Illinois Council on Long Term Care Inc. v. Shalala, 97-2315

• Citation: 143 F.3d 1072
• Decision Date: 13 August 1998
• Docket Number: No. 97-2315,97-2315
• Parties: , Medicare & Medicaid Guide P 46,287 ILLINOIS COUNCIL ON LONG TERM CARE INC., Plaintiff-Appellant, v. Donna E. SHALALA, Secretary of Health and Human Services, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1072

143 F.3d 1072 57 Soc.Sec.Rep.Ser. 36, Medicare & Medicaid Guide P 46,287 ILLINOIS COUNCIL ON LONG TERM CARE INC., Plaintiff-Appellant,
v.
Donna E. SHALALA, Secretary of Health and Human Services, et
al., Defendants-Appellees. No. 97-2315. United States Court of Appeals,
Seventh Circuit. Argued Dec. 5, 1997.
Decided May 8, 1998.
Rehearing and Suggestion for Rehearing En Banc Denied Aug. 13, 1998. ^*

Page 1073

Brian E. Neuffer (argued), Neil Holmen, Winston & Strawn, Chicago, IL, for Plaintiff-Appellant.

Thomas P. Walsh, Office of the United States Attorney, Civil Division, Chicago, IL, Kathy M. Mueller, United States Department of Justice, Federal Programs Branch--Civil Division, Washington, DC, Barbara C. Biddle, Jeffrey Clair (argued), Department of Justice, Civil Division, Appellate Section, Washington, DC, for Defendant-Appellee Shalala.

Kathy M. Mueller, United States Department of Justice, Federal Programs Branch--Civil Division, Washington, DC, Barbara C. Biddle, Jeffrey Clair (argued), Department of Justice, Civil Division, Appellate Section, Washington, DC, for Defendant-Appellee Tirone.

James C. O'Connell (argued), Office of the Attorney General, Chicago, IL, for Defendant-Appellee Lumpkin.

Pamela B. Small, Proskauer, Rose, Goetz & Mendelsohn, Washington, DC, Richard M. Esenberg, Kevin J. Clancy, Foley & Lardner, Chicago, IL, Malcolm J. Harkins, Proskauer, Rose, Goetz & Mendelsohn, Washington,

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DC, for Amicus Curiae American Health Care Association.

Before EASTERBROOK, DIANE P. WOOD, and EVANS, Circuit Judges.

EASTERBROOK, Circuit Judge.

Nursing homes that want reimbursement under the Medicare or Medicaid programs must comply with regulations specifying minimum health and safety standards. Statutory criteria were enacted in 1987, see 42 U.S.C. § 1395i-3(a) to (d) (Medicare), § 1396r(a) to (d) (Medicaid), but implementing regulations were not issued until 1994, and did not take effect until July 1, 1995. 59 Fed.Reg. 56,116 (1994). An association of nursing homes, the Illinois Council on Long Term Care, tells us that before these new regulations were adopted about 6% of its members had been directed to change their operations in order to meet applicable standards, while more recent inspections have found 70% of nursing homes to be deficient. Regulators attribute this to tougher substantive rules that nursing homes have yet to satisfy; the nursing homes attribute the jump to vague rules that leave too much discretion in the hands of inspection teams.

The Council filed this suit on behalf of its members and asked the court to declare that the new regulations violate the due process clause of the fifth amendment because they are too vague and do not provide adequate opportunities to be heard before financial penalties take effect. The Council also argued that a manual used by inspection teams has the effect of a regulation and therefore could be adopted only after notice-and-comment rulemaking under § 3 of the Administrative Procedure Act, 5 U.S.C. § 553. The Secretary of Health and Human Services, the principal defendant in the case, asked the district court to distinguish between the Medicare and Medicaid aspects of the suit. According to the Secretary, objections to implementation of the Medicare Act are barred by 42 U.S.C. § 1395ii, incorporating 42 U.S.C. § 405(h), which makes an application for benefits (and review of the Secretary's final decision), the sole route to judicial review. None of the Council's members has obtained a final decision, and § 1395ii forbids jumping the gun on legal issues that will be relevant to the administrative decision, the Secretary contended. See Heckler v. Ringer, 466 U.S. 602, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984). Although most of the Council's theories are based on the Constitution and the APA rather than any incompatibility between the regulations and the Medicare Act, Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975), holds that a claim is subject to the review-channeling provision in § 405(h) when the end in view is receipt of federal payments. Claims under the Medicaid Act should be handled otherwise, the Secretary submitted, because that statute does not incorporate § 405(h) and lacks any comparable restriction. A challenge to Medicaid regulations therefore is proper under 28 U.S.C. § 1331 and 5 U.S.C. § 702--but, the Secretary added, should be dismissed in large measure as unripe. Only the Medicaid providers' APA challenge to the handbook is mete for decision, the Secretary concluded. The district judge accepted the first part of this argument--that § 1395ii postpones review of claims by Medicare providers--but extended it to the entire case, stating: "The issues are the same, the only difference being that the first three counts arise under the Medicaid Act whereas the latter three arise under the Medicare Act. By reaching the merits on the Medicaid claims, this court would effectively resolve the Medicare issues as well. This attempt to back-door the jurisdictional bar of the Medicare Act is impermissible." 1997 WL 158347 at...