Long Island Jewish-Hillside Medical Center v. McBarnette

• Decision Date: 15 June 1995
• Docket Number: JEWISH-HILLSIDE
• Citation: 628 N.Y.S.2d 418,216 A.D.2d 731
• Parties: In the Matter of LONG ISLANDMEDICAL CENTER et al., Appellants, v. Lorna McBARNETTE, as Acting Commissioner of Health of the State of New York, et al., Respondents.
• Court: New York Supreme Court — Appellate Division

Page 418

628 N.Y.S.2d 418

216 A.D.2d 731

In the Matter of LONG ISLAND JEWISH-HILLSIDE MEDICAL CENTER et al., Appellants, v.Lorna McBARNETTE, as ActingCommissioner of Health of the State of New York, et al., Respondents.

Supreme Court, Appellate Division Third Department.

June 15, 1995.

Garfunkel, Wild & Travis P.C.(Fredrick I. Miller, of counsel), Great Neck, for appellants.

Hinman, Straub, Pigors & Manning(Eileen M. Considine, of counsel), Albany, for Empire Blue Cross and Blue Shield, respondent.

Dennis C. Vacco, Atty. Gen. (Victor Paladino, of counsel), Albany, for Lorna McBarnette, respondent.

Before MIKOLL, J.P., and MERCURE, CREW, WHITE and YESAWICH, JJ.

MIKOLL, Justice Presiding.

Appeal from a judgment of the Supreme Court(Teresi, J.), entered February 17, 1994 in Albany County, which dismissed petitioners' application, in a proceeding pursuant to CPLR article 78, to, inter alia, invalidate the revised 1989 outpatient reimbursement rates paid to them by respondent Empire Blue Cross and Blue Shield.

Petitioners are 14 hospitals located throughout the southern area of New York.Respondent Empire Blue Cross and Blue Shield (hereinafter Empire) is a not-for-profit insurance corporation organized pursuant to Insurance Law article 43.Empire reimburses petitioners for, inter alia, outpatient services rendered to Empire's subscribers based either upon the hospital's actual costs incurred or upon a formula set by Empire (hereinafter the Empire methodology).In the latter case respondent Commissioner of Health must determine that Empire's reimbursement rates are "reasonable and adequate to meet the costs * * * incurred by efficiently and economically operated facilities" (Public Health Law § 2807[3][as amended byL.1988, ch. 2, § 24];see, 10 NYCRR 86-1.2[a][1], [2].

The Empire methodology contains, inter alia, a provision which limits the amount of each hospital's reimbursement to the actual costs incurred by that hospital during a given rate period (hereinafter the plan service limitation).Empire submitted its proposed 1989 outpatient reimbursement rates, which were calculated using the Empire methodology, to the Commissioner in November 1988.These rates were certified by the Commissioner on February 7, 1989(hereinafter the initial 1989 rates).

Following a 1991 audit of the 1989 financial records of hospitals reimbursed for services provided to Empire's subscribers, Empire concluded that its payments to petitioners exceeded their actual costs during the 1989 rate year.Empire then presented, for the Commissioner's approval, its revised 1989 outpatient reimbursement rates for petitioners(hereinafter the revised 1989 rates) which, according to the plan service limitation, reduced the amount of reimbursements to petitioners' actual costs during the 1989 rate year.The Commissioner approved the revised 1989 rates (see, 10 NYCRR 86-1.8[a].Upon notification of this approval, each petitioner filed a rate appeal with Empire.As a result, seven petitioners received no reduction in their reimbursement from Empire.

Petitioners then commenced the instant proceeding pursuant to CPLR article 78 contending that (1) the Commissioner's certification of the revised 1989 rates was arbitrary because the rates were based upon the plan service limitation, (2) the Commissioner's approval of the Empire methodology contravened Public Health Law § 2807(7)(b)(as amended byL.1988, ch. 2, § 24) and was retroactive rule making, and (3) the Commissioner's approval of the Empire methodology consisted of de facto rule making which was impermissibly at variance with the provisions of NY Constitution, article IV, § 8 and the State Administrative Procedure Act.In a decision dated February 2, 1994, Supreme Court rejected petitioners' claims of error, upheld the Commissioner's approval of the revised 1989 rates and dismissed the petition.Petitioners now appeal.

The judgment of Supreme Court should be affirmed.

Petitioners' argument, that the Commissioner's approval of the Empire methodology and certification of the revised 1989 rates amounted to establishing the plan service limitation as a de facto rule requiring it to be promulgated pursuant to the notice and filing provisions of State Administrative Procedure Act § 202andNY Constitution, article IV, § 8, is without merit.These provisions only apply to State agencies or departments (see, NY Const, art IV, § 8;State Administrative Procedure Act §§ 102,202) and not to private entities (see, Motor Vehicle Mfrs. Assn. of U.S. v. State of New York, 75 N.Y.2d 175, 188, 551 N.Y.S.2d 470, 550 N.E.2d 919;see also, People v. Granatelli, 108 Misc.2d 1009, 1014, 438 N.Y.S.2d 707).Consequently, Empire, a private corporation, was not required to comply with these provisions (see, Matter of Cabrini Med. Ctr. v. Axelrod, 120 A.D.2d 909, 910-911, 503 N.Y.S.2d 171).Further, the Commissioner's approval of the revised 1989 rates did not constitute the Commissioner's "application" of the plan service limitation which would be necessary to establish it as a de facto rule (see, id.).

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