PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
THREE LOWER COUNTIES COMMUNITY
HEALTH SERVICES, INCORPORATED,
Plaintiff-Appellant,
v.
THE STATE OF MARYLAND,
DEPARTMENT OF HEALTH AND MENTAL No. 06-1552
HYGIENE; ANTHONY MCCANN,
Secretary, State of Maryland
Department of Health and Mental
Hygiene,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Andre M. Davis, District Judge.
(1:05-cv-01280-AMD)
Argued: May 22, 2007
Decided: August 24, 2007
Before NIEMEYER and MICHAEL, Circuit Judges, and
WILKINS, Senior Circuit Judge.
Affirmed in part, reversed in part, and remanded with instructions by
published opinion. Judge Niemeyer wrote the opinion, in which Judge
Michael and Senior Judge Wilkins joined.
COUNSEL
ARGUED: James Leo Feldesman, FELDESMAN, TUCKER,
LEIFER & FIDELL, L.L.P., Washington, D.C., for Appellant. Jason
2 THREE LOWER COUNTIES v. STATE OF MARYLAND
W. Sapsin, Assistant Attorney General, OFFICE OF THE ATTOR-
NEY GENERAL OF MARYLAND, Baltimore, Maryland, for Appel-
lees. ON BRIEF: Kathy S. Ghiladi, FELDESMAN, TUCKER,
LEIFER & FIDELL, L.L.P., Washington, D.C., for Appellant. J.
Joseph Curran, Jr., Attorney General of Maryland, Lorie A. Mayorga,
Assistant Attorney General, OFFICE OF THE ATTORNEY GEN-
ERAL OF MARYLAND, Baltimore, Maryland, for Appellees.
OPINION
NIEMEYER, Circuit Judge:
In this appeal, we clarify a State’s obligations under the federal
Medicaid program when paying "Federally-qualified health centers"
for services they render to Medicaid patients. See 42 U.S.C.
§ 1396a(bb)(5).
Three Lower Counties Community Health Services, Inc., a health
center serving poor residents on the lower Eastern Shore of Maryland,
commenced this action against the State of Maryland’s Department of
Health and Mental Hygiene (hereinafter "Maryland" or "Department
of Health"), the state agency that administers the Medicaid program
in Maryland, to obtain a declaratory judgment that Maryland violates
the Medicaid Act in four respects: (1) Maryland does not make fully
compensatory supplemental payments at least as frequently as every
four months to Three Lower Counties, a "Federally-qualified health
center," for healthcare services provided to Medicaid patients; (2)
Maryland fails to compensate Three Lower Counties for emergency
healthcare services provided to Medicaid patients who are enrolled
with managed care organizations with which Three Lower Counties
does not have a contract; (3) Maryland establishes a rate that managed
care organizations must pay that is disadvantageous to Federally-
qualified health centers in providing services to Medicaid patients;
and (4) Maryland delegates to managed care organizations the deter-
mination of whether supplemental payments are required to be paid
to Federally-qualified health centers. Three Lower Counties also
seeks injunctive relief to require the Department of Health to comply
with the Medicaid Act in these respects.
THREE LOWER COUNTIES v. STATE OF MARYLAND 3
The district court granted Maryland’s motion for summary judg-
ment on all four issues. For the reasons that follow, we reverse with
respect to the first two issues and affirm with respect to the last two,
and we remand this case to the district court to grant Three Lower
Counties appropriate relief.
I
Three Lower Counties Community Health Services, Inc., located in
Princess Anne, Maryland, has provided healthcare services since 1994
to the poor residents of Somerset and Wicomico Counties, operating
a community "health center" under the Public Health Service Act, 42
U.S.C. § 254b. Three Lower Counties receives federal grant funds
under § 330 of that Act. To qualify for those funds, health centers
must be located in a medically underserved area or serve a "specially
medically underserved population comprised of migratory and sea-
sonal agricultural workers, the homeless, and residents of public
housing." 42 U.S.C. § 254b(a)(1). In addition, the Public Health Ser-
vice Act requires that such health centers deny no patient healthcare
services due to the patient’s inability to pay, see id.
§ 254b(k)(3)(G)(iii)(I), and, more pertinent to this litigation, that they
provide healthcare services to Medicaid enrollees, see id.
§ 254b(k)(3)(E).
The federal Medicaid program provides federal financial assistance
to States that choose to participate in the program and requires the
States to reimburse healthcare providers who provide services to
Medicaid enrollees. The purpose of the Medicaid program is to enable
States "to furnish . . . medical assistance on behalf of families with
dependent children . . . whose income and resources are insufficient
to meet the costs of necessary medical services." 42 U.S.C. § 1396.
States need not participate in the program, but if they choose to do
so, "they must implement and operate Medicaid programs that com-
ply with detailed federally mandated standards." Antricam v. Odom,
290 F.3d 178, 183 n.2 (4th Cir. 2002).
One federal requirement is that a state Medicaid plan provide pay-
ment for services rendered by "Federally-qualified health centers"
("FQHCs"). See 42 U.S.C. § 1396a(a)(15); id. § 1396d(a)(2)(C); id.
§ 1396d(l)(2). FQHCs are defined as health centers that receive, or
4 THREE LOWER COUNTIES v. STATE OF MARYLAND
meet the requirements for receiving, grants under § 330 of the Public
Health Service Act. Id. § 1396d(l)(2). Three Lower Counties is there-
fore not only a "health center" receiving funds under the Public
Health Service Act but also, by definition, an FQHC receiving funds
under the federal Medicaid program.
From 1989 through 2000, the federal Medicaid program required
States to reimburse FQHCs for "100 percent . . . of [each FQHC’s]
costs which are reasonable." 42 U.S.C. § 1396a(a)(13)(C) (repealed
2000). Congress’ purpose in passing this "100 percent reimburse-
ment" requirement was to ensure that health centers receiving funds
under § 330 of the Public Health Services Act would not have to
divert Public Health Services Act funds to cover the cost of serving
Medicaid patients. The report of the House Budget Committee
accompanying the 1989 legislation describes this payment guarantee
specifically as follows:
Medicaid payment levels to Federally-funded health centers
cover less than 70 percent of the costs incurred by the cen-
ters in serving Medicaid patients. The role of [these health
centers] . . . is to deliver comprehensive primary care ser-
vices to underserved populations or areas without regard to
ability to pay. To the extent that the Medicaid program is
not covering the cost of treating its own beneficiaries, it is
compromising the ability of the centers to meet the primary
care needs of those without any public or private coverage
whatsoever.
***
To ensure that Federal [Public Health Service] Act grant
funds are not used to subsidize health center or program ser-
vices to Medicaid beneficiaries, States would be required to
make payment for these [FQHC] services at 100 percent of
the costs which are reasonable and related to the cost of fur-
nishing those services.
H.R. Rep. No. 101-247, reprinted in 1989 U.S.C.C.A.N. 1906, 2118-
19.
THREE LOWER COUNTIES v. STATE OF MARYLAND 5
To relieve health centers from having to supply new cost data
every year, Congress amended the Medicaid Act in 2000 to imple-
ment a new prospective payment system based on average historical
costs plus a cost-of-living factor. The new prospective payment sys-
tem, which began with fiscal year 2001, required state Medicaid plans
to "provide for payment for such services [provided by an FQHC] in
an amount (calculated on a per visit basis) that is equal to 100 percent
of the average of the costs of the center or clinic of furnishing such
services during fiscal years 1999 and 2000 which are reasonable." 42
U.S.C. § 1396a(bb)(2). That is, under the new system, each health
center’s reasonable costs for providing Medicaid services for the
years 1999 and 2000 were added together, and the sum was divided
by the total number of visits by Medicaid patients in those two years
to obtain an average per-visit cost rate. This average per-visit cost rate
for the years 1999 and 2000 became the baseline per-visit rate to be
applied in all future years, adjusted by a cost-of-living index (the
Medicare Economic Index) and any change in the scope of services.
See 42 U.S.C. § 1396a(bb)(2)-(3).
Thus, to calculate a health center’s Medicaid payment for each fis-
cal year beginning 2001 and thereafter, the average per-visit cost rate
calculated for 1999 and 2000 is multiplied by the number of visits
made by Medicaid patients in the applicable fiscal year (2001 or
later), adjusted by the cost-of-living index and for any change in the
scope of services. While a health center’s costs for servicing Medic-
aid enrollees is no longer audited every year, health centers must sub-
mit new visit data for each new year.
The Maryland Department of Health has the responsibility of per-
forming these calculations for each FQHC in Maryland — i.e., deter-
mining the center’s average cost per Medicaid visit in 1999 and 2000,
applying the inflation factor, adjusting for any change in the scope of
services, and multiplying that figure by the number of Medicaid
patient visits to the FQHC in the relevant period. Maryland also has
the responsibility of ensuring that the health center receive full pay-
ment for each Medicaid visit, as required by the Medicaid Act.
There is an added twist in how FQHCs are compensated when a
State, such as Maryland, operates a managed care program for provid-
ing Medicaid services. HealthChoice, Maryland’s Medicaid managed
6 THREE LOWER COUNTIES v. STATE OF MARYLAND
care program, contracts on behalf of Maryland with managed care
organizations (more commonly known as health maintenance organi-
zations or HMOs) to arrange for the delivery of healthcare services
to its Medicaid enrollees. Unless the managed care organization owns
a hospital or clinic, it in turn contracts with healthcare providers,
including FQHCs, to deliver the medical services to the Medicaid
patients. See generally Md. Code Regs. (hereinafter "COMAR")
10.09.62-10.09.73.
When States, such as Maryland, operate the Medicaid program
through managed care organizations, the contract between the man-
aged care organization and the FQHC usually compensates the FQHC
at an amount below that required by the Medicaid Act. But Congress
addressed this problem by requiring the States to pay FQHCs a sup-
plemental or "wrap-around" payment for the difference between what
the managed care organization paid the FQHC and what the FQHC
is entitled to be paid under the Medicaid Act:
In the case of services furnished by a Federally-qualified
health center . . . pursuant to a contract between the center
and a managed care entity, . . . the State plan shall provide
for payment to the center or clinic by the State of a supple-
mental payment equal to the amount (if any) by which the
[statutorily required per-visit rate] exceeds the amount of the
payments provided under the contract.
42 U.S.C. § 1396a(bb)(5)(A). These supplemental payments "shall be
made . . . in no case less frequently than every 4 months." Id.
§ 1396a(bb)(5)(B). Thus, even 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.
In short, under this scheme, an FQHC, such as Three Lower Coun-
ties, receives a part of its Medicaid payment from the managed care
organization and the balance from Maryland in the form of a supple-
mental or "wrap-around" payment.
Under the practice Maryland has adopted, the Department of
Health makes a portion of the supplemental payment in advance,
THREE LOWER COUNTIES v. STATE OF MARYLAND 7
labeling the prospective payment as an "interim supplemental pay-
ment," and the remaining portion retrospectively, labeling the balance
as a payment in "reconciliation" of the account. It makes the prospec-
tive payment every three months, at the beginning of each calendar
quarter. Because no services have yet been billed for the quarter, the
interim supplemental payment is based on the health center’s histori-
cal data for the same quarter in the preceding year. See generally
COMAR 10.09.08.05-1. According to Three Lower Counties, the
interim supplemental payment "invariably" fails to close the gap
between the managed care organization’s payments and the per-visit
amount to which FQHCs are entitled under the Medicaid Act.
According to Three Lower Counties, the shortfall is "substantial." For
the most recent quarter on which it presented data to the district court,
the shortfall was on the order of $500,000. The Department of Health
reconciles the shortfall (or excess) with the FQHC between six and
nine months after the end of the quarter for which the interim supple-
mental payment was made.
Under its procedures, Maryland requires FQHCs to file their claims
for services rendered to Medicaid patients with the patient’s managed
care organization. See COMAR 10.09.36.06A. It gives FQHCs up to
nine months to submit those claims. Id. After the FQHC has submit-
ted a claim to a managed care organization, the managed care organi-
zation validates and processes the claim and then transmits the claim
information to Maryland’s Department of Health. The Department of
Health totals the number of visits to any particular FQHC over a six-
month period and determines whether the interim supplemental pay-
ment closed the gap between what the managed care organization
paid and what the statutory per-visit rate requires. As may be neces-
sary, the Department of Health makes a "reconciliation" payment or
applies a charge when there has been an overpayment. This is accom-
plished within 12 months of the end of the 6-month accounting
period. See generally COMAR 10.09.08.05-1. Maryland claims that
it waits this long in order to accommodate the nine-month period it
gives healthcare providers to file claims and to give the managed care
organizations time to validate, process, and transmit the claims to the
Department of Health.
Three Lower Counties claims that Maryland’s practices in paying
for services provided to Medicaid patients results in a substantial and
8 THREE LOWER COUNTIES v. STATE OF MARYLAND
accumulating debt owed by Maryland to reconcile its account with
Three Lower Counties. Three Lower Counties states that "by Decem-
ber 2003, for in-network medical and dental services, [it] had a cash
receivable of $1,032,176. The amount grew to $1,461,930 by the end
of December 2004. By the end of December 2005, the amount was
$1,734,511." According to Three Lower Counties, the cash receiv-
ables from the State have amounted to about 13% of its annual reve-
nue and is denying Three Lower Counties much needed cash,
"preventing the health center from adding approximately six physi-
cians."
Three Lower Counties commenced this action against the Depart-
ment of Health seeking a declaratory judgment that the Department
of Health is violating the Medicaid Act and injunctive relief to require
the Department of Health to comply with the Act. Three Lower Coun-
ties contends specifically that Maryland is not complying with the
Medicaid Act in four respects: (1) to reimburse Three Lower Coun-
ties, it uses an interim payment system with subsequent reconcilia-
tion, creating deficiencies that extend beyond four months, in
violation of 42 U.S.C. § 1396a(bb)(5); (2) it refuses to reimburse
Three Lower Counties for "out-of-network" services provided to
Medicaid enrollees in need of emergency care; (3) it requires man-
aged care organizations to pay Three Lower Counties a higher rate
than that charged to non-FQHCs, thereby deterring managed care
organizations from contracting with Three Lower Counties; and (4)
it requires Three Lower Counties to submit claims for payment to the
patients’ managed care organization rather than to the Department of
Health directly. On cross-motions for summary judgment, the district
court entered judgment in favor of the Department of Health on all
four issues. This appeal followed.
II
For its principal argument on appeal, Three Lower Counties con-
tends that Maryland fails to comply with § 1396a(bb)(5) of the Med-
icaid Act by not making fully compensatory supplemental payments
at least every four months. It argues that Maryland’s interim pay-
ments result in inaccurate approximations of what is owed to Three
Lower Counties, creating deficiencies that extend far beyond four
months.
THREE LOWER COUNTIES v. STATE OF MARYLAND 9
Maryland agrees that § 1396a(bb)(5) requires that supplemental
payments be made at least every four months, but Maryland notes that
the Medicaid Act "does not specify the maximum amount of time
between the supplemental payment and the service to which it
relates." It argues that it meets the frequency requirement by making
interim supplemental payments and that it is free to reconcile any
deficiency at a later time because the frequency of payments required
by § 1396a(bb)(5) is not tied to the date when the services were pro-
vided to the Medicaid patient. Maryland thus contends that because
it makes a payment every four months, it meets its obligations.
The district court, in ruling in favor of Maryland, did not address
the text of § 1396a(bb)(5). Rather, the court reasoned that it would be
too administratively burdensome for the Department of Health to
make a fully compensatory supplemental payment to FQHCs at least
once every four months. The court explained, "In view of the current
realities of Medicaid administration, it would seem impossible for
[the Department of Health] to supply payment in the manner [Three
Lower Counties] insists is required by statute." In essence, the district
court recognized a burdensomeness defense to the requirements
imposed by § 1396a(bb)(5).
We begin with the text, for the Supreme Court has "stated time and
again," notwithstanding the administrative complexities of imple-
menting a federal program, "courts must presume that a legislature
says in a statute what it means and means in a statute what it says
there." Connecticut National Bank v. Germain, 503 U.S. 249, 253-54
(1992). "When the statutory language is plain, the sole function of the
courts — at least where the disposition required by the text is not
absurd — is to enforce it according to its terms." Arlington Cent. Sch.
Dist. Bd. of Educ. v. Murphy, 126 S. Ct. 2455, 2459 (2006) (internal
quotation marks omitted).
Section 1396a(bb)(5)(d) provides that a State must make a "supple-
mental payment [to the FQHC] equal to the amount (if any) by which
the [per-visit rate] exceeds the amount of the payments provided
under the [managed care] contract." (Emphasis added). Moreover,
States must make these fully compensatory payments "in no case less
frequently than every four months." 42 U.S.C. § 1396a(bb)(5)(B).
The operative language of the statute for this case are the words
10 THREE LOWER COUNTIES v. STATE OF MARYLAND
"equal to." The supplemental payment must be "equal to" the differ-
ence 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 supple-
mental payments no less frequently than every four months.
Maryland’s method for compensating FQHCs, and Three Lower
Counties in particular, is inconsistent with these requirements. Mary-
land’s interim supplemental payments are not fully compensatory, but
only approximations of full supplemental payments, and Maryland
acknowledges that its interim supplemental payments are usually
insufficient, requiring later reconciliation payments. Indeed, Three
Lower Counties argues that Maryland’s interim supplemental pay-
ments are "invariably" deficient by a substantial amount and that its
accounts receivable from the State have increased over the years so
that they now approach $2 million, virtually 13% of its total income.
Maryland’s practice does not accomplish full payment of the supple-
mental amount until a reconciliation occurs, which is six to nine
months after the end of the applicable quarter for which the interim
payment had been made. Because the interim supplemental payment
is not fully compensatory, it is not a payment that is "equal to" the
difference between the amount paid by the managed care organization
and the statutory per-visit rate. Even though the partial interim pay-
ment is made with the frequency required by the statute, it does not
fulfill the statutory requirement of full compensation because the rec-
onciliation payment comes a full six to nine months after the end of
the applicable quarter.
Maryland argues that it is impracticable to make fully compensa-
tory supplemental payments within four months because Maryland
gives its Medicaid healthcare providers nine months to submit claims
to managed care organizations for payment. Thus, it asserts that the
Department of Health "cannot determine the supplemental payment
during any given . . . four month period. Instead the Department [of
Health] must wait until either (1) all claims for payment from the
quarter have been filed or (2) the time for filing claims has expired
(nine months later)."
This argument fails for several reasons. First, the language of the
statute does not make any exception for administrative difficulties
THREE LOWER COUNTIES v. STATE OF MARYLAND 11
that Maryland might have by reason of the practices that it has
adopted for administering its Medicaid plan. Second, Maryland does
in fact make interim supplemental payments within the four-month
period — it just does so in amounts that make them not fully compen-
satory. Third, it is obvious that if the FQHC does not file a claim for
payment for nine months, the FQHC cannot expect payment until the
Department of Health receives its claim. But once the Department of
Health receives the claim, it must make a full supplemental payment
within the four-month period provided by the statute.
Maryland also states, responding to Three Lower Counties’ argu-
ment that payment be made within four months of when the services
were provided to patients,1 that the statute contains no language sug-
gesting that the four-month period begins with the actual provision of
health services to the patient. Maryland’s observation is correct. The
statute does not specify the triggering event for commencement of the
four-month time period. But logic leads to the conclusion that Mary-
land cannot be charged with any obligation to make a supplemental
payment until the FQHC has submitted a claim for that payment,
whether submitted directly to the Department of Health or indirectly
through a managed care organization. Under Maryland’s regulations,
an FQHC must first submit a claim to the patient’s managed care
organization, who must then promptly transmit the claim information
to the Department of Health. But regardless of who submits the claim
for supplemental payment — the FQHC or the managed care organi-
zation — Maryland cannot be held responsible for making that pay-
ment until it receives the claim. From that point, however, it has four
months within which to pay the full difference between what the man-
1
While Three Lower Counties does argue cryptically and obtusely that
"[t]he same SMDL provisions that place DHMH in violation of FQHCs’
wraparound payments rights apply with equal force to DHMH’s require-
ment that FQHC visit claims first be approved by the MCOs" and that
"CMS’ interpretation of the statute via the SMDL is that it is an FQHC
visit, not later MCO approval and filing the visit claim with the DHMH,
that triggers the State’s responsibility to pay the FQHC," we believe the
SMDL from CMS regarding MCOs’ payment of FQHCs serves little to
undermine DHMH’s response to TLC’s MCO contract contention.
12 THREE LOWER COUNTIES v. STATE OF MARYLAND
aged care organization paid and the per-visit rate established by the
Medicaid Act.2
In arguing that it can make an interim supplemental payment with
a frequency satisfying the four-month requirement and a reconcilia-
tion payment a year later, Maryland suggests a scheme that frustrates
the very purpose for supplemental payments. 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 in accordance with
their § 330 grants under the Public Health Service Act. In order to
ensure "that Federal [Public Health Service] Act grant funds are not
used to subsidize health center or program services to Medicaid bene-
ficiaries," Congress required States to compensate FQHCs for serving
Medicaid enrollees "at 100 percent of the costs which are reasonable."
H.R. Rep. No. 101-247, at 393 (1989) reprinted in 1989
U.S.C.C.A.N. 1906, 2119. Maryland’s delay in making a fully com-
pensatory supplemental payment has undermined this purpose. Three
Lower Counties has been required to use § 330 grant funds to subsi-
dize care of its Medicaid patients, denying it the ability, as it claims,
2
Maryland argues that we should afford Chevron deference to its inter-
pretation of the Medicaid Act, citing Perry v. Dowling, 95 F.3d 231, 237
(2d Cir. 1996) (noting that a state agency’s interpretation of a federal
statute may receive deference when "the state has received prior federal-
agency approval to implement its plan, the federal agency expressly con-
curs in the state’s interpretation of the statute, and the interpretation is a
permissible construction of the statute"). We reject this argument for sev-
eral reasons. First, we have repeatedly stated that "[a] state agency’s
interpretation of federal statutes is not entitled to the deference afforded
a federal agency’s interpretation of its own statutes under Chevron." GTE
South, Inc. v. Morrison, 199 F.3d 733, 745 (4th Cir. 1999). Second, there
is no evidence on the record that the Centers for Medicaid and Medicare
Services, the relevant federal agency, has adopted Maryland’s interpreta-
tion of the Medicaid Act as its own. Third, even if the federal agency has
approved Maryland’s interpretation, no argument has been made that
such approval constitutes an authoritative interpretation of the Medicaid
Act carrying the force of law. See United States v. Mead, 533 U.S. 218,
227-28 (2001). Fourth, and perhaps most importantly, we conclude that
the meaning of the sections of the Medicaid Act at issue here are clear.
THREE LOWER COUNTIES v. STATE OF MARYLAND 13
to hire six physicians to serve patients in accordance with the Public
Health Service Act.
At bottom, we conclude that the Medicaid Act requires Maryland
to pay FQHCs fully compensatory supplemental payments not less
frequently than four months after Maryland has received the claim for
supplemental payment, as required by 42 U.S.C. § 1396a(bb)(5), and
that Maryland has not been fulfilling this requirement. Accordingly,
we reverse the district court’s ruling on this issue.
III
Three Lower Counties also contends that the Department of Health
violates the Medicaid Act, 42 U.S.C. § 1396b(m)(2)(A)(vii), when it
refuses to pay for emergency services that Three Lower Counties pro-
vides to Medicaid patients enrolled with a managed care organization
with which Three Lower Counties does not have a contract. The
Department of Health defends its refusal, asserting simply that Three
Lower Counties must bear these costs as part of the cost of doing
business in a managed care system.
In entering judgment for the Department of Health, the district
court stated, "It is difficult to imagine how either the State or the
[managed care organization] could induce compliance with the sys-
tem of managed care if not by refusing to pay claims when patients
have sought, and [FQHCs] have provided, services outside the
patient’s provider network." The court observed that the "right to
refuse payment for ‘out-of-network’ medical services is a fundamen-
tal and necessary part of the system of managed care."
While the district court may have been correct in its observations
with respect to managed care in the private sector, it failed to recog-
nize that the federal Medicaid statute requires something different.
See 42 U.S.C. § 1396b(m)(2)(A)(vii).
Section 1396b(m)(2)(A)(vii) provides that the federal government
shall make
no payment . . . to a State with respect to expenditures
incurred by it for payment . . . for services provided by any
14 THREE LOWER COUNTIES v. STATE OF MARYLAND
entity . . . which is responsible for the provision [of health
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
States’ plan and (II) other than through the organization
because the services were immediately required due to an
unforeseen illness, injury, or condition, either the [managed
care organization] or the State provides for reimbursement
with respect to those services.
In plain language, this section requires States to include in their con-
tracts with managed care organizations a provision that requires either
the managed care organization or the State to reimburse out-of-
network health centers for services provided to the managed care
organization’s Medicaid enrollees when such services are "immedi-
ately required due to an unforeseen illness, injury or condition."
In the area served by Three Lower Counties, there are two man-
aged care organizations, and one of them, UnitedHealth Group, has
refused to enter into a contract with Three Lower Counties. Nonethe-
less, when a Medicaid patient enrolled with UnitedHealth has sought
care from Three Lower Counties, Three Lower Counties has served
the patient if (1) the patient’s doctor or dentist was unavailable, and
(2) the patient was in "need of care because of an unforeseen illness,
injury or condition for which services are immediately required." In
each case when Three Lower Counties has provided such services to
out-of-network patients, it has sought payment from UnitedHealth for
the services rendered. Sometimes UnitedHealth has compensated
Three Lower Counties for the services provided to its Medicaid
enrollees (albeit at a rate below Maryland’s required "base" or "mar-
ket" rate as discussed in Part IV, below), and sometimes it has refused
to pay at all, citing Three Lower Counties’ status as an out-of-network
(i.e., outside of UnitedHealth’s network) provider. In either case,
however, UnitedHealth has not transmitted Three Lower Counties’
claim information to the Department of Health for a supplemental
payment under 42 U.S.C. § 1396a(bb)(5). Accordingly, when Three
Lower Counties has provided emergency services to out-of-network
Medicaid patients, it has not received the per-visit payment to which
it is entitled under § 1396a(bb)(5). While the Department of Health
THREE LOWER COUNTIES v. STATE OF MARYLAND 15
does not dispute these facts, it asserts nonetheless that Three Lower
Counties must absorb these costs.
In light of the unmistakably clear statutory requirements, however,
Maryland’s position is unjustifiable. Section 1396b(m)(2)(A)(vii)
requires either the State or the managed care organization to compen-
sate a health center for emergency services provided to Medicaid
patients, even if the health center is out-of-network. And when the
health center is an FQHC, as is Three Lower Counties,
§ 1396a(bb)(5) requires that the health center’s compensation be
equal to the statutory per-visit rate. Accordingly, the district court
erred in failing to apply the statute as written.
IV
Three Lower Counties next challenges the rate that Maryland
requires managed care organizations to pay it. Maryland regulations
require managed care organizations to pay in-network FQHCs a base
or "market" rate for each patient visit, rather than paying separately
for each service provided when a covered patient visits a health cen-
ter. COMAR 10.09.65.21. (It is this base or "market" rate that is aug-
mented by the Department of Health’s interim supplemental payment
and, if necessary, by the reconciliation payment that finally brings the
FQHC’s compensation up to the statutorily required per-visit rate.)
Three Lower Counties alleges the minimum rate that Maryland
imposes on the managed care organizations is too high and that
because the rate is so high, UnitedHealth has refused to enter into a
contract with it. Because Maryland’s relatively high market rate "dis-
advantages" Three Lower Counties, it alleges that Maryland violated
42 U.S.C. § 1396b(m)(2)(A)(ix). The district court rejected this argu-
ment.
Section 1396b(m)(2)(A)(ix) requires managed care organizations to
"provide payment that is not less than the level and amount of pay-
ment which the [managed care organization] would make for the ser-
vices if the services were furnished by a provider which is not a
Federally-qualified health center." (Emphasis added). Three Lower
Counties contends that this section requires a managed care organiza-
tion to pay FQHCs exactly what it would pay a non-FQHC. But this
argument overlooks the language "not less than," which imposes a
16 THREE LOWER COUNTIES v. STATE OF MARYLAND
floor on the rates to be paid FQHCs by managed care organizations;
it says nothing about a ceiling or precise congruency.
It may be that the market rate paid by managed care organizations
to FQHCs is at times higher than the cost of the actual service per-
formed. But this is a function of Maryland’s insistence that managed
care organizations compensate FQHCs on a per-visit, rather than a
per-service, basis. Because of the different bases for establishing the
rate, the actual cost of some patient visits will be less than the per-
visit "base rate" a managed care organization is required to pay, and
at other times it will be more. Three Lower Counties believes that
UnitedHealth has refused to enter into a contract because the "market
rate is a few dollars per visit more costly than the sums that [United-
Health] pays other providers for the same or similar services." While
this may be true, § 1396b(m)(2)(A)(ix) does not address Three Lower
Counties’ concern, and the district court did not err in so concluding.
V
Finally, Three Lower Counties contends that Maryland’s require-
ment that FQHCs submit claims to a Medicaid enrollee’s managed
care organization, rather than to the Department of Health, violates
§ 1396a(bb)(5). Because managed care organizations process the
claim initially and the State relies on this claim information, Three
Lower Counties believes that Maryland has improperly delegated to
the managed care organization the determination of whether a supple-
mental payment is necessary. This contention is meritless.
The Department of Health has not delegated the supplemental pay-
ment determination to managed care organizations. Rather, the
Department requires managed care organizations to validate and pro-
cess the claims. See Md. Code Ann. Health-Gen. § 15-103(b)(9).
Once the managed care organization ensures that (1) a covered ser-
vice (2) has been furnished (3) to an enrollee (4) by an approved pro-
vider, 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.
Moreover, even if the Department of Health did delegate to managed
care organizations the responsibility of determining whether a supple-
THREE LOWER COUNTIES v. STATE OF MARYLAND 17
mental 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 the state Medicaid agency itself make the determina-
tion whether a supplemental payment is necessary.
VI
In sum, we reverse the district court’s entry of judgment in favor
of the Department of Health on the issues of whether its supplemental
payment system satisfies the criteria found in 42 U.S.C.
§ 1396a(bb)(5) and whether the Department of Health must ensure
that Three Lower Counties receives full compensation for emergency
services provided to out-of-network Medicaid patients, and we
remand with instructions to enter judgment in favor of Three Lower
Counties on these two issues, granting it appropriate relief. We affirm
the entry of judgment in favor of the Department of Health on the
remaining two issues.
AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED WITH INSTRUCTIONS