Bryn Mawr Care, Incorporated v. Kathleen Sebelius

In the

United States Court of Appeals

For the Seventh Circuit

No. 12-3678

BRYN MAWR CARE, INC.,

Plaintiff-Appellant,

v.

KATHLEEN SEBELIUS, in her official

capacity as Secretary of Health and

Human Services, et al.,

Defendants-Appellees.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 11-CV-00734 — Harry D. Leinenweber, Judge.

ARGUED NOVEMBER 7, 2013 — DECIDED APRIL 8, 2014

Before BAUER, MANION, and SYKES, Circuit Judges.

MANION, Circuit Judge. Bryn Mawr Care, Inc., is a nursing

home company that maintains a facility in Chicago, Illinois,

occupied exclusively by patients on Medicaid. Without a

hearing, state Medicaid regulators noted three deficiencies at

Bryn Mawr’s facility. Federal regulators publicized the

deficiencies, which negatively impacted the facility’s reputa-

2 No. 12-3678

tion. The regulators also maintained the deficiencies on their

internal records, which exposes Bryn Mawr to a risk of harsher

penalties and less desirable procedural routes should the

facility be found deficient in the future. Bryn Mawr contends

that it was entitled to a hearing to challenge the deficiencies

under state and federal Medicaid regulations, or alternatively,

under the Due Process Clauses of the Fifth and Fourteenth

Amendments to the United States Constitution. The district

court disagreed and granted summary judgment to the

defendants. We affirm.

I. Factual Background

Bryn Mawr is a Medicaid provider, but not a Medicare

provider. The Department of Health and Human Services

(“HHS” or “the Secretary”) has delegated administration of the

Medicare and Medicaid programs to the Centers for Medicare

and Medicaid Services (“CMS” or, for convenience, also “the

Secretary”). CMS, in turn, has contracted with the Illinois

Department of Public Health (“IDPH”) to inspect Medicaid

providers in Illinois.

On February 11, 2010, IDPH surveyed (inspected) Bryn

Mawr’s facility in response to allegations that a resident had

been sexually assaulted. Bryn Mawr was not cited with any

deficiencies immediately following that survey, but IDPH

surveyed the facility again on March 23, 2010, and that time

cited the facility for three deficiencies related to the care and

supervision of residents and staff (which IDPH believed to be

the cause of the sexual abuse). A deficiency is a “failure to meet

a participation requirement specified in the [Social Security]

Act or” regulations. 42 C.F.R. § 488.301. Deficiencies are

No. 12-3678 3

categorized alphabetically from “A” to “L” (minor to major) by

scope (isolated, pattern, or widespread) and severity. Severity

is broken up into four different categories based on whether

there has been any actual harm, whether there is any potential

for minimal or more than minimal harm, and whether there is

“immediate jeopardy.” Immediate jeopardy is a situation

where a deficiency “has caused, or is likely to cause, serious

injury, harm, impairment, or death to a resident.” 42 C.F.R. §

488.301 (emphasis added). This chart summarizes the defi-

ciency categorization system:

Scope of Deficiency

Isolated Pattern Wide-

spread

Immediate jeopardy to

J K L

health and safety

Severity of Deficiency

Actual harm that is not im-

G H I

mediate jeopardy

No actual harm with poten-

tial for more than minimal

harm that is not immediate D E F

jeopardy

No actual harm with poten-

tial for minimal harm A B C

See Center for Medicare and Medicaid Services, State Operations

Manual, 7400.5.1 (Rev. 63 2010) (hereinafter, “State Operations

4 No. 12-3678

Manual”).1 The regulations provide for required and optional

remedies that are more drastic the further right or up a

deficiency is on the chart (with termination from the Medicaid

program reserved for the top tier, J–L). See 42 C.F.R. §§ 488.406

(listing remedies); 488.408 (categorizing remedies). Bryn Mawr

was cited with two “G” deficiencies (“isolated” incident of

“actual harm that is not immediate jeopardy” based on

violations of the resident’s rights to freedom from sexual abuse

and to adequate supervision) and one “E” deficiency (a

“pattern” of “no actual harm with potential for more than

minimal harm that is not immediate jeopardy” based on failure

to sufficiently monitor the resident upon her admission to the

facility).2 This deficiency determination meant that the facility

was out of compliance with Medicaid program requirements,

so IDPH notified Bryn Mawr of the proposed

remedies—in-service training and a $200 a day fine—and its

opportunities to challenge the deficiency findings through

1

Available at http://www.cms.gov/Regulations-and-Guidance/Guidance

/Manuals/Downloads/som107c07.pdf on page 93 (this link is to the current

Manual, but there are no relevant differences between the Manual in effect

at the time and the current Manual).

The dark gray deficiencies (F, H, I, J, K, or L) apply when a facility is

providing substandard quality of care and is out of compliance; the light

gray deficiencies (G, D, or E) apply when a facility is out of compliance but

not providing substandard quality of care; and the white deficiencies (A, B,

or C) apply when the facility is still in substantial compliance with Medicaid

requirements. See 42 C.F.R. § 488.301 (definitions for “substandard quality

of care” and “substantial compliance”).

2

The deficiencies were violations of 42 C.F.R. §§ 483.13(b), 483.25(h), and

483.75.

No. 12-3678 5

Informal Dispute Resolution or submit a plan of correction to

avoid the remedies (or both). Bryn Mawr chose both.

Bryn Mawr thought that the deficiency findings were

erroneous, so it challenged them via Informal Dispute Resolu-

tion (the “informal process”). See 42 C.F.R. § 488.331 (requiring

state agencies to offer an informal process to challenge defi-

ciency findings). The informal process was just an exchange of

written information between Bryn Mawr and IDPH before an

outside party, the Michigan Peer Review Organization

(“MPRO”). No live hearing was held and therefore no cross-

examination or other credibility determinations were con-

ducted regarding the allegations of sexual assault of a resident.

IDPH simultaneously conducted an internal review and, on

May 6, 2010, found that two of the deficiencies based on the

allegations of sexual abuse were not sufficiently supported by

credible evidence as required by Illinois regulations. However,

the MPRO upheld the deficiency findings. Faced with an

internal review holding the findings unsupported under

Illinois regulations and an outside review upholding the

findings, IDPH decided to maintain the deficiency findings

under federal regulations.3 Had the process stopped here, Bryn

Mawr would have been entitled to a hearing because the

proposed remedies were still on the table. See 42 C.F.R.

§ 431.151 (requiring a hearing when a state imposes “a civil

money penalty”). But the process did not stop here.

3

Bryn Mawr emphasizes this apparent inconsistency, but does not tell us

why this should affect the legal analysis of whether due process was

required.

6 No. 12-3678

Bryn Mawr also took advantage of the parallel process to

“correct” the “deficiencies” and submitted a “plan of correc-

tion.” At the follow-up inspection, IDPH determined that the

deficiencies had been corrected, so it notified Bryn Mawr that

it was no longer out of compliance and the proposed remedies

would not be imposed. But although they had been “cor-

rected,” the fact that there had been deficiency findings

remained in the record. Bryn Mawr could have opted not to

submit a plan of correction and force a hearing to challenge the

deficiencies, but that would have been an unnecessary risk . 42

C.F.R. § 488.408 provides that “each facility that has a defi-

ciency … must submit a plan of correction.” If a facility does

not think it has a deficiency, it may take the risk of not submit-

ting a plan. Then the regulators would proceed to impose the

remedies, which would entitle the facility to a hearing. See 42

C.F.R. § 431.151. At that hearing, the facility would have the

opportunity to persuade an Administrative Law Judge (“ALJ”)

that it was not deficient and thereby escape the deficiency

findings (and therefore the need to submit a plan of correction)

as well as any related remedies. Had all of this occurred, Bryn

Mawr might have persuaded an ALJ that the deficiencies were

unfounded and emerged a total victor. But had it failed, the

proposed remedies would have been imposed with no oppor-

tunity to correct the deficiencies. Further, this protracted

approach could exacerbate the problem because § 488.456

provides that “CMS and the State may terminate a facility’s

provider agreement if a facility … [f]ails to submit an accept-

able plan of correction within the timeframe specified by CMS

or the State.” 42 C.F.R. § 488.456(b)(1), (b)(1)(ii). Faced with this

dilemma, Bryn Mawr chose to forego the risk of losing the “no

No. 12-3678 7

deficiency” argument and submitted the plan of correction.

IDPH re-surveyed the facility after Bryn Mawr submitted the

plan of correction and found that the facility had returned to

substantial compliance, but IDPH still kept a record of the

deficiencies.

Thereafter, IDPH passed the deficiency findings on to CMS,

which made them available on its website and factored them

into the CMS 5-Star Rating System (the “Rating System”). The

Rating System is a feature on the medicare.gov website that

contains assembled data about nursing facilities’ administra-

tive information, compliance history, and anything else that

would be of interest to a prospective resident. In addition to

making the details available, the website summarizes the data

by rating facilities from one to five stars (and just like the

dining and hotel industries, a rating with more stars is better).

The system also allows prospective residents to compare

facilities. However, when IDPH’s deficiency findings were

factored into the Rating System, they were initially factored in

incorrectly. Bryn Mawr’s rating was supposed to fall from five

to four stars because of the deficiencies, but CMS mistakenly

reduced it to two stars. But that error was later corrected when

discovered during this litigation. See Nursing Home Compare,

Medicare.gov, http://www.medicare.gov/nursinghomecompa-

re/profile.html#profTab=0&ID=14E148 (last visited Mar. 6,

2014) (profile of Bryn Mawr Care). Regardless of the tardy

partial correction, Bryn Mawr was displeased that its star

rating had fallen even one star (from five to four) based on

deficiency findings that it had not had the opportunity to

challenge at a hearing. So Bryn Mawr sought hearings before

both a state and a federal ALJ, but both requests were denied.

8 No. 12-3678

The federal hearing request was denied because there is only

a limited right for a Medicaid (as opposed to a Medicare)

provider to obtain a federal hearing, and Bryn Mawr didn’t

qualify. The state hearing request was dismissed because the

ALJ believed that no remedies had been imposed against Bryn

Mawr. Accordingly, on February 1, 2011, Bryn Mawr filed suit

in the district court against the Secretary of HHS and the

Director of IDPH seeking to compel a hearing. Bryn Mawr’s

theory was that the regulations entitled it to a hearing and that,

even if the regulations did not, the Due Process Clauses of the

Fifth and Fourteenth Amendments did. The district court

granted summary judgment to defendants on September 26,

2012, ruling that Bryn Mawr was not entitled to a hearing

before either a federal or state ALJ under the regulations or the

Constitution. Bryn Mawr appeals.

II. Discussion

On appeal, Bryn Mawr argues that it should have been

afforded a hearing to challenge the deficiency findings made

by IDPH either because of Medicaid regulations or the

constitutional guarantee of due process. We review de novo the

district court’s grant of summary judgment and examine the

evidence in the light most favorable to Bryn Mawr to deter-

mine whether there is any “genuine dispute as to any material

fact.” Fed. R. Civ. P. 56(c); Lees v. Carthage Coll., 714 F.3d 516,

520 (7th Cir. 2013). We begin with Bryn Mawr’s regulatory

argument.

A. Regulatory Right to a Hearing

On appeal, Byrn Mawr has abandoned the argument that

the regulations entitle it to a hearing before a federal ALJ, and

No. 12-3678 9

instead focuses on its argument that it is entitled to a hearing

before a state ALJ. The applicable regulations provide, in

pertinent part, that:

[If] a nursing facility … is dissatisfied with a State’s

finding of noncompliance [deficiency] that has

resulted in one of the following adverse actions: (i)

Denial or termination of its provider agreement[; or]

(ii) Imposition of a civil money penalty or other

alternative remedy. … the State must give the

facility a full evidentiary hearing … .

42 C.F.R. §§ 431.151; 431.153. Bryn Mawr latches onto the

phrase “other alternative remedy” and argues that the plain

meaning of those words includes the recording of the deficien-

cies in its compliance history and the public shaming of Bryn

Mawr by the publication of the deficiencies on the CMS

website and the Rating System. Bryn Mawr insists that public

shaming is a kind of “remedy” that would be “other” and

“alternative.” See, e.g., Dan M. Kahan & Eric A. Posner,

Shaming White-Collar Criminals: A Proposal for Reform of the

Federal Sentencing Guidelines, 42 J.L. & Econ. 365, 366–67 (1999).

However, because this particular hearing requirement

comes from the “Secretary’s own regulations, [her] interpreta-

tion of it is, under our jurisprudence, controlling unless plainly

erroneous or inconsistent with the regulation.” Auer v. Robbins,

519 U.S. 452, 461 (1997) (quotations omitted). The Secretary

explains that the term “other alternative remedy” carries

special meaning from the context of the regulatory regime.

Specifically, the Secretary interprets that term to mean the

remedies listed in, or made possible by, 42 C.F.R. § 488.406.

10 No. 12-3678

That section lists multiple remedies which may be used. Id. at

§ 488.406(a). As part of the state enforcement plan, state

regulators are required to establish protocols at least for the

subsection (a) remedies of “(1) Temporary management[;] (2)

Denial of payment for new admissions[;] (3) Civil money

penalties[;] (4) Transfer of residents[;] (5) Closure of the facility

and transfer of residents[; and] (6) State monitoring.” Id. at

§ 488.406(b). States may also establish any of the other reme-

dies from subsection (a) or “alternative or additional State

remedies approved by CMS.” Id. at § 488.406(a)(9) (emphasis

added). But to create its own alternatives, the state has to

“[s]pecify those remedies in the State plan; and …

[d]emonstrate to CMS’s satisfaction that those remedies are as

effective as the remedies listed in paragraph (a) of this section,

for deterring noncompliance and correcting deficiencies.” Id.

at § 488.406(c)(1)–(2).

Accordingly, the Secretary asserts that, because maintaining

a compliance history and publishing deficiencies through the

Rating System are not part of the remedial framework of

§ 488.406, those actions are not “other alternative remedies.”

While the regulation could have explicitly cross-referenced

§ 488.406 (as its Medicare cousin does, see 42 C.F.R.

§ 498.3(b)(13)), we do not think the Secretary’s interpretation

is plainly erroneous or inconsistent with the regulation. Thus,

as none of the remedies listed in, or made possible by, §

488.406 has been imposed on Bryn Mawr, it is not entitled to a

state hearing under § 431.151.

No. 12-3678 11

B. Constitutional Right to a Hearing

Alternatively, Bryn Mawr argues on appeal that it is

entitled to challenge the deficiency findings in a hearing before

a federal or state ALJ—regardless of any regulatory failure to

provide such an opportunity—because of the Due Process

Clauses of the Fifth and Fourteenth Amendments, respectively.

U.S. Const. amend. V (“No person shall … be deprived of life,

liberty, or property, without due process of law … .”); amend.

XIV, § 1 (“No state shall … deprive any person of life, liberty,

or property, without due process of law … .”). Bryn Mawr’s

claim that it is entitled to a hearing is a procedural due process

claim—an unfortunate but necessary redundancy. See Gosnell

v. City of Troy, Ill., 59 F.3d 654, 657 (7th Cir. 1995). A procedural

due process claim requires a two-fold analysis. “First, we must

determine whether [Bryn Mawr] was deprived of a protected

interest [and, if so]; second, we must determine what process

is due.” Pugel v. Bd. of Trs. of Univ. of Ill., 378 F.3d 659, 662 (7th

Cir. 2004). The district court ruled that Bryn Mawr failed to

establish a protected interest, and that has been the parties’

focus on appeal.

[T]he range of interests protected by procedural due

process is not infinite … and … with respect to

property interests they are, of course, … not created

by the Constitution. Rather, they are created and

their dimensions are defined by existing rules or

understandings that stem from an independent

source such as state law rules or understandings

that secure certain benefits and that support claims

of entitlement to those benefits.

12 No. 12-3678

Paul v. Davis, 424 U.S. 693, 709 (1976) (citing Bd. of Regents of

State Colls. v. Roth, 408 U.S. 564, 570, 577 (1972)). But “defama-

tory publications,” like the publishing of deficiencies, “how-

ever seriously they may … harm[] [Bryn Mawr’s] reputation,

d[o] not deprive [it] of any ‘liberty’ or ‘property’ interests

protected by the Due Process Clause.” Id. at 712. Stigma is not

enough. Id. at 709. Rather, “[t]o avoid constitutionalizing state

defamation law, defamation by a government actor does not

implicate the Due Process Clause unless ‘a right or status

previously recognized by state law was distinctly altered or

extinguished’ as a result.” Abcarian v. McDonald, 617 F.3d 931,

941 (7th Cir. 2010) (citing Paul v. Davis, 424 U.S. at 711).

Accordingly, we apply a “stigma plus” analysis where “an

injury to reputation along with a change in legal status consti-

tutes the deprivation of a property right.” Somerset House, Inc.

v. Turnock, 900 F.2d 1012, 1015 (7th Cir. 1990).4

Bryn Mawr acknowledges this standard and asserts

that—in addition to the stigmatization of the deficiency

findings—its rights were altered in three distinct ways: (1) it is

now exposed to the potential of enhanced penalties based on

4

We do not decide whether defamation “in a manner that makes it virtually

impossible for [Bryn Mawr] to” operate “in [its] chosen field” is sufficient

to amount to a deprivation of a constitutionally protected right because

Bryn Mawr has neither argued nor alleged that the deficiency publication

had that effect. Abcarian v. McDonald, 617 F.3d 931, 941 (7th Cir. 2010) (“To

plead a constitutionally relevant tangible loss of his employment opportuni-

ties, Abcarian must allege that his ‘good name, reputation, honor or

integrity [was] called into question in a manner that makes it virtually

impossible for [him] to find new employment in his chosen field.’”

(citations omitted)).

No. 12-3678 13

past noncompliance; (2) it no longer has the opportunity to

correct “actual harm” deficiencies before remedies are im-

posed; and (3) that “past non-compliance” will be factored into

the Rating System by “points associated with a ‘G’ level

deficiency” if Bryn Mawr is found deficient again.

Bryn Mawr’s third contention is quickly dispatched. Bryn

Mawr cites CMS’s Design for Nursing Home Compare Five-Star

Quality Raing System: Technical Users’ Guide (July 2012)

(“Technical User’s Guide”)5 for the fact that past non-compli-

ance is factored into its rating with the addition of points

associated with a “G” level deficiency if the past non-compli-

ance is followed by a “J,” “K,” or “L” deficiency. See Technical

User’s Guide at 4 (describing how facts of compliance history

are assigned point values to factor them into the Rating

System). But this guide has nothing to do with determining

deficiencies or penalties, it merely explains how deficiencies

are factored into the Rating System. See Technical User’s Guide

at 2 (“This document provides a comprehensive description of

the design for the Nursing Home Compare Five-Star Rating

System.”). Even if there could be a similar future defamation

that is more defamatory because of this prior defamation, that

is only a risk of greater stigma. That is not enough. The prior

defamation does not amount to a “stigma plus” unless it

causes a change in legal status. Therefore, this effect of Bryn

Mawr’s having a deficiency on its record is not enough to

trigger a right to due process. The remaining two contentions

require more consideration.

5

Available at http://www.cms.gov/Medicare/Provider-Enrollment-and-

Certification/CertificationandComplianc/Downloads/usersguide.pdf.

14 No. 12-3678

1. Loss of the Opportunity to Correct

When Bryn Mawr was cited with the deficiencies at issue in

this case, it was given the opportunity to correct them before

any remedies were imposed. The regulations gave IDPH the

discretion to afford Bryn Mawr this opportunity. See State

Operations Manual § 7304.1 (Rev. 63 2010). However, after

Bryn Mawr was cited with deficiencies involving actual harm

(“G” level deficiencies”), had it been found deficient on the

next survey, there would have been no opportunity to correct

the deficiencies before remedies were imposed (though it

would be afforded a hearing).6 See State Operations Manual

§ 7304.2.1 (Rev. 63 2010) (mandating that facilities with “G”

deficiencies on the last survey not being given a pre-remedy

opportunity to correct); see also 42 C.F.R. §§ 431.151; 431.153

(providing a hearing when remedies are imposed). Bryn Mawr

6

The follow-up survey where Bryn Mawr was found in compliance did not

alleviate this risk because regulators look to the “previous standard survey.”

State Operations Manual § 7304.2.1 (Rev. 63 2010). Now, while this case has

been pending, Bryn Mawr has performed well on subsequent standard

surveys, so it is no longer at risk of this predicament. Regardless, we must

decide whether this risk was a change in legal status that required a hearing

because a finding of a “G” level deficiency could occur again, but the one-

year reset after standard surveys could result in the issue always evading

review. See, e.g., United States v. Peters, 754 F.2d 753, 757–58 (7th Cir. 1985)

(“A case is not moot, however, where even though the factual controversy

is over, the case involves an order ‘capable of repetition, yet evading

review.’ Two conditions must be met to avoid mootness: ‘the challenged

action was in its duration too short to be fully litigated prior to its cessation

or expiration, and there was a reasonable expectation that the same

complaining party would be subjected to the same action again.’” (citations

omitted)).

No. 12-3678 15

contends that this was an alteration of its right. But what right

was altered? Bryn Mawr never had a right to an opportunity to

correct; such an opportunity was always a matter of IDPH’s

discretion. “A property interest of constitutional magnitude

exists only when the state’s discretion is ‘clearly limited’ such

that the plaintiff cannot be denied the interest ‘unless specific

conditions are met.’” Brown v. City of Mich. City, Ind., 462 F.3d

720, 729 (7th Cir. 2006) (citing Colburn v. Trs. of Ind. Univ., 973

F.2d 581, 589 (7th Cir. 1992)). IDPH’s discretion was subject to

no such limitations. See State Operations Manual § 7304.1 (Rev.

63 2010). Bryn Mawr “cannot point to a state law, or another

independent source, that guarantees [it]” an opportunity to

correct. Brown, 462 F.3d at 729. So, “[b]ecause the right to” an

opportunity to correct deficiencies “is not ‘securely’ [Bryn

Mawr’s], it cannot be claimed as a valid property interest.” Id.

If Bryn Mawr had held a secure right to an opportunity to

correct that was lost—or even altered, e.g., narrowed in

scope—that might have been enough. See Somerset House, Inc.

v. Turnock, 900 F.2d 1012, 1015 (7th Cir. 1990) (“[T]he combina-

tion of the Conditional License with the loss of eligibility for

QUIP funding was sufficient because the loss of eligibility for

funding was a change in legal status.” (emphasis added)); Cameo

Convalescent Ctr., Inc. v. Senn, 738 F.2d 836, 843 (7th Cir. 1984)

(“Cameo’s placement upon the SOR list, like the individual

placed on the list of known drunks in Davis, deprived Cameo

of a right under state law: the right to receive referrals from state

social service departments and agencies.” (emphasis added)). But

because the opportunity to correct is not a right that is securely

Bryn Mawr’s, deprivation or alteration of the opportunity does

not give rise to a right to due process.

16 No. 12-3678

2. Exposure to Enhanced Penalties

When IDPH finds deficiencies at a nursing facility and sets

about selecting which remedy (or remedies) to impose, it is

required to look at a number of factors to determine the

seriousness of the deficiency (the “initial assessment”). The

mandatory factors pertain to the scope and severity of the

particular deficiency found—those factors are summarized in

the table infra at 3. However, IDPH and CMS are not limited to

considering the mandatory factors.

Following the initial assessment, CMS and the State

may consider other factors, which may include, but

are not limited to the following: (1) The relationship

of the one deficiency to other deficiencies resulting

in noncompliance[ and] (2) The facility’s prior

history of noncompliance in general and specifically

with reference to the cited deficiencies.

42 C.F.R. § 488.404(c). Bryn Mawr argues that, the moment it

had the deficiencies at issue in this case on its record, its legal

status was altered because there was the potential that future

deficiencies would be punished with a harsher remedy based

on the past deficiencies. The Secretary responds that Bryn

Mawr’s argument is too contingent and too speculative to

amount to an alteration of a right—if Bryn Mawr is found

deficient in the future IDPH may select a harsher remedy based

on past deficiencies. In return, Bryn Mawr points to Humphries

v. Cnty. of L.A., 554 F.3d 1170, 1187–88 (9th Cir. 2009) rev'd and

remanded on other grounds sub nom. L.A. Cnty., Cal. v. Humphries,

131 S. Ct. 447 (2010).

No. 12-3678 17

In Humphries, the Ninth Circuit held that parents had been

deprived of a liberty interest by being erroneously listed on a

child abuse registry, when California “law effectively

require[d] agencies to check [that] stigmatizing list and

investigate any adverse information prior to conferring a legal

right or benefit” (such as licensure, child custody, or employ-

ment).7 Id. at 1188. The Ninth Circuit reasoned that being on

the list was “an added burden on entities wishing to confer

legal rights or benefits, mak[ing] the chances of receiving a

benefit conferred under California law less likely, and practi-

cally guarantee[ing] that conferral of that benefit will be

delayed.” Id. at 1192. Therefore, the legally imposed burden on

those entities was a “tangible burden” on the parents’ ability

to obtain any of the rights meted out by those entities which

was tantamount to an alteration of the parents’ rights. Id. at

1191–92.8

7

The Ninth Circuit used the phrase “effectively required” because only some

agencies were actually required to check the list, but the court reasoned that

the fact an entity “may” check the list “in conjunction with a rule or custom

of ‘must’ can equally deprive a citizen of a liberty interest giving rise to a

procedural due process claim.” Id. at 1191 (emphasis added).

8

The Second Circuit has reached a similar result where the legal impedi-

ment was even more onerous. See Valmonte v. Bane, 18 F.3d 992, 1001 (2d

Cir. 1994) (“Valmonte has alleged that because of her inclusion on the

Central Register, and because all child care providers must consult that list,

she will not be able to get a job in the child-care field. In other words, by

operation of law, her potential employers will be informed specifically

about her inclusion on the Central Register and will therefore choose not to

hire her. Moreover, if they do wish to hire her, those employers are required by

law to explain the reasons why in writing.” (Emphasis added)). But see Smith v.

(continued...)

18 No. 12-3678

IDPH and CMS are required to look at Bryn Mawr’s

compliance history in the event of future noncompliance to see

whether the agency may allow Bryn Mawr an opportunity to

correct. See, e.g., State Operations Manual § 7304.2.1 (Rev. 63

2010) (necessitating a check of compliance history). But that

check does not alter Bryn Mawr’s rights, see infra 12–13, nor

does it burden IDPH or CMS’s determinations of whether to

confer (or rather maintain) Bryn Mawr’s “rights or benefits”

(participation in the Medicaid program without any remedies).

IDPH or CMS will impose a remedy if there is a new deficiency

and may look to Bryn Mawr’s compliance history as a factor in

selecting a remedy. But the lack of a requirement that IDPH

consider the prior deficiencies in selecting a remedy is only one

thing that distinguishes this case from Humphries. The agencies

that found Bryn Mawr deficient are the same agencies that

would later determine whether to consider those deficiencies

in crafting a remedial plan. And if they decide to base the

remedial plan on that past deficiency as well, Bryn Mawr is

entitled to challenge the past deficiency at the same hearing

that it challenges the new deficiency. See 42 C.F.R.

§ 488.408(g)(1); Fort Tyron Nursing Home v. HCFA, DAB CR425

(H.H.S. 1996).9 Accordingly, any burden the deficiency finding

has on Bryn Mawr’s rights is entirely speculative up until the

(...continued)

Siegelman, 322 F.3d 1290, 1297 (11th Cir. 2003) (rejecting the claim that being

placed on a child abuse index was a deprivation of a liberty interest when

the system contained no similar legal strictures).

9

Available at http://www.hhs.gov/dab/decisions/civildecisions/1996/cr425.

pdf.

No. 12-3678 19

time that Bryn Mawr would be entitled to a hearing to chal-

lenge it. This is a far cry from the state law in Humphries that

required potential employers, licensing agencies, and family

courts to look at a list and investigate the accusations of child

abuse before bestowing any number of rights. The parents

were constantly at risk of being denied rights because of the

burden the law put on the agencies. And, after each denial,

they are left at risk of rejection as they proceed, with the stigma

still attached, to the next agency that must follow the law. The

legal burdens on these agencies was a tangible burden on the

parents. Bryn Mawr is in no such dilemma. Should its specula-

tive harm of enhanced penalties manifest itself, it would

immediately be afforded the opportunity to clear its

name—once and for all.

The Ninth Circuit concluded that legally burdening

numerous agencies and entities by “effectively” requiring them

to check a defamatory list is a tangible burden on an individ-

ual’s obtaining rights that is tantamount to altering that

individual’s rights. We need not decide whether we agree with

the Ninth Circuit. Bryn Mawr lost an opportunity to correct,

and that is not a right. What is a right is Bryn Mawr’s ability to

continue operating as a Medicaid facility without remedies

imposed. That right is not burdened by the deficiency finding

until (or unless) the finding is used to justify a remedy, at which

time a hearing is afforded to challenge the deficiency finding.

One final possibility merits consideration. IDPH and CMS

could decide to select a more serious remedy for a new

deficiency because of the past deficiencies, see 42 C.F.R.

§ 488.404 (permitting consideration of prior noncompliance in

selecting a remedy), but without explicitly stating that the

20 No. 12-3678

remedy is being imposed for the past deficiencies. This does

not appear to be the practice, but neither CMS nor IDPH have

pointed us to a regulation that requires them to cite a past

deficiency as a basis for a remedy. If this were to occur, it

would be impossible for Bryn Mawr to challenge the past

deficiency collaterally. Compare 42 C.F.R. § 488.408(g)(1)

(permitting an “appeal [of] a certification of noncompliance

leading to an enforcement remedy”) with id. at § 488.408(g)(2)

(forbidding appeal of the “choice of remedy, including the

factors considered by CMS or the State in selecting the remedy,

specified in § 488.404.”) (emphasis added); see also 42 C.F.R.

§ 488.404(c)(2) (listing “[t]he facility’s prior history of noncom-

pliance in general and specifically with reference to the cited

deficiencies” among “factors which may be considered in

choosing a remedy”) (emphasis added). Accordingly, a remedy

could be enhanced because of (but not imposed based on) the

past deficiencies and the regulations would quite explicitly

forbid challenging that deficiency because it was merely a

“factor in selecting the remedy” instead of a “certification of

noncompliance leading to an enforcement remedy.”10

At first glance, this appears problematic. For example, if

there had been a subsequent finding of noncompliance, IDPH

would have imposed remedies. See State Operations Manual

§ 7304.2.1 (Rev. 63 2010). These remedies could be based on the

new deficiency alone. However, instead of a $200 per day civil

10

We cannot be sure the Secretary would interpret her regulations this way,

and we do not purport to definitively interpret them here because we have

not been called on to interpret them since this situation has not occurred.

We are merely weighing a harm that Bryn Mawr speculates could occur.

No. 12-3678 21

money penalty, it could have imposed a $300 per day civil

money penalty because, in its internal deliberations, it decided

to consider Bryn Mawr’s “prior history of noncompliance.” 42

C.F.R. § 488.404(c)(2). This internal deliberation, and the

deficiencies it considered, would be unchallengeable. 42 C.F.R.

§ 488.408(g)(2).

However, any due process argument based on this fails for

the same reason that Bryn Mawr’s argument on the loss of the

opportunity to correct fails. It always lies within IDPH or

CMS’s discretion to pick a remedy within a category—that is,

it could impose a $300 civil money penalty regardless of

whether it considered the prior deficiency. The fact that state

and federal regulators may consider a defamatory statement

(in fact, their defamatory statement) in the later exercise of

their discretion is not an alteration of Bryn Mawr’s legal rights.

Brown, 462 F.3d at 72911. If, as a result of the prior defamatory

statement, new remedies not previously available to IDPH or

CMS became available, that might be an alteration of Bryn

Mawr’s rights, but there is no allegation that such is the case

here.

III. Conclusion

Bryn Mawr has been stigmatized, and as a facility com-

pletely filled with Medicaid patients, it is at the mercy of

regulators entrusted by statute with enormous discretion.

11

See also Siegert v. Gilley, 500 U.S. 226, 234 (1991) (“But so long as such

damage flows from injury caused by the defendant to a plaintiff’s reputa-

tion, it may be recoverable under state tort law but it is not recoverable in

a Bivens action.”) (discussing the holding in Paul v. Davis, 424 U.S. at 708–09,

that one does not have a liberty interest in his reputation).

22 No. 12-3678

However, Bryn Mawr has failed to show that any of its rights

have been altered. At worst, regulators may keep a stigmatiz-

ing record of noncompliance to guide the exercise of their

discretion, but without the alteration or extinguishment of a

right, Bryn Mawr has not been deprived of a “life, liberty, or

property” right. U.S. Const. amends. V and XIV, § 1. With no

deprivation of a protected right, Bryn Mawr was not entitled

to an opportunity to challenge the deficiency findings in a

hearing. Id. For the foregoing reasons, the judgment of the

district court is AFFIRMED.