Proskauer Rose LLP, Washington, D.C. (James F. Segroves, pro hac vice) and Proskauer Rose LLP, New York City, for appellants.
Eric T. Schneiderman, Attorney General, Albany (Kathleen M. Treasure of counsel), for respondents.
Before: Mercure, J.P., Spain, Malone Jr., Stein and McCarthy, JJ.
MEMORANDUM AND ORDER
Appeals from four judgments of the Supreme Court (Devine, J.), entered August 25, 2011 in Albany County, which dismissed petitioners' applications, in four proceedings pursuant to CPLR article 78, to review determinations of respondents setting petitioners' Medicaid reimbursement rates.
Petitioners provide detoxification and medically-supervised withdrawal services to patients who are suffering from alcohol or drug addiction (see Public Health Law § 2807-c  [l]; 10 NYCRR 86-1.23 [g]). They commenced these CPLR article 78 proceedings challenging their per diem Medicaid reimbursement rates for the period of December 1, 2008 through December 31, 2009.
Prior to December 1, 2008, respondent Department of Health (hereinafter DOH) calculated the detoxification reimbursement rate on a "per discharge" basis, involving a fixed payment for specific, diagnosis-related services provided to a patient, without regard to the length of stay. In order to reduce the costs associated with detoxification services, the Legislature directed that the reimbursement rate be calculated on a "per diem" basis for patients discharged after December 1, 2008, with the operating cost component of the new rate to be calculated using the regional average operating costs for such services as reported by participating hospitals in 2006 (see Public Health Law § 2807-c  [l]). The regional average operating cost methodology was to be phased in over a 16-month period, with the per diem rate to "reflect the operating cost component of rates of payment effective [December 31, 2007]" — i.e., the hospital-specific, per discharge rate for 2007 converted to a per diem rate — on a gradually decreasing scale during the phase-in period (see Public Health Law § 2807-c  [l] [i], [ii]). Petitioners challenged the manner in which DOH converted the 2007 per discharge rate into a per diem rate during the phase-in period. DOH denied their rate appeals, and Supreme Court dismissed the CPLR article 78 petitions, prompting these appeals.
We affirm. Inasmuch as "'rate-setting actions of [respondent Commissioner of Health are] quasi-legislative in nature, '" they will "'not be annulled except upon a compelling showing that the calculations from which [they] derived were unreasonable'" (Matter of Nazareth Home of the Franciscan Sisters v Novello, 7 N.Y.3d 538, 544 , quoting Matter of Society of N.Y. Hosp. v Axelrod, 70 N.Y.2d 467, 473 ; accord Matter of Reconstruction Home & Health Care Ctr., Inc. v Daines, 65 A.D.3d 786, 787 , lv denied 14 N.Y.3d 706 ). When the Legislature is unambiguous but general in its directive regarding reimbursement rates, thereby leaving interpretation and the development of a computation methodology to DOH's discretion, DOH acts in its area of expertise in considering, interpreting and applying the complex rate-setting formulas involved in effectuating the statutory directive (see Matter of Reconstruction Home & Health Care Ctr., Inc. v Daines, 65 A.D.3d at 788-789; Matter of Ellis Ctr. for Long Term Care v DeBuono, 261 A.D.2d 791, 794 , appeal dismissed and lv denied 93 N.Y.2d 1037 ). Thus, "DOH is entitled to a 'high degree of judicial deference'... and... petitioners bear the 'heavy burden of showing' that DOH's rate-setting methodology 'is unreasonable and unsupported by any evidence'" (Matter of Nazareth Home of the Franciscan Sisters v Novello, 7 N.Y.3d at 544, quoting Matter of Consolation Nursing Home v Commissioner of N.Y. State Dept. of Health, 85 N.Y.2d 326, 331-332 ).
The Legislature directed that, during the phase-in period, a portion of the per diem reimbursement rate "shall reflect the operating cost component of rates of payment effective for [December 31, 2007]" — the per discharge rate converted to a per diem rate — "as adjusted for inflation" (Public Health Law § 2807-c  [l] [i], [ii] [emphasis added]). The "operating cost component" of the per discharge rate is defined by the Legislature as "the product of the average reimbursable inpatient operating cost per discharge... and the weighting factors determined in accordance with [Public Health Law § 2807-c (3) (c)]" (Public Health Law § 2807-c  [a] [emphasis added]). The "average reimbursable inpatient operating cost per discharge" for the relevant period was calculated by dividing the total non-Medicare patient costs by the total non-Medicare patient discharges (see 10 NYCRR former 86-1.54 [a] );  the "weighting factors" are based upon the level of resources needed to treat the specific detoxification and withdrawal diagnosis assigned to each individual patient receiving services (Public Health Law § 2807-c  [c]).
In order to convert the per discharge operating cost component to a per diem figure as directed by the statute, DOH divided the "average reimbursable inpatient operating cost per discharge" — as noted, an amount representing the cost per discharge of all non-Medicare patients, not just those receiving detoxification services — by the average length of stay for all non-Medicare patients. DOH then multiplied that number, i.e., the per diem operating cost for all non-Medicare cases, by the applicable 2007 "weighting factors" in order to produce a detoxification-specific per diem figure. Petitioners argue that DOH erred in using the average days per discharge for all non-Medicare patients, as opposed to the average days per discharge for non-Medicare detoxification patients specifically, as the denominator when converting to a per diem figure. As they assert, the methodology used by DOH resulted in a lower reimbursement rate because detoxification patients have a shorter average length of stay.
DOH's method of calculating the per diem operating cost component, however, mirrors the manner in which it previously calculated the per discharge figure. As explained above, DOH calculated the per discharge rates based on operating costs associated with all non-Medicare patients divided by the number of all non-Medicare discharges, and then applied the detoxification-specific weighting factors in the final step. The conversion methodology is consistent with that historical approach — the operating component is based on costs associated with all non-Medicare patients divided by the average length of stay for all patients, and then the detoxification-specific weighting factors are applied in the final step . Accordingly, in our view, petitioners have failed to meet their burden of demonstrating that DOH acted irrationally in setting their per diem rates during the period in question; "[w]ithin the parameters set by the Legislature, DOH has advanced ample explanation for setting rates" consistent with its historical practice (Matter of Nazareth Home of the Franciscan Sisters v Novello, 7 N.Y.3d at 545; see Matter of St. Margaret's Ctr. v Novello, 23 A.D.3d 817, 819 ; Matter of Ellis Ctr. for Long Term Care v DeBuono, 261 A.D.2d at 794; Matter of A. Holly Patterson SNF v Chassin, 196 A.D.2d 155, 159-160 , appeal dismissed and lv denied 83 N.Y.2d 962 ).
Finally, inasmuch as DOH's conversion computation methodology was an interpretation of an express statutory mandate, it was not a formal rule within the meaning of State Administrative Procedure Act § 102 (2) (see Matter of Ellis Ctr. for Long Term Care v DeBuono, 261 A.D.2d at 794-795; Matter of A. Holly Patterson SNF v Chassin, 196 A.D.2d at 161).
Spain, Malone Jr., Stein and McCarthy, JJ., ...