United States District Court, E.D. California
ORDER GRANTING IN PART DEFENDANTS' MOTION TO
DISMISS AND STAYING PLAINTIFF'S CLAIMS FOR DECLARATORY
A. MENDEZ, UNITED STATES DISTRICT JUDGE
August 2019, North East Medical Services, Inc. filed its
complaint against the California Department of Health Care
Services, the Department director in her official capacity,
and the State of California (collectively
“Defendants”). Compl., ECF No. 1. Defendants
filed a motion to dismiss each of Plaintiff's four causes
of action. Mot. to Dismiss, ECF No. 15; see also
Memorandum in support of Mot. to Dismiss
(“Mot.”), ECF No. 16. Defendants argue the
failure to exhaust administrative remedies makes dismissing
the case prudent and that Eleventh Amendment sovereign
immunity makes it necessary. Mot. at 9-14. Plaintiff opposes
Defendants' motion, contending neither exhaustion nor
sovereign immunity applies here. Opp'n at 3-15, ECF No.
Court finds the Eleventh Amendment bars Plaintiff's
claims for injunctive relief. Moreover, the Court finds that
imposing an exhaustion requirement is warranted and would
promote the most efficient use of judicial resources. The
Court therefore DISMISSES Plaintiff's claims for
injunctive relief and STAYS its claims for declaratory relief
pending resolution of the state administrative
is a federally-qualified health center (“FQHC”).
Compl. ¶ 1. As an FQHC, Plaintiff provides primary care
services to poor and medically-underserved populations in the
San Francisco area. Compl. ¶ 13. FQHCs are entitled to
recover the reasonable cost of ambulatory services that they
provide to Medicaid beneficiaries. Compl. ¶ 22. State
Medicaid programs approximate this cost and compensate FQHCs
through fixed, per-visit fees. Id.
and state law also allow FQHCs to be compensated for the
reasonable cost of their services through subcontracts with
Medicaid managed care organizations
(“MCO's”). Compl. ¶3. Pursuant to this
allowance, Plaintiff entered a subcontract with an MCO called
the San Francisco Health Plan (“SFHP”).
Id. Under this subcontract, Plaintiff agreed to
provide services covered by California's Medicaid program
to SFHP's Medicaid beneficiaries. See Compl.
¶ 2. In turn, SFHP agreed to pay Plaintiff “not
less than” what it would pay non-FQHC providers for the
same services. Compl. ¶¶ 2, 33. Plaintiff also
alleges this subcontract included a “physician
incentive plan, ” in which SFHP agreed to make
“special payments” to Plaintiff for the
“physician/provider risks” it incurred under the
subcontract. Compl. ¶¶ 35-37.
FQHC's reasonable cost of care exceeds the amount paid by
an MCO, federal law requires the state's Medicaid program
to make up the difference. Id. This supplemental
payment is known as a “wraparound payment.”
Id. Plaintiff received wraparound payments from the
Department of Health Care Services for the FQHC services it
rendered from 2008-2016. See Compl. ¶ 4. In
2013, however, the Audits and Investigative Branch of the
Department began to investigate the propriety of those
payments. Compl. ¶ 45. The Department ultimately
concluded that Plaintiff failed to adequately show it
“properly allocated the income received from SFHP
between FQHC and non FQHC services.” Compl. ¶ 51.
Viewing all of Plaintiff's SFHP-derived income as
compensation for the reasonable cost of its FQHC services,
the Department found SFHP had, in fact, fully compensated
Plaintiff. Compl. ¶¶ 51, 53. It notified Plaintiff
that the Department would have to “recoup” the
“FYE 2015 Supplemental wrap payments” Plaintiff
previously received. Id. When the Department
overpays a FQHC, it recoups past payments by offsetting or
withholding funds from current and future reimbursements.
Compl. ¶ 8.
Federal Rule of Evidence 201, a district court may take
judicial notice of a fact that is “not subject to
reasonable dispute because it can be accurately and readily
determined from sources whose accuracy cannot reasonably be
questioned.” Fed.R.Evid. 201(b)(2). It is
well-established that “a court may take judicial notice
of matters of public record.” Lee v. City of Los
Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001).
“Matters of public record” include records from
administrative proceedings. United States v. 14.02 Acres
of Land More or Less in Fresno County, 547 F.3d 943, 955
(9th Cir. 2008).
request the Court judicially notice five documents:
1. North East Medical Services' Complaint in this case;
2. North East Medical Services' Request for
3. Notice of Formal Hearing issued by the Office of