A nonprofit community health center is seeking court intervention after claiming that state authorities have failed to ensure full and timely Medicaid payments for behavioral health services, leaving the provider with millions in unreimbursed costs and impacting its ability to serve medically underserved populations. The Floating Hospital, Inc., filed a complaint on May 12, 2026, in the United States District Court for the Eastern District of New York against the New York State Department of Health and Acting Commissioner James V. McDonald.
According to the filing, The Floating Hospital (TFH) alleges that despite federal law requiring states to reimburse Federally-qualified health centers (FQHCs) at specific rates for covered services provided to Medicaid beneficiaries, the Department of Health has not met its obligations when managed care organizations (MCOs) pay less than required or fail to pay at all. TFH reports that this shortfall violates both statutory requirements and binding Second Circuit precedent, specifically referencing Community Health Care Association of New York v. Shah.
The complaint outlines that TFH is a not-for-profit community-based health center operating two sites in Queens County and providing primary care regardless of patients’ insurance status or ability to pay. As an FQHC under Section 330 of the Public Health Service Act, TFH is entitled by law to receive full reimbursement for reasonable costs incurred while serving Medicaid recipients. The suit explains that Congress established these payment rules to prevent public grant funds from subsidizing state Medicaid programs and to protect access for uninsured individuals.
TFH describes a history of litigation over supplemental payment policies in New York’s Medicaid program. For years, it says, state policy excluded certain visits from wraparound payments if MCOs did not pay those claims—a practice previously found unlawful by federal courts because it left FQHCs uncompensated for eligible services. Following court orders in related cases, the Department implemented new rate codes meant to address nonpayment by MCOs but continued disputes over how supplemental payments are calculated and whether administrative rules hinder providers’ ability to claim owed funds.
The hospital further asserts that since about 2015, when outpatient behavioral health services were integrated into managed care contracts under Article 31 of the Mental Hygiene Law, MCOs were directed by the state to pay FQHCs at their full prospective payment system (PPS) rates. However, TFH alleges many MCOs still do not comply with this requirement—sometimes paying significantly less—and that state policy prohibits supplemental wraparound payments for these behavioral health services even when underpayment occurs.
In correspondence dated April 14, 2025, TFH notified Deputy Commissioner Amir Bassiri about ongoing underpayments totaling more than $3.3 million over eight years for Article 31 behavioral health services provided to Medicaid beneficiaries. Despite follow-up inquiries through August 2025, TFH states it received no substantive response from state officials and was compelled by statute "to make every reasonable effort to collect" sums owed before pursuing legal action.
The complaint asks the court for declaratory relief confirming that defendants must reimburse TFH according to federal law for Article 31 behavioral health services delivered to Medicaid recipients. It also seeks an order compelling prompt payment at PPS rates going forward and requests recovery of litigation costs including attorneys’ fees pursuant to federal statute.
Attorneys representing The Floating Hospital are Aime Dempsey of Epstein Becker & Green PC (New York) and Matthew S. Freedus of Powers Pyles Sutter & Verville PC (Washington DC). The case is identified as Case No: 1:26-cv-02841.