and economically operated facilities. . . ." Based on this
statute, plaintiff argues that it should be reimbursed for its
actual rental payments.
Plaintiff's argument is without merit. Under the efficient
cost standard, the defendants are clearly not required to
reimburse plaintiff for the costs it actually incurs, or even
for the costs it reasonably incurs. Friedman v. Perales,
668 F. Supp. 216, 222-223 (S.D.N.Y. 1987) (Ward, J.), aff'd,
841 F.2d 47 (2d Cir. 1988) (per curiam). Rather, defendants are
required to reimburse plaintiff for the costs that would be
reasonably incurred by an economically and efficiently run
facility. Id. at 222. In determining these amounts, "states are
free to formulate class-wide reimbursement regulations based on
the costs of rational groupings of provider facilities." Id.
Additionally, there is no requirement that defendants provide
plaintiff with "reasonable and adequate" reimbursement for each
individual expense. Rather, the requirement is that plaintiff's
reimbursement be "reasonable and adequate" in total. "The
efficient cost standard of the medicaid provisions requires
only that RHCFs be reimbursed for the efficient cost of their
operations, not that every component of reimbursable cost be
compensated at an efficient rate." Friedman v. Perales, supra,
841 F.2d at 48 (quoting Friedman v. Perales, supra, 668 F. Supp.
at 225). Real property reimbursement is only one component of
the total reimbursement that plaintiff receives, and it does
not argue that in total it is being reimbursed in an amount
less than would be reasonably incurred by an economically and
efficiently run facility. Therefore, plaintiff has not stated a
cause of action for violation of federal medicaid law.
In addition to its federal claims, plaintiff complains of
three different wrongs under state law.*fn8 First, in count
one of its complaint, plaintiff claims that it falls within the
exception of NYCRR § 86-2.19(e) and therefore it is incorrect
for defendants to calculate its real estate reimbursement under
NYCRR § 86-2.21.*fn9 Second, in count two, plaintiff complains
that defendant Axelrod adopted the ceilings in question in
violation of Article 2 of the New York Administrative Procedure
Act and Article 6-A of the Executive Law. Third, in count
three,*fn10 plaintiff claims that its reimbursement rate was
incorrectly determined under the current regulations in that
the determination failed to account for the fact that it
commenced its operation over a split year.*fn11 Finally, in
count four, plaintiff alleges violation of the equal protection
clause of the New York State Constitution.
It is unnecessary to consider plaintiff's state law claims in
detail as the Eleventh Amendment dictates their dismissal.
Under the Eleventh Amendment, federal courts are prohibited
from entertaining injunctive claims against state officials
based on state law, even if such claims are brought under the
basis of pendent jurisdiction. Pennhurst State School and
Hospital v. Halderman, 465 U.S. 89, 104 S.Ct. 900, 79 L.Ed.2d
67 (1984). Even if it was not the case that the court was
prohibited by the Eleventh Amendment from entertaining
plaintiff's state law claims, the court would exercise its
discretion inherent in pendent jurisdiction and decline to do
so. See Friedman v. Perales, 616 F. Suppl. 1363, 1367-68
(S.D.N.Y. 1985) (Gagliardi, J.).
Plaintiff claims that defendants violated its rights under
the equal protection clause of the United States Constitution
in that it treats different RHCFs differently under the same
circumstances with regard to their real property costs.
Specifically, plaintiff alleges that defendants reimburse all
other voluntary not-for-profit RHCFs for their real property
costs without subjecting them to any ceiling, whereas
plaintiff, also a not-for-profit RHCF, is subject to a ceiling.
Because no suspect class or fundamental interest is at stake,
the regulations in question will be upheld if a rational basis
exists for their adoption. "The general rule is that
legislation is presumed to be valid and will be sustained if
the classification drawn by the statute is rationally related
to a legitimate state interest. When social or economic
legislation is at issue, the equal protection clause allows the
States wide latitude, and the Constitution presumes that even
improvident decisions will eventually be rectified by the
democratic processes." City of Cleburne, Tex. v. Cleburne
Living Center, 473 U.S. 432, 440, 105 S.Ct. 3249, 3254, 87
L.Ed.2d 313 (1985) (citations omitted).
Defendants have moved for summary judgment on this issue,
contending that the regulations have a rational basis. Rule
56(c), F.R.Civ.P., provides for summary judgment if "the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law."
"[T]he mere existence of some alleged factual dispute between
the parties will not defeat an otherwise properly supported
motion for summary judgment; the requirement is that there be
no genuine issue of material fact." Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d
202 (1986) (emphasis original). A material fact is one "that
might affect the outcome of the suit under the governing law."
Id. Plaintiff and defendants have no dispute as to material
facts, and, therefore, to defeat plaintiff's equal protection
claim defendants must do no more than articulate a rational
reason for the distinction about which plaintiff complains.
Under the regulations, a distinction is drawn between
voluntary facilities which own the physical plant in which they
operate and voluntary facilities which lease such space from
for-profit concerns, the class into which plaintiff falls.
Voluntary facilities which own their own space are reimbursed
on a historical cost basis.*fn12 Voluntary facilities which
lease space from for-profit concerns are reimbursed for their
actual lease payments up to a specified ceiling, provided they
operate pursuant to a bona fide, valid, non-cancellable lease
executed before March 10, 1975. NYCRR § 86-2.19(e).*fn13
Voluntary facilities which
lease from proprietary concerns under a lease which does not
meet the above criteria are reimbursed for capital costs based
on the historic costs to the landlord.
According to defendants, the NYCRR § 86-2.19(e) distinction
was enacted to benefit voluntary facilities leasing from
proprietary interests who were locked into long-term leases.
Lease reimbursement almost inevitably results in higher
reimbursement than historic cost reimbursement because lease
reimbursement includes reimbursement for landlord profit. Put
another way, assuming a landlord rents a facility for more than
the total straight-line depreciation of the building, fixed
equipment, and capital improvements, lease reimbursement will
provide the RHCF with a larger reimbursement. Certainly it is
rational for defendants to reimburse certain RHCFs operating
under fixed capital costs for their actual costs, while
limiting the amount of reimbursement to other RHCFs not
operating under fixed capital cost constraints.
It is, of course, possible that a landlord might rent a
facility for less than his total depreciation and therefore
lease reimbursement would provide less funds than historic
reimbursement. But, if this was the case, all plaintiff would
have to do is to request to be reimbursed based on the historic
cost reimbursement method. Aff. W. Gormley, ¶ 6. However, even
if this option was not available, plaintiff would not be
deprived of equal protection. "Rational distinctions may be
made with substantially less than mathematical exactitude,"
City of New Orleans v. Dukes, 427 U.S. 297, 303, 96 S.Ct. 2513,
2516-17, 49 L.Ed.2d 511 (1976), and rationality is not impaired
because a distinction is either over-inclusive or
under-inclusive. Dandridge v. Williams, 397 U.S. 471, 486, 90
S.Ct. 1153, 1162, 25 L.Ed.2d 491 (1970); Williamson v. Lee
Optical, 348 U.S. 483, 489, 75 S.Ct. 461, 465, 99 L.Ed. 563
The essence of this case is that plaintiff is a party to an
improvident business deal made with the proprietary concern
from whom plaintiff leases its facility. While this is
certainly lamentable in that plaintiff is a charitable
organization which voluntarily operates a needed public
service, plaintiff has not advanced any grounds upon which the
court can award relief.*fn14 Accordingly, although plaintiff's
motion to file an amended complaint is granted, defendants'
motion to dismiss as to claims one, two, and three, and motion
for summary judgment as to claim four are granted.
IT IS SO ORDERED.