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Concilio De Salud Integral De Loiza, Inc. v. U.S. Dep't of Health and Human Services

March 12, 2008



Two federally-qualified health centers ("FQHCs") in the Commonwealth of Puerto Rico sue the Secretary of the Department of Health and Human Services ("Secretary" or "HHS") to force a change in the Medicaid payment system currently utilized by the Commonwealth. Because the Court is without jurisdiction to hear the matter, the Secretary's Motion to Dismiss [Dkt. # 8] will be granted and all other pending motions denied as moot.


A. The Medicaid Program

The Medicaid program, under Title XIX of the Social Security Act, is a federal-state cooperative cost-sharing program that provides medical assistance to families and individuals with insufficient income and resources. 42 U.S.C. § 1396 et seq. While a State is not obligated to participate in Medicaid, if it does so, it must comply with all applicable federal statutory and regulatory requirements. Id. § 1396a; see also 42 C.F.R. Part 430 et seq. One such requirement is to submit a "State Plan" to the Secretary for approval before implementation. 42 U.S.C. § 1396a.

The Secretary performs this function through the Centers for Medicare and Medicaid Services ("CMS").

Under an approved State Plan, a State (or U.S. Territory, such as Puerto Rico) becomes eligible for federal financial participation ("FFP"), by which HHS reimburses a portion of the State's payments to hospitals and other providers of medical assistance to Medicaid recipients. One distinction between a State and a Territory is that the amount of FFP payable to each Territory in any given fiscal year is capped at specified amounts. 42 U.S.C. § 1308(c). While Medicaid is a federal program and paid for in significant measure with federal funds, the actual provision of medical benefits to those in need occurs entirely by the State under the applicable State Plan. Therefore, within the bounds of the federal requirements, States enter into agreements with providers of services and establish the level of reimbursement paid to providers.

Since the advent of managed care organizations (commonly known as health maintenance organizations ("HMOs")) in the 1990s, States have also been able to provide some or all of the covered medical services by contracting for a prepaid capitation rate or some other risk-based arrangement.*fn1 The HMO can provide all services itself or contract with various other health care providers to provide services to Medicaid patients in exchange for an agreed-upon payment rate. HHS requires each HMO to provide a grievance procedure whereby, inter alia, a health care provider can challenge payments received for service.

HHS provides limited oversight over a State Plan once it is approved. If HHS finds that a State is substantially not in compliance with federal statutory or regulatory requirements, it can provide the State with "reasonable notice and opportunity for hearing," 42 U.S.C. § 1396c, and may thereafter, if substantial noncompliance is demonstrated, withhold further payments to the State. Id.

B. Federally-Qualified Health Centers

Among other requirements, State Plans must offer health center and other ambulatory services to the categorically needy and may offer such services to the medically needy. A FQHC is a not-for-profit entity that provides primary and other health care services to medically under-served populations and that also meets certain other statutory criteria. Entities that receive section 330 Public Health Service grants under 42 U.S.C. § 254b are also considered FQHCs. Plaintiffs here, Concilio de Salud Integral de Loiza, Inc. ("Loiza") and Junta del Centro de Salud Comunal Dr. Jose S. Belaval, Inc. ("Belaval"), are such FQHCs. FQHCs are reimbursed for providing services to Medicare and Medicaid patients; they also get reimbursed by private insurance companies for those patients who have health insurance. These funding streams are supposed to allow FQHCs to allocate section 330 grant dollars to treating those who lack Medicare, Medicaid, or private insurance coverage.

Prior to 2000, FQHCs were reimbursed on a cost-based method; in other words, they received payments equal to the cost of providing services. In that year, Congress amended the Medicaid Act to replace cost-based reimbursement with a prospective payment system ("PPS"), calculated on a per-visit basis. Medicare, Medicaid and SCHIP Benefits Improvement Act of 2000, Pub. L. N. 106-554 (Dec. 21, 2000), codified at 42 U.S.C. § 1396a(bb). This per-visit rate is adjusted each year by the percentage increase in the prior fiscal year's Medicare Economic Index. For those FQHCs that do not receive adequate reimbursement by an HMO, the amended Act requires the State to pay the differential between the calculated per-visit rate and reimbursements that an FQHC receives from an HMO. See 42 U.S.C. § 1396a(bb)(5) ("In the case of services furnished by a Federally-qualified health center or rural health clinic pursuant to a contract between the center or clinic and a managed care entity . . . the State plan shall provide for payment to the center or clinic by the State of a supplemental payment equal to the amount (if any) by which the amount determined under paragraphs (2), (3), and (4) of this subsection exceeds the amount of the payments provided under the contract."). It is this so-called "wraparound payment" that is at the heart of this litigation.

C. Reforma

In 1994, the Commonwealth of Puerto Rico instituted a managed care approach to the delivery of Medicaid services known in the Commonwealth as Reforma. Through this program, the Puerto Rico Department of Health divided the Commonwealth into ten regions and awarded a contract to a single HMO as the exclusive Medicaid service provider in each region. The Commonwealth contracts with these private HMOs to provide Medicaid services and pays a fixed monthly sum per Medicaid patient assigned to that HMO. In return, the HMO agrees to provide all covered services.*fn2 The HMOs then subcontract with providers, including FQHCs, to provide care directly. The HMO earns a profit only if its costs are less than the fixed monthly sum it receives under Reforma. Plaintiffs assert that "[t]he HMOs do not pay FQHCs as they are required to do under the Medicaid statute and in fact pay FQHCs, at best, little or nothing and, at worst, charge the FQHCs for the FQHCs' provision of Medicaid services instead of paying them." Compl. ¶ 44(B).

Plaintiffs acknowledge that their contracts are now with HMOs and not directly with the Commonwealth. See Pls.' Opp'n to Motion to Dismiss ("Pls.' Opp'n") at 10 ("The problem managed care created where FQHC payments are concerned is this: the [HMOs] replace the State Medicaid agency as the one that contracts with and pays service providers, including FQHCs, for Medicaid services, and since these entities, all private businesses, expect to pay FQHCs a 'market rate,' not a special rate uniquely created by federal Medicaid law, those entities, if left to their own devices, undoubtedly would pay FQHCs amounts they pay others for the same service.").

In June 2003, Plaintiffs filed suit against the Commonwealth in the U.S. District Court for the District of Puerto Rico, alleging that Puerto Rico had failed to establish a PPS office and make required wraparound payments.*fn3 Plaintiffs won their suit*fn4 and, on March 31, 2004, the District Court entered a preliminary injunction against the Commonwealth, ordering Puerto Rico's Secretary of Health to make wraparound payments to the FQHCs. See Rio Grande Cmty. Health Ctr., Inc. v. Rullan, No. 03-1640, 2004 WL 3202761 (D.P.R. March 31, 2004). The Commonwealth complied, by both establishing a PPS office and by making wraparound payments to both Plaintiffs. See Concilio de Salud Integral de Loiza, 479 F. Supp. 2d at 250-51. Loiza wanted the court's preliminary injunction made permanent, arguing that the Commonwealth "continues to violate the directives of the Medicaid statute pertaining to wraparound payments," id. at 248, which Puerto Rico denied. After an evidentiary hearing and post-hearing memoranda, the District Court declined Plaintiffs' request that it make its preliminary injunction permanent. Id. at 250-51.*fn5

Plaintiffs filed the instant suit in the District of Columbia on June 11, 2007. They allege that HHS has a duty to take action against Puerto Rico or otherwise enforce the Medicaid Act and HHS regulations that allegedly cover the contracts between the HMOs and FQHCs in the Commonwealth. Specifically, they assert that: (1) HHS did not give prior approval to the contracts between the Commonwealth and the HMOs, Compl., ¶ 46(A); (2) beneficiaries must have certain disenrollment rights but such rights are nonexistent in Puerto Rico because there is no alternative HMO to select, id. ¶ 46(B); (3) when urgent care is required, beneficiaries have the right to go out of network for the service they need and the State or HMO must pay the service provider but no such right exists in Puerto Rico, id. ¶ 46(c); (4) the State-HMO contract must require the HMO to pay FQHCs "not less than the level and amount of payment which the [HMO] would make" but the contracts do not fulfill this requirement, id. ¶ 46(D); (5) risk contracts with physicians must limit the risk to ensure that they will not refuse treatment and the risk imposed by HMOs in Puerto Rico violates this principle, id. ¶ 46(E); (6) Medicaid beneficiaries must have at least two HMOs from which to choose and in Puerto Rico they do not, id. ¶ 46(G); and (7) Plaintiffs are available to provide additional services but the HMOs have refused to extend their contracts to cover those services, id. ¶ 46(H).

Plaintiffs ask the Court to direct the Secretary to withhold further federal financial payments to Puerto Rico. The Secretary responds that the Court is without jurisdiction and that, if jurisdiction is present, he should be awarded summary judgment.


A. Federal Rule of Civil ...

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