LEGACY COMMUNITY HEALTH SERVICES, INCORPORATED, Plaintiff-Appellee,
CHARLES SMITH, in His Official Capacity as Executive Commissioner of Health and Human Services Commission, Defendant-Appellant.
from the United States District Court for the Southern
District of Texas
JONES, SMITH, and PRADO, Circuit Judges.
E. SMITH, Circuit Judge.
Community Health Services ("Legacy")-a Federally
Qualified Health Center ("FQHC")-sued the Texas
Health and Human Services Commission (the
"Commission"), through its Executive Commissioner,
alleging that Texas's reimbursement scheme violated the
Medicaid Act (1) by requiring Managed Care Organizations
("MCOs") fully to reimburse FQHCs, (2) by failing
to ensure that Texas itself would reimburse an FQHC if an MCO
does not reimburse the FQHC in the first place, and (3) by
withholding payments for certain non-emergency services that
Legacy has been providing to the enrollees of an MCO with
which Legacy has no contract. The district court granted
Legacy summary judgment on all of its claims. We reverse and
remand, concluding that (1) the Commission's requirement
that MCOs fully reimburse FQHCs does not violate the Medicaid
Act; (2) Legacy lacks standing to challenge the
Commission's lack of a policy that the state directly
reimburse an FQHC if it is not fully reimbursed by the MCO;
and (3) Legacy is not entitled to reimbursement for the
non-emergency, out-of-network services about which it
are designed to provide care to medically underserved
populations. 42 U.S.C. § 254b(a), (e), (k). FQHCs have
two sources of compensation: federal grants under § 330
of the Public Health Service Act ("PHSA"), 42
U.S.C. § 254b, for medically underserved communities and
state reimbursements for Medicaid services, id.
§ 1396a(bb). MCOs are private organizations that arrange
for the delivery of healthcare services to individuals who
enroll with them. See id. §§
1396u-2(a)(1)(A), 1396b(m). As relevant here, they act as
intermediaries between the state and FQHCs. The state
disburses funds to an MCO, which then contracts with FQHCs
and reimburses them for the services they provide to the
MCO's enrollees. See id. §
1396b(m)(2)(A)(ix); 42 C.F.R. § 438.2. The Medicaid Act
is managed by the Centers for Medicare and Medicaid Services
are required to reimburse FQHCs for their covered Medicaid
services. 42 U.S.C. § 1396a(bb). They may either
reimburse the FQHCs directly or use MCOs to reimburse the
FQHCs. Id. § 1396u-2(a). Before 1997, the law
allowed either the state or the MCO fully to assume this
reimbursement requirement. The Balanced Budget Act of 1997,
however, changed that and provided the statutory provisions
relevant here: 42 U.S.C. §§ 1396a(bb) and 1396b(m).
1396a(bb) provides that the state is obligated to ensure that
FQHCs are reimbursed for covered Medicaid services. It
generally requires that "the State plan shall provide
for payment for services described in section 1396d(a)(2)(C)
. . . furnished by [FQHCs]." § 1396a(bb)(1). That
section also sets forth the framework for assessing
reimbursement amounts: the Prospective Payment System
("PPS"). § 1396a(bb)(1)-(4).
1396b(m) contains the requirements for contracts between
states and MCOs. If the state elects to use MCOs to pay the
FQHCs, then the Medi-caid Act mostly leaves the MCOs free to
negotiate and contract with FQHCs. But § 1396b(m)
requires the MCO to "provide payment that is not less
than the level and amount of payment which the [FQHC] would
make" if it were not an FQHC-i.e., the MCO must
pay the FQHC at least competitive market rates. §
can lead to shortfalls for the FQHC, which may be entitled
under § 1396a(bb) to a PPS amount greater than what the
MCO pays. In that event, § 1396a(bb) requires the state
to "provide for payment to the [FQHC] by the State of a
supplemental payment equal to the amount (if any)" of
the difference between the MCO's payment and the required
PPS amount. § 1396a(bb)(5)(A). These are sometimes
called "wraparound" payments. The parties dispute,
however, whether a state can require the MCO to pay the full
PPS amount in the first instance, thereby obviating the need
for such supplemental "wraparound" payments.
§ 1396a(bb) provides for "[a]lternative payment
methodologies" ("APM"). Id. §
1396a(bb)(6). Under these APMs, a state may "provide for
payment" under any kind of mechanism that is both
"agreed to by the State and [FQHC and] . . . results in
payment to the [FQHC] of an amount" at least equal to
the PPS. Id.
§ 1396b(m) addresses situations in which a patient,
enrolled with a certain MCO, goes to an FQHC that has not
contracted with that MCO. These "out-of-network"
claims are treated slightly differently from
"in-network" claims (i.e., where the MCO
has a contract with the FQHC). Generally, the MCO has no
reimbursement obligations to the FQHC for out-of-network
claims. But § 1396b(m)(2)(A)(vii) requires that all
state-MCO contracts address out-of-network services that
"were immediately required due to an unforeseen illness,
injury, or condition." The state-MCO contract must
designate whether the state or the MCO will reimburse the
FQHC for such out-of-network emergency services. Id.
The parties also dispute whether the state must independently
reimburse the FQHC for other, non-emergency out-of-network
services, not covered by § 1396b(m)(2)(A)(vii). See
also id. § 1396a(bb).
Commission manages Texas's Medicaid program ("the
program"), Tex. Gov't Code § 531.021(a), and
has elected to contract with MCOs to provide Medicaid
services, id. § 533.002. One such MCO is the
Texas Children's Health Plan ("TCHP").
Legacy-designated an FQHC for purposes of Medicaid
reimbursement and Section 330 grants-formed a contract with
TCHP in 2009 that specified that Legacy would provide medical
care to TCHP's members and that TCHP would pay Legacy $67
per-patient visit, below Legacy's PPS rate.
2011, the Commission amended its contract with TCHP,
requiring TCHP to pay FQHCs their full PPS rate instead of
the rates that TCHP had negotiated with its FQHCs. Legacy and
TCHP amended their contract to mirror that change: TCHP would
pay Legacy its full PPS rate of about $270 per visit.
Furthermore, the Commission gave FQHCs the option to keep the
traditional PPS or calculate its rates using an alternative
PPS ("APPS"); Legacy elected to use the APPS. At
that time, Texas still provided that it would make
supplemental payments if the MCO's payment was less than
the required PPS amount. Cf. § 1396a(bb).
2011 to 2014, Legacy's Medicaid encounters and costs
skyrocketed. For instance, its Medicaid encounters increased
by 246%, and its claims expenses per month increased by 283%.
For the 2014 fiscal year, TCHP paid about $20 million to all
FQHCs with which it had contracted. Of that amount, it paid
Legacy over $12 million, even though only 2.7% of TCHP's
office visits occurred at Legacy, and less than 2% of
TCHP's Medicaid enrollees selected Legacy as their
primary care provider. Though TCHP maintained contracts with
numerous other FQHCs and accused Legacy of effectively gaming
the Medicaid system, TCHP indicated to Legacy that it wanted
the state to reinitiate supplemental "wraparound"
payments to allow TCHP to give lower initial reimbursements.
But because Legacy's utilization trend exceeded the
Medicaid premium trend and other FQHC trends, TCHP ultimately
terminated its contract with Legacy effective February 2015.
Legacy's contract was terminated with TCHP, Legacy has
continued to provide services to patients who have TCHP as
their provider. Accordingly, Legacy submitted approximately
6, 000 "out-of-network" claims to TCHP between
February and August 2015. TCHP denied nearly half of those
claims as (1) lacking prior authorization and (2) not
relating to emergency services. Legacy appealed those denials
to the Commission, but Texas has similarly refused to
reimburse Legacy for those claims, contending that the
Medicaid Act does not entitle Legacy to receive payment for
such out-of-network services.
Legacy filed this suit, Texas changed its Medicaid policies.
In January 2016, the Commission submitted to the CMS a state
plan amendment ("SPA 16-02") that eliminates the
requirement that Texas make supplemental
"wraparound" payments to FQHCs in the event that
the MCOs fail fully to reimburse the FQHCs at their PPS rate.
Furthermore, SPA 16-02 specified that MCOs would fully
reimburse FQHCs. CMS approved the amendment.
January 2015, Legacy sued the Commission under 42 U.S.C.
§ 1983, alleging that it had violated its rights under
42 U.S.C. § 1396a(bb). Legacy offered two theories.
Legacy contended that the Commission had unlawfully delegated
its FQHC reimbursement obligations to MCOs by requiring them
to reimburse FQHCs fully. Legacy's underlying theory is
that the purpose of §§ 1396a(bb) and 1396b(m)(2)(A)
is to allow FQHCs to negotiate freely with MCOs for
above-market, but below-PPS, rates and thereby encourage
FQHC-MCO contracts. The Commission countered that nothing in
the text of either § 1396a(bb) or § 1396b(m)(2)(A)
prevented the state from requiring MCOs to reimburse FQHCs
Legacy asserted that the Commission had failed to ensure
payment for certain out-of-network services, in violation of
42 U.S.C. § 1396b-(m)(2)(A)(vii). Texas replied that the
Commission had ensured reimbursement for the kind of
emergency out-of-network services contemplated by §
1396b(m)-(2)(A)(vii) and that the Medicaid Act did not
require reimbursement for any other out-of-network services.
moved to dismiss, averring that Legacy lacked standing and a
cause of action under § 1983. The district court denied
the motion. Legacy and Texas then cross-moved for summary
judgment. After those motions were filed, SPA 16-02 was
enacted and approved. The court ordered supplemental briefing
on the effect of CMS's approval of SPA 16-02 on the
pending litigation; Legacy's brief and Texas's reply
were framed in terms of whether Chevron deference
should be accorded to that approval.
district court then issued two opinions on the cross-motions
for summary judgment. In the first, the court held that the
Commission's policy violated § 1396a(bb) (1) by
eliminating its requirement to make supplemental
"wraparound" payments, thereby failing to ensure
reimbursement of FQHCs and (2) by requiring MCOs to fully
then issued a "statement of interest, " clarifying
its position on § 1396a(bb) as follows: (1) States may
not "simply do away with their obligation to make
supplemental payments"; (2) the state may eliminate the
need for supplemental payments through an APM under §
1396a(bb)(6); (3) CMS approved SPA 16-02 as an APM but had
not determined whether the FQHCs had given the requisite
consent to make SPA 16-02 a valid APM, so SPA 16-02 would be
valid only if there were proper FQHC consent; and (4) the
state is similarly obligated to ensure that FQHCs are fully
reimbursed for out-of-network emergency services.
that statement, the district court issued its second opinion,
holding that the Commission's out-of-network policy
violated § 1396a(bb) because it failed to reimburse
Legacy for non-emergency out-of-network services.
court then enjoined the Commission.
first decide whether the district court had Article III
jurisdiction. Federal courts have jurisdiction only over a
"case" or "controversy." See
U.S. Const. Art. III, § 2, cl. 1. To establish a
"case or controversy, " a plaintiff must establish
that it has standing. Lujan v. Defs. of Wildlife,
504 U.S. 555, 560-61 (1992). Accordingly, Legacy must
demonstrate that (1) it has suffered an "injury in fact,
" which is "an invasion of a legally protected
interest" that is "concrete and
particularized" and "actual and imminent"
rather than "conjectural or hypothetical, " (2)
there is a "causal connection between the injury and the
conduct complained of" such that the injury is
"fairly traceable to the challenged action of the
defendant, and not the result of the independent action of
some third party not before the court, " and (3) the
injury will likely "be redressed by a favorable
decision." Id. (internal quotations, brackets,
ellipses, and citations omitted).
here, a plaintiff seeks injunctive relief, it must also show
that "there is a real and immediate threat of repeated
injury." City of Los Angeles v. Lyons, 461 U.S.
95, 102 (1983) (citation omitted). Past injury alone is
insufficient; the plaintiff must show a "real or
immediate threat that the plaintiff will be wronged
again." Id. at 111. Moreover, "each
element of Article III standing 'must be supported in the
same way as any other matter on which the plaintiff bears the
burden of proof, '" with the same evidentiary
requirements of that stage of litigation. Bennett v.
Spear, 520 U.S. 154, 167-68 (1997) (quoting
Lujan, 504 U.S. at 561). Thus, at the summary
judgment stage, Legacy must "'set forth' by
affidavit or other evidence 'specific facts' to
survive a motion for summary judgment." Id. at
168 (quoting Fed.R.Civ.P. 56(c)).
is not dispensed in gross"; a party must have standing
to challenge each "particular inadequacy in government
administration." Lewis v. Casey, 518 U.S. 343,
357-58 & n.6 (1996). Thus, Legacy must show standing to
challenge each alleged deficiency in Texas's remedial
scheme. As we explain below, Legacy has established standing
to challenge both Texas's requirement that MCOs fully
reimburse FQHCs and the state's refusal to reimburse
Legacy for non-emergency out-of-network services. But Legacy
has not established standing to challenge SPA 16-02's
lack of a requirement that Texas provide supplemental
has standing to challenge the Commission's in-network
policy of requiring MCOs fully to reimburse FQHCs. It has
shown injury in fact, causation, and ...