| Matter of Terrace HealthCare Ctr., Inc. v Novello |
| 2008 NY Slip Op 07166 [54 AD3d 643] |
| September 30, 2008 |
| Appellate Division, First Department |
| In the Matter of Terrace HealthCare Center, Inc.,Appellant, v Antonia C. Novello, M.D., as Commissioner of Health for the State of NewYork, et al., Respondents. |
—[*1] Andrew M. Cuomo, Attorney General, New York (Carol Fischer of counsel), forrespondents.
Judgment, Supreme Court, Bronx County (Mark Friedlander, J.), entered November 30,2006, dismissing the petition to set aside as untimely the results of all respondent Department ofHealth's (DOH) audits of petitioner's patient review instruments (PRIs), used to calculatepetitioner's Medicaid reimbursement rate, performed within the six years preceding the petition,to direct DOH to use petitioner's PRI unaudited submissions from 1996 to the present to calculateits Medicaid reimbursement rate, to rescind the parties' March 3, 2003 agreement, and to enjointhe review scheduled for March 15, 2006 of petitioner's December 1999 PRIs, affirmed, withoutcosts.
Petitioner's challenges to the reviews of its PRI submissions for December 1996, June 1997,December 1997, June 1998 and December 1998 are barred by the four-month statute oflimitations for CPLR article 78 review (CPLR 217 [1]). Petitioner contends that it is entitled to asix-year limitation period because it is challenging the constitutionality of the review processunder 10 NYCRR 86-2.30. However, the review of the submissions in question was notconducted pursuant to 10 NYCRR 86-2.30. It was conducted pursuant to the parties' March 3,2003 "Agreement to Accelerate PRI Processing," which petitioner entered into voluntarily. DOHdid not breach the agreement by failing to expedite the process. The agreement did not set forth aschedule to which DOH was required to adhere, and the record shows that, based on theagreement's procedures, DOH became more timely in the reviews and began to reduce thebacklog.
Nor were DOH's reviews untimely because they were performed more than six years after thePRIs were submitted. Petitioner's reliance on Matter of Blossom View Nursing Home v Novello (4 NY3d 581,595-596 [2005]) is misplaced. DOH did not attribute the backlog to mere administrativeinadvertence but explained that the delays were the result of having to proceed through all stagesof review in 7 of the 10 reviews that preceded the review of the December 1996 submissions,because of petitioner's improper submissions.
DOH's determination was not arbitrary and capricious. DOH is not obligated to acceptpetitioner's submissions without review on the ground that they were prepared by an independent[*2]organization it approved. Moreover, it is uncontested thatpetitioner did not have proper documentation for at least one such submission. The assertion ofthe organization's president that the documents must have existed when the submissions weremade is not based on personal knowledge, and DOH was not required to accept it in lieu of thedocuments. Nor was petitioner's counsel's assertion that there had been a fire "some years ago" asubstitute for the proper documentation, which, upon execution of the March 2003 agreement,petitioner knew or should have known it was required to preserve. Petitioner has raised nomaterial issues regarding the remaining PRI reviews. Concur—Saxe, J.P., Nardelli andBuckley, JJ.
Catterson, J., dissents in a memorandum as follows: I must respectfully dissent because inmy view relief may not be had under CPLR article 78; thus, dismissal pursuant to the four-monthstatute of limitations is inappropriate and would deprive the plaintiff of all relief. Because thedefendant's audits of the plaintiff healthcare facility were delayed almost seven yearsdespite the defendant's agreement to "expedite" the review process, I would convert this action toone for a declaratory judgment and find the audits untimely as a matter of law.
The plaintiff, Terrace HealthCare Center (hereinafter referred to as Terrace) is a 240-bednursing home that receives a majority of its income from Medicaid. In New York, theDepartment of Health (hereinafter referred to as DOH) administers the program, establishingreimbursement rates for nursing homes. The DOH calculates reimbursement based on a case mixindex (CMI) which reflects the utilization of resources for each patient: the higher the CMI, thehigher the reimbursement rate. Utilization is documented by patient review instruments (PRIs),which are prepared and submitted to the DOH every six months. The PRI details each patient'smedical diagnosis, treatment, and care requirements during the four weeks preceding thesubmission of the form.
The DOH reviews the accuracy of PRIs approximately every 18 months. Reviews arestructured in three stages. In stage I, the records of 40 patients are assessed by an independentauditor and compared to the PRIs prepared by the facility. If there is a statistically significantdiscrepancy between the auditor's assessment and the facility's assessment, then a stage II reviewis performed. During a stage II review, 80 patient records are examined and the facility has anopportunity to dispute any stage I findings and may present additional documentation. Theauditor has the option of overturning stage I findings. If there is a significant statisticaldiscrepancy after a stage II review, a stage III review will be performed. In a stage III review, allof the patients at the facility are reviewed except for those that are already being reimbursed atthe lowest rate, and the facility has the opportunity to challenge stage II determinations. If thefacility "fails" (i.e. there is again a significant statistical discrepancy) the stage III review, theDOH will require the facility to contract with a DOH-approved independent third-party assessorto prepare its PRIs based on records supplied by the facility. The reimbursement rate that iscalculated at the end of a stage III review is based on the DOH's CMI calculation and isconsidered final, and there is no formal or statutory procedure available to challenge this finalreimbursement rate.
In the years prior to 1996 (the first year of PRIs at issue in this case), the DOH conducted[*3]several reviews of Terrace's PRIs and found statisticaldiscrepancies that precipitated additional stages of review. Over time, the reviews becameincreasingly delayed. For the years 1996 through 2001, Terrace's PRIs were timely filed andprepared by independent assessors in compliance with the DOH.
In February 2003, when the delay in DOH reviews had risen to more than six years, theAssistant Director of the Division of Health Care Financing offered to remedy the situation witha modified audit process that consisted of one on-site review of all outstanding PRIs for oneperiod. The purported "expedite agreement" was represented to Terrace as "accelerat[ing] theinclusion of a more current case mix index" and saving "months of time." As part of the expediteagreement, Terrace waived the opportunity to challenge stage I and stage II results and also theright to an exit conference.
In July 2003, five months after the expedite agreement was signed, the DOH reviewedTerrace's 1996 PRIs (six years, eight months after submission) and continued reviewing eachperiod as follows: June 1997 submissions were reviewed in May 2004 (six years, eleven monthsafter submission), December 1997 submissions were reviewed in October 2004 (six years, tenmonths after submission), June 1998 submissions were reviewed in February 2005 (six years,eight months after submission), December 1998 submissions were reviewed in June 2005 (sixyears, six months after submission), June 1999 submissions were reviewed in November 2005(six years, five months after submission), and December 1999 submission were reviewed inMarch 2006 (six years, four months after submission). This "expedited" schedule reflected aconsistent pattern of a six-to-seven-year delay between the submission of the PRIs and DOHreview. The DOH found that Terrace had "failed" all but the final review (June 1999 PRIs).
Pending review of the December 1999 PRIs which was scheduled for March 15, 2006,Terrace filed this article 78 proceeding on March 13, 2006 petitioning the court to rescind theMarch 3, 2003 expedite agreement, to set aside the results of the audits for the previous six years,and to direct DOH to use Terrace's PRIs to calculate reimbursement rates for that period.
The Supreme Court dismissed the action, finding the claims for all but the 1999 PRIs barredby the article 78 four-month statute of limitations, and dismissed claims related to the 1999 PRIsfor failing to set forth a basis for the relief sought. In addressing the substantive issues for the1999 PRIs, it concluded that the DOH reviews were not untimely, Terrace was not prejudiced bythe delay, and that DOH had not materially breached the expedite agreement. Additionally, itfound that Terrace was not denied a due process right to review.
In my opinion, the court erred. It could have and should have sua sponte converted theproceeding to one for declaratory judgment on the ground that the ongoing series ofdeterminations by DOH was ill-suited for article 78 proceedings.
It is well established that where the appropriate relief cannot be granted in an article 78proceeding, the court may consider the matter as one for a declaratory judgment. (Matter ofConcord Realty Co. v City of New York, 30 NY2d 308, 314 [1972]; Matter of Greene vFinley, Kumble, Wagner, Heine & Underberg, 88 AD2d 547, 547-548 [1st Dept 1982];CPLR 103 [c].) Here, there is no dispute that each notification following a DOH audit constituteda final administrative act which began the four-month statute of limitations running for an article78 proceeding. If, however, as Supreme Court concluded, the only vehicle available to Terracewas an article 78 proceeding, the four-month statute of limitations would have necessitated thefiling of seven consecutive article 78 petitions. Given the factual complexity of this case, itwould be an absurd use of judicial [*4]resources to forecloseTerrace from bringing one action and insist instead on multiple petitions. (See Perez vParamount Communications, 92 NY2d 749, 754 [1999] [stating that judicial economy andpreventing a multiplicity of suits is an objective of the CPLR].)
Moreover, in this case, constraining Terrace to an article 78 proceeding bound by thefour-month statute of limitations after the DOH delayed the audits for over six years evisceratesthe purpose of the four-month statute of limitations. (See Solnick v Whalen, 49 NY2d224, 232 [1980], citing Mundy v Nassau County Civ. Serv. Commn., 44 NY2d 352, 359[1978, Breitel, Ch. J., dissenting]). In Solnick, the Court emphasized the rationaleunderlying the implementation of a four-month statute of limitations for an article 78 proceeding.Quoting Judge Breitel's dissent in Mundy, the Court stated the crux of the four-monthstatute of limitations for an article 78 petition "is the strong policy, vital to the conduct of certainkinds of governmental affairs, that the operation of government not be trammeled by stalelitigation and stale determinations." (Solnick, 49 NY2d at 232.) The DOH tarried almostseven years in performing the audits at issue and should not be permitted to invoke the statute oflimitations as both a sword and shield.
In my view, therefore, it is appropriate for the six-year statute of limitations for a declaratoryjudgment to apply. (CPLR 213; see Solnick, 49 NY2d at 230 [noting that "(i)f no otherform of proceeding exists for the resolution of the claims tendered in the declaratory judgmentaction the six-year limitation of CPLR 213 (subd 1) will then be applicable"].) In any event,under the next-nearest theory advanced in Solnick, the closest proceeding would havebeen against DOH for breach of contract (also a six-year statute of limitations) for failing toexpedite the review process pursuant to the expedite agreement and merely maintaining the samesix-to-seven-year delay between audits. (Solnick at 230 ["Inquire into the kind of actionthat would have been most likely to raise the same substantive issues had there been nodeclaratory action available, and determine what the statute of limitations would have been onsuch next-nearest action" (internal quotation marks and citations omitted)]; SRN Corp. vGlass, 244 AD2d 545, 546 [2d Dept 1997] [holding that since the claim was based incontract, the six-year statute of limitations rather than the four-month period should apply in anaction brought by a nursing home seeking a declaration that a resident was eligible for medicalassistance].)
The substantive issue in the declaratory judgment action thus becomes whether the PRIaudits conducted by the DOH were timely. As a threshold matter, since it is undisputed that theDOH's on-site audits constituted a "final decision" concerning Terrace's PRIs, the question oftheir timeliness is ripe for our review. (Church of St. Paul & St. Andrew v Barwick, 67NY2d 510, 519 [1986], cert denied 479 US 985 [1986]; see also Matter of Committeeto Save Beacon Theater v City of New York, 146 AD2d 397, 402-403 [1st Dept 1989].)
In my opinion, the DOH audits were also untimely as a matter of law. (See Matter of Blossom View NursingHome v Novello, 4 NY3d 581, 596 [2005].) In that case, the Court held that asix-to-seven-year delay in PRI audits was inexcusable when the DOH claimed "administrativeoversight (meaning inadvertence, not supervision)." (Id. at 595-596.) In this case, thecourt distinguished Blossom [*5]by accepting the DOH'sexcuse that it was Terrace, rather than the DOH, that caused the delay by submitting "inadequatefilings." I disagree. There simply is nothing in the record to indicate that Terrace caused thedelay. The original PRIs were timely submitted and Terrace contracted with a DOH-approvedthird-party agency to prepare them. The DOH asserted that because Terrace's PRIs wereinadequate, stage II and stage III PRI audits had to be performed. This distinction is unpersuasivebecause it nevertheless amounts to an administrative failing by the DOH to timely administer itsown internally regulated processes. In Blossom, the Court found the six-to-seven-yeardelay in performing PRI audits "untimely as a matter of law." (Id. at 596.) Similarly, inthis case, I would reject the DOH's pretext that Terrace was responsible by its conduct for thedelay, and find the six-to-seven-year delay in audits inexcusable and untimely as a matter of law.This is particularly true since eliminating the stage reviews in the guise of "expediting" theprocess did nothing to hasten the glacial pace of the audits.
Moreover, I believe that an analysis of the other three factors of untimeliness enumerated inMatter of Cortlandt Nursing Home v Axelrod (66 NY2d 169, 178 [1985], certdenied 476 US 1115 [1986] [determining whether a period of delay is reasonable within themeaning of State Administrative Procedure Act § 301 (1)]), also requires a finding in favorof Terrace. In addition to the causal connection between the conduct of the parties and the delay,the Court also considered the nature of the private interest allegedly compromised by the delay,the actual prejudice to the private party, and the underlying public policy advanced bygovernmental regulation. (Id.) Prejudice results when the administrative delay hasdamaged a party's ability to mount a defense in an adversarial administrative proceeding.(Id. at 180-181.) The important public policy at issue in recalculating Medicaidreimbursement rates is the recovery of public funds. (Id. at 182.)
I believe that the court erred in finding that Terrace was not prejudiced by the delay. Here,the private interest compromised by the delayed audits was Terrace's right to present support forits PRIs. The DOH claims that Terrace was on notice to preserve documents as of the March2003 agreement, and so cannot claim prejudice. In fact, however, the six-to-seven-year delaycaused Terrace to be unable to present additional information during the on-site audits such asdocumentation regarding ADLs (activities of daily living) and rehabilitation, the oral testimonyof the staff who treated the patients, and the opportunity to demonstrate a patient's condition andcare through direct observation. But for the delay in audits, Terrace claims it would have beenable to present valuable support for its submitted PRIs that was no longer available by the timethe expedited audits were performed. For example, the record reflects that documents for one ofthe audit periods were inadvertently lost or destroyed by fire which led the DOH to reject certainPRIs and replace them with their own, resulting in a lower CMI index and reimbursement rate.
The fourth factor, public policy, is weighed against the first three. While there is a "strong,defined public policy of this State to recover public funds improperly received" (CortlandtNursing Home, 66 NY2d at 182), as the Blossom Court pointed out, long-delayedand protracted PRI audits "harm the public fisc by thwarting prompt recoupment of any Medicaidoverpayments." (Blossom, 4 NY3d at 595.) Although great deference is normallyaccorded administrative agency delays when there are complex issues involved (CortlandtNursing Home, 66 NY2d at 181), as the Blossom Court aptly observed, " 'timely' isnot synonymous with 'timeless.' " (Blossom, 4 [*6]NY3dat 595.)
Thus, for the foregoing reasons, I would convert this CPLR article 78 proceeding to adeclaratory judgment action, find the audits performed in 2003, 2004, 2005, and 2006 untimelyas a matter of law, and order the DOH to recompute the reimbursement rate based on Terrace'soriginally submitted PRIs for the periods 1996, 1997, 1998, and 1999.