October 2, 2022

A federal court’s ruling that a Chicago hospital can sue the state Medicaid agency for allegedly failing to ensure proper payment from private insurers sets the stage for a deluge of similar suits from providers—if the nation’s highest court preserves Medicaid participants’ right to sue.

The U.S. Court of Appeals for the 7th Circuit on Tuesday ruled that St. Anthony Hospital can sue the Illinois Department of Healthcare and Family Services over allegations the state failed to adequately oversee the seven insurance companies it contracted as managed-care organizations. The panel overturned a lower court and decided St. Anthony Hospital “alleged a viable claim for relief” and had a right to sue under federal civil rights law. The not-for-profit facility claims it is missing more than $20 million in payments from these insurers and seeks an injunction to compel them to process outstanding claims.

Provider complaints about late payments from Medicaid managed care carriers are common. But lawsuits seeking to compel states to enforce contracts with insurers are not, said Tim Jost, a professor emeritus at Washington and Lee University School of Law.

“I would imagine that other providers would try to sue under the same theory,” Jost said. In the majority of states that have privatized their Medicaid program, most providers complain of payment problems from insurers, he said.

The St. Anthony Hospital suit relies on section 1983 of the Civil Rights Act of 1871, which protects individuals’ federal rights against illegal actions by state officials and allows parties to sue to protect those rights. Medicare enrollees have a statutory right to sue, but Medicaid beneficiaries have long relied on section 1983 to enforce their rights.

“Most of the disputes between providers and payers are either about the timeliness of payments or whether they’re going to be paid at all for particular services,” said A.J. Barbarito, an associate at the law firm Frier Levitt’s life science litigation practice group. “This opens the door for providers to bring section 1983 actions against states for timely payment under Medicaid.”

Much of the precedent for this case comes from another decision the 7th circuit appeals court made last year. The family of dementia patient Gorgi Talevski sued Health and Hospital Corporation of Marion County, Indiana, alleging the public nursing home violated federal Medicaid law by medicating and then discharging Talevski. Under federal law, Medicaid providers cannot use chemical restraints or transfer patients without consent.

The Talevski family claimed they had the right to sue Indiana under section 1983. In May, the Supreme Court agreed to review whether the family may sue the provider under that statutory provision. The high court will decide the Talevski case sometime this fall, and justices will likely conclude the family doesn’t have the right to sue, Barbarito said.

“For the most part, a conservative court is going to view section 1983 claims that expand the rights of individuals to sue the states, they’re going to look at those cases very skeptically,” Barbarito said. “Whereas liberal justices, liberal courts, tend to want to expand the rights of individuals against the state.”

Chief Justice John Roberts and Justices Clarence Thomas and Samuel Alito have argued in previous cases that Medicaid beneficiaries cannot sue states to enforce managed care plans’ commitments because they are not technically parties to the contract between the two entities. The justices have also argued that Congress authorizing federal spending on the public’s behalf doesn’t confer an individual right to sue over matters such as Medicaid benefits.

If the Supreme Court finds that the Talevski family does not have the right to sue under section 1983, justices would strip Medicaid beneficiaries and the providers that serve them of a means to protect their rights, said Sara Rosenbaum, a health law and policy professor at George Washington University. That would mark the end of cases like St. Anthony Hospital’s. “It would leave beneficiaries and providers with no remedy,” she said.

A ruling on the Talevski case would come at a consequential time for beneficiaries, providers and insurance companies that participate in Medicaid.

Medicaid enrollment has swelled to a record high of nearly 78 million after states paused removal of people from the public health program’s rolls during the COVID-19 federal public health emergency. That declaration is scheduled to end this month, although President Joe Biden’s administration will likely extend it for at least another 90 days.

Missouri, North Carolina and Oklahoma are among the latest states to contract with health insurance companies to administer their Medicaid programs. Forty-one states employ some form of Medicaid managed care, according to the most recent data from the Kaiser Family Foundation. This has created a growth opportunity for private insurers.

“This is part of the DNA of the Medicaid program,” Rosenbaum said. “You can’t have a trillion dollar program that ensures nearly 80 million people and not have to face some liability if you do things wrong.”

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