Saint Anthony Hospital v. Theresa A. Eagleson

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 21-2325
S AINT A NTHONY HOSPITAL,
Plaintiff-Appellant,
v.
THERESA A. EAGLESON , in her official capacity
as Director of the Illinois Department of
Healthcare and Family Services,
Defendant-Appellee,
and
M ERIDIAN HEALTH PLAN OF I LLINOIS , INC ., et al.,
Intervening Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:20-cv-02561 — Steven Charles Seeger, Judge.
____________________
On Petitions for Rehearing and Rehearing En Banc
____________________
DECIDED S EPTEMBER 8, 2022
____________________

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2 No. 21-2325
Before WOOD, HAMILTON , and BRENNAN , Circuit Judges.
On consideration of the petitions for rehearing en banc
filed August 2, 2022 by Defendant-Appellee and Intervening
Defendants-Appellees, no judge in active service has re-
quested a vote on the petitions for rehearing en banc.* Judges
Wood and Hamilton voted to deny panel rehearing; Judge
Brennan voted to grant panel rehearing.
Accordingly, the petitions for rehearing en banc filed Au-
gust 2, 2022 by Defendant-Appellee and Intervening Defend-
ants-Appellees are DENIED.
HAMILTON , Circuit Judge, joined by WOOD, Circuit Judge. In
view of the petitions’ exaggerated accounts of the panel’s de-
cision, a few comments are in order. First, the panel opinion
imposes no new duties on either State officials or managed
care organizations. Nor does the panel opinion offer any path
toward monetary liability for the State of Illinois or its offi-
cials. Only injunctive relief is at stake here: possible injunctive
relief to push State officials to comply with duties already im-
posed by the Medicaid Act.
The panel recognizes the potential complexity and chal-
lenge of this case for the district court, but also its importance
for plaintiff and other providers of health care to Medicaid
patients, as well as for the patients themselves. The panel con-
cluded that the case should not be dismissed on the pleadings
but should proceed toward substantial discovery. That course
will allow the district court to consider actual facts rather than
* Judge St. Eve did not participate in the consideration of these peti-
tions for rehearing en banc.

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No. 21-2325 3
just allegations in weighing whether injunctive relief is appro-
priate and what forms it might take.
Finally, the parties and all members of the panel recognize
that the Supreme Court may reshape applicable law in Talev-
ski v. Health and Hospital Corp., 6 F.4th 713 (7th Cir. 2021), cert.
granted, 142 S. Ct. 2673 (2022). While that case proceeds in the
Supreme Court, however, the stakes of this case and the delay
plaintiff has already experienced in the courts weigh in favor
of allowing the case to proceed in the district court in parallel
with the Supreme Court’s consideration of Talevski. Hence we
are not holding these petitions but issue the mandate with this
order denying them.

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4 No. 21-2325
BRENNAN, Circuit Judge, dissenting from the denial of re-
hearing.
I would grant panel rehearing of this case for the reasons
stated in my concurrence in part and dissent in part, as well
as those argued in the petitions for panel rehearing filed by
the State of Illinois and the intervening managed care organi-
zations (MCOs).
A.
The full context of this dispute shows how far the majority
opinion goes.
Saint Anthony has provider contracts with the MCOs in
the Illinois managed care program. Those contracts require
the Hospital to submit any dispute arising under them to ar-
bitration. So, arbitration is the path for the Hospital to secure
relief on its payment terms. Saint Anthony asked to stay the
arbitration of its contract and brought this lawsuit, asking that
42 U.S.C. § 1396u-2(f) be interpreted to recognize a new stat-
utory duty. Only then did a route appear outside of the pro-
vider contract and the bargained-for dispute resolution of ar-
bitration.
As seen in literature about private enforcement of the
Medicaid Act under 42 U.S.C. § 1983,1 circuit court enforce-
ment of Medicaid provisions since Gonzaga University v. Doe,
536 U.S. 273 (2002), has never involved § 1396u-2(f). Now, not
only has a private right of action been recognized for the first
time as to § 1396u-2(f)—a conclusion I agree is compelled
1 J ANE P ERKINS , N AT ’L H EALTH L. P ROGRAM , P RIVATE E NFORCEMENT
OF THE M EDICAID A CT UNDER 42 U.S.C. § 1983 (2021), https://health-
law.org/wp-content/uploads/2021/07/Fact-Sheet-1983-Enforcement.pdf.

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No. 21-2325 5
under the Blessing factors—but the State is obliged under that
Medicaid statute to proactively guarantee timely managed
care payments to healthcare providers. That obligation is
meant to be enforced under the arbitration clause pursuant to
the MCO provider contracts.
I will not repeat the reasons why an administrative pre-
requisite that a managed care contract includes deadlines is
so different from a privately enforceable statutory duty to
proactively guarantee timely managed care payments. To me,
the text of § 1396u-2(f), the silence of its neighboring statutes
as to a duty requiring state action, and the statutory incongru-
ence created by the majority opinion’s interpretation are re-
vealing. They show that the text-based interpretation of
§ 1396u-2(f), in which the district court and I engage, is at least
plausible.
A statute with more than one plausible interpretation of
its text is ambiguous. Graham Cnty. Soil & Water Conservation
Dist. v. United States ex rel. Wilson, 545 U.S. 409, 419 (2005).
And the Supreme Court requires that before Spending Clause
statutes impose duties on states, they must do so “unambigu-
ously,” “speak[ing] with a clear voice,” Pennhurst State Sch. &
Hosp. v. Halderman, 451 U.S. 1, 17 (1981), and in statutory lan-
guage that is “unmistakably clear.” Gonzaga, 536 U.S. at 283
(quoting Will v. Mich. Dep’t of State Police, 491 U.S. 58, 65
(1989)). Adhering to these Supreme Court pronouncements, I
would not conclude that § 1396u-2(f) imposes an enforceable
duty.
B.
These two petitions for rehearing articulate well the bur-
dens, practical problems, and changes in decisionmakers

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6 No. 21-2325
resulting from the majority opinion’s interpretation of
§ 1396u-2(f).
The State points out the heavy burdens this decision will
place on various players in the complex world of Medicaid.
The interpretation of § 1396u-2(f) presents “a question of first
impression … with immense practical importance for Medi-
caid managed care programs nationwide, involving dozens of
States and hundreds of billions of dollars in spending each
year.” The State fears the majority opinion will “impose on
States a huge and unprecedented obligation to duplicate the
administrative functions that Congress intended to be ful-
filled by MCOs.” The State also notes the impact this decision
will have on federal courts to resolve the merits of “payment
disputes between MCOs and providers as a predicate to de-
termining whether States are liable for failing to ensure the
MCOs are making payments on a timely basis.” Medicaid
managed care programs “serve more than 50 million individ-
uals and involve annual expenditures of hundreds of billions
of dollars.” The State is concerned that “state Medicaid direc-
tors will have to decide whether to establish an administrative
infrastructure to duplicate the claims-processing functions
performed by MCOs or risk liability” under § 1396u-2(f).
The MCOs are worried that this decision “funnel[s] a sub-
set of MCO-provider payment disputes into litigation, instead
of arbitration, [which] will severely burden all interested par-
ties (including federal courts).” Under this decision, “federal
judges will become the arbiters of any MCO-provider dis-
putes that providers can frame as involving ‘systemic fail-
ure.’” The foundational question of whether providers should
address disputes with MCOs through § 1983 claims or arbi-
tration will arise. The MCOs lament the lack of guidance as to

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No. 21-2325 7
“whether and when there is a ‘systemic failure’ sufficient to
justify” a § 1983 claim. Rather than “costly litigation over the
nature and scope of claims,” the MCOs believe these disputes
“could and should have been submitted to cost-effective arbi-
tration.”
The MCOs also point out the practical problems with the
majority opinion’s reading of § 1396u-2(f). For courts to deter-
mine if the predicate for State intervention—“systemic fail-
ures by MCOs to comply with the 30/90 payment schedule”—
is satisfied, they have to determine “which claims (how
many? what proportion?) are unpaid, paid late or paid with
less transparency.” These “determinations fall squarely
within the broad arbitration provision in each provider con-
tract,” including Saint Anthony’s.
To say the majority opinion only provides a new way un-
der § 1983 to enforce existing obligations does not mitigate the
substantial changes and alterations to the Medicaid landscape
this decision creates. The “new world” of an enforceable duty
under § 1396u-2(f) will require a huge amount of adaptation,
new systems, and working through unseen problems, as the
obligations on various players change and decisionmaking is
shifted away from arbitrators to federal courts.
Because this decision will create tremendous burdens and
complex practical problems, and federal courts will now have
to consider and decide payment disputes between MCOs and
providers that can be framed as involving “systemic failure,”
the proper interpretation of § 1396u-2(f) is a question of ex-
traordinary significance which we should rehear.

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8 No. 21-2325
C.
So why not hear this case en banc? Because of the immi-
nent possibility this area of law will change markedly.
This case may well merit rehearing en banc. Given the bur-
dens and change in decisionmakers, it poses “a question of
exceptional importance” under Federal Rule of Appellate
Procedure 35(a)(2). And under the requirements before
Spending Clause legislation imposes a duty on a state, “the
panel decision conflicts with a decision of the United States
Supreme Court” under Federal Rule of Appellate Procedure
35(b)(1)(A).
But since this case was argued in February, and before it
was decided in July, the Supreme Court granted certiorari in
another case from our court, Talevski v. Health & Hosp. Corp. of
Marion Cnty., 6 F.4th 713 (7th Cir. 2021), cert. granted, 142 S. Ct.
2673 (2022), argument scheduled for November 8, 2022. Talevski
held that nursing home residents have privately enforceable
rights under 42 U.S.C. §§ 1396r(c)(1)(A)(ii) and (c)(2)(A) to not
be chemically restrained for disciplinary or convenience pur-
poses, and to not be transferred or discharged from a facility
unless certain criteria are met. 6 F.4th at 720.
Talevski concerned different Medicaid statutes. But one of
the two questions presented on which the Supreme Court
granted certiorari is broad: “[w]hether, in light of compelling
historical evidence to the contrary, the Court should reex-
amine its holding that Spending Clause legislation gives rise
to privately enforceable rights under Section 1983.” Petition
for a Writ of Certiorari at i, Health & Hosp. Corp. of Marion Cnty.
v. Talevski, 142 S. Ct. 2673 (2022) (No. 21-806). The Court can
answer this question in ways that will greatly impact the

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No. 21-2325 9
decision in this case. Even Saint Anthony admits in its re-
sponse to the petitions for rehearing en banc that “[i]f the Su-
preme Court significantly changes its precedent on Medicaid
private rights of action, those changes could affect the major-
ity’s opinion in this case.”
If our court heard this case en banc, we would proceed
parallel with the Supreme Court’s consideration of Talevski
and expend valuable court time and resources. Given the
question presented quoted above, we would need to predict
how the Supreme Court thinks that issue should come out, a
task broader than the arguments before us in this case. So, en
banc rehearing here likely would not be an efficient course
given the grant of certiorari in Talevski.
In the alternative, as the State suggests, I would hold these
petitions for rehearing pending the decision in Talevski. The
non-prevailing parties here may petition the Supreme Court
for a writ of certiorari, and even ask that Court for a stay. The
Supreme Court may hold such a petition pending the resolu-
tion of Talevski. Given the broad and deep impact of the ma-
jority opinion, it would be best to resolve these petitions for
rehearing with the counsel of Talevski, which could signifi-
cantly change the legal landscape governing the interpreta-
tion of § 1396u-2(f).
For these reasons, I respectfully dissent from the denial of
panel rehearing. I would grant the petitions for panel rehear-
ing and reconsider this decision, or in the alternative I would
hold these petitions for rehearing subject to the outcome of
Talevski.

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