Rock River Health Care, LLC v. Theresa A. Eagleson ( 2021 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 19-2750
ROCK RIVER HEALTH CARE, LLC, et al.,
Plaintiffs-Appellants,
v.
THERESA A. EAGLESON,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:18-cv-06532 — John Robert Blakey, Judge.
____________________
ARGUED OCTOBER 1, 2020 — DECIDED OCTOBER 4, 2021
____________________
Before EASTERBROOK, MANION, and ROVNER,
Circuit Judges.
ROVNER, Circuit Judge. Plaintiffs Rock River Health Care,
LLC, International Nursing & Rehab Center, LLC, and Island
City Rehabilitation Center, LLC, (collectively the “Provid-
ers”) brought suit under 42 U.S.C. § 1983 and the Medicaid
Act, 42 U.S.C. § 1396a et seq., alleging that the Illinois Depart-
ment of Healthcare and Family Services (the “Department”)
violated constitutional and statutory law in retroactively
2 No. 19-2750
recalculating their Medicaid reimbursement rates for the
three-month period of January through March 2016. The dis-
trict court granted the Department’s motion to dismiss the
case. The Providers now appeal that decision only as to the
dismissal of the procedural due process claim. Accordingly,
we do not address the other claims raised in the district court.
The Providers in this case operate long-term nursing care
facilities in Illinois, and receive per diem reimbursement for
Medicaid beneficiaries from the Department, which adminis-
ters the state’s Medicaid program. Medicaid is a voluntary
program that operates through a state and federal partner-
ship, for the purpose of providing medical care for indigent,
elderly, and disabled persons. States participating in Medi-
caid must administer their programs in compliance with the
requirements of Title XIX of the Social Security Act, 42 U.S.C.
§ 1396 et seq., known as the Medicaid Act. The Department
provides per diem reimbursements to state-licensed care fa-
cilities for the care provided to Medicaid recipients, at a reim-
bursement rate calculated based on the type and amount of
services furnished to each resident. 89 Ill. Admin. Code
§140.530(a). The reimbursement consists of three components:
(1) support cost; (2) nursing cost; and (3) capital cost.
This case concerns only the nursing component, which co-
vers the wages and benefits for the nursing staff and social
workers, payments for direct care consultants, and payment
for health care supplies used by or for residents. As the dis-
trict court noted, by the time that the state reimburses nursing
facilities under the program, those facilities have already pro-
vided the services to the residents and generally have also al-
ready paid the nursing staff. The calculation of the proper rate
No. 19-2750 3
of reimbursement for nursing facilities is updated on a quar-
terly basis.
The reimbursement rate for nursing facilities is calculated
using a model called the Resource Utilization Group reim-
bursement system, which is characterized as a “resident-
based, facility-specific, cost-based” methodology. 305 ILCS
§ 5/5-5.2(d). Under that system, each facility submits Mini-
mum Data Set assessments to the Department on a quarterly
basis, which provide information as to the intensity of care
and services for each resident in the facility. 305 ILCS §5/5-5.2;
89 Ill. Admin. Code §§ 147.310, 147.320. The Department uses
that data to classify each resident and establish the facility’s
“case mix.” Id. at §§ 147.325, 147.340. With that information,
the Department calculates the nursing component of the re-
imbursement rate, which “shall be the product of the
statewide RUG-IV [Resource Utilization Group] nursing base
per diem rate, the facility average case mix index, and the re-
gional wage adjustor.” 305 ILCS §5/5-5.2(e-2).
At times, the Department conducts on-site reviews to ver-
ify the accuracy of those Minimum Data Set assessments. The
contours for that review are set forth in detail in 89 Ill. Admin.
Code § 147.340 (the “Code”). The Code provides that the De-
partment “may select, at random” facilities in which to con-
duct quarterly on-site reviews, and also may select them
based on a number of enumerated circumstances. Id. at
§ 147.340(b)–(d). Reviews can be conducted electronically or
on-site at the facility. Id. at § 147.340(a). On-site reviews can
include examination of “resident records and documentation,
… observation and interviews of residents, families and/or
staff” to determine the accuracy of the submitted data, and
the “[r]eview and collection of information necessary to
4 No. 19-2750
assess the resident’s need for a specific services or care area.”
Id. at § 147.340(g). Department staff are required to request in
writing the current charts of individual residents that are
needed to begin the review process. Id. at § 147.340(l). If fur-
ther documentation is needed by the reviewers in order to
validate an area, “the team shall identify the MDS [Minimum
Data Set] item requiring additional documentation and pro-
vide the facility with the opportunity to produce that infor-
mation” within 24 hours. Id. at § 147.340(m).
Finally, throughout that review, the Department is re-
quired to identify any preliminary conclusions regarding
Minimum Data Set items or areas that could not be validated.
Id. at § 147.340(o). If the facility disagrees with those prelimi-
nary conclusions, it can present the Department with any doc-
umentation to support its position. Id. As we will discuss
later, although the Code provides for all of these procedures,
the Providers argue that for each of their audits, the Depart-
ment failed to identify items requiring further documentation
and provide an opportunity to respond with such documen-
tation, as is required under § 147.340(m), and failed to identify
preliminary conclusions or areas that could not be validated,
as is mandated by § 147.340(o).
Once the review is concluded, under the Code the Depart-
ment provides the final determination to the facility, includ-
ing its conclusions as to the accuracy of the data, and as to any
reclassification of residents and recalculation of the reim-
bursement rates. Id. The facility can request reconsideration
of any reclassification within 30 days. In that appeal, the facil-
ity can include explanations as to how the submitted data
supported the classification of the resident and requires re-
consideration, but cannot submit documentation that was not
No. 19-2750 5
provided to the Department during the initial review. Id. at
§ 147.340(u). The reconsideration is conducted by individuals
that were not directly involved in the initial review, and the
reconsideration decision is made within 120 days. Id. at
§ 147.340(v).
I.
Following an audit by the Department, the reimbursement
rates for the plaintiffs were recalculated. According to the
Providers, the nursing component rates for the facilities were
retroactively decreased by 83%, 57%, and 20%. The Providers
sued the Department, alleging that the retroactive rate adjust-
ments violated federal Medicaid laws and both substantive
and procedural due process. The district court granted the de-
fendant’s motion to dismiss, and the Providers appeal.
In an appeal from the grant of a motion to dismiss under
Federal Rule of Civil Procedure 12(b)(6), we review the claim
de novo, accepting all well-pleaded allegations as true and tak-
ing all reasonable inferences in the plaintiffs’ favor. Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). Only the procedural due pro-
cess claim is raised in this appeal. As to that claim, the Pro-
viders allege that the auditors did not follow certain proce-
dures mandated in the Code and that such failure was not an
isolated occurrence for one audit, but rather was the experi-
ence for the audits as to each of the Providers. Specifically, the
Providers claim that in the audits of each of them, the auditors
did not provide the preliminary results, and did not identify
allegedly missing or deficient documents or provide an op-
portunity to respond, as is required by Code sections
147.340(m) and (o). In addition, the Providers allege that the
procedure for reconsideration is inadequate to provide due
6 No. 19-2750
process because it prohibits the submission of any evidence
not provided to the auditors at the initial stage.
In dismissing the claim, the district court held that the Pro-
viders lacked a property interest in their per diem Medicaid
reimbursement rate and therefore did not merit due process
protection. In so holding, both the court and the defendant on
appeal characterize the Providers’ claim as asserting a prop-
erty interest in a particular per diem Medicaid reimbursement
rate. Based on that characterization, the district court held that
there was no legitimate claim of entitlement sufficient to con-
stitute a property interest, because the Department “did not
retroactively change a duly promulgated reimbursement rate
for payments already made; instead, ‘it retroactively changed
a reimbursement rate contingent upon quarterly patient data
that was subject to MDS audits and resulting adjustments per
the terms of the Illinois state plan.’” Dist. Ct. Order at 10. In
other words, the court held—and defendants argue here—
that there was no threat to a property interest because the De-
partment’s actions were consistent with the law governing re-
imbursement rates, which allows for the auditing of the Pro-
viders and a recalculation of the rates. We turn, then, to an
analysis of the procedural due process claim.
II.
The Due Process Clause of the Fourteenth Amendment
prohibits the deprivation of life, liberty or property by the
government without due process of law. In analyzing a due
process claim, we consider first whether the plaintiff has been
deprived of a protected interest in property or liberty, and if
that is established, we consider whether the state’s proce-
dures comport with due process. American Mfrs. Mut. Ins. Co.
v. Sullivan, 526 U.S. 40, 59 (1999).
No. 19-2750 7
As an initial matter, we note that the Providers argue in
the complaint and the brief that the Department failed to com-
ply with the procedures required by the Code. But the proce-
dures required by state or local law do not define the consti-
tutional requirements of notice and an opportunity to be
heard—a point that we have made in countless cases for dec-
ades. See Bradley v. Village of Univ. Park, Illinois, 929 F.3d 875,
883 n. 3 (7th Cir. 2019) (noting that “[o]ur cases reiterating this
principle are legion”) and cases cited therein. A violation of
state law will not create a constitutional claim, and compli-
ance with state law will not shield a defendant from other-
wise-unconstitutional conduct, “as Supreme Court precedent
has ‘establish[ed] the indifference of constitutional norms to
the content of state law.’” Id. at 883 (quoting Archie v. City of
Racine, 847 F.2d 1211, 1217 n.6 (7th Cir. 1988). Accordingly,
the proper focus is whether the procedures provided by the
Department for all of the audits of the Providers in this case
met the minimal federal constitutional requirements of due
process, not whether the requirements of the Illinois Admin-
istrative Code were met.
A.
Property interests do not originate in the Constitution;
“[r]ather, they are created and their dimensions are defined
by existing rules or understandings that stem from an inde-
pendent source such as state law—rules or understandings
that secure certain benefits and that support claims of entitle-
ment to those benefits.” Bd. of Regents of State Colleges v. Roth,
408 U.S. 564, 577 (1972); Cheli v. Taylorville Cmty. Sch. Dist., 986
F.3d 1035, 1039 (7th Cir. 2021). “Accordingly, federal property
interests under the 14th amendment usually arise from rights
created by state statutes, state or municipal regulations or
8 No. 19-2750
ordinances, and contracts with public entities.” Ulichny v.
Merton Cmty. Sch. Dist., 249 F.3d 686, 700 (7th Cir. 2001). Even
absent explicit contractual or statutory provisions evidencing
such an entitlement, a property interest can be anchored in
mutually explicit rules or understandings that support a per-
son’s claim of entitlement to the benefit, as the Court recog-
nized with respect to the de facto tenure program in Perry v.
Sindermann, 408 U.S. 593, 601 (1972); see also Forgue v. City of
Chicago, 873 F.3d 962, 970 (7th Cir. 2017). A protected property
interest exists where substantive criteria clearly limit discre-
tion “such that the plaintiff cannot be denied the interest un-
less specific conditions are met.” Bell v. City of Country Club
Hills, 841 F.3d 713, 719 (7th Cir. 2016) (internal quotation
marks omitted); Cheli, 986 F.3d at 1042. A classic example of
substantive standards cabining discretion is the requirement
that an employee only be fired for cause, which courts have
consistently recognized as establishing a property interest in
employment. Where such law or mutually explicit rule gives
people “a benefit and creates a system of nondiscretionary
rules governing revocation or renewal of that benefit, the re-
cipients have a secure and durable property right, a legitimate
claim of entitlement.” Kvapil v. Chippewa Cty., Wis., 752 F.3d
708, 713 (7th Cir. 2014) (internal quotation marks omitted).
Contrary to the Department’s characterization, the claim
here is not that the plaintiffs are entitled to a particular reim-
bursement rate, but rather that they are entitled to payment
at the legally prescribed rate. The method of calculating the
appropriate reimbursement rate is strictly circumscribed by
the state law and administrative code. The Providers do not
have a legitimate claim of entitlement to whatever rate they
believe is appropriate, but they do have a legitimate claim of
entitlement to reimbursement at the rate as established under
No. 19-2750 9
the law. See Am. Society of Cataract & Refractive Surgery v.
Thompson, 279 F.3d 447, 455 (7th Cir. 2002) (in the Medicare
context, stating that “[w]e agree with petitioners’ assertion to
the extent that they claim that they have a property interest in
being reimbursed at the duly promulgated reimbursement
rate as set out in the fee schedule”). The Providers seek due
process to ensure a fair opportunity to establish that the data
supported the rates as originally set. Because that payment is
defined by statute, and is not a discretionary determination,
it is the type of entitlement that triggers due process protec-
tion.
Even the defendant at oral arguments agreed that the Pro-
viders possess a legitimate entitlement to be paid for services
rendered. The Department argues, however, that “any prop-
erty interest they had was defined by the relevant regulations,
which make reimbursement rates for nursing care contingent
upon verification of the MDS data that the Department used
to set the facility’s reimbursement rate during the MDS on-
site review process,” and the district court employed similar
reasoning. Appellee’s Brief at 13.
That characterization of an entitlement as a contingent in-
terest does not defeat the claim of a property interest here.
“’An interest that gives rise to an entitlement is always a con-
ditional interest,’” because if the plaintiff possessed an abso-
lute right there would be no need for a hearing as there would
be no issue to resolve. Davis v. Ball Mem’l Hosp. Ass’n, 640 F.2d
30, 40–41 (7th Cir. 1980), quoting Geneva Towers Tenants Org.
v. Federated Mortgage Investors, 504 F.2d 483, 494 (9th Cir. 1974)
(J. Hufstedler dissenting). “’[A] component in addition to the
existence of an enforceable right’ is necessary for there to be
an entitlement, namely, that the interests be conditioned
10 No. 19-2750
‘upon the existence of one or more controvertible and contro-
verted facts.’” Davis, 640 F.2d at 41, quoting Geneva Towers,
504 F.2d at 495 (J. Hufstdetler, dissenting); see also Fincher v.
S. Bend Heritage Found., 606 F.3d 331, 335 (7th Cir. 2010) (not-
ing that “this circuit has consistently followed the reasoning
of Judge Hufstedler’s dissent in Geneva Towers”). Therefore,
the availability of a procedure under which a plaintiff can be
deprived of the original reimbursement rate does not defeat
the claim of a property interest.
An analogy to our employment cases illustrates this point.
It is beyond dispute that employees who can be terminated
only for cause have a property interest in their jobs. But em-
ployers routinely engage in audits of finances and examine
attendance records to ensure there is no employee miscon-
duct. The existence of those procedures to uncover miscon-
duct, which can then constitute cause for discharge, does not
negate the property interest in continued employment. The
property interest is contingent by its nature; it requires a hear-
ing precisely because there are non-discretionary, objective
factors that can result in the forfeiture of that protected inter-
est. The existence of procedures that would assess the entitle-
ment to that interest is not a basis to deny the existence of the
property interest; it is a basis to require that the procedures be
conducted with certain due process protections.
That is because property interests rest upon a legitimate
claim of entitlement. Bradley, 929 F.3d at 895. The defendant’s
belief that the plaintiff cannot succeed on that claim does not
eliminate the need to provide due process. Thus, in Breuder v.
Bd. of Trustees of Community Coll. Dist. No. 502, 888 F.3d 266,
270 (7th Cir. 2018), we rejected the college board’s argument
that the president had no right to a hearing because the
No. 19-2750 11
president’s contract extended beyond the terms of some
board members and therefore was invalid under Illinois law.
We held that Breuder’s written contract for a term of years
gave him a legitimate claim of entitlement to have the Board
honor its promise, and the prospect that his claim could ulti-
mately fail did not eliminate the claim’s existence. Id. We fur-
ther explained that critical distinction:
Imagine the Board saying: “You have commit-
ted misconduct; therefore your tenure has
ended; since you no longer have tenure, we
need not offer you a hearing at which we have
to demonstrate that misconduct occurred.” The
Supreme Court clearly established in Roth and
its many successors that this maneuver won’t
work. A hearing is required to establish
whether misconduct occurred. Just so here. The
Board believes that Breuder’s contract was inva-
lid, making him an at-will employee ... or that
the contract could be cancelled for misconduct.
But whether the contract was valid was subject
to legitimate debate, and a hearing would have
allowed Breuder to articulate his position and
insist that the contract be enforced. Both the du-
ration of Breuder’s tenure and the existence of
misconduct ... were debatable subjects. The
members who refused even to listen to him vio-
lated his clearly established rights.
Id.; Bradley, 929 F.3d at 895. Similarly, the Court in Goldberg v.
Kelly, 397 U.S. 254 (1970), recognized that welfare recipients
possessed a property interest in welfare payments that was
grounded in the statute which defined the eligibility for such
12 No. 19-2750
benefits. As the Court noted in Roth, “[t]he recipients [in Gold-
berg] had not yet shown that they were, in fact, within the stat-
utory terms of eligibility. But we held that they had a right to
a hearing at which they might attempt to do so.” Roth, 408 U.S.
at 577. The same reasoning applies here. Whether the reim-
bursement rate was valid is subject to legitimate debate, and
a hearing or other due process would allow the Providers to
articulate their positions and ensure that the legally-proper
reimbursement rate is applied.
Accordingly, the proper focus is on whether the statute
grants an entitlement to the benefit if the terms are met, not
whether the claim of eligibility will survive scrutiny. If the
original Minimum Data Set assessments set forth by the Pro-
viders was proper, there would be no doubt that they would
be entitled to the rate appropriate to that classification, just as
an employee would be entitled to retain her job if she did not
engage in behavior that would constitute “cause” for re-
moval. The possibility that the classifications would be
deemed invalid does not mean that the providers are not en-
titled to due process in determining that validity, just as the
possibility that the employee will be found to have committed
misconduct does not mean that the employee is not entitled
to due process in that determination. The structure of the
Code provides an entitlement to the rate based on the Mini-
mum Data Set assessment submitted by the provider, and is
not dependent upon any other approval for its implementa-
tion. In fact, audits are not automatically undertaken as to a
provider’s rate calculation, and even if the Department audits
a provider and determines that the data does not validate the
rate, the Code does not provide for a recalculation of that rate
unless the discrepancy would decrease the rate by more than
one percent. See 89 Ill. Admin. Code § 147.340(t). If the
No. 19-2750 13
recalculation decreases the rate by more than ten percent, a
penalty is imposed that decreases the rate by $1 for every per-
centage decrease in excess of two percent. Id. That penalty
provision further makes clear that the audit procedures are a
means of enforcement to ensure compliance, not an intrinsic
part of the rate calculation, just as an employer’s time cards
and financial audits are used to identify employee miscon-
duct that could provide cause for discharge. Accordingly, the
Providers retain a legitimate entitlement to a rate determined
according to that formula, and any action to alter the rate
must be conducted with due process.
B.
With a property interest established, we consider the Pro-
viders’ allegations that the procedures used in the reimburse-
ment recalculation failed to provide due process. The Provid-
ers allege that the auditors failed to provide notice and an op-
portunity to be heard because the Department failed to follow
procedures required in the Code, in that the Department did
not request missing or insufficient documents prior to the end
of the audit. As discussed, those allegations could constitute
violations of the procedural protections of the Illinois Admin-
istrative Code (the “Code”), but the requirements of the Code
and the Due Process Clause are not coterminous. A violation
of the rights provided in the Code might provide a state law
cause of action, but that is distinct from a constitutional viola-
tion. Therefore, those alleged Code violations relate to the
constitutional claim only insofar as those protections would
be required to provide a constitutionally-adequate notice and
an opportunity to be heard. In addition, the Providers argue
that the Code provisions themselves do not allow the produc-
tion of additional documentation on appeal, and contend that
14 No. 19-2750
the denial of the opportunity to submit documentation prior
to the conclusion of the audit and again on appeal create a
high risk of erroneous deprivation of property.
The concept of due process is a flexible one which calls for
such procedural protections as are necessary for a particular
situation for the purpose of minimizing the risk of erroneous
decisions. Greenholtz v. Inmates of Nebraska Penal and Correc-
tional Complex, 442 U.S. 1, 12–13 (1979). The essential require-
ment of due process is notice and an opportunity to respond.
Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 546 (1985).
In Mathews v. Eldridge, 424 U.S. 319, 335 (1976),
the Court set forth three factors that normally
determine whether an individual has received
the “process” that the Constitution finds “due”:
“First, the private interest that will be affected
by the official action; second, the risk of an erro-
neous deprivation of such interest through the
procedures used, and the probable value, if any,
of additional or substitute procedural safe-
guards; and finally, the Government’s interest,
including the function involved and the fiscal
and administrative burdens that the additional
or substitute procedural requirement would en-
tail.”
By weighing these concerns, courts can deter-
mine whether a State has met the “fundamental
requirement of due process”—“the opportunity
to be heard ‘at a meaningful time and in a mean-
ingful manner.’”
No. 19-2750 15
City of Los Angeles v. David, 538 U.S. 715, 716–17 (2003) (quot-
ing Mathews, 424 U.S. at 335).
The private interest affected by the official action here is
the interest in receiving the full payment for the services pro-
vided, but it is a limited interest because the rates are deter-
mined on a quarterly basis and therefore the payments at is-
sue are only for a three-month period of time. See Mathews,
424 U.S. at 341 (recognizing that an important factor in deter-
mining the impact of official action on the private interest is
the possible length of the wrongful deprivation). That interest
is not insignificant, and it also furthers the purpose of Medi-
caid to ensure that care and services are available to those in
need. Nevertheless, Medicaid is comparable to Medicare, and
in the Medicare context we have recognized that the provider
is not the intended beneficiary of the Medicare program and
that “a provider’s financial need to be subsidized for the care
of its Medicare patients is only ‘incidental to the purpose and
design of the (Medicare) program.’” Northlake Cmty. Hosp. v.
United States, 654 F.2d 1234, 1242 (7th Cir. 1981) (quoting Ger-
iatrics, Inc. v. Harris, 640 F.2d 262 (10th Cir. 1981)). Accord-
ingly, although the Providers have a financial interest that can
be adversely affected by the official action, its interest is a
more narrow one because it is limited to a three-month period
of time and because the Providers are only ancillary benefi-
ciaries of the statutory program.
The risk of erroneous deprivation of that interest through
the procedures used, and the probative value of additional
procedural safeguards, weighs heavily against a finding that
the procedures were sufficient here. At best, the procedures
provided only a skeletal notice of the issues that would be
considered by the auditors, because the auditors are given a
16 No. 19-2750
role in the Code that can involve the gathering of additional
evidence. An examination of the procedures reveals the po-
tential constitutional problem.
Once a determination has been made to audit a provider,
the facility is notified as to the residents’ records that are sub-
ject to that review. Therefore, at the outset of the audit and
throughout the process, the facility is aware of the individuals
whose records are being reviewed and therefore called into
question. That constitutes a generalized “notice” to the pro-
vider as to the potential recalculation being considered and
the persons who are challenged. The provider is also aware of
the documentation that is required to support the rates.
Health care providers are required to submit their Minimum
Data Set information to the Department before the medical
services and goods are provided in order to establish the
quarterly rates. They are also required to maintain documen-
tation sufficient to support those determinations at all times,
and they can present that evidence to the auditors at the start
of the audit process. If the auditors were entrusted solely with
examining those records, and determining whether the docu-
mentation submitted by the Providers supported the reim-
bursement rates as a matter of law, then the procedures fol-
lowed in this case would have been constitutionally adequate;
those procedures would have provided to the Providers no-
tice of the patients for whom the evidence was questioned and
the legal standards that had to be met, an opportunity to pro-
vide any evidence supporting their claim, and an opportunity
to challenge on appeal the legal determination made by the
auditors. Because all evidence considered by the auditors
would come from the Providers themselves or the Providers’
own files, the Providers in such a situation would have notice
of the factual and legal issues presented. The failure to follow
No. 19-2750 17
additional procedures set forth in the Code would not impact
that determination of the requirements of due process.
However, the auditors are not simply instructed to exam-
ine the evidence submitted and to assess whether the legal
standards are met. Prior to making that ultimate assessment,
the Code procedures empower the auditors to engage in the
“[o]bservation and interviews of residents, families and/or
staff, to determine the accuracy of data relevant to the deter-
mination of reimbursement rates, … and [r]eview and collec-
tion of information necessary to assess the resident's need for
a specific service or care area.” 89 Ill Admin Code § 147.340
(g)(2)–(3). Therefore, in addition to examining the evidence
submitted by the Providers, the auditors are also empowered
to gather evidence, and to base their decision on their own
credibility assessments and factual findings from that evi-
dence. That is problematic because the complaint alleged that
the Department never informed the Providers of any inade-
quacies or deficiencies in the evidence that they had submit-
ted, nor did the Department apprise the Providers of its opin-
ion as to the sufficiency of the data presented. Although the
Code in §§ 147.340(m) and (o) provides that auditors must no-
tify the Providers of evidentiary deficiencies and initial con-
clusions, the Providers allege a systematic disregard of those
protections by the Department for each of the Provider’s au-
dits.
The Providers, then, are not made aware of the evidence
against them before the decision is made to recalculate the re-
imbursement rates. And at that point, the Providers have no
further opportunity to present documents or other evidence.
That omission is consequential because, in the absence of an
opportunity to respond to new evidence gathered by the
18 No. 19-2750
auditors, the Providers would have no opportunity to address
all of the facts upon which the recalculation is based. In that
way, the procedures followed by the auditors gave the Pro-
viders an opportunity to present a legal challenge to the deci-
sion, but denied them any practical opportunity to mount a
factual challenge to it. What is lacking in the procedures alleg-
edly followed is a fundamental part of any due process in-
quiry, which is the opportunity to be presented with the evi-
dence against the entity and an opportunity to respond.
Even in cases involving relatively-minimal property inter-
ests, courts have recognized that due process at a minimum
requires an opportunity to ascertain and confront the evi-
dence in opposition. For instance, in Goss v. Lopez, 419 U.S.
565, 576 (1975), the Court addressed the process constitution-
ally required for a student facing a 10-day suspension, which
the Court characterized as a property interest entitled to some
Due Process protection merely because it was “not de mini-
mis.” Even for that time-limited and relatively minor depriva-
tion, the Court held that due process required “that the stu-
dent be given oral or written notice of the charges against him
and, if he denies them, an explanation of the evidence the au-
thorities have and an opportunity to present his side of the
story.” Id. at 581. The Court noted that “[t]he Clause requires
at least these rudimentary precautions against unfair or mis-
taken findings of misconduct and arbitrary exclusion from
school.” Id.Similarly, in Gonzales v. United States, 348 U.S. 407 (1955),
the Supreme Court considered what is required for a selective
service registrant claiming a conscientious objection exemp-
tion to be provided a “fair” and “just” process. In defining
what can constitute a “fair” and “just” proceeding, the Court
No. 19-2750 19
held that “a prime requirement of any fair hearing” is that the
decisionmaker cannot make use of evidence of which the
party was never aware and had no chance to answer. Id. at
416. The Court concluded that “[j]ust as the right to a hearing
means the right to a meaningful hearing, … so the right to file
a statement with the Appeal Board includes the right to file a
meaningful statement, one based on all the facts in the file and
made with awareness of the recommendations and argu-
ments to be countered.” Id. at 415.
We have parroted that holding in numerous other cases,
including ones involving property interests analogous to the
one at issue here. For instance, in finding no due process vio-
lation in the decision to decertify facilities as Medicare or
Medicaid providers, we held in Americana Healthcare Corp. v.
Schweiker, 688 F.2d 1072, 1083 (7th Cir. 1982), that the proce-
dures provided were adequate because the providers were
given advance notice of the decision to decertify, and “each
was informed of the deficiencies upon which the decision to
decertify the facility was based and was afforded an oppor-
tunity for a resurvey to demonstrate any corrections made in
the listed deficiencies and each was permitted to submit doc-
umentation explaining or refuting the existence of the defi-
ciencies.” We distinguished the procedures in Americana
Healthcare from those found insufficient in Hathaway v.
Mathews, 546 F.2d 227 (7th Cir. 1976), in that the Medicaid fa-
cility in Hathaway “did not receive notice of the alleged defi-
ciencies, nor was a post-termination hearing available to it un-
der the applicable regulations.” Americana Healthcare, 688 F.2d
at 1083. See also Fuentes v. Shevin, 407 U.S. 67, 81 (1972) (noting
that “fairness can rarely be obtained by secret, one-sided de-
termination of facts decisive of rights” and that the best in-
strument for arriving at truth is to provide notice of the case
20 No. 19-2750
against him and an opportunity to meet it) (internal quotation
marks omitted); Loudermill, 470 U.S. at 546 (holding that the
tenured public employee was “entitled to oral or written no-
tice of the charges against him, an explanation of the em-
ployer’s evidence, and an opportunity to present his side of
the story”); Mathews, 424 U.S. at 345–46 (holding that a proce-
dure based on written submissions was adequate because it
included safeguards against mistake including that the
agency informed the recipient of its tentative assessment and
the evidence supporting it and an opportunity was then af-
forded the recipient to submit additional evidence “enabling
him to challenge directly the accuracy of information in his
file as well as the correctness of the agency’s tentative conclu-
sions”).
That same distinction is present here. According to the
amended complaint, the auditors failed to provide any notice
of the alleged deficiencies prior to the final decision, and the
Providers had no opportunity to submit additional documen-
tation or other evidence following that decision. The burden
on the Department in providing such notice is no impedi-
ment, given that the procedures are already in the Code. The
Department need only follow those procedures rather than
routinely bypass them. In the absence of that basic and fun-
damental protection against unfair or mistaken findings, the
Providers have sufficiently alleged a violation of due process.
We need not address the Department’s remaining argu-
ment, that the Eleventh Amendment limits the relief available
to only prospective injunctive relief, given that the Providers
seek prospective injunctive relief. The impact of the Eleventh
Amendment on any other relief available is an issue for the
No. 19-2750 21
district court if the Providers succeed on the merits beyond
this initial stage.
III.
At this early stage in the litigation, the allegations are suf-
ficient to allege a violation of procedural due process. Accord-
ingly, the decision of the district court is REVERSED and the
case REMANDED for further proceedings consistent with
this opinion.