MATTER OF ELLIS CENTER FOR LONG TERM CARE v. DeBuono

• Decision Date: 20 May 1999
• Court: New York Supreme Court — Appellate Division
• Parties: In the Matter of ELLIS CENTER FOR LONG TERM CARE et al., Respondents-Appellants,<BR>v.<BR>BARBARA DEBUONO, as Commissioner of Health of the State of New York, et al., Appellants-Respondents.

261 A.D.2d 791

694 N.Y.S.2d 177

In the Matter of ELLIS CENTER FOR LONG TERM CARE et al., Respondents-Appellants,

v.BARBARA DEBUONO, as Commissioner of Health of the State of New York, et al., Appellants-Respondents.

Mikoll, J.

Decided May 20, 1999.

Cardona, P. J., Yesawich Jr., Spain and Graffeo, JJ., concur.

Mikoll, J.

This matter comprises four separate CPLR article 78 proceedings challenging respondents' implementation of Public Health Law § 2808 (14), enacted to reduce State Medicaid expenditures by limiting administrative and fiscal costs of nursing homes for the period April 1, 1995 through March 31, 1996. Petitioners are owners and operators of 10 free-standing and five hospital-based not-for-profit residential health care facilities aggrieved by the calculation of their Medicaid reimbursement rates in consequence of this enactment by respondent Department of Health (hereinafter DOH).

The statute reads, in pertinent part, as follows: "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 residential health care facility, excluding a provider of services * * * 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] [emphasis supplied]).

It is not disputed that this section, one of several costcontainment measures adopted in conjunction with the State's 1995-1996 budget, was designed to curtail expenditures in an area of nursing home operations deemed prone to excess spending. Despite its relatively straightforward language and intent, application of Public Health Law § 2808 (14) involves a multitude of calculations before its ultimate purpose is served. In this proceeding, petitioners claim that DOH utilized a flawed methodology in implementing the statute's directive. Supreme Court rejected all but one of petitioners' claims, detailed infra, prompting their appeal. Respondents appeal from that portion of Supreme Court's order directing the recalculation of petitioners' Medicaid reimbursement rates.

Petitioners' first objection to respondents' implementation of Public Health Law § 2808 (14) relates to the method used by DOH to ascertain the "statewide average of total reimbursable base year administrative and fiscal services costs of residential health care facilities". Rather than computing and expressing the State-wide average of reimbursable base year administrative and fiscal services (hereinafter A&F) costs as a dollar amount, DOH elected to calculate and express these costs as a percentage of total reimbursable operating costs statewide, arriving at a ratio of 9%. DOH then calculated each facility's percentage of A&F costs to its total operating costs and if the ratio exceeded the State-wide average of 9%, it commensurately reduced the operating cost component of that facility's reimbursement rate. Petitioners argue that this method conflicts with the plain language of the statute and results in an unfair negative impact upon their individual reimbursement rates. Supreme Court found, and we agree, that petitioners' argument demonstrates only that there is an alternative method of calculating the State-wide average of such costs which may prove more favorable to them, but they have not established that DOH's method was irrational, unreasonable or inconsistent with the statute's purpose (see, Matter of Memorial Hosp. v Axelrod, 68 NY2d 958, 960; see also, Matter of Jennings v New York State Off. of Mental Health, 90 NY2d 227, 239).

Petitioners' next, and least persuasive, argument urges that the 9% A&F cap should not have been applied to reduce the total "operating costs" component of their reimbursement rate, since included within that component is reimbursement for direct, indirect and noncomparable costs directly related to patient care. As the statute itself explicitly provides that "[t]he 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 [of health] for each residential health care facility" (Public Health Law § 2808 [14] [emphasis supplied]), Supreme Court properly rejected this portion of petitioners' argument.

Petitioners successfully argued before Supreme Court that in utilizing the ratio method of calculating their A&F costs, DOH improperly omitted certain adjustments which would have increased their total operating costs, thereby reducing the ratio of their A&F costs thereto. In failing to make these adjustments, petitioners argued that DOH did not comply with that portion of the statute providing that "[f]or the purposes of this subdivision, reimbursable base year [A&F] costs shall mean those base year [A&F] costs remaining after application of all other efficiency standards, including but not limited to, peer group cost ceilings or guidelines" (Public Health Law § 2808 [14] [emphasis supplied]). Specifically, petitioners urged, and Supreme Court concluded, that rate adjustments for "case mix" and "bed conversions", both affecting total operating costs, were required. For the reasons which follow, we believe that Supreme Court erroneously concluded that these two adjustments were mandated.

A facility's Medicaid reimbursement rate is comprised of four components: direct, indirect, noncomparable, and capital costs.^[1] The first three categories (direct, indirect and noncomparable) are collectively referred to as "operating costs". The ...