On March 14, 2025, the Seventh Circuit Court of Appeals ruled en banc (i.e., in a decision by the full court) that a Chicago hospital cannot sue the State of Illinois for injunctive/declaratory relief that would compel the state to force the managed care organizations (MCOs) with which the state contracted to administer the state Medicaid program to comply with prompt payment provisions of the Medicaid Act. The court determined that the statutory language does not contain “rights-creating, individual-centric language” necessary to create a private right of action for providers against the state.
Chicago-based Saint Anthony Hospital (the Hospital) filed a federal suit against the State of Illinois through the director of the state Department of Healthcare and Family Services under 42 U.S.C. § 1983, alleging that Illinois violated the Hospital’s right to receive prompt Medicaid payments. The lawsuit requested declaratory and injunctive relief that would require the state to cause the MCOs with which it contracted to administer the program to comply with statutory requirements to pay for “clean claims” (claims for which all information necessary to make a payment has been provided) within the 30 to 90 day window contemplated by statute.
According to the Hospital, this right derives from 42 U.S.C. § 1396u-2(f) of the Medicaid Act, which mandates that “[a] contract” between the state and an MCO require the MCO “make payment to health care providers … on a timely basis consistent with the claims payment procedures described in section 1396a(a)(37)(A)” or some alternative agreed upon by the MCO and a provider.
Section 1396a(a)(37)(A), in turn, requires that payment for 90% of clean claims be made within 30 days of receiving those claims, and that 99% of clean claims must be paid within 90 days. According to the Hospital, the MCOs take anywhere from 90 days to two years to make payment, and that therefore, the state had not met its obligation to ensure that its contracts with MCOs caused the MCOs to comply with the Medicaid windows for prompt payment.
A federal district court granted the State’s 12(b)(6) motion to dismiss on the grounds that § 1396u-2(f) did not create a privately enforceable right for providers like the Hospital. The Hospital appealed, and the Seventh Circuit reversed the decision. Illinois then petitioned for a writ of certiorari in the Supreme Court. After issuing an opinion in Health & Hospital Corp. of Marion County v. Talevski, 599 U.S. 166 (2023), which provided clarification as to the existing framework to be used for determining whether laws passed under the Spending Clause, like the Medicaid Act, created an enforceable right under § 1983, the Supreme Court vacated the Seventh Circuit’s judgment and remanded for reconsideration. Upon reconsideration, the Seventh Circuit again reversed the district court’s decision. Illinois then sought en banc review from the entire Seventh Circuit.
In a 9-3 decision, the full court of the Seventh Circuit determined that § 1396u-2(f) did not create a right that could be enforced via a § 1983 private cause of action because § 1396u-2(f) failed the first step of the Supreme Court’s two-step test from Gonzaga Univ. v. Doe, 536 U.S. 273, 285 (2002).
Under the Gonzaga test, the Court should consider 1) whether “Congress has ‘unambiguously conferred’ ‘individual rights upon a class of beneficiaries’ to which the plaintiff belongs,” and 2) if such individual rights were conferred, whether Congress “explicitly or implicitly intended to preclude § 1983 enforcement.”
According to the majority, § 1396u-2(f) failed this first step, because the timely payment provision was not “unmistakably focused on providers like Saint Anthony. It is instead expressly focused on what a contract between a state and MCO must contain,” and thus, primarily concerns “the state’s contractual relationship with MCOs, not what, if any, rights providers are entitled to….” According to the majority, the fact that providers might benefit from the inclusion of prompt payment schedules in MCO contracts would only place providers “within the timely payment provision’s zone of interest,” which, according to the majority, was insufficient.
The majority also determined that the absence of the word “right” in the statutory language indicated an intent not to create a right that would be enforceable under § 1983. The court also buttressed its decision by the fact that Congress had used language that imposed obligations on MCOs that directly contemplated providers in other Medicaid provisions, such as 42 U.S.C. § 1396u-2(a)(5)(B)(i)-(iii) and §1396u-2(b)(7). Thus, according to the majority, the absence of such language here indicated an intent not to confer a comparable enforceable right.
The majority also pointed to federalism concerns, citing the fact that Illinois and the federal government struck a bargain pursuant to which the federal government could cut funding to Illinois if the state failed to comply with Medicaid provisions. Thus, allowing the Hospital’s lawsuit to proceed would “risk transforming an exercise of cooperative federalism into one of compulsive federalism.” According to the majority, recognizing such a private right of action would “turn federal trial courts into de facto Medicaid claims processors,” which the court deemed a “dubious solution,” given that § 1396u-2(e)(4)(a) gave the state the discretion to terminate an MCO’s contract if the MCO failed to meet its contractual requirements, such as those requiring prompt payment.
Because the majority held that the provision did not survive the first step of the Gonzaga test, the opinion did not even consider the second step.
Judge David Hamilton dissented, arguing that the reasonable interpretation of § 1396u-2(f) was that the state had a duty to “ensure that the MCOs actually pay providers…not merely that the contracts between the MCOs and the state include clauses that say as much on paper,” and thus, created both a duty for the state and a right for providers that could be enforced under § 1983.
The majority also upheld the district court’s decision to deny the Hospital’s request to supplement its complaint to include allegations that Illinois “(1) failed to provide it with information pertaining to how payments are calculated under the fee-for-service program and (2) failed to ensure MCOs provide the same information under the managed-care program,” because adding such allegations would “substantially expand the scope of the case.”
However, the majority refrained from weighing in on the viability, or lack thereof, of those allegations, and recognized that the Hospital could initiate a new, separate action, specifically focusing on those allegations because the state had stipulated that it would not assert a defense of claim preclusion on that issue.
A copy of the full opinion is available here.
