Fifth Circuit Decision Jeopardizes Medicaid Protections for Community Health Centers

The United States Supreme Court will have the opportunity to hear an important case out of Fifth Circuit Court of Appeals affecting how states pay community health centers for Medicaid beneficiaries enrolled in a managed care plan.  Community health centers represent the largest primary health care safety net for the nation’s poorest urban and rural communities.

The plaintiff in the case, Legacy Community Health Services, is a community health center with locations near Houston and Beaumont, Texas. Legacy qualifies for both community health center operating grants under Section 330 of the Public Health Service Act (“Section 330”) and specific Medicaid payments for “federally qualified health centers” (“FQHCs”). As part of its obligations under the Section 330 federal operating grants, Legacy is required to serve all members of the community regardless of insurance status or ability to pay. The Section 330 grants are intended to cover many of the costs of serving these uninsured populations.

In the Balanced Budget Act of 1997, Congress struck a careful balance in encouraging states to move to Medicaid managed care, while protecting federal grants intended for care for the uninsured.  Federal law enables states to develop managed care systems, but also preserves specific FQHC payment rules, which predate the major growth of Medicaid managed care.  While states can permit MCOs to negotiate discounted payments with their network providers, including health centers, the FQHC payment rules obligate the state to pay community health centers at the mandated FQHC payment rate for all Medicaid covered services furnished to Medicaid beneficiaries, regardless of whether care is in–network (these additional payments are typically referred to as “wrap around payments”).  

In 2011, the State of Texas upended this balance by amending its contracts with all Medicaid MCOs to require that Medicaid MCOs pay community health centers at the full FQHC payment rate instead of the negotiated rate. As a result, a major Medicaid MCO, Texas Children’s Health Plan (“TCHP”) dropped Legacy as an in-network provider.  As noted above, federal law requires Legacy to continue serving TCHP enrollees as a condition of its grant under Section 330. However, TCHP and the State of Texas refused to pay thousands of claims for non–emergency, but medically necessary, out–of–network services to these beneficiaries. 

Legacy brought suit against Texas in January 2015, challenging Texas’s policy both to require MCOs to pay community health centers at the full FQHC rate, and the State of Texas’s refusal to pay for out–of-network care.  Although Legacy was successful at the District Court, the Fifth Circuit Court of Appeals reversed.  As to the first claim, the Fifth Circuit held that the statute says nothing about a state’s ability to impose provider payment conditions on the MCO–FQHC contract. Thus, “it is fully consistent with §1396a(bb)(5)(A) for the state to require the contract to reimburse the [community health center] fully.” 

Turning to the State of Texas’ refusal to pay for out–of–network care furnished by Legacy to TCHP beneficiaries, the Fifth Circuit interpreted the FQHC payment requirement as applicable only to in–network services and emergency out–of–network care.  The panel found that it would be “inconsistent” for Congress to guarantee equal reimbursement for in–network and out–of–network services for community health centers. Instead, the panel asserted that community health centers “should have to contract with … MCOs” in order to be reimbursed for Medicaid services.

In July, Legacy has filed a petition for a writ of certiorari with the Supreme Court. Foley Hoag authored an amicus brief for several public health scholars affiliated with the Milken Institute School of Public Health at the George Washington University. Legacy’s petition argues that the decision of the Fifth Circuit creates a circuit split with other federal courts of appeal, which have found that the FQHC payment rules apply to all eligible services provided to Medicaid enrollees, regardless of whether those payments are in-network. The amicus brief discusses the history of the FQHC payment rules and highlights how the decision of the Fifth Circuit conflicts with the balance Congress sought between promoting market-based managed care and maintaining a primary care infrastructure in underserved communities.

On average, it takes about six weeks for the Court to decide whether to take a cert petition. As we head into the fall, we will keep an eye on whether the Supreme Court decides to hear the matter.

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