Matter of Terrace Healthcare Ctr. Inc. v Novello
Annotate this CaseDecided on November 27, 2006
Supreme Court, Bronx County
In the Matter of the Application of Terrace Healthcare Center, Inc., Petitioner,
against
Antonia C. Novello, M.D., Commissioner of Health, and John F. Cape, as Director of the Budget for the State of New York, Respondents
8754/06
Mark Friedlander, J.
Petitioner moves by order to show cause for an order: (1) Declaring arbitrary and capricious, as well as an abuse of discretion, unconstitutional and illegal, Respondents' 2006 audit of Petitioner's Patient Review Instrument ("PRI") reflecting care rendered in December 1999, and submitted to Respondents in January 2000; (2) setting aside, for the same reasons, all other PRI audits conducted by Respondents during the last six years; (3) directing Respondents to accept Petitioner's PRI submissions, and Petitioner's resulting Case Mix Index ("CMI"), from 1996 to the present; and (4) declaring the March 3, 2003 agreement between the parties ("the 2003 agreement") to be unenforceable and void ab initio. Petitioner argues that the audits are, and have been, untimely as a matter of law, and that Petitioner is irreparably prejudiced by the untimeliness of the audits. [*2]
The order to show cause was originally brought on to enjoin the audit of the "December 1999/January 2000" PRI, which audit was then scheduled for March 15, 2006. However, the order to show cause was first presented for signature on March 13, 2006. The Court determined that the issues presented were far too complex to allow a decision on the requested injunction within less than 36 hours. There was no salient reason offered for submission of the motion so close to the audit date. Therefore, the Court informed the parties at a quickly convened oral argument that the March 15 audit would not be enjoined, but that the motion would be considered as to future audits (as well as already conducted audits), as this was conceded by the parties to be an ongoing and recurring issue.
I. Background Facts.
The history of this conflict and the background information necessary to understand its context are replete with so much detail as to render a full recounting impractical within the bounds of this Decision. Suffice it to say here that a review of the papers submitted by the two sides will provide the full background for the result reached here. In this Decision, the Court will limit itself to reference only to those facts and definitions which are absolutely essential to setting forth the basis for the Court's findings and conclusions.
Petitioner's Medicaid re-imbursement rate, by which it receives government funds for the care of many of its patients, is dependent on its CMI, which it seeks to establish by submission of its PRI. For the most part, these are semi-annual submissions, which Petitioner typically characterizes by the submission date (i.e. the January and July PRI's), and Respondent typically denominates by the date of the care being documented (i.e. the December and June PRI's). This Decision will henceforth use, for convenience only, Petitioner's characterization, and refer to the semi-annual submissions as occurring in January and July.
The CMI reflects the number of patients requiring differing levels of care, from the simplest, to the most complex (meaning the most costly, time-consuming and labor intensive). Medicaid re-imbursement is higher for care of less functional patients, and the CMI that reflects a greater proportion of such patients therefore generates more revenue for nursing homes like Petitioner's. To ensure accuracy in the PRI submissions and the resulting CMI, Respondent Commissioner of Health is mandated to conduct audits of the PRI's. Apparently, an outside contractor is used for this purpose.
In order to arrive at a proper CMI, the nursing home must show that its patients fit within certain categories, known as "Resource Utilization Groups" ("RUG's"). These RUG's allow for patients to be categorized into 16 possible categories, contained within five hierarchies. To show that a patient consumes more than the lowest level of care, the nursing home must fully document the basis for assigning a patient to a RUG which carries with it a higher Medicaid re-imbursement rate. Such backup documentation is frequently the pivot on which the audit result turns, when the nursing home's PRI's are reviewed by the government or its appointed contractor-reviewers.
There is an elaborate procedural mechanism by which the audits are conducted. In the event of an audit finding a certain requisite percentage of inconsistencies in "Stage I" of the audit, a broader sampling is then audited during "Stage II". If the second audit finds a certain percentage of inconsistencies (meaning that it moves patients out of the categories given in the PRI, usually because of insufficient backup documentation), then a " Stage III" audit is [*3]conducted. This last audit generally involves all the patients. At each stage, the nursing home is able to defend its categorization and backup documents, and, as each further audit stage begins, the nursing home can re-argue the results found in the earlier audit stage. If enough inconsistencies are found in the Stage III audit, the nursing home can be required to stop using its own personnel to prepare the future PRI's. In such case, the nursing home may be required to use preparers from an outside (private) agency approved by the government. It is not disputed that Petitioner here has been required, for a number of years already, to use such independent preparers.
There is no dispute here that the audits of Petitioner's PRI's took place years after the PRI's were submitted. The six PRI's submitted from January 1997 through July 1999 were each audited approximately six and a half years after the date of submission. In early 2003, responding to issues resulting from the delay, Respondent offered an agreement to Petitioner, under which it would expedite audits if Petitioner agreed to conduct future audits by essentially "collapsing" the three stages. In other words, the audit would begin with a full review of all PRI's (like a Stage III audit), so that it would be conducted in a single step. Concomitantly, the nursing home would forego the right to challenge the audit adjustments in the way it had previously done, by its presentations to the new auditor at each stage. Petitioner voluntarily signed the agreement proposed by Respondents. Petitioner now claims that Respondents breached the 2003 agreement by failing to expedite audits.
II. Petitioner's Contentions.
Petitioner relies primarily on the decision of the New York State Court of Appeals in Blossom View Nursing Home v. Novello, 4 NY3d 581. In that decision, the court distinguished audits of PRI's from audits of nursing home fiscal records. The latter, pursuant to regulation, were required to be concluded within six years of filing. Audits of PRI' s had no such requirement. Thus, the court concluded that audits conducted more than six years late were not untimely as a matter of law. Despite this, the court opined that the requirement for PRI audits to be conducted "timely" meant that an unexplained hiatus of seven years, resulting from the government's neglect to wrap up Stage II of a PRI audit, required the striking down of the audit result as untimely. Respondent argues that Blossom View does not control the result here, where the facts are different.
In addition to citing the afore-mentioned decision, Petitioner argues that it is prejudiced by the delayed audits, because the documentation that is needed to back up the categorization of patients is no longer available when the audits are conducted. Petitioner further asserts that, because an independent firm prepares the PRI's, as required by Respondents, the PRI's are not likely to be deficient, and the documentation that must support each submission must have been seen by the independent preparer when the PRI's were accomplished (even if such backup is no longer available at the time of audit). This assumption is valid, according to Petitioner, because no independent preparer recommended by the government would complete a PRI without first confirming that the backup documents exist. Petitioner submits an affidavit by the President of the preparer organization, asserting that the backup documentation must have existed when the preparers completed the PRI's, because the assertions made in the PRI's "could not" have been made without seeing the backup. (Nodiff affidavit, par. 14). According to the same affidavit, most of the backup documents which were missing during the audits were records of the [*4]assistance needed with activities of daily living ("ADL"), which records were maintained separately from other records.
Petitioner also complains that the auditors cannot view the actual patients during audits which take place six years later. Nor can the auditors meet with representatives of the nursing home who actually know and remember individual cases. The parties dispute whether or not such eyeballing of patients and meetings with facility representatives constitute required aspects of an audit (as opposed to mere review of records).
Petitioner further asserts that its rights have been violated, because it has been denied a hearing by an independent fact-finder as to the audit results used by the government for the purpose of diminishing Petitioner's re-imbursements.
III. Respondents' Contentions.
Respondents counter the above contentions with assertions that are, once again, too detailed to be fully set forth in a decision of manageable length. Suffice it to say here that Respondents claim that all delays in the audit of the PRI's resulted primarily from Petitioner's poor record in documenting its CMI, which poor record resulted in many successive semi-annual audits continuing through all three stages. In fact, according to Respondents, it was Petitioner's poor record which originally caused the government to require the use of independent PRI preparers.
Respondents also argue that Petitioners were required to keep clinical records for at least six years and that, at the time that Petitioner signed the 2003 agreement confirming that all its PRI's would be audited, the clinical records of nearly all of the periods under discussion here (6 of the 7 periods) were less than six years old. Thus, Petitioner was on notice pursuant to the 2003 agreement that it was charged with retaining records which, at that very time, it was required to possess.
Respondents further assert that the audits are primarily reviews of documentation, and any reference in the regulations to viewing the patients is purely for the purpose of affording discretion to the auditors to do so. Respondents also note that the facilities have the right to both challenge the audit results during the various stages (except where such right has been waived by agreement), and to seek overturn of the audit results in a timely Article 78 proceeding. Thus, according to Respondents, the right to a hearing has been afforded Petitioner.
IV.The Statute of Limitations.
Respondents also argue that the statute of limitations bars judicial consideration of all audit changes which occurred more than four months prior to March 2006 (when the instant action was filed), by reason of the four month limitation period for initiating actions under CPLR Article 78. Respondents point out that the results of the audit changes for PRI's submitted from January 1997 through January 1999 were communicated to Petitioner much more than four months prior to the initiation of this action. These audit changes constituted the final administrative action, and consequently they set in motion the period for Article 78 review. Thus, according to Respondents, only the audit of the July 1999 PRI's (which Petitioner purportedly "passed") was timely contested. Similarly, the audit of the January 2000 PRI's (which audit Petitioner sought to enjoin) and any other future audits could be timely contested in this proceeding.
Petitioner does not contest that the notification of audit change constituted the final [*5]administrative act which set in motion the limitation period for bringing Article 78 proceedings. In its reply, Petitioner asserts that the proceeding it brings is more in the nature of a declaratory judgment action, since it believes that the regulations are unconstitutionally applied — not only to Petitioner — but to all facilities. Petitioner then asserts that the period of limitation has not passed for such declaratory judgment action. This argument is unavailing, and the single case cited by Petitioner does not in any way support its contention. Challenging the constitutionality of a legislative act more properly requires a declaratory judgment action, but a challenge to the application of a regulation by a government administrative body (even if it raises constitutional issues), whether as applied to an individual entity or to all similar entities, is properly the subject of an Article 78 proceeding. Petitioner' s effort to recast its application, and thus to change its limitation period, fails to pass the starting gate.
By reason of the foregoing, it cannot be disputed that Petitioner's protests of the audit changes made to its PRI's, submitted from January 1997 through January 1999, are time barred. Petitioner's protest of the audit of its June 1999 PRI is timely. It cannot be determined here whether such protest is meaningful to Petitioner. Respondents claim that Petitioner "passed" such audit, but give no further details in their argument. Such statement may simply signify that no Stage II audit was required. Even so, however, there may have been an adjustment in the CMI which Petitioner wishes to contest. Finally, the untimeliness of the protest as to the earlier PRI's does not preclude Petitioner from contesting the continuing audit of its PRI's, starting with the audit of its January 2000 PRI's in March 2006, which Petitioner first sought to preclude. Consequently, the issue of the period of limitation does not obviate the need to adjudicate the substantive issues raised herein.
V. Substantive Findings and Conclusions.
Petitioner's reliance on Blossom View, supra, is misplaced. In Blossom View, the Court of Appeals found that the government's delay was unreasonable, when there was no cogent explanation afforded for a seven year hiatus in merely proceeding to complete a single stage of an audit. Where the government asserted only "administrative oversight," the court found no reason to permit the belated audits. Here, by contrast, Respondents cite the delay caused by Petitioner's own inadequate filings, which led to many PRI audits being conducted over three stages. Respondents also list the successive audits which it conducted, with each starting only months, rather than years, after the preceding audit. It cannot be argued that the facts here are similar to those in Blossom View. Whether the Court of Appeals would wish to extend its rule to the facts found here is an open question. There is no indication in the aforementioned decision that such extension is to be expected. What is clear is that, at this level, this Court feels it inappropriate to expand the effect of the result set forth in Blossom View.
Nor does it benefit Petitioner to argue that it is prejudiced by reason of the unavailability of the backup documentation required by the auditors. Although there is no evidence that Petitioner purposefully destroyed documents, at no time does Petitioner explain why the documents were no longer available. Respondents convincingly argue that Petitioner was on notice to preserve the documents, from the time that Petitioner signed the 2003 agreement, calling for audits of all of its PRI's. At that time, Petitioner was still required to have in its possession all clinical records, pertaining to patients described in all of its PRI's, starting with the July 1997 submission. This requirement is set forth in 10 NYCRR Section 415.22 and is cited in [*6]Blossom View, at page 594. Having been alerted to the need to continue to retain records that it was then required to possess, Petitioner cannot be heard to now complain that it simply could not come up with the required records. At no point does Petitioner explain why the missing ADL records, as conceded in the Nodiff affidavit, were stored separately from other records, when all were required to be produced for audits.
Petitioner does not argue, in its Petition or in an affidavit, that any untoward circumstance prevented it from retaining the backup which it knew would be required. In a letter to Respondents in November 2005 (Exh. E to the Petition), Petitioner's counsel refers to "a fire some years ago in a building adjacent to the facility where various old records were stored and records were destroyed in that fire" (page 4). At no time does the writer of that letter proceed to allege whether the records sought by the auditors were burned, or even whether those records were among those stored at such building. Nor does the writer clarify which records were stored there, or which were burned. The writer does not offer any documentation to support even his limited assertions as to such fire. Finally, the allegations concerning the purported fire are never repeated in the sworn or verified submissions on this application. The Court, therefore, can give little weight to the generic, undetailed and unsubstantiated account of some possible reason for the unavailability of records.
Petitioner seeks some traction from the fact that its PRI's were produced by "independent" firms. However, this has no significance in the instant proceeding. If Respondents were entitled to audit the PRI's and to contest the CMI based on the audit results, it does not matter who prepared the PRI's. The Court cannot substitute its judgment for that of the government auditors, merely because the original PRI preparers claim to be impartial. In this regard, it must be noted that the Court cannot attribute much significance to the statement of the President of the PRI preparation firm (Nodiff) that her employees "could not have" made the entries onto the PRI without viewing the now missing backup documents. The affiant never explains the basis for that statement. Is she asserting that her employees were simply too honest to make an entry without seeing backup? Such a conclusion as to the credibility of unnamed persons cannot be confirmed on these papers. Is the affiant instead arguing that the making of an unsupported entry would somehow be impossible, because no one could have manufactured or contrived the entry without the opportunity to see the backup document? If this is her meaning, she has failed to convincingly back it up. Experience dictates that unscrupulous persons can always manufacture imaginary entries and statistics, absent some special circumstance not explained here.
Petitioner is also in error in asserting that the delayed audits were unreasonable because the auditors could not actually view patients or meet with a facility contact who was familiar with the patients. The opportunity to incorporate such activity into the audits was not mandated by the regulations, but was merely added as a possible confirming activity available to the auditors. Respondents insist that the audits are primarily a review of documentation, and such assertion is eminently reasonable. It is nonsensical to assume that personal viewing of patients is critical to the audit. In the context of a nursing home, the roster of patients typically changes dramatically over the short term, and the level of care of any individual patient can change even more quickly. Thus, even audits conducted six months after the PRI submission, let alone two to four years later, could find little substantiation in viewing the patients present at the time of the audit. [*7]
Petitioner also seeks recission ab initio of the 2003 agreement, on the ground that the audits were not expedited, as promised by Respondents. However, Petitioner signed the agreement without demanding specific standards as to the expediting of the audits. Petitioner, an experienced participant in the PRI process, entered into the agreement with full knowledge, actual or constructive, that no specific terms were contained in the document requiring Respondents to conduct any audits by a date certain. Petitioner cannot now be heard to complain that the audits were not sufficiently expedited to satisfy its concept of what a timely audit should be.
Further, the record shows that Respondents did make some progress in speeding up the audit process. Whereas the earliest audit after the 2003 agreement was followed by one ten months later (thus falling further behind in the review of semi-annual submissions), each and every subsequent audit (including the one that Petitioner sought to enjoin) was less than six months after the one before it, thus starting the process of catching up on the backlog. While this measure of progress may not have satisfied Petitioner, it cannot be said to justify recission of the agreement, especially where such delay as occurred was explained as stemming from the multi-stage process engendered by adjustments to Petitioner's submissions.
Finally, Petitioner is in error in claiming that it had insufficient hearing rights. The rights afforded under the audit process, combined with the right to bring an Article 78 proceeding in this Court, satisfy the due process requirements in this instance. While many government agencies have recently moved toward establishing administrative hearing tribunals which are independent of the agency being appealed from, such movement has been a voluntary effort intended to improve the perception of fairness in administrative decision making, not a compulsory step mandated by law.
For the reasons set forth above, Petitioner has failed, on these papers, to set forth a basis for the relief sought. Petitioner has not shown that the actions of Respondents were either arbitrary, capricious, an abuse of discretion, illegal or unconstitutional. All of the other arguments of the parties hereto (including the issue of Petitioner's claimed property right in its Medicaid re-imbursement) have been considered and have been found not to sufficiently affect the result reached so as to require further comment here.
The Petition is therefore dismissed.
This constitutes the Decision and Judgment of the Court.
11/27/06
/s/
Dated: ____________________________________
MARK FRIEDLANDER, J.S.C.
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