New Jersey Primary Care Ass'n v. New Jersey Department of Human Services

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________

No. 12-3220
_____________

NEW JERSEY PRIMARY CARE ASSOCIATION INC.

v.

STATE OF NEW JERSEY DEPARTMENT OF HUMAN
SERVICES; JENNIFER VELEZ, ESQ., in her Official
Capacity as Commissioner of the State of
New Jersey Department of Human Services;
STATE OF NEW JERSEY DEPARTMENT OF HUMAN
SERVICES, DIVISION OF MEDICAL ASSISTANCE AND
HEALTH SERVICES; VALERIE HARR, in her Official
Capacity as Director of the Division of Medical Assistance
and Health Services,
Appellants
_____________

APPEAL FROM THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF NEW JERSEY
(D.C. Civil No. 12-cv-00413)
District Judge: Honorable Joel A. Pisano
____________

Argued: March 20, 2013
____________

Before: FUENTES, CHAGARES and BARRY,
Circuit Judges

(Opinion Filed: July 9, 2013)
____________
Caroline M. Brown, Esq. (Argued)
Ze-wen J. Chen, Esq.
Covington & Burling, LLP
1201 Pennsylvania Avenue, N.W.
Washington, DC 20004

Counsel for Appellants

Khatereh S. Ghiladi, Esq. (Argued)
Rupinderjit S. Grewal, Esq.
Feldesman Tucker Leifer Fidell, LLP
1129 20th Street, N.W.
4th Floor
Washington, DC 20036

Counsel for Appellee
____________

OPINION OF THE COURT
____________

BARRY, Circuit Judge

Under the federal Medicaid statute, 42 U.S.C. § 1396
et seq., states participating in Medicaid and implementing a
managed care environment are obligated to make, at least
every fourth month, supplemental payments (known as
―wraparound payments‖) to federally-qualified health centers
(―FQHCs‖) in an amount equal to the difference between a
predetermined rate set by the Medicaid statute multiplied by
the number of Medicaid patient encounters, and the amount
paid to FQHCs by managed care organizations (―MCOs‖)1 for
all Medicaid-covered patient encounters. In 2011, concerned
that gaps in the FQHCs‘ claim verification process led to
significant overpayments, the New Jersey Department of
Human Services (the ―State‖) changed its methodology for
calculating wraparound payments. Under the new
methodology, instead of basing the payments solely on the

1
MCOs are commonly referred to as health maintenance
organizations or ―HMOs‖.

2
number of Medicaid encounters and their total MCO receipts
as self-reported by FQHCs, the State would instead rely on
data reported by MCOs absent receipt of certain additional
data from the FQHCs. Because MCOs only report encounters
that they have approved and paid, prior MCO payment would
become a prerequisite to State wraparound reimbursement
under the new system.

Plaintiff, the New Jersey Primary Care Association
(―NJPCA‖), a nonprofit organization under § 501(c)(3) of the
Internal Revenue Code and comprised of New Jersey FQHCs,
brought the instant action claiming that this change violated
the FQHCs‘ right to due process and federal and state law
governing Medicaid wraparound payments, resulting in
considerable budget shortfalls. The State moved for summary
judgment; NJPCA cross-moved for summary judgment and
moved for a preliminary injunction demanding the immediate
payment of the amount the State would have paid under the
preexisting system and enjoining the State from implementing
the change. The District Court granted NJPCA‘s motions for
summary judgment and a preliminary injunction, and denied
the State‘s motion. The State now appeals. We will affirm in
part, and reverse in part.

I. BACKGROUND

A. Statutory Framework

Title XIX of the Social Security Act authorizes federal
grants to states for medical assistance to qualified low-income
persons. Harris v. McRae, 448 U.S. 297, 301 (1980). The
Medicaid program is jointly financed by federal and state
governments but is administered entirely by the states. States
that elect to participate in the program must comply with the
federal Medicaid statute and implementing regulations
promulgated by the Secretary of Health and Human Services
(―HHS‖). Pa. Pharmacists Ass’n v. Houstoun, 283 F.3d 531,
533 (3d Cir. 2002) (en banc). Among the federal requirements
is the requirement that the state adopt an implementation
―plan‖ approved by the federal government, consisting of a
―comprehensive written statement submitted by the [state]

3
agency describing the nature and scope of its Medicaid
program.‖ 42 C.F.R. § 430.10; see also 42 U.S.C. § 1396.
The federal government will review the proposal and
―determine whether the plan can be approved to serve as a
basis for Federal financial participation . . . in the State
program.‖ 42 C.F.R. § 430.10. State plans must be amended
whenever necessary to reflect changes in the federal law or
―[m]aterial changes in State law, organization, or policy, or in
the State‘s operation of the Medicaid program.‖ Id. §
430.12(c)(ii).

States participating in Medicaid must also offer non-
profit federally-qualified health centers—the FQHCs—known
as community health centers, which receive federal grants
under Section 330 of the Public Health Service Act (―PHSA‖)
and provide primary and preventive care to medically
underserved communities. 42 U.S.C. § 254b. Where
available, such as for Medicaid-eligible encounters, FQHCs
must seek reimbursement for their expenses. Id. §
254b(k)(3)(F). The federal Medicaid statute specifically
regulates FQHC reimbursement for services provided to
Medicaid beneficiaries. Id. § 1396a(bb)(1). Under the
Medicaid program, reimbursement payments owed by each
participating state to FQHCs are assessed through what is
known as the Prospective Payment System (―PPS‖). Id. §
1396a(bb)(1)-(3). Stated simply, the FQHCs‘ reimbursement
from the state is calculated by multiplying the number of
Medicaid encounters by the average reasonable costs of
serving Medicaid patients in 1999 and 2000 (the ―PPS rate‖),
adjusted yearly for inflation by a factor known as the
Medicare Economic Index. Id. The system creates risks of
both under- and over-payment relative to actual costs. If
FQHCs control their costs below the PPS reimbursement, they
stand to earn a profit. If costs exceed the PPS reimbursement,
FQHCs suffer a loss. 2

2
Until 2000, in order to ensure that federal grant awards
under the PHSA did not subsidize benefits that should be paid
by Medicaid, the federal Medicaid statute required that state
Medicaid programs reimburse FQHCs for all reasonable
costs incurred when providing services to Medicaid

4
 Like many other states, New Jersey has adopted a
managed care program, pursuant to which it contracts with
managed care organizations—the MCOs—that arrange for the
delivery of health care services to individuals who enroll with
them. Because MCOs do not typically operate their own
facilities, MCOs subcontract with providers, including
FQHCs, to provide medical services. In New Jersey, MCOs
receive prospective payments from the State based on a fixed
monthly fee per patient and the anticipated use of services
(the ―capitation payment‖). The MCOs, in turn, contract with
FQHCs to provide medical services, and reimburse FQHCs
for Medicaid-covered encounters out of their capitation funds.
Though the costs are agreed upon, under the Medicaid statute,
MCOs must make to FQHCs at least ―the level and amount of
payment which the [MCO] would make for the services if the
services were furnished by a provider which is not a
[FQHC].‖ Id. § 1396b(m)(2)(A)(ix).

A frequent problem, and the subject of the dispute
before us, occurs in a managed care system: the contracted-for
payment from the MCO to the FQHC for a Medicaid-covered
patient encounter is often less than the amount the FQHC is
entitled to receive under the PPS. In this situation, the
Medicaid statute requires the state to make a supplemental
payment—the wraparound payment—at least once every four
months, to make up the difference between the PPS rate and
the MCO payment. § 1396a(bb)(5)(B). This payment must
be ―equal to the amount (if any) by which the [per-visit rate]
exceeds the amount of the payments provided under the
[managed care] contract.‖ 42 U.S.C. §1396a(bb)(5)(A). In
essence, then: FQHCs are entitled to two discrete payments
for Medicaid-covered encounters, the direct payment from the

beneficiaries. The Benefits Improvement and Protection Act
of 2000 (―BIPA‖), Pub. L. No. 106-554, 114 Stat. 2763,
repealed cost-based reimbursement and adopted the PPS,
which created these cost-controlling incentives. BIPA also
alleviated the providers‘ burden of providing individual cost
data. After the enactment of BIPA, providers need report
only the number of Medicaid-eligible visits and MCO
receipts.

5
MCO, and the wraparound payment from the state to
supplement the former. The MCO payment plus the
wraparound payment equals the PPS reimbursement.
Critically here, the Medicaid statute does not mandate any
particular methodology for calculating the wraparound
payment, and different states have implemented different
procedures. Compare Three Lower Cntys. Cmty. Health
Servs., Inc. v. Maryland, 498 F.3d 294, 299 (4th Cir. 2007)
(describing Maryland‘s practice whereby the FQHCs file
claims to MCOs, and MCOs validate and process the claims
and report them to the state), with Ohio Admin. Code §
5101:3-28-07 (wraparound payments are calculated based on
claim data submitted to states directly by FQHCs).

The Medicaid statute also requires that states ―provide
for procedures of prepayment and postpayment claims review,
including review of appropriate data with respect to the
recipient and provider of a service and the nature of the
service for which payment is claimed, to ensure the proper
and efficient payment of claims and management of the
program.‖ 42 U.S.C. § 1396a(a)(37)(B). The Centers for
Medicare and Medicaid Services (―CMS‖), the federal agency
responsible for overseeing the Medicare and Medicaid
programs, issues the State Medicaid Manual, which interprets
federal law and regulations to require ―supporting
documentation [that] includes as a minimum the following:
date of service, name of recipient, Medicaid identification
number, name of provider agency and person providing the
service, nature, extent, or units of service, and the place of
service.‖ State Medicaid Manual § 2500.2, at 2-112,
available at www.cms.gov/Regulations-and-
Guidance/Guidance/Manuals/Paper-Based-Manuals-
Items/CMS021927.html.

B. New Jersey Medicaid and Calculation of Wraparound
Payments

Following implementation of the PPS in 2000, New
Jersey amended its state plan to read as follows:

After the final PPS encounter rates effective

6
 January 1, 2001 and July 1, 2001 are calculated,
a financial transaction will be processed for the
difference between the interim and final PPS
encounter rate for encounters provided to
Medicaid managed care beneficiaries. Once the
PPS rates effective January 1, 2001 and July 1,
2001 have been finalized, all subsequent
quarterly wraparound payments will be
reconciled at 100% of the PPS encounter rate.

N.J. State Plan, attach. 4.19-B, at 9(c)(10-11). Though the
plan amendment was approved by CMS, it does not specify
how the State is to verify eligible claims or calculate
wraparound payments, leaving this instead to the New Jersey
Medicaid statute, N.J. Stat. Ann. § 30:4D-1, et seq., and
subsequent regulations.

The New Jersey Medicaid statute requires providers to
―maintain such individual records as are necessary to fully
disclose 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. Stat. Ann § 30:4D-12(d). State regulations specify that
health care providers agree to ―furnish information for . . .
services as the program may request.‖ N.J. Admin. Code §
10:49-9.8(b)(2). The regulations also require FQHCs to
―maintain an accounting system, which identifies costs in a
manner that conforms to generally accepted accounting
principles and maintain documentation to support all data.‖
Id. § 10:66-1.5(d)(1)(x). The State is authorized to ―conduct
either on-site or desk audits of cost reports, including
financial, statistical, and medical records,‖ id. § 10:66-
1.5(d)(1)(x)(4), and in connection with such, FQHCs are
required to ―submit other information (statistics, cost and
financial data) when deemed necessary by the Department.‖
Id. § 10:66-1.5(d)(1)(x)(5).

The New Jersey regulations implementing the quarterly
wraparound payment system provide more specific details
regarding Medicaid reimbursement and FQHC reporting

7
requirements:

[A]ll quarterly wrap-around reports shall be
reconciled at 100 percent of the difference
between the final rate and the managed care
receipts received for services provided to
Medicaid . . . managed care beneficiaries. In the
event of an underpayment, the Division shall
reimburse the provider 100 percent of the
amount due. In the event of an overpayment, the
provider shall reimburse the Division 100
percent of the overpayment within 30 days of
the due date of the Managed Care Wrap-around
Report.

Id. § 10:66-1.5(d)(1)(viii)(4). FQHCs are required to submit
two quarterly reports to the New Jersey Department of Human
Services—one indicating the number of Medicaid-eligible
encounters, id. at § 10:66-1.5(d)(1)(viii)(6), and another
indicating ―[a]ll Medicaid . . . managed care payments
received by the FQHC for the quarter, including capitation,
fee-for-service, supplemental or administration fund, and any
other managed care payments,‖ id. at § 10:66-
1.5(d)(1)(viii)(7). FQHCs report these Medicaid encounters
and the MCO receipts on reports called the ―Medicaid
Managed Care Encounter Detail Report‖ and the ―Medicaid
Managed Care Receipts Report.‖ Id. at § 10:66-4, App‘x. E.
These reports do not require a claim-by-claim breakdown of
the data; rather, they require FQHCs only to report the
aggregate quarterly encounters and aggregate MCO receipts.

Up until the third quarter of 2011, to calculate the
quarterly wraparound payment, the State relied solely on the
self-reported Medicaid Managed Care Encounter Detail and
the Medicaid Managed Care Receipts reports. Using the
FQHCs‘ reports, the State would multiply the number of
Medicaid encounters by the PPS rate, and then subtract from
this figure aggregate MCO receipts. In practice, this meant
that each FQHC would report all Medicaid-covered
encounters on the worksheet, regardless of whether an MCO
actually paid its contracted portion of the particular encounter.

8
Therefore, for reported encounters left unpaid by an MCO,
the wraparound payment for that encounter would constitute
the full PPS rate (i.e., full PPS rate minus the zero payment by
MCO is equal to the wraparound payment).

C. New Jersey’s New Wraparound Payment System

In a letter dated April 6, 2004, the State invited FQHCs
to participate in a dialogue in an effort to remedy its concern
that wraparound calculations were resulting in overpayments
to the FQHCs. Over the next few years, the State conducted
site visits and held quarterly meetings to discuss possible
remedies. At a meeting on February 9, 2005, the State
indicated for the first time that it would prefer to use data
submitted to it by MCOs to calculate wraparound payments.
It was not disputed that there were important discrepancies
between the MCO and FQHC data systems. The State
believed that the self-reported data resulted in substantial
overpayment by the State for invalid Medicaid claims that had
been correctly rejected by the MCOs. The NJPCA maintained
that using MCO data would result in substantial
underpayment because claims are rejected by MCOs for
reasons unrelated to their Medicaid eligibility, and insisted
that FQHCs continue to play a role in the verification process.
In 2008, the State proposed that FQHCs include in their
quarterly wraparound reports claim-level data fields (such as
the name of the patient, the provider, Medicaid ID number,
the encounter date, etc.) to verify each claim. NJPCA resisted
this proposal and the State held off implementation.

In 2011, however, the State informed FQHCs that it
had performed a review of the MCO Medicaid data and
discovered that approximately 10% of claims submitted by
FQHCs to MCOs had been denied but were never corrected
and resubmitted for MCO reimbursement. Because these
claims were nevertheless submitted as Medicaid-covered
encounters in the FQHCs‘ quarterly wraparound reports, the
State‘s wraparound payment for these claims amounted to the
full PPS rate. According to the State, this indicated one of
two problems: either (1) the rejected claims, if valid, should
have been, but never were, paid by the MCOs at the

9
contracted rate (indicating that the State overpaid by the
amount of the contracted rate), or (2) the claims were invalid,
for a variety of reasons—such as lack of Medicaid eligibility,
accidental duplicate claims, or fraud—and were not eligible
for any State reimbursement (indicating that the State
overpaid by the entire PPS rate).

In a May 5, 2011 letter addressed to each FQHC, the
State informed the clinics that it had developed, through a
third party, a detailed reporting system that captured FQHC
claim data from MCOs called the ―Molina Medicaid
Encounter System.‖ The State provided a disk to each FQHC
with the Molina data and invited the FQHCs to point out and
reconcile valid Medicaid encounters they believe were not
reported by the Molina system.

In a letter dated June 9, 2011, the State ordered new
data to be included in the FQHCs‘ quarterly reports beginning
with the third quarter of 2011. The letter required the
following detailed data fields to support reimbursement
claims for each Medicaid encounter: (1) recipient full name;
(2) recipient Medicaid ID number; (3) name of the MCO; (4)
MCO assigned ID number; (5) FQHC billing number; (6) date
of service rendered; and (7) procedure code and modifiers.
The State indicated that it would not process the wraparound
payments until it received this claim-level verification data.
Despite raising concerns about the feasibility of providing this
data on such short notice and requesting at least a one-quarter
delay before implementation, the FQHCs expressed their
intent to comply. The NJPCA, however, reiterated its
position that the State was nevertheless responsible for
making full and timely wraparound payments for all valid
Medicaid encounters.

The State sent a letter to the FQHCs on September 12,
2011 that launched the parties into the instant dispute. The
letter requested that FQHCs provide two additional data fields
for each claimed Medicaid encounter: (1) the MCO payment
amount, and (2) the MCO payment date (together, the ―MCO
payment data‖). The letter also stated that if the FQHCs were
unable to produce this information by the close of the third

10
quarter, the State would calculate the quarterly wraparound
payment using the MCO data generated by the Molina system.
To the NJPCA, this request evinced an unprecedented change
to the New Jersey State Medicaid reimbursement system.
Rather than ensuring reimbursement for all Medicaid-covered
encounters, regardless of whether the FQHC obtained MCO
payment, the State would reimburse FQHCs only for
encounters for which the MCO had paid its contracted
portion. The State has not retreated from this position,
maintaining that an MCO‘s determination that a claim is valid
and Medicaid-eligible is an essential prerequisite to the
State‘s reimbursement.

The NJPCA objected to the change, principally on the
ground that MCOs deny claims for myriad reasons unrelated
to whether the encounter was covered under Medicaid. For
example, MCOs might reject valid Medicaid services when a
patient sees a covering physician rather than the patient‘s
primary care physician when the primary care physician is on
vacation or ill, when a single physician provides services in
two different locations on the same day, or when an MCO‘s
own processing delays wrongfully result in a claim‘s ―late
submission.‖ When an MCO denies a valid Medicaid-eligible
claim for one of these reasons and the State refuses to pay any
wraparound payment, the FQHC is denied the entire PPS rate
reimbursement for a Medicaid-eligible encounter, which,
NJPCA argues, constitutes a violation of the federal Medicaid
statute‘s mandate that FQHCs receive full and timely
compensation.

While objecting to the change in policy, the FQHCs
nevertheless attempted to comply with the State‘s additional
documentation demands by the end of the third quarter of
2011. After reviewing the claims data submitted, however,
the State determined that each of the FQHCs had failed to
submit sufficiently complete or accurate data. According to
the State, in some instances, FQHCs failed to provide the
amount or date of the MCO payment; in others, FQHCs
provided duplicate Medicaid numbers for multiple
encounters. Therefore, the State based its third-quarter
wraparound payments on the Molina system. The State made

11
these payments in late November 2011, which FQHCs claim
resulted in severe budget shortfalls, including as much as
$400,000 for one FQHC. 3

The NJPCA brought the instant action on behalf of the
New Jersey FQHCs, claiming that the State‘s new
wraparound payment policy violated the federal Medicaid
statute and the New Jersey‘s own Medicaid regulations. The
NJPCA also alleged that the State‘s implementation of the
new policy without changing existing regulations through
notice and comment rulemaking procedure violated its right to
due process. The parties cross-moved for summary judgment,
and the NJPCA moved for a preliminary injunction requiring
the emergency payment of wraparound funds based on the
predecessor payment system.

D. The District Court’s Decision

The District Court found, first, that the State‘s
unilateral change in its wraparound payment policy
constituted an amendment of the State plan without obtaining
federal approval in violation of the federal Medicaid statute.
The Court also found that the State‘s departure from its own
regulations without notice-and-comment rulemaking was
arbitrary and capricious. The Court further found that the
policy of requiring prior MCO payment for eligibility itself
was arbitrary and capricious because prior MCO payment is
not equivalent to eligibility for Medicaid, as MCOs deny
claims for reasons unrelated to whether they are covered by
Medicaid. In other words, because some Medicaid-covered
encounters would remain unpaid, the new policy would
guarantee that the State would violate the Medicaid statute‘s
mandate to reimburse FQHCs at the PPS rate. Moreover, the
Court found that the new policy constituted a denial of the
FQHCs‘ right to procedural due process, because it deprived

3
According to the State, several FQHCs submitted additional
data validating Medicaid-covered encounters that had not
been accounted for in the Molina data. The State, after
reviewing the new data, made additional supplemental
payments to these FQHCs.

12
them of their property interest in full and complete
wraparound payments without adequate notice-and-comment
rulemaking. Finally, the Court found that the FQHCs would
be denied due process under the new policy, because they
would be unable to meaningfully challenge wraparound
payment denials other than through the private—and
inadequate—MCO appeals process.

Accordingly, the District Court entered an order
granting NJPCA‘s motion for summary judgment and denying
the State‘s motion, and issued a preliminary injunction,
enjoining the State from calculating wraparound payments in
the manner proposed and ordering immediate emergency
payment in the amount the FQHCs would have received under
the preceding wraparound payment system. While the Court
acknowledged that NJPCA had established its entitlement to
summary judgment on the issue of whether the State‘s past
actions violated the law, it noted ―complex issues of fact
relevant to the establishment of a new system, which are
unsuited to resolution by the Court.‖ A22 (emphasis added).
Accordingly, the Court exercised its equitable powers to grant
―limited injunctive relief‖ relating to remediating the State‘s
past illegal actions, and retained jurisdiction over the case
while the parties ―engaged in a good-faith effort to resolve
their differences and create a new system that complies with
federal and state law.‖ Id. The Court required that the State
submit an implementation plan within 180 days of the order
and that the parties submit regular written status reports. The
State now appeals.

II. JURISDICTION AND STANDARD OF REVIEW

The District Court had jurisdiction under 28 U.S.C. §
1331 and we have jurisdiction under 28 U.S.C. § 1291. Our
review of a district court‘s grant of summary judgment is
plenary, and we view the facts in the light most favorable to
the non-moving party. A.W. v. Jersey City Pub. Schs., 486
F.3d 791, 794 (3d Cir. 2007). We review a district court‘s
decision to grant a preliminary injunction under a three-part
standard: findings of fact are reviewed for clear error,
conclusions of law are evaluated under a plenary standard,

13
and the ultimate decision to grant the preliminary injunction is
reviewed for abuse of discretion. Rogers v. Corbett, 468 F.3d
188, 192 (3d Cir. 2006).

III. ANALYSIS

As an initial matter, the parties agree on appeal,
notwithstanding the order of the District Court to the contrary,
that the State may require that FQHCs provide claim-level
data of the seven categories initially requested in the June 9,
2011 letter: (1) recipient full name; (2) recipient Medicaid ID
number; (3) name of the MCO; (4) MCO assigned ID
number; (5) FQHC billing number; (6) date of service
rendered; and (7) the procedure code and modifiers.
Appellee‘s Br. at 24. Indeed, the State was well within its
statutory and regulatory authority to require this information,
see 42 U.S.C. § 1396a(a)(37)(B) (requiring that states collect
such information); N.J. Stat. Ann §§ 30:4D-12(d), (f)
(authorizing agency to collect this data), and we will reverse
the order of the District Court to the extent it enjoined the
State from taking such action.

NJPCA does take aim, however, at the State‘s
requirement that FQHCs submit the two MCO payment data
fields—the MCO Payment Amount and the MCO Payment
Date—before receiving quarterly wraparounds payments. On
appeal—and conceded during oral argument—the NJPCA
objects not to the collection of the MCO payment data, as
such, but only insofar as the collection of that data is ―really
just indicia of a new policy limiting supplemental payment to
only those encounters that received prior MCO payment.‖
Appellee‘s Br. at 24; see also id. at 43 n. 12 (―The primary
issue of contention in this case is the State unlawfully
requiring prior MCO payment for an FQHC to obtain a
corresponding supplemental payment.‖). Therefore, because
the NJPCA appears to have waived its objection to the data
collection requirements, and for the additional reasons we
discuss below, we will also reverse the order of the District
Court to the extent it enjoined the State from requiring
FQHCs to report the two MCO payment data fields.

14
 At the heart of the instant dispute is the NJPCA‘s
attempt to invalidate the State‘s policy shift requiring prior
MCO payment before processing wraparound
reimbursements. The NJPCA contends that the State‘s action:
(1) violated the federal Medicaid statute by (a) effectuating a
de facto amendment to its State Medicaid Plan without
obtaining prior federal agency approval in violation of 42
U.S.C. § 1396a and 42 C.F.R. § 430.12(c), and (b) failing to
provide FQHCs with full and timely wraparound payments;
(2) violated New Jersey regulations implementing Medicaid;
and (3) violated the FQHCs‘ right to procedural due process
by depriving them of wraparound payments without sufficient
notice and opportunity to be heard.

The State, of course, has taken issue with each of these
contentions. We depart from the District Court on several of
its grounds for invalidating the State‘s action, and will
address these first. At the end of the day, however, we
conclude that the State‘s requirement of prior MCO payment
before processing a wraparound reimbursement, absent an
effective process by which FQHCs may challenge improperly
denied claims within the statutorily mandated time period,
violates the federal Medicaid statute‘s requirement that
FQHCs receive full and timely wraparound payments.

A. New Jersey Regulations

The District Court found that the MCO payment
documentation requirement and the prior payment
requirement violated New Jersey‘s regulations implementing
Medicaid, and ordered compliance with those regulations.
We conclude that the Eleventh Amendment barred the Court
from taking any such action.

The NJPCA characterizes its claim that the State
violated its own implementing regulations as a violation of
federal law. A federal court, however, is ―barred by the
Eleventh Amendment from ordering . . . state officials to
conform their conduct to state law.‖ Jones v. Connell, 833
F.2d 503, 505 (3d Cir. 1987); see also Concourse
Rehabilitation & Nursing Ctr., Inc. v. DeBuono, 179 F.3d 38,

15
43 (2d Cir. 1999) (―As we repeatedly have explained, the
failure of a State authority to comply with State regulations
cannot alone give rise to a [42 U.S.C.] § 1983 cause of
action.‖). In Pennhurst State School & Hospital v.
Halderman, the Supreme Court explained:

A federal court‘s grant of relief against state
officials on the basis of state law, whether
prospective or retroactive, does not vindicate
the supreme authority of federal law. On the
contrary, it is difficult to think of a greater
intrusion on state sovereignty than when a
federal court instructs state officials on how to
conform their conduct to state law. Such a result
conflicts directly with the principles of
federalism that underlie the Eleventh
Amendment.

465 U.S. 89, 106 (1984).

The Second Circuit applied this doctrine in the
Medicaid context, when a health care provider claimed that
New York‘s manner of conducting audits violated the New
York plan and regulations, and, as such, violated the federal
Medicaid statute. Concourse Rehabilitation, 179 F.3d at 43-
44. The Court concluded that ―absent the assertion of a
specific conflict between the State plan or practices and
federal law, such allegations fail to give rise to a federal cause
of action. Because Concourse's allegations fail to assert such
a specific conflict, and because the Eleventh Amendment bars
our consideration of purely State law claims, we lack
jurisdiction to decide appellant‘s claim.‖ Id. at 44 (internal
citation omitted). Similarly here, the District Court lacked
jurisdiction to invalidate the State‘s action on the basis of the
State‘s purported failure to abide by its implementing
regulations.

B. Due Process

We also disagree with the District Court that the
State‘s change of policy violated the FQHCs‘ right to

16
procedural due process. The NJPCA makes two distinct due
process claims: (1) that the State‘s action itself deprived the
FQHCs of due process because it denied them the full
wraparound payments to which they were entitled without
affording sufficient notice and opportunity to be heard; and
(2) that the MCO appeals process is inadequate to protect
against the deprivation of their entitlement to full
supplemental payments. The Court found that the FQHCs
had succeeded on both of these claims, because (1) the policy
change was not accompanied by a notice-and-comment rule-
making procedure and (2) the FQHCs‘ ―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.‖ A. 16.

1. Notice and Opportunity to Heard

The State‘s failure to engage in notice-and-comment
rulemaking does not constitute a procedural due process
violation. The Due Process Clause does not require a state
agency to engage in notice-and-comment rulemaking. See
Tenny v. Blagojevich, 659 F.3d 578, 582 (7th Cir. 2011)
(―The plaintiffs suggest that some sort of notice-and-comment
rulemaking might satisfy constitutional due process. The
prospect of a federal court ordering a state to create such a
procedure risks turning procedural due process into a
constitutionally mandated state administrative procedure
act.‖). Indeed, the NJPCA does not try to defend this position
before us. Rather, it essentially argues that FQHCs were not
given enough notice to comb through and reconcile the data
demanded by the State in time for the end of the third quarter
of 2011. While sympathetic, we cannot see how this amounts
to a deprivation of constitutional proportions. The NJPCA
also argues that the State failed to give notice ―justifying‖ the
denial of full wraparound payments. However, the State had
given the FQHCs notice of its intent to seek and base its
wraparound reimbursement on MCO payment data as early as
2004 and solicited FQHCs‘ opinions on the issue on multiple
occasions. The State‘s action did not amount to a due process
violation.

17
 2. MCO Appeals Process

The second due process claim is more perplexing as it
seems to involve the adequacy of the process provided by
non-state actors, the MCOs. This cannot rise to a
constitutional violation. See Gonzalez-Maldonado v. MMM
Healthcare, Inc., 693 F.3d 244, 248 (1st Cir. 2012) (―Because
we hold that [MCOs] are not governmental actors, the
appellants‘ constitutional claims necessarily fail . . . .‖). The
NJPCA attempts to shoehorn the State into this claim by
arguing that the new State policy leaves the FQHCs with no
choice when confronted with a wrongful denial of a
Medicaid-eligible claim but to go through the internal MCO
appeals process, which the NJPCA contends is time-
consuming and biased. But this simply restates the NJPCA‘s
substantive Medicaid claim. If an FQHC is entitled to a
wraparound payment for a Medicaid-eligible claim
notwithstanding the lack of the prior MCO payment, the
State‘s refusal to provide the payment is unlawful—no matter
what subsequent process is offered. In any event, the
adequacy or inadequacy of the internal MCO appellate
process cannot be the basis for a procedural due process
claim.

C. Federal Medicaid Statute

The District Court found that the State‘s shift in policy
violates the Medicaid statute in two ways: (1) it constitutes an
amendment to the State Medicaid plan which requires federal
approval, not the informal procedure used here; and (2) it
deprives FQHCs of the full and timely wraparound payments
to which they are entitled. We find that FQHCs do not have a
private right of action to enforce the federal Medicaid
statute‘s state plan approval requirement, but agree that the
State‘s action violates the statute‘s requirement that a state
timely make fully compensatory wraparound payments.

1. Federal Approval Requirement

As noted, the State must amend its plan and submit it
for federal approval by the CMS to reflect ―[m]aterial changes

18
in State law, organization, or policy, or in the State‘s
operation of the Medicaid program.‖ 42 C.F.R. §
430.12(c)(ii). If the CMS determines that a state plan or plan
amendment does not comply with statutory requirements, it
may deny the state federal funds. Id. §§ 430.15(c), 430.18.
The District Court concluded that New Jersey‘s change in
requiring the MCO data and prior MCO payment before
processing wraparound payments constituted a de facto
amendment to the plan without first securing federal approval
in violation of the Medicaid statute. 42 U.S.C. § 1396a; 42
C.F.R. § 430.12(c). Because the FQHCs lack a private right
of action to enforce the federal approval requirement—and
NJPCA is comprised of New Jersey FQHCs—however, we do
not address whether federal approval was required.

―In order to seek redress through § 1983, . . . a
plaintiff must assert the violation of a federal right not merely
a violation of federal law.‖ Blessing v. Freestone, 520 U.S.
329, 340 (1997). To determine whether a particular statutory
provision gives rise to federal right, we look to whether
―Congress [1] must have intended that the provision in
question benefit the plaintiff . . . [,] [2] the right assertedly
protected by the statute is not so ‗vague and amorphous‘ that
its enforcement would strain judicial competence . . . [,] [and]
[3] the statute must unambiguously impose a binding
obligation on the States.‖ Id. at 340-41. The Court, in
Gonzaga University v. Doe, 536 U.S. 273 (2002), emphasized
that Congressional authorization of a private right of action
must be clear: ―We now reject the notion that our cases permit
anything short of an unambiguously conferred right to support
a cause of action brought under § 1983.‖ Id. at 283.

Even though the FQHCs would benefit from
enforcement of the federal approval provision in this case,
there is no indication that Congress intended the approval
provision to confer a private right of action to health care
providers. Pa. Pharmacists Assoc. v. Houstoun, 283 F.3d
531, 536 (3d Cir. 2002) (en banc) (―It is important to keep in
mind that the question whether a statute is intended to benefit
particular plaintiffs is quite different from the question
whether the statute in fact benefits those plaintiffs.‖).

19
Importantly, the provision contains no ―rights-creating
language,‖ does not identify any discrete class of
beneficiaries, and focuses primarily on the state as a regulated
entity rather than any individuals. See Gonzaga, 536 U.S. at
287-90; Long Term Care Pharmacy Alliance v. Ferguson, 362
F.3d 50, 56-57 (1st Cir. 2004).

We join several courts in reaching this conclusion.
See, e.g., Developmental Servs. Network v. Douglas, 666 F.3d
540, 546-48 (9th Cir. 2011) (holding that even though state
plan amendment was required under the Medicaid statute, this
provision did not create a private right of action to health care
providers because it was not intended to benefit them);
Clifton v. Schafer, 969 F.2d 278, 284-85 (7th Cir. 1992)
(holding that Medicaid recipients could not challenge a state‘s
deviation from a plan which comports with federal law—the
only enforceable right is a state plan that comports with
federal requirements). Cmty. Health Care Assocs. of New
York v. New York State Dep’t of Health, __ F. Supp. 2d __,
No. 10–cv–08258 (ALC), 2013 WL 395449, at *10 (S.D.N.Y.
Feb 1, 2013) (finding that ―statutes and regulations requiring
prior approval . . . do not indicate Congress‘s unambiguous
intention to benefit FQHCs specifically. Thus, there is no
basis for relief in a private suit. . . .‖); cf. Pa. Pharmacists
Assoc., 283 F.3d at 541-42 (holding that health care providers
suing for higher reimbursement rates lacked private right of
action to enforce separate Medicaid provision requiring state
plans to provide methods and procedures guaranteeing quality
of care and adequate access). Because FQHCs lack a private
right of action to enforce the requirement of federal approval
of state plan amendments, we lack jurisdiction to consider this
claim.4

4
In any event, we seriously doubt that the changes
implemented by the State materially altered the terms of the
federally-approved State plan. New Jersey‘s plan is silent on
the methodology for calculating wraparound payments or
quarterly reporting requirements, leaving specific
implementation to subsequent State regulation and
interpretation. See Tinoco v. Belshe, 916 F. Supp. 974, 982
(N.D. Cal. 1995) (―In such a complex area of the law, the

20
 2. Full and Timely Wraparound Payment
under 42 U.S.C. § 1396a(bb)(5)

While the NJPCA‘s claim under § 1983 cannot be
based on the State‘s failure to procure prior federal approval
to a state plan amendment, it can be based on the fact that the
State infringed the providers‘ right to full payment under the
federal Medicaid statute. See, e.g., Concilio de Salud Integral
de Loiza, Inc. v. Perez-Perdomo, 551 F.3d 10, 18 (1st Cir.
2008) (finding that whether the supplemental payment
methodology is unlawful as applied is enforceable under §
1983); Pee Dee Health Care, P.A. v. Sanford, 509 F.3d 204,
209–12 (4th Cir. 2007) (same); Cmty. Health Ctr. v. Wilson–
Coker, 311 F.3d 132, 136, 140 (2d Cir. 2002) (same); see also
West Va. Univ. Hosps. v. Casey, 885 F.2d 11, 21 (3d Cir.
1989) (finding that rights-creating language of §
1396a(a)(13)(A) creates private right of action for providers).

The NJPCA challenges the State‘s refusal to make
wraparound payments on claims for which the MCO has not
paid a FQHC, contending that the Medicaid statute requires
the full wraparound payment for any Medicaid-eligible claim

federal government expected states to formulate
implementing regulations not described in the state plan.‖). In
Concourse Rehabilitation & Nursing Center, Inc. v. DeBuono,
the Second Circuit faced the issue of whether the New York
State Department of Health‘s interpretation of its state plan
departed so far from the terms of the plan that it ―constitute[d]
a de facto amendment to the plan, requiring federal approval
prior to implementation.‖ 179 F.3d at 44. Reasoning that the
federal approval requirements could be triggered ―not simply
by a change in the State‘s administration of the plan, but only
by an alteration of the plan itself,‖ the Court held that a
―State‘s interpretation of its own Medicaid plan cannot
constitute a ‗change‘ as that term is used in [§] 430.12(c) . . .
unless, at a minimum, the clear and unequivocal effect of the
interpretation is actually to alter the written terms of the
plan.‖ Id. at 46 (emphasis added). Here, as in Concourse
Rehabilitation, there has been no change to the New Jersey
plan as written, only to its administration.

21
it submits to the State regardless of whether it has first
received MCO payment. The State, however, contends that it
is not responsible for reimbursement at the PPS rate if the
MCO has failed to make prior payment. For the reasons that
follow, we believe the answer is somewhere in between:
Under the Medicaid statute, the State is, indeed, responsible
for reimbursement of the entire PPS rate for all Medicaid-
eligible encounters. The State may, of course, in determining
whether a claim is Medicaid-eligible (i.e., whether it counts as
an encounter), rely in its discretion on many sources,
including data supplied by FQHCs, MCOs, or its own
administrative process, and may refuse to pay non-Medicaid
eligible claims. Here, however, because the State concedes
that the methodology it has chosen to verify claim validity—
the fact of prior MCO payment—will result in failures to fully
reimburse FQHCs at the PPS rate for valid Medicaid claims,
we conclude that the State‘s insistence on making wraparound
payments contingent on prior MCO payment violates the
federal Medicaid statute.

Starting with the text, the federal Medicaid statute
requires ―payment to the [FQHC] by the State of a
supplemental payment equal to the amount (if any) by which
the amount determined [by multiplying the number of
Medicaid encounters by the PPS rate] exceeds the amount of
payments provided under the [MCO] contract.‖ 42 U.S.C. §
1396a(bb)(5)(A). The State focuses on the word
―supplemental,‖ which, it maintains, requires that the FQHCs
receive payment from the MCOs first, and the State then
supplement that payment in its periodic wraparound
payments. This places more weight on the word
―supplemental‖ than it can possibly bear. Nothing in the
provision requires the sequence suggested by the State, but
only that the payment be ―in addition to‖ the MCO contractual
payment. The provision sets forth a relatively simple
equation: a state should make up the difference between the
amount owed under the PPS rate for all eligible Medicaid
encounters and the amount actually paid to the FQHCs by
MCOs at least every four months. See Cmty. Health Care
Assocs., 2013 WL 395449, at *13 (holding that ―the phrase
‗payments provided under the contract‘ permits deduction

22
only of amounts actually paid by the MCO to the FQHC‖).
Where there is a valid Medicaid encounter for which an MCO
has failed to make a payment, the supplemental payment
equals the entire PPS rate. See id. (―Whether or not the MCO
makes a payment, the State is responsible for the
supplemental payment (which may in fact be the entire PPS
rate, if the MCO fails to make a payment).‖). As the Fourth
Circuit explained,

the operative language of the statute for this
case are the words ―equal to.‖ The
supplemental payment must be ―equal to‖ the
difference between the payment made by the
managed care organization and the per-visit rate
fixed by the Medicaid Act. Thus the statute
plainly provides that a State must make fully
compensatory supplemental payments no less
frequently than every four months.

Three Lower Cntys., 498 F.3d at 301 (4th Cir. 2007).

The conclusion we reach is bolstered by the history of
the wraparound payment, which originally arose in the
context of the Balanced Budget Act of 1997 (―BBA‖), Pub. L.
No. 105-33, 111 Stat. 251. Section 4712 of the BBA removed
the responsibility of MCOs to reimburse FQHC‘s at their
cost-based rates as required under the predecessor statute.
Rather, MCOs could agree on a contractual reimbursement
rate as long as that rate was no less than the amount offered to
a non-FQHC. See id. § 4712 (then codified as amended as 42
U.S.C. § 1396a(a)(13)(C) (1999)). The wraparound payment
scheme was implemented to ensure, then, that even in
managed-care states, FQHCs still received the full
reimbursement amount to which they were entitled. See
Three Lower Cntys., 498 F.3d at 299 (―[E]ven when a State
relies upon a managed care system to administer its Medicaid
program, FQHCs are protected and must receive the full per-
visit rate calculated pursuant to the methodology outlined in
the Medicaid Act.‖).

The primacy of making FQHCs whole every four

23
months resonates in the CMS‘s subsequent interpretation of
the supplemental payment system. In an interpretative letter
to State Medicaid Directors,5 the CMS explained that the
wraparound provision ―specifically requires States to make
these supplemental payments. It is our conclusion that this
requirement cannot and should not be delegated to an MCO,
and that each State must determine any differences in
payment and make up these amounts.‖ April 20, 1998, Health
Care Financing Administration State Medicaid Director
Letter, available at http://www.medicaid.gov/Federal-Policy-
guidance/federal-policy-guidance.html. The state, therefore,
cannot simply shift its reimbursement obligations to MCOs.
In another letter dated September 27, 2000 (as cost-based
reimbursement was winding down), the CMS further clarified
that full FQHC reimbursement for Medicaid-eligible
encounters was paramount notwithstanding the risk of loss to
the state. In addressing what would occur in the event an
MCO became insolvent, the letter concluded:

In order to ensure that [FQHCs] are paid
reasonable costs under the Act, the State is
required to include, as part of supplemental
payments, monies that [FQHCs] subcontracted
to receive but did not receive from an insolvent
MCO. . . . Ultimately, the State, on behalf of the
[FQHC], is eligible to receive any settlement
funds that the [FQHC] recovers through
bankruptcy proceedings.

5
Though the letter was issued when Medicaid still operated
on a cost-reimbursement basis, not under the PPS, the analysis
is the same. The CMS‘s interpretative letters, ―like
interpretations contained in policy statements, agency
manuals, and enforcement guidelines, all of which lack the
force of law—do not warrant Chevron-style deference.‖
Christensen v. Harris Cnty., 529 U.S. 576, 587 (2000).
However, such interpretations are ―entitled to respect‖ under
Skidmore v. Swift & Co., 323 U.S. 134 (1944), ―to the extent
that those interpretations have the power to persuade.‖
Christensen, 429 U.S. at 587 (internal quotation marks and
citation omitted).

24
September 27, 2000, Health Care Financing Administration
State Medicaid Director Letter, available at
http://www.medicaid.gov/Federal-Policy-guidance/federal-
policy-guidance.html. In other words, when an MCO is
unable to make its contracted-for payment due to insolvency,
the state is required to pay FQHCs the full reimbursable
amount (at the time, the FQHC‘s reasonable costs), and seek
restitution itself. Thus, while the statutory language is
perhaps not as clear as one would wish, the tenor of the
subsequent interpretations and the limited case law is clear:
where MCOs do not pay out valid Medicaid claims, the
FQHC should not be left holding the bag. See Cmty. Health
Care Assocs., 2013 WL 395449, at *13 (―There is no basis for
the State‘s conclusion that the FQHC must accept the loss
because the MCO denied payment for an otherwise legitimate
visit.‖). And, of course, the Medicaid statute does not support
the State‘s contention that a wraparound payment must follow
a prior MCO payment. By opting into a managed care
system, the State cannot avoid its responsibility to reimburse
FQHCs at the full PPS amount. Rather, Section
1396a(bb)(5)(B) requires the State to ―pay FQHCs fully
compensatory supplemental payments not less frequently than
four months after [the State] has received the claim for
supplemental payment.‖ Three Lower Cntys., 498 F.3d at
303.

The State, however, makes a separate, and more
compelling, argument justifying its reliance on requiring
MCO payment prior to processing wraparound payments: the
MCOs ―play an essential role in determining when a claim is
for a ‗valid‘ and ‗Medicaid-eligible‘ encounter.‖ Reply Br. at
11. While the State must pay for all Medicaid-eligible claims,
it must also determine which claims are Medicaid-eligible.
Though the State has, since 2001, relied on the FQHCs self-
reported data to validate eligibility, nothing in the Medicaid
statute requires the State to rely upon this data, or proscribes
the State from turning elsewhere.6 As a district court recently

6
We express no opinion as to whether New Jersey‘s own
regulations require that the State rely solely on the quarterly

25
noted:

[§ 1396a(bb)(5)] only require[s] that payment of
the balance be paid by the State. It does not
require the [S]tate to determine if the payment is
necessary in the first place. That is, if payment
is necessary, the [S]tate is responsible for it, but
the statute is silent on the entity (be it the State
or the MCO or the FQHC) which makes the
threshold determination that payment is
necessary.

Cmty. Health Care Assocs., 2013 WL 395449, at *13.

Indeed, in Three Lower Counties, 498 F.3d at 305, the
Fourth Circuit approved a system which relies on MCO
processing to determine claim eligibility. The Court
described the Maryland wraparound system as follows:

Once the [MCO] ensures that (1) a covered
service (2) has been furnished (3) to an enrollee
(4) by an approved provider, it processes the
claim and pays the market rate for the patient
visit. It then passes the claim information on to
the Department of Health. The Department of
Health itself then makes the determination
whether a supplemental payment under §
1396a(bb)(5) is necessary. . . . [E]ven if the
Department of Health did delegate to managed
care organizations the responsibility of
determining whether a supplemental payment is
necessary, § 1396a(bb)(5) only requires that the
state plan provide for the payment of a
supplemental payment. It does not require that

reports generated by the FQHCs to calculate wraparound
payments, and as to whether the State must pass new
regulations to effectuate a change in the calculation
methodology. As we have discussed earlier, the District
Court lacked jurisdiction to conclude that State law imposed
such requirements.

26
 the state Medicaid agency itself make the
determination whether a supplemental payment
is necessary.

Nothing prevents the State from shifting claim verification
from the FQHCs to the MCOs, and, consistent with the
federal Medicaid statute, states may rely on MCOs to
determine whether a claim is Medicaid eligible.

This is not, however, what happened here. Rather than
leaving it to MCOs to determine whether or not a claim is
Medicaid eligible, the State essentially adopted the fact of
prior MCO payment as the proxy for Medicaid eligibility. If
MCOs denied claims from FQHCs only because they were
not eligible for reimbursement under Medicaid or because
they were otherwise invalid, this would satisfy the State‘s
obligation. The State concedes, however, that MCOs often
deny payments for reasons unrelated to Medicaid, and we
have already suggested some of these reasons—e.g., MCO
delays, multiple visits in different locations in the same day,
and visits with non-primary care physicians. The new policy
would, therefore, inevitably exclude valid, Medicaid-eligible
encounters and result in underpayment. Such a result would
not comport with the Medicaid statute‘s requirement that
FQHCs receive full and timely reimbursement under the PPS.
See Three Lower Cntys., 498 F.3d at 303 (―In enacting §
1396a(bb)(5), Congress addressed its concern that FQHCs be
fully and promptly compensated for the services they render to
Medicaid enrollees so that the FQHCs could perform their
vital function in delivering healthcare to underserved
populations. . . .‖). On the record before us, we must
conclude that requiring prior MCO payment before processing
wraparound payments will result in the State‘s failure to meet
this requirement. In the absence of any process by which an
FQHC may promptly and effectively challenge an adverse
MCO determination within the statutorily mandated time
period, the District Court did not abuse its discretion in
enjoining the State from refusing to process wraparound
payments for all claims lacking prior MCO payment.

27
 The State offers as an avenue of recourse to aggrieved
FQHCs the administrative review process of N.J. Admin.
Code § 10:49-10.3(a)(1), which permits a provider to request
a hearing on any complaint arising out of the Medicaid claims
process. Of course, if the State‘s policy is to deny
wraparound payment for any claim lacking prior MCO
payment regardless of Medicaid eligibility, the administrative
review process is of no value. FQHCs must be able to
meaningfully challenge adverse payment determinations and
receive reimbursement from the State for valid, Medicaid-
eligible claims that have been denied reimbursement by
MCOs. See Cmty. Health Care Assoc., 2013 WL 395449, at
*13 (―To the extent that there may be other reasons a valid
claim would be denied by the MCO, [FQHCs] must be able to
challenge these adverse payment determinations . . . .‖).
Absent any such process, 7 the requirement of MCO payment
prior to processing wraparound payments violates the
Medicaid statute. 8

7
The MCO appeals mechanism does not appear to protect the
interest of those FQHCs that received incorrect MCO
determinations. Not only does this process take considerable
time to reach an ultimate determination, but it fails to address
more basic concerns: What if the MCO continues to
wrongfully reject a Medicaid-eligible claim? Can an MCO‘s
determination of claim validity end the inquiry?
8
Contrary to the State‘s claim, our conclusion does not create
a substantial risk of double payment. FQHCs remain under an
obligation to seek MCO reimbursement for wrongfully denied
claims, and the State is required to assist in this process. If an
FQHC later receives MCO reimbursement for a claim for
which it has already received the full PPS wraparound
amount, the State will be credited with this amount in a later
reconciliation process. See N.J. Admin. Code § 10:66-
1.5(d)(1)(viii)(4).
Ultimately, if the system is functioning correctly (i.e.,
in the absence of bad faith or fraud), the conclusion we reach
should not shift resources one way or the other, only the
timing. Had we found, for example, that the State need not
process a wraparound payment until a claim had been
accepted and paid by an MCO, an FQHC, through the MCO

28
 We emphasize that we are affirming the order of the
District Court granting summary judgment and a preliminary
injunction in favor of the NJPCA only on the ground that the
State‘s new policy of requiring prior MCO payment before
processing its quarterly wraparound payments, absent a
meaningful process to challenge adverse payment
determinations, violates the federal Medicaid statute. In so
doing, we do not mean to suggest that prior MCO payment is
wholly unrelated to Medicaid eligibility. Indeed, even if a
state may not require an FQHC to bear the entire loss solely
because of the MCO‘s lack of payment, it is far from
irrational for the State to require MCO data on a quarterly
basis as part of FQHC reporting, and to use such data when
evaluating whether or not a claim is reimbursable under
Medicaid. In any event, as we have noted earlier in this
Opinion, the NJPCA has not pressed before us its initial
challenge to the collection of the two MCO payment data
fields.9

IV. CONCLUSION

We will affirm the order of the District Court granting
summary judgment in favor of the NJPCA on the ground that
the State‘s requirement that wraparound payments be
contingent on prior MCO payment violated the federal

appeals process (or with intervention by the State), would be
able to eventually receive reimbursement for wrongfully
denied claims. Fundamentally at issue is which party must
bear the cost of MCO errors or delays in reimbursement until
these disputed claims can be reconciled. The text of the
statute and its legislative purpose, subsequent administrative
interpretations, and the limited case law, all place a thumb on
the scale in favor of prompt and complete State
reimbursement.
9
Even if it had, however, we would have no difficulty
concluding that the District Court erred when it found that
requiring such data was ―arbitrary and capricious . . . because
the new system itself fails to show a rational connection
between the facts found and the choice made.‖ A. 15
(internal quotation marks omitted).

29
Medicaid statute‘s requirement that FQHCs timely receive
full wraparound payment for all Medicaid-eligible claims
(and, concomitantly, requiring the emergency payment of
wraparound funds based on the State‘s predecessor
methodology) and enjoining the State from implementing a
policy requiring prior MCO payment absent an adequate
process for claim-eligibility verification. In all other respects,
we will reverse the order of the District Court granting
summary judgment and a preliminary injunction in favor of
the NJPCA and denying the State‘s motion for summary
judgment.

30