United States District Court, E.D. California
ST. ANTHONY MEDICAL CENTERS, Plaintiff,
KENT, et al, Defendants.
St. Anthony Medical Centers (“St. Anthony”), a
federally-qualified health center (“FQHC”),
brings this action against the California Department of
Health Care Services (“DHCS”) and Jennifer Kent,
in her capacity as Director of DHCS, alleging it was unlawful
for DHCS to not set a new initial prospective payment
services rate (“PPS rate”) for the Medi-Cal
services it provided for the period beginning March 18, 2004.
On March 2, 2016, the court dismissed the complaint under the
applicable statute of limitations but granted plaintiff leave
to amend if it could cure the deficiency. ECF No. 22
(“Prev. Order”). Plaintiff filed an amended
complaint, ECF No. 23 (“FAC”), and
defendants’ motion to dismiss the amended complaint is
now before the court, ECF No. 25 (“Mot.”).
Plaintiff opposes the motion, ECF No. 28
(“Opp’n”), and defendants have replied, ECF
No. 29 (“Reply”). The court held a hearing on May
6, 2016, at which Kathryn Doi appeared for plaintiff and
Karli Eisenberg appeared for defendants. As explained below,
the court GRANTS defendants’ motion, this time without
leave to amend.
Review of Statutory Background
1965, Congress enacted Title XIX of the Social Security Act,
42 U.S.C. § 1396 et seq., known as the
“Medicaid Act, ” to provide funding for
state-administered Medicaid programs. See FAC ¶
9. The states, in accordance with federal law, determine
eligibility of particular types of beneficiaries, types and
ranges of services, payment levels, and administrative and
operative procedures. Id. Payment for services is
made directly by states to the individuals or entities that
furnish the services. Id. (citing 42 C.F.R. §
430.0). A state’s participation in the Medicaid program
is voluntary, but when a state chooses to participate, it
must comply with the provisions of the Medicaid Act and its
implementing regulations. Alaska Dep’t of Health
& Social Servs. v. Ctrs. for Medicare & Medicaid
Servs., 424 F.3d 931, 935 (9th Cir. 2005). California
participates in the Medicaid program through the California
Medical Assistance Program (“Medi-Cal”), and has
designated DHCS as the agency responsible for its
administration. See Cal. Welf. & Inst. Code
§§ 10720, 14000 et seq.; Cal. Code Regs.
tit. 22, § 50000 et seq.
Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239)
created the FQHC program and made FQHC services mandatory.
See 42 U.S.C. § 1396d(a)(2)(C). FQHCs are
health care providers located in medically underserved areas
that receive Section 330 Public Health Service Act
(“PHS”) grants. See FAC ¶ 13. Other
entities that meet the requirements for receiving a PHS grant
(“FQHC look-alikes”) also qualify as FQHCs. 42
U.S.C. § 1396d(1)(2)(B). To participate in the federal
Medicaid program, state plans must reimburse clinics for FQHC
services rendered. See 42 U.S.C. §§
1396a(a)(15), 1396d(a)(2)(C), (1)(2)(B); see also
Cal. Welf. & Inst. Code § 14132.100(a), (b), &
(g). The Fourth Circuit has provided a thorough overview of
the evolution of the federal payment requirements:
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
. . .
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 . . . .
Three Lower Ctys. Cmty. Health Servs., Inc. v.
Maryland, 498 F.3d 294, 297-98 (4th Cir. 2007) (emphasis
in original); see FAC ¶ 16.
prospective payment system, which began with fiscal year
2001, requires state Medicaid plans to establish an initial
year PPS reimbursement rate for each FQHC. 42 U.S.C. §
1396a(bb)(2), (bb)(4); Cal. Welf. & Inst. Code §
14132.100(i)(1). With respect to clinics that first qualified
as FQHCs before the fiscal year 2000, the initial year PPS
rate must equal “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 and
related to the cost of furnishing such services.” 42
U.S.C. § 1396a(bb)(2). With respect to clinics that
first qualified as FQHCs after fiscal year 2000, the initial
year PPS rate must be calculated based on the average of the
per-visit rates of other health centers located in the same
or adjacent area with a similar case load (“the
Comparables Methodology”). 42 U.S.C. §
1396a(bb)(4); Cal. Welf. & Inst. Code §
14132.100(i)(1)(A). For each year after the initial year PPS
rate is established, the rate of the preceding fiscal year is
increased by the percentage increase in the applicable
Medicare Economic Index (“MEI”) for that year,
and is adjusted to take into account any increase or decrease
in the scope of such services furnished by the center or
clinic during that year. 42 U.S.C. § 1396a(bb)(3). In
other words, the initial year PPS rate serves as a
“baseline per-visit rate to be applied in all future
years, adjusted by a cost-of-living index (the [MEI]) and any
change in the scope of services.” Three Lower Ctys.
Cmty. Health Servs., Inc., 498 F.3d at 298.
any other provision, federal and state law also allow state
plans to use alternative methodologies to provide for payment
in any fiscal year if the methodologies (1) are agreed to by
the state and the FQHC; and (2) result in payment to the FQHC
of an amount that is at least equal to the amount required to
be paid under § 1396a(bb). 42 U.S.C. §
1396a(bb)(6); Cal. Welf. & Inst. Code §
operative first amended complaint makes the following
allegations. St. Anthony first qualified as an FQHC
look-alike on April 9, 2001, and DHCS established an initial
year PPS rate for St. Anthony. FAC ¶¶ 31, 38. St.
Anthony did not file its application for recertification with
the Health Resources and Services Administration
(“HRSA”), so its FQHC status was terminated in
May 2003. Id. ¶ 32. Termination of its FQHC
status resulted in termination of St. Anthony’s
Medicare and Medicaid Provider Agreements. Id. St.
Anthony was required to repay to the Medi-Cal ...