770 F.3d 129
2d Cir.2014Background
- FQHCs (Federally Qualified Health Centers) sued New York DOH under § 1983 challenging state methods for Medicaid reimbursement, including PPS rates, a 2004 dental billing guidance, and the State’s methodology for "wraparound" supplemental payments when FQHCs contract with Medicaid Managed Care Organizations (MCOs).
- Congress requires states to pay FQHCs a Prospective Payment System (PPS) amount based on 1999–2000 reasonable costs (42 U.S.C. § 1396a(bb)), and to make supplemental (wraparound) payments when MCO payments are less than the PPS amount (id. § 1396a(bb)(5)).
- New York submitted State Plan Amendments (SPAs). CMS approved New York’s general PPS methodology and a special rate for offsite/group psychotherapy services (SPA 01-03 and SPA 06-11). New York’s 2004 Medicaid Update (dental billing guidance) and its Supplemental Payment Program (wraparound methodology and MCVR reporting) were not CMS-approved.
- The district court granted summary judgment largely split: it upheld most DOH methodologies (deference to CMS approvals), rejected the state’s “paid-claim” policy and its lack of remedy for MCO non-payment, and enjoined the state to create a remedial plan for nonpayment and out-of-network claims; New York appealed and FQHCs cross-appealed.
- The Second Circuit affirmed in part, vacated and remanded in part: it upheld CMS-approved PPS methodologies and the dental guidance; affirmed that the state must provide remedies for MCO nonpayment and out-of-network services; but remanded limitedly because material factual disputes exist about whether New York’s MCVR reporting and wraparound-rate calculation systematically undercount unpaid MCO visits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of NY’s CMS‑approved PPS methodologies (general PPS and offsite/group therapy rates) | SPA group ceilings and special rates underpay FQHCs and are inconsistent with §1396a(bb) | SPA approvals are entitled to Chevron deference; methodologies are permissible and reasonable | Affirmed: CMS-approved SPAs are entitled to deference and permissible under §1396a(bb) |
| Legality of 2004 dental billing guidance consolidating exam/cleaning into one visit | Guidance retroactively reduces PPS baseline (1999–2000) by converting two base‑year visits into one without rate adjustment | Guidance reflects reasonable standard of care and does not change PPS baseline unlawfully | Affirmed: guidance is permissible; state need only reimburse reasonable costs |
| Use of a prospective methodology to compute wraparound supplemental payments | Wraparound payments must be computed "equal to" the exact difference per visit; prospective estimates are impermissible | Statute permits prospective calculation; CMS guidance allows prospectively determined supplemental rates or interim rates with reconciliation | Affirmed: statute permits prospective methodology in general |
| Effect of NY’s "paid‑claim" reporting and lack of meaningful remedy for MCO nonpayment (including out‑of‑network claims) | NY’s system lets MCOs be the de facto final arbiter; FQHCs bear the risk of MCO nonpayment and cannot report unpaid visits, causing underpayment | State points to administrative complaint processes and that MCOs are contractually responsible (incl. §1396b(m)) | Affirmed in part: State must provide meaningful procedures and not shift nonpayment risk to FQHCs; district court injunction as to remedies upheld; but remanded limitedly on whether the MCVR prospective calculation systematically understates wraparound owing to exclusion of unpaid visits |
Key Cases Cited
- Chevron v. Natural Resources Defense Council, 467 U.S. 837 (administrative deference framework) (agency interpretations upheld when statute ambiguous)
- Wilson‑Coker v. United States, 311 F.3d 132 (2d Cir.) (deference to CMS interpretation of Medicaid reimbursement rules)
- Three Lower Counties Community Health Services, Inc. v. Maryland, 498 F.3d 294 (4th Cir.) (wraparound payment issues and state reliance on MCO data)
- New Jersey Primary Care Ass’n v. New Jersey Department of Human Services, 722 F.3d 527 (3d Cir.) (state methodology for wraparound payments and need for appeal process for MCO denials)
- Douglas v. Independent Living Center of Southern California, 569 U.S. 606 (Supreme Court) (agency authority in SPA approvals and Medicaid context)
- United States v. Mead Corp., 533 U.S. 218 (agency action and deference principles)