Opinion
Index No. 102836/2006 Mot. seq. no. 003
06-02-2014
KATERI RESIDENCE, a Not-for-Profit Corporation, et al. Plaintiffs, v. ANTONIA C. NOVELLO, M.D., as Commissioner of the Department of Health of the State of New York and on behalf of the Department of Health of the State of New York, and CAROLE E. STONE, as Director of the Budget of the State of New York, Defendants.
For plaintiffs: David B. Bernfeld Esq. Jeffrey L. Bernfeld, Esq. Bernfeld DeMatteo et al. For defendants: Seth J. Farber, AAG Eric T. Schneiderman Att. Gen., State of New York
DECISION AND ORDER
BARBARA JAFFE, J. For plaintiffs:
David B. Bernfeld Esq.
Jeffrey L. Bernfeld, Esq.
Bernfeld DeMatteo et al.
For defendants:
Seth J. Farber, AAG
Eric T. Schneiderman
Att. Gen., State of New York
By order to show cause, plaintiffs seek an order directing defendant to pay amounts allegedly owed immediately, together with statutory interest of nine percent from the date of their motion, directing defendants to complete remaining calculations and upon their completion, to pay them amounts due together with statutory interest of nine percent, and for sanctions and attorney fees. Defendants oppose.
I. BACKGROUND
Plaintiffs operate residential health care facilities that are reimbursed by the Department of Health (DOH) for services they provide to patients enrolled in the Medicaid program. Pursuant to DOH regulations, the reimbursement rate is "the aggregate governmental payment to facilities per patient day." (10 NYCRR § 86-2.10). The rate for each facility is based on four components: direct costs, indirect costs, non-comparable costs, and capital costs. Direct, indirect and non-comparable costs comprise "operating costs." (10 NYCRR § 210[a],[b]). All of the components are based on "allowable costs," those "properly chargeable to necessary patient care." (10 NYCRR § 86-2.17[a]).
A facility's annual Medicaid reimbursement rate is calculated by dividing its base year's allowable costs by the number of patient days to arrive at that year's per diem rate, which is then adjusted for inflation. A patient day is "the unit of measure denoting lodging provided and services rendered to one patient" per day. (10 NYCRR § 86-2.8[a]). By contrast, a "reserved bed patient day" (RBPD) is "an overnight stay away from the residential healthcare facility . . . when the patient's absence is due to hospitalization or therapeutic leave." (Id., 2.8[d]). The patient day and the RBPD "shall be computed separately." (Id.).
Plaintiffs commenced this action challenging defendants' inclusion of RBDPs within the total number of patient days for the calculation of plaintiffs' base per diem rate, thereby increasing the patient days denominator and reducing the overall reimbursement. By decision and order dated January 9, 2010, the justice previously presiding in this part, as pertinent here, granted plaintiffs' motion for partial summary judgment to the extent of adjudging and declaring invalid defendants' inclusion of reserved bed patient days in the total of patient days in calculating the rate, and declaring valid plaintiffs' method of excluding RBPDs from the denominator, while maintaining the costs associated with RBPDs in the numerator. The court observed that defendants' method artificially reduces the reimbursement, and thus directed defendants to recalculate plaintiffs' rates without including RBPDs. The court also dismissed, in pertinent part, defendants' affirmative defense of lack of standing which defendants had withdrawn in their opposition papers to plaintiffs' motion. (2010 NY Slip Op 33868[U] [Sup Ct, New York County 2010]).
On defendants' appeal of the court's order, the Appellate Division, First Department, affirmed that portion holding that the challenged calculation was irrational and contrary to the plain language of DOH's requirement that patient days and RBPDs be computed separately. (95 AD3d 619 [1st Dept 2012]). Leave to appeal to the Court of Appeals was denied on the ground that the case was not finally decided. (20 NY3d 1031 [2013]).
In a stipulation, so-ordered on February 27, 2013, defendants were ordered to provide, on or before June 28, 2013, recalculated rates for facilities named in plaintiffs' interrogatories, including non-party facilities and rate-years that are not in issue. (NYSCEF 84, 85).
Pursuant to a September 11, 2013 so-ordered stipulation, defendants were ordered to complete the recalculations as set forth in the prior orders by October 18, 2013, and plaintiffs were given the opportunity to seek sanctions if defendants failed to comply. (NYSCEF 76).
By October 30, 2013, defendants produced calculations of estimated rates reflecting a total rate impact of $49,164,811, with the qualification that the rates are preliminary and not agreed on. Some 10 facilities were excluded as well. (NYSCEF 82).
Pursuant to a stipulation, so-ordered on October 30, 2013, the parties agreed to meet and try to resolve the issues of payment, the additional recalculation of payments, and all other issues. (NYSCEF 77). Despite the ensuing discussions, no resolution was reached, and by notice dated January 30, 2014, plaintiffs brought this order to show cause seeking payment of the amounts set forth on the impact sheet. (NYSCEF 88).
II. CONTENTIONS
Plaintiffs allege that in violation of the October 30, 2013 stipulation, defendants failed to make any good faith effort to resolve this portion of the litigation, claiming that defendants made no reasonable counteroffer and did not send anyone with authority to settle. Instead, plaintiffs claim that defendants proposed a settlement which would encompass deficiencies in the Medicaid program, whereby plaintiffs would forfeit their claims in exchange for new Medicaid rates applicable to the state's residential health care facility industry as a whole. They also argue that as defendants repeatedly violated orders to recalculate, thereby causing excessive delay, they should pay the amount set forth on the impact sheet and sanctions should be imposed. Plaintiffs also ask that defendants be ordered to pay the amounts owed directly to counsel, as some plaintiffs no longer own or operate the facilities. (NYSCEF 81, 86).
Relying on plaintiffs' acknowledgment that owners and operators of some plaintiff-facilities changed in ownership and operation after the commencement of this action, defendants challenge plaintiffs' standing to prosecute this action and express concern that paying the wrong parties would subject them to liability with respect to new owners and operators. They also maintain that because plaintiffs may only seek relief that is incidental to the annulment of the prior calculation, they are limited to claiming $2,107,172, the amounts due for plaintiffs they allege have standing and for the rate-years in issue.
Defendants object to plaintiffs' reliance on the rate impact sheet as evidence of the amount due and owing, as it was produced in response to plaintiffs' interrogatories and includes computations of rates for non-party facilities, some of which are plaintiffs in other actions challenging Medicaid calculations, and for rate-years not in issue. They deny that plaintiffs are entitled to interest, sanctions, or attorney fees, and ask that any judgment rendered be stayed pending resolution of this litigation by the Court of Appeals. (NYSCEF 91, 93).
Defendants offer the affidavit dated February 28, 2014 of a DOH fiscal analyst who maintains that there exists no mechanism in the Public Health Law or relevant regulations allowing DOH to adjust Medicaid rates for an entity that does not presently own or operate a facility, and that DOH may conduct business only with those entities with current operating agreements on file. She attributes the delay in calculating the rates as resulting from limited available office staff, antiquated computing systems, and outdated data, and alleges that compliance with the September 11, 2013 order required DOH to spend approximately 300 hours calculating plaintiffs' impact rates. (NYSCEF 92).
The analyst also claims that DOH's method conforms to the prior court's order not only by separately calculating RBPDs and patient days, but also by removing from the allowable costs numerator the previously reimbursed costs associated with RBPDs. Thus, in accordance with the court's definition of patient days, which excludes RBPDs, she contends that it is unreasonable for DOH to pay for anything other than the services provided directly to patients when computing patient days, and that if RBPDs are no longer relevant in calculating patient days, DOH should not be required to pay expenses arising from them. Pursuant to this calculation, defendants concede that plaintiffs are owed $2,107,172 for the rate years allegedly at issue. (NYSCEF 92). They also concede that if RBPD-associated costs are not removed from the numerator, the amount would not exceed $6,510,052. (NYSCEF 91, 93).
Defendants deny that they are in violation of any orders to recalculate, claiming that they have recalculated the rates for all plaintiff-facilities for the rate-years complained of in this action. Consequently, they contend that plaintiffs' demand for additional recalculations is improper and unduly burdensome as it seeks irrelevant material. (NYSCEF 91, 93).
III. ANALYSIS
A. Standing
To the extent that defendants renew their argument that certain plaintiffs lack standing to prosecute this action following the dismissal of their related affirmative defense, I address it.
For standing to sue, a litigant must demonstrate that it has suffered an injury in fact, and that the injury falls within the zone of interests protected by the challenged statute. (New York State Ass'n of Nurse Anesthetists v Novello, 2 NY3d 207, 211 [2004]; Transactive Corp. v New York State Dept. of Social Services, 92 NY2d 579, 587 [1998]; Socy. of Plastic Ind., Inc. v County of Suffolk, 77 NY2d 761 [1991]). Courts thereby ensure that a litigant "whose interests are only marginally related to, or even consistent with, the purposes of the statute cannot use the court to further their own purposes at the expense of the statutory purposes." (Transactive Corp., 92 NY2d at 587).
Here, it is undisputed that all plaintiffs were owners or operators when the action was commenced, and that all plaintiffs are actually harmed by the reduced reimbursement rates set by the annulled calculation method. Defendants offer no pertinent, persuasive or binding authority for the proposition that upon the transfer of ownership or the surrender of an operating certificate, a plaintiff loses standing. Rather, authority is to the contrary. (CPLR 1018 [authorizing continuation of action by or against original party without need for substitution of assignee/transferee]; Pritzakis v Sbarra, 201 AD2d 797 [3d Dept 1994] [plaintiff did not lose standing when he conveyed subject property during pendency of suit]). That no mechanism exists in the Public Health Law or relevant regulations allowing DOH to adjust Medicaid rates to an entity that does not presently own or operate a facility, and that DOH may conduct business only with those entities with current operating agreements on file is immaterial. Moreover, defendants' concern that they will be subjected to additional liability for paying the original owners and operators is groundless as an assignee/transferee is in privity with the assignor/transferor and is deemed bound by the judgment. (Vincent C. Alexander, Practice Commentaries, McKinney's Cons Laws of NY, CPLR 1018, and cases cited therein).
B. Plaintiffs' entitlement to damages
A petitioner seeking to annul an administrative determination may seek damages incidental to the primary relief sought. (CPLR 7806; Gross v Per ales, 72 NY2d 231 [1988]). In Gross, the petitioner challenged the Department of Social Services's (DSS) determination to withhold from it $20 million in reimbursements, claiming it was the product of arbitrary auditing methods. The Court rejected DSS's argument that the petitioner's demand for money damages required a separate lawsuit, holding that the damages were unquestionably incidental to the primary relief sought, which was the annulment of the auditing methods. Even if the petitioner had not sought an order directing payment, the Court held, DSS would still be obligated to reimburse it upon the annulment of the challenged determination. (Id. at 236).
Similarly, in New York State Ass'n of Homes and Services for the Aging Inc. v Perales, the court held that given the successful challenge to an administrative regulation pursuant to which respondent reduced Medicaid rates for reserved bed days, petitioners were entitled to the incidental repayment of the funds withheld. (179 AD2d 296 [3d Dept 1992]). Here, too, plaintiffs' entitlement to reimbursement for the years complained of in this action arises upon the annulment of defendants' miscalculation of the reimbursement rates. (See also Health Care Plan, Inc. v Bahou, 61 NY2d 814, 816-17 [1984] [directing respondent to reimburse petitioner HMO for overcharges in premiums previously collected]). Thus, reimbursement is incidental to the primary relief sought, namely the annulment of defendants' method of including RBPDs in the denominator.
Having produced calculations in conformity with the prior court's order, defendants may not resist paying plaintiffs based on those calculations, although the calculations for non-party facilities and for rate-years not set forth in the complaint are excludable. Thus, per defendants' admission that $6,510,052 is owed if RBPD-associated costs remain in the numerator, and as the prior court explicitly ordered that RBPD-associated costs remain (People v Evans, 94 NY2d 499, 502 [2000] [absent claim that party did not have full and fair opportunity to litigate issue, court should not revisit prior order in case]; Gilklad v Cherney, 113 AD3d 505 [1st Dept 2014] [same]), $6,510,052 is owed.
C. Additional recalculations
Defendants remain obliged to provide recalculations for all of the facilities and years set forth in plaintiffs' interrogatories.
D. Interest
There is no right to recover interest for delayed or wrongfully withheld Medicaid reimbursement payments. (Signature Health Ctr., LLC v State, 92 AD3d 11, 17 [3d Dept 2011], lv denied 19 NY3d 811 [2012]). There is also no authority in the Medicaid statutes and implementing regulations authorizing post-judgment interest in proceedings seeking reimbursement. (Concourse Nursing Home v State of New York, 1 AD3d 675, 677 [3d Dept 2003], lv denied 2 NY3d 704 [2004]; New York State Ass'n of Counties v Axelrod, 213 AD2d 18, 20 [3d Dept 1995], lv denied 87 NY2d 918 [1996]). Plaintiffs cite no authority to the contrary.
E. Sanctions
Pursuant to the rules of the chief administrator, a court, in its discretion, may impose sanctions on any party or attorney who engages in frivolous conduct. (22 NYCRR § 130-1.1). Conduct is deemed frivolous if it is, inter alia, undertaken primarily to delay or prolong the resolution of the litigation, or if it is completely without merit in the law. (Id.).
Defendants produced the rate impact sheet after approximately four years of delay, and DOH's bureaucratic obstacles, the result of either mismanagement or a convenient excuse for delay, do not justify the delay. However, given growing concerns relating to Medicaid resources (see Koch v Sheehan, 21 NY3d 697, 700 [2013] [recognizing state's duty to responsibly allocate "scarce Medicaid dollars"]; Schaubman v Blum, 49 NY2d 375, 380 [1980] [same]), I impose sanctions only to the extent of costs and attorney fees associated with preparing and filing the instant motion.
To the extent defendants did not participate meaningfully in settlement negotiations by advancing no offer apart from a universal settlement, such conduct is generally not deemed frivolous within the meaning of the rule. (24 NY Jur 2d, Costs in Civil Actions § 66).
IV. CONCLUSION
Accordingly, it is hereby
ORDERED, that defendants Antonia C. Novello, M.D., as Commissioner of the Department of Health of the State of New York and on behalf of the Department of Health of the State of New York, and Carole E. Stone, as Director of the Budget of the State of New York, pay $6,510,052 as follows: directly to those plaintiffs who have not transferred or assigned their interests in the facilities, and to counsel's escrow account, if the plaintiff has transferred or assigned its interest in the facility, within 30 days of the date of this decision and order with notice of entry; it is further
ORDERED, that defendants respond to all outstanding interrogatories in this action within 60 days of notice of entry of this decision and order; it is further
ORDERED, that plaintiffs' request for prejudgment and postjudgment interest is denied; it is further
ORDERED, that plaintiffs' request for sanctions and attorney fees is granted to the extent of costs and attorney fees for preparing and filing the instant motion; it is further
ORDERED, that counsel submit and serve an affidavit setting forth the costs and attorney fees along with any supporting proof such as time sheets; and it is further
ORDERED that defendants' request to stay judgment pending resolution by the Court of Appeals is denied.
ENTER:
__________
Barbara Jaffe, JSC
DATED: June 2, 2014
New York, New York