Opinion
No. 20 CV 3817
2024-01-17
Eva Byerley, Generations Health Care Network, Lincolnwood, IL, for Plaintiff. Hal Dworkin, Mary Alice Johnston, Illinois Attorney General's Office, Chicago, IL, for Defendants Illinois Department of Public Health, Ngozi Ezike. Sarah Fattahi Terman, United States Attorney's Office, Chicago, IL, for Defendants Centers for Medicare and Medicaid Services (CMS), Seema Verma.
Eva Byerley, Generations Health Care Network, Lincolnwood, IL, for Plaintiff.
Hal Dworkin, Mary Alice Johnston, Illinois Attorney General's Office, Chicago, IL, for Defendants Illinois Department of Public Health, Ngozi Ezike.
Sarah Fattahi Terman, United States Attorney's Office, Chicago, IL, for Defendants Centers for Medicare and Medicaid Services (CMS), Seema Verma.
ORDER
JEREMY C. DANIEL, United States District Judge
Defendants' motions to dismiss [14, 20] Plaintiff Generations at Rock Island, LLC's complaint under Federal Rule of Civil Procedure 12(b)(1) is granted. Unless Rock Island, by February 7, 2024, files an amended complaint that states at least one viable federal claim, the Court will enter a final judgment terminating this matter.
STATEMENT
Plaintiff Generations at Rock Island, LLC ("Rock Island") is a skilled nursing facility located in Illinois that participates in the federal Medicare program. (R. 1 ¶¶ 1, 7.) Rock Island is subject to periodic surveys to ensure compliance with Medicare's
health and safety requirements. (Id. ¶ 6); 42 U.S.C. § 1395i-3(g)(2). Defendant Centers for Medicare and Medicaid Services ("CMS") is responsible for administering the Medicare program and contracts with state health agencies to perform compliance surveys of participating facilities. (R. 1 ¶¶ 8-9.) CMS's surveying agent in Illinois is Defendant Illinois Department of Public Health ("IDPH"). (Id. ¶¶ 2, 11-12.)
The contours of this case are framed by its companion suit, Generations at Elmwood Park, LLC v. Ezike, 20 C 533 (N.D. Ill.). In Elmwood Park, Rock Island and ten other Generations facilities brought suit against the director of IDPH and the administrator of CMS, challenging CMS's Five-Star Quality Rating System and its administrative appeal process. See Elmwood Park, 20 C 533, Dkt. No. 1. The Elmwood Park complaint asserted one claim for violation of procedural due process and sought both declaratory and injunctive relief. Id.
A few months later, and while Elmwood Park was still pending, Rock Island brought the instant action for declaratory and injunctive relief against CMS and its administrator (collectively, the "Federal Defendants"), and IDPH and its director (collectively, the "State Defendants"). (See generally R. 1.) Rock Island's complaint proceeded on largely the same theory as that asserted in Elmwood Park: that publication and use of contested deficiencies prior to completion of a formal hearing process violates the facility's procedural due process rights under the Fourteenth Amendment of the Constitution and 42 U.S.C. § 1983. (Id. at 18-19.) Rock Island filed suit individually, however, because it sought to challenge a specific finding or penalty under CMS's Five-Star Quality Rating System, that is—placement on the Special Focus Facility ("SFF") Program list. (Id. ¶¶ 72, 123, 126, 144, 152.)
The Five-Star Quality Rating System is discussed in detail in this Court's order dismissing the plaintiffs' complaint in Elmwood Park. See Generations at Elmwood Park, LLC v. Ezike, No. 20 C 533, 2023 WL 5804230 (N.D. Ill. Sept. 7, 2023). In brief, if, during a survey, IDPH finds that a facility is noncompliant with one or more of Medicare's participation requirements, it may issue a "deficiency." (R. 1 ¶¶ 24-25); 42 U.S.C. § 488.301. Deficiencies may result in certain enforcement actions, including civil monetary penalties or termination of a facility's provider agreement with CMS. (Id. ¶¶ 29, 50); 42 U.S.C. § 1395i-3(h)(A)-(B). The survey results are also used to calculate a facility's health inspection score and star-rating under CMS's Five-Star Quality Rating System. (R. 1 ¶¶ 16-21.)
The methodology that CMS uses to calculate a facility's health inspection score, i.e., assigning a weighted numerical value to deficiencies over a three-year survey period, is also used to identify facilities for placement on the SFF Program list. (R. 1 ¶¶ 15, 19-20, 32-35.) The SFF Program mandates increased oversight of facilities with high point totals and a history of poor survey results. (Id. ¶ 36); 42 U.S.C. § 1395i-3(f)(8). Up to thirty facilities with the highest scores over a three-year survey period are added to a "candidate" list from which CMS and IDPH may select up to five facilities for the SFF Program. (R. 1 ¶¶ 36-37.) SFF-designated facilities are subject to more frequent surveys (at least once every six months, as opposed to annually) and progressive enforcement measures. (Id. ¶¶ 58-59.) The increased oversight of SFF facilities continues until they either improve enough to "graduate" from the list or are involuntarily terminated from the Medicare program. (Id. ¶¶ 60-63.)
CMS publishes its star ratings and SFF lists online and, consistent with statute, encourages consumers to use these lists to compare facilities. (Id. ¶ 70); 42 U.S.C. § 1395i-3(i).
The Medicare Act and its implementing regulations provide an administrative review process through which a facility may challenge certain deficiency findings that led to an enforcement remedy. (R. 1 ¶¶ 50, 55); 42 U.S.C. §§ 431.153, 488.408(g), 498 et seq. The pendency of an appeal, however, does not defer publication of a facilities' survey results or prohibit CMS from using the deficiency in calculating a facility's health inspection score. (R. 1 ¶ 56.) This means that a contested deficiency can result in SFF placement before the formal hearing process is completed. (Id. ¶¶ 31, 102.)
As in Elmwood Park, Rock Island alleges that it is entitled to a formal appeal process to challenge any recorded deficiencies before it is subject to Medicare program penalties; in this case, placement on the SFF list. The Federal Defendants and the State Defendants each move to dismiss Rock Island's complaint under Rule 12(b)(1) for lack of subject matter jurisdiction. (R. 14 at 5-10; R. 21 at 9-13.) The Defendants' 12(b)(1) argument is the same as that asserted in the Elmwood Park case—for claims like Rock Island's that arise under the Medicare Act, the sole avenue for judicial review is through the special review channel that the Medicare statute creates. (See R. 14 at 5-7; R. 21 at 9-13); see also Shalala v. Ill. Council on Long Term Care, Inc., 529 U.S. 1, 5, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000). Because Rock Island did not exhaust its administrative remedies before filing suit, the Defendants argue that this Court cannot exercise subject matter jurisdiction and, thus, the complaint must be dismissed. (R. 14 at 5-7; R. 21 at 9-13).
Because the principal issues underlying both Elmwood Park and the instant matter are the same, the cases were consolidated for the purpose of pretrial matters and a joint trial, but not for the purpose of final judgment. Elmwood Park, 20 C 533, Dkt. No. 50 at 5. As mentioned above, this Court granted the motions to dismiss filed by the defendants in Elmwood Park for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). See Elmwood Park, 2023 WL 5804230.
The State Defendants further move to dismiss under Federal Rule of Civil Procedure 12(b)(6). (R. 14 at 7-10.) Because the Court concludes that the complaint cannot proceed under Rule 12(b)(1), it does not address the State Defendants' alternative 12(b)(6) argument. See Arbaugh v. Y&H Corp., 546 U.S. 500, 506, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006) (explaining that if the court concludes that it lacks subject matter jurisdiction, it must dismiss the claim in its entirety).
After briefing was complete, the Federal Defendants supplemented their motion to dismiss with a declaration from CMS employee, Kaitlin Masanek. (R. 35-1.) Rock Island does not contest Masanek's declaration, nor the Federal Defendants' supplementation of their motion to dismiss with this information. (R. 35 ¶ 5; R. 41 at 1-2.) Masanek states that Rock Island graduated from the SFF program on March 6, 2023. (R. 35-1 ¶ 4.) The Federal Defendants argue that Rock Island's removal from the SFF list renders this case moot, as there is no longer a live controversy. (R. 35 ¶ 4.) In response, Rock Island contends that dismissing the case for mootness would leave unresolved the issue as to whether placement on the SFF list prior to a formal hearing process violates its due process rights. (R. 41 at 2-3.) The Court now addresses the merits of the Federal Defendants' mootness argument.
Mootness is a jurisdictional issue that can arise at any time during the proceedings
to defeat subject matter jurisdiction. See United States v. Sanchez-Gomez, 584 U.S. 381, 138 S. Ct. 1532, 1537, 200 L.Ed.2d 792 (2018) (explaining federal courts lose subject matter jurisdiction if, "at any point during the proceedings," the case becomes moot). The Constitution limits the jurisdiction of a federal court to "resolving live 'Cases' and 'Controversies.'" E.F.L. v. Prim, 986 F.3d 959, 962 (7th Cir. 2021) (quoting U.S. Const. art. III, § 2, cl. 1). Thus, when the issues presented are no longer "live" or the parties "lack a legally cognizable interest in the outcome," the case is moot and is no longer within a federal court's power to adjudicate. Chafin v. Chafin, 568 U.S. 165, 172, 133 S.Ct. 1017, 185 L.Ed.2d 1 (2013); see also Brown v. Bartholomew Consol. Sch. Corp., 442 F.3d 588, 596 (7th Cir. 2006) ("A case becomes moot when a court's decision can no longer affect the rights of litigants in the case before them and simply would be an opinion advising what the law would be upon a hypothetical state of facts.").
As indicated above, Rock Island's complaint asserts a single claim: the Defendants' failure to afford the nursing home facility an advanced hearing prior to its placement on the SFF list violated the facility's due process rights. (R. 1 at 18-19 (Count I)). For this claim, Rock Island seeks two types of relief: an injunction removing Rock Island from the SFF list and enjoining the Defendants from using contested deficiencies for placement on the SFF list prior to completion of the administrative review process, (id. at 21-22 (Count III)); and a declaratory judgment affirming its position that it must be afforded a formal hearing before being designated a SFF facility. (Id. at 20-21 (Count II)). The Court addresses each of Rock Island's claims for relief in turn. See Chi. Joe's Tea Room, LLC v. Vill. of Broadview, 894 F.3d 807, 815 (7th Cir. 2018) (mootness analysis proceeds claim by claim).
A claim for injunctive relief becomes moot when "the threat of the act sought to be enjoined dissipates." Brown, 442 F.3d at 598. In this case, the claimed "threat" is SFF placement during the pendency of the administrative review process. But that threat is no longer present. Rock Island has graduated from the SFF program. An injunction relating to Rock Island's designation as an SFF facility would therefore be ineffectual. See Chafin, 568 U.S. at 172, 133 S.Ct. 1017 ("a case becomes moot ... when it is impossible for a court to grant any effectual relief whatever to the prevailing party").
Moreover, Rock Island's prior placement on the SFF list does not, itself, satisfy the case or controversy requirement. See O'Shea v. Littleton, 414 U.S. 488, 495-96, 94 S.Ct. 669, 38 L.Ed.2d 674 (1974) ("Past exposure to illegal conduct does not in itself show a present case or controversy regarding injunctive relief ... if unaccompanied by any continuing, present adverse effects."). Instead, there must be a "real and immediate" threat of future injury. City of L.A. v. Lyons, 461 U.S. 95, 102, 103 S.Ct. 1660, 75 L.Ed.2d 675 (1983); UWM Student Ass'n v. Lovell, 888 F.3d 854, 860 (7th Cir. 2018). Here, the threat of future placement on the SFF list is purely speculative, as it depends on whether Rock Island's cumulative survey results over a three-year period would again render the facility a candidate for placement on the SFF list. See, e.g., O'Shea, 414 U.S. at 493, 496, 94 S.Ct. 669 (holding no live case or controversy in case alleging discriminatory sentencing practices where prospect of future injury rested on likelihood that plaintiffs would again be arrested, charged, and subject to criminal trial proceedings before defendants). An injury in the abstract, as
Rock Island's claim has become, does not suffice to establish a live controversy. See City of L.A., 461 U.S. at 102, 103 S.Ct. 1660 ("'conjectural' or 'hypothetical injury'" is not enough). And Rock Island provides no case law that would persuade the Court to view its claim differently. Accordingly, Rock Island's due process claim for injunctive relief is moot. The same reasons moot Rock Island's claim for declaratory relief. The Declaratory Judgment Act allows federal courts to render declaratory judgments only when an "actual controversy" exists. 28 U.S.C. § 2201(a). A claim for declaratory relief must show "that there is a substantive controversy, between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Simic v. City of Chi., 851 F.3d 734, 740 (7th Cir. 2017) (citing Preiser v. Newkirk, 422 U.S. 395, 402, 95 S.Ct. 2330, 45 L.Ed.2d 272 (1975)). As with injunctive relief, declaratory relief requires "ongoing or impending" harm. Swanigan v. City of Chi., 881 F.3d 577, 583 n.2 (7th Cir. 2018) (citing Feit v. Ward, 886 F.2d 848, 857 & n.11 (7th Cir. 1989)).
As explained above, Rock Island seeks declaratory relief on its claim that placement on the SFF list prior to completion of the administrative review process violated its due process rights. Rock Island, however, is no longer subject to SFF designation, and the possibility that it may again find itself on this list at some future time is, at best, speculative. Accordingly, there exists no "actual controversy" meriting declaratory relief as it relates to Rock Island's SFF placement, thereby rendering this claim moot. See, e.g., Aslin v. Fin. Indus. Regul. Auth., Inc., 704 F.3d 475, 477-78 (7th Cir. 2013) (holding moot plaintiff's due process claim for declaratory relief based on placement on "Disciplined Firms" brokers' list where plaintiff no longer held that designation).
Beyond mootness, the same reasoning warranting dismissal under Rule 12(b)(1) in Elmwood Park applies here. See Elmwood Park, 2023 WL 5804230. Rock Island concedes that this action arises under the Medicare Act. (R. 1 at 4.) Claims arising under the Medicare Act must first be exhausted through Medicare's administrative review process prior to judicial review. Heckler v. Ringer, 466 U.S. 602, 627, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984). "The Supreme Court has regarded the 'requirement that there be a final decision by the Secretary after a hearing' as 'central to the requisite grant of subject-matter jurisdiction'" in federal court. Home Care Providers, Inc. v. Hemmelgarn, 861 F.3d 615, 624 (7th Cir. 2017) (quoting Mathews v. Eldridge, 424 U.S. 319, 328, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976)). The Medicare Act's exhaustion requirement "assures the agency greater opportunity to apply, interpret, or revise policies, regulations, or statutes without possibly premature interference by different individual courts applying 'ripeness' and 'exhaustion' exceptions case by case." Ill. Council, 529 U.S. at 13, 120 S.Ct. 1084. "Even styling a claim arising under the Medicare Act as a constitutional challenge does not ordinarily permit a plaintiff to forgo exhausting administrative remedies." Ill. Ins. Guar. Fund v. Becerra, 33 F.4th 916, 924 (7th Cir. 2022).
At the time it filed its complaint, Rock Island admitted that it had not yet exhausted its administrative remedies as no final order had been entered as to either of the survey findings that led to its placement on the SFF list. (R. 1 ¶¶ 88, 94.) Though CMS can waive a plaintiff's failure to exhaust some or all of the steps in the administrative review process, it did
not do so. Becerra, 33 F.4th at 924 ("When the government invokes the defense, we enforce the exhaustion requirement."). Where, as here, CMS does not waive the requirement, "a federal court may hold it waived where (1) the claimant raises a colorable constitutional challenge that is entirely collateral to its claim of entitlement and (2) the 'claimant's interest in having ... [the] issue resolved promptly is so great that deference to the agency's judgment is inappropriate.'" In Touch Home Health Agency, Inc. v. Azar, 414 F. Supp. 3d 1177, 1187 (N.D. Ill. 2019) (quoting Eldridge, 424 U.S. at 331, 96 S.Ct. 893). In assessing a Medicare provider's waiver request under Eldridge, courts consider three factors: (1) whether the claim is colorable and collateral to its claim of entitlement; (2) whether exhaustion would be futile; and (3) whether the provider would suffer irreparable harm if required to exhaust administrative remedies before obtaining relief. Id. (citing Martin v. Shalala, 63 F.3d 497, 504 (7th Cir. 1995)).
In its response to the Federal Defendants' motion to dismiss, Rock Island raises futility and irreparable harm arguments. (R. 28 at 6-11.) Rock Island does not, however, discuss whether its procedural due process claim raises a colorable constitutional issue that is collateral to its claim of entitlement to a correct deficiency finding. Because Rock Island's claim fails at this first step, the Court does not reach the futility and irreparable harm prongs. See Hemmelgarn, 861 F.3d at 624-26 (holding waiver not warranted, without addressing futility or irreparable harm, where plaintiff failed to raise a colorable, collateral claim).
Rock Island's procedural due process argument is neither entirely collateral to its substantive claim of entitlement, nor does it present a colorable constitutional claim. Though Rock Island frames its claim as a collateral one—attacking the agency's appeal process and rating system —at bottom, Rock Island disputes its survey results and the deficiency findings that led to its placement on the SFF list. Rock Island cannot avoid the Medicare Act's jurisdictional bar simply by styling its attack as a collateral, constitutional claim instead of a challenge to the underlying deficiency findings. See id. at 624-25. Indeed, Rock Island's theory in this case is even more closely connected to its administrative claim than the one it pursued in Elmwood Park. Whereas, in its companion case, Rock Island challenged the constitutionality of the administrative hearing process generally, in this case, Rock Island focuses narrowly on a specific agency determination made as part of the agency's survey and inspection process: that is, its placement on the SFF list. Like the plaintiffs in Hemmelgarn, Rock Island initially sought administrative review to challenge the survey findings that led to its SFF designation but filed this action in federal district court before receiving a final agency decision. (See R. 1 ¶¶ 87-88, 93-94.) "This it cannot do." Hemmelgarn, 861 F.3d at 625.
Moreover, Rock Island's allegations do not amount to a colorable constitutional challenge. To determine whether a constitutional claim is colorable, courts consider: (1) "the private interest that will be affected by the official action;" (2) "the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards;" and (3) "the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail." Azar, 414 F. Supp. 3d at 1188-89 (citing Eldridge, 424 U.S. at 335, 96 S.Ct. 893). Applying these factors, Rock Island cannot establish a constitutionally protected interest to a "correct" or "justified" SFF placement (in other words, SFF placement following administrative review of the deficiencies that led to the designation) and, accordingly, fails to raise a colorable constitutional claim. See Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 569, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972) ("The requirements of procedural due process apply only to the deprivation of" constitutionally protected interests). The Seventh Circuit's decision in Northlake Community Hospital v. United States, 654 F.2d 1234 (7th Cir. 1981), is instructive here. In Northlake, the Seventh Circuit held that "Medicare providers ... cannot raise a colorable constitutional claim of entitlement to a [ ] hearing" prior to the termination of their Medicare provider agreements. Id. at 1242. Applying the Eldridge factors, the Seventh Circuit explained that: the private interest at stake is not particularly strong, since the Medicare provider is not the intended beneficiary of the program; the risk of erroneous deprivation is "manageable" given the procedural safeguards in place, including the use of "well-defined criteria [ ] developed in the administrative rule making process" to evaluate providers; and the government has a strong interest in "expeditious provider termination procedures ...," given "[t]he Secretary's responsibility for insuring the safety and care of elderly and disabled Medicare patients..." Id. at 1242.
As mentioned above, termination of a facility's Medicare provider agreement could be a consequence of a facility's failure to graduate from the SFF list. If a facility has no constitutional right to a hearing prior to termination of its provider agreement, it would be incongruous to find that it has a constitutional right to a hearing prior to an intermediary step like placement on the SFF list. Cf. Bryn Mawr Care v. Sebelius, 898 F. Supp. 2d 1009, 1013 (N.D. Ill. 2012) (holding nursing home did not have a property or liberty interest in correct CMS star rating). Because Rock Island does not assert a colorable constitutional claim, it is not entitled to a waiver of the administrative-exhaustion requirement. See Hemmelgarn, 861 F.3d at 624-26.
Accordingly, the Court sustains the Defendants' jurisdictional challenge on both mootness and exhaustion grounds. The Defendants' motions to dismiss under Rule 12(b)(1), (R. 14; R. 20), are granted. Rock Island's complaint is dismissed without prejudice to the facility filing an amended complaint if it can do so consistent with this order and Federal Rule of Civil Procedure 11. Any amended complaint is due on or before February 7, 2024.