Consejo De Salud De La Comunidad De La Playa De Ponce, Inc. v. González–Feliciano

• Decision Date: 20 August 2012
• Docket Number: 11–1126,Nos. 11–1121,11–1733.,s. 11–1121
• Citation: 695 F.3d 83
• Court: U.S. Court of Appeals — First Circuit
• Parties: CONSEJO DE SALUD DE LA COMUNIDAD DE LA PLAYA DE PONCE, INC., CDT, d/b/a Centro de Diagnóstico y Tratamiento de la Playa de Ponce; Dr. José S. Belaval, Inc.; Concilio de Salud Integral de Loíza, Inc. (CSILO); Atlantic Medical Center, Inc.; Camuy Health Services, Inc.; Centro de Salud Familiar Dr. Julio Palmieri Ferri, Inc.; Ciales Primary Health Care Services, Inc.; Corporación de Servicios Médicos Primarios y Prevención de Hatillo, Inc.; Corporación de Servicios Integrales de Salud Integral de la Montaña, Inc.; Corporación de Servicios de Salud y Medicina Avanzada, Inc.; El Centro de Salud de Lares, Inc.; El Centro de Servicios Primarios de Salud de Patillas, Inc.; Migrant Health Center, Inc.; Hospital General Castañer, Inc.; Morovis Community Health Center, Inc.; Rincón Health Center, Inc.; Gurabo Community Health Center, Inc., Plaintiffs–Appellees, Cross–Appellants, Toa Alta Comprehensive Urban/Rural Advanced Health Services, Inc.; Río Grande Community Health Center, Inc., Plaintiffs, v. Lorenzo GONZÁLEZ–FELICIANO, Substituted for Rosa Pérez–Perdomo, former Secretary, Department of Health, Commonwealth of Puerto Rico, Defendant–Appellant, Cross–Appellee, Commonwealth of Puerto Rico; Department of Health, Commonwealth of Puerto Rico; Michael O. Leavitt, Secretary of the U.S. Department of Health; U.S. Department of Health & Human Services, Defendants.

695 F.3d 83

CONSEJO DE SALUD DE LA COMUNIDAD DE LA PLAYA DE PONCE, INC., CDT, d/b/a Centro de Diagnóstico y Tratamiento de la Playa de Ponce; Dr. José S. Belaval, Inc.; Concilio de Salud Integral de Loíza, Inc. (CSILO); Atlantic Medical Center, Inc.; Camuy Health Services, Inc.; Centro de Salud Familiar Dr. Julio Palmieri Ferri, Inc.; Ciales Primary Health Care Services, Inc.; Corporación de Servicios Médicos Primarios y Prevención de Hatillo, Inc.; Corporación de Servicios Integrales de Salud Integral de la Montaña, Inc.; Corporación de Servicios de Salud y Medicina Avanzada, Inc.; El Centro de Salud de Lares, Inc.; El Centro de Servicios Primarios de Salud de Patillas, Inc.; Migrant Health Center, Inc.; Hospital General Castañer, Inc.; Morovis Community Health Center, Inc.; Rincón Health Center, Inc.; Gurabo Community Health Center, Inc., Plaintiffs–Appellees, Cross–Appellants,Toa Alta Comprehensive Urban/Rural Advanced Health Services, Inc.; Río Grande Community Health Center, Inc., Plaintiffs,

v. Lorenzo GONZÁLEZ–FELICIANO, Substituted for Rosa Pérez–Perdomo, former Secretary, Department of Health, Commonwealth of Puerto Rico, Defendant–Appellant, Cross–Appellee,Commonwealth of Puerto Rico; Department of Health, Commonwealth of Puerto Rico; Michael O. Leavitt, Secretary of the U.S. Department of Health; U.S. Department of Health & Human Services, Defendants.

Nos. 11–1121, 11–1126, 11–1733.

United States Court of Appeals, First Circuit.

Heard March 8, 2012.

Decided Aug. 20, 2012.

Caroline M. Brown, with whom Matthew J. Berns, Covington & Burling LLP, Eliezer Aldarondo–Ortiz, Eliezer Aldarondo–López, Marla Hadad–Orta, and Aldarondo & López–Bras was on brief, for appellant/cross-appellee.

Robert A. Graham, with whom James L. Feldesman, Nicole M. Bacon, and Feldesman Tucker Leifer Fidell LLP was on brief, for appellees/cross-appellants.

Before TORRUELLA, SELYA, and LIPEZ, Circuit Judges.

TORRUELLA, Circuit Judge.

We press on down the long and tedious road of litigation concerning the implementation of a federally-assisted Medicaid program by the Commonwealth of Puerto Rico (the “Commonwealth”), represented here by its Secretary of Health, Lorenzo González–Feliciano (the “Secretary”). In fact, these appeals mark the sixth time we have considered issues that are related to a dispute between the Commonwealth and several “federally qualified health centers” (“FQHCs”). ¹ Plaintiffs–Appellees are FQHCs serving medically underserved populations in Puerto Rico. They have taken their claims for reimbursement payments owed to them under the Medicaid program (“Medicaid” or the “Program”), 42 U.S.C. §§ 1396 et seq., to the federal courts. Consejo de Salud de la Comunidad de la Playa de Ponce (“Consejo”), has, since February 2009, represented nineteen such FQHCs (collectively, the “plaintiff FQHCs” or “plaintiffs”), acting in the capacity of lead Plaintiff–Appellee.

As the litigation now comes to us, the Secretary presents two main issues on appeal. The first is whether the formula that the district court set in place by way of a preliminary injunction to calculate payments that the Commonwealth owes the FQHCs for providing Medicaid services mistakenly factored costs associated with beneficiaries whose care has been or should be paid solely through Commonwealth funds, thus resulting in overpayment to the plaintiff FQHCs. The second is whether the district court's formula also erroneously included certain third party costs for which the plaintiffs can already expect compensation through other means.

The plaintiff FQHCs cross-appeal and raise two claims. First, they contend that the district court's preliminary injunction improperly denied them indemnification from debts owed to third party managed care organizations. Second, the plaintiffs challenge the district court's judgment that the Eleventh Amendment bars a federal court from ordering the Commonwealth to reimburse the FQHCs for costs incurred prior to the date of its preliminary injunction.

After careful consideration of the parties' claims and arguments, we conclude that the formula that the district court endorsed in its preliminary injunction is not sufficiently supported by the factual record. Accordingly, we remand to the district court for further consideration and reformulation. With regards to the claims raised by the plaintiff FQHCs on their cross-appeal, we find that the issue of indemnification is not properly within the scope of this litigation and affirm the district court's holding on that issue. Finally, we also affirm the district court's determination that the Eleventh Amendment precludes a federal court from imposing a judgment for money damages upon the Commonwealth to make payments for periods predating the date of the district court's preliminary injunction.

I. Background and Procedural History

We have laid out much of the background relevant to these appeals in our past decisions in this protracted litigation.²We recount only the facts that are essential to the present appeals and refer to our prior judgments wherever those prove helpful to our exposition. We provide additional background relevant to each of the discrete issues before us infra.

A. The Medicaid Framework

Medicaid is funded jointly through federal and state funds. See, e.g.,42 U.S.C. § 1301(a)(8)(A)-(B); see also Rabin v. Wilson–Coker, 362 F.3d 190, 192 (2d Cir.2004). States are not obligated to participate in Medicaid, but must rigidly comply with several federally-imposed requirements if they opt to do so.³See Belaval I, 397 F.3d at 61. Importantly, participating states must offer certain “federally-qualified health center services,” 42 U.S.C. §§ 1396a(a)(10)(A), 1396d(a)(2)(C), which may only be provided by FQHCs such as the consolidated plaintiffs in this litigation.

Under the Program, FQHCs are entitled to reimbursement for services they provide to Medicaid patients. 42 U.S.C. § 1396a(bb)(1). Reimbursement payments owed by a participating State to FQHCs are assessed through statutorily-set calculations established by Medicaid's Prospective Payment System (“PPS”). Most simply stated, “[u]nder the PPS, the reimbursement for a given year is calculated by multiplying the number of visits by Medicaid patients to [an] FQHC in that year by the average cost per patient visit in fiscal years 1999 and 2000, adjusting to account for an FQHC's change in services and inflation.” Belaval V, 625 F.3d at 17 (citing 42 U.S.C. § 1396a(bb)(3)).

As is its prerogative, the Commonwealth has opted to operate its Medicaid system by contracting with managed care organizations (“MCOs”),⁴ which then provide health services to Program beneficiaries. The Commonwealth pays these MCOs a fixed monthly fee and the MCOs either profit or turn a loss depending on whether the costs of provided services are less or greater than the fixed fee they receive. See Belaval I, 397 F.3d at 62. However, since MCOs often do not own facilities, they must routinely subcontract with FQHCs to provide medical services. In practice, an MCO will commonly contract with an FQHC to provide certain services to Medicaid beneficiaries for a fixed per-patient price, or “assigned capitation,” on a pre-determined schedule. This arrangement can lead to a problem that is at the heart of this litigation: at times, an MCO's contract with an FQHC will not cover the amount the FQHC is entitled to receive as determined by PPS calculations. When this happens, the Commonwealth is statutorily required to pay the FQHC a supplemental “wraparound” payment at least three times a year to cover the difference between what an MCO paid the FQHC and what the FQHC is entitled to receive under the PPS regime. See42 U.S.C. § 1396a(bb)(5)(A)-(B); see also Belaval IV, 551 F.3d at 12 (explaining “detailed scheme for calculating [ ] wraparound payments”). The upshot of this scheme is that an FQHC operating in Puerto Rico often should receive two distinct payments for the services it provides Medicaid beneficiaries—a direct payment from the MCO and a wraparound payment from the Commonwealth to supplement the former if it does not meet the amount that the FQHC is entitled to receive.

B. The Road Here: Delayed Compliance and Litigation

As events actually transpired, the Commonwealth dragged its feet in setting up an administrative system in order to comply with the PPS regime—which was supposed to come into effect on January 1, 2001—and made no wraparound payments to FQHCs at all in 2001. Despite some preliminary steps taken by the Commonwealth to adopt the PPS methodology, three FQHCs—Appellees Concilio de Salud Integral de Loíza, Inc. (“Loíza”), Belaval, and Río Grande Community Health Center, Inc. (“Río Grande”)—filed suit in 2003 in the U.S. District Court for the District of Puerto Rico claiming that the Secretary had failed to release wraparound payments to which they were entitled to under the Program. On March 31, 2004, the district court granted a motion, filed only by Loíza, which sought a temporary restraining order for emergency payments owed for the first quarter of 2004 on account of the “precarious financial position” that Loíza allegedly faced at the time. See Belaval I, 397 F.3d at 65. In granting Loíza's request for emergency relief, the district court also postulated a formula for the Secretary to use in calculating those wraparound payments. Our judgment in Belaval I, issued on February 14, 2005, affirmed the district court's decision to enjoin the Secretary to make payments to Loíza. See id. at 56.

On November 1, 2004, the district court granted a preliminary injunction in favor of Loíza and its two co-plaintiff FQHCs requiring the Secretary to set in place a system through which to comply with the PPS framework and make owed payments. The district court's November 1, 2004 order incorporated the formula it had set out in its previous March 31, 2004 judgment in favor of Loíza and endorsed it as the proper way to assess future...