Cmty. Healthcare Assoc. of N.Y. v. N.Y. State Dep't of Health

• Decision Date: 01 February 2013
• Docket Number: No. 10–cv–08258 (ALC).,10–cv–08258 (ALC).
• Parties: COMMUNITY HEALTHCARE ASSOC. OF NEW YORK, et al., Plaintiffs, v. NEW YORK STATE DEPARTMENT OF HEALTH, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

921 F.Supp.2d 130

COMMUNITY HEALTHCARE ASSOC. OF NEW YORK, et al., Plaintiffs,

v.NEW YORK STATE DEPARTMENT OF HEALTH, et al., Defendants.

No. 10–cv–08258 (ALC).

United States District Court,

S.D. New York.

Feb. 1, 2013.

David A. Koenigsberg, Menz Bonner Komar & Koenigsberg L.L.P., New York, NY, James L. Feldesman, Matthew S. Freedus, Feldesman Tucker Leifer Fidell LLP, Washington, DC, for Plaintiffs.

James M. Hershler, Todd Alan Spiegelman, New York State Office of the Attorney General, New York, NY, for Defendants.

OPINION

ANDREW L. CARTER, JR., District Judge.

Plaintiffs, various health centers in New York State, who receive or are eligible to receive federal funds to provide medical care to medically underserved areas, sought injunctive and declaratory relief against the New York State Department of Health, Richard F. Daines, M.D., Commissionerof the Department of Health,¹ and State of New York (collectively, “Defendants”), the state agencies responsible for the administration of the Medicaid program in New York. In an opinion dated May 26, 2011, 2011 WL 2162983, Defendants New York State Department of Health and State of New York were dismissed as Defendants. See Doc. 21, Opinion # 100377 (Griesa, J). The only remaining defendant is the Commissioner.

The Commissioner moved for summary judgment pursuant to Fed.R.Civ.P. 56 on August 3, 2012. Plaintiffs cross-moved for summary judgment on the same day. For the reasons discussed herein, Defendant Commissioner's motion is hereby granted in part and denied in part. The Plaintiffs' motion, likewise, is granted in part and denied in part.

BACKGROUND

1. Statutory and Regulatory Framework

The present case concerns interpretations of several provisions of the Medicaid Act regarding payments to federally-qualified health centers (“FQHCs”) under New York's Medicaid program. Plaintiffs are health centers in New York State that receive or are eligible to receive federal funds pursuant to Section 330 of the Public Health Service Act, 42 U.S.C. § 254b (“Section 330”). Am. Compl. ¶ 1. Section 330 health centers serve poor, uninsured and other individuals in medically underserved areas and are FQHCs as defined in the Medicaid statute, 42 U.S.C. § 1396d; Am. Compl. ¶¶ 2, 4–5.

Medicaid is a joint federal-state program that provides medical care to poor and other medically underserved populations. 42 C.F.R. § 430. The federal government reimburses states for a portion of their costs to the extent their program is compliant with strictures of the federal Medicaid statute. See42 U.S.C. § 1396b. While states are not required to participate in the Medicaid program, those that do must abide by federal rules for reimbursement. Himes v. Shalala, 999 F.2d 684, 689 (2d Cir.1993) (citing New York v. Sullivan, 894 F.2d 20, 21–22 (2d Cir.1990)).

States electing to participate in Medicaid must submit a plan detailing how the State will expend its funds. See42 U.S.C. §§ 1396, 1396a (2000). The Center for Medicaid and Medicare Services (CMS) is the federal agency tasked with overseeing the States' administration of the Medicaid Act, including approval of state plans. 42 C.F.R. § 430.15(b).

In late 2000, Congress enacted 42 U.S.C. § 1396a(bb), which has governed Medicaid reimbursement for FQHCs since January 1, 2001. The statute revised the methodology for rate-setting for FQHCs such that States are now required to calculate the FQHCs' Medicaid reimbursement rates based primarily on their average costs for furnishing Medicaid services that are “reasonable and related to the cost of furnishing such services” or another methodology mimicking Medicare reimbursement to FQHCs. These rates are inflated annually according to the Medicare Economic Index and adjusted for changes in the scope of services furnished by the individual FQHC. The rates yielded by this methodology are generally referred to as prospective payment system (“PPS”) rates.

2. The Present ActionPPS Reimbursement Methodology

Plaintiffs first challenge the methodology of New York's prospective payment system, which uses peer group ceilings as a cap for FQHC reimbursement. In New York, the PPS rate for reimbursement to FQHCs is the lower of allowable costs, as defined by state regulations, or the applicable peer group ceiling. New York's Department of Health (“DOH”) first considers each FQHCs patient care costs (“allowable costs”) from two base years. DOH then classifies allowable costs as either capital or operating costs and further classifies the operating costs into six categories. The six categories of operating costs are divided by the total number of patient visits to the FQHC, yielding the FQHC's average per-visit costs. The average per-visit costs are compared to ceilings, based on the operating costs of other diagnostic and treatment centers, including non-FQHCs, located in the same region (upstate rural, upstate urban and downstate). The ceiling is 105% of the peer group's average costs, by service category. CMS approved the State's PPS rate methodology in State Plan Amendment (“SPA”) 01–03 on April 12, 2002.

Reimbursement for Group Therapy and Offsite Services

Next, Plaintiffs challenge the level of reimbursement for group therapy and offsite services to FQHCs. CMS approved reimbursement of group therapy and offsite services performed by FQHCs at special rates, lower than the full PPS rates, in SPA # 06–11, approved October 30, 2006, Specifically, CMS permitted rates of payment for group psychotherapy and offsite services to be calculated using elements of the CMS-promulgated Resource Based Relative Value Scale. Furthermore, CMS required Medicaid reimbursement for offsite services only if provided to existing patients of the FQHC and where the offsite services were necessitated by health or medical reasons.

Supplemental Payments

States are responsible for reimbursing FQHCs who participate in managed care. To the extent that the contract with the managed care organization (“MCO”) does not fully compensate the FQHC for their services, states make supplemental payments to the FQHC to cover the difference.² From 2001 to 2007, DOH implemented the state plan's FQHC supplemental payment provision that consisted of a provisional (advance payment) wraparound rate and a subsequent reconciliation. In about 2007, DOH changed to a “prospective” methodology meant to determine the annualized costs of the FQHC and which no longer provides for reconciliation.

The prospective methodology is described “NYS Managed Care Supplemental Payment Program Policy Document” (“Supplemental Payment Policy”), see Doc. 55–12, 55–14, 55–15, “a policy and a method for calculating the state's [FQHC] wraparound payment rate” not described in the State Plan. (Doc. 60, at 25:7–12).

Since its introduction in 2007, the Supplemental Payment Policy has gone through at least two iterations. In a previous version, DOH calculated a center's “supplemental payment” rate as “the average difference between what the FQHC is paid by contracted MCOs and [the center's] specific PPS rate for each year.” Group counseling and offsite visits were not “eligible for supplemental payments.” (Doc. 55–14, at 3). In the current version,³ the State treats group counseling and offsite visits as eligible for supplemental payments. The supplemental payment is the “average difference between what that FQHC is paid by contracted MCOs and its specific blended Medicaid rate for each year.” (Doc. 55–12, at 1–2; Doc. 55–15, at 1). The “blended Medicaid rate” is a weighted average of the center's PPS rate, offsite service rate, and group counseling rate.

Paid Claim Policy

According to the Supplemental Payment Policy, a supplemental payment is not required if a claim is validly denied by the MCO. ( See Doc. 55–12, at 5; Doc. 55–14, at 7; Doc. 55–15, at 6). This limitation results in what Plaintiffs call a “paid claim” policy. Since 2007, if an MCO does not make payment for a billable visit, the State concludes that no supplemental payment is required. While a FQHC may submit claims to MCO and DOH at the same time and receive the supplemental payment, if the center does not receive a payment from the MCO at some point in time, the center has to give back the payment it got from the state. (Plaintiffs' Rule 56.1 Statement of Facts (“SF”) ¶¶ 89–90; see Doc. 55–11, at 19–22). The effect is that “the FQHC must have evidence of a paid claim from the MCO if the contract is billed on a fee-for-service basis,” Doc. 55–11, at 20:16–18. Defendant counters that if the MCO denies or refutes a FQHC's claim, the center may bring such disputes before DOH's Bureau of Managed Care Certification and Surveillance.

Out of Network Reimbursement

Additionally, according to the Supplemental Payment Policy, supplemental payment is not required if there is no contract between the FQHC and the MCO. ( See Doc. 55–12, at 5; Doc. 55–14, at 7; Doc. 55–15, at 6). MCOs do not submit invoices to the State for out-of-network FQHCs they do not pay, resulting, Plaintiffs allege, in severe underpayment and direct subsidy of care for Medicaid beneficiaries.

Federal law requires reimbursement for FQHCs for out-of-network services ⁴, but does not specify which entity is responsible for paying the tab. The State's standard contract with MCOs obligates MCOs to pay when FQHCs provides out-of-network services on an emergency basis and requires MCOs to be “financially responsible” for covered Medically Necessary Services.⁵ Model MCO Contract, § 10.26.

Dental Visits

New York requires consolidation of dental cleaning and exam into one visit. The March 2004 Medicaid Update (“2004 Medicaid Update”) noted that for the “rare instances” a second visit is required, DOH “would expect annotation in the record to indicate the reason for the second visit.” (Doc. 55–29, at DOH 0000308). Plaintiffs take issue with the policy of reimbursing dental services, which they allege was revised without process in the 2004 Medicaid Update. Plaintiffs...