Bay Park Ctr. for Nursing & Rehab., LLC v. Shah

• Decision Date: 27 November 2013
• Citation: 111 A.D.3d 1227,976 N.Y.S.2d 291,2013 N.Y. Slip Op. 07916
• Court: New York Supreme Court — Appellate Division
• Parties: BAY PARK CENTER FOR NURSING AND REHABILITATION, LLC, et al., Appellants–Respondents, v. Nirav R. SHAH, as Commissioner of Health, Respondent–Appellant.

111 A.D.3d 1227

976 N.Y.S.2d 291

2013 N.Y. Slip Op. 07916

BAY PARK CENTER FOR NURSING AND REHABILITATION, LLC, et al., Appellants–Respondents,

v.Nirav R. SHAH, as Commissioner of Health, Respondent–Appellant.

Supreme Court, Appellate Division, Third Department, New York.

Nov. 27, 2013.

Tenzer & Lunin, LLP, New York City (Joseph C. Kaplan of counsel), for appellants-respondents.

Eric T. Schneiderman, Attorney General, Albany (Victor Paladino of counsel), for respondent-appellant.

Before: ROSE, J.P., STEIN, McCARTHY and GARRY, JJ.

ROSE, J.P.

Cross appeals from an order of the Supreme Court (Teresi, J.), entered July 3, 2012 in Albany County, which, among other things, partially granted defendant's motion for, among other things, summary judgment dismissing the second amended complaint.

Plaintiffs are profit-making business enterprises operating nursing homes that participate in the Medicaid program. They commenced this declaratory judgment action to challenge the constitutionality of certain reductions in Medicaid reimbursement rates and changes in rate-setting methodology enacted in 2011. Following joinder of issue, defendant moved for, among other things, summary judgment dismissing the second amended complaint and Supreme Court dismissed all but the third cause of action. As limited by their brief, plaintiffs now appeal the dismissal of only their first and sixth causes of action. Defendant cross-appeals the denial of summary dismissal of the third cause of action.

Plaintiffs' first cause of action alleges that the 2011 reimbursement reductions violated the Takings Clause of the 5th Amendment. They argue that they raised a triable issue of fact by showing that their participation in the Medicaid program is involuntary because defendant's policy of applying 10 NYCRR 670.3(c)(2) required them to agree to accept a certain percentage of Medicaid patients as a condition of obtaining their nursing home licenses and, they contend, they will breach the condition and lose their licenses if they withdraw from the program. The regulation, however, does not render a facility's participation in the Medicaid program involuntary ( see Matter of New York State Health Facilities Assn. v. Axelrod, 77 N.Y.2d 340, 350, 568 N.Y.S.2d 1, 569 N.E.2d 860 [1991] ). Nor have plaintiffs offered evidence that any of them has ever sought to withdraw or lost their licenses as a result. Rather, participation is voluntary as a matter of law, and “ ‘where a service provider voluntarily participates in a price-regulated program or activity, there is no legal compulsion to provide service and thus there can be no taking’ ” (Matter of Nazareth Home of the Franciscan Sisters v. Novello, 7 N.Y.3d 538, 546, 825 N.Y.S.2d 426, 858 N.E.2d 1131 [2006], quoting Garelick v. Sullivan, 987 F.2d 913, 916 [2d Cir.1993], cert. denied sub nom. Garelick v. Shalala, 510 U.S. 821, 114 S.Ct. 78, 126 L.Ed.2d 47 [1993]; see Matter of New York State Health Facilities Assn. v. Axelrod, 77 N.Y.2d at 350, 568 N.Y.S.2d 1, 569 N.E.2d 860).

In plaintiffs' sixth cause of action, they challenge Public Health Law § 2808(20)(d). This statute grants defendant discretion to “reduce or eliminate the payment factor for return on or return of equity in the capital cost component of Medicaid rates of payment for services provided by residential health care facilities” (Public Health Law § 2808[20][d] ). Plaintiffs argue that the statute violates the Equal Protection Clause because it affects reimbursement to profit-making proprietary facilities only, as they alone are eligible to receive reimbursement for return on or return of equity ( see10 NYCRR 86–2.21[e][4], [6] ). Voluntary non-profit facilities, on the other hand, may not withdraw their equity for private purposes ( seeNot–For–Profit Corporation Law §§ 102[a][5]; 515[a] ) and, accordingly,they do not receive reimbursement for return on or return of equity ( see10 NYCRR 86–2.19). Given this fundamental difference in the underlying economic purposes and incentives of proprietary and voluntary facilities, they are not similarly situated as they must be to sustain plaintiffs' equal protection claim ( see Matter of State of New York v. Myron P., 20 N.Y.3d 206, 212, 958 N.Y.S.2d 71, 981 N.E.2d 772 [2012]; Matter of Walton v. New York State Dept. of Correctional Servs., 13 N.Y.3d 475, 493, 893 N.Y.S.2d 453, 921 N.E.2d 145 [2009]; Matter of County of Albany v. Hudson Riv.-Black Riv. Regulating Dist., 97 A.D.3d 61, 71, 944 N.Y.S.2d 369 [2012], lv. denied19 N.Y.3d 816, 955 N.Y.S.2d 554, 979 N.E.2d 815 [2012] ). Moreover, plaintiffs concede that the state has a legitimate interest in reforming Medicaid reimbursement rates in order to contain costs in light of economic challenges facing the state ( see e.g. Bertoldi v. State of New York, 275 A.D.2d 227, 229, 712 N.Y.S.2d 113 [2000], appeal dismissed95 N.Y.2d 958, 722 N.Y.S.2d 474, 745 N.E.2d 394 [2000], lv. denied96 N.Y.2d 706, 725 N.Y.S.2d 277, 748 N.E.2d 1073 [2001]; Matter of North Shore Univ. Hosp. Ctr. for Extended Care & Rehabilitation v. Commissioner of N.Y State Dept. of Health, 190 A.D.2d 494, 498, 599 N.Y.S.2d 888 [1993], lv. denied82 N.Y.2d 665, 610 N.Y.S.2d 152, 632 N.E.2d 462 [1994]; Matter of Shattenkirk v. Finnerty, 97 A.D.2d 51, 59, 471 N.Y.S.2d 149 [1983], affd.62 N.Y.2d 949, 479 N.Y.S.2d 215, 468 N.E.2d 53 [1984] ). The Legislature had a rational basis for treating voluntary and proprietary facilities differently in terms of cuts to their reimbursements because there is no corresponding category of capital cost reimbursement for voluntary facilities that could be cut without impacting their ability to meet their...