In the Matter of the Appeal of Rate Calculation for Community-University Health Care Center

This opinion is nonprecedential except as provided by
Minn. R. Civ. App. P. 136.01, subd. 1(c).

STATE OF MINNESOTA
IN COURT OF APPEALS
A23-1178

In the Matter of the Appeal of Rate Calculation for
Community-University Health Care Center.

Filed April 22, 2024
Reversed and remanded
Reyes, Judge

Minnesota Department of Human Services
File No. 37897

Douglas R. Peterson, General Counsel, Lisa L. Beane, Senior Associate General Counsel,
Susan G. Kratz, Academic Health Center Counsel, University of Minnesota, Minneapolis,
Minnesota; and

Kathy S. Ghiladi (pro hac vice), Feldesman, Tucker, Leifer, Fidell, LLP, Washington, D.C.
(for relator Regents of the University of Minnesota Community-University Health Care
Center)

Keith Ellison, Attorney General, Emily B. Anderson, Aaron Winter, Assistant Attorneys
General, St. Paul, Minnesota (for respondent Commissioner of the Minnesota Department
of Human Services)

Considered and decided by Reyes, Presiding Judge; Ede, Judge; and Smith, John,

Judge. ∗

∗
Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to
Minn. Const. art. VI, § 10.
 NONPRECEDENTIAL OPINION

REYES, Judge

Relator argues that the Minnesota Department of Human Services (DHS) violated

state and federal Medicaid laws by excluding the costs of mental-health targeted-case-

management (MH-TCM) services from relator’s 2021 rate calculation. We reverse and

remand with instructions for DHS to include MH-TCM services in relator’s rate

calculation.

FACTS

This case concerns the methodology under which DHS reimbursed relator

Community-University Health Care Center for the MH-TCM services that relator provides

to its patients. In late 2020, DHS informed relator that it was departing from its

longstanding practice of reimbursing relator’s MH-TCM costs on a per-encounter basis

and would prospectively limit reimbursement to a monthly rate. Additionally, DHS altered

its formula for relator’s rate calculation to exclude MH-TCM services.

Medicaid is a joint federal-state program that pays for medical services provided to

eligible low-income people and persons with disabilities. 42 U.S.C. § 1396-1 (2018).

States that participate in Medicaid receive federal funding to provide certain medical

services. See id. Participating states must designate a “single State agency” to administer

the state’s Medicaid program according to a “State plan,” which is a “comprehensive

statement” of a state’s Medicaid program. 42 U.S.C. § 1396a(a)(5) (2018). State plans

must be approved by the Centers for Medicare and Medicaid Services and administered in

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compliance with the Medicaid act and federal regulations. 42 U.S.C. § 1396-1; 42 C.F.R.

§ 430.10 (2022).

Medicaid-covered services are often provided by federally qualified health centers

(FQHC), which are entities that receive grant funding under 42 U.S.C. § 254b (2018) to

supply healthcare to underserved populations. 42 U.S.C. § 1396d(1)(2)(B) (2018).

FQHCs must provide primary health services, such as internal medicine, and may provide

other outpatient and ambulatory services included in the state plan. 42 U.S.C.

§ 1396d(a)(2)(A)(C) (2018). The state agency tasked with implementing the state plan

reimburses FQHCs for the services they provide under the plan. 42 U.S.C. § 1396a(bb).

The responsible state agency may calculate an FQHC’s reimbursement rate under either a

prospective payment system (PPS) or an alternative payment methodology (APM). Id. A

state plan may reimburse an FQHC using an APM as long as (1) both the state and FQHC

agree to the APM and (2) the APM results in a payment which is at least equal to what the

FQHC would have received under a PPS system. Id.

In Minnesota, DHS is the agency responsible for implementing the state Medicaid

plan, which is referred to as Medical Assistance. Minn. Stat. § 256B.04 (2022 & Supp.

2023). To comply with federal Medicaid requirements, DHS must reimburse FQHCs for

the Medicaid-covered services they provide to beneficiaries using either a PPS or an APM.

42 U.S.C. § 1396a(bb); Minn. Stat. § 256B.0625, subd. 30(l) (Supp. 2023).

Relator is a Minneapolis-based FQHC that offers MH-TCM services, which assist

individuals who have a mental illness with integrating into society and accessing other

health and patient-related support services. Relator has a contract with Hennepin County

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to provide MH-TCM services on the county’s behalf. The contract between relator and the

county requires MH-TCM services to be billed and reimbursed at a per-encounter rate.

In 2021, DHS instituted a new APM entitled “APM-IV” under which FQHCs are

paid on a per-encounter basis. The Centers for Medicare and Medicaid Services approved

the APM-IV rate with an effective date of January 1, 2021. APM-IV’s calculation

methodology excludes MH-TCM services as “nonallowable costs” under Minn. Stat.

§ 256B.0625, subd. 30(l)(3) (hereinafter subdivision 30(l)(3)).

In April 2021, DHS informed Hennepin County that it would no longer include MH-

TCM expenses in relator’s per-encounter rate and would only reimburse relator’s MH-

TCM costs on a monthly basis. Three months later, DHS sent relator its final rate

calculation for 2021, in which it excluded MH-TCM services as a “nonallowable cost”

under subdivision 30(l)(3). DHS calculated relator’s reimbursement rate under both the

APM-IV and PPS methodologies. However, DHS’s PPS rate calculation included MH-

TCM while its APM-IV rate calculation excluded MH-TCM services. Despite this, DHS’s

calculation of the APM-IV reimbursement rate still exceeded the PPS rate. DHS sent

relator both rates, and relator elected to be reimbursed under the APM-IV rate. Relator

appealed DHS’s APM-IV rate calculation, and DHS initiated a contested proceeding before

an administrative-law judge (ALJ).

In September 2022, the ALJ issued its order on the parties’ cross motions for

summary disposition, recommending that relator be granted summary disposition and that

DHS’s APM-IV rate calculation be rescinded and recalculated to include MH-TCM

services. The ALJ determined that DHS exceeded its statutory authority under Minn. Stat.

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§ 256B.0625, subd. 30(l)(4), by identifying MH-TCM services as a category of

nonallowable costs in a manner not authorized by the legislature. DHS timely filed

exceptions to the ALJ’s recommendation, placing the matter before respondent

Commissioner of the Minnesota Department of Human Services (the commissioner).

The commissioner declined to follow the ALJ’s recommendation and issued a final

order granting summary disposition to DHS in January 2023. The commissioner

determined that DHS acted within its statutory authority when it listed MH-TCM services

as nonallowable costs because Minn. Stat. § 256B.0625, subd. 30(l), enumerates a non-

exhaustive list of nonallowable costs, and a different subdivision in the statute provides

that “Medical [A]ssistance and MinnesotaCare payment for mental health case

management shall be made on a monthly basis.” Minn. Stat. § 256B.0625, subd. 20(c)

(2022). The commissioner subsequently denied relator’s request for reconsideration.

Relator petitioned for certiorari review.

DECISION

Relator argues that (1) DHS exceeded its statutory authority under both state and

federal Medicaid laws by excluding MH-TCM services from relator’s APM-IV rate

calculation and (2) DHS’s decision to depart from its longstanding practice of reimbursing

MH-TCM services on a per-encounter rate was arbitrary and capricious. We agree that

DHS’s APM-IV rate calculation violates Minn. Stat. § 256B.0625, subd. 30(l), and we

therefore do not reach relator’s remaining arguments.

The Minnesota Administrative Procedure Act governs our review of the

commissioner’s final order. Minn. Stat. §§ 14.001-.69 (2022). When reviewing an

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agency’s final decision, we may either affirm or remand the case for further proceedings.

Minn. Stat. § 14.69. We may also reverse or modify the commissioner’s final order if,

among other things, we conclude that relator’s substantial rights were prejudiced because

the commissioner’s order is made “in excess of the statutory authority or jurisdiction of the

agency” or is “arbitrary or capricious.” Id.

Relator asserts that its rate calculation under APM-IV violates Minnesota law for

reimbursing FQHCs because (1) MH-TCM services are allowable costs under federal

Medicaid regulations, and DHS is required to reimburse relator for its “allowable costs”

and (2) MH-TCM services are not included in the statutorily enumerated nonallowable

costs. See Minn. Stat. § 256B.0625, subd. 30(l)(3). Relator’s argument is persuasive.

Subdivision 30(l)(3) provides that “the commissioner shall reimburse FQHCs and

rural health clinics, in accordance with current applicable Medicare cost principles, their

allowable costs, including direct patient care costs and patient related support services.”

Id. (Emphasis added). The applicable Medicare principles for determining whether costs

are “allowable” are contained in 42 C.F.R. § 405.2468(b) (2022). That regulation provides

that certain FQHC costs “are included in allowable costs to the extent they are covered and

reasonable.” Id. These costs include “[c]ompensation for the services of a

physician . . . clinical psychologist . . . [or] mental health counselor.” Other Changes to

Part B Payment and Coverage Policies, 88 Fed. Reg. 78818, 79525 (Nov. 16, 2023) (to be

codified at 42 C.F.R. pt. 405) (emphasis added). Moreover, the regulation also covers

“[c]osts of services and supplies incident to the services of a . . . clinical psychologist . . .

or mental health counselor.” Id.

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 MH-TCM services utilize “case managers” who provide patients with a functional

assessment, 1 a community support plan, and resources connecting the patient to mental

health and other services while also coordinating and monitoring the delivery of those

services. Because Minnesota requires case managers to be mental-health practitioners,

Minn. Stat. § 245.462, subd. 4(3) (2022), MH-TCM services fall under the umbrella of

“services of a . . . clinical psychologist [or] mental health counselor” as well as

costs incident to such services. Other Changes to Part B Payment and Coverage Policies,

88 Fed. Reg. at 79525. MH-TCM services are therefore an allowable cost under the current

applicable Medicare principles, meaning that the commissioner is presumptively required

to reimburse relator for its MH-TCM costs. Minn. Stat. § 256B.0625, subd. 30(l)(3).

However, Minnesota’s Medicaid statute defines specific categories of costs as

“nonallowable” for FQHC reimbursements. Subdivision 30(l)(3) provides that

nonallowable costs, “include, but are not limited to:

(i) general social services and administrative costs;
(ii) retail pharmacy;
(iii) patient incentives, food, housing assistance, and utility
assistance;
(iv) external lab and x-ray;
(v) navigation services;
(vi) health care taxes;
(vii) advertising, public relations, and marketing;
(viii) office entertainment costs, food, alcohol, and gifts;

1
Functional assessments evaluate an individual’s health-care coverage, access to health
care, participation in recommended physical- and mental-health-care treatment, and
wellness issues important to the individual.

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 (ix) contributions and donations;
(x) bad debts or losses on awards or contracts;
(xi) fines, penalties, damages, or other settlements;
(xii) fundraising, investment management, and associated
administrative costs;
(xiii) research and associated administrative costs;
(xiv) nonpaid workers;
(xv) lobbying;
(xvi) scholarships and student aid; and
(xvii) nonmedical assistance covered services.”

DHS argues that, because subdivision 30(l)(3) provides for a non-exhaustive list of

nonallowable costs, it was permitted to exclude MH-TCM costs from relator’s rate

calculation. We disagree.

Whether MH-TCM costs may be excluded from a rate calculation under subdivision

30(l)(3) presents a question of statutory interpretation that we review de novo. Curtis v.

Klausler, 802 N.W.2d 790, 793 (Minn. App. 2011), rev. denied (Minn. Oct. 18, 2011).

Minnesota statutes are commonly written to indicate that a non-exhaustive list of items

covered by the provision may be supplemented by items of the same kind or class as those

specifically identified. State v. Khalil, 956 N.W.2d 627, 638-39 (Minn. 2021).

Here, the statute provides an extensive list of 17 nonallowable costs which all share

a common feature: they are ancillary costs that are tangential to patient treatment and

instead address the logistical and operational costs FQHCs incur in maintaining their

business functions. It is logical that the legislature would seek to avoid allocating public

funds to cover a private entity’s operational costs, especially when those costs are

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tangential to providing treatment to Medicaid beneficiaries. The enumerated nonallowable

costs therefore harmonize with the statutory language stating that the commissioner “shall”

reimburse FQHCs for “direct patient care costs and patient-related support services.”

Minn. Stat. § 256B.0625, subd. 30(l)(3).

Conversely, MH-TCM services provide “direct patient care” and “patient-related

support,” and are therefore categorically different than the enumerated nonallowable

costs. 2 MH-TCM services allow Medicaid beneficiaries to receive mental health and other

necessary treatment directly from licensed health-care practitioners and provide the

logistical framework and oversight to ensure that beneficiaries continue to have access to

those services. The commissioner is therefore required to reimburse the costs relator incurs

for providing “direct patient care and patient-related support” through its MH-TCM

services. Id.; see Minn. Stat. § 645.44, subds. 15, 17 (2022) (defining “shall” and “may”);

City of Circle Pines v. County of Anoka, 977 N.W.2d 816, 823 (Minn. 2022) (explaining

the impact of “shall” and “may” in statutory interpretation). Because MH-TCM services

are allowable costs under general Medicare principles and cannot be construed to be of the

same kind of cost as the 17 nonallowable costs in subdivision 30(l)(3), DHS exceeded its

statutory authority by excluding MH-TCM services from relator’s rate calculation. See

2
The only statutorily nonallowable costs that could ostensibly encompass MH-TCM
services are “general social services” and “nonmedical assistance covered services.”
However, even those nonallowable costs are readily distinguishable from MH-TCM
services because they contemplate nonessential benefits that may be provided in addition
to patient care or treatment. Conversely, MH-TCM services allow patients to receive
clinically supervised treatment from a licensed mental-health practitioner. Minn. Stat.
§§ 245.462, subd. 4(3); 245I.04, subd. 2 (2022).

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State v. Sanschagrin, 952 N.W.2d 620, 628 (Minn. 2020) (noting that, because appellant’s

action was not in category of requests contemplated by Minnesota statute, the statutory

approval provision did not apply).

Because they allow patients to receive the mental-health treatment necessary to

maintain their health and fully participate in society, MH-TCM services are essential

services. Allowing DHS to exclude MH-TCM services from an FQHC’s rate calculation

would therefore frustrate Medicaid’s purpose of providing essential health services to

underserved populations. See 42 U.S.C. § 1396-1. DHS exceeded its statutory authority

by excluding the costs of MH-TCM services from relator’s rate calculation. We therefore

reverse the commissioner’s order granting summary disposition to DHS and remand the

case for DHS to recalculate relator’s 2021 APM-IV rate calculation with MH-TCM

services included as an allowable cost.

Reversed and remanded.

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