Daly v. Eagleson
| Decision Date | 27 September 2021 |
| Docket Number | 1:19-CV-06020 |
| Parties | JAMES DALY and GRACE IRENE PALMER, Plaintiffs, v. THERESA EAGLESON, Director of the Illinois Department of Healthcare and Family Services, and GRACE HOU, Secretary of the Illinois Department of Human Services, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
The Plaintiffs, James Daly and Grace Irene Palmer, are two Illinois nursing-home residents who are entitled to receive long-term care benefits under the Federal Medicaid Act, 42 U.S.C. §1396 et seq.[1] R. 58, First Am Compl.[2] According to Daly and Palmer, the Illinois Department of Healthcare and Family Services (widely known in Medicaid circles as “HFS”) and the Illinois Department of Human Services (known by the acronym “DHS”) have ostensibly processed and approved their eligibility applications. But the problem is that, as a practical matter, HFS and DHS have allegedly denied the specific applications used for reimbursement and are not actually reimbursing the nursing homes for providing those long-term care benefits to Daly and Palmer. Thus, Daly and Palmer allege that HFS and DHS are violating their due process rights as well as certain provisions of the Medicaid Act. Specifically, the Plaintiffs have named as defendants Theresa Eagleson, in her official capacity as Director of HFS, and Grace Hou, in her official capacity as Secretary of DHS.
In 2020, this Court dismissed the Original Complaint for lack of Article III standing. R. 50, 9/3/2020 Opinion. At that time the nursing-home residents had failed to make any specific allegations describing any injuries that they themselves suffered, or were at concrete risk of suffering, as a result of the denial of their Medical Electronic Data Interchange admission packets. The dismissal was without prejudice, giving the Plaintiffs a chance to adequately allege standing.
Daly and Palmer filed this First Amended Complaint (all other plaintiffs dropped out of the case). The First Amended Complaint alleges the same misconduct, but now includes three new details for both Daly and Palmer: (1) they have both been billed by their facilities for uncovered long-term care; (2) they are subject to collections referrals or legal actions for their outstanding balances; and (3) their nursing homes have issued notices of involuntary transfer or discharge. R. 58, First Amended Complaint (FAC).
The Defendants have now moved to dismiss all counts in the First Amended Complaint for lack of standing, Fed.R.Civ.P. 12(b)(1), or alternatively, for failure to state a claim, Fed.R.Civ.P. 12(b)(6). The Defendants have also moved to strike Daly and Palmer's class allegations. R. 63, Defs.' Mot. Dismiss Am. Compl. For the reasons discussed below, the motion to dismiss is denied for Counts 1 and 2-though only very limited discovery will go forward, as explained in the Opinion. The motion to dismiss is granted against Count 3, and the motion to strike the class allegations is granted.
For purposes of this motion, the Court accepts as true the allegations in the Amended Complaint. Erickson v. Pardus, 551 U.S. 89, 94 (2007). The Court may also look to facts outside the pleadings in considering the Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction (including when deciding whether a plaintiff lacks standing). Ezekiel v. Michel, 66 F.3d 894, 897 (7th Cir. 1995).
The background of this case has previously been laid out in detail in the earlier Opinion, but to make sense of the facts in this case, it bears repeating. The starting point is the general application process for long-term care benefits-which, as relevant here, just means residency in a nursing home-under the Medicaid Act. HFS and DHS are the state agencies responsible for administering the federal Medicaid program in Illinois. FAC ¶¶ 5, 7, 13-14. In order to receive long-term care benefits, an Illinois resident must complete a two-part application process. First, the resident must submit a general application to receive Medicaid benefits. Id. ¶ 15. This application is processed by HFS, which issues an eligibility determination. Id. ¶ 16. Then, separate from the general-eligibility application, in order to have their nursing home care covered, a resident must also specifically request long-term care benefits. Id. ¶ 18. The long-term care request can be made either simultaneously with the initial Medicaid eligibility application or after the eligibility application is already approved. Id. ¶¶ 31-32. In this case, the First Amended Complaint is not entirely clear about which specific procedure Daly and Palmer followed or the exact timing of their applications. But what is apparent is that Daly and Palmer have gone through one of the application routes and that they have been approved for Medicaid benefits in general. FAC ¶¶ 2-3. Daly and Palmer also have been specifically approved for long-term care benefits. Id. ¶¶ 87-88, 102. And finally, it is undisputed that Daly and Palmer are currently residing in nursing homes and receiving long-term care services. Id. ¶¶ 2, 3, 10-11, 81-82, 97-98.
In addition to the Medicaid and long-term care application process (or processes) for individual patients, there is a separate application for nursing homes- which are responsible for providing long-term care services-to receive financial reimbursements from HFS and DHS. The parties refer to this separate application process as the MEDI (which stands for “Medical Electronic Data Interchange”) system. Specifically, nursing homes must submit what is called a MEDI “admission packet” to HFS for every resident who receives long-term care benefits. This is required regardless of whether a resident was approved for Medicaid long-term care services before or after entering the nursing home; either way, when the resident enters a nursing home and begins to receive long-term care, a MEDI admission packet must be submitted for each resident. FAC ¶ 32. Daly and Palmer allege that the Defendants treat each MEDI packet as an application for Medicaid long-term care benefits in and of itself. FAC ¶ 42. If the MEDI admission is approved, then the nursing home presumably receives reimbursements for any long-term care services provided by the nursing home beginning on the date that the beneficiary was “admitted” into the facility.
Daly and Palmer allege, however, that HFS and DHS reject MEDI admissions for all sorts of reasons. For example, applicants are required to complete a needs-screening (referred to by yet another Medicaid acronym, “OBRA”) for long-term care, but the agencies will reject a MEDI admission if the OBRA paperwork is not attached to the packet, even if the actual screening was completed on time. FAC ¶ 35. In addition, the Defendants will reject a MEDI admission if the packet is missing any financial information. Id. ¶ 41. The agencies have also rejected MEDI admissions when just the resident's name is misspelled or where there is a “transposition of digits in the ICD code.” Id. ¶¶ 51-52. When these denials happen, the individual applicants are not given notice or an opportunity to appeal their MEDI admission denial. Id. ¶¶ 53-55. As of 2018, however, nursing home facilities do allegedly receive notice of MEDI denials; the State apparently sends out a rejection letter saying that “this is not a decision on an individual's Medicaid eligibility and, therefore, is not appealable through the Department of Human Services Bureau of Hearings.” Id. ¶¶ 56-58. In any event, after a rejection, a new MEDI admission packet with the correct information must be submitted for the resident, and if the later application is approved, the reimbursements begin on the later date. Id. ¶¶ 30, 50. Palmer's MEDI packet was allegedly rejected by Defendants as untimely, which means that many of the arbitrary rejection reasons alleged above, although troubling, do not seem to apply to her. Id. ¶ 105. Because Daly alleges that he has not been told why his MEDI packet was rejected, it is not clear at this point whether any of the above rejection reasons apply to him. Id. ¶ 88.
The Plaintiffs allege that these MEDI rejections, coupled with the lack of notice and opportunity to be heard, functionally allow the Defendants “to avoid paying for care for Medicaid approved beneficiaries.” FAC at 2. From the perspective of Daly and Palmer, a rejection of a MEDI admission constitutes either a denial of an application for long-term care benefits (or a withdrawal of those benefits if the resident had previously been approved for them). Id. ¶¶ 91, 110. For Daly and Palmer, the facts appear to be as follows: they were approved for long-term care, and at some point, the nursing homes submitted MEDI packets on their behalf. FAC ¶¶ 87-88, 102-05. Palmer's MEDI packet was rejected as untimely, and Daly was not given a reason for his rejection. Id. Because the MEDI packets were rejected, the nursing homes are presumably not being reimbursed, functionally denying Daly and Palmer's long-term care benefits. The result, the Plaintiffs allege, is that Daly has been billed by his facility for more than $136, 000 in uncovered long-term care costs, for which he is now subject to collections referrals or legal actions for this outstanding balance, and that his facility has issued a Notice of Involuntary Transfer or Discharge because of the non-payment. FAC ¶¶ 93-95. The same goes for Palmer, but she has been billed for around $70, 000 in costs. Id. ¶¶ 112-14.
Seeking injunctive and declaratory relief, Daly and Palmer assert three claims based on the agencies' rejections of their MEDI admission packets. First, Daly and Palmer (invoking 42 U.S.C. § 1983) allege that the...
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