so by contract. The plaintiffs assert in this action that if IDPA maintains a 30 day payment cycle, the 1991 fiscal year appropriations will be exhausted roughly eight weeks before the end of the fiscal year.
On a motion to dismiss the court's inquiry is limited to the sufficiency of the facts alleged in the complaint. The court must accept as true the allegations of the complaint, and draw all reasonable inferences in favor of the plaintiffs. Ellsworth v. City of Racine, 774 F.2d 182, 184 (7th Cir. 1985). The case may be dismissed only if it appears beyond doubt that the plaintiffs will be unable to prove any set of facts entitling them to relief. Conley v. Gibson, 355 U.S. 41, 45-6, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957).
A. The State Defendants' Motion to Dismiss
The plaintiffs charge the state defendants with establishing and implementing a Medicaid plan that does not comply with §§ 1396a(a)(13), (a)(23), (a)(30), and 1396n(b)(4) in violation of the plaintiffs' rights under 42 U.S.C. § 1983. The state defendants move for dismissal on the grounds that the action is barred by res judicata, that the plaintiffs do not have a right of action under the asserted provisions, and that outpatient services are not covered under 42 U.S.C. §§ 1396(a)(13)(A) and 1396(a)(30).
1. Res Judicata
The doctrine of res judicata is founded on the notion that a right, question or fact put in issue and determined by a court of competent jurisdiction cannot be disputed in a later suit between the same parties or their privities. Diaz v. City of Chicago, 601 F. Supp. 1251, 1252 (N.D.Ill. 1984). The purpose of the doctrine is to save the parties the cost and vexation of multiple lawsuits, conserve judicial resources and, by preventing inconsistent decisions, encourage reliance on adjudication. Montana v. United States, 440 U.S. 147, 153-4, 99 S. Ct. 970, 973-74, 59 L. Ed. 2d 210 (1979); Diaz, 601 F. Supp. at 1252. The doctrine applies when there is (1) a final judgment on the merits in an earlier action; (2) an identity of the cause of action in both earlier and later suits; and (3) an identity of parties or their privities in the two suits. NAACP v. Hunt, 891 F.2d 1555, 1560 (11th Cir. 1990); Mandarino v. Pollard, 718 F.2d 845, 849 (7th Cir. 1983). In this instance the parties dispute the existence of the second element, identity of the cause of action.
There is identity in the cause of action if the claims made in the second suit were or could have been raised in the prior action. Car Carriers, Inc. v. Ford Motor Co., 789 F.2d 589, 593 (7th Cir. 1986). The Seventh Circuit takes a transactional approach to this test, and in so doing has expressly rejected approaches that look for an identity of the rights and duties or of legal theories being litigated. Matter of Energy Co-op., Inc. ("ECI "), 814 F.2d 1226, 1231 n. 6 and accompanying text (7th Cir. 1987); Car Carriers, Inc. v. Ford Motor Co., 789 F.2d at 593. Pursuant to the Seventh Circuit approach, "once a transaction has caused injury, all claims arising from that transaction must be brought in one suit or be lost." Car Carriers, 789 F.2d at 593. In other words, where legal bases for injury alleged in each suit rely on the same core of operative facts, the res judicata doctrine will bar the second suit. Car Carriers, 789 F.2d at 593.
The 1988 complaint charged the state agency with obtaining a waiver for ICARE based on inappropriate statutory authority. The core of operative facts in that litigation was the state's unilateral slowdown in payments beyond the agreed 30 day billing cycle and the imminent exhaustion of appropriated funds which allegedly would result in a reduction or cessation of Medicaid services. In conformity to the transaction approach, any of the claims made by the plaintiffs in the present action which were or could have been raised based on these facts are barred by res judicata. See Spiegel v. Continental Illinois National Bank, 790 F.2d 638, 646 (7th Cir. 1986), cert. denied, 479 U.S. 987, 107 S. Ct. 579, 93 L. Ed. 2d 582 (1986)(to the extent that the second suit alleges facts occurring after the filing of the first suit, the second suit is not barred by res judicata).
a. Count I
Count I challenges the non-ICARE rate setting methodology. The operative facts on this count appear to be the alleged failure to conduct empirical studies before adopting the grouping methodology with the result that the system is unrelated to the costs of providing efficient, quality care. Such allegations suggest an entirely different transaction from the unilateral slowdown challenged in the 1988 lawsuit, and consequently are not barred by res judicata.
However, in connection with these allegations, the plaintiffs have referred back to the increase in payment cycles litigated in the 1988 action and to the disparity between the costs and reimbursements that have existed since 1986. We understand such references to constitute merely background information which aids in the explanation of the alleged hardships that the plaintiffs currently suffer, which do not call for dismissal of this action on res judicata grounds. The parties should take note, however, that to the extent that the interests of the parties with respect to these facts were litigated in the 1988 action, they may not be revisited here.
b. Count II
Count II challenges ICARE based on (1) the unconscionability of the contracts signed by the plaintiffs and (2) the misrepresentations allegedly made by IDPA in obtaining the 1989 waiver of the § 1396a requirements. The corresponding operative facts appear to be (1) inadequate reimbursements allegedly resulting from the state-provider bargaining process and (2) misrepresentations allegedly made by the state agency. In deciding that the state's slowdown in payments was permitted under the statute, Judge Leinenweber stated that "if the providers seek to reallocate this risk [of untimely payment] in a more favorable fashion they may do so by agreement." Chicago Osteopathic Medical Centers v. Duffy, No. 88 C 1174, Memorandum Opinion and Order at 7 (N.D.Ill. October 27, 1989). The plaintiffs' claims of unconscionability appear to be a collateral objection to Judge Leinenweber's holding which could and should have been raised in the earlier proceedings. The plaintiffs have not alleged any facts tending to show that the bargaining process has changed since Judge Leinenweber's resolution of the 1988 litigation. Thus the plaintiffs' allegations of unconscionability arise from the same transaction underlying the 1988 litigation. Accordingly, inasmuch as Count II challenges the burden of inadequate payments resulting from bargains made under the ICARE program, the count is barred.
The alleged misrepresentations contained in the state's waiver request are an entirely different matter involving a transaction that is distinct from the transaction involved in the earlier litigation. Therefore, Count II remains viable to the extent that the plaintiffs seek a declaration that the waiver was obtained in violation of the Medicaid Act.
c. Count IV
The 1988 suit did not challenge the state's method of reimbursing outpatient/clinic services, and this issue appears unrelated to the payment slowdown that formed the basis of the 1988 litigation. Thus, the res judicata doctrine will not bar any viable issue raised in Count IV.
2. Enforceable Right
The plaintiffs' unbarred claims against the state defendants are based on 42 U.S.C. §§ 1396a(a)(13)(A), (a)(30), (a)(23), 1396n(b)(4) and 42 U.S.C. § 1983. The state defendants contend that health care providers do not have a right of action under these provisions.
In Wilder the Supreme Court addressed the issue of whether hospitals had a right of action under § 1983 against the state agency for violations of the Boren Amendment. The Court stated that resolution of the issue turns on whether the Medicaid provision was intended to benefit the plaintiff. Wilder v. Virginia Hospital Association, 496 U.S. 498, 110 S. Ct. 2510, 2517, 110 L. Ed. 2d 455 (1990). Noting that this inquiry differs from that involved in determining whether a private right of action can be implied from a particular provision, the Court held that the "Medicaid Act creates a right enforceable by health care providers under § 1983 to the adoption of reimbursement rates that are reasonable and adequate to meet the costs of an efficiently and economically operated facility that provides care to Medicaid patients." Id. In reaching this conclusion, the Court emphasized that the Boren Amendment placed a binding obligation on states to adopt reasonable and adequate rates, that this obligation was cast in mandatory rather than precatory terms, and that the provision of federal funds was expressly conditioned on the state's compliance with the Boren Amendment and all other requirements of § 1396a. Id. at 2518-19.
The defendants have not persuaded us that a departure from Wilder is merited by the facts in this case. Thus our analysis here will be limited to a determination of whether the other provisions cited in the complaint will also give the plaintiffs an enforceable right against the state defendants.
a. § 1396a(a)(30)
The Boren Amendment requires the state defendants to adopt reimbursement rates that are reasonable and adequate to meet the costs of an efficiently and economically run facility that provides quality care to Medicaid patients. Section 1396a(a)(30) appears to complement the Boren Amendment by requiring state plans to provide "such methods and procedures relating to the utilization and payment for care and services . . . as may be necessary to . . . assure that payments are consistent with efficiency, economy, and quality of care." 42 U.S.C. § 1396a(a)(30). Thus, just as the plaintiffs are intended to benefit from the states' satisfaction of the standards of the Boren Amendment, it seems that they are intended to derive benefit from the state defendants' performance of their obligations under subsection (a)(30). Furthermore, subsection (a)(30) is cast in mandatory as opposed to precatory terms and constitutes a precondition for federal financial participation. Thus, we find that the plaintiffs may bring a § 1983 action against the state defendants for injuries resulting from the state defendants' failure to develop appropriate methods and procedures relating to the payment of outpatient services pursuant to 42 U.S.C. § 1396a(a)(30).
b. § 1396n(b)(4)
Although the plaintiffs have characterized their surviving Count II allegations in terms of a violation of the waiver provision, what they actually allege is a putative violation of the Boren Amendment caused by the state defendants' improper acquisition of a waiver. Cast in this light, it is unnecessary to determine whether the waiver provision itself gives the health care providers an enforceable right.
c. Coverage of Outpatient Services
The defendants have not attempted to argue that (30)(A) covers only inpatient services. Because plaintiffs have an enforceable right under that subsection, Count IV is viable regardless of whether the Boren Amendment is interpreted as being limited to inpatient services or to extend also to outpatient services. Thus, this latter question need not be resolved at this stage.
B. Federal Defendant's Motion to Dismiss
Count III asks this court to declare that the federal defendant violated § 1396n(b)(4) and the Boren Amendment by granting the waiver for the ICARE program. The federal defendant has moved to dismiss this count on the grounds that the plaintiffs lack both a right of action against the Secretary and standing to challenge the Secretary's grant of a waiver under § 1396n(b)(4).
Since § 1983 does not create a cause of action against a federal defendant, Count III may stand only if a cause of action may be implied directly under the Medicaid Act. Michigan Hospital Association v. Department of Social Services, 738 F. Supp. 1080, 1083 (W.D.Mich. 1990). There is a strong presumption against implying a private right of action, Illinois Health Care Association v. Suter, 719 F. Supp. 1419, 1423 (N.D.Ill. 1989), and the plaintiff bears a heavy burden in showing such implication is appropriate.
For a private right of action to be implied, four questions must be answered in favor of the plaintiff:
1. Is the plaintiff a member of the class for whose especial benefit the statute was enacted?
2. Is there any indication of legislative intent, implicit or explicit, to create or deny such a remedy?