Opinion
5826-04.
Decided August 25, 2006.
MICHELE L. ANDERSON, L.L.C. Attorney for the Plaintiff/Petitioner (Michele L. Anderson, Esq., Of Counsel) (Benjamin C. Knuth, Esq., Of Counsel) Saratoga Springs, New York.
ELIOT SPITZER, ESQ. Attorney General of the State of New York Attorney for Defendants/Respondents (Lisa Ullman, Esq., Assistant Attorney General, Of Counsel) NYS Department of Law — The Capitol Albany, New York.
Plaintiff/Petitioner, Senior Care Services, Inc. (hereinafter plaintiff), is in the business of distributing incontinence products by mail order. Plaintiff commenced this hybrid action/proceeding pursuant to Article 78 of the Civil Practice Law and Rules, the Commerce Clause of the United States Constitution, 42 USC § 1983, and Section 1902 of the Social Security Act. Plaintiff seeks an Order annulling and reversing defendants'/respondents' (hereinafter defendants) determination denying plaintiff's application to be enrolled as a "provider" in New York State's Medicaid Program. Plaintiff also seeks a declaration that the New York State Department of Health's (NYSDOH) denial of plaintiff's application violates the Commerce Clause and the Free Choice of Providers provision (Social Security Act § 1902[a][23] (codified at 42 USC § 1396a[a][23]), 42 USC § 1983, together with an Order awarding plaintiff reasonable attorneys fees and costs pursuant to 42 USC § 1988. Respondents answered the petition and seek judgment dismissing all of plaintiff's causes of action.
In the year following commencement of the action, the parties engaged in discovery. On the date for submissions of affidavits and memoranda of law in this proceeding, plaintiff moved for an Order granting leave to amend the petition and complaint to allege that defendants violated the New York State Constitution and State Administrative Procedure Act (hereinafter SAPA) and for "summary judgment." Defendants oppose the motion to amend the petition and the motion for summary judgment.
Plaintiff is not a typical provider of Medicaid supplies and services. Rather, plaintiff has carved out a very specialized niche in the market, providing incontinence supplies only by mail order. Plaintiff seeks to compel defendants to either immediately enroll plaintiff as a Medicaid provider and allow it to operate as though it were "grandfathered" into defendants' contracts with providers who were enrolled prior to 1999, or to tailor restrictions governing providers of a wide variety of products and/or services who have been enrolled since 1999 so as to conform to plaintiff's narrow business model.
Although plaintiff refers to 1998, NYSDOH provides the affidavit of Joan E. Johnson, who alleges that NYSDOH prospectively revised its enrollment policy in 1999. From February 1999 forward, NYSDOH would not consider any provider who sought enrollment in the Medicaid program for the purpose of providing durable medical equipment or medical/surgical supplies to Medicaid recipients on a mail order basis. NYSDOH also has a policy which requires that any mail order providers have a store front location in New York State.
Summary Judgment/ Motion to Amend
Plaintiff argues that it should be granted summary judgment on claims that it has only just raised in its motion to amend the complaint. Therefore, the Court now turns to plaintiff's motion to amend.
Pursuant to CPLR 3025(a), "[a] party may amend his pleading once without leave of court within twenty days after its service, or at any time before the period for responding to it expires, or within twenty days after service of a pleading responding to it". Pursuant to CPLR 3025(b),
"A party may amend his pleading, or supplement it by setting forth additional or subsequent transactions or occurrences, at any time by leave of court or by stipulation of all parties. Leave shall be freely given upon such terms as may be just including the granting of costs and continuances."
Motions to amend should be made promptly after discovery or awareness of facts upon which such amendment is predicated. When the facts on which a motion for an amendment is based were known to the movant for a long period of time prior to the motion, Courts should be more reluctant to allow amendment ( see Duffy v Wetzler, 260 AD2d 596, 597; Sidor v Zuhoski, 257 AD2d 564; Caruso v Anpro, Ltd., 215 AD2d 713; Mente v Wenzel, 158 AD2d 775, 777; De Carlo v Economy Baler Division of American Hoist Derrick Co., 57 AD2d 1002).
Plaintiff attempts to justify its delay in moving to amend its petition/complaint to challenge what it now refers to as the "Home Delivery Rule" and the failure to publish said "rule", by pointing to facts developed during the course of discovery. However, the operative date for determining the timeliness of a motion to amend is not the date when discovery was complete but, rather, the date on which plaintiff became aware of the essential facts upon which its claim depends.
The historical involvement of lobbyists in New York which plaintiff has "uncovered" does not, itself, constitute a cause of action for relief. Plaintiff's historical presentation is irrelevant to the question of whether there was any need to publish the alleged "rule." The proposed causes of action consist of new legal arguments and characterizations of fact, rather than new facts. What plaintiff now characterizes as the "Home Delivery Rule" is essentially the same as the "No More Mail Order" determination to which plaintiff originally objected.
From the evidence presented, the Court concludes that plaintiff knew at the time it commenced this proceeding/action that there was no regulation requiring Medicaid providers to have a storefront presence in New York State but that there was a policy favoring such presence. Even assuming that the historical information was critical, plaintiff obtained the majority of the background material by June 2005, more than 7 months before moving to amend. Plaintiff's failure to proffer a reasonable excuse for its delay in moving to amend is a significant negative factor weighing against granting discretionary leave to amend ( see Duffy v Wetzler, 260 AD2d 596, 597; Sidor v Zuhoski, 257 AD2d 564, 564 — 565 [1999]; Caruso v Anpro, Ltd., 215 AD2d 713; Mente v Wenzel, 158 AD2d 775, 777; Pitcher v Quinn, 144 AD2d 115, 116; Beuschel v Malm, 114 AD2d 569; Smith v Sarkisian, 63 AD2d 780, 781; De Carlo v Economy Baler Division of American Hoist Derrick Co., 57 AD2d 1002).
Another basis for denying leave to amend is that the amendment is plainly lacking in merit, palpably improper or insufficient as a matter of law ( see Non-Linear Trading Co. v Braddis Associates, 243 AD2d 107, 116; Harrell v Champlain Enterprises, Inc., 222 AD2d 876; Matter of Consolidated Edison Co. of NY [Neptune Associates], 143 AD2d 1012, 1014; Norman v Ferrara, 107 AD2d 739, 740). The Court concludes that plaintiff's proposed Constitutional and SAPA causes of action are legally insufficient.
Whether an administrative action constitutes a "rule" depends upon whether the action is a "fixed, general principle to be applied by an administrative agency without regard to other facts and circumstances relevant to the regulatory scheme of the statute it administers" ( Ex-L Ambulette, Inc. v Commissioner, New York State Dept. of Social Services, 268 AD2d 431, 432; Matter of Roman Catholic Diocese v New York State Dept. of Health, 66 NY2d 948, 951; Matter of Henn v Perales, 186 AD2d 740, 741; Matter of Sheehan v Ambach, 136 AD2d 25, 29; Leichter v Barber, 120 AD2d 776, 777).
The State Administrative Procedure Act defines a "rule" to mean: ". . .the whole or part of each agency statement, regulation or code of general applicability that implements or applies law, or prescribes a fee charged by or paid to any agency or the procedure or practice requirements of any agency, including the amendment, suspension or repeal thereof and (ii) the amendment, suspension, repeal, approval, or prescription for the future of rates, wages, security authorizations, corporate or financial structures or reorganization thereof, prices, facilities, appliances, services or allowances therefor or of valuations, costs or accounting, or practices bearing on any of the foregoing whether of general or particular applicability. (b) Not included within paragraph (a) of this subdivision are:. . .(iv) forms and instructions, interpretive statements and statements of general policy which in themselves have no legal effect but are merely explanatory. . ." (SAPA § 102[2][a] [b][iv]).
Plaintiff has failed to demonstrate that the alleged "Home Delivery Rule" is a "rule" for the purposes of SAPA. The record reflects that defendants have imposed no outright ban on granting Medicaid provider status to additional entities providing home delivery services. Defendants clearly do not favor home delivery, but would apparently permit a new provider of a product that is not otherwise available to Medicaid recipients to provide that product by mail, if that could be accomplished reasonably. Defendants have merely concluded that there is no need for additional home delivery providers for products that are already readily available through previously enrolled providers.
The record also shows that defendants did not use their policy as a "rule" when they reviewed plaintiff's application. Defendants noted that plaintiff was not proposing to provide a type of equipment that was not readily available and asked questions designed to elicit information that would be helpful to plaintiff's application if it demonstrated that plaintiff was not relying on mail order, but would be providing personal service to any New York State Medicaid recipients either within the state or out-of-state.
Plaintiff also argues that defendants are remiss in failing to police possible mail order services being performed by post-1999 enrollees. Even if this were true, plaintiff lacks standing to challenge defendants' level of enforcement against other companies that are enrolled providers.
Having considered plaintiff's arguments, the Court concludes that there is no merit to plaintiff's proposed new causes of action. Accordingly, plaintiff's motion to amend and for summary judgment shall be denied.
Article 78
Proper analysis of defendants' determination to deny plaintiff enrollment as a Medicaid provider begins with the applicable standard for judicial review. Defendants have been given broad discretion to limit the number of Medicaid providers ( see Ex-L Ambulette, Inc. v Commissioner, New York State Dept. of Social Services, 268 AD2d 431, 432; Matter of Roggemann v Bane, 223 AD2d 854). In addition to requiring that enrollees be capable of properly serving Medicaid recipients, defendants are entitled to limit the number of Medicaid providers for economic reasons so that all enrolled Medicaid providers may be effectively monitored for fraud and the quality of service provided ( see Matter of 1759 Pharmacy v Perales, 183 AD2d 453, 454). Consequently, an applicant for enrollment has no "reasonable expectation of enrollment" or a property interest in being enrolled as a Medicaid provider ( see Ex-L Ambulette, Inc. v Commissioner, New York State Dept. of Social Services, supra). Thus, plaintiff herein clearly has no reasonable expectation that defendants will rewrite its policies so as to carve out special niches for the benefit of providers of particular supplies.
In this special proceeding, plaintiff has the primary burden of showing that defendants' determination was "arbitrary or capricious" — that is that defendants made the decision without a sound basis in reason or without regard for the facts, acted in excess of its jurisdiction, in violation of lawful procedure, positive statutory or constitutional requirements, or in abuse of its discretionary power. Barring such proof, the Court must confirm the determination ( see Matter of Pell v Board of Education of Union Free School, 34 NY2d 222, 231).
In denying plaintiff's application, defendants stated that:
"At present there are no unmet needs for the mail order durable medical supplies (including FedX, UPS, and/or mail) services provided by your company. In determining whether to enter into a contract with an applicant, the Department shall consider any factor which may affect the effective and efficient administration of the program, including but not limited to the current availability of medical care, services or supplies to recipients (taking into account geographic location and reasonable travel [time] [ 18 NYCRR 504.5(a)(14)]"
Lack of need for additional providers is a well-recognized basis for denial ( see Ex-L Ambulette, Inc. v Commissioner, New York State Dept. of Social Services, supra). Thus, defendants' determination is not facially improper or inadequate and is consistent with its long-standing practice prior to processing plaintiff's application.
The first cause of action asserts that defendants' determination is "arbitrary and capricious." This assertion is not supported by evidence demonstrating that defendants' reluctance to encourage mail order delivery of medical supplies is without a sound basis in reason or without regard for the facts or that it was an abuse of defendants' discretionary power. Given the potential difficulties that can arise from delivering supplies by mail, such as theft in crime-ridden urban apartment buildings, inability to demonstrate whether or not supplies are actually received and additional costs of replacing items that are intercepted before receipt, defendants' reluctance to encourage further mail order delivery appears to be justified.
Furthermore, requiring Medicaid providers to have a storefront in New York where Medicaid recipients are able to view equipment and supplies, be educated about their use, and/or be fitted for customized products appears to further customer service. Defendants' determination that there is no possibility of personal contact with New York's Medicaid recipients because of plaintiff's decision not to maintain a store within New York State is rational. The Court is not authorized to substitute its opinion for defendants' on the relative merits of personal service and mail order delivery.
The Court notes that defendants apparently chose not to attempt to re-negotiate every existing contract with the Medicaid providers who were enrolled prior to 1999 so as to preclude them from providing supplies by mail. However, plaintiff has not presented any basis for claiming standing to challenge that determination.
Plaintiff's argument that defendants were required to conduct an "objective study, analysis or survey" concerning "unmet need" before rendering a determination on an application to become an enrolled mail order provider of incontinence supplies is without merit. The cases upon which plaintiff relies do not support this argument ( see Ex-L Ambulette, Inc. v Commissioner, New York State Dept. of Social Services, 268 AD2d 431, 432; Matter of 1759 Pharmacy v Perales, 183 AD2d 453, 454). Without minimizing the importance of incontinence supplies, the Court recognizes that their routine availability is not a matter requiring the same level of sophisticated analysis as, for example, determinations regarding whether emergency ambulance coverage is sufficient and response times rapid enough in a particular locale. The complete absence of any complaints by Medicaid recipients that they cannot obtain incontinence supplies would be a sufficient basis for defendants' initial determination that there were already sufficient suppliers of incontinence supplies enrolled as Medicaid providers. Where defendants have adequate information to support a determination, there is no need to conduct new studies and gather new information.
The Court also rejects plaintiff's argument that defendants have the burden of demonstrating that there is no "unmet need" for their product. Unlike the present case, the cases upon which plaintiff relies involved determinations that affected providers' property interests (see Matter of Okoli v New York State Department of Social Services, 141 Misc 2d 63, 69 [Albany, 1988] and Matter of Sunrise Nursing Home v Axelrod, 135 AD2d 293). This is not a case where charges of neglect will eliminate plaintiff's ability to supply non-Medicaid recipients with mail order incontinence supplies or where defendants refused to reimburse plaintiff for Medicaid services it had provided. Consequently, those cases do not support shifting the burden of proof to defendants.
Furthermore, there is no factual basis for plaintiff's claim that it provided defendants with "detailed factual information. . .which demonstrates the need within New York State for the supplies offered by Plaintiff Services." Plaintiff implicitly acknowledges that there is no "unmet need" for incontinence supplies by failing to refer to anyone in New York who is presently unable to obtain them.
The undated "Declaration" of Vicki A. Ozburn (Ozburn) provided by plaintiff gives no details and, in fact, reveals that plaintiff's conclusion that there is "unmet need" results from semantics rather than substantive analysis. Ozburn's statement assumes, without presenting any evidence, that plaintiff's successful marketing of its services in other states necessarily results from there having been an "unmet need" in those states. Based on that assumption, Ozburn then infers that there must be a similar "unmet need" in New York State.
Plaintiff's success in marketing its mail order services in other states does not establish that there previously was an "unmet need" any more than the success of any other marketer establishes that they are meeting an "unmet need", as opposed to outcompeting other suppliers of the same product in some fashion.Ozburn's assumption that plaintiff's alleged success is solely the result of "unmet need" is undercut by plaintiff's acknowledgment that its reliance on mail order allows it to avoid overhead costs incurred by its competitors who maintain stores.
Furthermore, Ozburn's "informal survey" of home health agencies in New York State was the creation of plaintiff's owner, rather than the person allegedly conducting the "survey." The person conducting the "survey" was not trained in either creating or conducting surveys and did not contact any actual users of incontinence supplies. Instead, she merely took the owner's "script and list of questions to ask" and called home health agencies, visiting nurse associations and human services organizations that were gleaned from the internet. The problem with the so-called "survey" is not just its informality or that it failed to survey actual users, but that Ozburn once again incorrectly equates interest in plaintiff's "mail order service" with "unmet need." In addition, Ozburn fails to mention that the "survey" revealed that many recipients were already receiving home delivery of services, further undercutting plaintiff's claim that there is an unmet need for their kind of service.
In sum, based upon plaintiff's failure to present defendants with any valid evidence of an actual "unmet need," it cannot be said that defendants acted in an arbitrary and capricious fashion.
Finally, the Court rejects plaintiff's argument that defendants were obligated to accept plaintiff's expressed willingness to have a physical presence in New York as evidence that plaintiff was in a position to provide face-to-face service for New York's Medicaid recipients. Defendants cannot be found to have acted in an arbitrary and capricious manner for evaluating an applicant solely on the basis of the service the applicant was presently providing to Medicaid recipients in other States.
Sufficiency of Defendants' Determination
Plaintiff's second cause of action rests on the argument that defendants violated 18 NYCRR §§ 504.4(e)(2) and 504.5(b) by failing to provide the "factual basis" for its determination. This cause of action lacks merit for two reasons. First, plaintiff is incorrect in arguing that defendants were required to provide more detail to support the determination. As noted previously, defendants' conclusion that there are "no unmet needs for the mail order durable medical supplies (including FedX, UPS, and/or mail) services provided by your company" is, on its face, a sufficient basis for its determination not to enroll plaintiff as a Medicaid provider ( see Ex-L Ambulette, Inc. v Commissioner, New York State Dept. of Social Services, 268 AD2d 431, 432; Matter of 1759 Pharmacy v Perales, 183 AD2d 453, 454).
There is also no support for plaintiff's conclusory assertion that defendants hid the actual basis of the determination and rejected plaintiff's application on grounds other than those stated in the determination. Conclusory assertions are insufficient to warrant awarding plaintiff the relief it requested ( see Barnes v LaVallee, 39 NY2d 721; Bogle v Coughlin, 173 AD2d 992).
Declaratory Judgment
Declaratory judgment actions can be used to challenge the propriety of administrative actions ( see 5 Weinstein-Korn-Miller, NY Civ Prac ¶ 3001.06j) and to stop official action which is likely to constitute continuing policy which will affect other cases ( see 5 Weinstein-Korn-Miller, NY Civ Prac ¶ 3001.10a). Plaintiff herein has the burden of proving that defendants' rule or policy is unconstitutional ( see Siegel, NY Prac § 437, at41 [4th ed]).
Free Choice of Provider Provision
Plaintiff's next argument concerns its fifth cause of action, the alleged "denial of free choice of provider" provision pursuant to the Social Security Act ( 42 USC § 1396a[a]). The Court first notes that plaintiff's own allegations establish that this cause of action does not give plaintiff any greater rights to challenge defendants' determination than the first and second causes of action. In paragraphs 57 and 58 of the petition, plaintiff alleges that defendants are bound to follow "reasonable and objective standards' for provider enrollment eligibility" and that "arbitrary discrimination against Senior Care Services does not qualify as a reasonable and objective standard' and violates the law and regulations governing the New York State Medicaid Program and the Free Choice of Providers provision." Plaintiff has failed to offer any support for this cause of action.
The fifth cause of action must also be dismissed based on plaintiff's lack of standing. The statute on which plaintiff bases this cause of action was written for the benefit of Medicaid recipients, not Medicaid providers ( see Silver v Baggiano, 804 F2d 1211, 1215-1217; Nutritional Support Servs., L.P. v Miller, 806 F Supp. 977, 980-81). Plaintiff is not an "individual eligible for medical assistance" under the Social Security Act and plaintiff has not demonstrated that it has even a theoretical private right of action to vindicate the rights of Medicaid recipients ( cf. Bay Ridge Diagnostic Lab., Inc. v Dumpson, 400 F Supp 1104, 1108 [concerning an application for a preliminary injunction to stop the agency from cutting existing providers out of the program. That Court had both "equitable jurisdiction" and a "standing" substitute in the form of briefs filed by numerous directly impacted amici, who joined the litigation on the plaintiff's side. Neither factor is present here]).
Commerce Clause
Turning to the third cause of action, plaintiff argues that defendants' determination violates the Commerce Clause of the United States Constitution, Article I, section 8, clause 3. Plaintiff has not presented any evidence that defendants have imposed a rule that overtly discriminates against interstate commerce or that defendants engage in the practice of enrolling as Medicaid providers new in-state mail order suppliers without storefront presence or of allowing existing providers to continue mail order businesses upon the expiration of their contract(s) with defendants. Nor is there any evidence that New York has prohibited out-of-state corporations from coming into New York State, opening stores and becoming Medicaid providers. Thus, this case involves no overt discrimination and plaintiff's claims that defendants' policy is the proper subject of "strict scrutiny" and that there is "virtually [a] per se rule of invalidity" ( City of Philadelphia v New Jersey, 437 US 617, 624 [1978]) are unfounded.
Plaintiff further argues that a theoretical regulation "which does not discriminate between in-state and out-of-state interests may nonetheless violate the Commerce Clause if it places a burden on interstate trade that is "clearly excessive" in relation to the law's putative local benefits." The Court finds that defendants' policy is facially neutral and rejects the claim that it violates the Commerce Clause. Plaintiff has failed to demonstrate that defendants' facially neutral policy of requiring that new Medicaid providers have a storefront presence in the area of Medicaid recipients who are to be served and not deliver by mail order actually places any burden on interstate trade.
Plaintiff has also failed to demonstrate that there is no local benefit to Medicaid recipients or to defendants resulting from the policy of requiring a physical presence unless the equipment to be sold will otherwise be unavailable due to the absence of any available local suppliers. Given plaintiff's failure to address the local benefits of defendants' policy, its argument that the policy's hypothetical costs to interstate commerce costs outweigh the benefits is not persuasive.
The Court also rejects plaintiff's claim that it has demonstrated that defendants moved to require that new Medicaid suppliers operate stores in New York as a way of discriminating against out-of-state suppliers. The fact that lobbyists took a position in 2005 which contradicted a position that they allegedly took in 1993 does not establish that defendants were guided by either position in 1998-1999.
42 USC § 1983Plaintiff appears to have abandoned its fourth cause of action to the extent that it claims a violation of plaintiff's rights other than those covered by the other causes of action. In reviewing the papers, the Court finds no evidence of any civil rights violations.
Accordingly, it is
ORDERED, that plaintiff's motion to amend the complaint is denied; and it is further
ORDERED, that plaintiff's motion for summary judgment is denied; and it is further
ADJUDGED AND DECLARED, that defendants' denial of plaintiff's application does not violate the Commerce Clause, the Free Choice of Providers provision (Social Security Act § 1902[a][23] (codified at 42 USC § 1396a[a][23]), or 42 USC § 1983; and it is further
ORDERED AND ADJUDGED, that the petition is hereby dismissed in its entirety.
This shall constitute the Decision and Judgment of the Court. All papers are returned to counsel for defendants, who is directed to enter this Decision and Judgment without notice and to serve plaintiff's counsel with a copy of this Decision and Judgment, with notice of entry.