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BIRNBAUM v. BLUM

September 21, 1982

EMANUEL BIRNBAUM, et al., Plaintiffs,
v.
BARBARA B. BLUM, Commissioner of State of New York Department of Social Services, et al. Defendants



The opinion of the court was delivered by: COOPER

IRVING BEN COOPER, D.J.

 Movants, Commissioner of the New York State Department of Social Services, Commissioner of the New York State Department of Health and the Director of the New York Division of Budget, seek an order, pursuant to Fed. R. Civ. P. 12, dismissing the complaint on the grounds that venue is improper, the complaint fails to state a claim upon which relief may be granted; that we should abstain from entertaining jurisdiction because a similar action is pending in New York Supreme Court, New York County. For reasons set forth below, the motion is granted in all respects.

 Respondents, Emanuel Birnbaum and Desdemona Jones, licensed operators of the Betsy Ross Health Care Facility (Facility), a 120 bed nursing home located in Rome, New York, commenced this action on July 15, 1982 challenging the determination made by movants that the Facility had received Medicaid payments at an unwarranted and improper high rate from April 1 through December 31, 1977 and consequently owes the State $51,079.66 plus interest.

 The gravamen of respondents' assertions is that the denial of an administrative evidentiary hearing by the Department of Health prior to the fixing of the new rate was arbitrary and capricious, in violation of the due process clause of the Constitution, and not supported by substantial evidence. In the underlying action and their application for a preliminary injunction, respondents seek declaratory and injunctive relief enjoining movants from withholding or attempting to recoup any of the alleged overpayments until they have availed themselves of the remedies afforded by law. *fn1"

 Pursuant to the Federal Medicaid Program, a joint state and federal operation, responsibility for reimbursement rates is "determined in accordance with methods and standards developed by the State." *fn2" In New York, two different rates are used for residential health care facilities. Initially a new facility or one without adequate financial data obtained a rate, referred to as the "group average rate," based on factors including the usual and customary charges for comparable services in the same geographic area. *fn3" The group average rate is only an interim measure. Thereafter, such facilities are required to file with the state agencies involved a cost report covering the first six months in which the facility "has had an overall average utilization of at least 90 percent of bed capacity." *fn4" Once this threshold has been met, the New York State Department of Health then redetermines the Medicaid reimbursement rate (referred to as the "cost-base rate") predicated on the basis of the actual costs set forth in the report. *fn5"

 Respondents opened the Facility on November 15, 1974 and their initial rates were set by the group average rate. In June, 1977 respondents submitted their first cost report which disclosed that they had a 97% bed utilization for the entire year of 1976. The Department of Health subsequently determined that respondents should have filed their initial six month cost report on or about April 1, 1977 as they had reached the 90% bed occupancy rate 6 months prior thereto. Therefore the Department determined that respondents' reimbursement rate had to be recomputed for the period in dispute, April 1, 1977 to December 31, 1977, based on the actual costs reflected in the report. Respondents were notified on August 22, 1979 that a retroactive rate change had been effected and $51,079.66 was owing the State. *fn6"

 By letter to the Department of Health dated September 20, 1979, respondents appealed this determination and asserted that because the Facility's operating costs were less than like facilities in the same geographic area it should be rewarded, not penalized; and that the downward revision of the Medicaid reimbursement rate would cause "undue hardship on the facility." *fn7" Respondents, however, did not question or challenge the factual determination by the Department of Health that the Facility had an over 90% occupancy rate for the period April 1, 1977 to December 31, 1977. *fn8"

 The Department of Health considered respondents' September 20, 1979 letter as a request for an administrative evidentiary hearing, and processed it accordingly. *fn9" On March 15, 1982, movant Department of Health dismissed the appeal and stated that the action taken was "based on policy and the application of regulations and principles used throughout the industry"; that "there [were] no issues of fact presented warranting an administrative hearing"; and that there were no incentive provisions in the Medicaid program for facilities with lower costs than those with which it was grouped. *fn10"

 On May 14, 1982 the Director of Administrative Services for the Oneida County Department of Social Services wrote the Facility, requested payment of the $51,079.66 within 10 days and stated that failure to comply would result in deductions being made against future Medicaid reimbursement payments to the Facility. *fn11" After a request on May 21, 1982 by the Facility's former counsel that payments be made over a period of time because any "sudden lump sum recoupment would have devasting implications for the cash flow of the . . . Facility," the Director of Administrative Services offered to accept repayment in nine monthly installments as the Department "most definitely would not want to impose any severe hardship on the [Facility's] cash flow." *fn12" This offer was apparently rejected by the Facility since no repayments have been made.

 * * *

 The incurable flaws presented by the complaint in this action first come to light when we consider the venue provisions relative to this action. The rule regarding venue in an action based on federal question jurisdiction is clear:

 
A civil action wherein jurisdiction is not founded solely on diversity of citizenship may be brought only in the judicial district where all the defendants reside, or in which the claim arose.

 28 U.S.C. § 1391 (b) (emphasis added).

 The moving papers in their entirety make abundantly clear that none of the defendants reside in this district and the claim ...


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