Amicus Curiae Brief — Theresa Eagleson, Director, Illinois Department of Healthcare and Family Services, Petitioner v. St. Anthony Hospital, et al.

No. 22-534

In the Supreme Court of the United States

THERESA EAGLESON, DIRECTOR OF THE ILLINOIS

DEPARTMENT OF HEALTHCARE AND FAMILY

SERVICES,

Petitioner,

v.

ST. ANTHONY HOSPITAL, et al.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the

Seventh Circuit

Amicus Curiae Brief of the Medicaid Health

Plans of America in Support of Petitioner

MICHAEL KOLBER

MANATT, PHELPS &

PHILLIPS, LLP

7 Times Square

New York, NY 10036

MARINA SHVARTS

MANATT, PHELPS &

PHILLIPS, LLP

2049 Century Park

East, Suite 1700

Los Angeles, CA 90067

STEPHEN D. LIBOWSKY*

Counsel of Record

MANATT, PHELPS &

PHILLIPS, LLP

151 North Franklin

Street, Suite 2600

Chicago, IL 60606

slibowsky@manatt.com

(312) 477-4798

Counsel for Amicus Curiae

i

TABLE OF CONTENTS

INTEREST OF AMICUS CURIAE ........................ 1

SUMMARY OF THE ARGUMENT........................ 2

ARGUMENT ........................................................... 7

I.

Inventing a Novel and Unjustified

Private Right of Action Carries High

Stakes. .......................................................... 7

A.

The Seventh Circuit’s Decision

Will Adversely Impact Managed

Care Programs Affecting

Millions of Enrollees and

Hundreds of Billions of Dollars

in Expenditures. ................................ 7

B.

MCOs Provide Important

Benefits for the Health Care

System. ............................................... 9

II.

In the Managed Care Model, ProviderMCO Disputes Are Governed by

Contract Law and State

Administrative Remedies........................... 11

III.

Creating a New Federal Private Right

of Action to Allow Providers to Evade

Contractual Dispute Resolution

Mechanisms or State Contract Law

Will Inject Costs and Uncertainty into

the Medicaid Managed Care System. ........ 16

ii

TABLE OF CONTENTS

(continued)

IV.

A.

Creating a New Private Right of

Action Disrupts Existing

Contract Dispute Resolution

Procedures and Ignores the

Parties’ Bargained-for Terms. ......... 16

B.

A Federal Private Right of

Action for Prompt Payment

Violations Would Unnecessarily

Burden States and Federal

Courts Without Evidence that

Presently Available Remedies

Cannot Resolve These Disputes. ..... 18

C.

The Unspecified Boundaries

and Remedies of the New Right

Inject Needless Uncertainty

Into the Managed Care System. ..... 20

There Is No Crisis of MCO Late

Payments to Necessitate the Seventh

Circuit’s Drastic Remedy. .......................... 22

CONCLUSION ...................................................... 25

iii

TABLE OF AUTHORITIES

CASES

AT&T Mobility LLC v. Concepcion,

563 U.S. 333 (2011)........................................... 16

Harris v. McRae,

448 U.S. 297 (1980)............................................. 7

Mitsubishi Motors Corp. v. Soler ChryslerPlymouth, Inc.,

473 U.S. 614 (1985)........................................... 17

Moses H. Cone Mem’l Hosp. v. Mercury

Constr. Corp.,

460 U.S. 1 (1983)............................................... 17

STATUTES & REGULATIONS

42 U.S.C. § 1396-1 .................................................... 7

42 U.S.C. § 1396a(a)(5) ............................................ 8

42 U.S.C. § 1396a(a)(10) .......................................... 8

42 U.S.C. § 1396a(a)(23) .......................................... 8

42 U.S.C. § 1396a(a)(37)(A) ................................3, 13

42 U.S.C. § 1396b(m)(2)(A) .................................... 11

42 U.S.C. § 1396u-2.................................................. 8

42 U.S.C. § 1396u-2(b)(1) ......................................... 8

42 U.S.C. § 1396u-2(b)(2) ......................................3, 8

42 U.S.C. § 1396u-2(f) ...................................3, 12, 13

40 Pa. Stat. Ann. § 991.2161 ................................. 15

305 Ill. Comp. Stat. Ann. 5/5-30.1(g-6).................. 23

305 Ill. Comp. Stat. Ann. 5/5-30.1(g-7).................. 23

iv

TABLE OF AUTHORITIES

(continued)

305 Ill. Comp. Stat. Ann. 5/5-30.1(g-8).................. 15

Ariz. Rev. Stat. Ann. § 36-2903.01.B.4 .................. 15

Ark. Code Ann. § 20-77-1701 et seq. ...................... 15

Cal. Health & Saf. Code § 1371.39(a).................... 15

Tenn. Code Ann. § 56-32-126................................. 15

42 C.F.R. § 438.3 .................................................... 11

42 C.F.R. § 438.4(b)(9) ........................................... 23

42 C.F.R. § 438.6 .................................................... 10

42 C.F.R. § 438.8(j)................................................. 23

42 C.F.R. § 438.8(k)(1) ........................................... 23

42 C.F.R. § 438.68 .................................................. 23

42 C.F.R. § 438.114(c)(1)(i) ...................................2, 3

N.M. Code R. § 8.308.15.10.................................... 15

OTHER AUTHORITIES

CMS, August 2022 Medicaid & CHIP

Enrollment Data Highlights,

https://www.medicaid.gov/medicaid/progr

am-information/medicaid-and-chipenrollment-data/reporthighlights/index.html (last visited Jan. 3,

2023) .................................................................... 7

v

TABLE OF AUTHORITIES

(continued)

Commonwealth Fund, How States Are Using

Comprehensive Medicaid Managed Care

to Strengthen and Improve Primary

Health Care (July 30, 2020),

https://www.commonwealthfund.org/publi

cations/issue-briefs/2020/jul/how-statesare-using-comprehensive-medicaidmanaged-care .................................................... 11

Cong. Rsch. Serv., Medicaid: An Overview

(updated Feb. 22, 2021),

https://crsreports.congress.gov/product/pd

f/R/R43357........................................................... 7

Elizabeth Hinton & Lina Stolyar, 10 Things

to Know About Medicaid Managed Care,

KFF (Feb. 23, 2022),

https://www.kff.org/medicaid/issuebrief/10-things-to-know-about-medicaidmanaged-care ...........................................9, 10, 11

Health Management Assocs., Medicaid

Managed Care Spending Tops $420

Billion in 2021 (Sept. 1, 2022),

https://www.healthmanagement.com/blog/

medicaid-managed-care-spending-tops420-billion-in-2021 .............................................. 7

vi

TABLE OF AUTHORITIES

(continued)

Ill. Dept. of Healthcare & Family Servs.,

Analysis of HFS-Contracted MCO Claims

Processing and Payment Performance for

Services in Q1 and Q2 of CY 2021,

www2.illinois.gov/hfs/SiteCollectionDocu

ments/MCOHospitalClaimsProcessingRe

portQ1AndQ22021.pdf...................................... 24

Illinicare Health Provider Manual, N.D. Ill.,

Dkt. No. 83-2 ..................................................... 14

Iowa Dept. of Human Servs., Managed Care

Organization (MCO) Annual Performance

Report - SFY21 (Dec. 2021),

https://www.legis.iowa.gov/docs/publicatio

ns/DF/1231688.pdf ............................................ 24

Jungwon Park, Length of Stay and Inpatient

Costs Under Medicaid Managed Care in

Florida, INQUIRY: J. Health Care Org.,

Provision, and Fin., Oct. 14, 2015,

www.ncbi.nlm.nih.gov/pmc/articles/PMC5

813651/pdf/10.1177_0046958015610762.p

df ........................................................................ 10

Kaiser Family Found., Total Medicaid MCO

Enrollment (updated July 1, 2020),

https://www.kff.org/other/stateindicator/total-medicaid-mco-enrollment .......8, 9

Kaiser Family Found., Total Medicaid MCO

Spending (updated Aug. 2022),

https://www.kff.org/other/stateindicator/total-medicaid-mco-spending...........8, 9

vii

TABLE OF AUTHORITIES

(continued)

Kathleen Healy-Collier et al., Medicaid

Managed Care Reduced Readmissions for

Youth With Type 1 Diabetes, 22 Am. J.

Managed Care 250 (Apr. 2016),

https://cdn.sanity.io/files/0vv8moc6/ajmc/2

b231983beedca72dfdac5178de1ba62347e5

3f1 ...................................................................... 10

Lisa P. Oakley et al., Oregon’s Coordinated

Care Organizations and Their Effect on

Prenatal Care Utilization Among

Medicaid Enrollees, 21 Maternal & Child

Health J. 1784 (Sept. 2017) .............................. 10

Medicaid & CHIP Payment & Access

Comm’n, Managed Care,

https://www.macpac.gov/topics/managedcare (last visited Jan. 3, 2023) ........................... 9

Medicaid & CHIP Payment & Access

Comm’n, Provider Payment and Delivery

Systems,

https://www.macpac.gov/medicaid101/provider-payment-and-deliverysystems (last visited Jan. 3, 2023) ............8, 9, 10

Meridian Health Plan Illinois Hospital

Agreement with Saint Anthony Hospital,

N.D. Ill. Dkt. No. 78-1............................12, 13, 14

viii

TABLE OF AUTHORITIES

(continued)

State of Illinois Contract Between

Department of Healthcare and Family

Services and [Model Contract] for

Furnishing Health Services by a

Managed Care Organization,

https://www2.illinois.gov/hfs/SiteCollectio

nDocuments/2018MODELCONTRACTad

ministrationcopy.pdf (last visited Jan. 3,

2023) .................................................12, 13, 15, 23

Tianyan Hu & Karoline Mortensen,

Mandatory Statewide Medicaid Managed

Care in Florida and Hospitalizations for

Ambulatory Care Sensitive Conditions,

53:1 Health Servs. Rsch. 293 (Feb. 2018),

https://www.ncbi.nlm.nih.gov/pmc/articles

/PMC5785303/pdf/HESR-53-293.pdf ............... 10

1

INTEREST OF AMICUS CURIAE 1

Amicus curiae Medicaid Health Plans of America

(MHPA) is a nonprofit trade association of managed

care organizations (MCOs), with a sole focus on

Medicaid managed care. It represents more than 130

MCOs serving more than 49 million Medicaid

beneficiaries in 40 states, the District of Columbia,

and Puerto Rico. MHPA’s members include both forprofit and nonprofit entities, national and regional

MCOs, as well as single-state health plans that

compete in the Medicaid market. Since 1995, MHPA

has promoted the interests of the MCO industry

through federal advocacy, research, annual

conferences, and educational materials, among

other activities. MHPA is dedicated to supporting

innovative policy solutions to enhance the delivery

and coordination of comprehensive, cost-effective,

and quality health care for Medicaid enrollees.

Over the course of two generations, managed

care has evolved to become a model for Medicaid care

in the United States. Medicaid MCO health plans

have pioneered systems, protocols, and treatments

to arrange for the provision of quality care, to

produce robust outcomes, and to deliver budget

predictability on a large scale—consistent with

MHPA’s members’ values and mission-driven

approach to care. MHPA has an interest in

maintaining and expanding managed care’s benefits

1 Counsel for MHPA authored this brief in whole, and no person

or entity other than MHPA, or its members or counsel made a

monetary contribution to the preparation or submission of this

brief. Counsel for MHPA notified counsel of record for all

parties in this case of its intention to file this brief.

2

to all eligible individuals and populations and to

mitigate policy changes that undermine the

Medicaid managed care system.

SUMMARY OF THE ARGUMENT

This case should have been a routine

reimbursement

dispute

between

contracted

providers and payors of health care services. An

Illinois hospital alleged that Medicaid MCOs failed

to timely pay claims in accordance with prompt

payment obligations. A clear, effective, and wellestablished path exists for providers and MCOs to

resolve reimbursement conflicts—parties can

enforce their contractual rights, turn to available

state administrative remedies in a health care

system subject to extensive regulatory oversight, or

both.

The Seventh Circuit, however, trailblazed a new

route by recognizing a private right of action under

Section 1983 to permit providers dissatisfied with

the timeliness or amounts of MCO payments to sue

the State in federal court. The Seventh Circuit

engrafted this novel right of action onto a statute

that does not impose any duty on States to serve as

direct guarantors of MCO payments, but which, to

the contrary, affirms that in the managed care

system, the payment of claims lies in the realm of

contract. 2 This novel right of action drastically

2 A limited caveat to the purely contractual relationship exists

for non-contracted emergency services for which providers are

entitled to receive payment under federal law. See 42 C.F.R. §

438.114(c)(1)(i). This circumstance is not at issue in this case,

and an extensive statutory and regulatory regime addresses

those payments, which are the legal responsibility of the MCO,

3

redefines the rights, obligations, and relationships of

stakeholders in the Medicaid managed care system

and threatens to destabilize that health care system,

affecting millions of lives in Illinois and beyond.

The managed care system—which provides

Medicaid benefits to approximately 70% of the

nation’s 80 million Medicaid enrollees—operates via

a series of contractual relationships: States contract

with MCOs to provide or arrange for the provision of

health care services to Medicaid beneficiaries. And

MCOs contract with providers to deliver those

services. Contracts, with comprehensive regulatory

oversight, govern every aspect of the provider-payor

relationship, including claims processing, payment,

and resolution of claim disputes.

Section 1932(f) of the Social Security Act, 42

U.S.C. § 1396u-2(f), from which the new right

emanates, fits squarely within this contractual

framework: States must include provisions

addressing prompt payment in contracts with

MCOs. “A contract . . . with a medicaid managed care

organization shall provide that the organization

shall make payment” to health care providers “on a

timely basis consistent with the claims payment

procedures described in section 1396a(a)(37)(A) of

this title, unless the health care provider and the

organization agree to an alternate payment

schedule[.]” Section 1396a(a)(37)(A) requires 90% of

claims for covered services “for which no further

written information or substantiation is required in

order to make payment,” i.e., clean claims, to be paid

not the State.

§ 438.114(c)(1)(i).

42

U.S.C.

§ 1396u-2(b)(2);

42

C.F.R.

4

within 30 days of receipt, and 99% within 90 days of

receipt (the “Timely Payment Clause”). 3

The Timely Payment Clause is enforceable by

States against MCOs via contractual claims and by

providers via their own respective contracts with

MCOs, or via available state administrative

remedies. The Seventh Circuit held that the Timely

Payment Clause is also enforceable via a federal

lawsuit to compel States to take some undefined

action to “ensure that providers receive prompt

payment from MCOs.” Pet. App. 38a–39a.

The Seventh Circuit understood that creating

this heretofore unknown right could have

consequences that “cause a massive disruption to

the State’s Medicaid program.” Pet. App. 40a

(internal quotation marks omitted). And it will—in

more ways than the Seventh Circuit appreciated—

by adding tremendous costs, uncertainty, and risk

for the managed care system and its millions of

beneficiaries.

First, the new right permits contracted providers

to evade and ignore the bargained-for dispute

resolution mechanisms established in their

agreements with MCOs, which typically require

binding arbitration. This violates settled federal

policy in favor of arbitration and undermines the

expectations on which plan and provider business

relationships were built: that disputes will be

3 There is no dispute that Illinois incorporated the required

provisions into its MCO agreements. Pet. App. 59a (Brennan,

J., dissenting) (“the Hospital admits that the State’s contracts

do include the necessary payment provisions”).

5

resolved in an efficient and cost-effective manner,

including in arbitration, state-court contract

litigation, or available state administrative

proceedings. Contrary to those expectations, the

decision below risks embroiling States and MCOs in

expensive, uncertain, and prolonged federal court

litigation that the contracts, and indeed the entire

statutorily designed structure of managed care,

were designed to avoid.

Second, the new right will impose tremendous

burdens on States and federal courts, and inevitably

burden the Medicaid system with additional costs

because payment issues are a fact-intensive inquiry

that will require a deep dive into the adjudication of

countless claims. This is so because only claims that

meet the contractual standards for payment (clean

claims) must be paid promptly. To determine if

violations of the Timely Payment Clause occurred,

craft an injunction to avoid future violations, and

monitor compliance, States and courts will have to

first determine if claims are clean, including being

for covered services, timely submitted, and inclusive

of all information needed for adjudication. A dispute

over prompt payment is inherently a contractual

reimbursement dispute to decide if claims are

covered and otherwise payable. It is well-suited for

existing dispute resolution forums and, as the

Seventh Circuit recognized, “inappropriate” for

federal courts. Pet. App. 40a–41a (“requiring the

district court to adjudicate issues at the claim-byclaim level . . . would be inappropriate”).

Third, the Seventh Circuit created tremendous

uncertainty and risk in failing to specify the

boundaries of the new right or possible remedies. It

6

understood that some parameters are required and

held that only alleged systemic failures open federal

court doors. “[R]etail-level relief,” or “claim-by-claim

level” adjudication, “would be inappropriate” for the

federal forum. Pet. App. 40a–41a. But it refused to

clarify what rises to the level of systemic violation—

a standard not tethered to statutory text—inviting

countless lawsuits as providers experiment in the

art of pleading this new claim. Indeed, it is an

untenable distinction since the statutory standard is

already a systemic one because it establishes an

aggregate performance standard. But if a provider

challenges payments, the only way to evaluate

compliance is through claim-by-claim analysis.

While courts work through the task of defining the

threshold, the managed care system will be

ensnared in costly lawsuits with uncertain outcomes

for years.

Finally, in failing to specify what remedies are

available, the Seventh Circuit risks serious harm

and disruption of health care for millions of

enrollees. As an example, courts are ill-suited to

weigh the discretionary issues in determining what

quantum of harm or potential harm merits

terminating an MCO’s state contract and creating

disruptions to patients and providers (nonparties

who are not before the court) that will ensue. Yet,

these are the types of decisions that are foisted on

the federal courts by the decision below.

The Seventh Circuit acknowledged that this is a

“high stakes” case for stakeholders in the Medicaid

system, and that lower courts may impose “judicial

relief that would be hard to justify,” and handle this

case (and others like it) in “poor ways[.]” Pet. App.

7

12a, 48a. The stakes of experimentation gone awry

are too high to open the door by inventing this new

right. Given the significant consequences for

Medicaid managed care programs nationwide

involving dozens of States, millions of people, and

hundreds of billions of dollars in spending each year,

the Court should grant the petition and reverse the

ruling of the Seventh Circuit.

ARGUMENT

I. Inventing a Novel and Unjustified Private

Right of Action Carries High Stakes.

A.

The Seventh Circuit’s Decision Will

Adversely Impact Managed Care

Programs

Affecting

Millions

of

Enrollees and Hundreds of Billions of

Dollars in Expenditures.

Medicaid is the joint state-federal program to

provide health coverage to low-income individuals,

established under title XIX of the Social Security

Act, 42 U.S.C. §§ 1396-1 et seq., Harris v. McRae, 448

U.S. 297, 308 (1980). Medicaid covers around 80

million enrollees.4 With expenditures in 2021 of over

$740 billion, Medicaid is one of the largest payors in

the U.S. health care system. 5

CMS, August 2022 Medicaid & CHIP Enrollment Data

Highlights,

https://www.medicaid.gov/medicaid/programinformation/medicaid-and-chip-enrollment-data/reporthighlights/index.html (last visited Jan. 3, 2023).

4

Health Management Assocs., Medicaid Managed Care

Spending Tops $420 Billion in 2021 (Sept. 1, 2022),

https://www.healthmanagement.com/blog/medicaid-managedcare-spending-tops-420-billion-in-2021; Cong. Rsch. Serv.,

5

8

Congress gave States great flexibility in

administering their Medicaid programs. See 42

U.S.C. §§ 1396a(a)(5), (23), 1396u-2. In exercising

that discretion, States have overwhelmingly chosen

managed care delivery systems. Under the

traditional fee-for-service model, a single state

Medicaid agency pays providers the rates specified

in the state plan for covered health care services.

Under the managed care model, States pay MCOs a

capitation rate—a fixed dollar payment per member

per month (PMPM) and shift the risk of cost

variability and burdens of claims processing and

other administration to MCOs.6 In exchange for

these PMPM payments, States require MCOs to

provide or arrange for the provision of a defined set

of services to each person enrolled in the plan. See

42 U.S.C. §§ 1396a(a)(10), 1396u-2(b)(1), (2).

Over 70% of Medicaid beneficiaries and over 50%

of Medicaid expenditures are in managed care. 7

Forty states plus the District of Columbia enroll at

least some of their beneficiaries in comprehensive

Medicaid: An Overview, at 1 (updated Feb. 22, 2021),

https://crsreports.congress.gov/product/pdf/R/R43357.

Medicaid & CHIP Payment & Access Comm’n (MACPAC),

Provider

Payment

and

Delivery

Systems,

https://www.macpac.gov/medicaid-101/provider-payment-anddelivery-systems (last visited Jan. 3, 2023).

6

Kaiser Family Found. (KFF), Total Medicaid MCO

Enrollment

(updated

July

1,

2020),

https://www.kff.org/other/state-indicator/total-medicaid-mcoenrollment; KFF, Total Medicaid MCO Spending (updated

Aug. 2022), https://www.kff.org/other/state-indicator/totalmedicaid-mco-spending.

7

9

risk-based managed care plans.8 Illinois has

embraced the managed care model and has followed

this national trend since 2006. MCOs now cover over

70% of Illinois Medicaid beneficiaries (over 2.1

million people and over $10 billion per year). Pet.

App. 15a.9

B.

MCOs Provide Important Benefits for

the Health Care System.

The managed care payment model has gained

broad acceptance because of the benefits it provides

States and beneficiaries, including the ability of

States to gain greater control and predictability over

Medicaid budgets by paying MCOs a fixed monthly

fee, not based on utilization, to provide health care

services. 10 The risk of health care costs exceeding

the States’ payment and the burden of day-to-day

plan administration and claims processing is now on

the MCOs. 11

States also have the ability to set and require

MCOs to meet health care quality and outcome

targets for Medicaid populations—such as

8 Elizabeth Hinton & Lina Stolyar, 10 Things to Know About

Medicaid Managed

Care,

KFF (Feb.

23, 2022),

https://www.kff.org/medicaid/issue-brief/10-things-to-knowabout-medicaid-managed-care.

9 See also KFF, Total Medicaid MCO Enrollment, supra note 7;

KFF, Total Medicaid MCO Spending, supra note 7.

10 Hinton & Stolyar, supra note 8; MACPAC, Managed Care,

https://www.macpac.gov/topics/managed-care (last visited Jan.

3, 2023).

11 MACPAC, Provider Payment and Delivery Systems, supra

note 6.

10

improving

disease

management,

increasing

preventative care utilization, and reducing

hospitalizations—by tailoring financial incentives,

like performance bonuses and penalties, to achieve

desired goals. See 42 C.F.R. § 438.6.12

The managed care model allows for robust care

coordination, reduction of wasteful utilization, and

incentives for preventative care. MCOs have

delivered cost savings and improved outcomes for

patients’ health and State budgets. For example,

MCOs have demonstrated that care can be

effectively delivered in lower cost settings, driving

nationwide shifts from inpatient to outpatient care;

reducing

unnecessary

hospital

admissions,

readmissions, and lengths of stay; and increasing

access to primary care services. 13

12 MACPAC, Provider Payment and Delivery Systems, supra

note 6; Hinton & Stolyar, supra note 8.

Kathleen Healy-Collier et al., Medicaid Managed Care

Reduced Readmissions for Youth With Type 1 Diabetes, 22 Am.

J.

Managed

Care

250,

250–51

(Apr.

2016),

https://cdn.sanity.io/files/0vv8moc6/ajmc/2b231983beedca72df

dac5178de1ba62347e53f1.pdf; Tianyan Hu & Karoline

Mortensen, Mandatory Statewide Medicaid Managed Care in

Florida and Hospitalizations for Ambulatory Care Sensitive

Conditions, 53:1 Health Servs. Rsch. 293, 293, 304–06 (Feb.

2018),

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5785303/pdf/

HESR-53-293.pdf; Jungwon Park, Length of Stay and Inpatient

Costs Under Medicaid Managed Care in Florida, INQUIRY: J.

Health Care Org., Provision, and Fin., Oct. 14, 2015, at 1,

www.ncbi.nlm.nih.gov/pmc/articles/PMC5813651/pdf/10.1177

_0046958015610762.pdf; Lisa P. Oakley et al., Oregon’s

Coordinated Care Organizations and Their Effect on Prenatal

13

11

MCOs also allow States to innovate and address

members’ total health needs by addressing various

social determinants of health in their service

offerings. Among other things, MCOs provide

referrals to social services, screen enrollees for

behavioral health and social needs, and partner with

community-based organizations, with the goal of

improving health outcomes for State Medicaid

populations.14 The nationwide shift from fee-forservice systems to managed care has occurred in

part because MCOs have made these positive

contributions to the health care system.

II. In the Managed Care Model, Provider-MCO

Disputes Are Governed by Contract Law

and State Administrative Remedies.

The Medicaid managed care system is based on

contracts, and is subject to strict regulatory

oversight. See, e.g., 42 C.F.R. § 438.3 (requiring

States to submit MCO contracts to CMS for review

and mandating inclusion of specific provisions).

States enter into contracts with MCOs requiring

MCOs to provide or arrange for the provision of

covered services to state Medicaid enrollees in

exchange for a PMPM capitation payment. See 42

Care Utilization Among Medicaid Enrollees, 21 Maternal &

Child Health J. 1784 (Sept. 2017).

14 Hinton & Stolyar, supra note 8; The Commonwealth Fund,

How States Are Using Comprehensive Medicaid Managed Care

to Strengthen and Improve Primary Health Care (July 30,

2020), https://www.commonwealthfund.org/publications/issuebriefs/2020/jul/how-states-are-using-comprehensive-medicaidmanaged-care.

12

U.S.C. §§ 1396b(m)(2)(A), 1396u-2(f).15 MCOs

contract with providers, who ultimately deliver the

services. Id.; Pet. App. 14a. Providers that contract

with MCOs willingly choose to participate in the

Medicaid program and enter into agreements with

plans.

MCO agreements with providers cover all

aspects of their relationship.16 In relevant part, as

illustrated by the contracts at issue here, they detail

requirements for claim submission, processing, and

reimbursement procedures, and establish a dispute

resolution process:

•

Providers must submit claims for

reimbursement within time frames set

forth in the agreement, typically within

180 days of rendering a service. N.D. Ill.

Dkt. No. 78-1 at p. 14 ¶ 4.2.2 (Meridian

Health Plan Illinois Hospital Agreement

with Saint Anthony Hospital (Meridian

HSA)).

15 See, e.g., State of Illinois Contract Between Department of

Healthcare and Family Services and [Model Contract] for

Furnishing Health Services by a Managed Care Organization

(Illinois

Model

MCO

Contract),

https://www2.illinois.gov/hfs/SiteCollectionDocuments/2018M

ODELCONTRACTadministrationcopy.pdf (last visited Jan. 3,

2023).

16 A limited exception from this framework is out-of-network

emergency services, which are not at issue in this case. Those

are governed by extensive rules specifically applicable to those

services.

13

•

Plans will pay a “clean claim” within a

certain number of days of receipt, typically

30 days. Meridian HSA at p. 14 ¶ 4.3.

•

Among other things, a clean claim:

o is submitted within the time frame

required under the agreement;

o contains all information necessary

for processing and payment, such as

accurate provider and patient

name, date of service, insurance

plan, and proper codes indicating

services rendered;

o is for a service covered under the

agreement.

o is for a medically necessary service;

o is for a member enrolled in the plan;

and

o is not a duplicate claim. Meridian

HSA at pp. 5–6 ¶ 1.3; Illinois Model

MCO Contract, supra note 15, ¶

5.29.

Provider-MCO contracts may include a prompt

payment schedule. If not, State contracts with

MCOs require MCOs to reimburse, in the aggregate,

90% of clean claims for covered services within 30

days of receipt, and 99% of all clean claims within 90

days. 42 U.S.C. §§ 1396a(a)(37)(A), 1396u-2(f);

Illinois Model MCO Contract, supra note 15, ¶ 5.29.

If disputes arise between MCOs and providers,

contracts spell out the dispute resolution

14

mechanisms and available remedies that govern the

dispute. By way of example:

•

Providers can submit requests for appeal or

reconsideration of adverse claims decisions

within specified time frames. N.D. Ill. Dkt.

No. 83-2 at pp. 57–59 (Illinicare Health

Provider

Manual

describing

provider

complaint process).

•

Plans and providers must provide notice of all

billing disputes and make a good faith effort

to negotiate and resolve them. Meridian HSA

at pp. 15–16 ¶¶ 4.9, 6.1.

•

If negotiation fails, either party may request

mediation. Meridian HSA at p. 16 ¶ 6.2.1.

•

If the parties do not mediate, or mediation

does not resolve the dispute, either party may

seek binding arbitration. Meridian HSA at p.

16 ¶ 6.2.2.

•

If there are no alternative dispute resolution

provisions in the contract, the provider has

whatever state law contract rights and

remedies that are available in state court

litigation.

Ultimately, the relationship between MCOs and

providers is governed by those parties’ contracts,

and contract law controls the handling of disputes.

States have provided additional administrative

remedies, such as mechanisms for providers to

submit grievances or complaints about payment,

and tools to remedy violations, not limited to

imposing monetary sanctions, placing MCOs on

15

corrective action plans, and terminating the

contractual relationship with the MCOs. For

example, in Illinois the Department of Healthcare

and Family Services maintains a provider complaint

portal through which providers can submit

unresolved disputes with MCOs. The regulator can,

among other things, make MCOs pay claims, and its

decisions are final. 305 Ill. Comp. Stat. Ann. 5/530.1(g-8); Illinois Model MCO Contract, supra note

15 ¶¶ 7.16, 7.16.9, 8.5. Similarly, in California,

providers may submit complaints about unfair

payment patterns, and other grievances, to the

Department of Managed Health Care. See, e.g., Cal.

Health & Saf. Code § 1371.39(a).

States across the country have adopted

mechanisms allowing for the expeditious submission

and resolution of provider disputes. See, e.g., Ariz.

Rev. Stat. Ann. § 36-2903.01.B.4 (Arizona

grievances and appeal system); Ark. Code Ann. §§

20-77-1701 et seq. (Arkansas Medicaid Fairness

Act); N.M. Code R. § 8.308.15.10 (New Mexico

provider appeal rights against MCOs); 40 Pa. Stat.

Ann. § 991.2161 (Pennsylvania grievances and

appeals system); Tenn. Code Ann. § 56-32-126

(Tennessee prompt payment requirements and

dispute resolution).

The foregoing contractual and administrative

remedies can address (and have addressed) any

dispute that may arise between the parties over

payment.

16

III. Creating a New Federal Private Right of

Action to Allow Providers to Evade

Contractual

Dispute

Resolution

Mechanisms or State Contract Law Will

Inject Costs and Uncertainty into the

Medicaid Managed Care System.

A.

Creating a New Private Right of Action

Disrupts Existing Contract Dispute

Resolution Procedures and Ignores the

Parties’ Bargained-for Terms.

Claims reimbursement disputes between

providers and MCOs are an inevitable part of doing

business and are expressly accounted for in parties’

agreements. MCOs process extremely large

numbers of claims, and mistakes sometimes occur.

Providers sometimes input incorrect procedure or

diagnosis codes, omit necessary information, or

submit claims to the wrong payor. Payors may

misread or miss information provided or apply an

incorrect rate. Parties may also have substantive

disagreements: Was a service covered? Was it

medically necessary? Was it performed in an

appropriate clinical setting?

Agreed-upon dispute resolution procedures in

contracts add value to the health care delivery

system by encouraging less costly and less timeconsuming informal resolution processes and

minimizing disruption to the parties’ ongoing

business operations. See AT&T Mobility LLC v.

Concepcion, 563 U.S. 333, 344 (2011) (“The point of

affording parties’ discretion in designing arbitration

processes is to allow for efficient, streamlined

procedures”).

17

The private right of action created by the Seventh

Circuit eviscerates these benefits by enabling

providers to ignore their contracts and march into

federal court over claims disputes. It also conflicts

with the parties’ bargained-for rights to channel

disputes into arbitration. Enforcing arbitration

rights is a well-established federal policy. See, e.g.,

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614, 626–28 (1985); Moses H. Cone

Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24

(1983).

The Seventh Circuit’s decision to rewrite the law

rests fundamentally on an unfounded assumption—

that contract law cannot remedy alleged breaches

because “[a]rbitration provisions in . . . contracts

would likely require arbitration for each individual

claim in dispute,” necessitating “thousands of

individual” arbitrations. Pet. App. 17a. The opposite

is true. Payors and providers often engage in

arbitrations or state court contract litigation to

address broad reimbursement issues across

extended time periods and numerous claims. The

extensive authority given to arbitrators and state

court judges to provide relief is more than adequate

to leave reimbursement disputes in their hands. And

there is no indication on the record here that Saint

Anthony’s allegations of underpayment by Illinois

MCOs require a novel federal remedy because they

could not be resolved via contractual remedies. Saint

Anthony never tried to assert its contractual rights.

The Seventh Circuit contends that the new right

is justified because it concerns not individual claims

disputes, but alleged systemic violations. But the

case that would be heard in federal court is

18

fundamentally comprised of individual claim

adjudications, and calling this a “systemic” question

does not create a distinct species of conflict. Timely

payment disputes always involve aggregate

assessments of MCO payments, which inevitably

require review of individual claim adjudications to

assess whether each claim was clean and when it

became clean: Was the claim accurate, and did it

contain all the necessary and required information?

Did it pertain to covered services? Was it timely

submitted? These inquiries involve contractual

questions that should be, as they always have been,

resolved in arbitration, state courts, or state

administrative proceedings, and not in federal court

under a newly created federal right found in no

federal statute or regulation. See Pet. App. 69a

(Brennan, J., dissenting) (“Congress’s chosen tools

for ensuring prompt payment” are “private suits and

arbitration by healthcare providers against MCOs,

along with discretionary enforcement by states”).

B.

A Federal Private Right of Action for

Prompt Payment Violations Would

Unnecessarily Burden States and

Federal Courts Without Evidence that

Presently Available Remedies Cannot

Resolve These Disputes.

Because examination of underlying claims is

unavoidable if a provider contests timely payment,

the new right of action would require States, and

ultimately federal courts, to micromanage MCO

claims adjudication. Indeed, States would have to

engage in parallel claims processing and real-time

dispute resolution to avoid being hauled into federal

court for failing to ensure that MCOs promptly pay.

19

Pet. App. 71a (Brennan, J., dissenting) (“‘day-to-day’

functions and enforcement are returned to the

states”). Federal courts would likewise have to

examine the minutiae of individual claim

determinations to see whether they satisfy the

aggregate standard. Pet. App. 70a (Brennan, J.,

dissenting) (“[A] district court can hardly decide if

an MCO has systemically underperformed if it does

not examine claims for untimely payment on the

merits, and then determine whether the ‘systemic’

threshold has been reached.”).

The Seventh Circuit acknowledged that managed

care claims processing is a task Congress intended

to be handled by MCOs, with the goal of limiting

administrative burdens on States: “We recognize

that part of the rationale for adopting the managedcare model was to ease the State’s administrative

burden. Measures that would force [the State] to

take a more aggressive oversight role could reduce

some of the administrative benefits the State hoped

to gain by the switch to managed care.” Pet. App.

44a; see also Pet. App. 62a (Brennan, J., dissenting)

(“[T]he managed care structure was designed to

alleviate the burden on states of managing the ‘dayto-day’ functions previously performed by states

under a fee-for-service system.”).

The Seventh Circuit also acknowledged that

claims disputes are not an appropriate area for

federal courts: “any form of retail-level relief, i.e.,

requiring the district court to adjudicate issues at

the claim-by-claim level[] would strain judicial

resources . . . .” Pet. App. 40a. “A process that

required a district judge to micromanage claims

would be inappropriate here.” Pet. App. 41a.

20

But “micromanag[ing] claims” is precisely what

this new right of action would require. MCOs and

States would be forced to abandon efficient processes

and procedures in place, state contract law would be

ignored, and federal courts would be forced into the

role of super claims administrator.

Caution and prudence would dictate that prior to

enacting a new federal right of action—not found in

any statute or regulation—to force States to

“ensure” that timely payments are made by MCOs,

one would at least first determine whether existing

remedies, including enforcement of the MCOprovider contract under State contract law, are

insufficient. There is no such evidence—

arbitrations, state contractual claims, and state

administrative remedies can and do remedy any

MCO noncompliance with the Timely Payment

Clause if necessary.

Congress put in place a system that has worked

for decades, and there is no reason to change it

because one provider refuses to follow the wellestablished path under contract law to bring its

claims.

C.

The Unspecified Boundaries and

Remedies of the New Right Inject

Needless

Uncertainty

Into

the

Managed Care System.

The burdens on all stakeholders in the managed

care system are exacerbated by the fact that the

Seventh Circuit created an expansive legal right for

individual providers without providing clarity on the

circumstances under which the right applies or

21

detailing the remedies available to providers in

exercising their rights.

The only guidance offered is that the alleged

violation must entail something more than a few late

payments, but when the failure to comply with the

Timely Payment Clause becomes a “systemic

problem” is anyone’s guess. Pet. App. 46a (“[w]e need

not and should not adopt a mathematical definition

of ‘systemic’ failures”). Would a systemic failure

occur if MCOs miss the benchmarks over three

months? Six? A year? And by how much would they

have to miss the benchmark in order to make a new

federal remedy available? Would paying 89% of

claims within 30 days be a minor problem or a

systemic one? Since the Timely Payment Clause is

by definition analyzed in the aggregate of all claims,

would anything short of perfection in meeting the

30/90 standard be deemed a failure across the

system? These quandaries illustrate just how

illusory the Seventh Circuit’s purported distinction

between claim-by-claim adjudication and policing of

“systemic failure” in fact is.

The lack of clarity as to what providers must

plead in order to avail themselves of the newly

created right and the absence of guidance on

available remedies invites countless lawsuits by

providers looking to circumvent their previously

agreed-to

contractual

dispute

resolution

mechanisms or other state law remedies. While

lower federal courts across the country grapple with

these questions, courts, States, MCOs, and

providers will be ensnared in years of costly

litigation over the nature and scope of claims that

could and should have been submitted to cost-

22

effective contractual and state administrative

enforcement mechanisms, including arbitration, in

the first instance.

And while the parties experiment in federal

courts, the risk of devastating consequences of

experimentation gone awry due to the lack of

guidance from the statute or the Seventh Circuit

hangs over the managed care system. District

courts, left to their own devices to experiment with

appropriate remedies, have no expertise to weigh

the harms of payment disputes to litigants before

the courts against harms to the health care delivery

system as a whole caused by potential remedial acts,

including drastic ones like termination of MCOState contracts. This is precisely the sort of calculus

that calls for the expertise of administrative

agencies. If district courts handle disputes between

MCOs and providers in “poor ways,” they risk

disrupting the administration of health care for

millions of Medicaid enrollees. Pet. App. 12a. The

stakes of the wait-and-see approach adopted by the

Seventh Circuit are unjustifiably high.

IV. There Is No Crisis of MCO Late Payments

to Necessitate the Seventh Circuit’s Drastic

Remedy.

Underlying the Seventh Circuit’s willingness to

create a new, undefined federal right and risk the

ensuing “massive disruption” is unjustified hostility

to managed care. The Court believes that “[i]t has

long been obvious to all that under the managedcare system of Medicaid, MCOs have a powerful

incentive to delay payment to providers for as long

as possible and ultimately to underpay to maximize

23

their own profits.” Pet. App. 35a. Not only is that

conjecture wrong and wholly unsupported, it is

completely irrelevant because providers, including

the plaintiff here, already have adequate recourse

and remedies—the ability to arbitrate or sue in state

court and correct the alleged wrongs, or seek

administrative relief.

What’s

more,

the

Seventh

Circuit

misunderstands MCO incentives. MCOs are in the

business of arranging for the provision of health care

services to enrollees primarily through provider

networks. Without providers willing to contract with

them, MCOs could not operate. See, e.g., 42 C.F.R. §

438.68 (requiring MCOs to have sufficient numbers

of providers in network to meet the needs of

enrollees). MCOs also have strict limits on profits.

Medical Loss Ratio regulations require MCOs to

spend 85% of capitation revenue on claims or health

care quality improvement activities. States can

demand refunds if that standard is not met.

Administrative expenses and profits are strictly

limited and cannot come at the expense of paying

claims. 42 C.F.R. §§ 438.4(b)(9), 438.8(j), (k)(1);

Illinois Model MCO Contract ¶ 7.10.8, supra note 15.

MCOs have no incentive to create a deluge of

impoverished providers and would fail if they did.

Indeed, data from Illinois itself shows that at the

systemwide level, Illinois MCOs are generally in

compliance with their prompt payment obligations.

Illinois is required to publish MCO performance

data every six months that “identifies the

percentage of claims adjudicated within 30, 60, 90,

and over 90 days, and the dollar amounts associated

with those claims.” 305 Ill. Comp. Stat. Ann. 5/5-

24

30.1(g-6), (g-7). The most recent report covering the

first two quarters of fiscal year 2021 shows that all

but one MCO met timely payment requirements on

the measured metric—institutional hospital claims.

They paid 97.7% of claims within 30 days of

submission in the first quarter, and 98% in the

second. 17 The one MCO that fell short was placed on

a corrective action plan and has demonstrated

notable improvement. 18 MCOs are not systemically

failing to pay providers, and Illinois is not abdicating

its obligations to supervise the MCOs.

As another example, Iowa transitioned to riskbased managed care in 2016 and now serves 95% of

its members through MCOs. According to its 2021

performance report, Iowa’s two accredited MCOs

paid non-pharmacy claims, on average, in under 10

days. 19 With the exception of one month in which one

of the entities fell slightly short of target (hardly a

systemic violation), the MCOs processed between

95% and 99% of claims within 30 days, and between

97% and 100% within 45. 20 The report concluded

that “[w]ith exception of July 2020 . . . both MCOs

17 Ill. Dept. of Healthcare & Family Servs., Analysis of HFS-

Contracted MCO Claims Processing and Payment Performance

for Services in Q1 and Q2 of CY 2021, at 21,

www2.illinois.gov/hfs/SiteCollectionDocuments/MCOHospital

ClaimsProcessingReportQ1AndQ22021.pdf.

18 Id.

19 Iowa Dept. of Human Servs., Managed Care Organization

(MCO) Annual Performance Report - SFY21 (Dec. 2021), at 11,

13,

https://www.legis.iowa.gov/docs/publications/DF/1231688.pdf.

20 Id.

25

exceeded contractual requirements for percentages

of claims paid within 30/45 days.” 21

In other words, the system works, and if failures

occur, existing remedies adequately vindicate

provider rights without the invention of new

uncharted grounds for liability not contemplated by

Congress.

CONCLUSION

For the foregoing reasons, the Court should grant

the petition and reverse the decision below.

January 6, 2023

Respectfully submitted,

MICHAEL KOLBER

MANATT, PHELPS &

PHILLIPS, LLP

7 Times Square

New York, NY 10036

STEPHEN D. LIBOWSKY*

Counsel of Record

MANATT, PHELPS &

PHILLIPS, LLP

151 North Franklin

Street, Suite 2600

Chicago, IL 60606

slibowsky@manatt.com

(312) 477-4798

MARINA SHVARTS

MANATT, PHELPS &

PHILLIPS, LLP

2049 Century Park

East, Suite 1700

Los Angeles, CA 90067

Counsel for Amicus Curiae

Medicaid Health Plans of America

21 Id. at 4.