Family Health Ctrs. of San Diego v. State Dep't of Health Care Servs.

• Docket Number: S270326
• Decision Date: 24 July 2023
• Parties: FAMILY HEALTH CENTERS OF SAN DIEGO, Plaintiff and Appellant, v. STATE DEPARTMENT OF HEALTH CARE SERVICES, Defendant and Respondent.
• Court: California Supreme Court

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FAMILY HEALTH CENTERS OF SAN DIEGO, Plaintiff and Appellant, v. STATE DEPARTMENT OF HEALTH CARE SERVICES, Defendant and Respondent.

S270326

Supreme Court of California

July 24, 2023

Third Appellate District C089555

Sacramento County Superior Court 34-2018-80002953-CU-WM-GDS Steven M. Gevercer Judge.

Douglas Cumming Medical Law, Douglas S. Cumming; Murphy Campbell, Alliston & Quinn and George E. Murphy for Plaintiff and Appellant.

Hanson Bridgett, Kathryn E. Doi; Law Office of Regina M. Boyle and Regina M. Boyle for Avenal Community Health Center, Eisner Health, Golden Valley Health Centers, Innercare, La Maestra Community Health Centers, Neighborhood Healthcare, Open Door Community Clinic, Ravenswood Family Health Network, Shasta Community Health, TrueCare and WellSpace Health as Amici Curiae on behalf of Plaintiff and Appellant.

DJR García and Deborah J. Rotenberg for California Primary Care Association as Amicus Curiae on behalf of Plaintiff and Appellant.

Xavier Becerra and Rob Bonta, Attorneys General, Michael J. Mongan, State Solicitor General, Janill L. Richards, Principal Deputy State Solicitor General, Cheryl L. Feiner, Assistant Attorney General, Joshua Patashnik, Deputy State Solicitor General, Niromi W. Pfeiffer, Gregory D. Brown, Marianne A. Pansa and Kevin L. Quade, Deputy Attorneys General, for Defendant and Respondent.

Justice Kruger authored the opinion of the Court, in which Chief Justice Guerrero and Justices Corrigan, Liu, Groban, Jenkins, and Evans concurred.

OPINION

KRUGER, J.

Federal and state Medicaid law entitles health care providers to government reimbursement for reasonable costs related to the care of Medicaid beneficiaries. The providers entitled to reimbursement include federally qualified health centers, or FQHCs, which are nonprofit health centers that receive funding from the federal government to provide basic health care to underserved populations. As a condition of participation in the FQHC program, health centers must provide services regardless of an individual's ability to pay. They are also required to offer outreach and education to enable members of underserved communities to obtain the health care services they provide.

In this case, an FQHC operator seeks reimbursement from the state Medicaid program for the costs of outreach and education activities aimed at Medicaid-eligible patients. The State Department of Health Care Services concluded the costs were categorically nonreimbursable. The Court of Appeal affirmed. We conclude the Department's conclusion rested on a misunderstanding of relevant legal principles governing the reimbursement of medical provider costs. We therefore reverse and remand for further proceedings.

I.

This case involves the interplay between programs enacted by Congress to increase individuals' access to health care. The first of these programs is Medicaid, a federal-state cooperative program for the provision of medical care to certain low-income populations. (42 U.S.C. §§ 13961, 1396a(a)(10)(A)(i); see National Federation of Independent Businesses v. Sebelius (2012) 567 U.S. 519, 541-542, 575 [describing the program].) In return for federal funding, participating states - which is all of them (id. at p. 542) - agree to reimburse health care providers for the costs of delivering care to enrolled program beneficiaries. (42 U.S.C. § 1396a(a)(11)(B)(ii).)

The second program, created by section 330 of the Public Health Service Act, makes federal funding available to community-based health organizations to care for medically underserved populations. (42 U.S.C. § 254b(a)(1); see also id., § 254b(e).) These organizations, knowns as "Federally qualified health centers" (e.g., id., §§ 13295x(aa)(4), 254c-14(a)(2)), must provide health care to residents of geographical areas designated by the federal government as lacking sufficient health care services, or to special populations that have been so designated, such as those who engage in migrant or seasonal agricultural work, who are homeless, or who reside in public housing. (Id., § 254b(a)(1), (3)(A).) An FQHC must provide "required primary health services" to all of its patients regardless of their ability to pay. (Id., § 254b(a)(1)(A); see also id., § 254b(k)(3)(G)(iii).) Because of the difficulties that target populations face in accessing health care, required primary health services include education of "the general population served by the health center regarding the availability and proper use of health services" (id., § 254b(b)(1)(A)(v)) as well as enabling services - that is, "services that enable individuals to use the services of the health center" - "including outreach and transportation services," and language interpretation for limited English speakers (id., § 254b(b)(1)(A)(iv)). Congress added these requirements after the Committee on Labor and Human Resources identified education, outreach, and other enabling services as "essential to health centers' efforts to reduce the barriers to care" experienced by those targeted, and proposed the addition "to highlight the critical role that enabling services . . . play in the delivery of primary health services to underserved populations." (Health Centers Consolidation Act of 1995, Sen.Rep. No. 104-186, 104th Cong., 1st Sess. (1995).)

Although the Public Health Service Act provides some funding for FQHCs, it is not their only source of funding. The law provides that FQHCs are entitled to Medicaid reimbursement insofar as they provide covered health services to Medicaid beneficiaries. (42 U.S.C. § 1396d(a)(2)(C), (l)(2); see also Welf. &Inst. Code, § 14132.100, subd. (a) [adopting coverage for FQHC services as described by federal law].) Medicaid reimbursement for qualifying FQHC services is not optional. Health centers must "make every reasonable effort" to collect state reimbursement for the costs of providing health services to those eligible for Medicaid or "any other public assistance program or private health insurance program." (42 U.S.C § 254b(k)(3)(F).) And states, for their part, are obligated to pay FQHCs 100 percent of the costs of providing medical assistance to Medicaid beneficiaries that are "reasonable and related to the cost of furnishing such services." (Id., § 1396a(bb)(2).)

This" '100 percent reimbursement'" requirement was enacted "to ensure that health centers . . . would not have to divert Public Health Service[] Act funds to cover the cost of serving Medicaid patients," thus compromising their ability to provide care to those without any public or private health coverage. (Three Lower Counties Community Health v. Maryland (4th Cir. 2007) 498 F.3d 294, 297; see ibid. [discussing substantially similar predecessor to current law].)^[1]

Both federal and state Medicaid law contain additional instructions about how to fulfill this 100 percent reimbursement requirement. Under federal law, Medicaid reimbursement to FQHCs is based on a prospective per-visit rate that includes the cost of covered services by physicians or other designated health professionals, as well as services and supplies "incident to" those services. (42 U.S.C. § 1395x(aa)(1)(A)-(B), (3); see also id., §§ 1396a(bb), 1396d(a)(2)(C), (l)(2).) That rate may be adjusted when there are changes in the scope of services the health center provides. (Id., § 1396a(bb)(3)(B).) State law codifies the same payment system. (Welf. &Inst. Code, § 14132.100, subds. (c)-(e).) State law further instructs that adjustments are "evaluated in accordance with Medicare reasonable cost principles." (Id., subd. (e)(1); see 42 U.S.C. § 1396a(bb)(2), (4) [identifying the Medicare reasonable cost regulations as a permissible basis for calculating payment amounts].)

The reference to "reasonable cost principles" is to a set of regulations promulgated under the federal Medicare statute.^[2](42 U.S.C. § 1395c.) Much like the Medicaid provisions governing FQHCs, the Medicare statute instructs that payments to providers be based on the "reasonable cost" of covered services, taking into account "both direct and indirect costs of providers of services." (Id., § 1395x(v)(1)(A).) The implementing regulation specifies that payment must be based on reasonable costs that are "related to the care of beneficiaries," including "all necessary and proper costs incurred in furnishing the services." (42 C.F.R. § 413.9(a) (2023).)

II.

Plaintiff Family Health Centers of San Diego is a nonprofit corporation that operates multiple federally qualified health centers in San Diego County.

California participates in Medicaid through the California Medical Assistance Program, known as "Medi-Cal," which is administered by the State Department of Health Care Services (Department). (Welf. &Inst. Code, §§ 14100.1, 14170, subd. (a)(1), 14203.) In 2013, Family Health asked the Department for an increase in the per-visit Medi-Cal reimbursement rate for one of its clinics. In a cost report supporting the request, Family Health listed "outreach" among its health care staff costs and later provided additional details, including job descriptions for outreach staff, to a Department auditor. One position, for example, was an "Outreach Worker," who was tasked with providing "information and instruction" about Family Health resources through "street outreach" and by "meeting with people on an individual basis, making group presentations, participating in community events and developing accessibility as liaison for and guide to" the local Family Health clinic. A "Family Resource Center" outreach worker focused on educating parents about the importance of early childhood development and Family Health resources for young children; a "Community Outreach Specialist" conducted "educational presentations and...