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Cares Community Health v. United States Department of Health and Human Services

United States Court of Appeals, District of Columbia Circuit

December 20, 2019

Cares Community Health, Appellant
United States Department of Health and Human Services, et al., Appellees

          Argued October 21, 2019

          Appeal from the United States District Court for the District of Columbia (No. 1:17-cv-02774)

          James L. Feldesman argued the cause for appellant. With him on the briefs were Matthew S. Freedus and David A. Bender.

          Karen Schoen, Attorney, U.S. Department of Justice, argued the cause for appellees. With her on the brief were Joseph H. Hunt, Assistant Attorney General, and Alisa B. Klein, Attorney.

          Before: Tatel, Pillard, and Wilkins, Circuit Judges.



         A provision of the Medicare statute we call the Not Less Than Provision, 42 U.S.C. § 1395w-27(e)(3)(A), requires that private Medicare insurance plans' reimbursements to a Federally Qualified Health Center (FQHC) for government-subsidized medical services be "not less than" what the insurers pay other healthcare providers not receiving such subsidies. Cares Community Health, an FQHC, claims that the Not Less Than Provision also prevents private Medicare prescription drug plans from reimbursing an FQHC less for dispensing pharmaceuticals than they would reimburse a non-FQHC for dispensing the same drugs. Cares sued the U.S. Department of Health and Human Services (HHS), the HHS Secretary, and the Administrator of the Centers for Medicare and Medicaid Services (CMS), claiming that they unlawfully allowed an insurer offering Medicare prescription drug coverage, Humana Health Plan, Inc., to pay Cares less for drugs that Cares obtains at a discount under a separate federal program known as Section 340B, id. § 256b, than Humana would reimburse a non-FQHC for the same drugs. The district court dismissed Cares' claim, holding that the Medicare statute does not mandate that HHS require Humana to reimburse FQHCs for discounted pharmaceuticals at a rate "not less than" Humana pays other providers for the same drugs. Cares Cmty. Health v. HHS, 346 F.Supp.3d 121, 129 (D.D.C. 2018) (quoting 42 U.S.C. § 1395w-27(e)(3)(A)). We affirm.


         To become an FQHC like Cares under the Medicare program, 42 U.S.C. § 1395x(aa)(4), a health center must provide "primary health services" to "medically underserved" communities, id. § 254b(a), regardless of patients' ability to pay, see id. § 254b(k)(3)(G). FQHCs are a key part of the medical safety net for low-income individuals without health insurance. Recognizing that FQHCs' central role in treating low-income, uninsured patients means that they provide lots of uncompensated care, Congress has provided FQHCs various forms of financial support. See generally Cmty. Health Care Ass'n of N.Y. v. Shah, 770 F.3d 129, 136 (2d Cir. 2014).

         The Medicare statute provides one such support through governmental "wraparound" payments. Those payments make up the difference between what private insurers reimburse FQHCs for providing non-pharmacy outpatient medical services to Medicare beneficiaries and what traditional Medicare would reimburse a provider for the same services, which might be higher. See 42 U.S.C. § 1395l(a)(3)(B). Because insurers might otherwise be tempted to save money at the government's expense by lowering their reimbursements to FQHCs receiving wraparound payments, Medicare's Not Less Than Provision prevents insurers from exploiting the wraparound support by selectively reducing reimbursement rates to FQHCs. See id. § 1395w-27(e)(3)(A).

         The Public Health Service Act provides a second support through Section 340B, which requires drug manufacturers participating in Medicaid to offer pharmaceutical discounts to FQHCs and certain other safety-net healthcare providers. See id. § 256b. These drug discounts can produce income for eligible providers insofar as insurers reimburse them at market prices that exceed the 340B-discounted price. Notwithstanding some difference in how these two supports operate, Cares argues that the Medicare statute's protection against insurers' freeloading off the wraparound program also necessarily forbids insurers from lowering their reimbursements to capture for themselves the benefit of Section 340B discounts.

         A. The "Not Less Than" Payment Mandate

         "The federal Medicare program reimburses medical providers" such as FQHCs "for services they supply to eligible patients" age 65 and older or with disabilities. Ne. Hosp. Corp. v. Sebelius, 657 F.3d 1, 2 (D.C. Cir. 2011). The Medicare statute is divided into five "Parts," lettered A through E, with Parts A through D each corresponding to a separate benefit category under Medicare. Id. Traditional Medicare comprises Part A, which "covers medical services furnished by hospitals and other institutional care providers," and Part B, which covers outpatient care like physician and laboratory services. Id. Congress authorized wraparound payments to FQHCs in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Medicare Modernization Act or MMA), Pub. L. No. 108-173, 117 Stat. 2066, which "established the Medicare Advantage program" in Part C, id. § 201(a), 117 Stat. at 2176 (codified as amended at 42 U.S.C. § 1395w-21 et seq.), and added prescription drug coverage to Medicare in Part D, id. § 101, 117 Stat. at 2071 (codified as amended at 42 U.S.C. § 1395w-101 et seq.).

         1. Medicare Part C Services and Wraparound Payments

         Under Medicare Advantage (Part C), private insurance companies-known as Medicare Advantage organizations- contract with CMS to offer Medicare beneficiaries a similar range of medical coverage to what traditional Medicare funds directly under Parts A and B. See Ne. Hosp. Corp., 657 F.3d at 2; see also MSPA Claims 1, LLC v. Tenet Fla., Inc., 918 F.3d 1312, 1316 (11th Cir. 2019). CMS pays those insurers (the Medicare Advantage organizations) a fixed amount for each eligible Medicare beneficiary they enroll, and the insurers in turn negotiate agreements with healthcare providers to reimburse them for services they provide to the insurers' enrolled beneficiaries. See Ne. Hosp. Corp., 657 F.3d at 3. Part C imposes certain requirements on CMS' contracts with insurers, e.g., 42 U.S.C. § 1395w-27, some of which CMS must require insurers to implement in their agreements with providers, e.g., id. § 1395w-27(e)(3)(A).

         Relevant here, the Medicare Modernization Act includes three interlocking requirements regarding Medicare Advantage organizations' relationship with FQHCs, each of which we give a shorthand name for ease ...

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