Ellis Center for Long Term Care v. DeBuono

• Decision Date: 08 January 1998
• Citation: 175 Misc.2d 443,669 N.Y.S.2d 782
• Parties: , 1998 N.Y. Slip Op. 98,029 ELLIS CENTER FOR LONG TERM CARE, et al., Petitioners, v. Barbara A. DeBUONO, as Commissioner of the Department of Health of the State of New York, et al., Respondents.
• Court: New York Supreme Court

Page 782

669 N.Y.S.2d 782

175 Misc.2d 443, 1998 N.Y. Slip Op. 98,029

ELLIS CENTER FOR LONG TERM CARE, et al., Petitioners, v. Barbara A. DeBUONO, as Commissioner of the Department of

Health of the State of New York, et al., Respondents.

Supreme Court, Albany County.

Jan. 8, 1998.

Tobin & Dempf, Albany, for petitioners.

Dennis C. Vacco, Attorney General, Albany, for respondents.

GEORGE B. CERESIA, Jr., Justice.

Petitioners are owners and operators of residential health care facilities licensed by the Commissioner of Health of the State of New York and are voluntary, non-profit corporations. ¹ Additionally, Petitioners Amsterdam Memorial Hospital, Aurelia Osborne Fox Memorial Hospital, Edward John Noble Hospital, Ellis Center for Long Term Care, Ellis Hospital Skilled Nursing Facility and Ellis Hospital, are "hospital-based" facilities.

Respondents are all State officials responsible for the administration of the New York State Medicaid program.

In this CPLR Article 78 proceeding Petitioners seek a judgment:

(1) Declaring the Department of Health (DOH) rate revisions to be in violation of the clear language and intent of Public Health Law § 2808(14);

(2) Ordering Respondent DeBuono to recompute petitioners' Medicaid reimbursement rates for the period April 1, 1995 through March 31, 1996 through the use of computations which properly reflect the reductions authorized by the Legislature relating to administrative and fiscal expenses;

(3) Declaring Respondents' implementation of the administrative and fiscal limitations to be in violation of the Federal Social Security Act for failure to obtain prerequisite approval as required thereby; and

(4) Declaring Respondents' use of certain rate schedules to be in violation of the rule-making requirements of the State Administrative Procedure Act as well as Public Health Law § 2808.

Public Health Law § 2808(14) was enacted in June, 1995 in an effort to control health care expenditures under the Medicaid program. Specifically, the legislation is designed to limit administrative and fiscal costs ("A" & "F" costs) incurred by nursing homes for the period April 1, 1995 through March 31, 1996. The statute reads as follows:

Notwithstanding any inconsistent provision of law or regulation to the contrary, for purposes of establishing rates of payment by governmental agencies for residential health care facilities for services provided on or after April [1, 1995] through March [31, 1996], the reimbursable base year administrative services and fiscal services costs, as defined in the New York state residential health care facility accounting and reporting manual, of a provider of services, excluding a provider of services reimbursed on an initial budget basis, shall not exceed the statewide average of total reimbursable base year administrative and fiscal services costs of residential health care facilities. For the purposes of this subdivision, reimbursable base year administrative and fiscal services costs shall mean those base year administrative and fiscal services costs remaining after application of all other efficiency standards, including but not limited to, peer group cost ceilings or guidelines. The limitation on reimbursement for provider administrative and general expenses provided by this subdivision shall be expressed as a percentage reduction of the operating cost component of the rate promulgated by the commissioner for each residential health care facility (Public Health Law § 2808[14], as added by L.1995, ch. 81, § 61 [emphasis supplied] ).

Petitioners maintain that, in implementing the statute, DOH has used a reimbursement rate computation method which affects nearly all the areas of nursing home expenditures, not just administration and fiscal expenses; and that the rate computation method fails to encompass all of the required equalizing adjustments necessary to achieve fair and rational reimbursement. Further, they claim that the change in the computation method does not comply with the requirements of Public Health Law § 2808(14) (42 U.S.C. § 1396a(a)(13)(A))--known as the Boren Amendment of the Federal Social Security Act, and the State Administrative Procedure Act (SAPA § 202, et seq.).

The State opposes the petition asserting that its computation method is both appropriate and statutorily correct, and that petitioners merely propose an alternate way of calculating the A & F cap which is preferable to them as it lessens the impact of the statute.

Under the Medicaid plan the State has established a daily per patient rate to be applied in determining reimbursement for nursing home services. Medicaid reimbursement rates are calculated according to a complex system set forth in 10 NYCRR § 86-2.10. To establish the daily per patient rate of reimbursement, four components of nursing home care are evaluated. They are:

1) direct care, which consists of expenses such as skilled nursing, nursing assistance, pharmaceuticals, activity, social and occupational services. This component comprises approximately 75% of nursing home expenses (10 NYCRR § 86-2.10[c][1] );

2) indirect costs, which consist of overhead expenses such as plant operations and maintenance, grounds, security, housekeeping, non-physician and medical education, housing and medical records, laundry, dietary, and fiscal and administration services (10 NYCRR § 86-2.10[d][1] );

3) non-comparable costs, which includes the cost of services which DOH considers are not comparable among facilities and must be considered for each individual facility. Such services include physician costs, laboratory services and diagnostic and medical therapy services (10 NYCRR § 86-2.10[f][2] ); and

4) capital costs, which includes depreciation, mortgage expenses, debt service and other real property and equipment related expenses (10 NYCRR § 86-2.10[a][9] ).

Capital costs are evaluated on the basis of current property valuations. The remaining operating components are evaluated using the actual expenses reported in a "base year", which is currently 1983, and adjusted for inflation (10 NYCRR § 86-2.10(b)(1)(i)). Direct care costs are further adjusted to reflect patient needs, so that a facility which admits heavier care patients receives higher reimbursement to reflect the associated increased cost of care. Indirect costs are adjusted according to "peer groups" based on several factors such as size of facility, affiliation and the degree of care and treatment a facility's patients require. In this instance, nursing homes affiliated with hospitals have been heretofore analyzed as a separate "peer group" to account for the cost differences inherent in the hospital setting. Both direct care and indirect costs are also adjusted according to cost guidelines including regional wage differences and mean costs for facilities statewide. The resulting reimbursement rate has been approved by the U.S. Department of Health and Human Services.

In order to comply with PHL § 2808(14), DOH, which is charged with the responsibility of setting Medicaid reimbursement rates, amended the established rate computation method to include the calculation of a ratio of administrative and fiscal costs to total operating costs for each facility. An individual facility's ratio was then compared to an average ratio of these costs for all facilities throughout the State. The statewide ratio was calculated by DOH to be 9%. In computing the statewide ratio, hospital based facilities were included with free standing facilities without an adjustment to account for their different circumstances. If a facility's ratio exceeds the statewide ratio of 9%, a percentage reduction of Medicaid reimbursement of total operating costs--not just reduction of reimbursement for the administrative and fiscal costs portion--is calculated based on the amount in excess. No adjustment was made for bed conversion and case mix. Needless to say, each petitioner has suffered a percentage reduction in total Medicaid reimbursement due to an individual facility ratio which exceeds the statewide ratio.

It is well established that an agency's interpretation of a statute is to be given deference so long as it is not irrational, unreasonable or inconsistent with the statutory purpose (Mtr. of Memorial Hospital v. Axelrod 68 N.Y.2d 958, 510 N.Y.S.2d 541, 503 N.E.2d 97; MMIA v. Supt. of Ins., 72 N.Y.2d 753, 761-762, 537 N.Y.S.2d 1, 533 N.E.2d 1030). Courts will not usurp the rate setting responsibility of the Commissioner of Health (Mtr. of Cabrini Medical Center v. Axelrod, 177 A.D.2d 824, 576 N.Y.S.2d 438, mot. for lv. to app. den. 79 N.Y.2d 755, 581 N.Y.S.2d 665, 590 N.E.2d 250). "DOH's rate-setting action may be declared null and void 'upon a compelling showing that the calculations from which [it is] derived [are] unreasonable' (Matter of Society of N.Y. Hosp. v. Axelrod, 70 N.Y.2d 467, 473, 522 N.Y.S.2d 493, 517 N.E.2d 208; Matter of Catholic Med. Center v. Department of Health, 48 N.Y.2d 967, 968, 425 N.Y.S.2d 278, 401 N.E.2d 388; Matter of Sigety v. Ingraham, 29 N.Y.2d 110, 114, 324 N.Y.S.2d 10, 272 N.E.2d 524)" (Ass'n of Counties v. Axelrod, 78 N.Y.2d 158, 166-167, 573 N.Y.S.2d 25, 577 N.E.2d 16). Reimbursement rates set by the Commissioner must be reasonable and adequate to meet the costs incurred by efficiently and economically operated facilities. In setting rates the Commissioner must consider the elements of cost, geographic differentials in costs, economic factors in the area in which the facility is located, the size of the facility and the need for incentives to improve services and efficiency (Public Health Law § 2807(3)).

Ratio Method

Petitioners claim that calculating a ratio of the base year A & F costs of a facility to the total operating costs of the facility and comparing that ratio to the average statewide ratio of these costs, conflicts with the plain wording of the statute and unfairly penalizes the petitioners. Petitioners also claim that the...