Opinion ID: 6497990
Heading Depth: 3
Heading Rank: 3

Heading: Factor Three: Obligation

Text: The third Blessing factor asks whether section 1396u‐2(f) unambiguously imposes a binding obligation on HFS. This requires answering two questions: (1) what is HFS’s duty un‐ der the statute, and (2) is that duty mandatory? In a typical private right dispute, the emphasis is on the second question. See, e.g., BT Bourbonnais Care, 866 F.3d at 822. Section 1396u‐2(f) contains mandatory language, how‐ ever: “A [State contract] … with a medicaid managed care or‐ ganization shall provide that the organization shall make pay‐ ment to health care providers … on a timely basis….” 42 U.S.C. § 1396u‐2(f) (emphasis added). The double use of “shall” rebuts the notion that the State’s obligation is anything less than mandatory. But what exactly is the State’s obligation here? No. 21‐2325 23 Section 1396u‐2(f) requires the State’s contracts with the MCOs to require that the MCOs pay providers on the 30/90 pay schedule. HFS asserts, and the partial dissent agrees, that section 1396u‐2(f) does not impose a duty on the State even to try to ensure that MCOs actually do what their contracts say. HFS’s theory is that the statute requires only that a provision in the paper contract specify the timely payment obligation. The State can then sue MCOs for breach of contract if they fail to pay providers according to the 30/90 pay schedule, and providers are entitled to enforce their own contractual rights as they see fit. In HFS’s view, nothing in section 1396u‐2(f) requires the State itself do anything more to ensure prompt payment. Put diﬀerently, if the contract between an MCO and the State contains a clause ensuring timely payment for pro‐ viders on the 30/90 pay schedule, the State contends it has met its duty under section 1396u‐2(f), regardless of actual perfor‐ mance. We do not read section 1396u‐2(f) as permitting such a hands‐oﬀ approach. Nor would a reasonable state oﬃcial de‐ ciding whether to accept federal Medicaid money have ex‐ pected she could take that hands‐oﬀ approach to MCO pay‐ ments to providers. When interpreting statutes, often the “meaning—or ambiguity—of certain words or phrases may only become evident when placed in context.” King v. Burwell, 576 U.S. 473, 486 (2015), quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132 (2000). We must read texts “in their context and with a view to their place in the overall stat‐ utory scheme.” Id., quoting Brown & Williamson, 529 U.S. at 133; see also Davis v. Michigan Dep’t of Treasury, 489 U.S. 803, 809 (1989) (“[S]tatutory language cannot be construed in a vacuum. It is a fundamental canon of statutory construction that the words of a statute must be read in their context and 24 No. 21‐2325 with a view to their place in the overall statutory scheme.”). And to the extent possible, we must “ensure that the statutory scheme is coherent and consistent.” Ali v. Federal Bureau of Prisons, 552 U.S. 214, 222 (2008). Interpreting section 1396u‐2(f) as only a “paper” require‐ ment conflicts with these principles of statutory interpreta‐ tion. HFS is correct that Congress intended MCOs to “assume day‐to‐day functions previously performed by States under a traditional fee‐for‐service model.” Appellee’s Br. at 30. But Congress did not intend for MCOs to go unsupervised. It has long been obvious to all that under the managed‐care system of Medicaid, MCOs have a powerful incentive to delay pay‐ ment to providers for as long as possible and ultimately to underpay to maximize their own profits. It’s a classic agency problem: MCOs are expected to act in the providers’ interests, but their interests are not the same. Regarding timely pay‐ ments, they are in direct conflict. The Medicaid Act contains several provisions to counteract that problem in addition to section 1396u‐2(f). They help inform our understanding of the particular provision in dispute here. The statute also imposes reporting and oversight respon‐ sibilities on states. For example, section 1396b(m)(2)(A)(iv) re‐ quires a state’s contract with an MCO to permit the state “to audit and inspect any books and records” of an MCO related to “services performed or determinations of amounts payable under the contract.” Section 1396u‐2(c)(2)(A)(i) further speci‐ fies that a state’s contract with an MCO must provide for an “annual (as appropriate) external independent review” of the “timeliness” of MCO “services for which the organization is responsible,” including payments. The Medicaid Act thus re‐ quires HFS to take steps to monitor MCO payment activities No. 21‐2325 25 to gather performance data and to understand how the sys‐ tem is functioning. The Medicaid Act further specifies actions a state can take when an MCO underperforms. See § 1396u‐2(e). The State can put an MCO on a performance plan, for example. As discov‐ ery in this case revealed, HFS took this step recently with CountyCare, an MCO, after CountyCare paid only 40% of claims within 30 days and only 62% of claims within 90 days. The CountyCare case turned up evidence of the agency prob‐ lem in action. The State found that CountyCare’s Medicaid money was improperly diverted from the Medicaid program to pay other county government bills rather than health care providers.4 In such a case, if an MCO has “repeatedly failed to meet the requirements” of its contract with the State and the re‐ quirements in section 1396u‐2, “the State shall (regardless of what other sanctions are provided) impose the sanctions de‐ scribed in subparagraphs (B) and (C) of paragraph (2).” § 1396u‐2(e)(3). Subparagraph (B) details the appointment of temporary management to oversee the MCO, and subpara‐ graph (C) permits individuals enrolled with the MCO to ter‐ minate enrollment without cause. § 1396u‐2(e)(2)(B)–(C). Federal Medicaid regulations add to the State’s responsi‐ bilities here. For instance, 42 C.F.R. § 438.66(a) (2016) pro‐ vides: “The State agency must have in eﬀect a monitoring 4 As with the information mentioned above about Mercyhealth, we may also consider the CountyCare information in evaluating the Rule 12(b)(6) motion without converting the motion into one for summary judgment. The information elaborates on (and illustrates) factual allega‐ tions in the complaint. E.g., Geinosky, 675 F.3d at 745 n.1. 26 No. 21‐2325 system for all managed care programs.” Section 438.66(b)(3) specifies that the State’s monitoring system “must address all aspects of the managed care program, including the perfor‐ mance of each MCO … in … [c]laims management.” It’s hard to imagine a more central aspect of claims management than timely payments. Saint Anthony alleges here that HFS is simply failing to collect the required data on the timeliness of MCO payments. These responsibilities support the conclusion that Con‐ gress intended for states to try to ensure that the right to timely payment in section 1396u‐2(f) is honored in real life. The timely payment rule is more than a paper requirement. The more coherent reading of the statute as a whole is that Congress intended the State to engage in these reporting and oversight responsibilities, and if it becomes evident that MCOs are systematically not paying providers on a timely ba‐ sis, then the State would have an obligation to act under sec‐ tion 1396u‐2(f) to secure providers’ rights. These mandatory oversight responsibilities would make little sense if that were not the case. The provision’s mandatory language, coupled with the additional oversight and reporting responsibilities, supports the reading that section 1396u‐2(f) must be doing more than imposing merely the formality of contract lan‐ guage. Providers’ right to timely payment must exist in prac‐ tice. HFS counters, and the partial dissenting opinion agrees, that the duty imposed by section 1396u‐2(f) is at the very least ambiguous. HFS points to Pennhurst State School & Hospital v. Halderman, 451 U.S. 1, 17 (1981), which taught that Congress can impose conditions on grants of federal money only if it does so “unambiguously” and “with a clear voice.” In HFS’s No. 21‐2325 27 view, if Congress wanted to impose the significant duty on states that Saint Anthony advocates, it should have done so more explicitly. Section 1396u‐2(f) is not a clear statement, it’s ambiguous, and therefore cannot carry the weight Saint An‐ thony gives it. So says HFS. We appreciate the point, but we think Congress spoke suf‐ ficiently clearly here. The clear‐statement rule explains that “States cannot knowingly accept conditions of which they are ‘unaware’ or which they are ‘unable to ascertain.’” Arlington Central School District Board of Education v. Murphy, 548 U.S. 291, 296 (2006), quoting Pennhurst, 451 U.S. at 17. To deter‐ mine whether Congress spoke clearly in this case, we “must view [section 1396u‐2(f) and the Medicaid Act] from the per‐ spective of a state oﬃcial who is engaged in the process of deciding whether the State should accept [Medicaid] funds and the obligations that go with those funds.” Id. Any state oﬃcial planning to launch a managed‐care program would have understood that the state would have to try to ensure that providers receive prompt payment from MCOs. Such an oﬃcial would not reasonably have concluded that Congress intended that the “rule for prompt payment of providers” would be only a proverbial paper tiger. See § 1396u‐2(h)(2)(B) (describing section 1396u‐2(f) as the “rule for prompt pay‐ ment of providers”). That position conflicts with the State’s oversight and reporting obligations and its enforcement du‐ ties under the Medicaid Act. HFS also argues that section 1396u‐2(f) cannot impose this duty on the State because it “would negate[] section 1396u‐ 2(e)’s express grant to States of discretion to seek termination of an MCO’s contract for violating section 1396u‐2[f] or its contract with the State.” Appellee’s Br. at 27. The argument 28 No. 21‐2325 highlights a key issue in this appeal and one that helps explain our disagreement with the district court and the partial dis‐ sent. Saint Anthony requested several forms of relief in its com‐ plaint. One of those was canceling a contract with an MCO that fails to pay on time after State intervention. HFS argues that forcing it to cancel a contract with an MCO because it did not meet the 30/90 pay schedule would infringe on the State’s discretion to decide when it will terminate such a contract, which is expressly preserved by the statute. See § 1396u‐ 2(e)(4)(A) (“In the case of a managed care entity which has failed to meet the requirements of this part or a contract under section 1396b(m) or 1396d(t)(3) of this title, the State shall have the authority to terminate such contract….”). In HFS’s view, that means section 1396u‐2(f) cannot impose a duty on the State to ensure providers receive timely payment because it might require the State to take action that is expressly re‐ served to its discretion. We are inclined to agree with HFS that a district court could not force the State to cancel a contract with an MCO. Canceling a contract with any one of the seven MCOs in Illi‐ nois might well cause a “massive disruption” to the State’s Medicaid program. Appellee’s Br. at 28. HFS and only HFS has the discretion to decide when and why it will invite that type of disruption. Section 1396u‐2(e)(4)(A) is clear on that point. See also 42 C.F.R. §§ 438.708 (when states can terminate an MCO contract), 438.730 (CMS can sanction an MCO by denying payment). To the extent that Saint Anthony requests such relief, we doubt the district court has authority to impose it, though we need not answer that question definitively at this stage, on the pleadings. Perhaps suﬃciently egregious No. 21‐2325 29 facts might convince us otherwise, but that question about a worst‐case scenario can be addressed if and when it actually arises and matters. Continuing with the theme of assuming the worst, HFS and the partial dissent also argue that reading this duty into section 1396u‐2(f) would lead to the district court acting eﬀec‐ tively as the Medicaid claims processor for the State. In a pa‐ rade of horribles, that’s the prize‐winning float. Given the practical diﬃculties in judicial enforcement that would come with recognizing a duty here, HFS contends, such a duty could not be what Congress intended. We agree that any form of retail‐level relief, i.e., requiring the district court to adjudi‐ cate issues at the claim‐by‐claim level, would strain judicial resources and seem to conflict with the arbitration clauses in the contracts between the MCOs and Saint Anthony. A pro‐ cess that required a district judge to micro‐manage claims would be inappropriate here. These two limits on remedies in a section 1983 action do not persuade us, however, that we should aﬃrm dismissal on the theory that the State has no duty at all to ensure timely payment under section 1396u‐2(f). HFS can take other steps at the system level to address chronic late and/or short pay‐ ments by MCOs. Those actions would neither force the State to cancel an MCO contract nor turn the district court into a claims processor. If Saint Anthony can prove its claims of sys‐ temic delay and/or underpayment, we are confident that the district court could craft injunctive relief to require HFS to do something to take eﬀective action. We draw helpful guidance on these issues of potential eq‐ uitable relief from O.B. v. Norwood, 838 F.3d 837 (7th Cir. 2016). There, we aﬃrmed a preliminary injunction against 30 No. 21‐2325 Illinois oﬃcials in a suit brought by Medicaid beneficiaries who sought to enforce diﬀerent sections of the Medicaid Act requiring the State to find nurses to provide home nursing for children enrolled in Medicaid. HFS argued in O.B. that it had no obligation to find nurses (or to act at all). We rejected that argument: Certainly the defenses thus far advanced by HFS are weak. The primary defense is that noth‐ ing in the Medicaid statute “required [HFS] to ensure that Plaintiﬀs would receive medical care from nurses in their homes.” But it was HFS that decided that home nursing was the proper treatment for O.B., the other named plaintiﬀs, and the other members of the class. Id. at 840 (alteration in original). We recognized in O.B. the diﬃculties state oﬃcials faced in providing the needed nurses. There was no guarantee that compliance with the injunction would solve the plaintiﬀs’ problems. In aﬃrming the preliminary injunction, though, we explained that the injunction “should be understood simply as a first cut: as insisting that the State do something rather than nothing to provide in‐home nursing care for these chil‐ dren.” Id. at 842; see also id. at 844 (Easterbrook, J., concurring) (“All a district court can do in a situation such as this is require [the State] to start trying.”). If Saint Anthony can prove its claims of systemic delay and/or underpayment, the same is true here. The State decided to switch to a Medicaid program dominated by managed care. The State cannot now claim it has no obligation to ensure that Medicaid providers serving patients under that program receive timely payment. O.B. in‐ structs that where HFS has a duty, a district court may order No. 21‐2325 31 it to do something when that duty is not being met, at the first cut. The court may then need to supervise the eﬀects of the injunction and the State’s response and adjust the court’s or‐ ders as circumstance and equity may require. The district court should not let the perfect become the enemy of the good, nor should the possibility that a first cut at an injunction might not work suﬃciently justify a denial of any relief at all. To be clear, we are not suggesting that an injunction or‐ dering the State oﬃcials literally to do only “something” would be suﬃcient. Federal Rule of Civil Procedure 65(d)(1) requires an injunction to “describe in reasonable detail … the act or acts restrained or required.” At the same time, we have often recognized that district courts have substantial equita‐ ble discretion in crafting injunctions so that they are both un‐ derstandable by those enjoined and eﬀective to accomplish their purposes. Eli Lilly & Co. v. Arla Foods, Inc., 893 F.3d 375, 384–85 (7th Cir. 2018); H‐D Michigan, LLC v. Hellenic Duty Free Shops S.A., 694 F.3d 827, 843 (7th Cir. 2012), citing Russian Me‐ dia Group, LLC v. Cable America, Inc., 598 F.3d 302, 307 (7th Cir. 2010). If Saint Anthony can prove systemic failures by MCOs to comply with the 30/90 payment schedule with reasonably transparent payment information, we would expect the dis‐ trict court to explore with the parties what steps the State of‐ ficials could reasonably be expected to take to correct those systemic failures before framing an appropriate and eﬀective injunction. And if such an injunction later needed to be mod‐ ified based on experience, the district court would have ample power to do so at the request of a party or on its own motion. O.B. also makes clear that a district court can craft injunc‐ tive relief within its equitable powers and discretion even in circumstances where some more drastic remedial measures 32 No. 21‐2325 may be oﬀ the table. See O.B., 838 F.3d at 844 (Easterbrook, J., concurring) (identifying certain forms of relief that were oﬀ limits while also instructing the district judge to try diﬀerent things and to “keep tabs on what is happening and adjust the injunction as appropriate” to secure relief for plaintiﬀs); ac‐ cord, Rizzo v. Goode, 423 U.S. 362, 376–77 (1976) (“Once a right and a violation have been shown, the scope of a district court’s equitable powers to remedy past wrongs is broad, for breadth and flexibility are inherent in equitable remedies.” (internal quotations and citation omitted)). Federal Rule of Civil Proce‐ dure 54(c) oﬀers relevant guidance here, providing that any final judgment other than a default judgment “should grant the relief to which each party is entitled, even if the party has not demanded that relief in its pleadings.” The converse is also true, of course. If a party demands relief in its pleadings that is not available, such a demand does not poison the well to defeat relief to which the party is otherwise entitled. If Saint Anthony succeeds on the merits of its claims, we believe the district court here will be able to craft a remedy to push the State toward complying with its duty to provide for timely and transparent payments to Saint Anthony. We recognize that part of the rationale for adopting the managed‐care model was to ease the State’s administrative burden. Measures that would force HFS to take a more ag‐ gressive oversight role could reduce some of the administra‐ tive benefits the State hoped to gain by the switch to managed care. As we have explained, however, the Medicaid Act per‐ mits states to shift major Medicaid duties to MCOs but does not allow States to wash their hands of eﬀective oversight. On the contrary, the Medicaid Act shows that Congress recog‐ nized the troubling financial incentives inherent in a man‐ aged‐care system and the need for eﬀective oversight. Recall No. 21‐2325 33 that the Medicaid Act requires the State to audit and inspect MCO books and records, to perform annual external reviews of payment timeliness, and to implement sanctions if an MCO is underperforming. Saint Anthony alleges here that HFS is falling far short on those oversight and monitoring duties. HFS cannot avoid those duties altogether on the theory that Saint Anthony also asked for certain remedies that might not be available in this section 1983 action. If the State cannot manage to carry out those oversight and monitoring duties, an eﬀective remedy to enforce the requirements would honor the bargain struck when Illinois accepted funding for Medicaid in the first place. The partial dissent also criticizes our focus on systemic failures and judicial relief to address such failures, arguing that there is no textual basis for that focus. The partial dissent portrays the choice as an either‐or: either the district court must prepare to take over day‐to‐day claims management, or no judicial relief is available at all. The case is diﬃcult, but the judicial options are not so limited. First, the Medicaid statute and the relevant contracts recognize that perfection is not re‐ quired. That much is clear from the 30/90 pay schedule itself: pay 90% of clean claims within 30 days and 99% within 90 days. Second, HFS itself seems to be able to tell the diﬀerence between minor problems and systemic ones, and there is rea‐ son to think it can identify systemic measures that can be ef‐ fective without having HFS (let alone the district court) take over day‐to‐day claims management. As noted above, for ex‐ ample, HFS took action against CountyCare based on data showing that CountyCare “was not regularly meeting” the 30/90 pay schedule. Decl. of Robert Mendonsa ¶ 16, Dkt. 86‐ 10. HFS investigated, demanded that CountyCare adopt a 34 No. 21‐2325 “Corrective Action Plan,” and reported that a few months af‐ ter adopting such a plan, CountyCare “significantly reduced the number of outstanding claims that [were] older than 90 days.” Id. ¶¶ 17–21. We need not and should not adopt a mathematical definition of “systemic” failures at the plead‐ ings stage. That problem can await further factual develop‐ ment. (To use a metaphor often used in the law, a person can usually tell the diﬀerence between being in mountains, in foot‐ hills, or on a plain even if there are no sharp boundaries be‐ tween mountains, foothills, and plains.) For these reasons, we conclude that section 1396u‐2(f) sat‐ isfies the third Blessing factor because the State has a binding obligation to try to ensure prompt payment for providers from MCOs.