Legacy Community Health Services v. Smith: What are the National Implications for Community Health Centers and Their Communities? Geiger Gibson / RCHN Community Health Foundation Research Collaborative Leighton Ku, PhD, MPH Peter Shin, PhD, MPH Jessica Sharac, MSc, MPH Sara Rosenbaum, JD About the Geiger Gibson / RCHN Community Health Foundation Research Collaborative The Geiger Gibson Program in Community Health Policy, established in 2003 and named after human rights and health center pioneers Drs. H. Jack Geiger and Count Gibson, is part of the Milken Institute School of Public Health at the George Washington University. It focuses on the history and contributions of health centers and the major policy issues that affect health centers, their communities, and the patients that they serve. The RCHN Community Health Foundation is a not-for-profit foundation established to support community health centers through strategic investment, outreach, education, and cutting-edge health policy research. The only foundation in the U.S. dedicated solely to community health centers, RCHN CHF builds on a long- standing commitment to providing accessible, high-quality, community-based healthcare services for underserved and medically vulnerable populations. The Foundation’s gift to the Geiger Gibson program supports health center research and scholarship. Additional information about the Research Collaborative can be found online at https://publichealth.gwu.edu/projects/geiger-gibson-program-community-health-policy or at www.rchnfoundation.org. Geiger Gibson / RCHN Community Health Foundation Research Collaborative 2 Executive Summary In a recent decision, the United States Court of Appeals for the Fifth Circuit in Legacy Community Health Services v. Smith held that state Medicaid programs may refuse to pay community health centers for the non-emergency, out-of-network care they furnish to Medicaid managed care enrollees. This issue brief discusses the national implications of this ruling and estimates the economic impact on community health centers, their staff, and their patients nationally if the decision stands. Our estimate of potential losses suggest that community health centers nationwide could lose between $1.0 and $2.0 billion in revenue annually, an amount that translates into between 4.3 percent and 8.6 percent of total community health center revenue. Losses of this magnitude translate into the loss of as many as 8,900 to 17,800 community health center jobs and would reduce the number of patients served by as many as 1.1 million to 2.2 million per year. Introduction In Legacy Community Health Services v. Smith, 881 F.3d 358 governments) potentially millions of dollars in care costs (5th Cir., 2018), the United States Court of Appeals for the attributable to Medicaid, essentially making Medicaid a Fifth Circuit ruled that despite Medicaid’s federally qualified “free-rider” on grant funds intended for indigent health health center (FQHC) payment rules, a state Medicaid care. program may refuse to pay community health centers for Furthermore, the decision not only creates large financial the non-emergency, out-of-network care they furnish to risks for community health centers and the uninsured enrollees of managed care plans. The ruling applies to all patients they serve, but also upends the careful entities treated as federally qualified health centers under relationship – spelled out in the Medicaid statute itself – Medicaid, both those that receive federal health center that Congress created in order to balance health centers’ grant funding under § 330 of the Public Health Service Act obligations to serve the entire community under § 330 on and “look-alike” FQHCs that meet § 330 requirements but the one hand, and state flexibility to adopt market-based may be funded for the indigent care they furnish through solutions for delivering and paying for health care on the state and local funding rather than federal grants. other. The ruling violates Medicaid’s FQHC coverage and payment rules – rules Congress preserved and maintained The Legacy decision carries important implications for the as part of its 1997 state flexibility amendments under the financial stability of community health centers in states that Balanced Budget Act (BBA). Indeed, the decision runs rely extensively on managed care, because the decision counter to other key rulings by other federal courts of effectively penalizes community health centers for fulfilling appeal. The decision also runs counter to federal policy their most fundamental § 330 obligation – to serve all positions taken by the Centers for Medicare and Medicaid community residents regardless of their insurance status or Services (CMS) regarding the obligation of state Medicaid status as Medicaid managed care enrollees. Furthermore, programs to pay for all medically necessary health care the Legacy decision creates a major incentive for states and furnished by FQHCs and covered under states’ Medicaid managed care plans to refuse to extend in-network status plans, regardless of whether such care is furnished in- to community health centers, thereby pushing onto federal network or on an out-of-network basis. grant funds (or funds provided by state and local Geiger Gibson / RCHN Community Health Foundation Research Collaborative 3 For these reasons, lawyers representing Legacy Community the impact of the Texas policy, if extended to other states, Health Services have petitioned the United States Supreme will be a constant issue and is one that may be likely to Court to review the 5th Circuit ruling,1 and faculty of the grow as states and plans realize that free-riding is possible Geiger Gibson Program in Community Health Policy at the simply by refusing to make a community health center in the George Washington University’s Milken Institute School of plan’s service area in-network. Public Health have filed an amicus brief in support of this request for Supreme Court review.2 The amicus brief Background explains the legal issues in more depth; this policy brief In 2016, 1,367 community health centers furnished care to provides an overview of the background and describes the nearly 25.9 million patients in approximately 10,400 urban potential impact. and rural community locations.3 Community health centers In this policy brief, the Geiger Gibson/RCHN Community are active participants in Medicaid managed care; in 2016, Health Foundation Research Collaborative presents the 58 percent of all community health centers reported results of an analysis, designed to accompany the amicus Medicaid managed care participation,4 reporting nearly 93.4 brief, regarding the potential impact of Legacy on million managed care member months that year.5 community health centers across the nation. If the decision Although they participate in all federal insurance programs, is permitted to stand, community health centers, patients, community health centers must abide by special Public and medically underserved communities could feel the Health Service Act requirements aimed at ensuring universal repercussions, which could be particularly severe for those access to care, regardless of ability to pay. By law, health centers operating in states with high managed care community health centers must serve all patients regardless penetration rates. of insurance status; this means that they may not deny care It is difficult to predict the nationwide impact of a policy to those who are enrolled in a Medicaid plan whose such as this with precision, because it depends on variables provider network they may not be part of. such as any particular state’s participation in Medicaid In any given year, community health centers operating in managed care, how managed care plans interact with states that rely on managed care plans using provider particular community health centers in terms of the networks can be expected to serve many out-of-network contracts they offer, the relative accessibility of in-network patients. In states that use managed care, community care for enrollees and the sufficiency of plans’ provider health centers are active participants. However, they do not networks, the degree to which health centers have many all necessarily participate in all managed care plans, with longstanding patients who will continue to seek care from the net result that they may be out-of-network for some them regardless of their network status, and the possibility plans. But even if a Medicaid managed care plan limits the of not only total exclusion but of exclusion for all but providers available to its members, those members may still selected services. Since community health centers cannot seek care from community health centers in their turn away the patients in their service areas and must communities – without regard to whether they are in a accept them all into care regardless of their ability to pay or network — for many reasons. They may experience access their managed care plan enrollment status, we assume that barriers within the networks contracted by their own 1 The petition for writ of certiorari can be accessed at https://publichealth.gwu.edu/sites/default/files/downloads/GGRCHN/Legacy%20Petition%20AS%20FILED.pdf 2 The amicus brief can be accessed at https://publichealth.gwu.edu/sites/default/files/downloads/GGRCHN/Legacy%20Community%20Health%20Services%20v%20Smith% 20Amicus%20Brief.pdf 3 Bureau of Primary Health Care. (2017). 2016 National Health Center Data: National Data. Health Resources and Services Administration. https://bphc.hrsa.gov/uds/ datacenter.aspx?q=tall&year=2016&state=; 2016 Uniform Data System (UDS) data 4 Based on health centers who reported any Medicaid managed care member months. 5 Bureau of Primary Health Care. (2017). 2016 National Health Center Data: National Data. (Table 4). Health Resources and Services Administration. https://bphc.hrsa.gov/uds/ datacenter.aspx?q=tall&year=2016&state Geiger Gibson / RCHN Community Health Foundation Research Collaborative 4 managed care plans; they have come to rely on the is crucial to managed care success because of the degree of community health center for special needs in managing reliance states and plans place on community health chronic illness; the local health center may maintain hours centers as a leading source of primary health care for that work for them or may be close to where they live; or Medicaid beneficiaries. At the same time, regardless of they are perhaps new to Medicaid managed care and whether their Medicaid patients are in- or out-of-network, unfamiliar with the distinction between in-network and out- community health centers continue to be paid for the of-network care. covered services they furnish, thereby preserving grant funds for care of the uninsured. This carefully-wrought policy Recognizing that the growth of managed care could affect compromise ensures that community health centers can community health centers obligated to provide care to all preserve their relatively modest grants (including federal and increasingly exposed to the possibility of non-payment grants under Section 330 of the Public Health Service Act) for out-of-network care, Congress sought to balance two for care furnished to uninsured populations as well as for imperatives when it expanded states’ managed care options key primary health services that many state Medicaid plans in 1997.6 Under the 1997 law, states have the flexibility to may not cover for working age adults or the elderly, such as establish mandatory Medicaid managed care systems for dental, substance abuse, vision, and enabling services for most beneficiaries; the law also incentivizes community working-age adults. health center participation by ensuring that plans pay them no less than competitive rates when they become network The Legacy case upends this special set of relationships providers. among state Medicaid agencies, community health centers, and managed care organizations. Although the decision But in order to avoid results that would leave health centers focuses on the financial relationship between one FQHC and unpaid for the Medicaid-covered services they furnish – a one Medicaid managed care organization, if applied more guarantee established under federal law in 1989 – Congress broadly, Legacy could create a powerful incentive for free- also required that states pay community health centers for riding – that is, excluding of community health centers as all covered services furnished to Medicaid beneficiaries, in contracted network providers and rejecting claims for all but accordance with the FQHC payment rate. This requirement emergency care furnished out of network. States in turn, as was preserved in 1997, when Congress expanded state Texas has done, could then refuse to pay for non-emergency flexibility to adopt Medicaid managed care as a state out-of-network care – not only the special payment option. While the FQHC payment methodology underwent supplement required under the FQHC payment methodology modification in 2000, the basic principle – that states must but also the basic payment as well. As non-emergency out- pay for covered services furnished by entities designated as of-network care volume grows, community health center community health centers at the FQHC payment rate – uncompensated care volume would increase, thereby remains enshrined in law, and the statute’s FQHC coverage shifting costs to grants intended for care of the uninsured. and payment rules draw no distinction between in-network Because these grants, while vital, also are limited or out-of-network care. (accounting for less than 20 percent of total community For decades this compromise has worked. In communities health center revenue in 2016),7 this cost shift ultimately in which Medicaid managed care is a key feature of the would be expected to lead to widespread reductions in Medicaid program, community health centers participate services, staffing, and ultimately, patient care capacity. extensively. Indeed, community health centers’ participation 6 Balanced Budget Act of 1997, Pub. L. 105–33, 111 Stat. 251 (105th Cong. 1st sess.) 7 Rosenbaum, S., Tolbert, J., Sharac, J., Shin, P., Gunsalus, R. & Zur, J. (2018). Community Health Centers: Growing Importance in a Changing Health Care System. Kaiser Family Foundation. https://www.kff.org/medicaid/issue-brief/community-health-centers-growing-importance-in-a-changing-health-care-system/ Geiger Gibson / RCHN Community Health Foundation Research Collaborative 5 Potential National Impact of the thereby eliminating the state’s obligation to pay either the basic claim or the supplement owed. In other words, Texas Policies although community health centers participate extensively in managed care plans and bring great value to managed In Legacy, the Texas Children’s Health Plan (TCHP) excluded care systems, both plans and states would have a financial the community health center from its provider network. incentive to push care costs onto community health centers Legacy Community Health Services is a particularly notable and their grant funding. provider of children’s mental health care, a service very difficult to secure for Medicaid children, and one that, In Exhibit 1, we use 2016 data (the most recent year compared to primary health care generally, can be relatively available) from the Uniform Data System,9 the federal costly because of its time and intensity. The plan paid only reporting system for community health centers administered 3,000 of the 6,000 claims that Legacy submitted for the by the Health Resources and Services Administration, to various types of out-of-network care it furnished, labeling estimate the range of potential impacts of the broad the paid claims as “emergency” care.8 The plan rejected the application of such a policy at the national level. The top remaining 3,000 claims as being both out-of-network and portion of the panel shows actual 2016 total community non-emergency. The state of Texas then refused to pay health center revenue for the nation, including Medicaid these denied claims – both the plan’s share and its revenue and revenue from Medicaid managed care. supplemental share under the FQHC Medicaid payment methodology. (Subsequently, TCHP agreed to restore The lower portion of the exhibit illustrates the range of Legacy’s network status for children’s behavioral services, potential impacts, recognizing the inherent uncertainty of but not for the other primary care services Legacy furnishes). any prediction. If all Medicaid managed care organizations and states behaved in a fashion similar to Legacy, TCHP, It is difficult to predict the impact of the exclusion of and the state of Texas, community health centers would payment to community health centers for out-of-network lose about 50 percent of all Medicaid managed care non-emergency care. As noted, these effects could be revenue. To be more conservative, Exhibit 1 illustrates the expected to vary from state to state and from health center potential impacts if losses ranged from one-third (at the to health center. Some Medicaid programs use managed higher level) to one-sixth (at a lower level) of 2016 Medicaid care systems extensively, while others use little managed managed care revenue. Under either scenario, we assume care. The eventual impact would also depend on that community health centers would still be included in subsequent interpretations and policy decisions made by some managed care networks and some states would CMS, states, and Medicaid managed care plans, such as continue to provide supplemental payments, but that what constitutes an “emergency” for FQHC payment Medicaid revenue would decline overall because there purposes. However, there should be no doubt that the would be a strong incentive for some managed care plans policy would create a strong financial incentive for managed or states to reduce payments to community health centers. care plans to exclude some or all community health centers from their provider networks and to reject out-of-network If community health centers lose one-third of all Medicaid claims. This radical shift in policy away from what was managed care revenue, this would equate to $2.0 billion in intended under the 1997 amendments would also create an lost revenue, or 8.6 percent of total community health incentive for states and plans to deny payment for care; the center revenue nationally in 2016. Under this scenario, 2.2 plan would have made a determination that the visit was an million patients would lose care nationally, including almost unnecessary emergency care claim and would deny it, 700,000 children and 1.5 million adults. As seen in the 8 Since community health centers provide primary care services and not emergency-department-level care, the plan may have identified certain services as meeting a level of urgency for which it was willing to pay. In a strict definition of emergency care, such as that used under the Emergency Medical Treatment and Labor Act, a health center would rarely, if ever, be paid for emergency care. 9 The Uniform Data System data are available at https://bphc.hrsa.gov/uds/datacenter.aspx. Geiger Gibson / RCHN Community Health Foundation Research Collaborative 6 Source: Health Resources and Services Administration, Uniform Data System for 2016. Sums may not total due to rounding. Geiger Gibson / RCHN Community Health Foundation Research Collaborative 7 exhibit, we estimate that such revenue losses would harm excluding community health centers as in-network care not only for Medicaid patients, but for those on providers. Coupled with states’ refusal to provide Medicare and the uninsured as well. Large numbers of supplemental payments, this would put enormous strain on patients with incomes below the poverty line and African total community health center revenue and lead to staffing American and Hispanic patients would be disenfranchised. losses and major reductions in care capacity, decreasing the In total, the volume of care provided by community health total number of people who would receive care. This result centers would be reduced by 8.9 million visits. The revenue is exactly what Congress intended to avoid by combining losses would also result in about 18,000 full-time equivalent greater flexibility for states on Medicaid managed care with (FTE) community health center staff members nationally rules regarding payment for medically appropriate Medicaid losing their jobs. Personnel losses would include medical -covered services furnished by community health centers as providers as well as dental, mental health, substance abuse, participating FQHCs, regardless of the managed care and enabling services staff. enrollment status of their patients. A substantial body of research points to the importance and Under the more conservative scenario in which only one- cost-effectiveness of the comprehensive primary care that sixth of Medicaid managed care revenue is lost, community community health centers furnish. The research shows that health centers would lose $1.0 billion nationally. As a result, patients cared for at community health centers receive high 1.1 million patients nationwide could lose care at community quality primary care, which results in the reduction of net health centers and about 8,900 FTE staff members medical and Medicaid expenditures.10 The provision of nationwide would lose their jobs. timely primary care can reduce the need for, and cost of, In light of the uncertainty, we offer this wide range of expensive specialty, emergency, or inpatient care and can estimates of potential effects. But even the lower impact lower medication expenses. estimate signals serious repercussions for vulnerable Thus, paradoxically, the net result of the loss of care at Medicaid enrollees, including those living in areas where community health centers could be reduced access to the there is an undersupply of health care providers, as well as very care that helps control state and federal health care for other vulnerable patients. costs. It is this serious consequence that caused Congress to design a far more careful approach to Medicaid managed Conclusion care, one that permits states great flexibility in moving to If Texas’s policy is permitted to stand and to apply market-based strategies for coverage and care delivery nationally, it could have grave consequences. The broader while leaving undisturbed the primary care providers on application of this policy would give states and Medicaid which thousands of communities depend. managed care plans a substantial incentive to push community health centers out of network, or to deny them in -network participation status to begin with, thereby 10 For example, see: Bruen, B. & Ku, L. (2017) Community health centers reduce the costs of children’s health care. Geiger Gibson / RCHN Community Health Foundation Research Collaborative Policy Research Brief # 48. Duggar, B., Keel, K., Balicki, B., & Simpson, E. (1994). Utilization and costs to Medicaid of AFDC recipients in New York served and not served by community health centers. Rockville, MD: Health Resources and Services Administration, Bureau of Primary Health Care, Center for Health Policy Studies. Epstein, A. (2001). The role of public clinics in preventable hospitalizations among vulnerable populations. Health Services Research, 36(2), 405-420. Falik, M., Needleman, J., Wells, B. L., & Korb, J. (2001). Ambulatory care sensitive hospitalizations and emergency visits: Experiences of Medicaid patients using federally qualified health centers. Medical Care, 39(6), 551-561. Mundt, C., & Yuan, S. (2014). An evaluation of the cost efficiency of Federally Qualified Health Centers (FQHCs) and FQHC lookalikes operating in Michigan. Lansing, MI: The Institute for Health Policy at Michigan State University. Nocon R., et al. (2016). Health care use and spending for Medicaid enrollees in federally qualified health centers ver- sus other primary care settings. American Journal of Public Health, 106(11): 1981-89. Probst, J. C., Laditka, J. N., & Laditka, S. (2009). Association between community health center and rural health clinic presence and county-level hospitalization rates for ambulatory care sensitive conditions: An analysis across eight US states. BMC Health Services Re- search, 9(134). doi: 10.1186/1472-6963-9-134. Richard, P., Ku, L., Dor, A., Tan, E., Shin, P., & Rosenbaum, S. (2012). Cost savings associated with the use of community health centers. Journal of Ambulatory Care Management, 35(1), 50-59. Rothkopf, J., Bookler, K., Wadhaw, S., & Sajowetz, M. (2011). Medicaid patients seen at federally qualified health centers use hospital services less than those seen by private providers. Health Affairs, 30(7), 551-561. Streeter, S., Braithwaite, S., Ipakchi, N., & Johnsrud, M. (2009). The effect of community health centers on healthcare spending & utilization. Washington, DC: Avalere Health. Geiger Gibson / RCHN Community Health Foundation Research Collaborative 8