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Sunday, December 10, 2023 | Back issues
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Court Revives Part of Medi-Cal Fee Dispute

(CN) - Federally funded health centers are not entitled to recoup the grant money they paid to effectively subsidize California's Medi-Cal program, but they might be able to halt future payments, the 9th Circuit ruled Thursday.

A three-judge panel said the Eleventh Amendment bars the centers from seeking reimbursement for payments already made.

"Where North East Medical Services Inc. and La Clinica de la Raza Inc. have already paid money to the California Department of Health Care Services, they may not avoid the Eleventh Amendment's general bar to seeking money damages to a state simply by alleging that California was not entitled to the payments," Judge N. Randy Smith wrote for the San Francisco-based panel.

The health centers provide medical services to the poor and uninsured, and receive federal grant money under Section 330 of the Public Health Service Act. They also accept payments from patients and their insurers, including Medicaid.

To be eligible for the Section 330 grants, the centers must provide services to Medicaid patients.

"Before 1989, state Medicaid programs often under-reimbursed federally funded health centers," Judge Smith explained. "Because state underpayment forced Section 330 grantees to use federal Section 330 grant funds to cover Medicaid expenses, Section 330 grants began to function as a de facto subsidy of state Medicaid programs."

Congress tried to fix the problem by designating "Federally Qualified Health Centers" and requiring state Medicaid programs to pay the qualified centers' reasonable costs.

States comply by paying qualified centers a fixed, per-visit fee for services provided to Medicaid patients.

The plaintiff health centers, which are both federally qualified, took issue with how California implemented a prescription drug benefit in 2006. Some Medicaid patients are also eligible for Medicare beneficiaries, making them so-called "dual eligibles." Under the 2006 legislation, the burden for paying for dual eligibles' prescription drug costs shifted from state Medicaid programs to the new federal program.

The centers claimed California should have calculated the dual eligibles' prescription drug costs and then subtracted that amount from the fixed per-visit rate for Medi-Cal patients.

Calling that option "administratively burdensome," the state instead gave the centers two options: They could subtract the cost of all pharmacy services -- including for patients who aren't eligible for both Medi-Cal and the federal prescription benefit -- and then have California pay the centers for Medi-Cal-covered pharmacy services on a fee-for-service basis. Under the second option, the centers could keep their per-visit rate and then pay the state any payments they received under the federal program at the end of each fiscal year.

NEMS chose the first option for 2006 and 2007, made no payments in fiscal year 2008 and then switched to the second option.

La Clinica went strictly with the second option.

The centers sued, claiming the second option amounts to an illegal "seizure" of their federal Medicare funds above what they would owe under the fixed, per-visit rate.

A federal judge dismissed the lawsuit as barred by the Eleventh Amendment, and the 9th Circuit agreed that the centers cannot sue the state for past payments. Judge Smith said the centers failed to bring their claims under a "recognized exception" to the Eleventh Amendment.

However, the panel ruled that the centers "may seek genuine prospective relief" for any future payments California might try to collect under the second option.

Smith said the lower court "apparently overlooked this aspect of their claims," and revived this portion of the lawsuit.

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