Atlanticare Mgmt., LLC v. Ives
| Decision Date | 29 December 2022 |
| Docket Number | 533327 |
| Citation | 180 N.Y.S.3d 700 |
| Parties | In the Matter of ATLANTICARE MANAGEMENT, LLC, doing business as Putnam Ridge, Petitioner, v. Erin IVES, as Acting Medicaid Inspector General, et al., Respondents. |
| Court | New York Supreme Court — Appellate Division |
O'Connell and Aronowitz, Albany (Cornelius D. Murray of counsel), for petitioner.
Letitia James, Attorney General, Albany (Kathleen M. Treasure of counsel), for respondents.
Before: Garry, P.J., Lynch, Aarons, Pritzker and McShan, JJ.
Proceeding pursuant to CPLR article 78 () to review a determination of respondent Commissioner of Health disallowing petitioner's claims for certain Medicaid reimbursements.
Petitioner is the owner and operator of Putnam Ridge, a residential health care facility in Putnam County that provides adult residential care and adult day health care services and receives reimbursement of its capital and operating costs through the Medicaid program. The facility was built in 2000 and leased to the previous operator by its former landlord, who owned the property and the facility subject to a 30–year mortgage approved by the Department of Health (hereinafter DOH) with a fixed interest rate of 7.675% and a principal balance of $20,470,600 (hereinafter the original mortgage). The mortgage originated in May 1999 and was set to mature in September 2030.1
In 2010, petitioner purchased the adult residential care and adult home day health care operations, but not the property and facility itself, which petitioner continued to rent from the former landlord. In December 2012, petitioner purchased the land, facility and its fixtures from the former landlord using a $21,500,000 five-year commercial loan with an effective interest rate of 6.25% (hereinafter the 2012 loan). Rather than make monthly amortization payments on the 2012 loan, petitioner made payments to a sinking fund from January 2013 through June 2014. In June 2014, petitioner refinanced the 2012 loan with a $24,800,000 30–year mortgage with a 3.68% fixed interest rate and a maturity date in 2044 (hereinafter the 2014 mortgage). Further, the funds previously paid to the sinking fund were transferred to petitioner's operating account and applied to the principal balance on the 2014 mortgage as part of the closing costs. Petitioner did not inform DOH about, nor seek its approval for, the 2012 loan or the 2014 mortgage (hereinafter collectively referred to as the refinancing arrangements).
In its 2012 cost report, petitioner first reported the December 2012 loan in its capital cost financing schedule, demarcating it as the "[o]riginal [a]pproved [f]inancing." Subsequently, in its 2013 cost report, petitioner again reported the 2012 loan and this time identified it as an approved refinancing for the facility.2 Accordingly, in calculating the capital component for petitioner's 2015 Medicaid rates based on the 2013 cost report (see generally Public Health Law § 2808 [2–b] [b] [iv] ; 10 NYCRR 86–2.10 [g]), DOH limited petitioner's reimbursement to interest payments made on the 2012 loan.3 In 2015, DOH undertook a review of petitioner's 2014 cost report as part of its rate-setting determination for petitioner's 2016 Medicaid rate. During its review, DOH became aware of the 2014 mortgage and, consequently, determined that because it had not approved said mortgage, petitioner could not seek reimbursement for mortgage-related expenses for the 2016 rate period. Upon petitioner's request, DOH reviewed the terms of the 2014 mortgage and, in April 2017, following extensive discussions with petitioner, declined to approve it, citing, among other reasons, the mortgage's high principal relative to the original mortgage along with its 2044 maturity date — 14 years past the original mortgage's 2030 maturity date and four years beyond the end of the subject facility's regulatory 40–year useful life (see 10 NYCRR 86–2.21 [a][7]).4 Accordingly, DOH converted petitioner's reimbursement methodology by disallowing its mortgage-related expenses and correspondingly increasing its return of equity reimbursement for the 2016 and 2017 rate periods (see 10 NYCRR 86–2.21 [a][4]; [e][4]).5
Meanwhile, in March 2017, the Office of Medicaid Inspector General (hereinafter OMIG), an independent office within DOH, advised petitioner that it would be conducting an audit of petitioner's Medicaid rates from January 1, 2012 through December 31, 2016 limited to the capital component (see 18 NYCRR 517.3 ; see also 10 NYCRR 86–2.10 [a][9]). In October 2018, OMIG issued a draft audit report (hereinafter the DAR) which, in pertinent part, disallowed reimbursement for all mortgage-related expenses between 2013 and 2015. OMIG explained that, because it had determined that the refinancing arrangements were not recognized by DOH, petitioner no longer had a recognized mortgage as of January 1, 2013. OMIG therefore recalculated the subject facility's capital cost component for 2013 through 2015 to reimburse petitioner for return of equity and determined that petitioner had received an overpayment. Additionally, OMIG disallowed reimbursement of petitioner's cable television service, concluding that such expenses were part of the operating portion of the rate and could not be reimbursed as part of petitioner's capital expenses.
In November 2018, petitioner sent a letter to OMIG objecting to the DAR, limited to OMIG's adjustments to the subject facility's mortgage expense and return of equity adjustments and the disallowance of cable television equipment rental expenses. As to the mortgage expenses, the DAR noted that both the 2012 and 2014 refinancing arrangements had not been recognized by DOH and, because "the provider no longer had a recognized mortgage as of January 1, 2013, the mortgage expenses included in the 2013 through 2015 rates were disallowed." As to the cable television rental expenses, the DAR stated that those expenses "are operating in nature, and therefore they are not allowed in property costs." In December 2018, OMIG issued a final audit report (hereinafter the FAR) denying petitioner's objections directed at these reimbursement disallowances based upon the same justifications.
Petitioner thereafter requested an administrative hearing to challenge the FAR (see 18 NYCRR 517.6 [b][4]; see also 18 NYCRR 519.4 ). Following a five-day administrative hearing, the Administrative Law Judge (hereinafter ALJ) issued a decision upholding OMIG's disallowances. The ALJ concluded, among other things, that DOH's determination to not recognize the refinancing arrangements relied upon by petitioner would more properly be raised as the subject of a rate appeal, and that OMIG was otherwise justified in disallowing mortgage-related costs for the relevant audit period. The ALJ also determined that OMIG properly disallowed the mortgage and cable television expenses and affirmed OMIG's findings. Petitioner then commenced this CPLR article 78 proceeding seeking to annul the challenged disallowances.6 Following joinder of issue, the proceeding was transferred to this Court pursuant to CPLR 7804(g).
Petitioner contends that the actions of OMIG and DOH were arbitrary and capricious and that substantial evidence did not support the ALJ's determination to uphold the results of OMIG's audit. In the context of the audit, petitioner was required to demonstrate that OMIG's determination "was erroneous and that all costs claimed were allowable" ( Matter of Odd Fellow & Rebekah Rehabilitation & Health Care Ctr., Inc. v. Commissioner of Health of the State of N.Y., 107 A.D.3d 1095, 1095–1096, 966 N.Y.S.2d 587 [3d Dept. 2013] ; see 18 NYCRR 519.18 [d][1]; Matter of Gignac v. Paterson, 70 A.D.3d 1310, 1312, 894 N.Y.S.2d 801 [4th Dept. 2010], lv denied 14 N.Y.3d 714, 2010 WL 2365471 [2010] ). Our review of that determination requires deference to OMIG's interpretation of DOH regulations unless they are irrational, "and its determination will be upheld if supported by substantial evidence" ( Matter of Odd Fellow & Rebekah Rehabilitation & Health Care Ctr., Inc. v. Commissioner of Health of the State of N.Y., 107 A.D.3d at 1096, 966 N.Y.S.2d 587 ; see Matter of German Masonic Home Corp. v. Commissioner of Health of State of N. Y., 109 A.D.3d 917, 918, 972 N.Y.S.2d 590 [2d Dept. 2013] ). A determination supported by substantial evidence "must be sustained, irrespective of whether a similar quantum of evidence is available to support other varying conclusions" ( Matter of Haug v. State Univ. of N.Y. at Potsdam, 32 N.Y.3d 1044, 1046, 87 N.Y.S.3d 146, 112 N.E.3d 323 [2018] [internal quotation marks and citation omitted]; see Matter of Alexander M. v. Cleary, 205 A.D.3d 1073, 1075, 168 N.Y.S.3d 162 [3d Dept. 2022] ). "This Court cannot weigh the evidence, and reasonable doubts should be resolved in favor of administrative determinations" ( Matter of Daughters of Sarah Nursing Ctr., Inc. v. Novello, 69 A.D.3d 1150, 1152, 894 N.Y.S.2d 541 [3d Dept. 2010] [citations omitted], lv denied 15 N.Y.3d 704, 2010 WL 3397275 [2010] ).
We turn first to petitioner's challenge to DOH's refusal to recognize the refinancing arrangements. Throughout the audit hearing, the parties intermittently raised arguments pertaining to the proper administrative review process for assessing the propriety of DOH's determination to withhold recognition of the refinancing arrangements. For instance, during the hearing, the OMIG officials who participated in the audit insisted that they were constrained to utilize the rate methodology chosen by DOH that would be applicable to the audited rate periods. Indeed, OMIG's primary contention in its posthearing submission was that petitioner was improperly seeking to challenge DOH's methodology determination as part of OMIG's audit. The ALJ ultimately determined that petitioner was required...
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