The National SNF Litigation Group was formed by attorneys representing nursing homes to file coordinated litigation on “national issues adversely impacting long-term care providers.” One goal is attacking “the unconstitutional aspects of the Star Rating System.” As part of this organized effort, an Illinois nursing home has challenged the Centers for Medicare & Medicaid Services’ use of schizophrenia audits to reduce facilities’ star ratings. This Alert discusses the NSLG, CMS and antipsychotic drugs, and the Illinois case.
National SNF Litigation Group
The National SNF litigation group (NSLG) was formed by SB2 Healthcare, a law firm,
to address, via coordinated litigation, national issues adversely impacting long term care providers. One goal, for example, is to attack the unconstitutional aspects of the Star Rating System, as well as laying the foundation and creating the playbook, to quickly take on future federal statutes or CMS regulations that are also unconstitutional.
The website recites, “The importance of coordinated efforts cannot be overstated.” It continues, “Knowing which case to litigate, where to litigate it, and which legal strategies & theories to rely on is the difference between creating future precedent that helps as opposed to bad case law which undermines industry goals.”
Membership in NSLG is “confidential, and costs are based on each provider’s size, involvement in other litigation, and overall membership count.”
An example of the cases undertaken by NSLG is “Schizophrenia B Audits (SAB), which the website describes as “unconstitutional in their origin, application, and have seemingly weaponized extremely disproportionate financial sanctions.” SB2 writes about the audits, “After a decade of building case law in the federal courts, there are finally workable, accepted litigation theories & strategies to address the SAB problem, especially in specific federal circuits’ courts.”
State litigation groups, formed by SB2 Healthcare to pursue similar goals at the state level,
bring together providers within the same jurisdiction to address state-specific regulatory and reimbursement challenges through a coordinated legal strategy. By aligning members facing similar issues, these groups enable more targeted litigation, reduce duplicative costs, and improve the likelihood of consistent, favorable outcomes. This approach ensures providers can respond efficiently to evolving state actions while benefiting from shared insight and collective advocacy.
Schizophrenia Audits
The misuse of antipsychotic drugs with nursing home residents has been an issue since at least 1975, when the Senate Special Committee on Aging held hearings on drugs and referred to “chemical straight jackets” in nursing homes. Center for Medicare Advocacy attorney Toby S. Edelman testified about this long and troubled history in 2011 in a Senate Aging hearing entitled “Overprescribed: the Human and Taxpayers’ Costs of Antipsychotics in Nursing Homes.”
Multiple reports have described the problem of nursing homes’ inappropriately administering antipsychotic drugs to nursing home residents who have dementia, not a psychosis. See Hannah Flamm, Human Rights Watch, “‘They Want Docile’ How Nursing Homes in the United States Overmedicate People with Dementia” (Feb. 5, 2018); Report of the Committee on Ways and Means Majority U.S. House of Representatives, Under-Enforced and Over-Prescribed: The Antipsychotic Drug Epidemic Ravaging America’s Nursing Homes (Jul. 2020); Katie Thomas, Robert Gebeloff, and Jessica Silver-Greenberg, “Phony Diagnoses Hide High Rates of Drugging at Nursing Homes,” The New York Times (Sep. 11, 2021, updated Mar. 12, 2024).
The Centers for Medicare & Medicaid Services (CMS) has tried to address the inappropriate use of antipsychotic drugs by nursing homes. In May 2012, it announced a Partnership to Improve Dementia Care in Nursing Homes, with a goal of reducing the use of antipsychotic drugs by 15% by the end of 2012.
One of the many specific issues addressed over the years was the increased use of schizophrenia diagnoses to avoid low ratings on CMS’s Five-Star Quality Rating System in the quality measure reporting antipsychotic drug use. See Katie Thomas, Robert Gebeloff and Jessica Silver-Greenberg, “Phony Diagnoses Hide High Rates of Drugging at Nursing Homes,” The New York Times (Sep. 11, 2021; updated Mar. 12, 2024) (reporting 70% increase in schizophrenia diagnoses in nursing home residents since 2012, the year that CMS began reporting antipsychotic drugs as a quality measure and excluding residents with schizophrenia diagnoses from the measure).
In 2023, CMS described its longstanding concerns about the administration of antipsychotic drugs to nursing home residents who are erroneously diagnosed with schizophrenia:
When nursing home residents are given erroneous schizophrenia diagnoses, they are subject to poor care and unnecessary antipsychotic medications, both of which can be very dangerous. Additionally, this inaccurate coding misleads the public by misrepresenting the nursing homes’ rate of antipsychotic usage in the posted quality measure.
In 2016, CMS conducted “focused schizophrenia onsite surveys to specifically address the issue of erroneous coding of schizophrenia in nursing homes,” id. These surveys “identified facilities with patterns of erroneous coding of residents with a diagnosis of schizophrenia,” id.
Following these surveys, CMS began “conducting offsite audits to assess the accuracy of Minimum Data Set (MDS) data,” id. The purpose of offsite audits was “examin[ing] the facility’s evidence for appropriately documenting, assessing, and coding a diagnosis of schizophrenia in the MDS for residents in a facility,” id.
In early 2023, “CMS conducted pilot audits to test the effectiveness of the MDS audit process,” id. Pilot audits identified several issues related to inaccurate coding of residents: “For example, there was an absence of comprehensive psychiatric evaluations and behavior documentation. Also, many residents had only sporadic behaviors noted in their medical records, and these behaviors were related to dementia, rather than schizophrenia,” id.
Although CMS never publicly released the results of its pilot audits, the HHS Office of Inspector General (OIG) looked at 40 pilot audits and issued two devastating Issue Briefs about the gross abuses identified in the audits. OIG, Nursing Homes’ Inappropriate Use of Antipsychotic Drugs Poses a Risk to Residents, OEI-02-23-00020 (Mar. 2026) and Nursing Homes Inappropriately Diagnosed Residents with Schizophrenia to Mask the Misuse of Antipsychotic Drugs, OEI-02-23-00201 (Mar. 2026). See “HHS Inspector General Issue Briefs on Nursing Homes’ Misuse of Antipsychotic Drugs” (CMA Alert, Apr. 23, 2026).
In June 2023, the Centers for Medicare & Medicaid Services (CMS) issued QSO-23-05-NH (Jun. 18, 2023) to (among several issues) implement a program of “adjusting quality measure ratings based on erroneous schizophrenia coding.” CMS wrote:
CMS is concerned that some nursing homes have erroneously coded residents as having schizophrenia, which can mask the facilities’ true rate of antipsychotic medication use. Therefore, CMS will conduct offsite audits of schizophrenia coding and, based upon the results, adjust the quality measure star ratings for facilities whose audit reveals inaccurate coding.
CMS also reported, “Moving forward, CMS will conduct these audits and, based upon the results, adjust the quality measure star ratings for facilities whose audits reveal inaccurate MDS coding,” id. 2. CMS explained its authority and rationale:
This action supports CMS’s goal to reduce the use of unnecessary antipsychotics and improve the accuracy of the quality measure and the five-star rating system. It is also consistent with the White House’s Fact Sheet listing efforts to improve safety and quality of care in the nation’s nursing homes. Specifically, the Fact Sheet states that, “CMS will launch a new effort to identify problematic diagnoses and refocus efforts to continue to bring down the inappropriate use of antipsychotic medications.”
Lawsuit
Forest Rehab and Nursing Center, an Illinois nursing home, challenges CMS’s use of the schizophrenia audits. It argues that errors were made in the audits and that CMS’s use of the audits to calculate its Five-Star Quality Rating violates its rights under the Due Process Clause. It also contends that CMS’s denying the nursing home an “opportunity to contest the assessment at a fair and impartial evidentiary hearing” violates the Administrative Procedure Act. Forest Rehab and Nursing Center, LLC v. Mehmet Oz, Case: 1:25-cv-12606 (ND. Ill, filed Mar. 9, 2026), Complaint, pp. 1-2. Forest Rehab and Nursing Center argues that the “errors have already cost Plaintiff actual and reputational damages in excess of $200,000, and, if not corrected, will continue to impair its position in the competitive market, reduce its Medicaid reimbursement rates, and thwart its ability to effectively serve its residents,” id. 1.
The facility contends that, under QSO-23-05-NH, CMS authorized a third-party contractor to review resident “assessments and resulting Minimum Data Set (“MDS”) coding completed by the skilled nursing facilities for any residents of the facility diagnosed by their physicians with schizophrenia and ostensibly determine whether the schizophrenia diagnosis was accurate,” id. ¶18. It argues that schizophrenia audits are “outside the existing regulatory framework,” identified only in the White House Fact Sheet, id. ¶19. It contends that the CMS memorandum did not “cite to any authority that permits the delegation of survey authority to a private entity,” id. ¶20. CMS authorizes nursing homes to dispute “citations from the audit” through informal dispute resolution or independent informal dispute resolution, but, contrary to its usual practice, displays the results on Nursing Home Care Compare during dispute resolution, id. ¶22. The standards and criteria used by CMS’s audit contractor, Myers and Stauffer, LC, “to measure the accuracy of the schizophrenia diagnosis” are unknown, id. ¶21.
On April 21, 2025, Forest Rehab and Nursing Center received a letter from CMS informing it that “based on the reviewed documentation, there was erroneous coding of the schizophrenia diagnosis and/or the use of antipsychotic medications,” id. ¶24. The consequences of the coding errors were downgrading of the nursing home’s overall quality measure and long-stay quality measure ratings to one star for six months (which would reduce the facility’s overall star rating by one star), suppression of the short-stay quality measure rating for six months, and suppression of the long-stay quality measure rating for 12 months, id. ¶25. The letter did not identify a right for a nursing home to appeal the determination, id. ¶27.
Describing its property interest in compensation for services provided to residents, the nursing home alleges that its Due Process rights under the Fourteenth Amendment are violated, id. ¶¶28, 29. It argues that “The posting of unreviewed deficiencies, and the use of these deficiencies in calculating the CMS Five-Star Rating, has a profound and negative impact on the Plaintiff Facility and other similarly situated skilled nursing homes,” id. ¶33, describing effects in id. ¶¶34-37.
There are four Causes of Action, Due Process under the Fourteenth Amendment, Administrative Procedure Act (APA) (two counts), and Declaratory Judgment.
In the Third Count, under the APA, the facility includes the following arguments:
The survey process is the only way for CMS to review SNFs’ “practices regarding the care and treatment of residents,” id. ¶61.
“As above, the NHRA, nor any other federal rule or regulations, does not grant CMS any clear, statutory authority to create regulatory enforcement standards for these schizophrenia audits. CMS does not possess any authority to weaponize the Five Star Rating System to enforce compliance with the arbitrary, unauthorized standards, and it cannot use the pretext of facility certification standards to do so,” id. ¶62.
Nursing homes “do not control the professional judgment of these treating physicians, including what diagnosis a physician will give to an individual patient. However, Plaintiff is being essentially forced to demand that its physicians arbitrarily reduce the number of residents diagnosed with schizophrenia, despite being statutorily obligated to maintain the ‘highest practicable . . . mental . . . and psychosocial well-being of each resident,” id. ¶63. “This discriminates against individuals with schizophrenia who require long-term, skilled nursing care, and it operates to reduce access to necessary care and services and punishes the Plaintiff for diagnosis’ that it does not have the professional authority to make. The Plaintiff is not a physician and only executes the physician’s orders, including prescribing medication. The Plaintiff is being punished for medical decisions not within its control,” id. ¶64.
As of June 30, 2026, Forest City Rehab and Nursing Center has an overall rating of one star. It has one star rating in health inspections, a two-star rating in staffing, and (because of the schizophrenia audits), a one-star rating in quality measures. Following the three most recent standard surveys (Nov. 19, 2025, Oct. 24, 2024, Dec. 7, 2023) and complaint surveys between June 1, 2023 and May 31, 2025, the facility has been cited with 65 health care deficiencies, including eight actual harm deficiencies and five immediate jeopardy deficiencies. Four federal penalties have totaled $192,920.
Discussion
The Center for Medicare Advocacy has several preliminary responses to the lawsuit.
First, nursing homes participate in the Medicare and Medicaid programs voluntarily. If they want to be certified in order to receive reimbursement from the Medicare and Medicaid programs, they must follow federal requirements and federal standards.
Second, CMS provides administrative appeals under the Reform Law to nursing homes under certain specified circumstances – both the citing of a deficiency and the imposition of a remedy 42 C.F.R. §488.402(b). A star rating is not a remedy (remedy is specified in 42 C.F.R. §488.406 to include temporary management, denial of payment, civil money penalties, state monitoring, transfer of residents, closure of facility, directed plan of correction, directed in-service training) and does not give rise of administrative appeals.
Third, nursing homes cannot hide behind physician decisions in prescribing antipsychotic drugs; they have independent responsibility and authority to ensure that residents do not receive inappropriate psychotropic drugs. CMS makes clear in its regulations (42 C.F.R. §§483.12(a)(2), 438.45(d), (e)) and in its guidance for surveyors (State Operations Manual, Appendix PP) that nursing homes, among other obligations, must require use of non-pharmacological interventions first (before administering psychotropic drugs), attempt gradual dose reduction (unless clinically contraindicated), ensure residents are informed and consent to taking the drugs, prohibit duplicate therapy or excessive doses, and limit PRN (as needed) psychotropic drug orders. All of these requirements apply to nursing homes, regardless of physician order.
Finally, CMS created the Five-Star Quality Rating System in 2008 “to provide patients and their families an easy to understand assessment of nursing home quality, making meaningful distinctions between high and low performing nursing homes” (CMS, “CMS to Rate Nursing Home Quality. New Five-Star System to be Added to Nursing Home Compare Site” (Press Release, June 18, 2008)). In light of the decades-long history of inappropriate use of antipsychotic drugs in nursing homes, CMS appropriately gives special attention to antipsychotic drugs on Care Compare.
July 2, 2026 – T. Edelman