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U.S. Court In Illinois Dismisses Hospital�s Challenge To Medicaid Provider Tax


HLD, v. 33, n. 11 (November 2005)

U.S. Court In Illinois Dismisses Hospital�s Challenge To Medicaid Provider Tax

            A federal court in Illinois dismissed October 4 a hospital�s challenge to an Illinois Medicaid plan amendment that imposed a tax on healthcare providers. The court found most of the hospital�s claims moot because the amendment had since expired. The court also noted that the hospital lacked standing to assert the amendment violated the Medicaid Act since it failed to allege any direct injury and in fact received a net economic benefit. In the alternative, the court found the hospital failed to state a claim on which relief could be granted, noting specifically that there was no general private, enforceable right of action under the Medicaid statute.

            The Illinois legislature on February 3, 2004 passed legislation amending its state Medicaid plan by imposing a tax on healthcare providers. The Centers for Medicare and Medicaid Services (CMS) subsequently approved the Illinois state plan amendment (SPA), which took effect retroactively from May 9, 2004 to June 30, 2005.

Protestant Memorial Medical Center, Inc. (Protestant Memorial) sued Barry S. Maram in his official capacity as the Illinois Department of Public Aid Director and CMS in federal district court, alleging various constitutional and statutory violations with respect to the SPA. CMS, Maram, and several intervenor-defendant hospitals and hospital associations filed separate motions to dismiss. Defendants contend that the court lacks subject matter jurisdiction and, in the alternative, that plaintiff failed to state a claim upon which relief can be granted. Defendants say that Illinois hospitals stand to gain $340 million in federal funding as a result of this proposal, and that Protestant Memorial specifically would receive a net gain of over $540,000.

The U.S. District Court for the Southern District of Illinois granted the motion. First, the court found Protestant Memorial�s three primary requests for relief moot given that the SPA ceased to be valid on July 1, 2005 and that the relevant funds had already been distributed. Protestant Memorial had specifically asked the court to declare the SPA, and CMS� approval of the SPA, invalid and void and sought an injunction preventing Maram from making payments pursuant to the SPA.

Next, the court found that Protestant Memorial lacked standing because it failed to assert that it had been directly harmed by the SPA. In fact, the court continued, Protestant Memorial acknowledged that the SPA actually improved its economic condition. Protestant Memorial�s contention that it would be entitled to greater benefit under a different SPA that properly accounted for Medicaid usage rates is not a "distinct and palpable" injury sufficient to grant jurisdiction, the court said.

The court also concluded that Protestant Memorial failed to state a claim for relief. The court rejected Protestant Memorial�s argument that the Supreme Court�s decision in Wilder v. Virginia Hosp. Ass�n, 496 U.S. 498 (1990), which held that a party could bring an action under 42 U.S.C. � 1983 to enforce the now repealed Boren Amendment of the Medicaid Act, created a private enforceable right under every provision of the Medicaid Act. The Wilder case did not address whether a private, enforceable right exists under the Medicaid Act generally, said the court. While some post-Wilder cases have found a private, enforceable right under other Medicaid provisions, they too did not apply to the Medicaid Act generally.

The court also noted that Maram was immune from suit under � 1983 because the relief Protestant Memorial sought was not prospective. In addition, CMS was immune from suit because a federal defendant can only be considered to have acted under color of state law for purposes of � 1983 in two circumstances not present here. Specifically, Protestant did not assert or suggest that Illinois in any way "cloaked CMS with authority" and the court found no suggestion that CMS "conspired or acted in concert with state officials" in approving the SPA. Accordingly, the court granted defendants� motion to dismiss.

Protestant Mem�l Med. Ctr., Inc. v. Maram, No. 5-CV-03-DRH (S.D. Ill. Oct. 4, 2005). 

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