual, not statutory, and thus efforts to secure remedies should be directed at the MCOs.

“If Congress intended to statutorily prescribe that providers receive prompt payments, it might have imposed a duty directly on MCOs to make timely payments” rather than leaving the matter to states’ discretionary oversight, the opinion says.

Three judges saw the issue differently.

“Congress provided sufficiently clear signals that [enforcing the timely-payment provision] is both a duty for the State and a right for providers,” Judge David Hamilton, an Obama nominee, wrote in the dissent.

The statute “gives providers like Saint Anthony a right to have State officials do their jobs by assuring that MCOs make timely payments,” according to the dissent.

Where it goes from here

Saint Anthony could seek a review by the Supreme Court and hope the court sees the situation as meeting the “demanding standard” it described in Talevski.

That effort partially could entail showing that other appeals courts have used a 1990 Supreme Court ruling as the context in which to bolster Medicaid payment-related requirements. However, the 1990 ruling may carry less weight after more recent decisions, including Talevski.

Separately, an ongoing Supreme Court case about abortion access includes some of the same issues concerning enforcement of federal rights in Medicaid, albeit focused on beneficiaries rather than providers. A decision for the plaintiffs could breathe new life into the Saint Anthony case and related future cases.

In his written dissent, Hamilton indicated the Saint Anthony case may have reached its conclusion, calling the latest ruling “probably the end of the line.”

“Perhaps Saint Anthony and other distressed hospitals and providers might find a more receptive audience in Congress,” he wrote.

The Seventh Circuit’s majority opinion stated that Saint Anthony can pursue, as a separate case, its complaint about a lack of transparency regarding how both fee-for-service and MCO payments are calculated in the Illinois Medicaid program. The state has said it will not seek to prevent the hospital from going that route, which theoretically it could try to do because the matter already came before a court as part of the recently decided case.