CONCOURSE REHABILITATION NURSING CENTER INC v. SHAH (2018)

Order, Supreme Court, Bronx County (Sharon A.M. Aarons, J.), entered on or about September 21, 2016, which granted defendants' motion for summary judgment, converted the action to an article 78 proceeding and, upon conversion, dismissed the proceeding, and denied plaintiff's cross motion for summary judgment, unanimously affirmed, without costs.

Plaintiff Concourse Rehabilitation & Nursing Center, Inc. operates a 240–bed residential health care facility in the Bronx, which derives over 80% of its income from services rendered to Medicaid-eligible patients.  In July 2012, plaintiff commenced this action seeking a declaratory judgment and asserting a 42 USC § 1983 claim to annul an audit performed by defendant the Office of the Medicaid Inspector General (OMIG), an independent office of defendant New York State Department of Health (DOH).  At issue in the action is plaintiff's ability to write-off bad debts related to a Medicaid recipient's “net available monthly income” (NAMI) (see Sai Kwan Wong v. Doar, 571 F.3d 247, 251–252 [2d Cir.2009] ), which income must be applied toward the costs of care in a residential health care facility (see 18 NYCRR § 360–4.9;  see also 18 NYCRR §§ 360–4.8[c][1] & 360–4.1[b][1] ).

The proper vehicle for challenging a governmental agency's determination or action is via an article 78 proceeding (see Rosenthal v. City of New York, 283 A.D.2d 156, 158, 725 N.Y.S.2d 20 [1st Dept. 2001];  Butler v. Wing, 275 A.D.2d 273, 276, 713 N.Y.S.2d 33 [1st Dept. 2000], lv denied 95 N.Y.2d 770, 722 N.Y.S.2d 473, 745 N.E.2d 393 [2000] ).  Plaintiff's challenge to defendants' treatment of its allegedly uncollectible NAMI debt and the relief sought, to wit, the annulment of defendants' determination, fall within the purview of an article 78 proceeding.  As such, conversion to an article 78 proceeding was proper (see CPLR 103[c] ).

Upon conversion, dismissal for failure to exhaust administrative remedies was proper (see CPLR 7801[1];  see also Watergate II Apts. v. Buffalo Sewer Auth., 46 N.Y.2d 52, 57, 412 N.Y.S.2d 821, 385 N.E.2d 560 [1978] ).  Plaintiff commenced the action prior to OMIG's issuance of its draft and final audit reports for the subject years and did not avail itself of the administrative remedies available after issuance of the report, including by issuing a statement detailing items of objection to the draft report and requesting a hearing (see 18 NYCRR §§ 517.5[c];  519.7[a] ).  Plaintiff failed to demonstrate the futility of pursuing such remedies or any other exception to the exhaustion doctrine (see Watergate II Apts., 46 N.Y.2d at 57, 412 N.Y.S.2d 821, 385 N.E.2d 560).  Moreover, as the issue involves defendants' interpretation of its regulations, it must be first raised via administrative review (see Young Men's Christian Assn. v. Rochester Pure Waters Dist., 37 N.Y.2d 371, 375–376, 372 N.Y.S.2d 633, 334 N.E.2d 586 [1975];  see also Matter of Sabino v. DiNapoli, 90 A.D.3d 1392, 1393–1394, 935 N.Y.S.2d 701 [3d Dept. 2011] ).