In this CPLR Article 78 proceeding, petitioner, a residential health care facility, seeks to annul a determination by the New York State Department of Health to utilize a cost-based methodology in calculating the reimbursement rate for Adult Day Health Care (ADHC) services provided for all periods after January 1, 2007. Petitioner has also included a claim under 42 USC §1983. The Department has opposed the application and seeks a dismissal of the petition. Oral argument was held on November 22, 2011.

The facts are essentially undisputed. Prior to 2007, the reimbursement rate for ADHC providers was calculated using budgeted allowable operating costs. Pursuant to Public Health Law §2808[23][a][iii], for a facility with an occupancy rate less than 90% percent, the operating component of the rate of payment is changed to an allowable cost basis in the first year after 2006 in which the "program achieves an occupancy percentage of ninety percent or greater..." (emphasis added). For programs that do not achieve an "occupancy percentage of ninety percent or greater" prior to 2009, the "operating component of the rate of payment...shall be calculated utilizing allowable costs reported in the two thousand nine cost report". There is no dispute that prior to 2007 petitioner had not achieved an occupancy percentage of 90%.

This dispute centers on the Department's use of a cost based rate in calculating the rate of payment for 2007 and 2008 based on petitioner's 2007 RHCF-4 Cost Report (see Exhibit "A" annexed to Second Amended Verified Petition). That report lists a total number of visits of 11,652 in calendar year 2007 (Id). While there is no dispute that the number of visits was the equivalent of an 89.6% occupancy, the 2007 Cost Report identified the "Program Utilization" at 90% (Id). The submissions confirm that the cost report was submitted via the Department's software, which rounded up the occupancy rate from 89.6 to 90%. The Department explains that "it has been a long-standing practice in the Department's RHCF-4 Cost Report software to round a percentage up or down..." (see Affidavit of Lana Earle, dated October 27, 2011 at paragraph 30). As a result, by letter decision dated April 21, 2010, petitioner's rate was changed to a cost basis as of 2007 (see Exhibit "B" annexed to Second Amended Verified Petition). According to petitioner, the change from a budget based rate to a cost based rate resulted in a reduced payment of approximately $200,000 for 2007 (see Supporting Affirmation of Bruce Peckman dated August 25, 2011 at paragraph 31).

Petitioner filed a rate appeal on May 11, 2010 and included a revised cost report for 2007 listing the total number of visits at 11,431, and a program [*2]utilization rate of .879308 (see Exhibits "C" and "D").^[FN1] The appeal focused on the revised cost report confirming a utilization rate of less than 88%. By decision dated July 18, 2011, the Department rejected the appeal, explaining that the revised cost report had not been submitted in compliance with PHL §2808(11).^[FN2] This proceeding ensued.

The threshold question presented is whether the Department was authorized to round up the program utilization rate in the initial 2007 cost report from 89.6% to 90%.^[FN3] Petitioner's thesis is that the statute creates a "bright line" threshold of 90% to trigger a cost based calculation and that respondent acted arbitrarily in rounding up the utilization rate. The Department simply counters that this has been a long-standing practice.

This Court is mindful that the Department is entitled to a high degree of deference in rate-setting matters (Nazareth Home of the Franciscan Sisters v Novello, 7 NY3d 538, 544; Matter of Reconstruction Home & Health Care Ctr, Inc. v. Daines, 65 AD3d 786). From the Court's perspective, however, the statute plainly defines a benchmark of "ninety percent or greater". Notably, PHL §2808[23] begins with the preamble "Notwithstanding any inconsistent provision of law or regulation to the contrary". The underscored phrase is not used in a technical sense such that deference should be accorded the Department's interpretation (see Matter of Sbriglio v. Novello, 44 AD3d 1212, 1214). Given its plain meaning, the statutory standard is literally what it says, i.e. "ninety percent or [*3]greater" (see McKinney's Book 1, Statutes §94; see United States v. Zapata, 139 F3d 1355, 1358-59; Ranson v. Babbitt, 69 F Supp 2d 141, 151). The Department's long standing practice of rounding up the use numbers is inconsistent with the plain language of the statute, and thus arbitrary (see Matter of Society of NY Hosp. v. Axelrod, 70 NY2d 467, 473-474). It follows that petitioner's payment rate for 2007 should have been measured on a budgeted basis, not a cost basis.

The Department further contends that the petition should be dismissed because the petitioner is not entitled to the processing of its appeal and reimbursement due to a moratorium imposed pursuant to Public Health Law §2808[17][b]. Effective April 1, 2010, through March 31, 2011, the Commissioner is not required to revise rates of payment as a result of rate appeals in excess of an aggregate annual amount of eighty million dollars for that state fiscal year (Id). In processing rate appeals within that fiscal limit, the Commissioner is obligated to prioritize rate appeals by including a consideration of which facilities "are facing significant financial hardship as well as such other considerations as the commissioner deems appropriate..." (Id). In its brief, the Department notes that the moratorium has been extended through March 31, 2015, except that the monetary cap for the current fiscal year (April 1, 2011 - March 31, 2102) was reduced to fifty million (see Laws of 2011 Chap. 57, Part H, §98). Reasoning that petitioner commenced this Article 78 proceeding on June 23, 2011, after the moratorium enacted by PHL §2808[17][b] went into effect, the Department maintains the appeal is subject to the cap. The Department further explains in its opposition papers that a determination has been made that petitioner does not qualify under the "significant financial hardship standard". As such, the Department contends that the petition should be dismissed.

The Court finds that the operative event for determining whether the monetary cap imposed by PHL §2808[17][b] applies is the date the rate appeal was filed, not the date the Article 78 proceeding was commenced. As noted above, petitioner filed its rate appeal on May 11, 2010 (see Exhibits "D" and "E" annexed to Second Amended Verified Petition). Prior to the enactment of PHL §2808[17][b], the Department had determined that a reasonable period to decide a rate appeal would be one year (see 10 NYCRR 86-2.14[b]). Here, by letter dated May 20, 2011, petitioner's counsel demanded that the Department decide the appeal, which had been pending for more than a year. The Department then rejected the appeal by letter dated July 18, 2011, and this proceeding ensued. Given the delay attendant the appeal process, and the statutory focus on rate appeals filed by facilities, the Court finds that the focus for determining whether [*4]petitioner is subject to the PHL §2808[17][b] monetary cap is the date its rate appeal was filed, to wit: May 21, 2010.

Since the moratorium imposed by PHL §2808[17][b] went into effect on April 1, 2010, almost two months before petitioner's rate appeal was filed, the cap applies to petitioner's rate appeal. That the rate appeal is subject to PHL §2808[17][b] does not, as the Department contends, warrant a dismissal of the petition. In Matter of County of St. Lawrence v. Daines, (81AD3d 212), the Appellate Division determined that a statutory cap on Medicaid expenses could not be applied retroactively to expenses already incurred by the County. That statute was enacted after the expenses had been incurred but before the County submitted a claim for reimbursement. The issue here, however, is not whether petitioner is entitled to a reimbursement payment, but when its rate appeal can be addressed. While the Department brief asserts the petition must be dismissed, at oral argument counsel for the Department acknowledged that where a facility's rate appeal is not addressed due to the cap imposed by PHL §2808[17][b], the facility would queue up for the next year, i.e. the claim is not extinguished, but delayed.^[FN4]

Given the above, the Court finds that this matter should be remitted to the Department for further consideration of petitioner's rate appeal within the limitations of PHL §2808[17][b]. This Court has determined that the Department acted arbitrarily in rounding up petitioner's 2007 cost report. The actual utilization rate of 89.6% in 2007 confirms petitioner's 2007 reimbursement rate should be calculated on a budgeted allowable cost basis — and thus needs to be recalculated. While the Department's opposition papers provide a "Financial Analysis" to demonstrate petitioner is not "facing significant financial hardship" for purposes of PHL §2808[17][b] review, that issue is not properly before the Court and should be administratively addressed as part of the rate appeal process.

Finally, the Court notes that petitioner has failed to provide a factual basis for the assserted §1983 claim, which is hereby dismissed.

Accordingly, it is hereby

ORDERED and ADJUDGED that the petition is granted to the extent set [*5]forth above; and it is further

ORDERED and ADJUDGED that the matter is remitted to the Department for further proceedings consistent with this Order and Judgment.

This Memorandum constitutes the Decision/Order/Judgment of the Court. This original Decision/Order/Judgment is being returned to attorney for petitioner. The original papers are being mailed to the Albany County Clerk. The signing of this Decision and Order shall not constitute entry or filing under CPLR 2220. Counsel is not relieved from the provision of that rule regarding filing, entry, or notice of entry.

SO ORDERED!

ENTER.

Dated: Albany, New York

March, 2012

_________________________________________

Michael C. Lynch

Justice of the Supreme Court

Papers Consider:

1.Notice of Petition dated June 21, 2011 and Second Amended Verified Petition dated August 25, 2011, with Exhibits "A" - "G"; Supporting Affidavit of Bruce Peckham

dated August 25, 2011, with Exhibits "A" - "F"; Memorandum of Law dated November

17, 2011; and Supplemental Affidavit of Bruce Peckham dated November 17, 2011.

2.Affidavit in Opposition of Lana Earle dated October 27, 2011 with Exhibits "A" - "C';

Memorandum of Law dated October 28, 2011; and Answer to the Second Amended

Petition dated October 27, 2011.