Payment Dispute with a Medicaid Health Plan? State Not Obligated to Help, According to Federal Court

Medicaid providers cannot sue the state to seek payment from a Medicaid health plan, according to a July 9 Illinois federal district court decision. The court’s holding is likely to be a disappointment to providers encountering increasing challenges to reimbursement from health plans. Nonetheless, state and federal Medicaid law offers alternative pathways to challenge payment denials, including contractual rights, administrative appeals, and informal dispute-resolution processes.

Medicaid Managed Care Payment Disputes

More than 65 million beneficiaries—or approximately 20% of the country—access their Medicaid benefits through managed care organizations (MCOs or Health Plans), making Medicaid MCOs an important payer for providers. When Medicaid MCOs refuse to pay, a complex legal and regulatory landscape of interlocking state and federal laws introduces ambiguity about where to turn for a remedy.

In-network providers have contractual rights under their participation agreements, but the terms of those agreements may be heavily one-sided to favor the health plan. Alternatively, some states have their own dispute resolution processes for providers, and federal law requires Medicaid MCOs to offer appeals processes for enrollees. In Saint Anthony Hospital v. Theresa Eagleson, a federal district court shut down another potential avenue for redress: enjoining the state to take action against Medicaid MCOs.

Federal Court Decision Forecloses Lawsuit Against State

The background to the Saint Anthony Hospital decision involves a lawsuit brought against the state Medicaid agency by a Chicago charitable hospital after years of payment struggles with Medicaid health plans. The lawsuit sought to compel the State to make the Medicaid MCOs pay their bills in full and on time. The hospital alleged a private right of action under 42 U.S.C. § 1983 to enforce federal Medicaid requirements that MCOs pay providers in a timely manner. According to the court, no such private right of action exists. The court first explained that although federal Medicaid law requires a state to include provisions in its contracts with health plans that hold the MCOs accountable for paying claims promptly, it does not obligate the state to enforce those provisions, nor does it grant providers the right to sue when the contractual provisions are not enforced.

The court also rejected a similar theory advanced by the hospital premised on the federal requirement that a state’s Medicaid plan must provide that medical assistance be furnished “with reasonable promptness to all eligible individuals.” While the decision notes that “medical assistance” is defined to include payment as well as care, the court nevertheless concluded that the “reasonable promptness” requirement refers to the delivery of care to patients, not payment to providers. Once again, the court concluded, federal law does not give providers a private right of action to compel the state to force a Medicaid MCO to pay for services rendered.

In the district court’s view, the appropriate remedy for the Chicago hospital would have been to sue the Medicaid MCO under a breach-of-contract theory based on the hospital’s contract with the health plan (and not the health plan’s contract with the State Medicaid agency). The decision notes that the hospital would not have been able to pursue this remedy in court because of a mandatory arbitration clause in its contract with the Medicaid MCO. The lawsuit indicates the importance of carefully reviewing and understanding your ability to enforce payment disputes prior to entering into a contract with a Medicaid MCO.

Alternative Pathways for Provider Challenges

The very existence of the lawsuit demonstrates that providers might not want to rely on contractual remedies, particularly if their Medicaid MCO agreements include one-sided provisions or restricted dispute-resolution procedures. However, there are other avenues to pursue payment challenges. For example, providers can take advantage of state appeals procedures designed specifically for Medicaid managed care, such as Tennessee’s independent-review mechanism (see Tenn. Code Ann. § 56-32-126(b)(2)), or New Mexico’s contracted MCO provider-appeal process (see New Mexico Admin. Code § 8.308.15.13(B)). Alternatively, federal Medicaid law requires Medicaid MCOs to operate an internal appeal process for Medicaid enrollees and providers acting on their behalf (in some instances, state law requires providers to obtain written consent from the enrollee to pursue this approach). (See 42 U.S.C. § 1396u-2(b)(4).) And while courts may not allow providers to compel states to take actions against Medicaid MCOs, state Medicaid agencies may be receptive to complaints about health plan nonpayment, particularly if there is an ombudsman with a statutory duty to assist enrollees in resolving problems with their Medicaid health plan.

While any one of these alternatives can be a pathway to resolution, they each involve their own set of strengths, weaknesses, and procedural complexities. The moral of the Saint Anthony Hospital lawsuit is that providers must carefully assess their options—and develop a legal strategy tailored to their circumstances and policies, procedures, and laws of their state—when challenging Medicaid health plans in payment disputes.

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