Opinion ID: 1033240
Heading Depth: 3
Heading Rank: 2

Heading: Full and Timely Wraparound Payment

Text: under 42 U.S.C. § 1396a(bb)(5) While the NJPCA‘s claim under § 1983 cannot be based on the State‘s failure to procure prior federal approval to a state plan amendment, it can be based on the fact that the State infringed the providers‘ right to full payment under the federal Medicaid statute. See, e.g., Concilio de Salud Integral de Loiza, Inc. v. Perez-Perdomo, 551 F.3d 10, 18 (1st Cir. 2008) (finding that whether the supplemental payment methodology is unlawful as applied is enforceable under § 1983); Pee Dee Health Care, P.A. v. Sanford, 509 F.3d 204, 209–12 (4th Cir. 2007) (same); Cmty. Health Ctr. v. Wilson– Coker, 311 F.3d 132, 136, 140 (2d Cir. 2002) (same); see also West Va. Univ. Hosps. v. Casey, 885 F.2d 11, 21 (3d Cir. 1989) (finding that rights-creating language of § 1396a(a)(13)(A) creates private right of action for providers). The NJPCA challenges the State‘s refusal to make wraparound payments on claims for which the MCO has not paid a FQHC, contending that the Medicaid statute requires the full wraparound payment for any Medicaid-eligible claim federal government expected states to formulate implementing regulations not described in the state plan.‖). In Concourse Rehabilitation & Nursing Center, Inc. v. DeBuono, the Second Circuit faced the issue of whether the New York State Department of Health‘s interpretation of its state plan departed so far from the terms of the plan that it ―constitute[d] a de facto amendment to the plan, requiring federal approval prior to implementation.‖ 179 F.3d at 44. Reasoning that the federal approval requirements could be triggered ―not simply by a change in the State‘s administration of the plan, but only by an alteration of the plan itself,‖ the Court held that a ―State‘s interpretation of its own Medicaid plan cannot constitute a ‗change‘ as that term is used in [§] 430.12(c) . . . unless, at a minimum, the clear and unequivocal effect of the interpretation is actually to alter the written terms of the plan.‖ Id. at 46 (emphasis added). Here, as in Concourse Rehabilitation, there has been no change to the New Jersey plan as written, only to its administration. 21 it submits to the State regardless of whether it has first received MCO payment. The State, however, contends that it is not responsible for reimbursement at the PPS rate if the MCO has failed to make prior payment. For the reasons that follow, we believe the answer is somewhere in between: Under the Medicaid statute, the State is, indeed, responsible for reimbursement of the entire PPS rate for all Medicaideligible encounters. The State may, of course, in determining whether a claim is Medicaid-eligible (i.e., whether it counts as an encounter), rely in its discretion on many sources, including data supplied by FQHCs, MCOs, or its own administrative process, and may refuse to pay non-Medicaid eligible claims. Here, however, because the State concedes that the methodology it has chosen to verify claim validity— the fact of prior MCO payment—will result in failures to fully reimburse FQHCs at the PPS rate for valid Medicaid claims, we conclude that the State‘s insistence on making wraparound payments contingent on prior MCO payment violates the federal Medicaid statute. Starting with the text, the federal Medicaid statute requires ―payment to the [FQHC] by the State of a supplemental payment equal to the amount (if any) by which the amount determined [by multiplying the number of Medicaid encounters by the PPS rate] exceeds the amount of payments provided under the [MCO] contract.‖ 42 U.S.C. § 1396a(bb)(5)(A). The State focuses on the word ―supplemental,‖ which, it maintains, requires that the FQHCs receive payment from the MCOs first, and the State then supplement that payment in its periodic wraparound payments. This places more weight on the word ―supplemental‖ than it can possibly bear. Nothing in the provision requires the sequence suggested by the State, but only that the payment be ―in addition to‖ the MCO contractual payment. The provision sets forth a relatively simple equation: a state should make up the difference between the amount owed under the PPS rate for all eligible Medicaid encounters and the amount actually paid to the FQHCs by MCOs at least every four months. See Cmty. Health Care Assocs., 2013 WL 395449, at  (holding that ―the phrase ‗payments provided under the contract‘ permits deduction 22 only of amounts actually paid by the MCO to the FQHC‖). Where there is a valid Medicaid encounter for which an MCO has failed to make a payment, the supplemental payment equals the entire PPS rate. See id. (―Whether or not the MCO makes a payment, the State is responsible for the supplemental payment (which may in fact be the entire PPS rate, if the MCO fails to make a payment).‖). As the Fourth Circuit explained, the operative language of the statute for this case are the words ―equal to.‖ The supplemental payment must be ―equal to‖ the difference between the payment made by the managed care organization and the per-visit rate fixed by the Medicaid Act. Thus the statute plainly provides that a State must make fully compensatory supplemental payments no less frequently than every four months. Three Lower Cntys., 498 F.3d at 301 (4th Cir. 2007). The conclusion we reach is bolstered by the history of the wraparound payment, which originally arose in the context of the Balanced Budget Act of 1997 (―BBA‖), Pub. L. No. 105-33, 111 Stat. 251. Section 4712 of the BBA removed the responsibility of MCOs to reimburse FQHC‘s at their cost-based rates as required under the predecessor statute. Rather, MCOs could agree on a contractual reimbursement rate as long as that rate was no less than the amount offered to a non-FQHC. See id. § 4712 (then codified as amended as 42 U.S.C. § 1396a(a)(13)(C) (1999)). The wraparound payment scheme was implemented to ensure, then, that even in managed-care states, FQHCs still received the full reimbursement amount to which they were entitled. See Three Lower Cntys., 498 F.3d at 299 (―[E]ven when a State relies upon a managed care system to administer its Medicaid program, FQHCs are protected and must receive the full pervisit rate calculated pursuant to the methodology outlined in the Medicaid Act.‖). The primacy of making FQHCs whole every four 23 months resonates in the CMS‘s subsequent interpretation of the supplemental payment system. In an interpretative letter to State Medicaid Directors,5 the CMS explained that the wraparound provision ―specifically requires States to make these supplemental payments. It is our conclusion that this requirement cannot and should not be delegated to an MCO, and that each State must determine any differences in payment and make up these amounts.‖ April 20, 1998, Health Care Financing Administration State Medicaid Director Letter, available at http://www.medicaid.gov/Federal-Policyguidance/federal-policy-guidance.html. The state, therefore, cannot simply shift its reimbursement obligations to MCOs. In another letter dated September 27, 2000 (as cost-based reimbursement was winding down), the CMS further clarified that full FQHC reimbursement for Medicaid-eligible encounters was paramount notwithstanding the risk of loss to the state. In addressing what would occur in the event an MCO became insolvent, the letter concluded: In order to ensure that [FQHCs] are paid reasonable costs under the Act, the State is required to include, as part of supplemental payments, monies that [FQHCs] subcontracted to receive but did not receive from an insolvent MCO. . . . Ultimately, the State, on behalf of the [FQHC], is eligible to receive any settlement funds that the [FQHC] recovers through bankruptcy proceedings. 5 Though the letter was issued when Medicaid still operated on a cost-reimbursement basis, not under the PPS, the analysis is the same. The CMS‘s interpretative letters, ―like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law—do not warrant Chevron-style deference.‖ Christensen v. Harris Cnty., 529 U.S. 576, 587 (2000). However, such interpretations are ―entitled to respect‖ under Skidmore v. Swift & Co., 323 U.S. 134 (1944), ―to the extent that those interpretations have the power to persuade.‖ Christensen, 429 U.S. at 587 (internal quotation marks and citation omitted). 24 September 27, 2000, Health Care Financing Administration State Medicaid Director Letter, available at http://www.medicaid.gov/Federal-Policy-guidance/federalpolicy-guidance.html. In other words, when an MCO is unable to make its contracted-for payment due to insolvency, the state is required to pay FQHCs the full reimbursable amount (at the time, the FQHC‘s reasonable costs), and seek restitution itself. Thus, while the statutory language is perhaps not as clear as one would wish, the tenor of the subsequent interpretations and the limited case law is clear: where MCOs do not pay out valid Medicaid claims, the FQHC should not be left holding the bag. See Cmty. Health Care Assocs., 2013 WL 395449, at  (―There is no basis for the State‘s conclusion that the FQHC must accept the loss because the MCO denied payment for an otherwise legitimate visit.‖). And, of course, the Medicaid statute does not support the State‘s contention that a wraparound payment must follow a prior MCO payment. By opting into a managed care system, the State cannot avoid its responsibility to reimburse FQHCs at the full PPS amount. Rather, Section 1396a(bb)(5)(B) requires the State to ―pay FQHCs fully compensatory supplemental payments not less frequently than four months after [the State] has received the claim for supplemental payment.‖ Three Lower Cntys., 498 F.3d at 303. The State, however, makes a separate, and more compelling, argument justifying its reliance on requiring MCO payment prior to processing wraparound payments: the MCOs ―play an essential role in determining when a claim is for a ‗valid‘ and ‗Medicaid-eligible‘ encounter.‖ Reply Br. at 11. While the State must pay for all Medicaid-eligible claims, it must also determine which claims are Medicaid-eligible. Though the State has, since 2001, relied on the FQHCs selfreported data to validate eligibility, nothing in the Medicaid statute requires the State to rely upon this data, or proscribes the State from turning elsewhere.6 As a district court recently 6 We express no opinion as to whether New Jersey‘s own regulations require that the State rely solely on the quarterly 25 noted: [§ 1396a(bb)(5)] only require[s] that payment of the balance be paid by the State. It does not require the [S]tate to determine if the payment is necessary in the first place. That is, if payment is necessary, the [S]tate is responsible for it, but the statute is silent on the entity (be it the State or the MCO or the FQHC) which makes the threshold determination that payment is necessary. Cmty. Health Care Assocs., 2013 WL 395449, at . Indeed, in Three Lower Counties, 498 F.3d at 305, the Fourth Circuit approved a system which relies on MCO processing to determine claim eligibility. The Court described the Maryland wraparound system as follows: Once the [MCO] ensures that (1) a covered service (2) has been furnished (3) to an enrollee (4) by an approved provider, it processes the claim and pays the market rate for the patient visit. It then passes the claim information on to the Department of Health. The Department of Health itself then makes the determination whether a supplemental payment under § 1396a(bb)(5) is necessary. . . . [E]ven if the Department of Health did delegate to managed care organizations the responsibility of determining whether a supplemental payment is necessary, § 1396a(bb)(5) only requires that the state plan provide for the payment of a supplemental payment. It does not require that reports generated by the FQHCs to calculate wraparound payments, and as to whether the State must pass new regulations to effectuate a change in the calculation methodology. As we have discussed earlier, the District Court lacked jurisdiction to conclude that State law imposed such requirements. 26 the state Medicaid agency itself make the determination whether a supplemental payment is necessary. Nothing prevents the State from shifting claim verification from the FQHCs to the MCOs, and, consistent with the federal Medicaid statute, states may rely on MCOs to determine whether a claim is Medicaid eligible. This is not, however, what happened here. Rather than leaving it to MCOs to determine whether or not a claim is Medicaid eligible, the State essentially adopted the fact of prior MCO payment as the proxy for Medicaid eligibility. If MCOs denied claims from FQHCs only because they were not eligible for reimbursement under Medicaid or because they were otherwise invalid, this would satisfy the State‘s obligation. The State concedes, however, that MCOs often deny payments for reasons unrelated to Medicaid, and we have already suggested some of these reasons—e.g., MCO delays, multiple visits in different locations in the same day, and visits with non-primary care physicians. The new policy would, therefore, inevitably exclude valid, Medicaid-eligible encounters and result in underpayment. Such a result would not comport with the Medicaid statute‘s requirement that FQHCs receive full and timely reimbursement under the PPS. See Three Lower Cntys., 498 F.3d at 303 (―In enacting § 1396a(bb)(5), Congress addressed its concern that FQHCs be fully and promptly compensated for the services they render to Medicaid enrollees so that the FQHCs could perform their vital function in delivering healthcare to underserved populations. . . .‖). On the record before us, we must conclude that requiring prior MCO payment before processing wraparound payments will result in the State‘s failure to meet this requirement. In the absence of any process by which an FQHC may promptly and effectively challenge an adverse MCO determination within the statutorily mandated time period, the District Court did not abuse its discretion in enjoining the State from refusing to process wraparound payments for all claims lacking prior MCO payment. 27 The State offers as an avenue of recourse to aggrieved FQHCs the administrative review process of N.J. Admin. Code § 10:49-10.3(a)(1), which permits a provider to request a hearing on any complaint arising out of the Medicaid claims process. Of course, if the State‘s policy is to deny wraparound payment for any claim lacking prior MCO payment regardless of Medicaid eligibility, the administrative review process is of no value. FQHCs must be able to meaningfully challenge adverse payment determinations and receive reimbursement from the State for valid, Medicaideligible claims that have been denied reimbursement by MCOs. See Cmty. Health Care Assoc., 2013 WL 395449, at  (―To the extent that there may be other reasons a valid claim would be denied by the MCO, [FQHCs] must be able to challenge these adverse payment determinations . . . .‖). Absent any such process, 7 the requirement of MCO payment prior to processing wraparound payments violates the Medicaid statute. 8 7 The MCO appeals mechanism does not appear to protect the interest of those FQHCs that received incorrect MCO determinations. Not only does this process take considerable time to reach an ultimate determination, but it fails to address more basic concerns: What if the MCO continues to wrongfully reject a Medicaid-eligible claim? Can an MCO‘s determination of claim validity end the inquiry? 8 Contrary to the State‘s claim, our conclusion does not create a substantial risk of double payment. FQHCs remain under an obligation to seek MCO reimbursement for wrongfully denied claims, and the State is required to assist in this process. If an FQHC later receives MCO reimbursement for a claim for which it has already received the full PPS wraparound amount, the State will be credited with this amount in a later reconciliation process. See N.J. Admin. Code § 10:66- 1.5(d)(1)(viii)(4). Ultimately, if the system is functioning correctly (i.e., in the absence of bad faith or fraud), the conclusion we reach should not shift resources one way or the other, only the timing. Had we found, for example, that the State need not process a wraparound payment until a claim had been accepted and paid by an MCO, an FQHC, through the MCO 28 We emphasize that we are affirming the order of the District Court granting summary judgment and a preliminary injunction in favor of the NJPCA only on the ground that the State‘s new policy of requiring prior MCO payment before processing its quarterly wraparound payments, absent a meaningful process to challenge adverse payment determinations, violates the federal Medicaid statute. In so doing, we do not mean to suggest that prior MCO payment is wholly unrelated to Medicaid eligibility. Indeed, even if a state may not require an FQHC to bear the entire loss solely because of the MCO‘s lack of payment, it is far from irrational for the State to require MCO data on a quarterly basis as part of FQHC reporting, and to use such data when evaluating whether or not a claim is reimbursable under Medicaid. In any event, as we have noted earlier in this Opinion, the NJPCA has not pressed before us its initial challenge to the collection of the two MCO payment data fields.9