The opinion of the court was delivered by: TENNEY
Abraham Grossman d/b/a Bruckner Nursing Home ("Bruckner") commenced this action for declaratory and injunctive relief to prevent the defendants from recouping sums allegedly owed the New York State Medicaid Program because of a retroactive reduction in the 1976 reimbursement rate. On January 19, 1979, the Court ordered the defendants to show cause why an order should not be entered: (1) enjoining them from recouping the sums in question pending the determination of the action and (2) directing them to send notice to each city or county commissioner of social services in charge of such recoupment that they may not recoup the sums pending determination of the action. On January 25, the Court held a hearing on the application for the preliminary injunction. It subsequently found it unnecessary to hold a hearing on irreparable harm; for the purposes of this decision, the Court assumes that Grossman could show irreparable harm. For the reasons given below, the preliminary injunction is denied.
The State of New York participates in the joint federal-state Medicaid program, 42 U.S.C. § 1396 Et seq., under which the state reimburses nursing home providers for services rendered to Medicaid recipients. Abraham Grossman owns and operates a provider, Bruckner, which is a 200-bed residential health care facility located in Bronx County. Grossman allocates all of Bruckner's 200 beds for Medicaid patients. Defendant David Axelrod, M.D., as Acting Commissioner of the State Department of Health, establishes and certifies the reimbursement rates for Bruckner's services to Medicaid patients. Defendant Howard F. Miller, as Acting Director of the State Budget, approves the reimbursement rates. Defendant Barbara B. Blum, as Commissioner of the State Department of Social Services, makes payments for services rendered to Medicaid patients.
By a letter dated October 27, 1978, the Department of Health informed Bruckner that the per diem reimbursement rate for 1979 had been established at $ 52.61. On December 26, 1978, the Department notified Bruckner that a new rate had been established, superseding the October 27 rate. The new rate, $ 50.65, reflected a corrected inflation factor and an additional adjustment factor entitled "1976 recoupment." The rate computation sheet attached to the letter indicated that Bruckner had been over-reimbursed at an average rate of $ 1.96 per bed per day during 1976. This over-reimbursement represents the difference between the amount paid to Bruckner during the period from January 1 through October 31, 1976 and the amount it would have been paid at a lower rate set in October 1976 pursuant to 10 N.Y.C.R.R. part 86-2, made retroactive to January 1, 1976.
The difference amounts to $ 136,000, which the State Medicaid Program seeks to collect by reducing the 1979 reimbursement, thereby spreading the recoupment over many months.
Grossman alleges ten causes of action, and he has since indicated an intention to amend his Complaint with an equal protection claim. Grouped by types of legal attack, his various claims are as follows:
1. In his first cause of action, Grossman alleges that the defendants seek to recoup the overpayments without affording him a prior hearing. In his fourth cause of action, he claims that the recoupments constitute confiscation of property without just compensation, and he further contends that recoupment from Bruckner, a proprietary facility, will violate Grossman's equal protection rights because the defendants, in another case pending in the Southern District,
allegedly agreed to a stay of recoupment as to all nonprofit or public health facilities.
2. In the second and eighth causes of action, he claims lack of notice: in the former, he claims that he was not given the requisite 60-days notice prior to the effective date of his 1979 reimbursement rate, and in the latter he makes the same claim regarding his 1976 rate.
3. In the third cause of action, he claims that parts 86-2 and 88 failed to provide for reimbursement of Bruckner's reasonable costs and/or that the Commissioner of Health erroneously disallowed base-year costs in computing Bruckner's rates.
4. In the fifth, sixth, seventh, ninth, and tenth causes of action, he attacks the promulgation of parts 86-2 and 88 for various alleged deficiencies, I. e., that the Medical Advisory Committee was not consulted prior to their promulgation; that part 88 was enacted on an emergency basis without meeting the requirements of the state Administrative Procedure Act; that the Temporary President of the New York State Senate and the Speaker of the New York Assembly were not given 21-days notice, and the public was not given 21 days to comment, prior to the promulgation of part 86-2; that both parts effect retroactive reductions in rates established in October 1975 in violation of part 86; and, finally, that the regulations violate section 18 of chapter 76 of the Laws of 1976.
The defendants contend principally that this action should be disposed of under the doctrine of res judicata, invoking Kaye v. Whalen, 56 A.D.2d 111, 391 N.Y.S.2d 712 (3d Dep't 1977), Aff'd mem., 44 N.Y.2d 754, 405 N.Y.S.2d 682, 376 N.E.2d 1327, Appeal dismissed for want of a substantial federal question, 439 U.S. 922, 99 S. Ct. 303, 581 L. Ed. 2d 315 (1978). They assert that Grossman is bound by that decision because he was in that case either a member of a named plaintiff association or a member of a class. The defendants alternatively contend that, even if res judicata is not applicable, Kaye disposes of most issues in this case under the doctrine of stare decisis, and that the remaining issues, if any, are questions of state law that should be addressed in a state forum.
Because of the central importance of Kaye v. Whalen in this action, it is necessary to set it out at some length. In Kaye, the Third Department of the New York State Supreme Court, Appellate Division, reversed a supreme court grant of an article 78 petition in which the petitioners (nursing homes and an association of such facilities) had sought to invalidate tentative rates set November 1975 for reimbursement in 1976 and to force the Commissioner of the Department of Health to set 1976 rates consistent with existing regulations. 56 A.D.2d at 113, 391 N.Y.S.2d at 714. The majority decided that newly enacted reimbursement standards in section 2808 of the Public Health Law gave the Commissioner sufficient statutory authority to continue the 1975 rates tentatively for 1976, as he did, and that doing so was better than to set new rates on the basis of regulations promulgated under a standard no longer in effect. The majority faulted the petitioners for failing to show that the tentative rate was inconsistent with the new standards. Id. at 114-15, 391 N.Y.S.2d at 714-15. They concluded that, in any event, the tentative rates were supplanted by the retroactive rates set in October 1976. They found that the retroactive effect was specifically authorized by section 2807(2)(e), found no impairment of contractual rights, found that approval by the Department of Health, Education and Welfare of the new rates and regulations was unnecessary, and, finally, found no vested rights of which petitioners had been deprived. Id. at 115-19, 391 N.Y.S.2d at 715-18.
The Court of Appeals of New York unanimously affirmed the appellate division. 44 N.Y.2d 754, 405 N.Y.S.2d 682, 376 N.E.2d 1327 (1978) (Mem.). In so doing, it set out conclusions in conformity with those reached by the appellate division. That decision was appealed to the United States Supreme Court, which dismissed the appeal for want of a substantial federal question. 439 U.S. 922, 99 S. Ct. 303, 581 L. Ed. 2d 315 (1978).
In the Second Circuit, a preliminary injunction may issue only upon "a showing of possible irreparable injury And either (1) probable success on the merits Or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation And a balance of hardships tipping decidedly toward the party requesting the preliminary relief." Caulfield v. Board of Education, 583 F.2d 605, 610 (2d Cir. 1978); Accord, Selchow & Righter Co. v. McGraw-Hill Book Co., 580 F.2d 25, 27 (2d Cir. 1978). The Court assumes Arguendo that Grossman could show a possibility of irreparable harm, but denies a preliminary injunction ...