Legacy Cmty. Health Servs., Inc. v. Janek
| Decision Date | 02 July 2015 |
| Docket Number | CIVIL ACTION NO. 4:15-CV-25 |
| Court | U.S. District Court — Southern District of Texas |
| Parties | LEGACY COMMUNITY HEALTH SERVICES, INC., Plaintiff, v. DR. KYLE L. JANEK, Defendant. |
Plaintiff Legacy Community Health Services, a community health center serving low-income patients in the Houston area, filed this lawsuit to assert its rights under the federal Medicaid statute. Defendant Kyle L. Janek is sued in his official capacity as executive commissioner of Texas's Health and Human Services Commission (HHSC). Plaintiff alleges that HHSC has violated federal law with respect to how it reimburses Legacy for services provided to Medicaid patients. Pending before the Court is Defendant's Motion to Dismiss for Failure to State a Claim. (Doc. No. 57.) Having considered the submissions of the parties and the applicable law, Defendant's motion is DENIED.
This case concerns the intersection of two federal health programs. The Public Health Services Act provides for grant funding for health care providers that serve all comers, regardlessof ability to pay. Medicaid reimburses health care providers for the cost of providing care to Medicaid recipients. The regulations required to harmonize these two programs are complex.
Federal law provides for the designation of certain "community health centers" to serve needy populations. These are § 501(c)(3) organizations eligible to receive federal grant funds to provide care to medically underserved populations in their communities. 42 U.S.C. §§ 254b(a), (e), (k). These Federally Qualified Health Centers (FQHCs) must provide health care services to Medicaid recipients, 42 U.S.C. § 254b(k)(3)(E), and serve all residents of their communities, regardless of any patient's ability to pay, 42 U.S.C. §§ 254b(a)(1) and 254b(k)(3)(G)(iii).
A "community health center" is deemed an FQHC if it is the recipient of federal grant funds under § 254b and includes an outpatient health program. 42 U.S.C. § 1396d(l)(2)(B). FQHC status is significant for two reasons. First, FQHC services must be covered by state Medicaid plans. 42 U.S.C. § 1396a(a)(10)(A). Second, the Medicaid statute provides unique payment provisions for FQHCs, meant to ensure that FQHCs are reimbursed for the full costs of treating Medicaid patients. The purpose of this requirement is to "ensure that [FQHCs] would not have to divert Public Health Services Act funds to cover the cost of serving Medicaid patients." Three Lower Counties Community Health Services, Inc. v. Maryland, 498 F.3d 294, 297-98 (4th Cir. 2007) (citing H.R. Rep. No. 101-247, at 392-93, reprinted in U.S.C.C.A.N. 2118-19). Currently, the statute requires states to reimburse FQHCs on a per-visit basis, which for Legacy is approximately $270 per visit (the "PPS rate").2
Many states now choose to administer their Medicaid programs by contracting with private-sector managed care organizations (MCOs) that are analogous to private-sector HMOs.42 U.S.C. § 1396u-2(a)(1). In exchange for its services, an MCO receives a per-member, per-month payment, called a "capitation" payment, from the state based on its number of enrollees. 42 C.F.R. § 438.2. The MCO in turn contracts with health care providers, including FQHCs, to provide services to its enrollees. If the MCO's costs are less than the capitation payments received from the state, the MCO makes a profit; if costs exceed capitation payments, the MCO incurs a loss.
Because federal law requires states to pay FQHCs a designated amount per visit, the FQHC system sits uneasily with the MCO model, which requires MCOs to have the flexibility to negotiate with health care providers. To resolve this tension, Congress has allowed MCOs to negotiate rates with FQHCs in the same manner that they would with other health care providers. MCOs are only required to pay FQHCs "not less" than they would pay non-FQHC providers for the same services. 42 U.S.C. § 1396b(m)(2)(A)(ix). Congress then required states to pay a supplemental "wraparound payment" to bring the FQHC's total compensation to the PPS rate. 42 U.S.C. § 1396a(bb)(5)(A). The wraparound payments are to be made at least every four months. 42 U.S.C. § 1396a(bb)(5)(B).
Texas has chosen to implement Medicaid through a managed care system. Tex. Gov. Code § 533.002. The Texas Children's Health Plan — one of the original defendants in this case — is one of the MCOs that contracts with the Health and Human Services Commission (HHSC) to provide care to Texas Medicaid recipients.
The Plaintiff is Legacy Community Health Services (hereinafter "Legacy"), a 501(c)(3) organization and a certified FQHC. 2d Am. Compl., ¶ 15 (Doc. No. 51). Legacy contracted with TCHP from 2009 to 2015 to provide medical care to Medicaid patients enrolled in TCHP.
Beginning in 2011, Texas's method of reimbursing FQHCs, including Legacy, for services provided to Medicaid patients differed from what is contemplated in federal law. Id. at ¶ 17. Instead of allowing TCHP to pay Legacy a negotiated rate and making up the difference directly from state funds, HHSC has attempted to incorporate the FQHC's full PPS rate into the monthly capitation payments it makes to TCHP. Id. It then requires TCHP to pay Legacy the full PPS rate rather than at a lower negotiated rate. Id. After 2011, TCHP reimbursed Legacy approximately $270 per visit (the PPS rate); before 2011, TCHP had reimbursed Legacy just $67 per visit. Id. at ¶¶ 15, 18.
Problems arose when Medicaid patients' use of Legacy services increased faster than the capitation payments provided by HHSC. Id. at ¶ 19. Because of the "not sustainable" difference between the payments from HHSC and the costs of Legacy's services, TCHP asked Legacy to accept lower rates than it was entitled to under federal law. Id. at ¶ 20-21. Legacy refused to do so.
In November 2014, when no compromise was reached with HHSC or Legacy, TCHP informed Legacy that it was terminating its contract effective February 1, 2015. Id. at ¶ 22. According to TCHP, the reason for termination was a "utilization trend that far exceeds the trend in the Medicaid premium." Id. TCHP also told Legacy that, once it was out of the TCHP network, it would only be reimbursed for out-of-network services that were pre-authorized by TCHP. Id. at ¶ 26.
In January 2015, before the contract with TCHP was terminated, Plaintiff filed this lawsuit against Dr. Kyle Janek, in his capacity as the head of HHSC, and TCHP. Compl., Doc. No. 1. Plaintiff sought an injunction barring HHSC from using its existing reimbursement policy, enjoining TCHP from terminating its contract with Legacy, and directing HHSC to ensure thatLegacy receives full PPS reimbursement for services provided to out-of-network patients. Plaintiff's motion for a preliminary injunction was denied at a hearing in January 2015.
After that, Plaintiff filed a Second Amended Complaint dropping TCHP as a defendant and stating claims only against Janek/HHSC. Defendant has now moved to dismiss that complaint, contending that this Court lacks subject-matter jurisdiction and that Plaintiff has failed to state a claim.
Federal Rule of Civil Procedure 12(b)(1) governs challenges to a court's subject-matter jurisdiction. "Under Rule 12(b)(1), a claim is properly dismissed for lack of subject-matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the claim." In re FEMA Trailer Formaldehyde Prods. Liab. Litig., 668 F.3d 281, 286 (5th Cir. 2012) (internal quotation marks omitted). Lack of subject matter jurisdiction may be found using (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts. Barrera-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir. 1996); Clark v. Tarrant County, 798 F.2d 736, 741 (5th Cir. 1986). The plaintiff bears the burden of demonstrating that subject-matter jurisdiction exists. Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981); Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 511 (5th Cir. 1980); Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001).
Article III of the Constitution limits the jurisdiction of federal courts to "cases" and "controversies." U.S. Const., Art. III, § 2. The legal requirement of "standing" is used to identifycases and controversies that are "justiciable" — that is, "those disputes which are appropriately resolved through the judicial process." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992) (internal quotation omitted). "To establish Article III standing, a plaintiff must show (1) an 'injury in fact,' (2) a sufficient 'causal connection between the injury and the conduct complained of,' and (3) a 'like[lihood]' that the injury 'will be redressed by a favorable decision." Susan B. Anthony List v. Driehaus, 134 S.Ct. 2334, 2341 (2014).
HHSC first contends Legacy has not alleged an "injury-in-fact." The injury-in-fact requirement "helps to ensure that the plaintiff has a personal stake in the outcome of the controversy." Susan B. Anthony List, 134 S.Ct. at 2341 (internal quotation omitted). The injury must be "concrete and particularized" and "actual or imminent, not conjectural or hypothetical." Id. Legacy's Complaint alleges that it will lose $14,000,000 in annual revenue from the loss of its contract with Texas Children's Health Plan. See 2d Am. Compl. at ¶ 29. Legacy also argues that it expects to suffer further losses in the future due to unreimbursed claims for services that Legacy is required by federal law to provide. Id. at ¶ 35. The cost of providing unreimbursed medical services "has been recognized as a sufficient basis for standing to challenge laws...
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