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Heritage Operations Group, LLC v. Norwood

United States District Court, N.D. Illinois, Eastern Division

August 12, 2019

HERITAGE OPERATIONS GROUP, LLC, et al., Plaintiffs,
v.
FELICIA NORWOOD, et al., Defendants. ROCK RIVER HEALTH CARE, LLC, et al., Plaintiffs,
v.
PATRICIA R. BELLOCK., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          John Robert Blakey United States District Judge.

         In two related cases, Plaintiffs Heritage Operations Group, LLC and Rock River Health Care, LLC each sued the Director of the Illinois Department of Healthcare and Family Services (HFS), then Felicia Norwood and now Patricia Bellock, and the Administrator of the Centers for Medicare and Medicaid Services (CMS), Seema Verma. Heritage and Rock River (collectively, the Plaintiffs), each acting on behalf of numerous long-term care facilities that it operates in Illinois, allege that HFS violated federal Medicaid laws and their due process rights when it retroactively changed Medicaid's reimbursement rates for those facilities. The facilities also allege that CMS acted unlawfully by approving the Illinois Medicaid plan under which HFS changed the reimbursement rates.

         Heritage first brought suit in November 2017 and moved for a temporary restraining order (TRO) shortly thereafter. Defendants opposed the TRO and simultaneously moved to dismiss Heritage's complaint for failure to state a claim; on September 18, 2018, this Court granted Defendants' motion to dismiss without prejudice and denied Heritage's motion for a TRO. 17-cv-8609 [42] [43]. Heritage filed an amended complaint in October 2018. 17-cv-8609 [44].

         On September 26, 2018, Rock River filed a complaint substantively identical to that of Heritage on behalf of a different set of nursing homes; the case was reassigned to this Court as related to Heritage's case. 18-cv-6532 [1] [4] [8].

         On April 5, 2019, Defendant Bellock filed a motion to dismiss both Plaintiffs' amended complaints. 17-cv-8609 [60]; 18-cv-6532 [18]. Defendant Verma also filed a motion to dismiss Rock River's amended complaint. 18-cv-6532 [19]. As is discussed below, Count IV of Heritage's amended complaint-its only count against Verma- remains identical to that which this Court previously dismissed, and according to Heritage is “repled for purposes of appeal” only. 17-cv-8609 [44] ¶¶ 196-98. Accordingly, CMS and Heritage agreed to forego an additional round of briefing on Count IV. 17-cv-8609 [47] ¶ 3.

         For the reasons explained below, this Court grants Defendants' motions with prejudice.

         I. The Complaints' Allegations[1]

         This Court incorporates by reference, and presumes familiarity with, its prior opinion addressing Defendants' motion to dismiss in Heritage's case, 17-cv-8609 [43], and thus only briefly revisits the facts from which the parties' claims arise.

         Plaintiffs operate long-term care facilities throughout Illinois. [4] ¶¶ 1-3. These nursing facilities receive per diem reimbursement for Medicaid beneficiaries from HFS, which administers the Illinois Medicaid program. Id. ¶¶ 4, 25. CMS administers Medicaid at the federal level. Id. ¶ 10.

         Medicaid is a voluntary program, jointly funded by the federal and state governments, with the primary purpose of providing medical care for poor, elderly, and disabled individuals. Id. ¶¶ 7-8. States that choose to fund Medicaid must administer their programs in accordance with the authorizing legislation in Title XIX of the Social Security Act, 42 U.S.C. § 1396, et seq., also known as the Medicaid Act. Id. ¶ 8. To participate in Medicaid, a state must submit its state plan for medical assistance to CMS for approval. Id. ¶ 9.

         The Medicaid Act requires each state plan to include certain procedural and substantive elements. Id. ¶ 20. Relevant here, state plans must provide “a public process for determination of rates under the plan” that involves: (1) publishing proposed rates and the methodologies and justifications underlying the proposed rates; (2) giving providers, beneficiaries, and “other concerned State residents” a “reasonable opportunity” to review and comment on the published materials; and (3) publishing the final rates and the methodologies and justifications underlying the final rates. Id. (quoting 42 U.S.C. § 1396a(a)(13)(A)). States must also provide public notice of any “significant proposed change” in their statewide methods and standards for setting payment rates. Id. ¶ 22 (quoting 42 C.F.R. § 447.205(a)).

         Under Illinois' plan, the per diem reimbursement that nursing facilities receive from HFS consists of three separate components: (1) support cost; (2) nursing cost; and (3) capital cost. Id. ¶ 26. This case concerns the nursing component, also known as the direct care component. See Id. ¶¶ 43-72. This component pays for: (1) the mean wages and benefits of all the licensed staff, registered nurses, licensed practical nurses, certified nursing assistants, social workers, and nursing supervisors who care for a resident; (2) direct care consultants; and (3) health care supplies used by or for a resident in a 24-hour period. Id. ¶ 27.

         By the time the state reimburses nursing facilities, they have already provided their services to residents. Id. ¶ 28. At the time of reimbursement, Plaintiff facilities have generally already paid their nursing staff as well. Id. ¶ 29.

         A. The Nursing Component and ...


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