Washington Court Rejects State Medicaid Agency’s Payment Methodology for FQHC Reimbursement

On April 23, 2026, the Superior Court of the State of Washington, Spokane County, held[1] that Washington’s state Medicaid agency, the Washington State Health Care Authority (HCA), violated state Medicaid regulations by using two-month-old enrollment data to calculate a health center’s supplemental Medicaid payments. 

Feldesman attorneys Edward Waters and Brendan Tyler represented the health center in briefing and oral argument. As a result of this decision, the health center hopes to recover a $4.1 million shortfall resulting from years of underpayments by HCA between July 2017 and December 2022. 

Health Center Challenged Years of Alleged Medicaid Underpayments

The Community Health Association of Spokane (CHAS) brought this lawsuit under the Washington Administrative Procedure Act, asserting that HCA’s use of stale enrollment data violated both state Medicaid regulations and the parties’ Medicaid contract. The federal Medicaid Act provides that the CHAS’s designation as a Federally Qualified Health Center entitles it to receive Medicaid reimbursement from Washington in accordance with Prospective Payment System (PPS) rates—or an Alternative Payment Methodology (APM) that results in at least equal payments—rather than the (typically) lower Medicaid fee-for-service rates. Washington administers a portion of its Medicaid program through contracts with Managed Care Organizations (MCOs). As a result, MCOs make payments to health centers for covered services provided to MCO enrollees. If the MCOs’ payments are less than the amount of reimbursement that a health center is entitled to receive under the applicable PPS or APM methodology, 42 U.S.C. § 1396a(bb)(5) requires HCA to make supplemental payments covering the difference.

Under the APM adopted by HCA and CHAS—entitled “APM4”—HCA paid a “Per Member Per Month” rate for each Medicaid MCO patient enrolled with CHAS for each month. However, rather than using actual enrollment numbers for a month when determining the supplemental payment for that month, HCA calculated payment according to a two-month lag; for example, the payment covering December 2022 was based on CHAS’s enrollment for October 2022. Because CHAS’s enrollment increased in nearly every month that the APM was in effect, the two-month lag, coupled with HCA’s refusal to “true up” the enrollment calculations during the annual reconciliation process, caused CHAS to be underpaid for nearly every month.

Washington State Court Decides In Favor of Health Center

After exhausting its administrative appeal rights through HCA’s internal dispute process, CHAS filed this lawsuit alleging that HCA’s interpretation of the state regulations and APM contract were arbitrary, capricious, and contrary to law. Arguments before the court focused on the meaning of “per member per month” and “each month” as used in the contract and Washington Administrative Code § 182-548-1400(8)(b)(ii). HCA argued that the two-month lag was permissible because it rendered payment based on CHAS’s enrollment numbers in each month, and nothing in the contract or statute required the enrollment numbers to actually match the month for which payment was made. The court rejected that argument, holding that:

• HCA acted contrary to law because the contract and applicable regulations require “full payment based on the actual number of patient encounters each month.”
• HCA’s actions were also arbitrary and capricious because it incorrectly represented to CHAS that APM4 would operate the same way as prior APM arrangements. Under the previous APM contract, HCA used a temporary two-month lag to calculate payments but that the annual reconciliation process had addressed that lag during the annual reconciliation process to ensure payment was based on the actual number of patient encounters each year.

Based on its legal and factual conclusions, the court vacated HCA’s prior administrative decision and remanded the matter to HCA for further proceedings—including a recalculation of the amount due to CHAS under the APM.

HCA filed an appeal with the Washington Court of Appeals on May 21. A final decision issued by the Court of Appeals would likely have a broader impact for Washington health centers. In particular, a ruling affirming the Superior Court’s decision—that HCA violated its regulatory and contractual obligations under APM4—may be binding as to HCA’s obligations to other health centers.

Broader Implications

This decision may have significant implications for health centers challenging state Medicaid reimbursement methodologies that result in chronic underpayment. Although the ruling is not binding outside this case unless affirmed on appeal, it provides persuasive authority supporting challenges to state payment methodologies that fail to accurately account for enrollment growth and required supplemental payments.

For Washington health centers participating in APM4 arrangements, the decision may strengthen efforts to recover additional Medicaid reimbursement where payment calculations relied on delayed or outdated enrollment data.

The ruling also reinforces that state administrative procedure laws can provide an effective avenue for health centers to challenge state Medicaid agencies’ interpretation and implementation of PPS and APM payment obligations. In this case, the court determined that HCA’s interpretation of its reimbursement obligations was contrary to law and arbitrary and capricious, despite the agency having previously rejected the health center’s claims through its internal administrative review process.

Key Takeaways

This decision highlights several important considerations for health centers and other Medicaid providers such as: 

• State administrative procedure laws may provide an effective mechanism for challenging Medicaid payment determinations
• Courts may closely scrutinize state Medicaid agencies’ interpretations of reimbursement obligations
• Health centers should carefully evaluate whether administrative reconciliation processes fully account for enrollment growth and payment adjustments

As reimbursement disputes involving PPS and APM methodologies continue to evolve, this case may serve as an important reference point for providers evaluating potential claims against state Medicaid agencies.

Feldesman attorneys continue to monitor litigation developments and administrative actions affecting health centers’ reimbursement rights. If you have questions regarding this decision or how to navigate reimbursement disputes with Medicaid agencies, please contact Edward Waters or Brendan Tyler.

[1] Community Health Association of Spokane v. Washington State Health Care Authority, No. 25-2-00278-32 (Apr. 23, 2026), available at https://cp.spokanecounty.org/courtdocumentviewer/PublicViewer/SCAllCasesByCaseNumber.aspx.