Legacy Community Health Services, Inc. v. Dr. Kyle L. Janek et al

Filing 135

MEMORANDUM AND ORDER granting in part 84 Plaintiff's Motion for Summary Judgment; denying Defendant's 89 Cross-motion for Summary Judgment. (Signed by Judge Keith P Ellison) Parties notified.(arrivera, 4)

United States District Court
Southern District of Texas

ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
LEGACY COMMUNITY HEALTH
SERVICES, INC.,
Plaintiff,
VS.
DR. KYLE L. JANEK,
Defendant.

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September 02, 2016
David J. Bradley, Clerk

CIVIL ACTION NO. 4:15-CV-25

MEMORANDUM & ORDER
I.

INTRODUCTION
This case concerns a challenge to certain aspects of the State’s administration of its

responsibilities under the federal Medicaid Act, 42 U.S.C. § 1396a et seq. (“the Medicaid Act” or
“the statute”). Plaintiff Legacy Community Health Services (“Plaintiff”), a community health
center serving low-income patients in the Houston area, filed this lawsuit to assert its rights
under the Medicaid Act. Defendant Dr. Kyle L. Janek 1 is sued in his official capacity as
Executive Commissioner of Texas’s Health and Human Services Commission (“HHSC” or “the
State”). Legacy claims that HHSC has violated the Medicaid Act with respect to the
reimbursement of Legacy for services it provides to Medicaid patients.
In its Memorandum & Order of July 2, 2015 (Doc. No. 66), the Court determined that
Plaintiff had stated a claim for relief on two separate theories. First, the Court held that Plaintiff
had stated a claim that the State’s delegation of its reimbursement responsibility for in-network
services to third-party managed care organizations (“MCOs”) violates the Medicaid Act. Second,

1

Although Dr. Janek was Executive Commissioner at the time the complaint was filed, Mr.
Charles Smith was appointed to the position effective June 1, 2016. As Dr. Janek’s successor, Mr. Smith
is “automatically substituted as a party.” FED. R. CIV. PRO. 25(d).
1

the Court held Plaintiff had stated a claim that the State’s process for providing reimbursement
for out-of-network services violates the Act. Plaintiff has sought injunctive relief under 42
U.S.C. § 1983 to remedy the alleged shortcomings in Texas’s method for providing payments to
Legacy for its Medicaid services.
The parties cross-moved for summary judgment pursuant to Federal Rule of Civil
Procedure 56. On May 3, 2016, the Court granted summary judgment for Legacy on the issue of
whether the State had unlawfully delegated its in-network reimbursement obligation to MCOs,
but reserved judgment on Legacy’s claim regarding reimbursement for out-of-network services.
Mem. & Order, May 3, 2016 [hereinafter May 2016 Opinion] (Doc. No. 119). On May 13, 2016,
the Court issued a Notice inviting the Centers for Medicare and Medicaid Services (“CMS”) to
file a statement of interest on the latter issue. The United States, on behalf of CMS, filed its
Statement of Interest (Doc. No. 128) on July 25, 2016 and both parties have filed briefs in
response. 2
The Court now turns to Legacy’s claim that the State’s policies for providing
reimbursement for out-of-network services violate the Medicaid Act. After considering the
Statement by CMS, the parties’ arguments, and the applicable law, the Court finds that Plaintiff’s
Motion for Summary Judgment (Doc. No. 84) should be granted as to the claim that the State has
failed to provide reimbursement for services rendered to out-of-network patients in conformity
with the Medicaid Act. Likewise, the Court finds that Defendant’s cross-Motion for Summary
Judgment (Doc. No. 89) should be denied as to this claim.

2

In HHSC’s response to CMS’s Statement of Interest, HHSC asks the Court to reconsider the
issues ruled on in the May 2016 Opinion. Def.’s Resp. Stmt. Intrst. 1 n.2 (Doc. No. 130). This request is
DENIED.
2

II.

BACKGROUND
A.

Federal Statutory Framework

Among the many requirements set forth in the Medicaid Act is one which mandates that
states provide payment for Medicaid-covered services rendered by Federally Qualified Health
Centers (“FQHCs”), health centers that provide medical care to an under-served population. 42
U.S.C. § 1396d(a)(2)(B)-(C); id. § 1396a(bb)(1). Plaintiff is an FQHC. In addition to the
Medicaid funds that FQHCs receive from the state, FQHCs are also eligible to receive federal
grants under Section 330 of the Public Health Services Act. 42 U.S.C. § 254b. The dual sources
of FQHC funding—direct federal grants and indirect federal Medicaid dollars filtered through
the states—“allows the FQHC to allocate most of its direct grant dollars towards treating those
who lack even Medicare or Medicaid coverage.” Cmty. Health Ctr. v. Wilson-Coker, 311 F.3d
132, 134 n.2 (2d Cir. 2002). To ensure that Section 330 grants are not used to cover the cost of
treating Medicaid patients, the Medicaid Act requires that FQHCs collect reimbursement from
the state for services provided to Medicaid beneficiaries. 42 U.S.C. § 254b(k)(3)(F).
The Medicaid Act, specifically § 1396a(bb), also governs precisely how a state must
reimburse FQHCs for Medicaid services. Since 2001, reimbursement payments have been
assessed through what is known as the Prospective Payment System (“PPS”). Id. § 1396a(bb)(1)(3). Stated simply, an FQHC’s reimbursement from the state is calculated by multiplying the
number of Medicaid patient encounters by the average reasonable costs of serving Medicaid
patients in 1999 and 2000, adjusted yearly for inflation. Id.; see generally New Jersey Primary
Care Ass’n Inc. v. New Jersey Dep’t of Human Servs., 722 F.3d 527, 529 (3d Cir. 2013). The

3

total amount owed by the state to reimburse an FQHC for a Medicaid patient encounter is
referred to as the “PPS rate” or “PPS amount.” 3
Texas, like many states, has chosen to implement Medicaid through a managed care
system. Tex. Gov. Code § 533.002. Under a managed care approach, the state administers its
Medicaid program by contracting with private-sector managed care organizations (“MCOs”) that
arrange for the delivery of healthcare services to individuals who enroll with them. 42 U.S.C. §
1396u-2(a)(1). In exchange for its services, an MCO receives from the state a prospective perpatient, per-month payment, called a “capitation” payment, based on the number of patients
enrolled in the MCO. The MCO, in turn, contracts with healthcare providers, including FQHCs,
to provide services to its enrollees. A provider that has a contract with a certain MCO is an “innetwork” provider for that MCO, and services it renders to that MCO’s enrollees are known as
“in-network services.” Inversely, when a provider renders services to a patient enrolled in an
MCO with which the provider does not have a contract, such services are “out-of-network.”
The reimbursement process differs significantly depending on whether the provider’s
reimbursement claim is for an in-network or out-of-network service. When an FQHC submits a
claim for in-network services, the state does not reimburse the FQHC directly; rather, the MCO
reimburses the in-network FQHC out of its capitation funds. The Court’s May 2016 Opinion
focused on the Medicaid Act requirements that govern the in-network FQHC-MCO
reimbursement process. As discussed in detail there, the MCO is free to negotiate a rate with the
FQHC, so long as the MCO pays the FQHC no less than it would pay to a non-FQHC provider
for the same services. If the negotiated rate is lower than the PPS rate, the state must cover the
difference by making a supplemental (or “wraparound”) payment. See 42 U.S.C. §
3

Instead of reimbursing FQHCs on a per-service basis, the statute requires the state to reimburse
FQHCs for each visit or “encounter” that they have with a Medicaid patient.
4

1396a(bb)(5)(A) (describing the state’s reimbursement obligation for services provided
“pursuant to a contract between” an FQHC and an MCO).
For out-of-network services, in contrast, the absence of any contract between the MCO
and the provider means that, as a general matter, the MCO has no reimbursement obligation to
the provider. Although the MCO will have no obligation stemming from a contract with the
provider, the MCO may have an obligation to out-of-network providers stemming from the
MCO’s contract with the state. In fact, under § 1396b(m)(2)(A)(vii) of the Medicaid Act, the
state-MCO contract must address reimbursement for a certain type of out-of-network services:
those that “were immediately required due to an unforeseen illness, injury, or condition”
(hereinafter, “clause vii services”). 42 U.S.C. § 1396b(m)(2)(A)(vii). 4 This provision requires
states to designate, in their contracts with MCOs, that either the MCO or the state will pay the
out-of-network provider for clause vii services. Id. When the out-of-network provider is an
FQHC, § 1396a(bb) requires that the FQHC be reimbursed at the PPS rate. Id. § 1396a(bb)(1);
Three Lower Counties Cmty. Health Servs., Inc. v. Maryland, 498 F.3d 294, 304 (4th Cir. 2007).
B.

Texas’s Regime for Out-of-Network Reimbursement

Texas requires that MCOs reimburse providers for certain out-of-network services. This
requirement is set forth in HHSC’s contracts with MCOs and in various provisions of the Texas
Administrative Code. Pursuant to these contractual and regulatory provisions, MCOs are

4

§ 1396b(m)(2)(A)(vii) provides as follows:
[N]o payment shall be made under this subchapter to a State with respect to expenditures
incurred by it for payment for services provided by [an MCO] which is responsible for
the provision (directly or through arrangements with providers of services) . . . unless . . .
such contract provides that, in the case of medically necessary services which were
provided (I) to an individual enrolled with the entity under the contract and entitled to
benefits with respect to such services under the State's plan and (II) other than through
the organization because the services were immediately required due to an unforeseen
illness, injury, or condition, either the entity or the State provides for reimbursement with
respect to those services.
5

required to reimburse out-of-network providers for “emergency services.” See 1 Tex. Admin.
Code § 353.4(c)(1) (“An MCO may not refuse to reimburse an out-of-network provider for
emergency services.”); id. § 353.4(c)(2)(B); HHSC-MCO Contract, 5 Section 8.1.3 (Def.’s Appx.
207-08) (“The MCO must provide coverage for Emergency Services to Members 24 hours a day
and seven (7) days a week, without regard to prior authorization or the Emergency Service
provider’s contractual relationship with the MCO.”). The term “emergency services” is defined
as those services “that are needed to evaluate or [to] stabilize an Emergency Medical Condition.”
Id. at 7 (Def.’s Appx. 32). An “Emergency Medical Condition” is, in turn, defined as:
[A condition] manifesting itself by acute symptoms and recent onset and
sufficient severity . . . such that a prudent layperson . . . could reasonably expect
the absence of immediate medical care could result in: (1) placing the patient’s
health in serious jeopardy; (2) serious impairment to bodily functions; (3) serious
dysfunction of any bodily organ or part; (4) serious disfigurement; or (5) in the
case of a pregnant woman, serious jeopardy to the health of the woman or her
unborn child.
Id. If a provider seeing an out-of-network patient has provided a service that does not conform
with the above definition of “emergency service,” then the MCO is only required to provide
reimbursement if the MCO has provided “prior authorization” for its enrollee to seek treatment at
the out-of-network provider. Id. at Sections 8.1.3 & 8.2.2.1; see also Pl.’s Mot. Summ. J. Ex. V,
Declaration of Christopher Born 6 ¶ 62 [hereinafter Born Decl.] (Doc. No. 84-23).
C.

Factual Background 7

Legacy is designated as an FQHC for purposes of Medicaid reimbursement and is also a
recipient of Section 330 grants. One of the MCOs that contracts with HHSC to provide care to
Texas Medicaid recipients is the Texas Children’s Health Plan (“TCHP”). Legacy contracted

5

See Def.’s Mot. Summ. J., Attach. 1 to Ex. A (Doc. No. 90-1).
Christopher Born is the President of the Texas Children’s Health Plan (“TCHP”), an MCO with
which Legacy contracted.
7
The facts stated here are undisputed.
6

6

with TCHP from 2009 to 2015 to provide medical care to Medicaid patients enrolled in TCHP.
On February 1, 2015, the effective date of termination of TCHP’s contract with Legacy, Legacy
became an out-of-network provider for TCHP. Born Decl. ¶ 52. Despite the termination of
Legacy’s contract with TCHP, patients enrolled in TCHP continued to receive Medicaid-covered
services from Legacy, and Legacy continued to submit claims to TCHP for these out-of-network
services. Id. ¶ 63. Between February 1 and August 9, 2015, TCHP denied approximately 6,000
of Legacy’s claims for out-of-network services. Def.’s Mot. Summ. J. Ex. H, Rule 30(b)(6)
Deposition of Melisa Garcia, 8 22:13-22 (Doc. No. 89-9). Approximately 2,700 claims were
denied “due to a lack of prior authorization for the out-of-network services,” Born Decl. ¶ 66,
which, in short, means that TCHP denied the claim because it determined that the claim did not
fall within the category of “emergency services” and thus reimbursement was not required.
III.

LEGAL STANDARD
A motion for summary judgment under Federal Rule of Civil Procedure 56 requires the

court to determine whether the moving party is entitled to judgment as a matter of law based on
the evidence thus far presented. FED. R. CIV. P. 56(a). Summary judgment is proper if “there is
no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Id. The movant has the burden of establishing that there is no genuine issue of material
fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Once the movant has met its burden,
the burden shifts to the nonmovant to show that summary judgment is not appropriate. Id. at 325.
The nonmovant “must go beyond the pleadings and designate specific facts showing that there is
a genuine issue for trial.” Little v. Liquid Air Corp., 37 F.3d 1069, 1071 (5th Cir. 1994) (en banc)
(citing Celotex, 477 U.S. at 325). “This burden will not be satisfied by some metaphysical doubt
as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a
8

Melisa Garcia is the Vice President of Clinical Business Services at Legacy.
7

scintilla of evidence.” Boudreaux v. Swift Transp. Co., Inc., 402 F.3d 536, 540 (5th Cir. 2005)
(internal quotation omitted). In deciding a summary judgment motion, the court draws all
reasonable inferences in the light most favorable to the nonmoving party. Connors v. Graves,
538 F.3d 373, 376 (5th Cir. 2008).
IV.

DISCUSSION
The issue of FQHC reimbursement for out-of-network services implicates two different

provisions of the Medicaid Act. Section 1396b(m)(2)(A)(vii) governs reimbursement for
Medicaid-covered out-of-network services rendered by any provider, whether FQHC or nonFQHC, while § 1396a(bb)(1)-(2) governs reimbursement for any Medicaid-covered service
rendered by an FQHC, whether in-network or out-of-network. The Court will address, first, the
arguments pertaining to § 1396b(m)(2)(A)(vii) and, second, those pertaining to § 1396a(bb)(1)(2).
A.

§ 1396b(m)(2)(A)(vii)

Plaintiff claims that the language Texas has used to implement § 1396b(m)(2)(A)(vii)’s
requirement that out-of-network providers be reimbursed for services “immediately required due
to an unforeseen illness, injury, or condition” is inadequate under the plain text of that provision.
Plaintiff argues that, by defining the category of out-of-network services for which an MCO
must provide reimbursement as “emergency services,” the State requires MCO reimbursement
for a narrower category than is mandated under § 1396b(m)(2)(A)(vii). This argument rests on
the premise that the State’s category of “emergency services” captures a smaller universe of
claims than does § 1396b(m)(2)(A)(vii)’s category of “immediately required” services. Legacy
has offered conclusory assertions that this is so, see Pl.’s Mot. Summ. J. 29-30, but no evidence
or caselaw to support the alleged discrepancy. Nor has Plaintiff provided any authority for the

8

proposition that compliance with § 1396b(m)(2)(A)(vii) requires that states reproduce verbatim
the text of § 1396b(m)(2)(A)(vii) in the state-MCO contract.
Plaintiff’s

conclusory

argument

is

not

sufficient

to

prove

a

violation

of

§ 1396b(m)(2)(A)(vii) because it is not obvious, on the face of the statute, that “immediately
required due to an unforeseen illness, injury, or condition” represents a category any wider than
“emergency services.” The few cases interpreting § 1396b(m)(2)(A)(vii) have referred to clause
vii services as “emergency services” and “emergency care.” See Three Lower Counties Cmty.
Health Servs., Inc. v. Maryland, 498 F.3d 294, 304 (4th Cir. 2007); Cmty. Health Care Ass'n of
New York v. Shah, 770 F.3d 129, 157 (2d Cir. 2014); Three Lower Counties Cmty. Health Servs.,
Inc. v. Maryland, No. CIV.A. WMN-10-2488, 2011 WL 31444, at *19 (D. Md. Jan. 5, 2011),
aff’d, 490 F. App’x 601 (4th Cir. 2012). Furthermore, both legal and medical dictionaries define
“emergency” in terms very similar to those used in § 1396b(m)(2)(A)(vii). See BLACK’S LAW
DICTIONARY (10th ed. 2014) (“an unforeseen change in circumstances that calls for immediate
action to avert, control, or remedy harm”); STEDMAN’S MEDICAL DICTIONARY 582 (27th ed.
2000) (“[a] patient’s condition requiring immediate treatment); MERRIAM-WEBSTER’S MEDICAL
DESK DICTIONARY 207–08 (1986) (“an unforeseen combination of circumstances or the resulting
state that calls for immediate action”). This suggests that the discrepancy between the language
Congress used in § 1396b(m)(2)(A)(vii) and the language the State has used to implement the
provision may be a distinction without a difference. See Pl.’s Mot. Summ. J. Ex. Q, Deposition
of Gary Jessee 9 113:5-10 (Doc. No. 84-18) (stating that the distinction between “immediately
required due to unforeseen illness” and “emergency condition” is “semantic[]”). The burden is on

Plaintiff to prove otherwise.

9

Gary Jessee is the Deputy Director of the Medicaid/CHIP Division at HHSC.
9

To show that the State’s policies do not comport with § 1396b(m)(2)(A)(vii), Plaintiff
needed to present some evidence that the State’s implementation of § 1396b(m)(2)(A)(vii) has
caused MCOs to deny payment for out-of-network claims that are properly reimbursable under §
1396b(m)(2)(A)(vii). Plaintiff did provide the Court with three out-of-network claims that TCHP
denied for failing to qualify as “emergency services.” Pl.’s Mot. Summ. J. Ex. Y (Doc. No. 8426). These claims sought reimbursement for treating patients with “abdominal pain,” id. at 4,
“acut[e] bronchiolitis,” id. at 7, and “streptococcal sore throat,” id. at 10. However, Plaintiff has
presented no evidence to show that treatment of these conditions qualifies under §
1396b(m)(2)(A)(vii) as services “immediately required due to an unforeseen illness, injury, or
condition.”
There are any number of ways in which Legacy could have demonstrated that, if Texas
had used the language of § 1396b(m)(2)(A)(vii) as opposed to its “emergency services”
definition, the MCO would have paid Legacy’s out-of-network claims. Plaintiff could have
presented fact testimony from a claims administrator at TCHP, or expert testimony from an
expert in out-of-network claims administration. Or, Plaintiff could have presented evidence that
the type of out-of-network claims that were denied by TCHP are granted by MCOs in one of the
states that has implemented § 1396b(m)(2)(A)(vii) using the exact wording of the statute. See,
e.g., MD. CODE REGS. 10.09.65.20(C)(1) (“[A]n MCO shall reimburse an out-of-network
federally qualified health center (FQHC) for services provided to an enrollee that are
immediately required due to an unforseen [sic] illness, injury, or condition[.]”). Without any
showing of this sort, the Court is not convinced that the State’s provisions for out-of-network
reimbursement run afoul of § 1396b(m)(2)(A)(vii).

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B.

§ 1396a(bb)(1)-(2)

The fact that Legacy has not demonstrated a violation of § 1396b(m)(2)(A)(vii) does not
end the inquiry into whether Texas has satisfied its reimbursement obligations under the
Medicaid Act. Because Legacy is an FQHC, the dispositive provision of the Medicaid Act for
the issue of out-of-network reimbursement is not § 1396b(m)(2)(A)(vii), but rather §
1396a(bb)(1)-(2). 10 Under § 1396a(bb), “the [s]tate is . . . responsible for reimbursement of the
entire PPS rate for all Medicaid-eligible encounters.” 11 New Jersey Primary Care Ass’n Inc. v.
New Jersey Dep’t of Human Servs., 722 F.3d 527, 539 (3d Cir. 2013); see also May 2016
Opinion 16-17 (collecting other cases so holding). Because the state’s reimbursement obligation
under § 1396a(bb) extends to “all Medicaid-eligible encounters,” the state bears the
responsibility of ensuring that FQHCs receive PPS reimbursement for both in-network and outof-network Medicaid-covered services. See CMS Stmt. Interest 8, 11. As this Court has
previously explained, the state has an “obligation [which] flows directly from 42 U.S.C. §
1396a(bb)” to “ensure that FQHCs are actually reimbursed for [out-of-network] services they
provide.” Mem. & Order, July 2, 2015, at 14.
When a state delegates to MCOs the task of reimbursing FQHCs for clause vii services—
as § 1396b(m)(2)(A)(vii) allows and as Texas has done—the state retains the ultimate
responsibility of ensuring that FQHCs receive full PPS reimbursement for all Medicaid-covered

10

In ruling, at the motion to dismiss stage, that Plaintiff had stated a claim to enjoin the State’s
out-of-network reimbursement policies, the Court made clear that this claim arises under § 1396a(bb), not
§ 1396b(m)(2)(A)(vii). Mem. & Order, July 2, 2015, at 13, 15.
11
42 U.S.C. § 1396a(bb) sets forth the state’s obligations with respect to “[p]ayment for services
provided by Federally-qualified health centers.” See 42 U.S.C. § 1396a(bb)(1) (“the State plan shall
provide for payment for [Medicaid services] furnished by a Federally-qualified health center . . . in
accordance with [the PPS methodology].”); id. § 1396a(bb)(2) (“[T]he State plan shall provide for
payment for . . . 100 percent . . . of the costs . . . which are reasonable and related to the cost of furnishing
services.”). The provisions of § 1396a(bb) make no distinction between services that an FQHC provides
in-network or out-of-network.
11

services. This responsibility creates two distinct payment obligations for the state as relates to
out-of-network services provided by FQHCs. First, in the event that an MCO declines to pay or
underpays an FQHC for a valid clause vii claim, the state must make payment to the FQHC at
the PPS rate for the clause vii service. 12 Three Lower Counties, 498 F.3d at 303-304; Shah, 770
F.3d at 157; CMS Stmt. Interest 11-12 (“If an FQHC provides covered services that fall within
the scope of [§1396b(m)(2)(A)(vii)], and payment is appropriate thereunder, then the FQHC
would be entitled to receive payment for such services at the full PPS amount . . . . [, and], as in
the case of in-network services, the State cannot divest itself of [the] responsibility for ensuring
that the FQHC receives full payment for this amount.”). Second, in the event that an FQHC
seeks reimbursement for an out-of-network Medicaid-covered service that does not fall within
the scope of §1396b(m)(2)(A)(vii), the state must still provide the FQHC with the PPS payment.
As CMS has explained:
Consistent with [§ 1396b(m)(2)(A)(vii)], a state could contractually require an
MCO to provide for payment of [clause vii] services at the PPS rate. Even if a
state were to do so, however, that delegation would not absolve the state of
ultimate responsibility to ensure that an FQHC is actually paid the full PPS
amount for any covered out-of-network services it provides.
CMS Stmt. Interest 12 (emphasis added). See also Shah, 770 F.3d at 157 (“The fact that MCOs
are the primary avenue for payment for out-of-network emergency care under [the state’s]
standard contractual arrangements cannot relieve the state of its specific burden to ensure
payment to FQHCs under Section 1396a(bb)(2).”); Mem. & Order, July 2, 2015, at 13 n.4
(“[Section] 1396a(bb) . . . create[s] an enforceable right” that “guarantee[s] that FQHCs will be
paid at the PPS rate for services provided to Medicaid patients. . . . § 1396b(m) simply addresses

12

The state could then “bring suit against a non-compliant MCO for breach of contract, unjust
enrichment and any other claims as it may see fit.” Cmty. Healthcare Assoc. of New York v. New York
State Dep’t of Health, 921 F. Supp. 2d 130, 145 (S.D.N.Y. 2013), aff’d in part, vacated in part on other
grounds sub nom. Cmty. Health Care Ass'n of New York v. Shah, 770 F.3d 129 (2d Cir. 2014).
12

whether Legacy should turn first to the MCO or to the state for payment.”). In short, “[t]o the
extent that out-of-network services constitute a part of the services provided by FQHCs, there
must be some arrangement by which FQHCs may be reimbursed for them.” Shah, 770 F.3d at
157.
Under these principles, it is clear that HHSC has not satisfied its obligations under §
1396a(bb). It is undisputed that: (1) Legacy has provided Medicaid-covered services to out-ofnetwork individuals, (2) TCHP has denied payment on claims for such out-of-network services,
and (3) Legacy has been left with no payment from the State for the out-of-network services it
has provided. 13 Without intervention from the Court, the State will continue to refuse to
reimburse Legacy for such services. For the reasons stated above, this is impermissible under §
1396a(bb) and must be enjoined. See Shah, 770 F.3d at 153 (“[T]he possibility that FQHCs will
‘be left holding the bag,’ [is] a clearly impermissible result[.]” (quoting New Jersey Primary
Care, 722 F.3d at 541)).
The State contends that its approach to out-of-network reimbursement satisfies the
Medicaid Act because the State maintains an administrative process by which a provider can
challenge an MCO’s denial of (or underpayment on) an out-of-network claim. See 1 Tex. Admin.
Code § 353.4(h). But this administrative review process covers, at most, only the subset of outof-network services that fall within § 1396b(m)(2)(A)(vii). There remains no procedure by which
the State can reimburse FQHCs for Medicaid-covered out-of-network services that do not meet
the requirements of § 1396b(m)(2)(A)(vii). The State’s failure to provide PPS payment for this
segment of out-of-network services must be enjoined.

13

The State disputes whether the out-of-network claims for which Legacy seeks reimbursement
qualify as clause vii claims, see Def.’s Mot. Summ. J. 25, but the State does not dispute that Legacy has
out-of-network claims for covered services that have gone unpaid.
13

V.

CONCLUSION
For the reasons set forth above, the Court finds that Plaintiff’s Motion for Summary

Judgment (Doc. No. 84) should be, and hereby is, GRANTED IN PART. Defendant’s crossMotion for Summary Judgment (Doc. No. 89) is DENIED. The State’s reimbursement policy for
out-of-network claims by FQHCs is hereby enjoined until modified in a manner consistent with
this Opinion.
IT IS SO ORDERED.
SIGNED at Houston, Texas on this the 2nd day of September, 2016.

HON. KEITH P. ELLISON
UNITED STATES DISTRICT JUDGE

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