Community Health Center v. Patricia Wilson-Coker, Commissioner of the State of Connecticut Department of Social Services, Department of Social Services, Connecticut
Docket: 02-7061
Court: Court of Appeals for the Second Circuit; November 7, 2002; Federal Appellate Court
Community Health Center, Inc. (CHC), a provider of medical services under the federal Medicaid statute, challenged the State of Connecticut's reimbursement formula that required at least 4,200 patient visits per physician per year. CHC fell short of this threshold in 1999 and 2000, prompting them to seek an injunction against the state’s use of the 4,200 visit standard, claiming it was incompatible with federal law. The District Court ruled in favor of CHC, stating that any state Medicaid payment formula must align with existing federal Medicare formulas and deemed the 4,200 visit minimum as invalid. However, the United States Court of Appeals for the Second Circuit reversed the District Court's decision and remanded the case for further proceedings. The excerpt explains the broader context of Medicaid and Medicare, detailing how Medicaid subsidizes healthcare for low-income individuals while allowing states discretion in fund allocation, provided they adhere to federal regulations and approval processes.
Each state Medicaid plan is required to include provisions for payments to federally qualified health centers (FQHCs) that cover services at 100% of the average costs incurred by the centers during fiscal years 1999 and 2000. Connecticut's legislation mandates that the Commissioner of Social Services apply Medicare productivity standards when determining rates for FQHCs, which includes a minimum-visit requirement. Failure to meet the minimum number of patient visits results in reduced Medicaid reimbursement proportional to the shortfall, aligning Connecticut's practices with those of the Centers for Medicare & Medicaid Services (CMS).
The Medicare regulations, while not explicitly defining productivity standards, empower CMS to establish guidelines. A historical reference indicates that a productivity screen of 4,200 visits per full-time physician was planned by the Health Care Financing Administration (the predecessor to CMS). Connecticut has incorporated this standard and the waiver provision since 1996, although specific state regulations were only amended in 2001 and approved by CMS at that time.
The plaintiff, Community Health Center (CHC), is an FQHC in Connecticut that fell short of the productivity standard in both 1999 and 2000, with 3,982 and 4,172 visits per physician, respectively. As a result, CHC's future Medicaid reimbursements per visit will decline from $97.34 to $95.19, leading to an estimated annual loss of $90,000.
On January 26, 2001, CHC initiated a lawsuit in the U.S. District Court for the District of Connecticut against CDSS, claiming that its 4,200 productivity screen violated federal law under 42 U.S.C. § 1983. The complaint was amended on May 15, 2001, naming Patricia Wilson-Coker, the CDSS Commissioner, solely in her official capacity. Both parties filed for summary judgment, resulting in a ruling on November 30, 2001, in favor of CHC. The District Court determined that the Medicaid regulation stating costs must be "reasonable and related" must align with Medicare regulations. It limited its analysis to validly promulgated federal regulations and found that the CMS's 4,200 productivity screen was invalid, thus rendering Connecticut's identical screen unlawful. Following this decision, an appeal was filed. The appeal's focus is on interpreting the Medicaid statute, particularly the phrase "reasonable and related," which the District Court interpreted narrowly as aligning solely with Medicare definitions. The appeal argues that the statute allows for broader interpretations, noting that the phrase "or based on such other tests" implies alternative criteria exist beyond Medicare regulations. The discussion highlights that "reasonable and related" is a term of art that should reflect established authoritative interpretations.
The Medicare statute allows the Secretary to define "reasonable" as desired, as per 42 U.S.C. § 1395x(v)(1)(A). However, this definition does not automatically apply to Medicaid. The court notes that identical terms in different statutory contexts may have distinct meanings, as highlighted in past case law. The District Court suggests that Congress intended for the Secretary to create separate regulations for Medicaid. There is uncertainty regarding the implications if no Medicaid-specific regulations are issued, with the District Court positing that the Secretary's Medicare standards could serve as a default. The court agrees with the District Court's finding that no such Medicaid regulations exist. The Centers for Medicare & Medicaid Services (CMS) contends that states have considerable freedom to define reasonable costs for Medicaid payments to Federally Qualified Health Centers (FQHCs) in the absence of specific regulations. The court acknowledges that CMS’s interpretation deserves deference, particularly given the agency's expertise in managing complex regulatory frameworks. Deference may vary based on how formal the agency’s interpretation is and the complexities of the statute. Formal regulations issued through proper processes receive the most deference, while less formal interpretations may still warrant significant consideration based on various factors, including the agency's expertise and the importance of its decisions.
CMS's interpretation of the Medicaid statute is afforded considerable deference, supported by the Supreme Court's acknowledgment of the agency's expertise and the complexity of the law. The regulations require CMS regional staff to review State plans and engage in discussions with Medicaid agencies, reflecting the agency's informed judgment in applying federal policy. CMS's reading of the statute is deemed reasonable, promoting State flexibility within the cooperative federal-state framework of Medicaid.
Concerns that States could undermine federal interests, such as the FQHC direct-grant program, are addressed by the requirement that CMS must approve State determinations of "reasonable and related" costs, ensuring protection of federal interests. Additionally, the consistency of HHS's interpretation—asserting that section 1396a(bb)(2) does not mandate exclusive reliance on Medicare regulations—supports CMS's position. Ultimately, the statute is found ambiguous, and the Secretary’s interpretation is deemed permissible, necessitating a reversal of the District Court's inconsistent ruling.
The plaintiff argued at oral argument that if states are allowed some flexibility in deviating from Medicare regulations, the court should affirm the case on alternative grounds. Specifically, the plaintiff asserted that the 4,200 productivity screen does not ensure payment of 100% of "reasonable and related costs," as mandated by the statute. The District Court did not address this issue, and the appellate parties have not directly discussed it either. The court prefers to remand issues that have only been cursorily briefed for the district court's consideration. Consequently, the appellate court will remand the matter to the District Court to evaluate whether Connecticut's productivity screen complies with statutory requirements.
Moreover, the court clarified that this determination should not be conflated with a prior issue where the District Court deemed the Medicare productivity screen arbitrary and capricious due to irregularities in the administrative record. The appellate court refrained from taking a position on that prior conclusion. It emphasized that assessing whether a state provision meets "reasonable and related" costs under the Medicaid statute is distinct from evaluating the validity of a federal provision under the Administrative Procedure Act.
On remand, the District Court must reassess the role of CMS's approval of the Connecticut State Plan in determining the reasonableness of the productivity screen. The lack of deference previously given to CMS's approval is no longer relevant, as the appellate court has reversed that interpretation. The District Court should contemplate whether to defer to the Secretary's implicit judgment that the state plan aligns with federal law, while keeping in mind that deference is not a mere formality. In its assessment, the District Court may take into account materials submitted by Connecticut and factors evaluated by CMS. The judgment of the District Court is reversed and remanded for further proceedings consistent with these findings.
A provider with 900 annual visits, below the state's productivity threshold of 1,000, would receive only 90% of their expected payment. There is consensus that "Medicare productivity standards" include criteria from CMS manuals. The record does not clarify if CMS was aware of the implications of Conn. Gen.Stat. § 17b-245a before 2001. Although the Amended Complaint questions CMS's approval of the Plan, CMS is not a defendant in the case. It remains uncertain if CHC's payments for 1999 and 2000 were reduced, and CHC does not seek retrospective relief or challenge previous actions of CDSS for lack of a formal amendment to its Plan. The District Court's summary judgment is reviewed de novo, noting it lacked an amicus brief from the United States that clarified CMS's stance. Interpretation of Medicaid regulations from such briefs may receive judicial deference. Additionally, other state plans approved by CMS incorporate Medicare FQHC reimbursement principles, indicating a precedent for using Medicare reimbursement guidelines to determine reasonable costs.
