Methodist Hospitals, Inc. v. Sullivan

• Decision Date: 02 August 1996
• Docket Number: Nos. 95-3078,95-3200 and 95-3983,s. 95-3078
• Citation: 91 F.3d 1026
• Parties: , Medicare & Medicaid Guide P 44,528 The METHODIST HOSPITALS, INC., et al., Plaintiffs-Appellants, Cross-Appellees, v. Cheryl SULLIVAN, Secretary of the Indiana Family and Social Services Administration, and James M. Verdier, Assistant Secretary and Director of the Indiana Office of Medicaid Policy and Planning, Defendants-Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1026

91 F.3d 1026

51 Soc.Sec.Rep.Ser. 343, Medicare & Medicaid Guide

P 44,528

The METHODIST HOSPITALS, INC., et al Plaintiffs-Appellants, Cross-Appellees, v. Cheryl SULLIVAN, Secretary of the Indiana Family and Social Services Administration, and James M. Verdier, Assistant Secretary and Director of the Indiana Office of Medicaid Policy and Planning, Defendants-Appellees, Cross-Appellants.

Nos. 95-3078, 95-3200 and 95-3983.

United States Court of Appeals, Seventh Circuit.

Argued May 16, 1996.

Decided Aug. 2, 1996.

David B. Love, Raymond J. Kelly, Eva-Maria Wohn, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, Bonnie C. Coleman (argued), Jill M. Madajczyk, Earle F. Hites, Hodges & Davis, Merrillville, IN, for Plaintiff-Appellant Methodist Hospitals, Inc.

David B. Love, Raymond J. Kelly, Eva-Maria Wohn, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, Bonnie C. Coleman, (argued), Jill M. Madajczyk, Earle F. Hites, Hodges & Davis, Merrillville, IN, for Plaintiffs-Appellants David E. Ross, M.D., James Jones, M.D., Douge Barthelemy, M.D., Randall C. Morgan, M.D.

David B. Love, Raymond J. Kelly, Eva-Maria Wohn, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, Bonnie C. Coleman, Jill M. Madajczyk, Earle F. Hites (argued), Hodges & Davis, Merrillville, IN, for Plaintiff-Appellant Deborah McCullough, M.D.

Mark H. Lynch (argued), Covington & Burling, Washington, DC, Timothy G. Kline, Joseph S. Bokkelen, Goodman, Ball & VanBokkelen, Highland, IN, Matthew R. Gutwein, Richard E. Shevitz, Office of the Attorney General, Indianapolis, IN, for Cheryl Sullivan and James M. Verdier.

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

EASTERBROOK, Circuit Judge.

On January 1, 1994, Indiana changed the formulas it uses to pay providers of services under the Medicaid program. For the most part, these rules were short-lived; with the exception of the rules governing outpatient services, all were replaced within a year. But the litigation in their wake is long-lived. Joined by five physicians, the Methodist Hospitals of Gary, Indiana, filed this suit under 42 U.S.C. § 1983, contending that the new rules were invalid. See Maine v. Thiboutot, 448 U.S. 1, 100 S.Ct. 2502, 65 L.Ed.2d 555 (1980). The district court dismissed some claims under Rule 12(b)(6), holding that the statute does not create a private right of action in plaintiffs' favor, and granted summary judgment to defendants on the rest. Its principal opinion is reported at 860 F.Supp. 1309 (1994); there are several unpublished orders. Victory emboldened Indiana to seek attorneys' fees under 42 U.S.C. § 1988, which the district court declined to award. Collateral disputes also broke out. When plaintiffs sought a temporary restraining order, defendants filed a brief containing confidential information. The district court sealed this brief; defendants want us to unseal it. The parties also disagree about whether the case is moot, which may depend on the meaning of the eleventh amendment. To prevent matters from getting out of hand, we simplify throughout this opinion.

First comes the question whether the parties have a live controversy. Two of the three sets of rules were defunct before the district court decided the case, which neither the judge nor plaintiffs' appellate brief mentions. We learned this for the first time when encountering the state's argument that we should dismiss the proceedings as moot. For its part, the state relegated the outpatient rules to a footnote, as did plaintiffs' reply brief--which contends, despite the eleventh amendment, that the possibility of a monetary recovery forestalls mootness. Neither side tells us anything of value about the outpatient rules--even what they do, let alone whether there is an ongoing controversy about their validity.

According to the district court, until 1994 Indiana reimbursed providers for outpatient services at the provider's customary billing amount, but not to exceed 100% of the provider's actual cost. The new approach pays all providers in the state the same amount for the same service. Following the approach used for Medicare claims, Indiana established nine categories of outpatient services. It pays each provider the sum of 50% of the Medicare rate for that service and 50% of the statewide median amount paid for that service in 1992. Providers with higher-than-average costs (or located where private patients have higher-than-average willingness to pay) thus do worse than before, and providers that have (or can achieve) lower costs of service do well. The Hospitals believe that they are in the former group. An affidavit by the Hospitals' chief financial officer estimates that the outpatient rules will cost the Hospitals $1 million per year compared with the former method. This is only a prediction made before the amendments took effect; the record does not reveal what has happened, and the prediction may be all wet. But because the case was dismissed on the pleadings, we must assume that the Hospitals could prove their loss, see Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 2136, 119 L.Ed.2d 351 (1992), which means not only that they have standing to sue but also that the case survives, for a federal court could enjoin operation of the outpatient rules even if the eleventh amendment forbids an award of damages. Because the Hospitals lose on the merits concerning the outpatient rules and do not contend that they have better arguments for the other sets of rules, it turns out to be unnecessary to decide whether the eleventh amendment would have blocked monetary relief on the other two sets.

Plaintiffs' many avenues of assault on the state's rules are for the most part unsupported by argument. For example, plaintiffs insist that the district court "erred in concluding that the State complied with the regulations mandating consultation with the Medical Advisory Committee before the promulgation and implementation of Medicaid Rules" but their brief does not so much as cite a regulation, let alone tell us why the regulation prohibits Indiana's procedures. Defendants tell us that the regulation in question is 42 C.F.R. § 431.12(e), and that several courts of appeals have held that Indiana's approach to consultation is permissible. E.g., Burgess v. Affleck, 683 F.2d 596, 599-600 (1st Cir.1982); Mississippi Hospital Association v. Heckler, 701 F.2d 511, 520, 523 (5th Cir.1983). We see no need to delve into the subject; plaintiffs have not amplified their arguments sufficiently to present an issue for appellate resolution. Similarly, plaintiffs' contention that Indiana's rules violate 42 U.S.C. § 1396a(a)(10), which they chastise the district court for ignoring, not only is undeveloped but also disregards the fact that the district court did address it--and dismissed the plaintiffs' contentions on the ground that there is no private right of action to enforce § 1396a(a)(10). 860 F.Supp. at 1333. Plaintiffs' reply brief at last gets 'round to this question. Too late.

The only contention plaintiffs have properly presented in this forum is that Indiana's rules do not comply with 42 U.S.C. § 1396a(a)(30). This statute says that every Medicaid plan must

provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the plan ... as may be necessary to safeguard against unnecessary utilization of such care and services and to assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area[.]

Plaintiffs stress the state's obligation to offer payments sufficient "to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area". The district court dismissed this claim after finding that the words "geographic area" are so ambulatory that the section does not create a private right of action. 860 F.Supp. at 1331-33. Although Arkansas Medical Society v. Reynolds, 6 F.3d 519, 523-28 (8th Cir.1993), holds that providers have a private right of action to enforce § 1396a(a)(30), the district court declined to follow suit, observing that Arkansas Medical Society had not discussed the ambiguity created by "in the geographic area"--an ambiguity the court thought fatal under Suter v. Artist M., 503 U.S. 347, 112 S.Ct. 1360, 118 L.Ed.2d 1 (1992).

"Geographic area" could mean many things, depending on what function the boundary serves. If the point of § 1396a(a)(30) is to ensure that every Medicaid recipient can obtain every medical service within walking distance, then the statute places severe constraints on a state plan, but if the law means only that every Standard Metropolitan Statistical Area has to have ample medical services (so that care is available within the reach of public transit systems), then Indiana is home free. Gary, Indiana, is in the Chicago SMSA, which offers medical services galore. How large a geographic area is appropriate may depend on the kind of medical service: emergency care must be swift, and hence close, but longer travel times are tolerable when obtaining outpatient care for chronic conditions. The district judge observed that the Department of Health and Human Services has not issued regulations defining "geographic area" and thought that this is not an appropriate task for a court to tackle unassisted. This position has some appeal, but it is not clear what rule-writers could do if they tried. For more than a century courts and agencies have wrestled with the concept of the "geographic market" in antitrust law without producing a mechanical definition. Defining geographic markets for medical care has proven no more...