Concilio De Salud Integral v. Pérez-Perdomo

• Decision Date: 15 December 2008
• Docket Number: No. 07-2070.,No. 07-2327.,No. 07-2326.,No. 07-2012.,07-2012.,07-2070.,07-2326.,07-2327.
• Citation: 551 F.3d 10
• Court: U.S. Court of Appeals — First Circuit
• Parties: CONCILIO DE SALUD INTEGRAL DE LOIZA, INC.; Dr. José S. Belaval, Inc., Plaintiffs, Appellants/Cross-Appellees, Rio Grande Community Health Center, Inc., Plaintiff, v. Rosa PÉREZ-PERDOMO, Secretary, Department of Health of the Commonwealth of Puerto Rico, Defendant, Appellee/Cross-Appellant, Commonwealth of Puerto Rico; United States Department of Health And Human Services; Michael Leavitt, Secretary, United States Department of Health and Human Services, Defendants.

551 F.3d 10

CONCILIO DE SALUD INTEGRAL DE LOIZA, INC.; Dr. José S. Belaval, Inc., Plaintiffs, Appellants/Cross-Appellees, Rio Grande Community Health Center, Inc., Plaintiff, v. Rosa PÉREZ-PERDOMO, Secretary, Department of Health of the Commonwealth of Puerto Rico, Defendant, Appellee/Cross-Appellant, Commonwealth of Puerto Rico; United States Department of Health And Human Services; Michael Leavitt, Secretary, United States Department of Health and Human Services, Defendants.

No. 07-2012.

No. 07-2070.

No. 07-2326.

No. 07-2327.

United States Court of Appeals, First Circuit.

Heard November 5, 2008.

Decided December 15, 2008.

Robert A. Graham with whom James L. Feldesman, Feldesman Tucker Leifer Fidell LLP, and Ignacio Fernandez de Lahongrais were on brief for appellants/cross-appellees.

Luis A. Rodríguez-Muñoz with whom Eduardo Vera-Ramírez, Eileen Landrón-Guardiola, Landrón & Vera, LLP, Roberto Sánchez-Ramos, Secretary of Justice, and Salvador Antonetti-Stutts, Solicitor General,

were on brief for appellee/cross-appellant.

Before LYNCH, Chief Judge, SELYA and BOUDIN, Circuit Judges.

LYNCH, Chief Judge.

Federally-qualified health centers ("FQHCs") provide healthcare to medically underserved populations. Federal Medicaid law obligates the Commonwealth of Puerto Rico to make "wraparound" payments to FQHCs. 42 U.S.C. § 1396a(bb)(5). The Commonwealth, through its Secretary of Health, has for many years now not fulfilled this legal obligation, except under the duress of injunctive orders.

In 2003, plaintiffs Concilio de Salud Integral de Loiza, Inc. ("Loiza") and Dr. José S. Belaval, Inc. ("Belaval"), along with one other FQHC, brought suit against the Secretary of Puerto Rico's Department of Health under 42 U.S.C. § 1983 for failure to make the required payments. The plaintiffs sought declaratory and prospective injunctive relief.

This is the fourth appeal resulting from this litigation; the background is set forth in our three earlier opinions. See Dr. José S. Belaval, Inc. v. Pérez-Perdomo (Belaval III), 488 F.3d 11 (1st Cir.2007) (reversing district court's dismissal, on the basis of the unclean hands doctrine, of Belaval's claims to equitable relief); Dr. José S. Belaval, Inc. v. Pérez-Perdomo (Belaval II), 465 F.3d 33 (1st Cir.2006) (reinstating the preliminary injunction that required payment to Belaval and that had been erroneously modified); Rio Grande Cmty. Health Ctr., Inc. v. Rullan (Belaval I), 397 F.3d 56 (1st Cir.2005) (affirming an order of relief requiring prospective payment to Loiza).

On March 27, 2007, the district court vacated the preliminary injunction it had issued in 2004, after finding that defendant had come into compliance with the statute. Subsequently, the court dismissed plaintiffs' claims as moot and issued a final judgment, along with a permanent injunctive order. The issue before us is essentially whether the district court erred in finding the Commonwealth had finally met its obligations and, on this basis, dissolving the 2004 preliminary injunction which required defendant to establish and implement a system of payments in compliance with § 1396a(bb), and dismissing the case. The court was in error, and we reverse and remand.

I.

We briefly recount the facts and procedural history essential to this appeal.

FQHCs are entitled to receive payment for the services they provide to Medicaid patients under 42 U.S.C. § 1396a(bb). If a state employs a managed care approach to running its Medicaid system, as the Commonwealth does,¹ then its payment obligations are controlled by § 1396a(bb)(5). In a managed care system, the state Medicaid agency contracts with managed care organizations ("MCOs"), which in turn contract with FQHCs to provide Medicaid services. See Belaval I, 397 F.3d at 62. MCOs are also commonly referred to as health maintenance organizations — or HMOs. Section 1396a(bb)(5) requires the state regularly to make supplemental, wraparound payments to cover the difference between what FQHCs are paid under their MCO contracts and the total reimbursement to which they would otherwise be entitled under the Medicaid statute. The statute requires such payments to be made at least three times per year. Belaval I, 397 F.3d at 62 (citing 42 U.S.C. § 1396a(bb)(5)).

Congress has created a detailed scheme for calculating these wraparound payments. See id. at 61-62. Section 1396a(bb)(5)(A) provides:

[T]he State plan shall provide for payment to the center or clinic by the State of a supplemental payment equal to the amount (if any) by which the amount determined under paragraphs (2), (3), and (4) of this subsection exceeds the amount of the payments provided under the contract [between the FQHC and the MCO].

Paragraphs (2), (3), and (4) of § 1396a(bb), in turn, provide the methodology for calculating entitlements in non-managed care systems; in the context of Puerto Rico's managed care system, this number represents the FQHC's gross entitlement from which MCO payments are deducted. Under this methodology, an FQHC's total "reasonable" costs for providing Medicaid services in 1999 and 2000 are divided by the total number of visits by Medicaid patients in those two years. For any year following fiscal year 2001, this per visit average is multiplied by a standard measure of inflation and then multiplied by the number of visits in that year. See 42 U.S.C. § 1396a(bb)(2)-(3); Belaval I, 397 F.3d at 61-62. The amount due to an FQHC in wraparound payments is then found by subtracting from this number the "payments provided under the [MCO] contract." 42 U.S.C. § 1396a(bb)(5)(A).

Congress created the wraparound requirement for FQHCs in 1997, and it made this particular statutory scheme — known as the prospective payment system ("PPS") — effective after fiscal year 2000. Belaval I, 397 F.3d at 61, 62 n. 3. Nonetheless, the Commonwealth failed promptly to establish a PPS, and as of June 2003, when plaintiffs brought suit,² the Commonwealth had not made any wraparound payments. Id. at 62.

Loiza and Belaval moved for a preliminary injunction on January 7, 2004. Loiza also filed a motion for a temporary restraining order on March 1, 2004, seeking emergency relief due to its precarious financial situation. On March 31, 2004, the district court entered an order granting Loiza its requested emergency relief. The order directed defendant to make the first quarter 2004 payment to Loiza by April 7, 2004. For the purposes of the injunction, defendant was instructed to calculate the payments using the methodology suggested by the government's auditor, with the exception of a few court-ordered variations. See Belaval I, 397 F.3d at 66. This "rough methodology" was intended to be used until a permanent PPS was established. Id. at 76-77. The court's decision to issue the March 31, 2004 order was upheld in our first opinion in this case. See id. at 77.

On November 1, 2004, the court granted Loiza and Belaval's motion for preliminary injunction. The injunction ordered that:

i. Defendant shall, on or before November 30, 2004, fully implement its "wraparound" payment system, so as to fully comply with the FQHC requirements of the Medicaid statute, for the purpose of providing such payments thereunder to plaintiffs ii. The defendant shall certify to the Court no later than November 30, 2004, that its "wraparound" payment plan is in effect.

iii. On or before December 10, 2004, defendant shall pay to the appearing plaintiffs which are currently operating all pending supplemental payments for 2004.

Defendant failed to comply, see Belaval III, 488 F.3d at 13, and extended wrangling ensued over the amount that defendant was required to pay plaintiffs under the injunction.

The disputes centered on two issues related to the interpretation of the statute's calculation methodology provisions, which may be termed the "pure Medicaid" and the "phantom MCO payment" issues. First, plaintiffs contested defendant's position that, in calculating the number of patients served by an FQHC, only "pure Medicaid" patients should be taken into account. Defendant maintained that the state's payment obligations extend only to services rendered by FQHCs to the category of individuals whose coverage is mandatory under the federal Medicaid statute and the Commonwealth's state plan. Plaintiffs argued that their wraparound reimbursements must account for services rendered to all individuals eligible under the state plan. Plaintiffs say the "pure Medicaid" modifier in defendant's formula would deprive them of payments for approximately one-third of the Medicaid enrollees assigned to them.

Second, the parties disagreed over the proper interpretation of the phrase "payments provided under the contract" in § 1396a(bb)(5). Defendant contended that this phrase allows her to deduct the amount owed to an FQHC by its MCO under the terms of the contract between those two entities. Plaintiffs countered that the phrase takes into account only those payments actually received by the FQHC, and that defendant's methodology allowed her impermissibly to offset their entitlements by "phantom MCO payments." Plaintiffs argued before the district court that the payments actually made by MCOs often fall well short of the amounts budgeted by contract. Defendant countered that this discrepancy is the result of debts owed by plaintiffs to their MCOs, and that there is no difference under the terms of the statute between direct payments made by the MCOs to plaintiffs and payments made in the form of credit to plaintiffs' debts; if plaintiffs are unsatisfied with these payments, defendant argued, they are free to bring suit against the MCOs.

The deduction of "phantom MCO payments" would also have a considerable effect on plaintiffs. For example, under defendant's formula, the state's payment obligations to Belaval for the third quarter of 2006 would have been offset by $814,182.52 in budgeted capitation payments; according to Belaval, the deduction...