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Mendocino Community Health Clinic et al v. State Department of Health Care Services

May 2, 2013


APPEAL from a judgment of the Superior Court of Sacramento County, Michael P. Kenny, Judge. (Super. Ct. No. 34-2010-80000436-CU-WM-GDS)

The opinion of the court was delivered by: Nicholson , Acting P. J.


Reversed with directions.

In this appeal, we must determine whether the Department of Health Care Services (Department), which administers Medi-Cal, may limit payment to federally-qualified health centers (FQHC's) for psychological services to two visits per month per patient. The Department concluded that it can, but the trial court granted the petition of Mendocino Community Health Clinic and other related clinics (the Mendocino Clinics), which are FQHC's, for a writ requiring payment beyond the two-visit limit. We conclude that the petition was improperly granted. Federal law does not prohibit a state's application of utilization controls to psychology services rendered at an FQHC, and state law provides for those utilization controls.


At the time relevant to this appeal, the Medi-Cal program, which is California's application of federal Medicaid law, provided coverage of outpatient clinic psychology services. These services, however, are subject to utilization controls. (Cowan v. Myers (1986) 187 Cal.App.3d 968, 973; Welf. & Inst. Code, § 14132, subd. (a).)

Welfare and Institutions Code section 14132, subdivision (a) provides that outpatient psychology services are covered by Medi-Cal, "subject to utilization controls." Section 51304, subdivision (a) of title 22 of the California Code of Regulations states: "[Medi-Cal] coverage of services specified in Section[] . . . 51309 [psychology services] . . . is limited to a maximum of two services from among those services set forth in those sections in any one calendar month." Subdivision (b) of the same section states: "For purposes of this section, 'services' means all care, treatment, or procedures provided a beneficiary by an individual practitioner on one occasion."

The Mendocino Clinics, which are FQHC's, are Medi-Cal providers of outpatient clinic services. FQHC's were described in a federal case (Three Lower Counties Community Health Services, Inc. v. State of Maryland (4th Cir. 2007) 498 F.3d 294 (Three Lower Counties)), upon which the Mendocino Clinics rely in this case:

"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. . . . 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.' [Citation.]

"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). . .

"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. . . . [¶] . . . [¶]

"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)." (Three Lower Counties, supra, 498 F.3d at pp. 297-298, original italics.)

Three Lower Counties also quoted a report of the House Budget Committee concerning the 1989 legislation:

"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 ...

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