NEW JERSEY PRIMARY CARE ASSOCIATION, INC. v. STATE OF NEW JERSEY DEPARTMENT OF HUMAN SERVICES et al
Filing
39
OPINION. Signed by Judge Joel A. Pisano on 7/5/2012. (gxh)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
______________________________
NEW JERSEY PRIMARY CARE
ASSOCIATION,
Plaintiff,
v.
STATE OF NEW JERSEY DEPT.
OF HUMAN SERVICES, et al.
Defendants.
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Civil No. 12-00413 (JAP)
OPINION
PISANO, District Judge:
Plaintiff New Jersey Primary Care Association filed this action on January 24, 2012,
against Defendants State of New Jersey Department of Human Services (“DHS”), Commissioner
of DHS Jennifer Velez, DHS Division of Medical Assistance and Health Services (“DMAHS”),
and Director of DMAHS Valerie Harr [docket entry no. 1]. This matter came before the Court
when Plaintiff filed a Motion for a Preliminary Injunction on April 9, 2012 [docket entry no. 12].
Defendants opposed the Motion and filed a Motion for Summary Judgment [docket entries no.
18, 19]. Plaintiffs filed a Cross-Motion for Summary Judgment [docket entry no. 22]. The Court
held oral argument on the Motion for a Preliminary Injunction on May 17, 2012, and continued
that argument on June 1, 2012. For the reasons set forth below, the Plaintiff’s Motions for
Summary Judgment and for a Preliminary Injunction will be granted, and the Defendants’
Motion for Summary Judgment will be denied.
1
I.
Background
Plaintiff New Jersey Primary Care Association (“NJPCA”) is a 501(c)(3) corporation,
with a membership including twenty community health centers. These health centers are
501(c)(3) organizations that provide care to people in medically underserved communities, and
they receive grant funding pursuant to the Public Health Service Act (“PHS funding”) to
subsidize care to patients who are uninsured and unable to pay. 42 U.S.C. § 254b(e), (k); 42
U.S.C. § 254c. They are required to make every reasonable effort to obtain appropriate payment
from insurers, including Medicaid. 42 U.S.C. § 254b(k)(3)(F).
A. The Medicaid Statute
The federal Medicaid statute sets forth a program, jointly financed and operated by the
federal government and the states, to provide health care services to people unable to pay. 42
U.S.C. § 1396. States electing to participate in the Medicaid program must comply with the
requirements of the Medicaid Act and regulations, Sabree v. Richman, 367 F.3d 180, 182 (3d
Cir. 2004), and must submit their Medicaid plans to the federal government for approval. See 42
U.S.C. § 1396a(b); 42 C.F.R. § 430.10.
The above-described PHS-funded health centers are certified as Federally Qualified
Health Centers (“FQHC”) for purposes of Medicaid reimbursement. 42 U.S.C. § 1396d(l)(2)(B).
The Medicaid statute regulates the relationship between FQHCs and Medicaid, including the
manner in which a health center is paid for a Medicaid-covered service. 42 U.S.C. § 1396a(bb).
The Medicaid Prospective Payment System (“PPS”) requires states to reimburse FQHCs for
Medicaid-covered services on an “encounter” basis, at a predetermined rate per patient visit. Id.
at 1396a(bb)(2); N.J.A.C. § 10:66-4.1. This is a standard figure for every patient encounter,
calculated for each FQHC pursuant to a methodology set forth in the statute. Id. at 1396a(bb)(2)
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– (3). The statute requires that FQHCs be reimbursed for Medicaid-covered services at “100
percent of costs which are reasonable . . . as the Secretary prescribes . . . in regulations.” Id. at
1396a(bb)(2). This ensures that PHS funds—which are meant to cover services for the
uninsured—are not diverted to pay for services that should have been covered by Medicaid.
H.R. Rep. No. 101-247, at 392-93, reprinted in 1989 U.S.C.C.A.N. 2118-19.
New Jersey participates in the Medicaid program pursuant to the New Jersey Medical
Assistance and Health Services Act, N.J.S.A. § 30:4D-1. Defendant DMHAS is the State
Agency that administers the program. N.J.S.A. § 30:4D-4, -5, -7. Pursuant to this plan, the State
contracts with Managed Care Organizations (“MCO”), more commonly known as “Health
Maintenance Organizations,” or “HMOs.” The MCOs, in turn, contract with the health centers
providing the Medicaid-covered care. Federal law requires states contracting with MCOs to
ensure that FQHCs are fully compensated for each patient encounter by making “a supplemental
payment,” equal to the difference between the health centers’ reasonable costs and the amount
paid by the MCO. Id. at 1396a(bb)(5)(A). This supplemental payment is referred to as
“wraparound.” N.J.A.C. § 10:66-1.2. The payments must be made pursuant to a schedule
agreed upon by the State and FQHC, but must not be less frequent than every four months. 42
U.S.C. § 1396a(bb)(5)(B).
B. New Jersey’s Federally-Approved Medicaid Plan
New Jersey’s Medicaid Plan provides for quarterly wraparound payments. N.J.A.C. §
10:66-1.5(vii). FQHCs must keep records for each service rendered to a Medicaid beneficiary
that include “the name of the recipient to whom the service was rendered, the date of the Service
Rendered, the nature and extent of each such service rendered and any additional information, as
the department may require by regulation.” N.J.S.A. § 30:4D-12(d). In order to obtain a
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wraparound payment to make up the difference between the MCO payment and the total PPS
reimbursement, the FQHCs must submit quarterly reports of their Medicaid-eligible encounters,
and of the payments received from MCOs, to the State. N.J.A.C. § 10:66-1.5(d)(1)(vii). The
New Jersey regulations require FQHCs to use specific forms for reporting which are
incorporated by reference into the rules. Id., id. at 10:66-4 App. E (“Medicaid Managed Care
Encounter Detail Report” and “Managed Care Receipts Report”). DMAHS then calculates the
wraparound payments by multiplying the number of FQHC encounters reported by the PPS rate,
and then subtracting the total reported MCO receipts. Mot. for PI Ex. A ¶ 20 (Grant-Davis
Decl.). Some of the encounters are completely unpaid by MCOs, which results in a wraparound
payment that covers the full PPS rate for that encounter. Id. at ¶ 21. If the MCO later makes a
payment for such an encounter, the State receives a credit against its next wraparound payment.
N.J.A.C. § 10:66-1.5(10), (11).
C. New Jersey’s New Payment System
The following facts are not in dispute. In April of 2004, DMAHS invited FQHCs to
participate in a meeting to discuss the Department’s intent to improve its encounter “validation
process,” and evincing an intent to require more detailed claims data from the FQHCs in their
quarterly wraparound reports. Opp. to Mot. Ex. A. Throughout the next several years, DMAHS
communicated with the FQHCs about the Department’s proposal to rely on MCO data to verify
FQHC claims data. Both parties recognized important discrepancies between the two data
systems. Opp. to Mot. Ex. B, C, D, E, F. In early 2011, DMAHS informed the FQHCs that it
had performed a review of MCO data, and had discovered that ten percent of the claims denied
by MCOs were never re-submitted for correction by the FQHCs, creating an increased cost to the
state in making its wraparound payments. Opp. to Mot. Ex. G. The Department further
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requested that the FQHCs perform of a comparative analysis of their own data with the MCO
data. Opp. to Mot. Ex. H.
In June 2011, the State proceeded to change the wraparound payment system described
above without amending its regulations. On June 9, 2011, DMAHS official Ronald Varella sent
a letter to New Jersey FQHCs requiring them to submit seven specific “fields” of data for each
Medicaid encounter beginning with their next quarterly report. Mot. for PI Ex. D. The NJPCA
wrote to DHS Commissioner Jennifer Velez to request that DMAHS delay the implementation of
this new policy by one quarter, but that request was denied. Mot. for PI Ex. F, G. On August 29,
2011, DHS Commissioner Velez informed the NJPCA that wraparound for FQHCs that “cannot
reconcile their data” would be based on data from the MCOs, provided in two compact discs.
Mot. for PI Ex. H. In September, two more “fields,” referring to the amount and date of an MCO
payment, were added to the data submission requirements for each encounter. Mot. for PI Ex. I ¶
11. Along with this requirement, the DMAHS letter made clear that wraparound would only be
provided after an MCO paid its contracted portion of the PPS rate. Thus, the FQHCs would
receive no payment for an encounter if an MCO denied payment for any reason. Mot. for PI Ex.
B ¶ 11 (Turbiner Decl. I); Ex. C ¶ 11 (Stokes Decl.); Ex. K.
The CEO of NJPCA and health center representatives communicated their concerns
about New Jersey’s new wraparound payment policy throughout the fall of 2011. Most
importantly, the NJPCA and member FQHCs opposed making wraparound payment for an
encounter contingent on prior payment by an MCO, because MCOs currently deny payment for
many reasons that are unrelated to whether a claim qualifies as a Medicaid-covered encounter.
DMAHS Director Valerie Harr and other DHS representatives, however, confirmed the State’s
shift to a new payment methodology. Mot. for PI Ex. J, K, L. The Plaintiff contends that the
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FQHCs expended extra resources to attempt to comply with the State’s new data requirements in
a short timeframe. Mot. for PI Ex. B ¶ 14 (Turbiner Decl.); Ex. C ¶¶ 13, 16, 18 (Stokes Decl.).
In December 2011, the FQHCs received a letter along with their quarterly wraparound
payment stating that “the data provided by your facility was not satisfactorily populated for
processing.” Mot. for PI Ex. M. Defendants claim that the data submitted was incomplete or
inaccurate. Opp. to Mot. 7. Thus, the State based its wraparound payments for that quarter not
on the data from the FQHCs, but on data from the “Molina Medicaid Encounter System.” Mot.
for PI Ex. B ¶ 14; Ex. C ¶ 13. Molina is a third party that contracts with the State to collect data
reported by the MCOs. Id. The Plaintiff contends that reliance on the Molina data effectively
makes wraparound contingent on prior MCO payment, and that this has resulted in severe
financial shortfalls to the health centers. Declarants from the Plaintiff’s member FQHCs also
attest that the Molina data is very difficult to compare with their own submissions to the State,
and that the State has not specified which of the encounters have been denied wraparound. Thus,
they must spend significant resources combing through the data and attempting to resubmit any
denied claims. See, e.g., Ex. C, Stokes Decl. ¶ 16. The Defendants have made some “advance”
payments to certain FQHCs on a case-by-case basis to ameliorate severe cash shortages while the
health centers prepare to resubmit claims. See, e.g., Opp. to Mot. 9.
D. The Commencement of this Litigation
Plaintiff filed this action on January 24, 2012, alleging that the State’s failure to provide
full PPS-rate payments not less than every four months violates the federal Medicaid statute, 42
U.S.C. § 1396a(bb). The Complaint also alleges that the Defendants’ actions violate the
agency’s own Medicaid regulations, and that the implementation of a new payment system
without changing the existing regulations through a notice-and-comment rulemaking procedure
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is arbitrary and capricious in violation of the Fifth and Fourteenth Amendments of the
Constitution. They further allege that the new unauthorized payment system is an unlawful
taking of the full payment to which they are entitled under federal law without due process, also
in violation of the Fifth and Fourteenth Amendments. Finally, the Complaint alleges that the
diversion of PHS funding due to the lack of necessary Medicaid payment violates the
Appropriations and Supremacy Clauses of the United States Constitution.
II.
Motions for Summary Judgment
A court shall grant summary judgment under Rule 56 of the Federal Rules of Civil
Procedure “if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The moving party
must first show that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986). Whether or not a fact is material is determined according to the substantive law
at issue. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). If the moving party makes
this showing, the burden shifts to the non-moving party to present evidence that a genuine fact
issue compels a trial. Celotex, 477 U.S. at 324. The non-moving party must then offer
admissible evidence that establishes a genuine issue of material fact, id., not just “some
metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586 (1986).
The Plaintiff claims, first in its Motion for a Preliminary Injunction and again in its
Cross-Motion for Summary Judgment, that the Defendants’ actions violate New Jersey’s
Medicaid regulations, the federal Medicaid statute, and the due process clause of the Fifth and
Fourteenth Amendments. It contends that the State’s violation of its own regulations is arbitrary
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and capricious, and that the failure to make timely wraparound payments both violates the
federal Medicaid statute and deprives the Plaintiff’s member health centers of a property interest
without due process of law. Defendants do not dispute the State’s obligation to make timely
wraparound payments, but argues that this obligation is not triggered until DMAHS receives
“verified” data on patient encounters and MCO payments. Thus, the dispute between the parties
centers on the State’s recent changes to its Medicaid program; specifically, whether the State
may unilaterally change the procedure by which it collects data and calculates wraparound, and
whether the new procedures are themselves contrary to law. The Court finds that these changes
are unlawful, and that therefore the Plaintiff is entitled to Summary Judgment. The Defendants
have violated their own regulations and the federal Medicaid statute, depriving the FQHCs of a
protected property interest in a manner that is arbitrary and capricious.
The Medicaid statute and federal regulations provide specific requirements for state
plans, 42 U.S.C. § 1396a(a), which must be approved by the federal government. 42 U.S.C. §
1396a(b); 42 C.F.R. § 430.10. New Jersey’s federally-approved Medicaid regulations describe
the procedure by which FQHCs must submit data and receive wraparound. N.J.A.C. § 10:661.5(d)(1)(vii); N.J.A.C. § 10:66-4 App. E. By unilaterally changing that procedure without
amending the regulations, Defendants have effectively implemented a new plan before obtaining
the necessary federal approval. This constitutes a violation of the Medicaid statute’s requirement
that states obtain federal approval. See 42 C.F.R. § 430.12(c) (states must amend their plans and
submit these amendments for approval when there are “[m]aterial changes in State law,
organization, or policy or in the State’s operation of the Medicaid program.”) That the agency
departed from its own regulations without amending them through a notice-and-comment
rulemaking is not only a violation of the Medicaid statute, but it is also “arbitrary, capricious,
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and an abuse of discretion or otherwise contrary to law.” Motor Vehicle Mfrs. v. State Farm
Mutual Auto Ins. Co., 463 U.S. 29, 41 (1983); see W. Va. Univ. Hospitals, Inc. v. Casey, 885
F.2d 11, 28 (3d Cir. 1989) (applying the “arbitrary and capricious” standard to Pennsylvania’s
Medicaid reimbursement scheme).
Defendants argue that the new data submission requirements are supported by existing
law. They cite New Jersey’s statutory requirement that FQHCs keep records of services
provided to Medicaid beneficiaries, including the name of the recipient, the date of the service,
the nature of the service, “and any additional information, as the department may require by
regulation.” N.J.S.A. 30:4D-12(d). This does not support the actions that Defendants have
taken. First, the cited provision pertains to recordkeeping, and does not require FQHCs to
submit this data on a quarterly basis in order to obtain wraparound. Second, it requires FQHCs
to keep “additional information as the department may require by regulation,” id. (emphasis
added), not merely at the department’s request. Defendants also cite the regulation requiring
FQHCs to “furnish such information as may be requested by DMAHS.” N.J.A.C. 10:499.8(b)(2). However, this provision cannot be read to allow DMAHS to freely amend procedures
that are specifically provided elsewhere in the regulations. Otherwise, such general provisions
would operate to nullify specific regulations at the agency’s whim. The agency had no authority
to change the quarterly reporting for wraparound purposes without amending the regulations
specifically applicable to those reporting requirements. 1
Furthermore, the new system is itself arbitrary and capricious. Prior MCO payment is not
equivalent to eligibility for Medicaid. Thus, the Defendants’ demand leading up to the
1
The current regulations also require FQHCs to maintain an accounting system and documentation of costs, and to
“submit other information (statistics, cost and financial data) when deemed necessary by the Department.” N.J.A.C.
10:66-1.5(x)(5). Again, while this provision requires FQHCs to make their books available to the agency, it does
not give the agency license to change the procedures outlined in the rest of the regulations.
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implementation of the new system—that the FQHCs “reconcile” their data with MCO data—is
without basis in the Medicaid statute. The parties agree that MCOs often deny claims for
reasons unrelated to whether the encounter is covered by Medicaid. Denying wraparound for
claims because they have been denied by MCOs therefore guarantees that some Medicaidcovered encounters will remain unpaid, and that many more will not be timely paid. In other
words, the Defendants’ new system actually guarantees that the State will violate the statute’s
mandate to make full and timely wraparound payment. This is true whether the agency gathers
the MCO claims data from the health centers or from a third party. Thus, the Defendants’ new
system is arbitrary and capricious not only for the failure to follow any notice-and-comment
rulemaking procedures, but because the new system itself fails to show a “rational connection
between the facts found and the choice made.” State Farm, 463 U.S. at 43 (quoting Burlington
Truck Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). See also Wilder v. Va. Hospital
Ass’n, 496 U.S. 498 (1990) (Medicaid’s “reasonable and adequate” cost requirement was “not
intended to encourage arbitrary reductions in payment that would adversely affect the quality of
care.”). At the very least, prior MCO payment is a factor “which Congress has not intended [the
agency] to consider” in determining whether an encounter is eligible for Medicaid coverage. 2
State Farm, 463 U.S. at 43.
The Court further finds that the financial shortfalls resulting from this unlawful agency
action have deprived the Plaintiff’s member health centers of their property without due process
of law. Undoubtedly, the FQHCs have a “legitimate claim of entitlement” to full and timely
wraparound payments. Town of Castle Rock v. Gonzales, 545 U.S. 748, 756 (2005) (quoting
Board of Regents of State Colleges v. Roth, 408 U.S. 564, 576 (1972)). A constitutionally-
2
Of course, MCO payment must be considered in calculating wraparound payments, which the Plaintiff does not
dispute.
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recognized property interest arises when the government “creates an entitlement to some
benefit.” Paul v. Davis, 424 U.S. 693, 709 (1976). As described above, FQHCs are entitled by
the Medicaid statute to receive full and timely wraparound payments to cover their costs, which
must be determined according to specific statutory guidelines. The failure to fully compensate
the FQHCs for all Medicaid-eligible encounters deprives them of their property interest in those
supplemental payments. Because this change was unilateral and not accompanied by a noticeand-comment rulemaking procedure, this deprivation was without due process. See, e.g.,
Mullane v. Central Hanover Bank and Trust Co., 339 U.S. 306, 314 (1950) (due process includes
two components: notice and an opportunity to be heard); Ortiz v Eichler, 794 F.2d 889, 893 (3d
Cir. 1986). The FQHCs are also denied due process in the denial of specific claims, as their only
recourse is the MCO appeals process—a private contractual remedy which may bear little
relation to whether a disputed claim is eligible for Medicaid coverage. See N.J.A.C. § 11:22-1.8.
Defendants argue that their statutory obligation to make wraparound payments is not
triggered until they receive accurate claims data from which to calculate the proper payment
amount, and that the Medicaid statute gives them the authority to require more information from
the FQHCs in order to verify their claims. They further argue that they can lose their federal
funding for the Medicaid program if they do not sufficiently verify each covered encounter. The
Plaintiff does not dispute the State’s statutory authority to require more information, and Court
agrees that the State has a compelling interest in maintaining federal funding. However, this
argument fails in three ways.
First, the State’s new system does not serve the purported goal of claim verification. As
explained in further detail above, payment by an MCO is often unrelated to whether an encounter
meets the statutory criteria for Medicaid eligibility, so the new system does not provide accurate
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verification. The changes implemented by the Defendants apparently arose out of concerns
about the discrepancies between MCO data and FQHC data. However, Defendants have not
explained why they have targeted the FQHCs to resolve these discrepancies rather than the
MCOs, which process claims according to internal rules that may be unrelated to the Medicaid
statute. The very requirement that states make wraparound payments is evidence of Congress’s
concern that MCOs would not fully compensate FQHCs for all Medicaid-eligible encounters.
Second, the Defendants have not explained to the Court how the existing plan, which was
approved by the federal government pursuant to the statute, has jeopardized the State’s federal
funding. Defendants have only cursorily implied—but have not proven—that the FQHCs were
not providing complete and accurate data before the changes were made. 3 Finally, the threat of
funding loss cannot cure the illegality of the State’s new system. The Defendants’ unilateral
changes in data collection and wraparound calculation are procedurally deficient and without
statutory authority as described above.
For the foregoing reasons, the Court finds that there is no issue of material fact as to the
Defendants’ recent changes in the methods for collecting data and calculating wraparound
payments. These actions violate the State’s own regulations, the Medicaid statute, and the Fifth
and Fourteenth Amendments of the United States Constitution. The State’s purported
justifications for these changes are legally insufficient. Thus, the Plaintiff is entitled to Summary
Judgment.
3
Passing reference was made during oral argument to the fact that the State had not sufficiently enforced the
reporting requirements for years, and that the changes were the result of renewed attempts at enforcement. The
Defendants thus imply, but have not attempted to demonstrate to the Court, that the FQHCs have been so persistent
in their violations of reporting requirements that enforcement efforts were unavailing, forcing both a unilateral
change in procedure and the use of third-party data. Even if the Defendants had argued this explicitly, the State’s
own enforcement failures cannot justify implementing an unlawful new system in a procedurally defective manner.
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III.
Motion for Preliminary Injunction
In evaluating a motion for preliminary injunctive relief, a court must consider whether:
“‘(1) the plaintiff is likely to succeed on the merits; (2) denial will result in irreparable harm to
the plaintiff; (3) granting the injunction will not result in irreparable harm to the defendant; and
(4) granting the injunction is in the public interest.”’ NutraSweet Co. v. Vit-Mar Enterprises,
Inc., 176 F.3d 151, 153 (3d Cir. 1999) (quoting Maldonado v. Houstoun, 157 F.3d 179, 184 (3d
Cir. 1998)). A preliminary injunction “should not be granted unless the movant, by a clear
showing, carries the burden of persuasion.” Mazurek v. Armstrong, 520 U.S. 968, 972 (1997).
Preliminary injunctive relief is an “extraordinary and drastic remedy,” id., which “should issue
only if the plaintiff produces evidence sufficient to convince the district court that all four factors
favor preliminary relief.” American Tel. and Tel. Co. v. Winback and Conserve Program, Inc.,
42 F.3d 1421, 1427 (3d Cir. 1994). “The burden lies with the plaintiff to establish every element
in its favor, or the grant of a preliminary injunction is inappropriate.” P.C. Yonkers, Inc. v.
Celebrations the Party and Seasonal Superstore, LLC, 428 F.3d 504, 508 (3d Cir. 2005).
A. Likelihood of Success on the Merits
The parties’ Cross-Motions for Summary Judgment substantially replicated their
arguments on likelihood of success on the merits in support of and in opposition to injunctive
relief. The Court will not replicate its own analysis here. Plaintiff having prevailed on its
Motion for Summary Judgment, there is no longer any question as to its likelihood of success on
the merits.
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B. Irreparable Harm
Continuing with the preliminary injunction analysis, the Court must next consider
whether “denial will result in irreparable harm to the plaintiff” and whether “granting the
injunction will not result in irreparable harm to the defendant.” NutraSweet, 176 F.3d at 153
(citations omitted). To the extent that the harm about which Plaintiffs complain is self inflicted,
Plaintiffs cannot show irreparable harm under the preliminary injunction. See Caplan v.
Fellheimer Eichen Braverman & Kaskey, 68 F.3d 828, 839 (3d Cir. 1995); Borough of Palmyra,
Bd. of Educ. v. F.C. Through R.C., 2 F.Supp.2d 637, 644 (D.N.J. 1998). “The irreparable harm
requirement is met if a plaintiff demonstrates a significant risk that he or she will experience
harm that cannot be adequately compensated after the fact by monetary damages.” Adams v.
Freedom Forge Corp., 204 F.3d 475 (3d Cir.2000); see Frank's GMC Truck Center, Inc. v. Gen.
Motors Corp., 847 F.2d 100, 102 (3d Cir.1988).
Plaintiff argues that it lacks a remedy at law in this case, because the Eleventh
Amendment bars courts from ordering retroactive monetary damages that must be paid from a
state treasury. See Edelman v. Jordan, 415 U.S. 615, 677 (1974). Indeed, the Third Circuit has
held that the unavailability of retroactive damages is sufficient to make harm irreparable. New
Jersey Retail Merchants Ass’n. v. Sidamon-Eristoff, 669 F.3d 374, 388 (3d Cir. 2012); Murray v.
Silberstein, 882 F.2d 61, 63 (3d Cir. 1989). The Defendants argue that this law is irrelevant,
because money damages are unnecessary where FQHCs are independently entitled to
wraparound payment once their claims have been validated. This is tantamount to claiming that
money damages will not be necessary because the Plaintiff’s legal argument is incorrect.
Defendants erroneously assume that the new “validation” system is lawful and therefore
sufficient to compensate the FQHCs. In fact, the Plaintiff has shown that its member FQHCs
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have been deprived of funds to which they are legally entitled. It is unclear how the State
intends to compensate FQHCs for claims that were unpaid under the unlawful system that has
recently been in place.
Even if the Plaintiff did have access to money damages in this case, it has made extensive
factual allegations supporting the contention that the FQHCs are experiencing significant harm
due to dramatic loss of funding. Plaintiff alleges that its member FQHCs have had to make
layoffs, reduce medical services, and borrow money, and that some may even be in danger of
closing their doors permanently. The Third Circuit has recognized that even “purely economic
injury” may constitute irreparable harm “where the potential economic loss is so great as to
threaten the existence of movant’s business.” Minard Run Oil Co. v. United States Forest
Service, 670 F.3d 236, 255 (3d Cir. 2011) (citing Vaqueria Tres Monjitas, Inc. v. Irizarry, 587
F.3d 464, 485 (1st Cir. 2009); Doran v. Salem Inn, Inc., 422 U.S. 922, 932 (1975)). Such
allegations are particularly compelling in this case, where the “businesses” at risk are not sellers
of ordinary consumer products, but rather non-profit healthcare providers serving those who are
unable to obtain care elsewhere.
The State has a substantial interest in protecting its Medicaid funds from both fraudulent
claims from health centers and from the revocation of federal money. However, it has provided
little evidence suggesting that either of these threats exist. Furthermore, states do not “have an
interest in the enforcement of an unconstitutional law.” Am. Civil Liberties Union v. Ashcroft,
322 F.3d 240, 247 (3d Cir. 2003).
Thus, the Court finds that the balance of the equities favors the Plaintiffs. This finding is
bolstered by the fact that the failure to make supplemental payments under the Medicaid statute
has justified preliminary injunctive relief in other courts. See, e.g., Concilio e Salud Integral de
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Loiza, Inc. v. Perez-Perdomo, 551 F.3d 10, 17-18 (1st Cir. 2008); Rio Grande Community
Health Center, Inc. v. Rullan, 397 F.3d 56, 74-77 (1st Cir. 2005); Three Lower Counties Cmty.
Health Servs. v. Maryland, 498 F.3d 294, 301 (4th Cir. 2007); Cedar-Riverside People’s Center
v. Minn. Dep’t of Human Servs., No. 09-768, 2009 WL 1955440 (D. Minn. July 6, 2009).
C. The Public Interest
The final determination with respect to whether a party is entitled to preliminary
injunction is whether “granting the injunction is in the public interest.”’ NutraSweet, 176 F.3d at
153. Congress has established and funded extensive programs to allow FQHCs to provide care
to underserved communities. It has dedicated PHS funding so that the health centers may care
for the uninsured and unable to pay, and it has regulated the relationship between FQHCs and the
Medicaid program so that they may care for Medicaid-eligible persons. The continued existence
of these FQHCs, and their continued ability to provide care to these underserved communities, is
undoubtedly in the public interest.
The public has a significant interest in ensuring that tax dollars are spent in a lawful
manner, and that Medicaid funding is not wasted due to inaccurate reporting or lost due to the
revocation of federal approval of New Jersey’s Medicaid plan. As explained above, however,
the Defendants have not satisfied the Court that these public interests are threatened by New
Jersey’s federally-approved Medicaid plan. Nor has it satisfied the Court that the new,
unauthorized system would serve its purported goals. Thus, the public interest favors granting
injunctive relief to the Plaintiff.
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IV.
Conclusion
For the reasons set forth above, the Plaintiff has prevailed on its claim that the State of
New Jersey’s recent changes to its Medicaid program violate its own regulations, the federal
Medicaid statute, and the Fifth and Fourteenth Amendments of the United States Constitution.
The Plaintiff has further demonstrated that its member health centers will suffer irreparable harm
without injunctive relief, and that the public interest favors the granting of such relief.
However, the Court notes that the parties are involved in ongoing negotiations over
establishing a new data collection and wraparound payment system. Both parties are engaged in
a good-faith effort to resolve their differences and create a new system that complies with federal
and state law. While the Plaintiff has established that it is entitled to summary judgment on the
issue of whether or not Defendants’ past actions violate the law, there are complex issues of fact
relevant to the establishment of a new system, which are unsuited to resolution by the Court.
Thus, the Court will exercise its equitable powers to grant limited injunctive relief and retain
jurisdiction over the case. An appropriate Order follows.
/s/ Joel A. Pisano________
JOEL A. PISANO
United States District Judge
Dated: July 5, 2012
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