Community Health Care Ass'n of New York v. Deparle, 98 Civ. 4539(BDP).

• Decision Date: 27 September 1999
• Docket Number: No. 98 Civ. 4539(BDP).,98 Civ. 4539(BDP).
• Parties: COMMUNITY HEALTH CARE ASSOCIATION OF NEW YORK, Peekskill Area Health Center, Lutheran Medical Center, William F. Ryan Community Health Center, Syracuse Community Health Center, Bedford Stuyvesant Family Health Center, Joseph P. Addabbo Family Health Center, Centercare, Westchester Prepaid Health Services Plan, and Health Plus, Plaintiffs, v. Nancy-Ann Min DEPARLE, in her official capacity as Administrator, Health Care Financing Administration, Donna Shalala, in her official capacity as Secretary, United States Department of Health and Human Services, Kevin P. Mahon, in his official capacity as Commissioner, Westchester County Department of Social Services, and Barbara Debuono, in her official capacity as Commissioner, New York State Department of Health, Defendants.
• Court: U.S. District Court — Southern District of New York

69 F.Supp.2d 463

COMMUNITY HEALTH CARE ASSOCIATION OF NEW YORK, Peekskill Area Health Center, Lutheran Medical Center, William F. Ryan Community Health Center, Syracuse Community Health Center, Bedford Stuyvesant Family Health Center, Joseph P. Addabbo Family Health Center, Centercare, Westchester Prepaid Health Services Plan, and Health Plus, Plaintiffs, v. Nancy-Ann Min DEPARLE, in her official capacity as Administrator, Health Care Financing Administration, Donna Shalala, in her official capacity as Secretary, United States Department of Health and Human Services, Kevin P. Mahon, in his official capacity as Commissioner, Westchester County Department of Social Services, and Barbara Debuono, in her official capacity as Commissioner, New York State Department of Health, Defendants.

No. 98 Civ. 4539(BDP).

United States District Court, S.D. New York.

September 27, 1999.

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John E. Linville, Kalkines Arky Zall & Bernstein LLP, New York City, for plaintiff.

Samuel S. Chin, Office of the Attorney's General, New York City, for State defendants.

Audrey Daniel, Westchester County District Attorney's Office, White Plains, NY, for Westchester County defendant.

Jeffrey Oestericher, United States Attorney's Office, New York City, for Federal defendants.

MEMORANDUM DECISION AND ORDER

BARRINGTON D. PARKER, Jr., District Judge.

Plaintiffs are six New York state outpatient medical facilities designated by the federal government as federally qualified health centers ("FQHCs"); three managed care plans affiliated with FQHCs, and an association of FQHCs in New York state. Defendants are Donna Shalala, Secretary of the United States Department of Health and Human Services ("HHS"); Nancy-Ann Min DeParle, the Administrator of the Health Care Financing Administration ("HCFA"), which is part of HHS; Barbara DeBuono, Commissioner of the New York State Department of Health, and Kevin P. Mahon, Commissioner of the Westchester County Department of Social Services ("WCDSS").

Plaintiffs commenced this action pursuant to 42 U.S.C. § 1983, and the Administrative Procedure Act, 5 U.S.C. § 500, et seq., seeking a declaratory judgment that local, state and federal officials violated the cost reimbursement provision of the federal Medicaid program. See 42 U.S.C. § 1396(b)(m)(2), et seq. Before this Court are (1) federal defendants DeParle and Shalala's motion to dismiss the complaint, pursuant to Federal Rules of Civil Procedure 12(b)(1) and (6); (2) the county defendant Mahon's motion to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6); and (3) the state defendant Barbara Debuono's motion to dismiss the complaint pursuant to Rules 12(b)(1) and (6). This Court will address each motion separately.

BACKGROUND

In deciding a 12(b)(6) motion, the Court must accept as true all material facts alleged in the complaint and draw all reasonable inferences in the nonmovant's favor. See Thomas v. City of New York, 143 F.3d 31, 37 (2d Cir.1998). Likewise, in considering a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), "the Court must accept as true all material factual allegations in the Complaint and refrain from drawing inferences in favor of the party contesting jurisdiction." Serrano v. 900 5th Avenue Corp., 4 F.Supp.2d 315, 316 (S.D.N.Y.1998). The following facts, common to all three motions, are construed accordingly.

A. Medicaid Managed Care Plans (the "plans")

This case involves the administration of one portion of Medicaid, the federal program which provides federally subsidized health insurance to eligible, typically lowincome, residents of states that voluntarily elect to participate. Enacted in 1965 under Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., Medicaid is a joint federal and state cost-sharing system "designed to enable participating states to furnish medical assistance to persons whose income and resources are insufficient to meet the costs of necessary medical care and services." DeJesus v. Perales, 770 F.2d 316, 318 (2d Cir.1985).

New York joined the Medicaid program in 1966, authorizing the New York State Department of Social Services ("NYSDSS") to establish a Medicaid plan covering both the categorically and the medically needy. See 1966 N.Y.Laws, ch. 256, as amended § N.Y.Soc.Serv.Law 363 et seq. While participation in Medicaid is voluntary, New York's Medicaid plan must be approved by the federal Health Care Financing Administration ("HCFA"), as meeting the standards and conditions set by federal law. 42 U.S.C. § 1396a(a).

In Medicaid programs, eligible patients receive health care services from healthcare "providers" including hospitals, doctors and outpatient health centers, which are enrolled and paid by the states. Although the payment is made by states, in New York, the State treasury contributes about 25% of the program's cost. N.Y.Soc. Serv.L. § 368-a(1)(d). Approximately fifty percent comes from the federal government and the remaining 25% or so comes from local governments.

This case involves Medicaid managed care, a form of Medicaid service delivery and reimbursement where the state or its local social service district contracts with managed care plans. The managed care plan receives a fixed monthly fee for each Medicaid patient that enrolls in the plan. The plan, which is responsible for providing the Medicaid services needed by the enrolled patient, fulfills that obligation by contracting with providers of medical services which are paid by the plan according to relevant contractual provisions. In New York, as in all states, the HCFA approves the contracts between the state or local social service districts and Medicaid managed care plans.

Plaintiffs in this action are organizations providing Medicaid services to eligible patients. They include six outpatient facilities located in New York state known as federally qualified health centers ("FQHCs").¹ Three other plaintiffs are managed care plans affiliated with FQHCs and the final plaintiff is an association of FQHCs in New York state.

B. 42 U.S.C. § 1396b(m)(2)(A)(ix) — Reasonable Cost Reimbursement.

This case concerns a provision of the Medicaid law that was in effect from 1990 until October 1, 1997. Since 1989 Congress has required state Medicaid programs to pay FQHCs a fee-for-service medicaid rate which covers 100% of their "reasonable costs" for treating Medicaid recipients. In 1990, Congress extended the mandate to state Medicaid managed care programs under 42 U.S.C. § 1396b(m)(2)(A)(ix), the provision of federal medicaid law at issue in this case.² Under this law, in order for the federal government to pay its share of Medicaid expenses, plaintiffs allege states were required to include in their contracts with managed care plans provisions allowing the plans to elect reasonable cost reimbursement to FQHCs and requiring the states to reimburse the plans for the extra costs of paying reasonable cost reimbursement. The FQHC reasonable cost reimbursement provisions were amended by the Balanced Budget Act of 1997. See Balanced Budget Act of 1997 § 4712(b), Pub.L. 105-33. Under the Balanced Budget Act, states are now required to pay reasonable cost reimbursement directly to FQHCs who render services to Medicaid managed care patients, as opposed to reimbursing the plans themselves. See 42 U.S.C. §§ 1396a(A)(13)(C)(i) and 1396b(m)(2)(A)(ix). Plaintiffs do not allege that any of the defendants have violated the new reasonable cost provision.

Plaintiffs allege that from 1990 through October 1, 1997, the period during which reasonable cost reimbursement was in effect, New York state, Westchester County and other local social service districts never put the required provisions in their contracts with Medicaid managed care plans. As a result, plaintiffs allege, inter alia, that no FQHC in New York state was able to elect to receive, or has received, the reasonable cost reimbursement to which they were entitled.

Plaintiffs allege that from 1995 through 1998, plaintiffs repeatedly wrote, telephoned and met with federal, state and local officials attempting to effect compliance with the FQHC reasonable cost reimbursement requirements. HCFA, which approved New York state's contracts with Medicaid managed care plans, received a warning from its sister agency, the Federal Health Resource Service Administration (HRSA) that New York was not in compliance with the provision. Plaintiffs allege that despite this warning, HCFA did nothing to insure New York's compliance. In May 1997, New York state advised plaintiffs that it would not act on plaintiffs' request, but would rather wait for HCFA to reach a decision.

HCFA's decision was announced in April 1998, following a February 14, 1998 meeting between plaintiffs and the HCFA Administrator, defendant Nancy-Ann Min DeParle. In her ruling, Deparle determined that New York FQHCs were not entitled to receive reasonable cost reimbursement because there was "no clear, written expression of intent by the FQHCs to seek and receive cost-based reimbursement." Plaintiffs' Memorandum of Law in Opposition to Federal Defendants [hereinafter Plaintiffs' Opposition to Federal Defendants] at 5. This lawsuit followed.

Plaintiffs have sued officials in Westchester County, New York state and the federal governments alleging they were responsible for the policy decisions that led to violations at issue here. The sole relief requested against all defendants is a declaratory judgment. With respect to defendant DeBuono, plaintiffs seek a declaration that the actions of the New York State Department of Health resulting in the failure to make reasonable cost reimbursement available to New York FQHCs serving medicaid managed care patients from 1990 to October 1, 1997, violated federal law. With respect to the federal defendants DeParle and Shalala, plaintiffs seek a declaration that the actions of HCFA...