397 F.3d 56 (1st Cir. 2005), 04-1526, Rio Grande Community Health Center, Inc. v. Rullan

Docket Nº:04-1526.
Citation:397 F.3d 56
Party Name:RIO GRANDE COMMUNITY HEALTH CENTER, INC.; Concilio De Salud Integral De Loiza, Inc.; Dr. Jose S. Belaval, Inc., Plaintiffs, Appellees, v. Johnny RULLAN, Secretary of the Department of Health, Puerto Rico, Defendant, Appellant.
Case Date:February 14, 2005
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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397 F.3d 56 (1st Cir. 2005)

RIO GRANDE COMMUNITY HEALTH CENTER, INC.; Concilio De Salud Integral De Loiza, Inc.; Dr. Jose S. Belaval, Inc., Plaintiffs, Appellees,


Johnny RULLAN, Secretary of the Department of Health, Puerto Rico, Defendant, Appellant.

No. 04-1526.

United States Court of Appeals, First Circuit

February 14, 2005

Heard Jan. 6, 2005

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Eduardo A. Vera-Ramírez, with whom Eileen Landron Guardiola, Ivette M. Berrios Hernandez, and Landrón & Vera, LLP were on brief, for appellant.

James L. Feldesman, with whom Feldesman Tucker Leifer Fidell, LLP was on brief, for appellee Concilio de Salud Integral de Loiza, Inc.

Before LYNCH, Circuit Judge, CAMPBELL, Senior Circuit Judge, and HOWARD, Circuit Judge.

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LYNCH, Circuit Judge.

This case raises two issues of importance to the administration of Medicaid funds for medically underserved populations. The first is whether the health centers serving those populations have enforceable rights to sue, under 42 U.S.C. § 1983, to obtain an injunction requiring that monies (called wraparound payments) be paid as they become due. The second is how a federal court hearing such a prospective claim should proceed when parallel litigation is proceeding in a state court, seeking damages for past overdue payments and other relief. Of course, due to the Eleventh Amendment to the United States Constitution, suits for such past damages may often only be brought in state court. And so, in the world of Medicaid payments, such parallel suits are not uncommon.

Here, the Secretary of Health for the Commonwealth of Puerto Rico, Johnny Rullan, appeals from the grant of a preliminary injunction that forced him to make a prospective interim Medicaid reimbursement payment to the plaintiff health center, Concilio de Salud Integral de Loiza, Inc. ("Loiza"), for the first quarter of 2005. 1 It is undisputed that the Secretary has not, to date, been in compliance with the special Medicaid reimbursement requirements applicable to federally-qualified health centers (FQHCs) like Loiza, which provide care to medically underserved populations. 42 U.S.C.§§ 1396a(bb). As a result of the Secretary's noncompliance with these requirements, the plaintiff Puerto Rico FQHCs alleged they were experiencing financial problems and Loiza, in particular, alleged that it was facing imminent foreclosure and bankruptcy. The Secretary did not seriously deny this.

Nonetheless, the Secretary argues that the preliminary injunctive relief given here was inappropriate. He argues that (1) the district court should have abstained, under Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), from granting relief, because of a pending local court action on similar issues; (2) there is no action to enforce the relevant provisions of the Medicaid law under 42 U.S.C. § 1983; and (3) the district court otherwise abused its discretion in granting the injunction because relief was moot and for other reasons.

We affirm. Younger does not apply to the sort of ongoing local court action at issue here. The exceptional circumstances necessary for abstention due to the mere presence of a parallel state court action, under Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), are absent. There is an implied action under section 1983 to enforce the special provisions of the Medicaid law dealing with FQHC reimbursement, 42 U.S.C. § 1396a(bb), as these provisions vest the FQHCs with a federal right to proper reimbursement.


The Medicaid scheme

Loiza operates a community "health center" under the Public Health Service [PHS] Act, 42 U.S.C. § 254b. Such centers must meet various requirements: most importantly, they must be located in a medically underserved area or serve a medically underserved population. 42 U.S.C. § 254b(a) (1). They must also provide services to Medicaid recipients. See 42 U.S.C. § 254b(k) (3) (E). As a "health

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center," Loiza is eligible to receive, and has received, federal grant funds under section 330 of the Public Health Service Act. 42 U.S.C. § 254b.

Loiza alleges that the Commonwealth has failed to properly compensate the plaintiff health centers for their treatment of Medicaid patients. Some elaboration of the Medicaid scheme is needed to understand the dispute. The Medicaid program, which was begun in 1965, is jointly supported with federal and state funds and directly administered by state governments: the purpose is to provide medical assistance to indigent families with dependent children, as well as indigent disabled, blind, and aged individuals. 42 U.S.C. § 1396 et seq.; see Rabin v. Wilson-Coker, 362 F.3d 190, 192 (2d Cir. 2004). The Commonwealth of Puerto Rico is such a state for Medicaid purposes, 42 U.S.C.§ 1301(a) (1), and for these purposes we refer to it as a state. A state need not participate in Medicaid, but once a state decides to participate, it must comply with all federal requirements.

One such federal requirement is that a state must provide, as a part of its Medicaid plan, certain types of health services. 42 U.S.C. § 1396a(a) (10). For example, a state must provide "Federally-qualified health center services." 42 U.S.C. § 1396a(a) (10) (A); 42 U.S.C. § 1396d(a) (2) (C). Such services can, by statutory definition, only be provided by "Federally-qualified health centers" (FQHCs). Loiza is a FQHC because it is eligible to receive grants under section 330 of the Public Health Service Act (most importantly, it serves a medically underserved area). 42 U.S.C. § 254b.

Federal law regulates in great detail the ways in which FQHCs receive payment for the services that they provide to Medicaid patients. The special provisions on FQHC reimbursement reflect the important public health role that these centers play. The FQHC reimbursement scheme has changed several times, most recently on January 1, 2001. The system in place between 1989 and 2000 required that FQHCs be reimbursed for "100 percent ... of [each FQHC's] costs which are reasonable." 42 U.S.C. § 1396a(a) (13) (C) (repealed 2000).

A new system, which relieved centers of having to supply new cost data every year, was put in place after fiscal year 2000. The new system, which is the focus of this action, is referred to as the prospective payment system (PPS). The first step is to calculate each center's total cost of providing Medicaid services for two years, 1999 and 2000. FQHCs must submit detailed cost reports and only "reasonable" costs can be considered. 42 U.S.C. § 1396a(bb) (2). The total reasonable costs for 1999 and 2000 are then divided by the total number of visits by Medicaid patients in those two years to obtain an average per visit rate. Id. This 1999 and 2000 per visit cost data becomes the baseline cost data that will be used for all future years. 42 U.S.C. § 1396a(bb) (2)-(3).

To obtain a center's reimbursement for fiscal year 2001, this per visit average cost from 1999 and 2000 is multiplied by the number of Medicaid visits in fiscal year 2001. 42 U.S.C. § 1396a(bb) (2). In subsequent years (fiscal year 2002, etc.), the per visit average cost of 1999 and 2000 is first multiplied by a Medicare Economic Index ("MEI"--a standard measure of inflation) and then multiplied by the number of visits in those succeeding years. 2 The amount of the per visit payment thus automatically

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rises every year, because of the MEI, and costs are no longer re-audited every year as the 1999 and 2000 per visit cost figures are the baseline for the calculation. New visit data, of course, is necessary for each new year. A state may only deviate from the very specific payment methodology of the PPS if the FQHC involved gives its consent and there is no reduction in total payments made as compared to the PPS method. 42 U.S.C. § 1396a(bb) (6). No such consent to deviate was given by Loiza here.

The system of states reimbursing FQHCs for their Medicaid costs is complicated considerably by the fact that many states--including the Commonwealth of Puerto Rico--use a managed care approach to running their Medicaid system. Essentially, the state Medicaid agency contracts with managed care organizations (MCOs, commonly known as health maintenance organizations or HMOs) to arrange for the delivery of health care services to Medicaid patients. The state generally pays each MCO a fixed monthly sum per Medicaid patient assigned to the MCO; in return, the MCO agrees to provide all covered services to the individual. The MCO turns a profit if its costs are less than the fixed monthly sum, and has a loss if its costs are more than the fixed monthly sum. Unless the MCO actually owns hospitals and clinics, it then must contract with various health care providers, including FQHCs, in order to actually provide services to Medicaid patients.

A problem arises when the MCO contract with the FQHC gives the FQHC less than the amount of compensation it is supposed to get according to the detailed per visit PPS reimbursement method outlined above. Congress has dealt with this problem by providing that states must pay FQHCs a supplemental or wraparound payment to make up the difference between what the MCO is paying the FQHC and what the FQHC is entitled to via the detailed PPS methodology. 3 42 U.S.C. § 1396a(bb) (5). Such wraparound payments must be made at least three times each year. Id. Thus, even in a managed care system like Puerto Rico's, FQHCs are protected and must receive reimbursements equal to the PPS methodology that Congress has laid out. Since Puerto Rico uses a managed care system, FQHCs will get Medicaid payments from two sources: first, the MCO, and second, a wraparound payment from the Commonwealth.

Facts as to Puerto Rico's compliance

This case arose because the Commonwealth did not establish a PPS...

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