Calendar Date: November 18, 2019
Secrest & Emery LLP, Rochester (F. Paul Greene of
counsel), for appellants.
Letitia James, Attorney General, Albany (Kathleen M. Treasure
of counsel), for respondents.
Before: Garry, P.J., Lynch, Mulvey, Aarons and Colangelo, JJ.
from a judgment of the Supreme Court (Zwack, J.), entered
October 5, 2018 in Albany County, which, in a combined
proceeding pursuant to CPLR article 78 and action for
declaratory judgment, dismissed the petition/complaint.
are the owners and operators of residential health care
facilities that are licensed by the Department of Health.
Respondent Commissioner of Health reimburses such facilities
for services provided to Medicaid recipients by setting per
diem rates per patient that are prospective in nature and
based on capital and operating costs (see Matter of
Blossom View Nursing Home v Novello, 4 N.Y.3d 581, 585
). The operating cost component is derived from
allowable operating costs incurred and reported in a base
year. Those costs are then adjusted based upon inflation
between the base year and the applicable rate period
(see Public Health Law §§ 2807, 2808).
After a rate is established, it is subject to an audit to
determine whether the reported costs were accurate and, if
discrepancies exist, the rate will be adjusted based upon
such discrepancies (see Public Health Law § 32
; 10 NYCRR 86-2.7; 18 NYCRR 517.3; 42 CFR 447.253 [g];
see also Public Health Law § 2807 ).
Furthermore, "[a]udit adjustments which result in rate
revisions must be applied to all rate periods which are
affected by the audited costs" (18 NYCRR 517.14). The
Office of the Medicaid Inspector General (hereinafter OMIG)
is charged with auditing Medicaid providers and ensuring
their compliance with applicable laws and regulations.
December 2017 letter, OMIG advised petitioner The Shore
Winds, LLC that an audit for the base year of March 2003 to
March 2004 resulted in an adjustment of its rates. OMIG
further advised Shore Winds that the audit adjustment was
used to calculate the operating portion of the rate for the
period between April 2009 and December 2011 and that, as a
consequence, Shore Winds had been overpaid in the amount of
$217, 876 for such period - an amount that OMIG sought to
recoup. In March 2018, petitioners commenced this combined
CPLR article 78 proceeding and action for declaratory
judgment. Petitioners alleged four causes of action arguing
that OMIG's attempt in the December 2017 letter to recoup
the alleged overpayment was unauthorized. Respondents joined
issue and sought dismissal of the petition/complaint. In an
October 2018 judgment, Supreme Court dismissed the
petition/complaint. Petitioners appeal. We affirm.
initial matter, we note that the petition/complaint takes
issue with the December 2017 letter seeking recoupment of
monies only from Shore Winds. The record contains no similar
letter directed to either petitioner The Hurlbut, LLC or
petitioner Seneca Nursing and Rehabilitation Center, LLC.
Indeed, the petition/complaint admits that OMIG has demanded
the recoupment payment only from Shore Winds. Because Hurlbut
and Seneca Nursing have not suffered any injury-in-fact, they
lack standing and the petition/complaint was correctly
dismissed insofar as asserted by them (see generally
Society of Plastics Indus. v County of Suffolk, 77
N.Y.2d 761, 772-775 ). 
as Shore Winds is the only petitioner that has standing, it
argues, as part of its first cause of action, that a law
enacted in 2009 (see L 2009, ch 58, § 1, part
D, § 2) - the "scale back law" - prohibited
OMIG from recouping the alleged overpayment. Shore Winds,
however, concedes that we rejected this same argument in
Matter of North Gate Health Care Facility, LLC v
Zucker (174 A.D.3d 1201, 1204 ) - a decision that
was issued after this appeal was perfected. As such, the
first cause of action was properly dismissed.
second and third causes of action allege that OMIG failed to
comply with the applicable regulations in seeking to recoup
the overpayment and, even if it did, its actions were
untimely. We disagree. OMIG is responsible for, among other
things, the "recovery of improperly expended medical
assistance funds" (Public Health Law § 31  [c]).
As mentioned, to carry out this function, residential health
care facilities, such as Shore Winds, can be audited by OMIG
(see 18 NYCRR 517.3). OMIG audited Shore Winds, and
this audit resulted in a rate adjustment. Contrary to Shore
Winds' assertion, OMIG acted properly pursuant to 18
NYCRR 517.14 - the controlling regulation - when implementing
the results of that audit to all applicable rate periods.
This implementation revealed an overpayment of $217, 876 for
the period between April 2009 and December 2011. Given that
OMIG is authorized to recoup such overpayment (see
18 NYCRR 518.1 [d]), we find that OMIG did not run afoul of
the applicable regulatory scheme. That said, the regulation
does not delineate any specific time frame by when OMIG must
apply audit adjustments to impacted rate periods
(see 18 NYCRR 517.14) and, therefore, Shore
Winds' additional claim that OMIG's actions were
untimely is without merit.
fourth cause of action, Shore Winds relies on a universal
settlement agreement entered into between various residential
health care facilities and the state and alleges that
OMIG's attempt to recoup the overpayment amounted to a
breach of this agreement. Initially, respondents assert that,
because this cause of action is one that seeks damages for
breach of contract against the state, Shore Winds was
required to bring it in the Court of Claims. We disagree.
Regardless of how the claim was styled, Shore Winds is
essentially challenging a determination by a state agency -
i.e., OMIG - and the award of monetary relief, if any, would
be incidental to such claim. Under these circumstances, we
find that Supreme Court did not lack subject matter
jurisdiction to entertain this claim (see Matter of Gross
v Perales, 72 N.Y.2d 231, 236 ; cf. City of
New York v State of New York, 46 A.D.3d 1168, 1169
, lv denied 10 N.Y.3d 705');">10 N.Y.3d 705 ).
to the merits, the record discloses that the purpose of the
universal settlement agreement was to resolve many pending
rate appeals and litigation between many residential health
care facilities, such as Shore Winds, and the state.
Specifically, the settlement agreement applied to rate
appeals and litigation dealing with the state's
reimbursement methodology that was in effect prior to January
2012. Contrary to petitioners' claim, an adjustment
required by 18 NYCRR 517.14 is not part of a reimbursement
methodology. Rather, this adjustment implements the results
after a final audit. Because this adjustment, which is what
is at issue here, is not encompassed by the universal
settlement agreement, petitioners' reliance on it is
unavailing. We therefore conclude that the fourth cause of
action was correctly dismissed.
to the extent that Shore Winds seeks declaratory relief in
the petition/complaint, we find that it is not entitled to
such relief. As mentioned, Shore Winds is essentially
challenging a government agency determination and, therefore,
Shore Winds' avenue for judicial relief lies in a CPLR
article 78 proceeding (see Matter of Adirondack Med.
Center-Uihlein v Daines, 119 A.D.3d 1175, 1176 ;
Matter of Grand Manor Nursing Home Health Related
Facility, Inc. v Novello, 39 A.D.3d 1062, 1064 ,
lv denied9 N.Y.3d 812');">9 N.Y.3d 812 ). To that end, as a
general matter, "a declaratory judgment action is not
the proper vehicle to challenge an administrative procedure
where judicial review by way of [a CPLR] article 78
proceeding is ...