Community Healthcare Assoc. v. New York State Department of Health, 921 F. Supp. 2d 130

Plaintiffs are New York health centers receiving or eligible for Section 330 federal funds and sue the NY Department of Health, its Commissioner, and the State for injunctive and declaratory relief regarding Medicaid payments to FQHCs.
The May 26, 2011 opinion dismissed DOH and the State as Defendants; the remaining defendant is the Commissioner.
Defendant Commissioner moved for summary judgment and Plaintiffs cross-moved on August 3, 2012; the court granted in part and denied in part on various Medicaid payment issues.
Key legal framework centers on federal Medicaid Act provisions governing FQHC reimbursement, notably the PPS method, peer group ceilings, special rates for group therapy/off-site services, and supplemental payments.
Courts apply Chevron deference to CMS approvals where Congress has delegated authority, but deference may be limited or de novo where CMS approval is not relied upon or is insufficient.
The court addresses several challenged practices: PPS peer ceilings, off-site/group-therapy rates, supplemental payment methodology, the ‘paid claim’ policy, and out-of-network reimbursement, ultimately enjoining certain practices.

Issue	Plaintiff's Argument	Defendant's Argument	Held
PPS rate method and peer group ceilings validity	Plaintiffs contend peer ceilings under SPA 01-03 fail to meet federal law.	Defendant argues CMS approved the peer group methodology, making it permissible.	Plausible CMS-approved construction; deference apply; no outright violation found.
Off-site/group therapy reimbursement	Plaintiffs challenge special rates for off-site services/group therapy as inadequately reimbursing FQHCs.	CMS approved SPA 06-11 permitting these special rates using CMS-scale RVUs.	CMS approval sustains the methodology; not a basis to disturb the approval.
Supplemental payment methodology compliance	Plaintiffs allege the supplemental payment formula deviates from federal requirements and was not properly approved.	State Plan largely mirrors federal statute; CMS approval supports the methodology.	Plaintiffs may not prevail on procedural defects; the court reviews de novo for compliance; CMS approval alone not dispositive for every change.
Paid claim policy and out-of-network reimbursement	DOH’s paid-claim and out-of-network policies underpay FQHCs or delegate essential determinations to MCOs.	MCOs process claims and DOH oversees; statutory framework allows some delegation.	Paid claim and out-of-network policies enjoined; must be modified to ensure full compensation as required by federal law.

Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (U.S. 1984) (agency deference when statute is ambiguous)
Perry v. Dowling, 95 F.3d 231 (2d Cir. 1996) (deference for agency interpretation of a statute when permissible)
Gonzaga Univ. v. Doe, 536 U.S. 273 (U.S. 2002) (rights-creating language required for private enforcement)
Concilio de Salud Integral de Loiza, Inc. v. Perez-Perdomo, 551 F.3d 10 (1st Cir. 2008) (interpretation of wraparound payments under federal Medicaid statute)
Turner v. Perales, 869 F.2d 140 (2d Cir. 1989) (deference considerations in state-regulated programs)
NLRB v. Brown, 380 U.S. 278 (U.S. 1965) (limits on agency deference and rubber-stamping)