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February 3, 1992

UNITED CEREBRAL PALSY ASSOCIATIONS OF NEW YORK STATE, INC., Plaintiff, against MARIO CUOMO, as Governor of the State of New York, CESAR A. PERALES, Commissioner, New York State Department of Social Services, DALL FORSYTHE, Director, New York State Division of Budget, ELIN HOWE, Commissioner of New York State Office of Mental Retardation and Developmental Disabilities, LORNA M. BARNETTE, Commissioner of New York State Department of Health, Defendants.

The opinion of the court was delivered by: CON. G. CHOLAKIS


 This action involves the initiation, by the New York State Department of Social Services ("DSS"), of a "lag" in the reimbursement of Medicaid funds to certain health care providers. Under this "lag," each payment by the State to the providers will be delayed by one day until the payments are ultimately received by the provider two weeks later than had been the practice prior to the implementation of the "lag."

 The Medicaid Program, established pursuant to title XIX of the Social Security Act, 42, U.S.C. § 1396 et seq., establishes a joint federal and state cost-sharing system to provide necessary medical services to indigent persons who otherwise would be unable to afford such care. Although a state is not required to participate in the program, it must, once it has decided to so participate, abide by the applicable federal statutory and regulatory scheme.

 To become a participant, a State must submit, for approval by the Secretary of Health and Human Services ("HHS"), a plan for medical assistance. This "State Plan"

 is a comprehensive written statement submitted by the agency describing the nature and scope of its Medicaid program and giving assurance that it will be administered in conformity with the specific requirements of title XIX, the regulations in this Chapter IV [of the CFR], and other applicable official issuances of the Department.

 42 C.F.R. § 430.10 (1990). Once the plan is approved by HHS, the State is entitled to receive reimbursement from the federal government for a percentage of the funds the State pays to certain health care providers for the care provided to Medicaid recipients.

 Plaintiff United Cerebral Palsy Associations of New York State, Inc. ("UCPA") is a not-for-profit provider that operates Intermediate Care Facilities ("ICFs") and approximately 70 community residences for the mentally retarded and developmentally disabled, under licenses of the New York State Office of Mental Retardation and Developmental Disabilities ("OMRDD"). UCPA also operates Diagnostic Treatment Centers under licenses of the New York Department of Health ("DOH"). Finally, UCPA provides transportation services to its clients. Although not totally clear from the papers, UCPA and its affiliates appear to serve over 30,000 clients in the State.

 Proposed Intervenor St. Lukes-Roosevelt Hospital ("St. Lukes") is a not-for-profit hospital corporation located in Manhattan, with 1,300 patient beds, 6,500 employees, "and hundreds of renowned physicians, residents and medical students." Proposed Intervenor's Complaint par. 5. According to St. Lukes, it is the largest non-governmental provider of care to Medicaid patients in the State, with 40% of its inpatient days paid by Medicaid in 1990. See id. par. 8.

 Plaintiff UCPA has brought on this Order to Show Cause for a preliminary injunction to prevent the State from continuing the lag. Plaintiff argues that the lag (1) violates the Boren Amendment to the Medicaid Act; (2) constitutes a taking of property without just compensation and without due process; (3) denies plaintiff equal protection; (4) violates other aspects of the federal Medicaid statutory and regulatory scheme; and (5) violates the rulemaking requirements of the N.Y. A.P.A. Proposed Intervenor St. Lukes seeks (1) to intervene; and (2) a preliminary injunction preventing the continuation of the lag. Oral argument on the Order to Show Cause was held on January 31, 1992, at which time this Court issued an oral ruling denying the motion for an injunction, and informed the parties that this opinion would issue soon thereafter.


 St. Lukes first seeks to intervene as of right and, in the alternative, by permission. Defendant has not opposed this motion. Intervention as of right may be secured.

 when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties.

 Fed.R.Civ.P. 24(a)(2).

 The Second Circuit has held that a proposed intervenor must satisfy four criteria to be allowed to intervene as of right under Rule 24(a)(2). The proposed intervenor must (1) file timely, (2) demonstrate an interest in the action, (3) show an impairment of that interest arising from an unfavorable disposition, and (4) have an interest not otherwise adequately protected. See United States v. State of New York, 820 F.2d 554, 556 (2d Cir. 1987).

 Because this Court finds that St. Lukes has satisfied the four-part test, and because the motion is unopposed, the Court hereby grants the motion to intervene.

 Preliminary Injunction

 To obtain a preliminary injunction, the moving party must show (a) irreparable harm, and (b) either likelihood of success on the merits, or a sufficiently serious question going to the merits to make them a fair ground for litigation and a balance of the hardships tipping decidedly toward the party requesting the relief. See, e.g., The Resolution Trust Corp. v. Elman, 949 F.2d 624, 626 (2d Cir. 1991); Paulsen v. County of Nassau, 925 F.2d 65, 68 (2d Cir. 1991). A Court's grant or refusal of an interlocutory injunction must set forth the findings of fact and conclusions of law which constitute the grounds for its action. Fed.R.Civ.P. 52(a).

 Plaintiff UCPA argues that the "withholding" of one week's payment will result in a loss of $ 750,000 to UCPA, and $ 3 million to UCPA and its 25 New York state affiliates and divisions. See Parker Aff. par 23. UCPA contends that the lag will have a devastating impact on special education, clinical, health and other therapeutic services, vocational rehabilitation, residential services, family and community services, etc. See id. par 29. Moreover, UCPA states that, as a result of the "reduction," it will be unable to comply with Medicaid quality control regulations and conditions and standards of participation. See id. par. 30. UCPA further asserts that the result of the unavailability of cash "may be closure of residential programs, day treatment programs, recreation programs, and other services, layoff of staff, a lessening of the quality of programs for mentally retarded and developmentally disabled residents of New York State." Id. par. 32. Finally, UCPA states that, "because of the uncertainties surrounding the state budget, plaintiff has been unable to secure additional loans from banks. Id. par. 31.

 St. Lukes predicts similarly dire consequences, stating that each week of "withholding" will result in a loss of $ 3.4 million. See Balko Aff. par. 41. St. Lukes states that, in order to maintain operations, it has already delayed payment to its vendors for 109 days, "the maximum extent possible without being placed on a cash on delivery only payment basis or incurring significant and unreimburseable interest and penalty costs." Id. par. 42. Further delay "will force the Hospital to cease to use certain suppliers who provide products that are preferred in patient care." Id. par. 43.

 In addition, St. Lukes' largest expense, a weekly payroll alternating between $ 4 and $ 6 million, cannot be delayed. See id. par. 44. St. Lukes further asserts that the "withhold" will force dramatic cuts in services, e.g., further reduction in clinic hours, closure of additional clinics, refusal to treat clinic patients from outside its service area, and renegotiation or elimination of governmental contracts subsidized by the hospital. See id. par. 45. These actions will lead to more layoffs and personnel cutbacks. See id. St. Lukes also states that patient access to care will be greatly affected.

 Because this Court decides that UCPA and St. Lukes have not demonstrated a likelihood of success on the merits of their claims, the Court will not ...

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