Appeals Court Reinstates Lawsuit Against State Medicaid Administrators
UPDATE: Citing this BGA article, two Illinois House committees have scheduled a July 20 joint hearing on Saint Anthony Hospital and the payments by insurance contractors to safety-net providers who serve Medicaid patients.
A federal appeals court Tuesday cracked open the door for safety net hospitals and frontline caregivers for the underserved to recover millions of dollars in Medicaid payments they say were delayed, reduced or denied altogether by the private insurers who manage Illinois’ system.
The U.S. Court of Appeals for the 7th Circuit ruled Saint Anthony Hospital “alleged a viable claim for relief” when it sued state officials for not adequately overseeing the insurance companies they contracted as managed care organizations.
The panel overturned a lower court decision to toss out the case and underscored widespread claims from hospitals and caregivers who say they have been driven to near bankruptcy by the failure to reimburse them fairly.
In their 63-page opinion in the case of Saint Anthony Hospital vs. Eagleson, Judges Diane P. Wood, Michael B. Brennan and David F. Hamilton cited the conclusions of a four-month Better Government Association investigation, “Milking Medicaid.”
The series revealed a system largely bereft of government oversight in which the for-profit insurance companies boosted profits by routinely denying and reducing reimbursements to providers who treat low-income families, foster children, pregnant women and the elderly.
The result is a state Medicaid program run as an insurance industry profit center, while service for the needy falters, the series revealed. The four nationwide insurance companies — called managed care organizations, or MCOs — were paid a record $16 billion from taxpayers in 2020.
“If Saint Anthony can support its factual allegations about systematically late and inadequate payments, we believe the district court could exercise its equitable discretion to fashion effective relief,” the appellate panel concluded.
“To sum up, Saint Anthony has alleged a viable right … to have (the state Department of Healthcare and Family Services) HFS act to try to ensure timely payments from MCOs, and that right is enforceable … against HFS Director (Theresa) Eagleson in her official capacity. We reverse. ”
Sara Rosenbaum, a George Washington University law and health policy professor, said Tuesday’s appellate court ruling was expected and aligned with numerous other cases that hold state Medicaid agencies responsible for the performance of their insurance contractors.
“It doesn’t matter that the state has brought in the jobber to manage its Medicaid administration. If the hospital’s entitled to get paid, and it’s not getting paid, that’s the state’s problem,” Rosenbaum said.
“The ruling is very significant for health care providers. It’s just not legally some sort of major breakthrough,” she added. “States have been sued for 30 years now, when their managed care contractors don’t perform. The state says, ‘No, no, you’ve got to look to the plan for payment; we’re not liable.’ And the answer from the courts is, ‘Nope,’ it doesn’t stop being state action just because you have a jobber.”
But Rosenbaum and other experts noted that the U.S. Supreme Court is currently considering a separate appellate ruling out of Indiana, called Talevski v. Health and Hospital Corp., that would limit the ability of private parties to sue states to enforce Medicaid funding restrictions.
“If the Supreme Court accepts this argument, and there is a very real possibility that it will, this case will effectively be overruled,” said Timothy Jost, a professor emeritus at the Washington and Lee University.
The court opinion highlights Illinois’ longtime lack of enforcement over the MCOs when they fail to pay medical providers, said Barbara Otto, CEO of Smart Policy Works, a consulting company that assists community-level care providers.
“In other states, the Medicaid agency takes a stronger hand in overseeing the MCOs,” Otto said. “Part of the problem in Illinois is the state has done a wholesale handoff to the MCOs — we’ve outsourced it.
“The lack of a firm hand on the steering wheel has led to years of late payments and providers who have had to dip into their reserves to stay afloat,” she said. “Now, when Illinoisans really need care the most, in a post-pandemic world, those providers don’t have the reserves to rely on.”
Eagleson declined an interview request.
Department spokesman Evan Fazio would not discuss whether the state plans to appeal to the Supreme Court or to the entire appellate court. But in a brief email, Fazio pointed out that one judge on the three-judge panel dissented in part from the majority ruling, arguing that Saint Anthony Hospital could have privately enforced its contractual rights against the MCOs directly through arbitration or litigation.
“HFS notes it was a 2-1 decision,” Fazio said in his email. “We are reviewing the opinion, and we will evaluate our options.”
Citing this BGA article, two Illinois House committees have scheduled a July 20 joint hearing on Saint Anthony Hospital and the payments by insurance contractors to safety-net providers who serve Medicaid patients.
“The purpose of managed care was supposed to be to help the constituents, not to help the insurance companies better themselves,” said state Rep. Mary Flowers, D-Chicago, who called for the hearing. She said panelists will include medical providers, insurance contractors and officials from the Department of Healthcare and Family Services.
MCOs promised to save money, improve care
Since 2011, Illinois lawmakers have promised to save taxpayer dollars, improve care for low-income patients and give them more choices when selecting doctors and clinics by privatizing its Medicaid program, which was completed in 2018.
Before then, the state paid each doctor, clinic or hospital a fee for every Medicaid service rendered. Now, the state contracts with private insurance companies to make reimbursement decisions.
Under their current contracts with the state, four for-profit MCOs are supposed to quickly reimburse practitioners who care for Medicaid patients. Medicaid rules say the MCOs must pay 90% of providers’ uncontested claims within 30 days and 99% within 90 days.
But Saint Anthony Hospital, a safety net hospital on Chicago’s Southwest Side, and many providers allege the MCOs deploy bureaucratic dodges and opaque billing error codes to skirt the federal rule, make partial payments, pay years late or deny claims without explanation.
During the first six months of 2021, three of the MCOs — Meridian Health Plan of Illinois, Aetna Better Health of Illinois and Molina Healthcare of Illinois — reported a combined total revenue of $5.2 billion from their Illinois Medicaid contracts, from which they took $294 million in profits.
Those profits did not include hundreds of millions of dollars in management fees the MCOs paid to their parent companies, Centene Corp., CVS Health and Molina Health, respectively. None of those firms responded to BGA requests for comment.
Two years ago, Saint Anthony Hospital sued the state, alleging it had a responsibility to adequately oversee the MCO reimbursements.
Saint Anthony Hospital alleged in court the shortfalls severely stressed the 123-year-old West Side safety net facility. Because of MCO billing denials and delays, Saint Anthony Hospital said in court pleadings, its cash on hand decreased from $20 million in 2015 — enough to fund 72 days of operation — to $500,000 in 2019, which was sufficient to meet expenses for less than two days.
“This lawsuit was filed because the hospital was simply out of money to pay their doctors and providers,” said Michael Shakman, an attorney for Saint Anthony Hospital. “The insurance companies were not paying on time, not paying fully or not paying at all, and not telling you at all why they didn’t when they didn’t.”
The appeals court panel overturned a district court judge who ruled the hospital could have first arbitrated each billing claim against the insurance companies individually — a task providers said is costly, cumbersome and unachievable.
“That is really an impossible task: It means the hospitals have to become litigation machines to pursue each individual claim, rather than have the responsible state agency set standards and enforce them,” Shakman said.
“Saint Anthony may not be alone in its experience,” the panel of federal judges said, citing BGA reporting on Mercyhealth, the state’s largest Medicaid provider outside Cook County. “Illustrating the potential gravity of the MCO payment problems, in April 2020, Mercyhealth announced it would stop accepting Medicaid patients covered by four of the seven MCOs in Illinois.”