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PORT CHESTER NURSING HOME v. AXELROD

March 13, 1990

PORT CHESTER NURSING HOME, PLAINTIFF,
v.
DAVID AXELROD, M.D., COMMISSIONER OF THE NEW YORK STATE DEPARTMENT OF HEALTH; CESAR PERALES, COMMISSIONER OF THE STATE OF NEW YORK DEPARTMENT OF SOCIAL SERVICES; R. WAYNE DIESEL, BUDGET DIRECTOR OF THE STATE OF NEW YORK; JOHN J. ALLEN, ACTING COMMISSIONER OF' THE WESTCHESTER COUNTY DEPARTMENT OF SOCIAL SERVICES; AND WILLIAM GRINKER, ADMINISTRATOR OF THE NEW YORK CITY HUMAN RESOURCES ADMINISTRATION, AND COMMISSIONER OF THE NEW YORK CITY DEPARTMENT OF SOCIAL SERVICES, DEFENDANTS.



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.

I.

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.

II.

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 ...


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