Community Health Center v. Wilson-Coker

Decision Date08 November 2002
Docket NumberNo. 02-7061.,02-7061.
Citation311 F.3d 132
PartiesCOMMUNITY HEALTH CENTER, Plaintiff-Appellee, v. Patricia WILSON-COKER, Commissioner of the State of Connecticut Department of Social Services, Defendant-Appellant, Department of Social Services, Connecticut, Defendant.
CourtU.S. Court of Appeals — Second Circuit

James L. Feldesman, Feldesman, Tucker, Leifer, Fidell & Bank, LLP, Washington, D.C. (Richard R. Brown, Brown, Paindiris & Scott, Hartford, Connecticut, on the brief), for Plaintiff-Appellee Community Health Center.

Mark S. Davies, Appellate Staff, Civil Division, U.S. Department of Justice, Washington, D.C. (Robert D. McCallum, Jr., Assistant Attorney General, Scott R. McIntosh, Appellate Staff, Civil Division, U.S. Department of Justice, on the brief) for Amicus Curiae the United States.

Before: MINER, SOTOMAYOR, and KATZMANN, Circuit Judges.

KATZMANN, Circuit Judge.

Plaintiff-Appellant Community Health Center, Inc. ("CHC") provides medical services to the needy pursuant to the federal Medicaid statute, 42 U.S.C. §§ 1396-1396v (2000). CHC is reimbursed for its efforts according to a formula established by the State of Connecticut and superintended by the federal Centers for Medicare and Medicaid Services ("CMS"). Connecticut's formula demands that, in the absence of a waiver, each facility of CHC's variety must conduct at least 4,200 patient "visits" per physician per year, and reduces payments to any facility that fails to meet this threshold. CHC had fewer than 4,200 visits per physician in both 1999 and 2000. It therefore brought suit in the United States District Court for the District of Connecticut, seeking an injunction barring Connecticut's use of the 4,200 standard as incompatible with governing federal law. The District Court (Janet Bond Arterton, J.) concluded that, in order to be consistent with the applicable Medicaid statute, 42 U.S.C. § 1396a(bb)(2) (2000),1 any state Medicaid payment formula must mirror an existing federal payment formula under the Medicare program, see 42 U.S.C. §§ 1395-1395ggg (2000). Since it also concluded that the Medicare regulation providing for the 4,200 visit minimum was invalid, the District Court granted summary judgment in favor of CHC. For the reasons stated below, we reverse the judgment of the District Court, and remand for further proceedings.

BACKGROUND
A. The Medicaid Statute

The United States subsidizes health care for persons (other than its own employees) principally through a pair of vast programs, Medicare and Medicaid. Medicare is generally designed to provide health insurance coverage to the elderly and disabled, see 42 U.S.C. § 1395c (2000), and is administered, for the most part, by intermediaries, who must apply a uniform set of standards established by federal law, see 42 U.S.C. § 1395h (2000). Medicaid, on the other hand, is designed to partially compensate States for the costs of providing health care to needy persons of modest income. See Wis. Dep't of Health & Family Servs. v. Blumer, 534 U.S. 473, 479, 122 S.Ct. 962, 151 L.Ed.2d 935 (2002); Wilder v. Va. Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990); Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 65 L.Ed.2d 784 (1980). Although constrained by federal requirements and ongoing CMS oversight, States generally have some measure of discretion in choosing how to expend Medicaid funds. See Schweiker v. Gray Panthers, 453 U.S. 34, 36-37, 101 S.Ct. 2633, 69 L.Ed.2d 460 (1981). Indeed, States have the option of opting out of the Medicaid program entirely. See Schweiker v. Hogan, 457 U.S. 569, 581-82 n. 18, 102 S.Ct. 2597, 73 L.Ed.2d 227 (1982).

States electing to participate in Medicaid must submit a plan detailing how the State will expend its funds. See 42 U.S.C. §§ 1396, 1396a (2000). The Secretary of the U.S. Department of Health and Human Services ("HHS") reviews each plan to assure that it complies with a long list of federal statutory and regulatory requirements. See id.; 42 C.F.R. § 430.15(a) (2002). The Secretary has delegated his power to review and approve plans to CMS Regional Administrators. Id. § 430.15(b). Each state plan must include, among its numerous details, a provision for payments to "Federally-qualified health centers," or "FQHCs." 42 U.S.C. § 1396a(bb) (2000).2 More specifically, the State plan must provide that it will pay for covered services provided at an FQHC:

in an amount (calculated on a per visit basis) that is equal to 100 percent of the average of the costs of the center or clinic of furnishing such services during fiscal years 1999 and 2000 which are reasonable and related to the cost of furnishing such services, or based on such other tests of reasonableness as the Secretary prescribes in regulations under [42 U.S.C. § 1395l(a)(3)].

42 U.S.C. § 1396a(bb)(2).

B. Connecticut's State Plan

In 1996, Connecticut enacted legislation providing that, "in the determination of rates for federally qualified health centers, the Commissioner of Social Services [of Connecticut] shall apply Medicare productivity standards." Conn. Gen.Stat. § 17b-245a (2002). A productivity standard, sometimes also known as a "productivity screen," imposes a minimum-visit requirement on affected providers. That is, if a health care provider does not meet or exceed the minimum number of patient visits per year, its reimbursement is reduced in proportion to the amount by which the provider fell short of the minimum.3 In short, Connecticut reduces Medicaid payments to "unproductive" FQHCs to the same extent that CMS would reduce its Medicare payments to those providers.

Medicare productivity screens are authorized by, but not defined in, formally promulgated HHS regulations. The Medicare statute provides for payment of the "reasonable cost" of services rendered, 42 U.S.C. § 1395f(b)(1) (2000), and directs the Secretary to define "reasonable" in regulations, see 42 U.S.C. § 1395x(v)(1)(A) (2000). The Secretary's regulations, in turn, delegate to CMS the power to establish tests of reasonableness, "includ[ing]... screening guidelines." 42 C.F.R. §§ 405.2468(c) (2002). When the Health Care Financing Administration ("HCFA," the predecessor to CMS) and HHS issued § 405.2468 in 1992, a preamble to the rule noted that HCFA planned to use a productivity screen of 4,200 patient-visits per full-time physician. See Medicare Program; Payment for Federally Qualified Health Center Services, 57 Fed.Reg. 24,961, 24,967 (June 12, 1992).

Although the 4,200 number does not appear in the CFR, CMS uses that figure as a productivity screen for FQHCs. See Centers for Medicare & Medicaid Services, Rural Health Clinic and Federally Qualified Health Center Manual § 503. Consistent with the regulation, CMS permits waiver of the productivity screen requirements where a provider "has demonstrated reasonable justification for not meeting the standard." Id.; see 42 C.F.R. § 405.2468(d)(1).

Connecticut law, therefore, incorporated both the 4,200 productivity screen and the relevant waiver provision beginning in 1996 when the State enacted § 17b-245a.4 Connecticut's Department of Social Services ("CDSS") has applied the 4,200 productivity screen since that time, although the record does not clearly indicate whether CDSS also made waivers available. Connecticut did not amend its state regulations to reflect these changes until 2001. See Conn. Agencies Regs. §§ 17b-262-661(11), -663 (2001). CMS approved the corresponding Connecticut State Plan amendments on June 21, 2001.5

C. Parties and Procedural History

The plaintiff, CHC, is an FQHC operating in the State of Connecticut. In both 1999 and 2000, CHC just missed meeting Connecticut's productivity screen, recording 3,982 visits per physician in 1999 and 4,172 visits per physician in 2000.6 Because the present Medicaid statute makes future rates dependent upon a provider's "reasonable and related" costs for 1999 and 2000, 42 U.S.C. § 1396a(bb)(2), CHC's shortfalls in that period will result in a reduction in the amount of money it receives in the future for each visit, from $97.34 to $95.19. CHC alleges that this reduction will cost it approximately $90,000 per year.

On January 26, 2001, CHC filed suit, in the United States District Court for the District of Connecticut, pursuant to 42 U.S.C. § 1983, challenging CDSS's 4,200 productivity screen as inconsistent with federal law. CHC amended its Complaint on May 15, 2001. The Amended Complaint names as the sole Defendant Patricia Wilson-Coker, the CDSS Commissioner, who is sued only in her official capacity.

CHC and Wilson-Coker subsequently each moved for summary judgment. In a thoughtful opinion, the District Court granted summary judgment in favor of CHC on November 30, 2001. See Cmty. Health Ctr., Inc. v. Wilson-Coker, 175 F.Supp.2d 332, 333 (D.Conn.2001). The District Court first determined that the Medicaid statutory phrase, "reasonable and related to the cost of furnishing such services, or based on such other tests of reasonableness as the Secretary prescribes in regulations under [Medicare]," can only be read to mean that any state method for determining costs that are "reasonable and related" must mirror existing federal Medicare regulations. Id. at 336-39 (quoting 42 U.S.C. § 1396a(bb)(2)). The Court next concluded that its search for underlying federal regulations must be limited to "validly-promulgated" regulations. Id. at 342. It therefore went on to consider whether the 4,200 productivity screen contained in CMS's Rural Health Clinic and Federally Qualified Health Center Manual was validly promulgated. Id. at 342-48. The District Court concluded, ultimately, that the federal 4,200 productivity screen was invalid, and therefore that Connecticut's identical screen was contrary to federal law. Id. at 348.

This appeal followed. The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1331, 1343(a)(4). We have...

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