Banks v. Secretary of Indiana Family and Social Services Admin., 92-2299

• Decision Date: 15 June 1993
• Docket Number: No. 92-2299,92-2299
• Citation: 997 F.2d 231
• Parties: , 41 Soc.Sec.Rep.Ser. 418, Medicare & Medicaid Guide P 41,482 Marie BANKS, individually and as a representative of a class of similarly situated persons, Plaintiff-Appellant, and Joan J. Smith, Intervenor-Appellant, v. SECRETARY OF The INDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION, in the Secretary's official capacity, and Secretary of the United States Department of Health and Human Services, * in her official capacity, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 231

997 F.2d 231

62 USLW 2009, 41 Soc.Sec.Rep.Ser. 418,

Medicare & Medicaid Guide P 41,482

Marie BANKS, individually and as a representative of a class of similarly situated persons, Plaintiff-Appellant and Joan J. Smith, Intervenor-Appellant, v. SECRETARY OF The INDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION, in the Secretary's official capacity, and Secretary of the United States Department of Health and Human Services, ^* in her official capacity Defendants-Appellees No. 92-2299.

United States Court of Appeals Seventh Circuit.

Argued Nov. 10, 1992.

Decided June 15, 1993.

Kent Hull, argued, Legal Services of Northern Indiana, South Bend, IN, for Marie Banks and Joan Smith.

Wendy S. Messer (argued), Office of the Attorney General, Federal Litigation, Indianapolis, IN, for Secretary of the Indiana Family and Social Services Administration.

Barbara F. Altman, Dept. of Health and Human Services, Region V, Office of the General Counsel, Chicago, IL, for Secretary of the Dept. of Health and Human Services.

Before KANNE and ROVNER, Circuit Judges, and REYNOLDS, Senior District Judge. ^**

KANNE, Circuit Judge.

The plaintiffs, appellants in this appeal, sued the Secretary of the United States Department of Health and Human Services and the Secretary of the Indiana Family and Social Services Administration in district court, alleging violations of rights secured by the federal Medicaid regulations and constitutional due process. Specifically, the complaint charged that Indiana's Medicaid agency had failed to give notice and an administrative hearing to Medicaid recipients whose health care providers' claims for reimbursement were denied by the state. Ruling on the defendants' motions to dismiss, the district court held that the plaintiffs lacked standing to sue the federal Secretary and had failed to state a legally cognizable claim against the state Secretary. We conclude that the plaintiffs have standing to sue the federal Secretary, but affirm the district court's decision because the plaintiffs have failed to state a viable claim against either defendant.

I.

The Medicaid program, codified as Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. (1985), provides federal financial assistance to states that pay for medical treatment of needy individuals. Participation in the program is voluntary, but participating states must comply with certain requirements imposed by the Medicaid Act and regulations promulgated by the Secretary of the United States Department of Health and Human Services. Wilder v. Virginia Hospital Association, 496 U.S. 498, 502, 110 S.Ct. 2510, 2513, 110 L.Ed.2d 455 (1990). See also Smith v. Miller, 665 F.2d 172, 175 (7th Cir.1981).

To qualify for federal assistance, a state must submit to the Secretary and have approved "a plan for medical assistance" that meets the requirements of the Medicaid Act and the Secretary's regulations. 42 U.S.C. §§ 1316, 1396a(b). A state seeking plan approval must establish or designate a single state agency to administer the plan. 42 U.S.C. § 1396a(a)(5). In addition, the plan must establish a scheme for reimbursing health care providers for the medical services provided to needy individuals, and must require that payment for Medicaid services be made only to the provider of the services or, under certain conditions, to the recipient of the services. See id. § 1396a(a)(13)(A); 42 C.F.R. § 447.10(d).

Once a state has secured approval of its plan from the Secretary, the state is entitled to federal reimbursement for a portion of the costs of administering a Medicaid program, and for a portion of payments to health care providers. 42 U.S.C. § 1396b(a). In order to receive reimbursement, a provider of Medicaid services must enter into a "provider agreement" with the single state agency. Id. § 1396a(a)(27). That agreement is contingent upon certification by an appropriate state health or medical agency that the facility in question meets federal standards. Id. § 1396a(a)(9).

Indiana participates in the Medicaid program under an approved state plan. The program was formerly administered by the Indiana Department of Public Welfare, and is currently under the direction of the Office of the Secretary of Family and Social Services Administration. Ind.Code Ann. § 12-6-2-2 (West Supp.1991). ¹

II.

Arthur Banks was a Medicaid recipient who received medical treatment from Radiology, Inc., before his death. Radiology submitted a Medicaid claim to the Indiana Department of Public Welfare, which refused reimbursement because Radiology had not submitted the proper forms. Following Banks's death, Radiology sued Arthur's widow, Marie, in small claims court for payment of her husband's medical bills. The court entered judgement for Radiology.

Mrs. Banks subsequently filed suit in federal district court against the Secretary of the Indiana Family and Social Services Administration ("Indiana Medicaid") and the Secretary of the United States Department of Health and Human Services. Mrs. Banks brought the action on behalf of a putative class of Medicaid recipients and persons "legally responsible" for their debts. The complaint charged that Indiana Medicaid improperly failed to provide her with both timely written notice of its denial of Radiology's claim and an opportunity to contest the denial. Such nonfeasance, according to Mrs. Banks, violated her rights under federal statutes and regulations, and the Due Process and Equal Protection Clauses of the Fourteenth Amendment. Moreover, to the extent that Indiana's administrative code did not require notice and a hearing, Mrs. Banks insisted it ran afoul of federal law.

The federal defendant, Mrs. Banks contended, violated the same federal statutes and regulations, as well as the Due Process Clause of the Fifth Amendment, by failing to require the state defendant to provide the above procedural protections. As relief, Mrs. Banks requested that the district court issue a writ of mandamus or mandatory injunction to the Secretary of Health and Human Services, directing her to properly supervise the state defendant to insure compliance with state and federal law.

Joan Smith was hospitalized in St. Joseph's Medical Center, South Bend, Indiana. Although not eligible for Medicaid at the time of her admission to the hospital, she was retroactively approved for coverage. Without giving any form of notice to Mrs. Smith, the Department of Public Welfare refused St. Joseph's claim for payment because the bill was not timely filed. In due course, the matter found its way into the hands of Midwest Collection Service, Inc., which sued Mrs. Smith and her husband in state court on the unpaid bill. Prior to the suit, in response to collection demands, Mrs. Smith paid approximately $150. She then sought to intervene as a party plaintiff in the suit filed by Mrs. Banks.

While this action was pending in the district court, Indiana Medicaid paid Radiology for services provided to Arthur Banks. As a result, Radiology's judgement against Mrs. Banks was vacated and the case dismissed with prejudice. Likewise, while Mrs. Smith's motion to intervene was pending (and obviously due to Indiana Medicaid's intercession), the state court dismissed, without prejudice, Midwest Collection Service's suit against her. Sometime later, St. Joseph's Medical Center sent Mrs. Smith a check in the amount of $165 as a refund of payments previously made.

The federal defendant moved to dismiss the complaint both for lack of subject matter jurisdiction, Fed.R.Civ.P. 12(b)(1), and failure to state a claim upon which relief can be granted, Fed.R.Civ.P. 12(b)(6). The state defendant answered the complaint and moved to dismiss for mootness and failure to state a claim upon which relief can be granted. Plaintiff Banks filed her response to both motions and moved for conditional class certification pursuant to Fed.R.Civ.P. 23. On April 2, 1992, the district court issued a memorandum opinion and order granting Mrs. Smith's motion to intervene, denying Mrs. Banks's motion for conditional class certification, granting the federal defendant's motion challenging subject matter jurisdiction, and granting the state defendant's motion under Rule 12(b)(6). Banks v. Secretary of Indiana Family and Social Services Administration, 790 F.Supp. 1427, 1440-41 (N.D.Ind.1992). ² The plaintiffs filed a timely appeal. For the purpose of clarity, we address first the claims brought against the Secretary of Health and Human Services under the Medicaid Act and its implementing regulations. We then turn to the constitutional due process claims brought against both the Secretary and the state Medicaid agency.

III.

The complaint avers that the federal defendant violated regulations promulgated pursuant to the Medicaid Act, as well as the Due Process Clause of the Fifth Amendment, by failing to require Indiana Medicaid to give the plaintiffs timely notice of its denial of their providers' claims for reimbursement as well as the opportunity for an administrative hearing in which to contest the denial. The Secretary of Health and Human Services filed a motion to dismiss based on Rules 12(b)(1) and 12(b)(6). The Rule 12(b)(1) jurisdictional defense asserted that the plaintiffs lacked Article III standing to sue the Secretary and had failed as well to invoke mandamus jurisdiction. The district court agreed and granted the motion. ³

This court has jurisdiction over this appeal because dismissal of an action for lack of subject matter jurisdiction is a final judgement. 28 U.S.C. § 1291 (1986). We review de novo the district court's determination on standing, Love Church v. City of Evanston, 896 F.2d 1082, 1085 (7th Cir.), cert. denied, 498 U.S. 898, 111 S.Ct. 252, 112 L.Ed.2d 210 (1990), accepting as true all material allegations of the complaint and construing the complaint in favor of the complaining party. Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 2206, 45 L.Ed.2d 343 ...