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In re New Surfside Nursing Home, LLC

Supreme Court of New York, Second Department

February 6, 2013

In the Matter of New Surfside Nursing Home, LLC, et al., appellants,
v.
Richard F. Daines, etc., et al., respondents. Index No. 10185/10

Hamburger, Maxson, Yaffe, Knauer & McNally, LLP, Melville, N.Y. (David N. Yaffe, Richard Hamburger, and William P. Caffrey, Jr., of counsel), for appellants.

Eric T. Schneiderman, Attorney General, New York, N.Y. (Richard Dearing and Sudarsana Srinivasan of counsel), for respondents.

THOMAS A. DICKERSON, J.P. CHERYL E. CHAMBERS LEONARD B. AUSTIN ROBERT J. MILLER, JJ.

DECISION & ORDER

In a hybrid proceeding pursuant to CPLR article 78, inter alia, to review two determinations of the Commissioner of the New York State Department of Health, both dated March 30, 2010, enforcing audit results of the petitioners/plaintiffs' patient review instrument submissions for certain years, and action for declaratory relief, the petitioners/plaintiffs appeal, as limited by their brief, from so much of a judgment of the Supreme Court, Queens County (Kelly, J.), dated September 15, 2010, as, upon a decision of the same court dated August 9, 2010, denied the petition and dismissed the proceeding.

ORDERED that the judgment is affirmed insofar as appealed from, with costs.

The petitioners/plaintiffs (hereinafter the petitioners) run nursing homes in Queens. In 1998, the petitioner New Surfside Nursing Home, LLC (hereinafter New Surfside), instituted a Neurobiological Program to provide care to mentally ill and brain-injured patients. The program accepted patients discharged from facilities licensed by the New York State Office of Mental Health (see generally Hirschfeld v Teller, 14 N.Y.3d 344). The Neurobiological Program later expanded to other nursing homes under related ownership, including the petitioner Meadow Park Rehabilitation and Health Care Center, LLC (hereinafter Meadow Park).

As part of the process of Medicaid reimbursement, the petitioners semiannually submitted patient review instrument (hereinafter PRI) data to the New York State Department of Health (hereinafter the DOH) (see 10 NYCRR 86-2.11[b]). PRI submissions provide information assessing each patient's medical diagnosis, treatment, and care (see 10 NYCRR 86-2.30; Matter of Terrace HealthCare Ctr., Inc. v Novello, 54 A.D.3d 643, 644). Each patient is placed into 1 of 16 "resource utilization" groups, and assigned a case mix index (hereinafter CMI) number (see 10 NYCRR Appendix 13-A). The weighted average of all patients' CMI values is a nursing home's CMI, upon which a portion of the facility's Medicaid reimbursement is based (see 10 NYCRR 86-2.10[a][5]; [c][6]). The petitioners classified the patients in the Neurobiological Program in the highest category of "Restorative Therapy/Heavy Rehabilitation."

In February 2003, the DOH completed an audit of New Surfside's July 2000 PRI submission, and in July 2004 it completed an audit of Meadow Parks's May 2000 PRI submission (see 10 NYCRR 86-2.30[e]). Subsequent audits were completed for PRI submissions for subsequent years. In the audit results, the DOH controverted the petitioners' "Restorative Therapy/Heavy Rehabilitation" designation of the patients in the Neurobiological Program, thereby reducing the Medicaid reimbursements to which the petitioners were entitled. The petitioners nevertheless continued to classify the patients in the Neurobiological Program in the highest category of "Restorative Therapy/Heavy Rehabilitation." In letters dated March 30, 2010, the DOH sent the petitioners revised Medicaid rate sheets implementing the changes to the petitioners' PRI submissions made in the audits. The DOH alleged that the petitioners made substantial profits of $14.2 million (New Surfside) and $6.2 million (Meadow Park) during the years in question.

The petitioners commenced this hybrid proceeding pursuant to CPLR article 78 to review the DOH's determinations controverting their PRI submission designations for patients in the Neurobiological Program and enforcing the results of the audits, and action for declaratory relief. They sought a judgment, inter alia, annulling the audit results, enjoining the respondents from implementing and enforcing the revised Medicaid rate sheets, and directing the respondents to issue new revised Medicaid rate sheets based upon the original Restorative Therapy/Heavy Rehabilitation designations. The Supreme Court, inter alia, denied the petition and dismissed the proceeding. The petitioners appeal, and we affirm the judgment insofar as appealed from.

In this proceeding in which the petitioners challenge an agency determination that was not made after a quasi-judicial hearing, we must consider whether the determination was made in violation of lawful procedure, was affected by an error of law, or was arbitrary and capricious or an abuse of discretion (see CPLR 7803[3]; Matter of Halperin v City of New Rochelle, 24 A.D.3d 768, 770). In such a proceeding, courts "examine whether the action taken by the agency has a rational basis" and will overturn that action only "where it is taken without sound basis in reason' or regard to the facts'" (Matter of Wooley v New York State Dept. of Correctional Servs., 15 N.Y.3d 275, 280, quoting Matter of Peckham v Calogero, 12 N.Y.3d 424, 431; see Matter of Pell v Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 N.Y.2d 222, 232), or where it is "arbitrary and capricious" (Matter of Deerpark Farms, LLC v Agricultural & Farmland Protection Bd. of Orange County, 70 A.D.3d 1037, 1038). Further, courts must defer to an administrative agency's rational interpretation of its own regulations in its area of expertise (see Matter of Peckham v Calogero, 12 N.Y.3d 424, 431; Matter of Nazareth Home of the Franciscan Sisters v Novello, 7 N.Y.3d 538, 544; Matter of Manko v New York State Div. of Hous. & Community Renewal, Off. of Rent Admin., 88 A.D.3d 719; Matter of Jennings v Commissioner, N.Y.S. Dept. of Social Servs., 71 A.D.3d 98, 109).

Here, the DOH's enforcement of the audit results through issuance of the revised Medicaid rate sheets was not arbitrary and capricious. By regulation, the DOH is required to correct a facility's CMI in accordance with audit results, and to adjust payments to reflect changes in the facility's CMI (see 10 NYCRR 86-2.30[e][5]; 10 NYCRR 86-2.11[a]). The DOH cannot be estopped from exercising these duties by any delay in issuing the revised Medicaid rate sheets (see Matter of Frye v Commissioner of Fin. of City of N.Y., 62 N.Y.2d 841, 844).

The petitioners' challenges to the audit results themselves are untimely, as they were not brought within four months after the petitioners' receipt of the audit results (see CPLR 217[1]; Matter of Terrace HealthCare Ctr., Inc. v Novello, 54 A.D.3d 643; Concourse Rehabilitation & Nursing Ctr., Inc. v Novello, 45 A.D.3d 366, 367). The cases relied upon by the petitioners, cited by our dissenting colleague for the proposition that the audit results were not final and binding until revised Medicaid rate sheets were issued in 2010, do not involve audit results and do not compel a different result (see New York State Assn. of Counties v Axelrod, 78 N.Y.2d 158, 165; Matter of Westmount Health Facility v Commissioner of N.Y. State Dept. of Health, 205 A.D.2d 991; Matter of New York State Health Facilities Assn. v Axelrod, 199 A.D.2d 752, 753, revd sub nom. Matter of Consolation Nursing Home v Commissioner of N.Y. State Dept. of Health, 85 N.Y.2d 326). Furthermore, contrary to our dissenting colleague's position, the petitioners "fully understood the implication of DOH's determination" upon receipt of those results (Matter of Alterra Healthcare Corp. v Novello, 306 A.D.2d 787, 788). Indeed, New Surfside commenced an article 78 proceeding within four months of receiving its audit results in 2003, but it failed to pursue the matter, which was eventually marked off the calendar.

In any event, the DOH's determination to apply existing regulations in conducting the audits was not arbitrary and capricious. "The rules of an administrative agency, duly promulgated, are binding upon the agency as well as upon any other person who might be affected" (Matter of Frick v Bahou, 56 N.Y.2d 777, 778; see Matter of Henn v Perales, 186 A.D.2d 740). A facility is not entitled to Medicaid reimbursements sought in violation of applicable regulations, even where the services were properly rendered (see Matter of Cornerstone of Med. Arts Ctr. Hosp. v Novello, 304 A.D.2d 445; Matter of A.R.E.B.A. Casriel v Novello, 298 A.D.2d 134). The assertions made by the managing member and a former administrator of New Surfside that, sometime in 1998, a DOH official and an independent contractor represented that the petitioners would be permitted enhanced reimbursement not provided for in existing regulations, even if credited, do not establish an enforceable agreement between the DOH and the petitioners. Furthermore, to the extent that the petitioners allege that they relied upon any such representations, estoppel cannot be invoked ...


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