The opinion of the court was delivered by: Robert L. Carter, District Judge.
Plaintiff Port Chester Nursing Home brings this action under
Title XIX of Chapter 7 of the Social Security Act, 42 U.S.C. § 1396
et seq., Section 1 of the Civil Rights Act of 1871,
42 U.S.C. § 1983, the equal protection clause of the United States
Constitution, the laws of the State of New York, and the New
York State Constitution. Defendants are administrative
officials of New York State, Westchester County, and New York
City.*fn1 Plaintiff seeks declaratory and injunctive relief
determining that certain limitations on its medicaid
reimbursement for real property costs violate federal and state
law, and requiring the Commissioner of Health of the State of
New York to promulgate higher reimbursement rates.*fn2
Plaintiff moves pursuant to Rule 15, F.R. Civ.P., to amend
its complaint. Defendants oppose plaintiff's motion, and
cross-move to dismiss plaintiff's complaint pursuant to Rule
12(b)(6), F.R.Civ.P., and for summary judgment pursuant to Rule
56, F.R.Civ.P.
In order to understand the instant determination, it is
necessary to take a brief look at the joint federal-state
system of administering medicaid.
Medicaid is administered by the individual states in
accordance with a state-adopted plan that conforms to federal
requirements. 42 U.S.C. § 1396a. By participating in the
medicaid program, plaintiff is required to provide medical
assistance to eligible persons and by doing so is entitled to
reimbursement which is "reasonable and adequate to meet the
costs which must be incurred by efficiently and economically
operated facilities . . ." (the "efficient cost standard").
42 U.S.C. § 1396a(a)(13)(A). It is the responsibility of the state
plan to determine the methods and amounts of payment to
medicaid providers. 42 U.S.C. § 1396a(a)(13)(A);
42 C.F.R. § 447.250 et seq. In New York State, the Commissioner of Health
determines the reimbursement for residential health care
facilities ("RHCFs"), N.Y. Pub. Health Law §§ 2803(2), 2807(3)
and 2808(3) (McKinney 1985 & Supp. 1990), in accordance with
Part 86-2 of Title 10 of the New York Codes, Rules and
Regulations ("NYCRR").
Under the NYCRR, a RHCF's reimbursement is broken down into
four separate and distinct components: direct costs, indirect
costs, non-comparable costs, and capital costs. NYCRR §
86-2.10(b)(1)(ii). The direct, indirect and non-comparable
costs are referred to as the operating costs, NYCRR §
86-2.10(b)(2), and are not at issue in this case. Capital costs
— basically costs for real property and improvements thereto
— are computed by reference to a "base" year, and provide for
consideration of facts such as the age, size, location and
condition of the facility. The amount and method of capital
cost reimbursement also depend upon the form of ownership of
the facility. Public and voluntary facilities are reimbursed
under one section of the regulations, NYCRR § 86-2.19, and
proprietary
facilities under another. NYCRR § 86-2.21.*fn3
Most public and voluntary RHCFs are reimbursed for their
capital costs based on approved historic costs.*fn4 NYCRR
§ 86-2.19(a). That is, the RHCFs are reimbursed for the amount
of depreciation, generally figured by the straight-line method,
that can be taken on buildings, fixed equipment and capital
improvements. If the facility is leased, reimbursement is based
on the amount of depreciation which can be taken by the
landlord. Aff. of W. Gormley, ¶ 6. However, voluntary RHCFs
located in space leased from a proprietary interest pursuant to
a bona fide, valid, non-cancelable lease entered into and
approved prior to March 10, 1975, receive reimbursement based
on the lease rental, subject to the historical limitations set
forth by the Commissioner.*fn5 NYCRR §§ 86-2.19(e), 2.21(c).
See Pub. Health Law § 2808(2-a)(c). The historical limitations
are figured as a dollar-amount-per-bed based on the year of
construction. Facilities operating under leases entered into
after March 10, 1975, or in which "the proprietary interest has
representation on the board of directors of the voluntary
[RHCF]," NYCRR § 86-2.19(e), are not eligible for reimbursement
based on lease rental. NYCRR § 86-2.19(e) was enacted in June,
1977. Aff. of W. Gormley, ¶ 8.
Plaintiff participates in the above described system as a
voluntary not-for-profit, skilled, 180-bed nursing facility
located in Port Chester, New York. Plaintiff is operated by the
National Council of Young Israel ("NCYI"), a charitable
organization, and licensed by the State of New York.
Approximately 90% of plaintiff's present income comes from
services provided to medicaid eligible persons.
Plaintiff has been in operation since December, 1970,
originally as a proprietary facility operated by David Wolf. By
the end of 1970, approximately 50% of plaintiff's beds were
utilized. During the following year, 1971, the remainder of the
beds became occupied. NCYI took over the operation of plaintiff
in 1976 and, at that time, assumed a valid, bona fide,
long-term non-cancellable lease from Wolf, assuming that it
would be reimbursed for the actual lease payments which it
made.*fn6 Wolf is a member of the board of directors of NCYI.
Second, plaintiff objects to having its capital cost
reimbursement figured in accordance with NYCRR § 86-2.19(e) and
2.21(c).*fn7 According to plaintiff, it assumed a bona fide,
valid, long-term lease in 1976, assuming that it would continue
to be reimbursed for actual lease payments. Plaintiff argues
that had it known that defendants would enact NYCRR §
86-2.19(e) in 1977, it would not have entered the lease in
1976.
Plaintiff alleges four claims in its proposed amended
complaint: 1) the ceilings applied by defendants are in
violation of federal and state law, and the state plan; 2)
defendants utilized the ceilings in violation of the New York
State Administrative Procedure Act, Article 2, and the New York
State Executive Law § 102 and Article 6-A; 3) defendants have
applied the ceiling to plaintiff incorrectly and in a different
manner than all other facilities in the medicaid program; and
4) defendants have treated similarly situated RHCFs differently
in violation of the equal protection clause of the United
States Constitution, the equal protection clause of the New
York State Constitution, and the federal and New York State
medicaid laws and regulations.
Leave to amend "shall be freely given when justice so
requires." Rule 15(a), F.R.Civ.P. Foman v. Davis, 371 U.S. 178,
83 S.Ct. 227, 9 L.Ed.2d 222 (1962). In this case, amendment is
not sought for any improper purpose and no prejudice will
result to defendants. Therefore, leave to amend is properly
granted, and the court shall consider ...