BAINBRIDGE NURSING HOME v. ZUCKER (2018)

Plaintiff-petitioner Bainbridge Nursing Home (“Bainbridge”) brings this combined CPLR article 78 proceeding/action for declaratory and injunctive relief, challenging the refusal of the State of New York (“State”) to process Medicaid rate appeals associated with its Adult Day Health Care (“ADHC”) program. Defendants-respondents Howard Zucker, M.D., the Commissioner of Health of the State of New York, and Robert Mujica, the Director of the Budget, move, pre-answer, to dismiss the verified petition/complaint (“Petition”) pursuant to CPLR 3211 (a) (1), (2) and (5), arguing principally that Bainbridge's claims are barred by the terms of a universal settlement agreement to which Bainbridge assented.

BACKGROUND

Bainbridge operates a residential health care facility in the Bronx (see Public Health Law [“PHL”] § 2801 [3]; Petition, ¶ 3). It also operates ADHC programs at several locations, including an off-site program in Brooklyn (see Petition, ¶ 3). According to the Petition, the vast majority of Bainbridge's residents and clients are Medicaid recipients (see id., ¶ 11).

1. Legal Framework

Federal law requires the New York State Department of Health (“DOH”), as the State agency charged with setting Medicaid rates (see PHL § 2808 [3] ), to “provide an appeals or exception procedure that allows individual providers an opportunity to submit additional evidence and receive prompt administrative review ․ of payment rates” (42 CFR 447.253 [e] ).

DOH has established a rate appeal procedure to comply with this federal mandate (see 10 NYCRR 86–2.13, 86–2.14). Pursuant to agency regulations, Medicaid rate appeals are to be resolved within one year of filing or the 120th day after receipt of the initial rate sheet for any given rate year, whichever is later (see 10 NYCRR 86–2.14 [b]; see also PHL § 2808 [17] [a] [requiring DOH to “consider ․ rate appeals within a reasonable period”] ).

In 2010, the State Legislature enacted PHL § 2808 (17) (b), which established a cap on the total annual value of rate appeals that may be paid in State fiscal year (“SFY”) 2010–2011 and authorized a moratorium on the processing of rate appeals falling outside the cap (see L 2010, ch 109, § 1, part B, § 30; Matter of Woodside Manor Nursing Home v. Shah, 113 AD3d 1142, 1143–1144 [4th Dept 2014] [“Woodside”] ).

The Legislature amended PHL § 2808 (17) (b) in 2011 “to expand the time period of the rate appeal moratorium through March 31, 2015 and to reduce the rate appeal cap to $50 million for [SFY 2011–2012]” (Woodside, 113 AD3d at 1144; see L 2011, ch 59, § 1, part H, § 98). At the same time, the Legislature amended PHL § 2808 (17) to add a new paragraph (c) that required DOH to promulgate regulations establishing priorities and time frames for the processing of rate appeals in accordance with the moratorium and cap established in paragraph (b) of the subdivision (see L 2011, ch 59, § 1, part H, § 98; PHL § 2808 [17] [c]; Woodside, 113 AD3d at 1144).

In 2015, the Legislature extended the moratorium and cap through March 31, 2019 (see L 2015, ch 47, part D, § 21). Thus, in its current form, PHL § 2808 (17) (b) reads, in pertinent part:

Notwithstanding any inconsistent provision of law or regulation to the contrary, for the state fiscal years beginning April first, two thousand ten and ending March thirty-first, two thousand nineteen, [DOH] shall not be required to revise certified rates of payment established pursuant to this article for rate periods prior to April first, two thousand nineteen, based on consideration of rate appeals filed by residential health care facilities or based upon adjustments to capital cost reimbursement as a result of approval by [DOH] of an application for construction under section twenty-eight hundred two of this article, in excess of an aggregate annual amount of eighty million dollars for each such state fiscal year ․ In revising such rates within such fiscal limit, [DOH] shall, in prioritizing such rate appeals, include consideration of which facilities [DOH] determines are facing significant financial hardship as well as such other considerations as [DOH] deems appropriate ․ (id.).

The delays in processing Medicaid rate appeals have engendered significant litigation throughout the State. Of particular note is Woodside, in which the Fourth Department held that the cap and moratorium established in PHL § 2808 (17) (b) are entitled to retroactive application (see 113 AD3d at 1145–1146).

The Court of Appeals granted leave to appeal in Woodside (see 22 NY3d 866 [2014] ), which is said to have been the catalyst for negotiations between DOH and representatives of the residential home care industry to reach a comprehensive resolution of the legal, fiscal and policy issues raised by the backlog of unprocessed rate appeals. After protracted negotiations, DOH and representatives of over 600 residential home care operators in the State reached a Universal Settlement Agreement on March 9, 2016 (see Foster Aff., Ex. A),¹ the particulars of which are discussed below.

2. Bainbridge's Rate Appeals

Bainbridge's unprocessed rate appeals concern lease payments for its offsite ADHC program in Brooklyn (see 10 NYCRR 86–2.9, 86–2.21 [c] [3] ) and the return of/on equity associated with such program (see id., 86–2.21 [e] [4]; Petition, ¶¶ 26–28). According to the Petition, Bainbridge's rate appeals date from 2009 and total more than $600,000 in estimated financial impact (see Petition, ¶ 29; Exs. B, C & D).

Bainbridge alleges that despite DOH's prior recognition of the meritorious nature of its pending rate appeals, the agency has refused to process them. The Petition cites a number of efforts made by Bainbridge over the last several years to engage DOH on the issue, to no avail (see id., ¶¶ 46–51; Exs. F, G & H). Bainbridge asserts that DOH's only substantive response was a May 10, 2017 email from a senior DOH attorney (see id., ¶ 52), which reads, in pertinent part:

These appeals will be reviewed using the same prioritization criteria as any other appeal before DOH, as set forth in PHL § 2808 (17) (b). As one of the criteria is the consideration of significant financial hardship, we would ask that you provide: [f]inancial statements of the past 3 years; [a] current financial statement; and [a]n estimate of expected negotiated value” (id., Ex. L).

Bainbridge concedes that it never responded to DOH's request (see Opp. Mem., p. 14).

The Petition alleges four causes of action. Bainbridge first seeks a writ of mandamus compelling DOH to promptly process its pending rate appeals on the ground that federal and state regulations oblige the agency to provide prompt administrative review. The second cause of action alleges that DOH has implemented a generally applicable rule of processing rate appeals only for nursing homes facing “significant financial hardship” without undertaking the required rulemaking process (see State Administrative Procedure Act § 102 [2] [a] [i]; see also NY Const, art IV, § 8), and it seeks a declaration that the alleged policy is unlawful and an injunction restraining DOH from continuing the alleged policy. Finally, the third and fourth causes of action allege that the State's failure to provide prompt administrative review of the rate appeals violates Bainbridge's due process rights, and Bainbridge seeks an injunction restraining DOH from refusing to process the pending rate appeals.

Defendants-respondents (“respondents”) move, pre-answer, to dismiss the Petition as barred by the terms of the Universal Settlement Agreement. In the alternative, respondents argue that a writ of mandamus does not lie; the official capacity claims brought against them pursuant to 42 USC § 1983 must be dismissed; Bainbridge has no protectible property interest that gives rise to a due process claim; and Bainbridge failed to exhaust its administrative remedies.

DISCUSSION

The Court begins with the branch of respondents' motion contending that all of Bainbridge's claims are barred by the Universal Settlement Agreement (see Foster Aff., Ex. A [“Settlement Agreement” or “Agreement”] ) (see CPLR 3211 [a] [1], [5] ).²

1. The Universal Settlement Agreement

The Settlement Agreement is a contract, and the Court must therefore be “guided by basic principles of contract interpretation which instruct that a contract should be construed to give effect to the parties' intent as gleaned from the four corners of the document itself, provided that its terms are clear and unambiguous” (Elmira Teachers' Assn. v. Elmira City School Dist., 53 AD3d 757, 759 [3d Dept 2008], lv denied 11 NY3d 709 [2008]; see Rainbow v. Swisher, 72 NY2d 106, 109 [1988] ). Contract language must be construed in accordance with the plain and ordinary meaning of the words used (see South Rd. Assocs., LLC v. International Bus. Machs. Corp., 4 NY3d 272, 277 [2005]; Elmira Teachers' Assn., 53 AD3d at 759), and the Court should refrain from placing undue emphasis upon any particular word or phrase, or reading the contract in a manner that renders any portion thereof meaningless (see Beal Sav. Bank v. Sommer, 8 NY3d 318, 324–325 [2007]; South Rd. Assocs., 4 NY3d at 277; Vectron Intl., Inc. v. Corning Oak Holding, Inc., 106 AD3d 1164, 1167 [3d Dept 2013] ).

Effective January 1, 2012, the State implemented a statewide pricing methodology for Medicaid. In connection with this reform, Bainbridge and other residential health care facilities throughout the State sought “to cease ․ pending rate appeals and pending litigation that dispute or contest any aspect of the prior reimbursement methodology, unless specifically excluded ․ in th[e] Settlement Agreement” (Agreement, 5th Whereas clause). The State, in turn, sought to settle all claims “relating to the prior reimbursement methodology” in exchange for paying no more than $850 million over a multi-year period (id., 6th Whereas clause).³ The parties further recited their mutual goal of “mov[ing] forward into the new statewide pricing methodology as seamlessly, efficiently and productively as possible without potential disruption by pending rate appeals and pending litigation concerning the prior reimbursement methodology” (id., 4th Whereas clause).

Article 2 prescribes the effect of the Settlement Agreement on rate appeals and attendant litigation. “Except as expressly excluded in this Agreement,” participating residential health care facilities “shall withdraw, discontinue and release with prejudice any known or unknown claims, rate appeals or litigation ․ relating to ․ DOH being compelled to consider a rate appeal under paragraph (b) of subdivision 17 of section 2808 of the [PHL]” (id., §§ 2.1 [v]; 2.2 [v] ).

Article 9 of the Settlement Agreement excludes certain categories of rate appeals from the foregoing bar, and Article 10 excludes certain categories of litigation. As is pertinent here, Article 9 excludes “[ADHC] Medicaid rate appeals” from the settlement (id., § 9.1). As to litigation, section 10.2 excludes litigation filed “subsequent to January 1, 2012 that challenge the rates established pursuant to subdivision 2–c of section 2808 of the [PHL], otherwise known as the statewide pricing methodology,” but this exception is itself subject to certain exceptions. One such “exception to the exception” encompasses “any litigation by Facilities related to ․ DOH being compelled to consider a rate appeal under paragraph (b) of subdivision 17 of section 2808 of the [PHL]” (id., § 10.2 [iv] ). In other words, the Settlement Agreement bars a participating residential health care facility from commencing “any litigation ․ related to” DOH being compelled to consider a rate appeal under PHL § 2808 (17) (b).⁴

2. Analysis

There is no dispute that Bainbridge's ADHC rate appeals were excluded from the Settlement Agreement under section 9.1. Accordingly, Bainbridge was not obliged to withdraw, discontinue or release its administrative appeals, and the appeals remain pending before DOH and can be processed pursuant to PHL § 2808 (17) (b).

Contrary to Bainbridge's contention, however, this is not the end of the inquiry. In addition to barring any non-excluded rate appeals that were “brought or could be brought on or before the effective date of th[e] Settlement Agreement” (Agreement, § 2.1) or “after the effective date” (id., § 2.2), the Settlement Agreement also broadly prohibits “any litigation by Facilities related to ․ DOH being compelled to consider a rate appeal under paragraph (b) of subdivision 17 of section 2808 of the [PHL]” (id., § 10.2 [iv] ). Thus, while Bainbridge's ADHC rate appeals survive due to the exclusion set forth in section 9.1, there is no similar exclusion in Article 10 (or elsewhere) that allows Bainbridge to prosecute litigation related to compelling DOH to consider excluded rate appeals under PHL § 2808 (17) (b).

Inasmuch as each of Bainbridge's claims seeks to compel DOH to consider its rate appeals under PHL § 2808 (17) (b) (see Opp. Mem., p. 4 [Bainbridge seeks to compel DOH “to timely process the rate appeals”] ), the Court concludes that this litigation is barred by the express terms of the Settlement Agreement. Specifically, the first cause of action seeks a writ of mandamus compelling DOH to promptly consider the pending rate appeals; the second claim challenges the manner in which DOH “prioritiz[es] such rate appeals” (PHL § 2808 [17] [b] ); ⁵ and the third and fourth causes of action seek to restrain DOH from refusing to process the rate appeals on constitutional grounds. Thus, while the relief requested by Bainbridge is predicated upon four separate legal theories, each claim is directed at compelling DOH to consider Bainbridge's excluded ADHC rate appeals under PHL § 2808 (17) (b), the legislatively-prescribed mechanism by which such appeals are prioritized, considered and funded.

In seeking to avoid the clear import of the Settlement Agreement, Bainbridge argues that the relief it seeks is premised on PHL § 2808 (17) (a) and (c), rather than PHL § 2808 (17) (b) (see Opp. Mem., pp. 4–5). However, PHL § 2808 (17) (b) applies to Bainbridge's excluded rate appeals, “[n]otwithstanding any inconsistent provision of law or regulation to the contrary,” including 10 NYCRR 86–2.14 (PHL § 2808 [17[ [b]; see Woodside, 113 AD3d at 1145–1146). Further, it is clear from the Settlement Agreement that the parties contemplated that legal challenges to the cap and moratorium arise under PHL § 2808 (17) (b) and not the other provisions of law now cited by Bainbridge.

Accordingly, the net effect of the Universal Settlement Agreement is that Bainbridge's ADHC rate appeals remain pending before DOH, but subject to the prioritization and capping provisions established in PHL § 2808 (17) (b), and Bainbridge is barred from prosecuting litigation seeking to compel the agency to consider the rate appeals.⁶ As a result, the branch of respondents' motion seeking the dismissal of this hybrid action/proceeding as barred by, and conclusively defeated by, the express terms of the Universal Settlement Agreement is granted, and the Petition is dismissed.⁷

CONCLUSION

Accordingly, it is

ORDERED that defendants-respondents' motion to dismiss is granted; and it is further

ORDERED and ADJUDGED that the petition/complaint is dismissed.

This constitutes the Decision, Order & Judgment of the Court, the original of which is being transmitted to counsel for defendants-respondents; all other papers are being returned to the Albany County Clerk. The signing of this Decision, Order & Judgment shall not constitute entry or filing under CPLR 2220, and counsel is not relieved from the applicable provisions of that section respecting filing, entry and notice of entry.

Papers Considered:

1. Notice of Petition, dated November 16, 2017; Article 78 Verified Petition and Complaint, dated November 9, 2017, with attached exhibits A–L; Affirmation of F. Paul Greene, Esq., dated January 5, 2018, with attached exhibits A–D; Memorandum of Law in Support of Article 78 Verified Petition and Complaint, dated January 5, 2018;

2. Notice of Motion, dated February 9, 2018; Affirmation of Maria Lisi–Murray, Esq., dated February 9, 2018, with attached exhibit A; Affidavit of Ann Foster, sworn to February 8, 2018, with attached exhibit A; Memorandum of Law in Support of Motion to Dismiss Pursuant to CPLR 3211 (a) (1), (2), and (5), dated February 9, 2018;

3. Memorandum of Law in Opposition to Motion to Dismiss, dated February 22, 2018; and

4. Reply Memorandum of Law in Further Support of Motion to Dismiss Pursuant to CPLR 3211, dated March 7, 2018.

FOOTNOTES

1.   The appeal to the Court of Appeals in Woodside was subsequently withdrawn and discontinued (see 27 NY3d 1127 [2016] ).

2.   While not expressly denominated as such in the notice of motion, respondents also seek relief pursuant to CPLR 7804 (f) with respect to the branches of the Petition cognizable under CPLR article 78.

3.   A portion of the settlement is to be funded using the “$50 million in resources set aside under paragraph (b) of subdivision 17 of section 2808 of the [PHL], otherwise known as the ‘appeals cap’ ” (id., § 3.2 [ii] ).

4.   Notably, there is nothing in Article 10 that excludes litigation pertaining to ADHC programs or other types of excluded rate appeals from the broad release and bar of Article 2.

5.   While the second cause of action, alleging DOH's unlawful implementation of an unpromulgated rule, is styled as a request for declaratory and injunctive relief, it is apparent that the essence of the claim is a challenge to DOH's refusal to consider Bainbridge's pending rate appeals under PHL § 2808 (17) (b) on the ground that the agency's action (or inaction) is affected by an error of law (see CPLR 7803 [3] ). The Court further notes that Bainbridge failed to exhaust its administrative remedies with respect to this claim and has not adequately demonstrated the futility of exhaustion (see Opp. Mem., p. 14; see generally Matter of Schenectady Nursing & Rehabilitation Ctr., LLC v. Shah, 124 AD3d 1023, 1024–1025 [3d Dept 2015] ). In particular, Bainbridge concededly failed to respond to the May 10, 2017 email from a senior DOH attorney requesting information germane to the issue of significant financial hardship: the only factor that the agency is statutorily required to consider in prioritizing rate appeals (see PHL § 2808 [17] [b]; see also Matter of Schenectady Nursing & Rehabilitation Ctr., LLC, 124 AD3d at 1024). Relatedly, the DOH email, which appears to be the only factual support provided for Bainbridge's allegation of an unwritten agency policy of considering only significant financial hardship, expressly stated that significant financial hardship is “one of the criteria” considered by the agency in prioritizing rate appeals (Petition, Ex. L).

6.   Indeed, denying full effect to Article 10, as urged by Bainbridge, would invite the same “disrupti[ve]” litigation regarding the cap and moratorium that the State and the residential home care industry agreed to put behind them. It would also frustrate their shared effort to “move forward into the new statewide pricing methodology as seamlessly, efficiently and productively as possible” (Settlement Agreement, 4th Whereas clause).

7.   In view of this disposition, the Court need not consider the remaining alternative grounds for relief advanced by respondents.

Richard M. Platkin, J.