��������

Recent federally qualified health center (FQHC) litigation highlights the impact state Medicaid agencies have on FQHC reimbursement. The important decisions summarized below all involve FQHC disputes over state Medicaid agency decisions designed to limit coverage and reimbursement. Although not every outcome favored FQHCs, the cases demonstrate that FQHCs have viable state and federal causes of action to challenge state interpretations that improperly undermine the special protections afforded to FQHCs under the federal Medicaid statute.

In Arizona Alliance for Community Health Centers, a group of Arizona FQHCs and their association successfully challenged the Arizona Medicaid agency and its director. The plaintiffs alleged that Arizona violated federal law and Ninth Circuit precedent when it failed to reimburse the plaintiff FQHCs for services provided by dentists, podiatrists, optometrists, and chiropractors. At issue was the Medicaid requirement for states to “cover [FQHC] services . . . and any other ambulatory services offered by a [FQHC] and which are otherwise included in the [state Medicaid] plan.” 42 U.S.C. § 1396d(a)(2)(C). The defendants argued that states need cover only those FQHC services included in the state Medicaid plan, which in Arizona did not encompass certain services provided by dentists, podiatrists, optometrists, and chiropractors.  

Although acknowledging the case involved “uncommonly complex issues,” the court rejected Arizona’s limited reading of its Medicaid obligations. It reasoned that states must cover all “FQHC services”—a defined term in the law—regardless of whether they are included in the state Medicaid plan. Because the definition of “FQHC services” extends to services provided by dentists, podiatrists, optometrists, and chiropractors, the court held that Arizona could not categorically exclude such services, although it remanded for further consideration of whether Arizona could impose limitations on them.

In Family Health Centers of Southwest Florida, an FQHC successfully challenged the Florida State Medicaid Secretary in federal court after the State rejected the plaintiff’s request to increase its reimbursement rate to account for its growing workforce. The central issue hinged on the interpretation of Medicaid’s requirement to adjust FQHC reimbursement rate for “any increase or decrease in the scope of such services furnished by the [FQHC] during that fiscal year.” 42 U.S.C. § 1396a(bb)(3). Although Florida provided that the rate may be adjusted based on “[a]n increase or decrease in the scope of service(s),” it defined this condition as “the addition of a new service not previously provided by the FQHC” or “the elimination of an existing service provided by the FQHC.”

The plaintiff argued that Florida’s definition was too narrow, citing the Centers for Medicare & Medicaid Services’ (CMS) broader interpretation of a change in the “scope of services” as “a change in the type, intensity, duration and/or amount of services.” The court agreed with plaintiff and held that Florida’s interpretation was inconsistent with an “unambiguously clear” federal law. The court’s order granting plaintiff’s motion for summary judgment is under appeal.  

In Community Health Center Alliance for Patient Access, a coalition of FQHCs and their association contested the implementation of California’s Medi-Cal Rx Program, unsuccessfully arguing that California’s transition to a fee-for-service reimbursement methodology for pharmacy services—which eliminated managed care reimbursement of medications purchased by FQHCs at discounted 340B prices—deprived them of their right to full FQHC reimbursement under federal Medicaid law. The plaintiffs filed suit against the administrator of CMS under Administrative Procedure Act causes of action and the director of California’s Medicaid agency under 42 U.S.C. § 1983.

The court ultimately dismissed the FQHC claims, primarily because of the elective nature of fee-for-service pharmacy reimbursement; the court emphasized that notwithstanding the Medi-Cal Rx Program, FQHCs remained entitled to their prospective payment system (PPS) reimbursement rate if they chose to “carve in” pharmacy services under the FQHC reimbursement methodology approved in California’s state plan. The court rejected various additional arguments, including the contention that PPS reimbursement for pharmacy services itself did not comply with federal requirements, as well as preemption arguments and assertions that the approval of Medi-Cal Rx conflicted with the purpose of Medicaid. The court’s order granting defendants’ motion to dismiss is under appeal.

In Family Health Centers of San Diego, an FQHC successfully appealed the California Medicaid agency’s denial of reimbursement for the costs of outreach and education activities aimed at Medi-Cal-eligible patients. The California Supreme Court rejected the agency’s view that the salaries and benefits of the FQHC’s outreach workers were categorically nonreimburseable advertising costs.

The court noted that the Medicare reasonable cost regulations governing the appeal were general in nature and could not “directly answer the question whether an FQHC’s cost of outreach and education” are reimbursable costs related to patient care. It also analyzed the more specific instructions related to advertising in the Medicare Provider Reimbursement Manual, while cautioning that the manual is informal guidance only. In concluding that reimbursement for outreach and education is not prohibited, the court noted that the FQHC presented “extensive evidence” demonstrating how its outreach activities related to patient care, and that outreach and education activities are mandated “primary health services” FQHCs must provide—not the type of advertising uniformly deemed nonreimbursable in Medicare guidance. It remanded to the Medicaid agency to re-evaluate whether the FQHC’s costs should be recognized under the appropriate standard.

In Clinicas Del Camino Real, an FQHC unsuccessfully challenged a California Medicaid agency decision denying a reimbursement rate adjustment for a change in scope of services. The substantive dispute revolved around whether the FQHC’s increased costs related to the acquisition and use of data analytics software qualified as a triggering event for a new ratesetting. The FQHC purchased the data analytics software—which helps identify patient care gaps by analyzing medical records—to fulfill obligations under its managed care contract and its certification as a patient centered medical home.

Despite express statutory authority for a change in scope of services due to a change in applicable technology and medical practice, the court interpreted Medi-Cal’s change-in-scope-of-services statute to require that an FQHC’s increased costs are “attributable to an increase or decrease in the FQHC’s scope of services as defined in federal law.” It viewed this scope primarily to include physicians’ services and incident-to services. Under its interpretation, the court found that the FQHC’s new software costs, although associated with improved professional consultations, did not constitute an increase in the scope of physician services or incident to services, and therefore did not meet the qualifying conditions. In an ancillary issue, the court rejected the FQHC’s alternative argument that it qualified for a rate adjustment due to an increase in service intensity attributable to changes in the types of patients served because the FQHC had not raised this ground until it appealed the Medicaid agency’s initial denial of its request. As a result, there were no agency findings to review. The case was remanded for consideration of elements related to the software’s use not previously addressed by the agency.

Want To Learn More?

• Five Tips for Contracting with Federally Qualified Health Centers
• FQHCs: Four Reimbursement Traps for the Unwary
• FQHCs: The Nuts and Bolts of Medicaid Reimbursement
• FQHCs: Practical Impacts of Governance Requirements
• What FQHCs Need to Know about Telehealth After the PHE

Foley is here to help you address the short and long-term impacts in the wake of regulatory changes. We have the resources to help you navigate these and other important legal considerations related to business operations and industry-specific issues. Please reach out to the authors, your Foley relationship partner, or to our Health Care Practice Group with any questions.