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St. Anthony Medical Centers v. Kent

United States District Court, E.D. California

August 6, 2016

KENT, et al, Defendants.


         Plaintiff 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.

         I. BACKGROUND

         A. Review of Statutory Background

         In 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.

         The 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 follows:
. . .
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.

         The 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”)[1] 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.

         Notwithstanding 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 § 14132.100(i)(1)(D).

         B. Factual Allegations

         The 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 ...

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