51 soc.sec.rep.ser. 343, Medicare & Medicaid Guide P 44,528 the Methodist Hospitals, Inc. v. Cheryl Sullivan, Secretary of the Indiana Family and Social Services Administration, and James M. Verdier, Assistant Secretary and Director of the Indiana Office of Medicaid Policy and Planning

Citation: 91 F.3d 1026Docket: 95-3078

Court: Court of Appeals for the Seventh Circuit; August 2, 1996; Federal Appellate Court

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On January 1, 1994, Indiana modified the formulas for Medicaid provider payments, leading to a lawsuit filed by Methodist Hospitals and five physicians against state officials under 42 U.S.C. § 1983, asserting the new rules were invalid. The district court dismissed some claims based on the absence of a private right of action and granted summary judgment to the defendants on others. Indiana sought attorneys' fees under 42 U.S.C. § 1988, which the court denied. The litigation has involved disputes over confidential information and whether the case is moot, particularly concerning the relevance of the outpatient rules, which were not adequately addressed by either party. The appellate court raised concerns about the existence of a live controversy, noting that two sets of the contested rules had become defunct prior to the district court's ruling.

Until 1994, Indiana reimbursed outpatient service providers based on their customary billing amounts, capped at 100% of actual costs. A new payment method was implemented, standardizing reimbursement across the state: providers receive 50% of the Medicare rate and 50% of the 1992 statewide median for outpatient services. This change negatively impacts providers with above-average costs, such as the Hospitals, which estimate a loss of $1 million annually under the new rules. The case was dismissed on the pleadings, but it is assumed the Hospitals could substantiate their claims, thus allowing for potential injunctive relief despite the Eleventh Amendment's limitations on monetary damages.

The plaintiffs' challenges to the state's regulations lack sufficient argumentation, particularly regarding the consultation requirements with the Medical Advisory Committee, which they argue were not met. The defendants cite relevant regulations and case law supporting Indiana's compliance. Additionally, the plaintiffs' argument regarding violations of 42 U.S.C. 1396a(a)(10) was dismissed as there is no private right of action for enforcement, a point the district court had already addressed. The only well-supported argument presented by plaintiffs pertains to Indiana’s compliance with 42 U.S.C. 1396a(a)(30), which mandates that Medicaid plans must ensure appropriate methods for utilization and payment that uphold efficiency, economy, and quality of care while ensuring adequate provider availability.

Plaintiffs argue that the state must provide adequate payments to ensure the availability of care and services equivalent to those accessible to the general population within a specified "geographic area." The district court dismissed this claim, stating that the term "geographic area" is too ambiguous to establish a private right of action. While the Eighth Circuit in Arkansas Medical Society v. Reynolds recognized a private right of action for providers under 42 U.S.C. § 1396a(a)(30), the district court chose not to follow it, citing the lack of clarity surrounding the term "geographic area," which it deemed critical based on precedents from Suter v. Artist M. The court noted that "geographic area" could vary significantly depending on the context, such as proximity for emergency care versus outpatient services, and highlighted the absence of federal regulations defining the term. The judge suggested that defining geographic areas is challenging, as evidenced by ongoing difficulties in antitrust law. Despite these complexities, the court referenced Wilder v. Virginia Hospital Association, which affirmed that hospitals possess a private right of action under the Boren Amendment, emphasizing reasonable access to services. Ultimately, the court concluded that medical care providers do have a private right of action to enforce § 1396a(a)(30), following the precedent set by Arkansas Medical Society.

Plaintiffs' arguments fail to demonstrate shortcomings in Indiana's reimbursement plan under 42 U.S.C. § 1396a(a)(30). They interpret the statute as necessitating extensive pre-change studies, akin to environmental impact assessments, requiring detailed supply and demand analyses for all medical specialties statewide. However, as highlighted by Supreme Court precedents, determining such comprehensive demand and supply schedules is not just complex but practically unfeasible. The statute does not mandate states to conduct these extensive studies before modifications; rather, it requires states to achieve satisfactory outcomes without specifying a methodology. Unlike the Boren Amendment, which necessitates states to make reasonable findings based on studies, § 1396a(a)(30) allows states to act like market participants, adjusting prices to ensure adequate service supply. Indiana's approach since January 1, 1994, involved a slight reduction in medical service prices, followed by studies assessing service availability. Although plaintiffs criticize these studies as retrospective, they served as a foundation for subsequent changes, including modifications in reimbursement for physician and hospital services later in 1994. Plaintiffs have not evidenced any provider withdrawals in the outpatient market, despite their concerns, and Indiana's strategy of comparing predictions with actual outcomes appears to be a legitimate method of assessment.

The state argues it is entitled to attorneys' fees under 1988, acknowledging that prevailing plaintiffs automatically recover fees, while prevailing defendants only do so if the suit is deemed "groundless or without foundation," as established in Hughes v. Rowe. Indiana cites Fogerty v. Fantasy to suggest that the same standard should apply to both plaintiffs and defendants regarding fee recovery. Indiana contends that the distinction between "commercial interests" and other motivations for litigation is problematic and that increased reimbursements could benefit both physicians and needy patients. The district court denied Indiana's request for attorneys' fees, adhering to Hughes, and if Indiana believes Fogerty warrants a different interpretation, it must seek clarification from the Supreme Court. Additionally, a dispute regarding a sealed brief opposing the plaintiffs' motion for a temporary restraining order (TRO) was noted, where sensitive information was shared under a protective order. Indiana's sealed brief included physician income data, which was pending judicial decision on disclosure. Indiana assured the court it would not enforce new reimbursement rules until the case's merits were resolved, leading to no ruling on the TRO request. The principle of public access to materials underpinning judicial decisions was mentioned but deemed not applicable in this instance.

Defendants underscore the common law right of access to litigation documents, referencing key cases that establish this principle. Plaintiffs argue that much commercial information, such as trade secrets and personal income, should not be disclosed publicly as a condition for accessing court proceedings. The court acknowledges that while judicial proceedings are generally open, certain sensitive information can be withheld, including personal income and tax returns.

The relevance of the physician plaintiffs' substantial incomes is questioned, as the substantive issue is whether reductions in Medicaid reimbursement would influence their practice decisions, not their overall income levels. The court clarifies that understanding the economic implications for physicians is not aided by disclosing their annual incomes.

However, the court also states that the district court erred in keeping the entire memorandum sealed. It emphasizes that while certain information may be confidential, this does not render the entire document confidential. The court cites the Freedom of Information Act's principle that confidential portions should be redacted while the remaining information is made public. As a result, the district court's denial of the motion to unseal is overturned; the court is instructed to order redaction of confidential information and to place the unredacted portions in the public record. The case is remanded for this purpose while affirming the judgment in other respects.