Consolation Nursing Home, Inc. v. Commissioner of New York State Dept. of Health

• Decision Date: 28 March 1995
• Citation: 648 N.E.2d 1326,624 N.Y.S.2d 563,85 N.Y.2d 326
• Court: New York Court of Appeals Court of Appeals
• Parties: , 648 N.E.2d 1326, Medicare & Medicaid Guide P 43,147 In the Matter of CONSOLATION NURSING HOME, INC., Respondent, et al., Petitioner, v. COMMISSIONER OF NEW YORK STATE DEPARTMENT OF HEALTH et al., Appellants. In the Matter of NEW YORK STATE HEALTH FACILITIES ASSOCIATION, INC. et al., Respondents, v. David AXELROD, as Commissioner of Health of State of New York, et al., Appellants.

Page 563

624 N.Y.S.2d 563

85 N.Y.2d 326, 648 N.E.2d 1326,

Medicare & Medicaid Guide P 43,147

In the Matter of CONSOLATION NURSING HOME, INC., Respondent,

et al., Petitioner,

v.

COMMISSIONER OF NEW YORK STATE DEPARTMENT OF HEALTH et al.,

Appellants.

In the Matter of NEW YORK STATE HEALTH FACILITIES

ASSOCIATION, INC. et al., Respondents, v. David AXELROD, as Commissioner of Health of State of New

York, et al., Appellants.

Court of Appeals of New York.

Decided March 28, 1995.

[85 N.Y.2d 327] Dennis C. Vacco, Atty. Gen., Albany (Victor Paladino, Jerry Boone, Peter H. Schiff and Victoria A. Graffeo, of counsel), for appellants in the first and second above-entitled proceedings.

[85 N.Y.2d 328] Cadwalader, Wickersham & Taft, New York City (Peter G. Bergmann and William

[648 N.E.2d 1327] J. Natbony, of counsel), for respondent in the first above-entitled proceeding

[85 N.Y.2d 329] Harter, Secrest & Emery, Rochester (Thomas G. Smith, Carol L. O'Keefe and Ross P. Lanzafame, of counsel), for respondents in the second above-entitled proceeding.

OPINION OF THE COURT

PER CURIAM.

Petitioners are nursing homes and a representative organization of nursing homes, which participate in the State's Medicaid reimbursement program. In separate CPLR article 78 proceedings, they challenged respondent Commissioner's 1989 promulgation and application of a regulation (10 NYCRR 86-2.10[c][3][l][1]; and [d][4][ii][a], collectively termed "the base price reduction regulation") that reduced the base prices to help offset a portion of the increased reimbursement for nurses' salaries. As a result, certain nursing homes, including the individual petitioners, experienced a decrease in the amount of reimbursement received.

Reimbursement is calculated under the Resource Utilization Group-II methodology adopted by the State in 1986. Under that formula, nursing homes are reimbursed at a per-patient, per-day rate incorporating four cost components: direct, indirect, capital and noncomparable. The reimbursement rates are based on a facility's allowable operating costs in 1983, designated the base year, "trended forward" to account for inflation. These base year costs are used to set a maximum or "ceiling" price and a minimum or "base" price for each facility. If a facility's costs exceed its ceiling price, that facility is reimbursed only for the ceiling price, trended forward for inflation; if its costs are lower than the base price, the facility is reimbursed for the base price, similarly trended forward. If a facility's costs fall between the ceiling and base prices, it is reimbursed for its actual allowable 1983 costs, trended forward.

Thus, a nursing home that keeps its actual costs below the base price receives the "bonus" of reimbursement at the base price level, while a facility that allows its actual costs to rise above the ceiling price is penalized. The 1989 base price reduction regulation lowered the base price used in calculating the direct and indirect cost components of the reimbursement rate. As a result, a number of facilities that had formerly been below base and receiving a reimbursement bonus, no longer fell into the below-base category. These facilities were reimbursed in 1989 and subsequent years only for their actual allowable costs. An additional number of facilities, although still below base, received smaller bonuses because the differential between their actual costs and the new, lower base price was decreased.

Although some petitioners point to increases in the short-fall between their operating expenses and their Medicaid reimbursement, and to increased operational losses, the fact remains that no nursing home receives less than its actual allowable 1983 costs, trended forward for inflation. The base price reduction regulation merely reduced the amount of reimbursement some nursing homes were receiving in excess of those adjusted costs.

Petitioners challenged the base price reduction regulation as arbitrary, capricious and without rational basis. The New York State Health Facilities Association petitioners additionally contended that the regulation violated both the procedural and substantive mandates of the Federal Boren Amendment (42 U.S.C. § 1396a[a][13][A], ^* which requires that Medicaid reimbursement rates be "reasonable and adequate to meet the [necessary] costs [of] efficiently and economically operated facilities." Petitioner Consolation Nursing Home raised the related contention that the regulation violated sections 2807(3) and 2808(3) of the New York State Public Health Law, which incorporate the Boren Amendment standard.

Supreme Court invalidated the base price reduction regulation in both cases, and in Matter of New York State Health Facilities Assn. v. Axelrod, also found that the regulation and its promulgation violated the substantive and procedural standards of the Boren Amendment. The Appellate Division, although deeming it more...