Matter of Isabella Geriatric Ctr. Inc. v Novello

[*1] Matter of Isabella Geriatric Ctr. Inc. v Novello 2005 NY Slip Op 52273(U) [11 Misc 3d 1057(A)] Decided on December 9, 2005 Supreme Court, New York County Bransten, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on December 9, 2005
Supreme Court, New York County

In the Matter of the Application of ISABELLA GERIATRIC CENTER, INC., AMSTERDAM NURSING HOME CORP. (1992), BETH ABRAHAM HEALTH SERVICES, CABRINI CENTER FOR NURSING AND REHABILITATION, CARMEL RICHMOND NURSING AND REHABILITATION CENTER, CENTER FOR NURSING & REHABILITATION, INC., FERNCLIFF NURSING HOME CO., INC., FRANKLIN HOSPITAL MEDICAL CENTER, GUILD HOME FOR AGED BLIND, HEBREW HOME FOR THE AGED AT RIVERDALE, INC., H.E.L.P./PROJECT SAMARITAN, INC., JEWISH HOME AND HOSPITAL FOR AGED, JEWISH HOME & HOSPITAL BRONX DIVISION, M.J.D. NURSING HOME, CO., INC., NEW YORK CITY HEALTH AND HOSPITALS CORPORATION, PARKER JEWISH INSTITUTE FOR HEALTH CARE AND REHABILITATION, PROMESA'S RESIDENTIAL HEATH CARE FACILITY, INC. (d/b/a "CASA PROMESA"), RIVINGTON HOUSE THE NICHOLAS A. RANGO HEALTH CARE FACILITY, ROSALIND AND JOSEPH GURWIN JEWISH GERIATRIC CENTER, INC., RUTLAND NURSING HOME CO., INC., SEPHARDIC HOME SKILLED NURSING AND REHABILITATION CENTER, SHOREFRONT JEWISH GERIATRIC CENTER, SRN CORPORATION (SARAH R. NEUMAN NURSING HOME), ST. CABRINI NURSING HOME, INC., ST. JOSEPH'S HOSPITAL NURSING HOME OF YONKERS, NEW YORK, INC., ST. MARY'S EPISCOPAL CENTER, INC., ST. MARY'S HOSPITAL FOR CHILDREN, INC., and VILLAGE CENTER FOR CARE, Petitioners, For a Judgment Pursuant to Article 78 of the CPLR

against

Antonia Novello, as Commissioner of the New York State Department of Health, DAVID WOLLNER, as Director of the Office of Health Systems Management of the New York State Department of Health, and JOHN F. CAPE, as Director of the Budget of the State of New York, , Respondents.



102955/05

Eileen Bransten, J.

In this CPLR Article 78 proceeding, petitioners Isabella Geriatric Center, Inc. ("Isabella"), Amsterdam Nursing Home Corp. (1992), Beth Abraham Health Services, Cabrini Center for Nursing and Rehabilitation, Carmel Richmond Nursing and Rehabilitation Center, Center for Nursing & Rehabilitation, Inc. ("Center"), Ferncliff Nursing Home Co., Inc., Franklin Hospital Medical Center, Guild Home for Aged Blind ("Aged Blind"), Hebrew Home for The Aged at Riverdale, Inc., H.E.L.P./project Samaritan, Inc., Jewish Home and Hospital for Aged, Jewish Home & Hospital Bronx Division, M.J.D. Nursing Home, Co., Inc., New York City Health and Hospitals Corporation ("HHC"), Parker Jewish Institute for Health Care and Rehabilitation, Promesa's Residential Heath Care Facility, Inc. (d/b/a "Casa Promesa"), Rivington House: The Nicholas A. Rango Health Care Facility, Rosalind and Joseph Gurwin Jewish Geriatric Center, Inc. ("Gurwin"), Rutland Nursing Home Co., Inc., Sephardic Home Skilled Nursing and Rehabilitation Center, Shorefront Jewish Geriatric Center, Srn Corporation (Sarah R. Neuman Nursing Home), St. Cabrini Nursing Home, Inc., St. Joseph's Hospital Nursing Home of Yonkers, New York, Inc., St. Mary's Episcopal Center, Inc., St. Mary's Hospital for Children, Inc., and Village Center for Care, hereinafter ("Petitioners") seek an Order and Judgment setting aside the determination of respondents Antonia Novello ("Commissioner Novello"), New York State Department of Health Commissioner, David Wollner ("Mr. Wollner"), Director of the Office of Health Systems Management of the New York State Department of Health, and John F. Cape ("Mr. Cape"), Director of the Budget of the State of New York (collectively "Respondents"), which imposed a revision of Medicaid reimbursements.

Background

Petitioners are nursing homes operating in the New York City metropolitan area that are licensed by the New York State Department of Health ("DOH") to provide residential health care services through Medicaid. Petition ("Pet."), at ¶¶ 1,3. With the exception of HHC, each is organized as a not-for-profit corporation. Pet., at ¶ 2. Petitioners all rely on reimbursements from Medicaid to provide services to their residents. Id.

Respondents are state employees charged with determining and distributing Medicaid reimbursements to nursing homes. Specifically, Commissioner Novello is in charge of determining and certifying rates of payment for services rendered to Medicaid recipients by nursing facilities. Pet., at ¶ 6. Mr. Wollner operates a distinct unit within DOH, the Office of Health Systems Management, which is responsible for establishing and revising Medicaid reimbursement rates for nursing homes. Pet., at ¶ 7. Mr. Cape is entrusted with approving Medicaid reimbursement rates and certifying them to Commissioner Novello. Pet., at ¶ 8.

In 1965, Congress enacted Title XIX of the Social Security Act to establish Medicaid, a joint state and federal program that provides funding for medical care to those who fall below a certain income threshold. 42 U.S.C. § 1396. In New York, Medicaid reimbursement rates the amounts care providers are entitled to recover for services provided are calculated pursuant to Public Health [*2]Law Article 28 and administered by DOH. 10 N.Y.C.R.R. § 86-2.10.

Since January 1, 1986, DOH has used the Long Term Care Case Mix Methodology to calculate Medicaid reimbursement rates for nursing home operations. See, 10 N.Y.C.R.R. § 86-2. Pursuant to this methodology, each facility receives a facility-specific rate per day for each of its Medicaid patients. See, 10 N.Y.C.R.R. § 86-2.10(b)(1)(ii). In order to calculate the facility-specific rate, DOH examines the nursing home's prior operating costs and statistics in one particular year, which it calls the "base" year. Pet., at ¶ 15; Affirmation in Opposition ("Opp."), at ¶ 7. DOH then multiplies the data collected in the base year by a "trend" statistic to adjust the costs for inflation. Opp., at ¶ 7.

For the last 9 years, DOH has used 1983 as the "base" year to calculate operation costs for all nursing homes except those that are newly established, renovated or operated. 10 N.Y.C.R.R. § 86-2.10(b)(1)(i) ("The rate for 1985 and subsequent rate years shall be computed on the basis of allowable fiscal and statistical data submitted by the facility for the fiscal year ending December 31, 1983 ****"). For newly established, renovated or operated nursing homes, DOH uses the first twelve-month period in which the facility achieves a ninety percent occupancy rate as the base year. Pet., at ¶ 15. Of the 29 Petitioners, 17 have a base year of 1983 and 12 have a more recent base year. Opp., at ¶ 9.

After DOH calculates the reimbursement rate for each nursing home, it multiplies the total reimbursement by a "traceback percentage" to determine what percentage of the reimbursement is actually needed to fund nursing home operations. Pet., at ¶ 21. This percentage is a measure of the portion of the nursing home that is used for nursing home operations per se, and it excludes the portions of the facility that are used for other programs, such as community-based programs. Respondents' Memorandum of Law ("Opp. Memo"), at 8. DOH then deducts from each nursing home's operating cost reimbursement an amount commensurate with the percentage of the facility being used for non-operating costs. For example, if a nursing home is 5000 square feet, but 500 square feet are used for an adult-day-care program, DOH reduces the nursing home's reimbursement by 10 percent because that percentage of the home is not used for basic nursing home operations. A facility's costs associated with community-based and other speciality care programs such as pediatric units, AIDS units and long-term ventilator units are then reimbursed as capital costs, which are paid to nursing homes two years after they are incurred pursuant to 10 N.Y.C.R.R. § 86-2.9(b) and 10 N.Y.C.R.R. § 86-5.2. Opp., at ¶ 10.

In 2003, New York's Deputy Attorney General for Medicaid Fraud Control (MFCU) reviewed the reimbursement procedures and concluded that nursing homes were receiving duplicative reimbursements because DOH was using data from 1983 to calculate the traceback percentage and data going back only two years to calculate capital costs. Opp., at ¶ 23.

Thus, on November 4, 2004, DOH notified Petitioners, among others, that, for calculation of 2005 Medicaid reimbursements, it would use a traceback percentage based on 2003 data instead of using 1983 apportionment information. Opp., at ¶ 24. It did not change [*3]or update any other factor used to calculate nursing homes' reimbursement rate. Pet., at ¶ 22. In support of its decision, DOH explained that in 1983, virtually all nursing homes were using 100 percent of their space for reimbursable nursing home expenses and as such, most nursing homes had a traceback percentage of close to 100 percent. Opp. Memo, at 10. Since 1983, however, several nursing homes have begun to use their facilities to house community-based programs, and thus, currently less than 100 percent of the facilities are used for nursing home operations. Id. DOH, therefore, simply updated its formulas to reflect a more accurate picture of each nursing home's current allocation of space and to conform to reality. Id.

To illustrate, in 1983, Center used almost all of its facilities to house nursing home residents, and as such, had a traceback percentage of 99.98 percent. Opp. Memo, at 10. In 2003, however, Center devoted almost 17 percent of its facilities to its adult-health-care and long-term-home-health-care programs, which were already being reimbursed as capital costs. Id. DOH argues that, in adjusting Center's traceback percentage to 79 percent, it prevented Center from recovering from Medicaid twice (by receiving both operating cost and capital cost reimbursements). Id.

Petitioners now seek an Order and Judgment annulling Respondents' determination to revise the Medicaid reimbursement calculation, claiming that DOH acted arbitrarily and capriciously in "re-basing" one Medicaid reimbursement component the year used to calculate the traceback percentage without also changing the other base-year costs and statistics. Pet., at ¶¶ 37-39. Petitioners further argue that DOH violated its own regulations in substituting a traceback percentage year that is different than the base year for operating costs. Pet., at ¶ 29. They urge, moreover, that DOH violated the State Administrative Procedure Act ("SAPA") by replacing the traceback percentage it has used for the last nineteen years without first publishing the change in the New York State Register. Pet., at ¶¶ 31-36. Petitioners aver that as a result of DOH's actions they have sustained over ten million dollars in loss. Pet., at ¶ 11.

In particular, petitioner Isabella claims that it will lose $900,000 in Medicaid reimbursements this year, and because of this loss, it will not be able to provide the same quality of care to its residents. Affidavit of Mark J. Kator ("Mr. Kator") in Support of Petition ("Kator Aff."), at ¶ 2. Isabella argues that it provides a full range of care and rehabilitation services including physical, occupational and speech therapy; educational and spiritual activities; short-term care for adults who cannot live alone; and respite care for caregivers and that these programs are dependent upon significant Medicaid funding because more than 86 percent of Isabella's patients are Medicaid-eligible. Kator Aff., at ¶ 3. Furthermore, Isabella avers that it added these programs because DOH found that they were "necessary" and that the needs they served were not being met by other programs in the community. Kator Aff., at ¶ 11. Thus, it argues that DOH should modify its Medicaid reimbursements to pay for the new programs. Kator Aff., at ¶ 6.

Respondents oppose the petition, arguing that they were authorized to modify the [*4]traceback percentage to ensure that Petitioners would not obtain a windfall and recover twice once for nursing home operations and again for capital improvements at the government's expense. Opp., at ¶ 3. They acknowledge that as a result of the modification, Petitioners, individually, will lose between $2,000 and $1,100,000 this year in Medicaid reimbursements for nursing home operations, but point out that some nursing homes will receive money for their speciality units, which will compensate for some of the losses. Opp., at ¶¶ 25,26. For example, Respondents demonstrate that Gurwin will receive $85,011 for its ventilator unit and Aged Blind will receive $105,868 for its AIDS unit. Opp., at ¶ 26. They additionally point out that the State will recover approximately $9,270,000 in over-reimbursements to nursing homes. Respondents' Memorandum of Law ("Memo"), at 2. Thus, Respondents emphasize that any reimbursements Petitioners will lose are those to which they are not entitled because such reimbursements would unjustly over-compensate Petitioners for their nursing-home-operation expenses. Opp., at ¶ 27.

Respondents also claim that their determination did not violate any statute or law because modification of the traceback percentage year is not "rule-making" pursuant to SAPA. Opp. Memo, at 26. They further assert, pursuant to 10 N.Y.C.R.R. § 86-2.10(g), that they are entitled to change the traceback percentage to ensure a more accurate reimbursement for nursing homes based on the current apportionment of their resources. Finally, Respondents argue that Petitioners cannot now appeal their reimbursements because a November 2, 2004 notice sent to them provided that they were required to make any appeals by March 15, 2005 to Kathleen Gill ("Ms. Gill"), Chief Health Care Fiscal Analyst, Bureau of Long Term Care Reimbursement. Opp., Ex. A, at 3.

Analysis

Exhaustion of Administrative Remedies

Before commencing an Article 78 proceeding in Supreme Court, petitioners are required to "address their complaints initially to administrative tribunals *** and to exhaust all possibilities of obtaining relief through administrative channels before appealing to the courts." Young Men's Christian Assn. v. Rochester Pure Waters Dist., 37 NY2d 371, 375 (1975) (quoting 2 Cooper, State Administrative Law, 561 [1965]). Furthermore, a petitioner who seeks to appeal directly to a court without first exhausting administrative remedies on the basis of futility must first demonstrate that the merits of the petition have already been considered or predetermined by the administrative agency. Pfaff v. Columbia-Greene Community Coll., 99 AD2d 887 (3d Dept. 1984).

By letter dated November 2, 2004, Petitioners were advised that they could appeal their 2005 reimbursement package by filing an appeal with DOH by March 15, 2005. Opp., Ex. A, at 3. Thus, Petitioners were required to submit a written request for appeal to DOH before commencing this Article 78 proceeding. The record contains no indication that they filed such appeal.

Contrary to Petitioners' argument, DOH's fourteen-year-old letter dated April 30, 1991, [*5]which stated that "appeals objecting to the Medicaid rate methodology are inappropriate under the regulations and will be rejected," See, Pet., Ex. B, at 2, is plainly insufficient to establish that DOH already considered Petitioners' grievance or that an appeal would be futile. Indeed, in the November 2, 2004 letter, DOH explicitly invited an administrative appeal of the determination. Because Petitioners have failed to demonstrate that DOH already considered their appeal or that DOH would not fairly consider the issues if presented to it, the petition must be denied for failure to exhaust administrative remedies. Matter of New York Univ. Med. Ctr. v. Axelrod, 188 AD2d 207, 212 (3d Dept. 1993), lv. denied 81 NY2d 711.

Merits of Petition

The petition must also be denied on its merits.

Determination Not Arbitrary or Capricious

Judicial reversal of an administrative order pursuant to CPLR Article 78 is limited to instances in which the agency acted arbitrarily or capriciously. Matter of Pell v. Bd. of Educ., 34 NY2d 222, 231-232 (1974); see also, Matter of Arrocha v. Bd. of Educ., 93 NY2d 361, 363 (1999); Matter of Nick v. New York State Div. of Hous. and Community Renewal, 244 AD2d 299 (1st Dept. 1997); Greystone Mgt. Corp. v. Conciliation and Appeals Bd. of City of New York, 94 AD2d 614, 616-617 (1st Dept. 1983), affd. 62 NY2d 763 (1984). If there is a rational basis supporting an administrative order, judicial review is narrowly circumscribed and the agency's decision must be upheld. See, Matter of Pell v. Bd. of Educ., 34 NY2d, at 231; Matter of Guzman v. Safir, 293 AD2d 281 (1st Dept. 2002), lv. denied 98 NY2d 614 (2002).

Additionally, an agency's reasonable interpretation of the statutes and regulations it administers is entitled to substantial deference. Matter of Cortland Nursing Care Ctr. v. Whalen, 46 NY2d 979, 980 (1979); Matter of Sigety v. Ingraham, 29 NY2d 110 (1971) ("Where a regulation is not inconsistent with a statute and does not exceed it, the Commissioner's interpretation of the regulation will be controlling and will not be disturbed in the absence of weighty reasons").

Here, DOH is charged with certifying Medicaid reimbursement rates that are "reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities." New York Public Health Law § 2807(3) (emphasis added); see also, Matter of Univ. Hosp. v. New York State Dept. of Health, 179 AD2d 989, 990 (3d Dept. 1992), lv. denied 80 NY2d 756; Matter of Cortland Nursing Care Ctr. v. Whalen, 46 NY2d 979, 980 (1979).

Any rate-setting actions of DOH, being quasi-legislative in nature, may not be annulled except upon a "compelling showing that the calculations from which they derived were unreasonable." New York State Assn. of Counties v. Axelrod, 78 NY2d 158, 166 (1991), lv. dismissed 82 NY2d 705 (1993); Matter of UCP-Bayview Nursing Home v. Novello, 2 AD3d 643, 646 (2d Dept. 2003); Matter of Ellis Ctr. for Long Term Care v. DeBuono, 261 AD2d 791, 794 (3d Dept. 1999), lv. dismissed 93 NY2d 1037. A petitioner bears the burden of demonstrating that an agency's determination is "without a rational basis." Matter of UCP-Bayview Nursing Home v. Novello, 2 AD3d, at 646; see also, Matter of Samaritan Hosp. v. Axelrod, 107 AD2d 911, 913-14 (3d Dept. 1985), lv. dismissed 65 NY2d 636. Moreover, if the determination "is not inconsistent with a statute and does not exceed it, the Commissioner's interpretation of [it] will be controlling and will not be disturbed in the absence of weighty reasons." Matter of Sigety v. Ingraham, 29 NY2d, [*6]at 114.

There is no reason to annul DOH's determination to calculate the traceback percentage based on 2003 data instead of 1983 data. The 2003 review of Medicaid reimbursement procedures completed by New York's Deputy Attorney General for Medicaid Fraud Control (MFCU) made clear that many nursing homes were receiving Medicaid reimbursements for community-based programs through both nursing-home-operation and capital-cost disbursements. MFCU demonstrated that by reimbursing nursing homes based on the percentage of their facility that was used for general nursing home operations in 1983 before many nursing homes had established community-based programs such as long-term care nursing homes were receiving duplicative reimbursements. As a result of MFCU's findings, DOH modified its reimbursement procedures to ensure that nursing homes were being reimbursed based on their current costs. This was not only a rational determination, it was a prudent one.

Case law is clear. "An agency has the power and obligation to rectify what it deems to be an erroneous interpretation of the law or an injudicious policy. A shift in agency position *** indicate[s] heightened agency conscientiousness, not arbitrariness." Delese v. Tax Appeals Trib. of the State of New York, 3 AD3d 612, 613 (3d Dept. 2004), lv. dismissed 2 NY3d 793. The Court of Appeals has pronounced, moreover, that there is a "strong, defined public policy of this State to recover public funds improperly received." Matter of Westledge Nursing Home v. Axelrod, 68 NY2d 862, 865 (1986) (requiring nursing home to repay extra reimbursement it received).

Furthermore, Commissioner Novello has a specific duty to "eliminate unnecessary expense," which she fulfilled in this case by terminating the duplicative reimbursements. Cabrini Med. Ctr. v. Axelrod, 116 AD2d 834, 836 (3d Dept. 1986); see also, Matter of Sigety v. Ingraham, 29 NY2d, at 115 (Commissioner of Health's determination not to reimburse "outlandish costs" was "reasonable and laudable," not irrational); Matter of UCP-Bayview Nursing Home v. Novello, 2 AD3d, at 646 ("Reimbursing nursing homes at a lower rate for patients whose conditions, care needs, and resource utilization are less demanding is neither irrational nor inconsistent with the Medicaid reimbursement scheme").

The record here clearly demonstrates that DOH's determination was rational. Petitioners' reliance on a 2004 letter from the United States Department of Health and Human Services (HHS), which states that DOH under-reimburses nursing homes for their operating costs, is misplaced. The federal government's report is of no moment because DOH is not statutorily obligated to rely on HHS's suggestions regarding state reimbursement procedures. Indeed, the federal government has its own interest in having DOH pay more to nursing homes: it shares the financial responsibility of reimbursing nursing homes with DOH. 42 U.S.C. § 1396.

Additionally, citing Olmstead v. Zimring, 527 U.S. 581 (1999), Petitioners' suggest that their reimbursement rate must be higher because they are allegedly legally required to offer residents a tremendous amount of care and supervision to ensure that they are in the least-restrictive environment possible. Olmstead, however, is entirely inapposite and does not remotely support Petitioners' argument. In Olmstead, the United States Supreme Court held that states have to place individuals with mental disabilities in the least-restrictive environment acceptable to their needs. Id., at 587. The Court did not direct states to accommodate persons with physical disabilities in the [*7]least-restrictive environment. Absolutely nothing in Olmstead mandates DOH to over-reimburse nursing homes for their expenses.

No Violation of Department of Health Regulations

Petitioners are also incorrect in alleging that DOH violated its own regulations in calculating the traceback-percentage based on 2003 data.

Pursuant to DOH Administrative Rules and Regulations [10 N.Y.C.R.R.] § 86-2.10(b)(1)(i), operating costs are calculated using data "for the fiscal year ending December 31, 1983." This data, however, is then adjusted for inflation and modified by "deducting capital costs and items not subject to trending." 10 N.Y.C.R.R. § 86-2.10(c)(4)(iv). The capital cost portion of each nursing home's reimbursement is determined in the base year "determined applicable by the department." 10 N.Y.C.R.R. § 86-2.10(g) (emphasis added). Nowhere do the relevant statutes specify that DOH must use a particular traceback-percentage year. See, 10 N.Y.C.R.R. § 86-2.10; Public Health Law §§ 2803, 2807, 2808.

Public Health Law § 2807(3), in fact, specifically provides that DOH "may only reimburse health care providers for those expenses an efficiently and economically run facility would reasonably incur, not their actual, albeit necessary, expenses." Great "deference is to be given to the Commissioner's interpretation of a regulation." Matter of Grace Plaza of Great Neck v. Axelrod, 121 AD2d 799, 801 (3d Dept. 1986). Thus, DOH's reasonable modification of its reimbursement procedures, upon finding duplicative funding, must be upheld.

No Violation of SAPA

Finally, Petitioners' allegation that DOH's determination must be vacated because it violated the State Administrative Procedure Act (SAPA) is also without merit.

Before an agency can promulgate a new rule or regulation, it must submit a notice of proposed rule making to the Secretary of State and afford the public an opportunity to comment on the proposed rule. SAPA § 202(1). A rule or regulation is not effective until a notice of adoption is published in the State Register and the rule is filed with the Secretary of State. NY Const, art. IV, § 8; SAPA § 203.

Under SAPA, a "rule" is any "agency statement of general applicability or regulation or code that implements or applies law, or prescribes the procedure or practice requirements of any agency, including the amendment, suspension or repeal thereof, except such as relates to the organization or internal management of the agency." New York Executive Law § 101-a(1)(b). The Court of Appeals has defined a "rule" as a "fixed, general principle applied by an administrative agency without regard to other facts and circumstances relevant to the regulatory scheme of the statute it administers." Matter of Roman Catholic Diocese v. New York State Dept. of Health, 66 NY2d 948, 951 (1985).

Forms, instructions, interpretations and statements of general policy that, by themselves, have no legal effect are not rules. Matter of UCP-Bayview Nursing Home v. Novello, 2 AD3d 643, 645 (2d Dept. 2003); Matter of HMI Mech. Sys., Inc. v. McGowan, 277 AD2d 657, 659 (3d Dept. 2000), lv. denied 96 NY2d 705 (2001); Matter of Town of Middletown v. State Bd. of Real Prop. Servs., 272 AD2d 657, 660 (3d Dept. 2000), lv. denied 95 NY2d 761; Matter of Burns v. New York State Off. of Vocational and Educ. Servs. for Individuals with Disabilities, 233 AD2d 781, 782 (3d Dept. [*8]1996), lv. dismissed 89 NY2d 1002 (1997); Natl. Assn. of Ind. Ins. v. State of New York, 207 AD2d 191, 203 (2d Dept. 1994), affd. 89 NY2d 950 (1997).

Furthermore, when "the purpose of the statute is specific, it is unnecessary for an agency to promulgate formal rules or regulations as long as the intent of the statute is effected." Matter of Ellis Long Term Care v. DeBuono, 261 AD2d 791, 795 (3d Dept. 1999), lv. dismissed 93 NY2d 1037 (specifically discussing Public Health Law Article 28 and Medicaid reimbursement of nursing homes).

Here, DOH was not required to follow state rule-making procedures because it did not promulgate a new rule, it merely interpreted an existing rule 10 N.Y.C.R.R. § 86-2.10(g) which provides that capital costs are calculated in the base year "determined applicable by the department." DOH also properly interpreted and applied Public Health Law § 2808(14)(c), which explains that each nursing home's operating cost must be reduced by the percentage of its expenditures allocated to administration and "fiscal expenses." DOH's decision to set the traceback-percentage year as 2003 was simply an application of these already-existing statutes: "The [determination] relies on existing regulations and laws for its stated conclusions. It thus is interpretive and falls within the exception provided in the State Administrative Procedure Act." Matter of HMI Mech. Sys., Inc. v. McGowan, 277 AD2d, at 659; see also, Matter of UCP-Bayview Nursing Home v. Novello, 2 AD3d, at 643-45 (DOH did not create new "rule" requiring filing by issuing a new medical standard for determining Medicaid eligibility because the standard was merely a change in the interpretation of a prior statute); Matter of Town of Middletown v. State Bd. of Real Prop. Servs., 272 AD2d, at 660 (determination to use 1998 real property revaluation figures instead of 1997 figures did not constitute "rule-making" because procedures were "merely guideposts serving to assist and direct the implementation of the regulations"); Natl. Assn. of Ind. Ins. v. State of New York, 207 AD2d, at 204 (tax law sections promulgated by Department of Taxation and Finance did not constitute "rules" because they were only "explanatory statements and technical instructions" for complying with other statutes).

Additionally, DOH was not required to file its determination to change the traceback year with the Secretary of State because the purpose of the statutes it administers is clear. Matter of Ellis Long Term Care v. DeBuono, 261 AD2d, at 795 (no need to promulgate DOH determination as "rule" because purpose of Public Health Law § 2808 is clear). Public Health Law §§ 2803-2808 were enacted to ensure that nursing homes are only reimbursed for their necessary and reasonable expenses in providing care to senior citizens. See, Public Health Law § 2803(2)(ii) ("The [reimbursement procedures] established shall be reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities"). In accordance with this purpose, DOH set the traceback-percentage year as 2003 to assure that nursing homes were not over-reimbursed. See also, Burns v. New York State Off. of Vocational and Educ. Servs. for Individuals with Disabilities, 233 AD2d, at 782-83 (state statute based on federal disability guidelines not "rule" requiring filing); Delese v. Tax Appeals Trib. of the State of New York, 3 AD3d 612, 613 (3d Dept. 2004), lv. dismissed 2 NY3d 793 (state tax-law policy that utilized federal regulations not "rule" requiring filing). Contrast, Matter of Sunrise Manor Nursing Home v. Axelrod, 135 AD2d 293, 296 (3d Dept. 1988) (DOH determination to exclude labor expenses constituted "rule" requiring filing because DOH itself stated that change represented new "policy").

DOH was not required to promulgate its determination as a rule, moreover, because its decision was based on the particular circumstances of each nursing home. DOH concluded, by [*9]examining facilities like Center's, that nursing homes were using almost all of their facilities to house nursing home residents in 1983, but presently, were devoting a significantly smaller proportion of its assets to resident care. By looking at each nursing home separately, DOH discovered that, by using the 1983 data, many nursing homes were receiving a windfall; they were being doubly reimbursed. As a result, DOH did not apply an across-the-board reduction in operating cost reimbursements, but instead, set about determining each nursing home's appropriate reimbursement by looking at each facility's 2003 allocation of resources. See, Matter of Dry Harbor Nursing Home v. Axelrod, 137 AD2d 962, 964 (3d Dept. 1988) (holding that DOH's determination that non-union employee pension benefits are not reimbursable expenses under Medicaid is not a "rule" requiring filing because DOH concluded after case-by-case analysis of reimbursements that inclusion of these benefits would put reimbursement over allowable cost ceilings), lv. denied 73 NY2d 701.

In the end, Petitioners have not met their burden of demonstrating that DOH acted arbitrarily or capriciously in using 2003 as the traceback-percentage year.

Accordingly, it is

ORDERED AND ADJUDGED that the petition is denied and the proceeding is dismissed.

This constitutes the Decision and Judgment of the Court.

Dated: New York, New York

December , 2005

E N T E R

Hon. Eileen Bransten