Three Lower Counties Community Health v. Maryland

• Decision Date: 24 August 2007
• Docket Number: No. 06-1552.,06-1552.
• Citation: 498 F.3d 294
• Parties: THREE LOWER COUNTIES COMMUNITY HEALTH SERVICES, INCORPORATED, Plaintiff-Appellant, v. The State of MARYLAND, Department of Health and Mental Hygiene; Anthony McCann, Secretary, State of Maryland Department of Health and Mental Hygiene, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

498 F.3d 294

THREE LOWER COUNTIES COMMUNITY HEALTH SERVICES, INCORPORATED, Plaintiff-Appellant, v. The State of MARYLAND, Department of Health and Mental Hygiene; Anthony McCann, Secretary, State of Maryland Department of Health and Mental Hygiene, Defendants-Appellees.

No. 06-1552.

United States Court of Appeals, Fourth Circuit.

Argued May 22, 2007.

Decided August 24, 2007.

ARGUED: James Leo Feldesman, Feldesman, Tucker, Leifer & Fidell, L.L.P., Washington, D.C., for Appellant. Jason W. Sapsin, Assistant Attorney General, Office of the Attorney General of Maryland, Baltimore, Maryland, for Appellees. ON BRIEF: Kathy S. Ghiladi, Feldesman, Tucker, Leifer & Fidell, L.L.P., Washington, D.C., for Appellant. J. Joseph Curran, Jr., Attorney General of Maryland, Lorie A. Mayorga, Assistant Attorney General, Office of the Attorney General of Maryland, Baltimore, Maryland, for Appellees.

Before NIEMEYER and MICHAEL, Circuit Judges, and WILKINS, Senior Circuit Judge.

Affirmed in part, reversed in part, and remanded with instructions by published opinion. Judge NIEMEYER wrote the opinion, in which Judge MICHAEL and Senior Judge WILKINS joined.

OPINION

NIEMEYER, Circuit Judge:

In this appeal, we clarify a State's obligations under the federal Medicaid program when paying "Federally-qualified health centers" for services they render to Medicaid patients. See 42 U.S.C. § 1396a(bb)(5).

Three Lower Counties Community Health Services, Inc., a health center serving poor residents on the lower Eastern Shore of Maryland, commenced this action against the State of Maryland's Department of Health and Mental Hygiene (hereinafter "Maryland" or "Department of Health"), the state agency that administers the Medicaid program in Maryland, to obtain a declaratory judgment that Maryland violates the Medicaid Act in four respects: (1) Maryland does not make fully compensatory supplemental payments at least as frequently as every four months to Three Lower Counties, a "Federally-qualified health center," for healthcare services provided to Medicaid patients; (2) Maryland fails to compensate Three Lower Counties for emergency healthcare services provided to Medicaid patients who are enrolled with managed care organizations with which Three Lower Counties does not have a contract; (3) Maryland establishes a rate that managed care organizations must pay that is disadvantageous to Federally-qualified health centers in providing services to Medicaid patients; and (4) Maryland delegates to managed care organizations the determination of whether supplemental payments are required to be paid to Federally-qualified health centers. Three Lower Counties also seeks injunctive relief to require the Department of Health to comply with the Medicaid Act in these respects.

The district court granted Maryland's motion for summary judgment on all four issues. For the reasons that follow, we reverse with respect to the first two issues and affirm with respect to the last two, and we remand this case to the district court to grant Three Lower Counties appropriate relief.

I

Three Lower Counties Community Health Services, Inc., located in Princess Anne, Maryland, has provided healthcare services since 1994 to the poor residents of Somerset and Wicomico Counties, operating a community "health center" under the Public Health Service Act, 42 U.S.C. § 254b. Three Lower Counties receives federal grant funds under § 330 of that Act. To qualify for those funds, health centers must be located in a medically underserved area or serve a "specially medically underserved population comprised of migratory and seasonal agricultural workers, the homeless, and residents of public housing." 42 U.S.C. § 254b(a)(1). In addition, the Public Health Service Act requires that such health centers deny no patient healthcare services due to the patient's inability to pay, see id. § 254b(k)(3)(G)(iii)(I), and, more pertinent to this litigation, that they provide healthcare services to Medicaid enrollees, see id. § 254b(k)(3)(E).

The federal Medicaid program provides federal financial assistance to States that choose to participate in the program and requires the States to reimburse healthcare providers who provide services to Medicaid enrollees. The purpose of the Medicaid program is to enable States "to furnish . . . medical assistance on behalf of families with dependent children . . . whose income and resources are insufficient to meet the costs of necessary medical services." 42 U.S.C. § 1396. States need not participate in the program, but if they choose to do so, "they must implement and operate Medicaid programs that comply with detailed federally mandated standards." Antrican v. Odom, 290 F.3d 178, 183 n. 2 (4th Cir.2002).

One federal requirement is that a state Medicaid plan provide payment for services rendered by "Federally-qualified health centers" ("FQHCs"). See 42 U.S.C. § 1396a(a)(15); id. § 1396d(a)(2)(C); id. § 1396d(l)(2). FQHCs are defined as health centers that receive, or meet the requirements for receiving, grants under § 330 of the Public Health Service Act. Id. § 1396d(l)(2). Three Lower Counties is therefore not only a "health center" receiving funds under the Public Health Service Act but also, by definition, an FQHC receiving funds under the federal Medicaid program.

From 1989 through 2000, the federal Medicaid program required States to reimburse FQHCs for "100 percent . . . of [each FQHC's] costs which are reasonable." 42 U.S.C. § 1396a(a)(13)(C) (repealed 2000). Congress' purpose in passing this "100 percent reimbursement" requirement was to ensure that health centers receiving funds under § 330 of the Public Health Services Act would not have to divert Public Health Services Act funds to cover the cost of serving Medicaid patients. The report of the House Budget Committee accompanying the 1989 legislation describes this payment guarantee specifically as follows:

Medicaid payment levels to Federally-funded health centers cover less than 70 percent of the costs incurred by the centers in serving Medicaid patients. The role of [these health centers] . . . is to deliver comprehensive primary care services to underserved populations or areas without regard to ability to pay. To the extent that the Medicaid program is not covering the cost of treating its own beneficiaries, it is compromising the ability of the centers to meet the primary care needs of those without any public or private coverage whatsoever.

* * *

To ensure that Federal [Public Health Service] Act grant funds are not used to subsidize health center or program services to Medicaid beneficiaries, States would be required to make payment for these [FQHC] services at 100 percent of the costs which are reasonable and related to the cost of furnishing those services.

H.R.Rep. No. 101-247, reprinted in 1989 U.S.C.C.A.N. 1906, 2118-19.

To relieve health centers from having to supply new cost data every year, Congress amended the Medicaid Act in 2000 to implement a new prospective payment system based on average historical costs plus a cost-of-living factor. The new prospective payment system, which began with fiscal year 2001, required state Medicaid plans to "provide for payment for such services [provided by 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." 42 U.S.C. § 1396a(bb)(2). That is, under the new system, each health center's reasonable costs for providing Medicaid services for the years 1999 and 2000 were added together, and the sum was divided by the total number of visits by Medicaid patients in those two years to obtain an average per-visit cost rate. This average per-visit cost rate for the years 1999 and 2000 became the baseline per-visit rate to be applied in all future years, adjusted by a cost-of-living index (the Medicare Economic Index) and any change in the scope of services. See 42 U.S.C. § 1396a(bb)(2)-(3).

Thus, to calculate a health center's Medicaid payment for each fiscal year beginning 2001 and thereafter, the average pervisit cost rate calculated for 1999 and 2000 is multiplied by the number of visits made by Medicaid patients in the applicable fiscal year (2001 or later), adjusted by the cost-of-living index and for any change in the scope of services. While a health center's costs for servicing Medicaid enrollees is no longer audited every year, health centers must submit new visit data for each new year.

The Maryland Department of Health has the responsibility of performing these calculations for each FQHC in Maryland — i.e., determining the center's average cost per Medicaid visit in 1999 and 2000, applying the inflation factor, adjusting for any change in the scope of services, and multiplying that figure by the number of Medicaid patient visits to the FQHC in the relevant period. Maryland also has the responsibility of ensuring that the health center receive full payment for each Medicaid visit, as required by the Medicaid Act.

There is an added twist in how FQHCs are compensated when a State, such as Maryland, operates a managed care program for providing Medicaid services. HealthChoice, Maryland's Medicaid managed care program, contracts on behalf of Maryland with managed care organizations (more commonly known as health maintenance organizations or HMOs) to arrange for the delivery of healthcare services to its Medicaid enrollees. Unless the managed care organization owns a hospital or clinic, it in turn contracts with healthcare providers, including FQHCs, to deliver the medical services to the Medicaid patients. See generally Md.Code Regs. (hereinafter "COMAR") 10.09.62-10.09.73.

When States, such as Maryland, operate the Medicaid program through managed care organizations, the contract between the managed care organization and the FQHC usually compensates the FQHC at...