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Community Healthcare Assoc. of New York, et al v. New York State Department of Health

May 26, 2011

COMMUNITY HEALTHCARE ASSOC. OF NEW YORK, ET AL.,
PLAINTIFFS,
v.
NEW YORK STATE DEPARTMENT OF HEALTH, ET AL.,
DEFENDANTS.



OPINION

Plaintiffs are numerous "health centers" and a non-profit trade association. They bring this action seeking declaratory and injunctive relief regarding alleged underpayment of Medicaid funds by the State of New York. The defendants in this action are the State of New York, the New York State Department of Health ("DOH"), Richard Daines, M.D., in his official capacity as Commissioner of the New York State Department of Health, and 20 unnamed defendants.

The State of New York and DOH (sometimes herein collectively, "the State") move for dismissal under Fed. R. Civ. P. 12(b)(1) based on sovereign immunity as a jurisidictional bar to plaintiffs' claims, and under Rule 12(b)(6) for plaintiffs' failure to state a claim upon which relief can be granted.

The motion is granted because the State of New York and DOH are immune from suit.

FACTS

The following is a summary of the facts and allegations set forth in the complaint. For the purpose of this motion, these facts are assumed to be true.

The Parties

All but one of the plaintiffs are New York institutions, denominated as Federally-Qualified Health Centers ("FQHCs"). They participate in the State's Medicaid program. They receive federal grant monies under the Public Health Service Act, 42 U.S.C. §§ 201, et seq. ("PHSA"). Also a plaintiff is the Community Health Care Association of New York, a nonprofit association representing FQHCs. These types of centers were created by and operate according to PHSA, which provides these centers with federal funds to support the provision of medical services to underserved populations. 42 U.S.C. § 254b. According to the complaint, these centers receive "special and invariably higher sums than otherwise would be paid" to another provider.

Defendants State of New York and DOH are charged with administering the Medicaid program in New York.

Medicaid FQHC Funding Requirements

In their complaint, plaintiffs describe a complex legislative scheme, the aim of which is to provide full reimbursement to FQHCs for costs incurred meeting the medical needs of underserved populations. As the law stands now, states receiving Medicaid funds are required to make a fixed reimbursement payment to FQHCs for each patient visit. This standardized rate, known as a "prospective payment system" ("PPS"), is set by Congress. 42 U.S.C. § 1396a(bb). This rate is the average of the particular FQHC's reasonable costs (defined by statute and regulation) for fiscal years 1999 and 2000, adjusted by an inflator known as the "Medicare Economic Index." Federal law does not authorize or impose any cap on this rate. States are also given the flexibility to work with FQHCs to come to an agreed alternative rate so long as that rate results in payments that are no less than would have been received by the FQHCs under the PPS.

New York, like many other states, utilizes managed care organizations ("MCOs") to administer a substantial part of its Medicaid program. For various reasons these MCOs have a tendency to under-reimburse FQHCs for the care they provide. To compensate for this underfunding, Congress requires states to cover any shortfall in reimbursement to FQHCs:

For example, if the MCO paid an FQHC $100 for a Medicaid managed care visit and the reasonable costs incurred by the FQHC were $150, then the State was required to make a supplemental payment of $50. This supplemental payment has become known as a "wraparound" payment.

To put these requirements another way, the State has an obligation pursuant to federal law to fully reimburse FQHCs for their costs of providing medical services, with the only permissible reduction in ...


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