Nursing Home Complaint

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SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK

BRIDGE VIEW NURSING HOME, INC.; X

CLIFFSIDE NURSING HOME, INC.; EAST END HEALTH CARE, INC. d/b/a WESTHAMPTON CARE CENTER; FOREST VIEW NURSING HOME, INC.; FULTON COMMONS CARE CENTER, INC.; KENNETH GAUL 11, LLC d/b/a CEDAR LODGE NURSING HOME; LAWRENCE NURSING CARE CENTER, INC.; MAYFAIR CARE CENTER, INC.; MEADOWBROOK CARE CENTER, INC.; MICHAEL MELNICKE d/b/a CATON PARK NURSING HOME; MIDWAY NURSING HOME, INC.; PARK GARDENS REHABILITATION AND NURSING CENTER, LLC; PARK HOUSE CARE CENTER, LLC; PROMENADE NURSING HOME, INC.; RIVER VALLEY CARE CENTER, INC.; ROCKAWAY CARE CENTER LLC; SHEEPSHEAD NURSING AND REHABILITATION CENTER, LLC; SUNSHINE CARE COW. d/b/a HEMPSTEAD PARK NURSING HOME; UNION PLAZA NURSING HOME, INC.; VJJ HOLDING COMPANY, LLC d/b/a WOODHAVEN NURSING HOME; WOODCREST REHABILITATION & RESIDENTIAL HEALTH CARE CENTER, LLC; and FLUSHING MANOR GERIATRIC CENTER, INC. d/b/a WILLIAM 0. BENENSON REHAB PAVILION, d/b/a LYNB AND NURSING; FOREST MANOR CARE CENTER, INC. d/b/a GLEN COVE CENTER FOR NURSING & REHABILITATION; LONG ISLAND CARE CENTER INC.; MONTCLAIR CARE CENTER, INC. d/b/a MARQUIS REHABILITATION & NURSING CENTER, NEW CARLTON REHAB AND NURSING CENTER, LLC; SUFFOLK RESTORATIVE THERAPY AND NURSING, LLC d/b/a MOMENTUM AT SOUTH BAY FOR NURSING AND REHABILITATION; SUTTON PARK CENTER FOR NURSING REHABILITATION LLC; TREETOPS REHABILITATION & CARE CENTER, LLC d/b/a NORTH WESTCHESTER RESTORATIVE THERAPY & NURSING; WHITE PLAINS

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Index No. 11 1914-201 1

SECOND AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

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NOTCOMPARED W H COPY FILE I -------- - -i/ I

F I L E D NOV 1 4 2011

COUNTY CLERK'S OF NEW YORK

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NURSING HOME ;and :

Plaintiffs,

-against-

ANDREW CUOMO, as Governor of the State of New York, and NIRAV R. SHAH, M.D., M.P.H., as Commissioner of the New York State Department of Health,

:

:

Defendants . X

Plaintiffs Bridge View Nursing Home, Inc.; Cliffside Nursing Home, Inc.; East End

Health Care, Inc. d/b/a Westhampton Care Center; Forest View Nursing Home, Inc.; Fulton

Commons Care Center, Inc.; Kenneth Gaul 11, LLC d/b/a Cedar Lodge Nursing Home; Lawrence

Nursing Care Center, Inc.; Mayfair Care Center, Inc.; Meadowbrook Care Center, Inc.; Michael

Melnicke d/b/a Caton Park Nursing Home; Midway Nursing Home, Inc.; Park Gardens

Rehabilitation & Nursing Center, LLC; Park House Care Center, LLC; Promenade Nursing

Home, Inc.; River Valley Care Center, Inc.; Rockaway Care Center LLC; Sheepshead Nursing

and Rehabilitation Center, LLC; Sunshine Care Corp. d/b/a Hempstead Park Nursing Home;

Union Plaza Nursing Home, Inc.; VJJ Holding Company, LLC d/b/a Woodhaven Nursing Home;

Woodcrest Rehabilitation and Residential Health Care Center, LLC; and Flushing Manor

Geriatric Center d/b/a William 0. Benenson Rehab Pavilion; East Rockaway Center, LLC d/b/a

Lynbrook Restorative Therapy and Nursing; Forest Manor Care Center, Inc. d/b/a Glen Cove

Center for Nursing & Rehabilitation; Long Island Care Center Inc.; Montclair Care Center, Inc.

d/b/a Marquis Rehabilitation & Nursing Center; New Carlton Rehab and Nursing Center, LLC;

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Suffolk Restorative Therapy and Nursing, LLC d/b/a Momentum at South Bay for Nursing and

Rehabilitation; Sutton Park Center for Nursing Rehabilitation LLC; Treetops Rehabilitation &

Care Center, LLC d/b/a North Westchester Restorative Therapy & Nursing; White Plains

Nursing Home, Inc. d/b/a Bronx Park Rehabilitation and Nursing Center; and Verrazano Nursing

Home (together referred to as “Plaintiffs” or the “Facilities”), by their attorneys, Duane Morris

LLP, for their second amended complaint against Defendants Andrew Cuomo, in his capacity as

Governor of the State of New York; and Defendant Nirav R. Shah, M.D., M.P.H., in his capacity

as the Commissioner, New York State Department of Health (“DOH’), allege as follows:

NATURE OF THE CASE

1. This is an action for injunctive and declaratory relief. Plaintiffs are residential

health care facilities which participate in the New York State Medical Assistance (“Medicaid”)

program. They seek to enjoin the implementation and enforcement of certain laws and

regulations which drastically reduce, both retroactively and prospectively, the reimbursement

Plaintiffs receive for caring for sick and elderly individuals eligible for assistance under the

Medicaid program.

2. In adopting the laws that Plaintiffs seek to enjoin and declare invalid and

unenforceable - Part H, Chapter 59 of the Laws of 201 1 (the “Laws of 201 1”) - the Legislature

and DOH did not take into account or ignored the level of payments that Plaintiffs and other

nursing home operators need in order to provide efficient, economical, and quality nursing

facility care, nor did the Legislature or DOH consider whether the laws would ensure that

Medicaid beneficiaries had access to nursing facility services to the same extent as the general

population. These laws were adopted for one reason alone: to meet a budgetary objective.

3. By choosing to participate in Medicaid, New York State obligated itself to

comply with the applicable federal statutes and regulations. 42 U.S.C. 8 1396a. Among other

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things, federal law requires that payments for care provided to Medicaid recipients be “consistent

with efficiency, economy, and quality of care,” and “sufficient to enlist enough providers” that

Medicaid recipients are assured of having the same access to care that is available to the general

population in the area. 42 U.S.C. 0 1396a(a)(30)(A).

4. Despite the federal requirement that Medicaid reimbursement rates be set at levels

sufficient to ensure quality of care and equal access for recipients, New York State chose to

reduce its budget by slashing Medicaid spending by $2.85 billion in 201 1-2012 and by $4.6

billion in 2012-2013. Once the State decided how much it wanted to save, it manipulated its

Medicaid reimbursement rates accordingly, without the slightest regard for its obligations under

federal law. It also trampled on Plaintiffs’ due process rights, taking away the right of some (but

not all) nursing home operators to obtain appellate relief from erroneous reimbursement

calculations, leaving them without any recourse.

.

5 . Nothing gives states the right to eliminate their budgetary issues by disregarding

their federal obligation to ensure that Medicaid reimbursement rates are sufficient to satisfy the

quality of care and equal access requirements imposed by federal law.

6. Absent injunctive and declaratory relief, Plaintiffs will suffer extreme economic

hardship which will inhibit their ability to render quality care to their residents, and create a

disincentive for admission of Medicaid patients in the future, increasing the likelihood that

Medicaid beneficiaries will face difficulty in finding admission to quality residential health care

facilities.

7. The injunctive and declaratory relief Plaintiffs seek is necessary to keep New

York State from violating federal and state law by depriving Plaintiffs of the reimbursement they

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need in order to provide adequate services, which will cause irreparable harm to Plaintiffs and

the Medicaid beneficiaries they care for.

JURISDICTION AND VENUE

8. This Court has personal jurisdiction over Defendant pursuant to CPLR 301

because Defendants are domiciled in and regularly transact business in the State of New York.

9. Venue is appropriate in this jurisdiction pursuant to CPLR 503(a) and 503(c).

PARTIES

10. Plaintiff Bridge View Nursing Home, Inc. is a residential health care facility

located at 143-10 20th Avenue in Whitestone, New York that is, and at all times relevant hereto,

was licensed by DOH under Article 28 of the New York Public Health Law and participated in

New York State’s Medicaid program.

1 1. Plaintiff Cliffside Nursing Home, Inc. is a residential health care facility located

at 11 9-19 Graham Court in Flushing, New York that is, and at all times relevant hereto, was

licensed by DOH under Article 28 of the New York Public Health Law and participated in New

York State’s Medicaid program.

12. Plaintiff East End Health Care, Inc. d/b/a Westhampton Care Center is a

residential health care facility located at 78 Old Country Road, Westhampton, New York that is,

and at all times relevant hereto, was licensed by DOH under Article 28 of the New York Public

Health Law and participated in New York State’s Medicaid program.

13. Plaintiff Forest View Nursing Home, Inc. is a residential health care facility

located at 71-20 110th Street in Forest Hills, New York that is, and at all times relevant hereto,



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14. Plaintiff Fulton Commons Care Center, Inc. is a residential health care facility

located at 60 Merrick Avenue in East Meadows, New York that is, and at all times relevant

hereto, was licensed by DOH under Article 28 of the New York Public Health Law and

participated in New York State’s Medicaid program.

15. Plaintiff Kenneth Gaul 11, LLC d/b/a Cedar Lodge Nursing Home is a residential

health care facility located at 6 Frowein Road in Center Moriches, New York that is, and at all

times relevant hereto, was licensed by DOH under Article 28 of the New York Public Health

Law and participated in New York State’s Medicaid program.

16. Plaintiff Lawrence Nursing Care Center, Inc. is a residential health care facility

located at 350 Beach 54th Street in Arverne, New York that is, and at all times relevant hereto,



17. Plaintiff Mayfair Care Center, Inc. is a residential health care facility located at

100 Baldwin Road in Hempstead, New York that is, and at all times relevant hereto, was



18. Plaintiff Meadowbrook Care Center, Inc. is a residential health care facility

located at 320 West Merrick Road in Freeport, New York that is, and at all times relevant hereto,



19. Plaintiff Michael Melnicke d/b/a Caton Park Nursing Home is a residential health

care facility located at 13 12 Caton Avenue in Brooklyn, New York that is, and at all times

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relevant hereto, was licensed by DOH under Article 28 of the New York Public Health Law and


20. Plaintiff Midway Nursing Home, Inc. is a residential health care facility located at

69-95 Queens Midtown Expressway in Maspeth, New York that is, and at all times relevant



2 1. Plaintiff Park Gardens Rehabilitation and Nursing Center, LLC is a residential

health care facility located at 6585 Broadway in Riverdale, New York that is, and at all times



22. Plaintiff Park House Care Center, LLC is a residential health care facility located

at 128 Beach 115th Street in Rockaway Park, New York that is, and at all times relevant hereto,



23. Plaintiff Promenade Nursing Home, Inc. is a residential health care facility

located at 140 Beach 114th Street in Rockaway Park, New York that is, and at all times relevant



24. Plaintiff River Valley Care Center, Inc. is a residential health care facility located

at 140 Main Street in Poughkeepsie, New York that is, and at all times relevant hereto, was


York State’s Medicaid program,

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25. Plaintiff Rockaway Care Center LLC is a residential health care facility located at

353 Beach 48th Street in Edgemere, New York that is, and at all times relevant hereto, was



26. Plaintiff Sheepshead Nursing and Rehabilitation Center, LLC is a residential

health care facility located at 2840 Knapp Street, Brooklyn, NY 11235 that is, and at all times



27. Plaintiff Sunshine Care Corp. d/b/a Hempstead Park Nursing Home is a

residential health care facility located at 800 Front Street in Hempstead, New York that is, and at

all times relevant hereto, was licensed by DOH under Article 28 of the New York Public Health

Law and participated in New York State’s Medicaid program.

28. Plaintiff Union Plaza Nursing Home, Inc. is a residential health care facility

located at 33-23 Union Street in Flushing, New York that is, and at all times relevant hereto, was



29. Plaintiff VJJ Holding Company, LLC d/b/a Woodhaven Nursing Home

(“Woodhaven”) is a residential health care facility located at 1360 Route 1 12 in Port Jefferson

Station, New York that is, and at all times relevant hereto, was licensed by DOH under Article

28 of the New York Public Health Law and participated in New York State’s Medicaid program.

30. Plaintiff Woodcrest Rehabilitation & Residential Health Care Center, LLC is a

residential health care facility located at 1 19-09 26th Avenue in College Point, New York that is,

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and at all times relevant hereto, was licensed by DOH under Article 28 of the New York Public

Health Law and participated in New York State’s Medicaid program.

3 1. Plaintiff Flushing Manor Geriatric Center d/b/a William 0. Benenson Rehab

Pavilion is a residential health care facility located at 36-17 Parsons Boulevard, Flushing, New

York that is, and at all times relevant hereto, was licensed by DOH under Article 28 of the New

York Public Health Law and participated in New York State’s Medicaid program.

32. Plaintiff East Rockaway Center, LLC d/b/a Lynbrook Restorative Therapy and

Nursing is a residential health care facility located at 243 Atlantic Avenue, Lynbrook, New York

that is, and at all times relevant hereto, was licensed by DOH under Article 28 of the New York

Public Health Law and participated in New York State’s Medicaid program.

33. Plaintiff Forest Manor Care Center, Inc. d/b/a Glen Cove Center for Nursing &

Rehabilitation is a residential health care facility located at 6 Medical Plaza, Glen Cove, New

York that is, and at all times relevant hereto, was licensed by DOH under Article 28 of the New

York Public Health Law and participated in New York State’s Medicaid program.

34. Plaintiff Long Island Care Center Inc. is a residential health care facility located at

144-61 38fh Avenue, Flushing, New York that is, and at all times relevant hereto, was licensed by

DOH under Article 28 of the New York Public Health Law and participated in New York State’s

Medicaid program.

35. Plaintiff Montclair Care Center, Inc. d/b/a Marquis Rehabilitation & Nursing

Center is a residential health care facility located at 2 Medical Plaza, Glen Cove, New York that

is, and at all times relevant hereto, was licensed by DOH under Article 28 of the New York

Public Health Law and participated in New York State’s Medicaid program.

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36. Plaintiff New Carlton Rehab and Nursing Center, LLC is a residential health care

facility located at 405 Carlton Avenue, Brooklyn, New York that is, and at all times relevant



37. Plaintiff Suffolk Restorative Therapy and Nursing, LLC d/b/a Momentum at

South Bay for Nursing and Rehabilitation is a residential health care facility located at 340 East

Montauk Highway, East Islip, New York that is, and at all times relevant hereto, was licensed by


Medicaid program.

38. Plaintiff Sutton Park Center for Nursing Rehabilitation LLC is a residential health

care facility located at 3 1 Lockwood Avenue, New Rochelle, New York that is, and at all times



39. Plaintiff Treetops Rehabilitation & Care Center, LLC d/b/a North Westchester

Restorative Therapy & Nursing is a residential health care facility located at 3550 Lexington

Avenue, Mohegan Lake, New York that is, and at all times relevant hereto, was licensed by


Medicaid program.

40. Plaintiff White Plains Nursing Home, Inc. d/b/a Bronx Park Rehabilitation and

Nursing Center is a residential health care facility located at 3845 Carpenter Avenue, Bronx,

New York that is, and at all times relevant hereto, was licensed by DOH under Article 28 of the

New York Public Health Law and participated in New York State’s Medicaid program.

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4 1. Plaintiff Verrazano Nursing Home is a residential health care facility located at

100 Castle Avenue, Staten Island, New York that is, and at all times relevant hereto, was



42. Defendant Andrew Cuomo (the “Governor”) is the Governor of the State of New

York. The Governor maintains an office for the transaction of business in New York County.

As Governor, Defendant Cuomo is the State’s highest elected official and is responsible for

ensuring that the laws of the State of New York comply with federal law and is the person with

ultimate responsibility for the State’s legislative enactments. He is being sued solely in his

capacity as Governor.

43. Defendant Nirav R. Shah, M.D., M.P.H. (the “Commissioner” or “Shah”) is the

Commissioner of Health of the State of New York. Shah maintains an office for the transaction

of business in New York County. As Commissioner of Health, Shah is responsible for carrying

out the duties assigned by law to him and to DOH, including administration of the Medicaid

program. Shah is being sued solely in his capacity as Commissioner of Health since the

Commissioner of Health is the person responsible for administering New York State’s Medicaid

program.

BACKGROUND

A. The Medicaid Program

44. The Medicaid program is a joint Federal-State program created in 1965 under

Title XIX of the Social Security Act and codified at 42 U.S.C. 0 1396 et seq. (the “Social

Security Act”). The purpose of the Medicaid program is to make “mainstream medical care”

available to the poor and disabled.

45. Participation by states in the Medicaid program is voluntary. But, if a state

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chooses to participate, it is required to comply with certain federal statutes and regulations.

All fifty states, the District of Columbia, and five territories have chosen to

participate in the Medicaid program. Each makes medical services available to Medicaid

beneficiaries using private providers who are reimbursed at rates set as part of its Medicaid plan.

46.

47. By electing to participate in the Medicaid program, New York obligated itself to

comply with all applicable federal statutes and regulations.

48. Federal and state government agencies share responsibility for funding the

Medicaid program. States electing to participate in Medicaid are reimbursed by the Federal

Government for a portion of the costs they incur in providing health care services and treatment,

including nursing facility services, to low-income and disabled residents who qualify for

Medicaid assistance. See 42 U.S.C. 0 1396.

49. The part of the Medicaid cost that the Federal Government reimburses varies from

a statutory floor of 50% of the state’s outlays to a ceiling of 83%. 42 C.F.R. 0 433.10(b). At

present, in excess of 50% of the costs New York incurs in funding nursing facility services under

the Medicaid program is reimbursed by the Federal Government pursuant to a formula set forth

at 42 U.S.C. 0 1396b.

50. For a state to be eligible for federal financial participation and assistance under

the Medicaid program, the state has to submit for approval by the United States Secretary of

Health and Human Services, Centers for Medicare & Medicaid Services (“CMS”) a detailed plan

outlining the nature and scope of the state’s Medicaid program.

5 1. In order to participate in the Medicaid program, a state must also designate as part

of its state plan a “single state agency” within the state to administer the state’s Medicaid

program. See 42 U.S.C. 6 1396a(a)(5).

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52. At all times relevant hereto, New York State has had in effect a state plan for

medical assistance (the “State Plan”) approved by CMS or its predecessor.

53. At all times relevant hereto, New York State has designated DOH as the “single

state agency” to administer and supervise the State Plan. See N.Y. SOC. Serv. Law

0 363-a.

54. As the “single state agency” administering and supervising the State Plan, DOH

must maintain the State Plan in conformity with federal law and, in particular, Title XIX of the

Social Security Act. See N.Y. SOC. Serv. Law 3 363-a(1) and 42 U.S.C. 0 1396.

5 5 . While Title XIX gives the states some flexibility to develop their own medical

assistance programs, states are obligated by Title XIX of the Social Security Act to comply with

approximately 100 procedural and substantive requirements.

56. One of the requirements with which states are required to comply is known as the

“quality of care” clause of Section 30(A) of the Social Security Act, 42 U.S.C.

fj 13962(a)(30)(A) (“Section 3O(A)”). It provides that a state’s Medicaid plan has to ensure that

reimbursement payments are consistent with efficiency, economy, and quality of care. The

relevant part of Section 30(A) states:

A state plan for medical assistance must . . . provide such methods and procedures relating to the utilization of, and payment for, care and services available under the plan . . . as may be necessary . . . to assure that payments are consistent with efficiency, economy, and quality of care . . . . Section 30(A) also has an “equal access” requirement. The “equal access” clause 57.

of Section 30(A) requires that states reimburse health care providers at rates that are high enough

to ensure that services are no less available to Medicaid beneficiaries than they are to the general

public in the same geographic area. The relevant part of Section 30(A) states:

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A state plan for medical assistance must . . . provide such methods and procedures relating to the utilization of, and payment for, care and services available under the plan . . . as may be necessary . . . to assure that payments . . . are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.

58. Federal regulations promulgated under Section 30(A) expressly require DOH to

ensure that payments to providers of Medicaid services are “sufficient to enlist enough providers

so that services under the plan are available to recipients at least to the extent that those services

are available to the general population.” 42 C.F.R. 8 447.204.

59. Another of the federal requirements with which state Medicaid plans are required

to comply is set forth in 42 U.S.C. 0 13962a(a)(l9). It requires a state’s Medicaid plan to

“provide such safeguards as may be necessary to assure that eligibility for care and services

under the plan will be determined, and such care and services will be provided, in a manner

consistent with simplicity of administration and the best interest of recipients.”

60. When a state seeks to amend its state plan, federal regulations require that it do so

in accordance with 42 C.F.R. 3 430.12(c) which requires that the state submit amendments to

CMS promptly so that CMS can determine whether the plan continues to meet the requirements

for approval.

61. Federal regulations further require that, in order to obtain approval of a plan

change in payment methods and standards, a state must present findings to CMS establishing

that, inter alia, (a) the revised payment rates “are reasonable and adequate to meet the costs that

must be incurred by efficiently and economically operated providers to provide services in

conformity with applicable State and Federal laws, regulations, and quality and safety

standards,” 42 C.F.R. 9 447.253(b)( l)(i); and (b) the state employ “procedures under which the

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data and methodology used in establishing payment rates are made available to the public,” 42

C.F.R. 3 447.253(b)( l)(iii)(C).

62. In making changes to New York State’s Medicaid reimbursement methodology to

implement Part H of Chapter 59 of the Laws of 201 1, neither the Legislature nor DOH took into

consideration or assessed the effect of the nursing facility Medicaid reimbursement rate cuts on

Section 30(A)’s quality of care and equal access requirements. They also did not take into

account simplicity of administration or the best interest of recipients. Rather, the rate cuts were

motivated solely by one thing - a desire to slash the State’s budget by a predetermined amount.

B. New York’s Medicaid Nursing Home Reimbursement Methodology Through 2006

63. Under New York law, the responsibility for determining and establishing the

Medicaid reimbursement methodology and rates based thereon for nursing homes is vested by

law in the Commissioner of Health of the State of New York, pursuant to Article 28 of the Public

Health Law and, more particularly, $3 2807 and 2808 thereof, except in instances where the New

York State Legislature itself has chosen to prescribe such methodology by law rather than

regulation.

64. Under $ 2807(3) of the Public Health Law - and in order to comply with federal

law - Defendant was required to establish Medicaid rates for nursing homes that are “reasonable

and adequate to meet the costs which must be incurred by efficiently and economically operated

facilities.”

65. Pursuant to Public Health Law 3 2807(3), DOH must certify the Medicaid rates

for nursing homes to the State’s Director of Budget. Section 2807(3) provides that, in making

such certification, the Commissioner of Health shall certify that “the proposed rate schedules for

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payments to hospitals for hospital and health-related services are reasonable and adequate to

meet the costs which must be incurred by efficiently and economically operated facilities.”’

The methodology that the State is required to use to establish and determine 66.

Medicaid reimbursement rates for nursing homes such as Plaintiffs’ is set forth in regulations

adopted by the New York State Hospital Review and Planning Council (now known as the

Public Health and Health Planning Council), and approved by the Commissioner of Health.

Those regulations are contained in Subpart 86-2 of Title 10 of the Official Compilation of Codes,

Rules and Regulations of the State of New York. 10 N.Y.C.R.R. 86-2.1 et seq. (“Subpart 86-2”).

Nursing facilities in New York are reimbursed for providing services to Medicaid recipients

based upon rates set on a per-diem per-patient basis. The rates take into account the particular

facility’s costs and the acuity level of its patients, known as the facility’s “case mix.”

67. For rates effective on and after January 1, 1986, the State of New York adopted a

prospective Medicaid reimbursement methodology in which the operating cost component of a

nursing home’s reimbursement rate (as distinguished from the capital cost component) was based

upon costs grouped into “direct” services (such as nursing and related services), and “indirect”

services (such as housekeeping and administration) that were subject to a “corridor,” defined by

a maximum ceiling and minimum floor or base, such that a facility would be reimbursed its

actual costs if those costs were within the corridor. If operating costs were above the ceiling, the

operating cost component of a facility’s rate was reduced to the ceiling, On the other hand, if

costs were below the base, the operating cost component of a facility’s rate was raised to the

minimum base.

The definition of “hospital” in Article 28 of the Public Health Law includes 1

nursing facilities.

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68. Under this methodology, set forth in Subpart 86-2, the operating costs reported by

a facility were further adjusted to account for variances in costs among different regions of the

State, as well as differences in the case-mix of patients - meaning their acuity of care or how

sick they are.

69. Costs were also adjusted by an inflation, or “trend,” factor to account for inflation

between the “base period” (when costs were reported) and the actual rate period when rates were

to be paid.

70. The calculation resulted in creation of a per diem rate which would be paid to

each facility upon its submission of a bill to the Medicaid program for each day that each

Medicaid-eligible patient resided in the facility during the rate period. The per diem rate varied

from facility to facility, depending on its particular costs and case mix.

71. Under the methodology described in paragraphs 56 through 59 above, and for all

periods prior to April 1,2009, a facility’s particular case-mix was determined based upon its

entire resident population, not just its Medicaid residents.

72. The methodology described above adopted calendar year 1983 as the original

“base period.” However, new facilities and facilities that underwent transfers of ownership to

non-related parties were entitled to have the operating cost component of their rates calculated

based on operating costs incurred during the first 12-month period during which they

experienced an overall average occupancy of 90%. 10 N.Y.C.R.R. 0 86-2.2(e) as in effect prior

to January 1,2007.

73. Upon information and belief, during the period from 1986 through 2006, the

methodology described above, as adjusted from time to time between 1986 and 2006, was used

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to calculate rates, and this methodology, as adjusted from time to time between 1986 and 2006,

was approved and accepted by CMS as part of the State Plan, as required by Federal law.

C. The 2006 and 2007 Changes in Methodology -

74. In 2006, the New York State Legislature enacted, and then-Governor Pataki

signed into law, Part C of Chapter 109 of the Laws of 2006 (the “2006 Revision”) adding, inter

alia, subdivision 2-b to Public Health Law § 2808. This addition significantly changed New

York State’s methodology for reimbursing nursing homes under the Medicaid program.

75. Subdivision 2-b of 8 2808 of the Public Health Law, as added pursuant to 5 47 of

the 2006 Revision effective January 1,2009, provided that the operating cost components of

Medicaid reimbursement rates to be paid to nursing homes in New York State were to be

calculated based upon 2002 base year costs (except for any facilities whose rates were already

being determined on a base year more recent than 2002 because of a change in ownership or

because it was a new facility). This provision, colloquially known as the “rebasing provision,”

was a significant change in New York State’s reimbursement methodology which previously had

based the operating cost component of a facility’s Medicaid reimbursement rate on 1983

reported costs (except for new facilities or those with a qualified change of ownership).

76. The rebasing provision was not applied to all nursing homes. Any facility which,

as a result of the new methodology, would receive a Medicaid reimbursement rate lower than its

current rate (as adjusted for inflation) would not be subject to rebasing. This provision was

colloquially known as the “hold harmless” provision.

77. The bill that became the 2006 Revision was passed by the Legislature and in June

2006 it was signed into law by the Governor.

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78. Pursuant to Public Health Law Q 2808(2-b)(g), as added by Q 36 of Part C of

Chapter 58 of the Laws of 2007 (the “Laws of 20077, the operating cost component of nursing

homes’ Medicaid reimbursement rates for periods commencing on and after April 1,2009 was to

be further adjusted by using a case-mix comprised “only of the number of patients properly

assessed and reported in each patient classification group and eligible for [Medicaid],” rather

than a case-mix of all residents within a facility, as had theretofore been required.

79. Upon information and belief, the Director of the Budget and/or other State

officials estimated that, as a result of the changes adopted by the Legislature and signed into law

pursuant to the 2006 Revision, the aggregate State-wide annualized increase in Medicaid

reimbursement to all nursing homes in 2009 would be approximately $460 million above the

aggregate amount paid in 2006. This increase was due, in large part, to (a) the effect of using

2002 costs instead of 1983 costs pursuant to the rebasing provision, and (b) the implementation

of the “hold harmless” provision.

80. In adopting the 2006 Revision, the Legislature did not place any cap or limit on

the aggregate amount of any increase in the Medicaid reimbursement due nursing homes on and

after January 1,2009.

8 1. The $460 million estimate of the cost of 2009 Medicaid rate increases statewide

did not include an anticipated reduction in expenditures attributable to the changeover from a

case-mix based on all patients in the nursing facility to a case-mix based only on the acuity of

illness of Medicaid-eligible patients in the facility that would become effective April 1,2009.

Upon information and belief, the Director of the Budget and/or other State officials initially

estimated that this changeover would save the State approximately $250 million, leaving

approximately $2 10 million unfimded.

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82. Paragraph (a) of subdivision 2-b of Section 2808 of the Public Health Law, as

added by 0 47 of the 2006 Revision, further provided “transitional” rates for calendar years 2007

and 2008 to bridge the gap between rates paid under the methodology that had existed through

December 3 1,2006 and the new rebasing methodology that was to take effect on January 1,

2009.

83. Paragraph (a)@) of subdivision 2-b of 6 2808 of the Public Health Law, as added

by 0 47 of the 2006 Revision, provided that (a) the aggregate additional amount to be paid

statewide to nursing homes in 2007 (as distinguished from 2009) would be limited or “capped”

at $137.5 million over and above the aggregate statewide amount paid in 2006, and (b) for 2008

(as distinguished from 2009), the aggregate statewide annual additional amount to be paid was

limited to $167.5 million over and above the aggregate expenditures made to reimburse all

nursing homes in New York State during calendar year 2006.

D. The 2008 Plan Amendment

84. Upon information and belief, the State of New York obtained approval from CMS

in 2008 of an amendment to the State Plan concerning the changes in the methods and standards

for reimbursing nursing homes pursuant to the 2006 Revision, and thereafter Plaintiffs were

reimbursed by the Medicaid program for services provided to Medicaid recipients in 2007 and

2008 in accordance with the 2006 Revision.

8 5 . Under Public Health Law 0 2807(7), the Commissioner of Health is required to

notifj nursing homes at least 60 days in advance of the effective date of their Medicaid

reimbursement rates.

86. On or about December 8,2008, DOH advised each of Plaintiffs of its facility-

specific Medicaid reimbursement rates for nursing facility services for the period commencing

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January 1,2009, indicating that the rate reflected the rebasing provisions implemented by the

2006 Revision and made effective January 1 , 2009.

87. In reliance upon the rates adopted in accordance with the 2006 Revision, the State

Plan Amendment approved by the Federal government in 2008, and the provider agreements

they had executed with the State pursuant to 42 U.S.C. 8 1396a(a)(27) and 42 C.F.R. 431.107,

each Plaintiff provided nursing facility services to eligible Medicaid recipients for the period

commencing January 1 , 2009, and each continues to provide nursing facility services to

Medicaid recipients.

88. On or about April 7,2009, then-Governor Paterson signed into law Chapter 58 of

the Laws of 2009. Part D of Chapter 58 of the Laws of 2009 enacted the “Long-Term Care

Reform Act” which (a) limited or “capped” the additional amount to be paid in Medicaid

reimbursement to nursing homes pursuant to the 2006 Revision for the period from April 1 , 2009

through March 3 1 , 20 10 at $2 10 million and (b) eliminated the “trend factor” (or inflation

adjustment) that otherwise would have been applied to such rates for the period from April 1,

2009 through March 3 1,2010. (See Exhibit 1 hereto.) To make sure additional reimbursements

were capped at $21 0 million, the statute simply directed the Commissioner of Health and

Director of the Budget to “make such proportional adjustments to such rates as are necessary to

result in an increase of such aggregate expenditures of two hundred ten million dollars

($2 10,000,000). . .”

89. Although Chapter 58 of the Laws of 2009 was signed into law, because the

$2 10 million cap and elimination of the trend factor represented changes to the State’s Medicaid

plan, they had to be approved by CMS before they could be put into effect. Upon information

and belief, CMS did not approve those changes and, up until June 201 1 , they had not been

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implemented. But, in June 20 1 1, these two changes in the State’s Medicaid reimbursement

methodology were implemented retroactively, and a series of other equally drastic changes were

made at the same time. Despite CMS’s failure to approve the earlier - and less extreme -

changes that the State had proposed, CMS approved the changes provided for in the Laws of

201 1.

E. The Directive to Reduce Medicaid Reimbursement Rates

90. Within days of his inauguration as Governor, Defendant Cuomo issued Executive

Order No. 5 establishing the Medicaid Redesign Team. Executive Order No. 5 states, among

other things, that “New York faces serious financial challenges in achieving a balanced budget in

the 20 1 1-20 12 Fiscal Year” and “New York State’s current fiscal constraints necessitate specific

budget reductions for Medicaid spending.”

91. The Medicaid Redesign Team was given the task of “conducting a comprehensive

review of and making recommendations regarding the Medicaid program, which shall include

specific cost saving and quality improvement measures for redesigning the Medicaid program to

meet specific budget reductions for Medicaid spending.”

92. On February 1,201 1, the Governor issued his proposed budget. It called for

initiatives that would reduce Medicaid spending by $2.85 billion in 201 1-2012 and by

$4.6 billion in 20 12-20 13. Armed with this bottom line, the Medicaid Redesign Team set about

making changes in the State’s Medicaid plan that would yield the desired reduction in spending.

93. The proposals that the Medicaid Redesign Team made to reduce Medicaid

spending on nursing facilities did not take into account New York’s obligations under Title XIX

of the Social Security Act.

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94. The Medicaid Design Team’s proposals were enacted into law in the final 201 1-

12 State budget. McKinney’s New York Laws, Chapter 59 of Laws of 201 1, $0 3-4. They

provide for the following changes, among others, which are described in greater detail below:

(a) they impose a retroactive “scale back” modifying the 2009 and 2010

reimbursement rates to limit the aggregate increase in Medicaid reimbursement payments to

$210 million over the payments in the prior rate periods, and provide that, if the increase in

payments would otherwise exceed the $2 10 million cap, proportional downward adjustments

have to be made to all nursing facilities’ payments - including the payments to facilities whose

reimbursements were reduced, rather than increased, under the changed methodology - SO that

the total $2 10 million cap on increases is not exceeded;

(b) they establish a new method for determining the facility’s “case-mix

index” which limits the patients included in the mix to only those actually eligible to receive

Medicaid, thereby reducing reimbursement payments by removing patients likely to have higher

acuity levels;

(c) they retroactively eliminate the trend factors - or inflation adjustments -

beginning in 2008;

(d) they change the base year used to determine a nursing facility’s expenses

from 1983 to 2002; and

(e) they place a $50 million cap on appeals of erroneous rate computations

and allowing the Commissioner to prioritize which appeals may be prosecuted, thereby depriving

some nursing facilities of an appellate remedy.

F. Notice to Plaintiffs of New Rates

95. On June 20,201 1, DOH issued letters to nursing facilities, including Plaintiffs,

describing the changes in the State Plan (the “June 201 1 Letter”). (A copy of the June 201 1

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Letter is annexed hereto as Exhibit 2.2) The June 201 1 Letter informed each nursing facility

about certain aspects of its Medicaid reimbursement rates effective for rate periods April 1,2009,

May 1,2009, July 1,2009, January 1,201 0, April 1,20 10 and January 1,201 1, and stated that

the rates were available on the Health Commerce System, an internet-based service established

by DOH for communications with New York health care providers.

96. The rates reflected in the June 20 1 1 Letter constitute an unprecedented retroactive

promulgation of new rates more than two years after Plaintiffs had already provided services to

Medicaid beneficiaries under rates promulgated earlier, and are improper and unlawful in the

following respects:

(1) Scale Back Adjustment

Upon information and belief, the Director of the Budget and/or other State 97.

officials estimated that the cost to the State of the 2009 Medicaid rate increases as a result of

“rebasing” (which, subject to the “hold harmless” provision, changed the base year used to

compute a facility’s costs from 1983 to 2002) was approximately $850 million, not $460 million

as had earlier been estimated, and the savings to the State from the changeover to a Medicaid-

only case mix was approximately $475 million, not $250 million as estimated. Accordingly,

when Defendants realized that the unfunded amount was $375 million, not $2 10 million, they

determined to adjust Medicaid reimbursement rates downward by another $165 million so that

the increased State spending was limited to $2 10 million - the amount originally projected for

the increase.

Each nursing facility receiving the June 201 1 Letter also received rate sheets showing the effect of the changes on the facility beginning with the April 2009 rate period.

2

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98. As a result, Section 96 of the Laws of 201 1 provides that Medicaid

reimbursement to nursing facilities for the period April 1,2009 through March 31,2010 as a

result of rebasing and application of the Medicaid-only case mix methodology is to be limited to

$210 million in the aggregate. In addition, Section 96 of the Laws of 201 1 provides that annual

rates for the period from April 1 , 20 10 through March 3 1 , 20 12 cannot reflect an increase or

decrease from the aggregate total expenditures calculated for the period April 1,2009 through

March 3 1 , 201 0, ignoring the fact that price inflation will naturally occur during this period.

99. To implement Section 96 of the Laws of 201 1 , DOH, in effect, made adjustments

to the reimbursement payment due each nursing home - without regard to quality of care or

access - by dividing the total amount it had budgeted for Medicaid reimbursement and adjusting

the total in proportion to each nursing home’s share of Medicaid revenue as of April 1 , 2009.

Thus, the June 201 1 Letter states at page 8:

Chapter 58 of the Laws of 2009 and Chapter 59 of the Laws of 20 1 1 requires rates for the April 1 , 2009 through March 3 1 , 20 10 period include proportional adjustments which reflect the rebasing provisions of Chapter 109 of the Laws of 2006 and Medicaid only case mix implemented by Chapter 58 of the Laws of 2007 do not result in an increase in aggregate total expenditures (excluding capital rates and prior to trend adjustments) that is not more or no less than $21 0 million.

The effective date of the State Plan Amendment related to this provision, in accordance with Federal Public Notice requirements, is May 1,2009. Thus, the April 1,2009 through April 30,2009 rates provided herein do not reflect this adjustment. The rates effective May 1,2009 through March 31,2010 are adjusted such that the aggregate adjustment in rates in effect for April 1,2009 through March 31,201 0 result in aggregate Medicaid expenditures that are no more or no less than $210 million. The proportional adjustments to such rates were determined using each facility’s proportionate share of their estimated Medicaid revenue from the applicable rates that reflect the impact of rebasing and Medicaid only case mix.

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a a

Those Chapter Laws also provide that annual rates for the April 1, 2010 through March 3 1,201 1 and April 1,201 1 through March 3 1, 2012 do not reflect an increase or decrease from the aggregate total expenditures calculated above for the April 1,2009 through March 3 1,20 10 period.

The rate adjustments implemented to adjust spending to the required amount is reflected as the “scale back adjustment” on the applicable rate sheets. The final calculated scale back adjustments are not subject to subsequent correction or reconciliation.

(Emphasis added.)

100. There are two problems with the scale back:

(a) First, to satisfl the Governor’s budget objective, it arbitrarily reduces

reimbursement payments, without regard to quality of care or equality of access. In 20 lo, for

example, the amount of the scale back was more than $500 million; and

(b) Second, not all nursing facilities operating in New York received an

increase in their reimbursement payments as a result of the change in the Medicaid

reimbursement methodology adopted in the Laws of 20 1 1. Some nursing facilities were

adversely affected by the change in methodology. However, in implementing the $210 million

scale back, New York applied it to proportionately to all nursing facilities in the State, including

those whose payments were reduced under the change in methodology. Thus, to limit increases

to $2 10 million in 20 10, the Medicaid reimbursement payments that would otherwise have been

due nursing facilities in the State had to be reduced retroactively by a total of more than $500

million. Since the scale back was designed to limit the amount of the increases in Medicaid

reimbursement that the State has to pay, there is no rational basis for applying the scale back to

nursing facilities whose payments were decreased.

101. The scale back does not comply with federal law because it takes the

reimbursement rates that the State determined were appropriate for a particular nursing home

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and cuts them by whatever amount happens to be necessary to ensure that Medicaid spending

does not increase by more than $21 0 million.

(2) Medicaid-only Case Mix Methodology

The case mix index measures patient acuity at a nursing facility; the higher the

acuity level, the greater the reimbursement rate, In its June 20 1 1 Letter, DOH included for the

first time adjustments reflecting the Medicaid-only case mix required by Public Health Law

$ 2808(2-b)(g). See Exhibit 2, June 201 1 Letter, p. 3.

102.

103. The adjustments to Plaintiffs’ Medicaid reimbursement rates as a result of the

case-mix changes made pursuant to the Laws of 201 1 do not take into account the mandate of

$36 of Part C of Chapter 58 of the Laws of 2007 to use a case mix of Medicaid-eligible

individuals in computing the operating cost component of nursing homes’ Medicaid

reimbursement rates for periods beginning April 1,2009. Rather than computing this component

of the rate based on individuals who are eligible for both Medicare (the federal program covering

nursing facility services for qualified beneficiaries) and Medicaid, Defendant included in the

computation only those individuals whose care is actually being paid for by Medicaid - ignoring

those who are Medicaid-eligible but whose care is temporarily paid for by Medicare.

104. The intended effect of this change was to reduce reimbursement payments by

excluding patients likely to require greater care.

105. Moreover, rather than prospectively applying the Medicaid-only case mix

methodology to 201 1 rates, as required by Public Health Law $ 2807-c(10)(c)(3), DOH

announced it would instead apply the methodology retroactively beginning April 1,2009, in

direct violation of Public Health Law sec. 2807-c( lO)(c)(3). The amounts calculated as “owing”

from the reduction of rates paid to Plaintiffs are being “recouped” from prospective payments in

201 1.

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m

(3) Banking AdiustmenUTrend Factor

In Matter of Blossom View Nursing Home v. Novello, 4 N.Y.3d 581 (2005) 106.

(“Blossom View ’7, the Court of Appeals held that the methodology for establishing Medicaid

reimbursement rates for nursing homes calls for a per diem rate that is prospective in nature and

takes into account both capital costs and operating costs. Operating costs consist of direct,

indirect and non-comparable items. Blossom View, supra, 4 N.Y. 3d at 585. See also 7 56

above.

107. The changes made pursuant to the Laws of 201 1 do not comport with Blossom

View because, as explained below, they set per diem rates that are not prospective.

(a) The Need to Account for Inflation

108. The operating cost component of a nursing home’s Medicaid reimbursement rate

is required to be based on allowable operating costs incurred and reported in a base year. Those

costs are then required to be adjusted to account for inflation between the base year and

applicable rate period. See Public Health Law $6 2807-c(10) and 2808(9), and 10 N.Y.C.R.R.

0 86-2.12.

109. There are two components in determining the applicable adjustment for inflation:

the first is the “trend factor,” which accounts for inflation from year to year, and the other is the

“roll factor,” which is the cumulative result of all the trend factors applicable to the individual

years occurring in the interval between a base year period and subsequent rate period. See 10

N.Y.C.R.R. 6 86-2.lO(a)(S)?

To illustrate how the trend factor and roll factor operate, if the per diem allowable operating costs (total allowable operating costs divided by total days of care provided) for a facility in base year No. 1 are $100/day and the annual trend factor for years 2, 3, and 4, are 5% 6%, and 7%, respectively, the “roll factor” for year 4 would be 1.1909 (1.05, multiplied by 1.06, multiplied by 1.07) to account for inflation between base year 1 and year 4. Accordingly, the

3

(Continued.. .)

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1 IO. Except as otherwise specifically provided by law, the Commissioner must notify

providers of their applicable Medicaid reimbursement rates at least 60 days prior to their

effective date. See Public Health Law 5 2807(7). Thus, on or about November 1 of each year,

DOH is required to notify facilities of their Medicaid reimbursement rates for the coming year.

This enables nursing facilities to budget accordingly.

1 1 1. Rates are provisional until an audit of a facility’s actual costs is performed, but,

by New York State regulation, 18 N.Y.C.R.R. 0 517.3, provisional rates become final rate

following an audit. At all times until June 201 1, nursing facilities therefore had an expectation

that their provisional reimbursement rates would only be changed based on an audit, and would

not be subject to an ex post facto adjustment in order to balance the State’s budget or for other

reasons.

112. Since Public Health Law 5 2807(7) requires that rates be issued 60 days in

advance of their effective date, it is not possible for rate setters within DOH to know precisely

what inflation will be for the following year when they set rates on or about November 1 of the

preceding year. To address this problem, the Legislature enacted Public Health Law 5 2807-~,

subdivision (1 0), paragraph c, effective for Medicaid reimbursement rates established on and

after April 1,2000. Subparagraphs 1,2 and 3 of Public Health Law C j 2807c( 1 O)(c) provide:

a. For rate periods on and after April first, two thousand, the commissioner shall establish trend factors for rates of payment for state governmental agencies to project for the effects of inflation except that such trend factors shall not be applied to services for which rates of payment are established by the commissioners of the department of

(Continued.. .)

operating costs component of the rate in year 4 would be $1 19.09 ($1 00 in the base year multiplied by the 1.1909 roll factor).

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mental hygiene. The factors shall be applied to the appropriate portion of reimbursable costs.

b. In developing trend factors for such rates of payment, the Commissioner shall use the most recent Congressional Budget Office estimate of the rate year’s U.S. Consumer Price Index for all urban consumers (CPI-U) published in the Congressional Budget Office Economic and Budget Outlook after June 1 of the rate year prior to the year for which rates are being developed.

c. After thefinal U.S. Consumer Price Index (CPI) for all urban consumers is published by the United States Department of Labor, Bureau of Labor Statistics, for a particular rate year, the Commissioner shall reconcile such final CPI to the projection used in subparagraph (2) of this paragraph and any difference will be included in the prospective trend factor for the current year.

(Emphasis added.)

1 13. The statutory methodology set forth above requires that, in setting rates for an

ensuing year, DOH shall use as a “projected” trend factor the estimated Consumer Price Index

for all urban consumers (CPI-U) for that next year as forecast by the Congressional Budget

Office in June of the year preceding the rate year. See Public Health Law, 0 2807-c( 1 O)(C)(~)

quoted above.

1 14. After the rate year is over and the actual rate of increase in the CPI-U is known,

which occurs in early January of the following year and is published by the Bureau of Labor

Statistics, the reconciliation of the difference between the estimated and the final CPI-U for the

rate year is made as an adjustment to the then-current year’s rate. See Public Health Law,

0 2807-~( 1 O)(C)(~).

1 15. The statutory methodology therefore requires that, in setting rates in November of

Year 1 for the upcoming Year 2, DOH must use as a proxy for the trend factor for Year 2 the

Congressional Budget Office’s estimate made during Year 1 with regard to the anticipated

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change in the CPI-U during Year 2; then, after Year 2 is over, and the CPI-U for Year 2 is finally

determined by the Bureau of Labor Statistics and published early in Year 3, the difference

between the projected and actual trend factor for Year 2 is reconciled and the adjustment is made

to Year 3’s trend factor. Such reconciliation is referred to as the “banking adjustment.”

1 16. For example, if in June of Year 1, the Congressional Budget Office were to

estimate that the projected growth in the CPI-U for Year 2 was 4%, then in November of Year 1,

in calculating and notifying Plaintiffs of their upcoming rates for Year 2, the rate setters at DOH

would apply a trend factor of 4% to account for anticipated inflation. If, after Year 2 had

concluded, and the Bureau of Labor Statistics determined early in Year 3 that the actual CPI-U

increase for Year 2 had been only 3% rather than the originally estimated 4%, DOH would

reconcile the two, and the difference of negative 1 % would be applied to the trend factor then in

effect for Year 3. The reconciliation would therefore be applied prospectively to Year 3, rather

than retroactively to Year 2. Thus, if the trend factor in effect for Year 3 would otherwise have

been 5%, it would be reduced by 1% to 4% to reflect the reconciliation of the 1% difference

between the projected trend factor and the actual final trend factor in Year 2.

117. After 2001 and until 2009, this procedure, as described in the immediately

preceding five paragraphs, was how DOH made the annual “banking adjustment.”

1 18. DOH subsequently departed from the statutory methodology without any change

in law.

(b) The Original Trend Factor for 2009

119. By letter dated December 8,2008 (the “December 2008 Letter”), a copy of which

is annexed hereto as Exhibit 3, DOH advised Plaintiffs of their Medicaid reimbursement rates to

be effective January 1,2009. Those rates were based on 2002 base year costs, as mandated by $

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47 of the 2006 Revision, which added subdivision 2-b to Public Health Law 0 2808. This statute

is commonly referred to as the “rebasing” statute. As explained in Paragraph 75 above, Public

Health Law 0 2808(2-b) substituted 2002 for 19834 as the base year of 1983 for calculating

Medicaid reimbursement rates unless any facility’s rate would be adversely affected by the

change to 2002. If a nursing facility’s rate would have been reduced as the result of the switch

to a new base year, the facility was held harmless and continued to use the 1983 base year.

120. On page 6 of the December 2008 Letter, DOH explained how it had applied the

roll factor for 2009 in accounting for inflation between 2002 and 2009, using 2002 as a base

year, as had been mandated by the 2006 Revision, 0 47.

121. The roll factor used was 1.1833, which was the product of all the trend factors

mandated by the Legislature from 2002 through 2009 (1.023 or 2.3% for 2003; multiplied by

1.027 or 2.7% for 2004; multiplied by 1.034 or 3.4% for 2005; multiplied by 1.0295 for 2006 or

2.95%; multiplied by 1.021 or 2.1% for 2007; multiplied by 1.015 or 1.5% for 2008; and

multiplied by 1.02 1 or 2.1 % as estimated for 2009). See Exhibit 3, p. 6 , and Exhibit 4, which is a

page from a sample 2009 rate sheet issued by DOH.

122. As set forth on Page 6 of the December 2008 Letter, the estimated CPI-U for 2009

used to calculate the rate was 2.1 % even though the actual estimate by the Congressional Budget

Office made in June of 2008 for 2009 was 3.1 %, as indicated on the top right hand box on the

chart on page 6 of the December 2008 Letter.

Prior to the enactment of Chapter 109 of the Laws of 2006, facilities which came into existence after 1983 or had undergone a change of ownership were able to use the year in which that transaction occurred rather than 1983. See 10 N.Y.C.R.R. $0 86-2.2(e), 86-2.10(k)(5) and 86-2.15.

4

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123. In setting rates for 2009, DOH reduced the projected trend factor by 1% from the

Congressional Budget Office estimate of 3.1% to 2.1% pursuant to Section 5 of Part F of Chapter

497 of the Laws of 2008, annexed hereto as Exhibit 8, which states, in relevant part, as follows:

“notwithstanding paragraph (c) of subdivision 10 of section 2807-c of the public health law . . . the Commissioner of Health shall apply a trend factor projection equal to the otherwise

applicable trend factor projection attributable to the period January 1 , 2009 through December

3 1,2009 in accordance with paragraph (c) of subdivision 10 of 0 2807-c of the Public Health

Law less one percent” (emphasis supplied).

124. Plaintiffs do not contest the use of the 2.1% projection for the 2009 trend factor as

set forth in the December 2008 Letter (Exhibit 3) and the rate sheet that accompanied it.

125. Subsequent to the issuance of the December 2008 Letter setting forth Medicaid

reimbursement rates effective January 1 , 2009, however, the Legislature enacted 0 3 of Part I of

Chapter 2 of the Laws of 2009 (annexed hereto as Exhibit 5) , which amended Public Health Law

3 2808(2-b)(b)(i), as originally added by tj 47 of 2006 Revision, deferring the effective date of

rebasing from January 1,2009 to April 1,2009.

126. As a result of that legislatively-mandated deferral, DOH recalculated all of

Plaintiffs’ Medicaid reimbursement rates that had been in effect as of January 1 , 2009 and

replaced them with rates that had been in effect as of December 3 1 , 2006, subject to trending for

inflation from 2006 to 2009. See L. 2009, chapter 2, Part I, 0 2, annexed hereto as Exhibit 1.

127. This legislative change meant that DOH had to go back and recalculate the rates

effective January 1 , 2009 that had originally been published with the December 2008 Letter,

using the old base years that had previously been in effect to calculate Plaintiffs’ 2006 rates

(either 1983 or a subsequent year prior to 2002, if a facility had either subsequently opened for

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the first time after 1983 or had undergone a change of ownership after 1983). See footnote 3,

supra.

128. Finally, by letter dated September 16,2009 (the “September 16,2009 Letter”), a

copy of which is annexed hereto as Exhibit 6, and pursuant to L. 2009, Chapter 2, Part I, 9 2,

DOH notified Plaintiffs of revised Medicaid reimbursement rates effective January 1 , 2009

which superseded the rates that had previously been effective as of January 1,2009 pursuant to

the Department’s December 2008 Letter (Exhibit 3, p. 2).

129. The September 2009 Letter explained that, although the relevant base year had

been changed back from 2002 to 1983 or some other date before 2002 (December 2008 Letter, p.

2), the trend factor incorporated into the roll factor would still be 2.1 % pursuant to Chapter 497

of the Laws of 2008.

130. This trend factor was in fact the very same 2.1% that had originally been used to

calculate the roll factor in the publication of the original January 1,2009 rates as described in the

December 2008 Letter (Exhibit 3, p. 6).

13 1. The September 2009 Letter also noted that the 2009 roll factor included the

banking adjustment necessary to reflect the final, as distinguished from the projected, 2008 trend

factor, as required by Public Health Law 0 2807-c( 10)(c)(3).

132. For purposes of this case, Plaintiffs have no dispute with how the trend factor for

2009 was applied to calculate the Plaintiffs’ 2009 rates effective January 1 , 2009. As described

in the September 2009 Letter, DOH correctly (a) included the projected estimate of the CPI-U by

the Congressional Budget Office made in 2008 as required by Public Health Law 5 2807-

c( 1 O)(c)(2); (b) reduced that estimate by 1 % as required by Section 5 of Part F of Chapter 497 of

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the Laws of 2008; and (c) adjusted the 2009 trend factor further to apply the reconciled final

2008 trend factor banking adjustment as required by Public Health Law 0 2807-c( 10)(~)(3).

133. Those rates were subsequently implemented and paid to Plaintiffs.

(c) DOH Announces its Intention to Further Revise the 2009 Banking Adjustment

134. On April 15,2010, DOH convened a meeting of the so-called Nursing Home

Medicaid Reimbursement Workgroup, which had been established by the Legislature pursuant to

0 48 of the 2006 Revision. The Workgroup’s mission was to investigate and develop

recommendations pertaining to Medicaid reimbursement for residential health care facilities.

135. That Workgroup consists of DOH staff and representatives of statewide

associations representing the residential health care facility industry in New York State, as well

as representatives of organizations representing employees. See L. 2006, Ch. 109, Part C, 0 48.

136. At the April 15,2010 meeting of the Workgroup, DOH distributed a handout, a

copy of which is annexed hereto as Exhibit 7, announcing its intention to make a 3.5% negative

“banking adjustment” to the nursing home Medicaid reimbursement rates that had been issued in

conjunction with DOH’S September 2009 Letter. See Exhibit 7, pp. 5, 6, 7, and 9. The estimated

aggregate impact of this adjustment was $53 million in reduced reimbursement to nursing homes

statewide. See Exhibit 7, p. 5.

137. DOH arrived at the negative 3.5% banking factor adjustment by reconciling the

2.1 % projected trend factor used to calculate the 2009 rates and the final average CPI-U for 2009

it claimed was determined by the Bureau of Labor Statistics, which was -.4%, resulting in a

difference of -2.5% (-.4% minus 2.1%). In addition, DOH deducted another 1% to arrive at

-3.5%, by invoking Section 5 of Part F of Chapter 497 of the Laws of 2008 (Exhibit 8 hereto),

which it claimed authorized not only a 1 % deduction from the “projected” CPI-U used to

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calculate 2009 rates pursuant to Public Health Law tj 2807-c( 1 O)(c)(2), but also another 1 %

deduction “final” actual CPI-U, as determined by the Bureau of Labor Statistics as part of the

reconciliation process set forth in tj 2807-c( 1 O)(c)(3) of the Public Health Law.

138. On January 15,2010, the Bureau of Labor Statistics issued a press release stating

that for the 12-month period ending December 2009, the CPI-U was a positive 2.7% - and not,

as DOH claimed, negative .4%. (A copy of the press release is annexed as Exhibit 9.)

139. In addition, rather than prospectively applying the negative banking adjustment to

2010 rates, as required by Public Health Law $ 2807-c(10)(c)(3), DOH announced that it would

instead apply the banking adjustment retroactively to the first calendar quarter of 2009 rates, in

direct violation of Public Health Law tj 2807-c(10)(c)(3).

140. On information and belief, DOH sought to depart from the provisions of Public

Health Law $ 2807-c( 1 O)(c)(3) and apply the banking factor adjustment retroactively to the first

calendar quarter of 2009, rather than prospectively to the trend factor applicable to 201 0, because

it knew no trend factor adjustment would affect the amount actually paid out by DOH after April

1,2009 for the following reasons:

a) Pursuant to Section 2 of Part D of Chapter 58 of the Laws of 2009, any

adjustment to rates on and after April 1 , 2009 and prior to March 3 1 , 20 10 would have been

negated because that law required that, regardless of any other adjustment, the aggregate

amount to be spent on the operating cost component of rates paid to residential health care

facilities by the State between April 1,2009 and March 3 1,201 0 was to be no more or less than

$2 10 million above what would have been the annual expenditures based on rates in effect as of

March 3 1 , 2009; and

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b) On December 9,2009, DOH notified the public that it intended not to

apply any trend factor to rates effective on and after January 1,2010 (State Register, Dec. 9,

2009 at 93); and this was, in fact, implemented pursuant to legislation enacted into law on June

9,2010 (L 2010, Ch. 109, Part B, fj 1).

14 1. Because the 20 10 legislation eliminated the trend factor after January 1,20 10,

there was no means available to apply the 2009 banking adjustment to 201 0 rates, which would

otherwise have been required by Public Health Law 0 2807-c( 1 O)(c)(3). Accordingly, on

information and belief, DOH decided to apply the adjustment to the first calendar quarter of 2009

rates even though it had no legal authority to do so.

142. Defendants’ decision to apply a -3.5% banking adjustment retroactively to the

rates for the first calendar quarter of 2009 was and is unlawful because:

a) it misinterprets the provisions of Section 5 of Part F of Chapter 497 of the

Laws of 2008, which authorized a reduction of 1% only to the otherwise applicable projected

trend factor for 2009, but not to the final actual trend factor, which, in any event, was a positive

2.7% rather than a negative .4%; and

b) it violates the express provisions in Public Health Law 0 2087-c(10)(~)(2)

and (3) mandating that any reconciled banking adjustment be applied prospectively to trend

factors for the current year, rather than retroactively to prior periods;

c) it violates the proscriptions against retroactive rate-making embodied in

Public Health Law 6 2807(7); and

d) it effectuates an unconstitutional taking of property by retroactively

divesting Plaintiffs of a right to reimbursement that was paid to them for services they have

already rendered.

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(4) Efforts to Remediate Negative Impact of Rate Adjustments

Section 97 of the Laws of 201 1 establishes a mechanism for giving certain 143.

nursing facilities relief from the adverse impact of changes to the Medicaid reimbursement

methodology. Facilities experiencing a net reduction in Medicaid reimbursement for the period

April 1,2009 through March 3 1,201 1 as a result of the 2002 rebasing methodology, the

Medicaid-only case mix methodology, and the scale back are entitled to a one-time payment in

May 201 1 of an amount equal to 50% of their net reimbursement reduction. See also Exhibit 2,

June 201 1 Letter, p. 9.

144. However, pursuant to Sec. 97 of the Laws of 201 1, facilities experiencing a net

reduction in their Medicaid reimbursement for the period April 1,2009 through March 3 1,201 1

of more than $6 million are entitled to a fbrther adjustment of their rates such that their net

reduction is reduced to zero. See also Exhibit 2, June 201 1 Letter, p. 10.

145. There is no indication in the Laws of 201 1, or anywhere else, as to why a

threshold loss of $6 million was chosen for 100% reduction of the negative reimbursement

impact. Under this provision, a facility that had a negative impact of $5,999,999.00 would

receive only a 50% adjustment, while a facility with a loss of just $1 .OO more would receive a

100% adjustment. The adjustment is therefore arbitrary and has no rational basis.

(5) Limitation on Appeals

42 C.F.R. 447.253(e), which was promulgated under Title XIX of the Social 146.

Security Act, requires that “[tlhe Medicaid agency must provide an appeals or exception

procedure that allows individual providers an opportunity to submit additional evidence and

receive prompt administrative review, with respect to such issues as the agency determines

appropriate, of payment rates.”

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147. 10 N.Y.C.R.R. 9 86-2.14 gives residential health facilities such as those operated

by Plaintiffs the right to request revisions to their Medicaid reimbursement rates.

148. Although DOH will only accept rate appeals for the correction of computational

errors or errors in data submitted by a facility prior to the computation of the rate (see 10

N.Y.C.R.R. 9 86-2.14(a)(3)), computational errors can be significant, and there are no aggregate

monetary limitations on the appeals that DOH can hear.

149. New York State’s Medicaid Redesign Team proposed an $80 million annual cap

on the processing of nursing home rate appeals for a period of four years. See Exhibit 10 hereto,

Medicaid Redesign Proposal Number 2 1, effective April 1,20 1 1. This proposal was adopted as

law in Public Health Law 9 2808( 17)(b).

150. Section 98 of the Laws of 201 1 decreased the $80 million cap to $50 million for

rate appeals processed by DOH for rate periods April 1,201 1 through March 3 I , 2012. Upon

information and belief, the amount awarded in nursing home rate appeals is generally far in

excess of $50 million or even $80 million per rate period.

15 1. In revising rates within the $50 million to $80 million fiscal limits, DOH is to

prioritize the rate appeals based on an amorphous standard that takes into consideration which

facilities are facing “significant financial hardship as well as such other considerations as the

commissioner [of health] deems appropriate.” DOH may also promulgate regulations

establishing priorities and time frames for processing rate appeals, including rate appeals filed

prior to April 1,201 1, within available administrative resources and in accordance with the Laws

of2011.

152. No mechanism for challenging DOH’S priority determinations exists.

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153. The cap on appeals leaves some nursing homes without any remedy whatsoever

when their rates are computed incorrectly. This constitutes a violation of federal regulations and

due process, and is arbitrary and irrational.

G. Failure To Comply With Federal and State Laws

154. Under 42 C.F.R. 0 447.253, in order to receive CMS approval of a state plan

change in payment methods and standards, the state Medicaid agency must make assurances

satisfactory to CMS that the rates paid for nursing facility services are sufficient to meet the

requirements of Section 3O(A). Specifically, 42 C.F.R. 9 448.253 requires the state to make

assurances that the amended rates are reasonable and adequate to meet the costs that must be

incurred by efficiently and economically operated providers to provide services in conformity

with applicable state and federal regulations, and quality and safety standards.

155. New York did not assure CMS that the rates provided for under the plan

amendment would be sufficient to satisfy state and federal regulations. For example, in response

to a CMS inquiry about how the State intended to monitor the impact of the new rates and

implement a remedy if those rates were insufficient to guarantee required access levels, New

York responded that it could assure that current access levels would be retained because it was

“currently not aware of any access issues”; “providers cannot discriminate based on source of

payment”; and, if access issues arose, it “would expect to see a marked increase in complaints”

which it would then identify and analyze.

156. Upon information and belief, CMS approved the proposed amendment of the

State Plan despite New York’s failure to provide the requisite assurances.

157. There is no evidence that New York State considered or otherwise took into

account either the “quality of care” or “equal access” provision of Section 30(A) prior to

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adopting Chapter 59 of the Laws of 201 1 or notifying the Facilities of the reduction of their

Medicaid reimbursement payments pursuant to such Laws.

158. Plaintiffs have also found no evidence that New York State took any steps to

determine how the reimbursement reduction would affect compliance with either the “quality of

care” or “equal access” provisions of Section 30(A) or the requirement of 42 U.S.C. 5 1396(a)

that a plan be in the “best interest of [Medicaid] recipients.”

159. Defendants cannot show that the new reduced Medicaid reimbursement rates, and

the “scale back,” in particular, properly reflect the costs of providing quality nursing facility

services to Medicaid-eligible individuals in the State of New York as required by Section 30(A).

There is no evidence that the new reduced reimbursement payments are “designed 160.

to enlist participation” of sufficient providers of Medicaid as required by Section 30(A).

16 1. By failing to include all Medicaid-eligible individuals (Le., those who are dually

eligible for both Medicare and Medicaid) in the case mix component of the Medicaid

reimbursement rate methodology, the State also violated New York law, specifically Public

Health Law $2808(2-b)(g), as added by Part 36 of the Laws of 2007.

H. Harm To Nursing; Homes And Their Residents

162. Under the Laws of 201 1, the new Medicaid reimbursement methodology applies

retroactively to prior rate periods dating back to April 1,2009 (except that the scale back is only

retroactive to May 1, 2009). Thus, some nursing facilities, including all of Plaintiffs, received

Medicaid payments that are more than the payments due for the prior periods under the new

methodology. These nursing facilities are now being charged back by the State for the

“overpayments” at a rate equal to either 5% or 10% of the amount of their weekly Medicaid

payments until the total “overpayments” are fully recouped. As a result, not only do Plaintiffs

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have to cope with the impact of current reimbursement payments that have been slashed due to

the scale back and other reductions, but the slashed payments are being further cut because of the

chargebacks repaying the State for the “overpayments” arising from the retroactive changes. The

Laws of 20 1 1 thus leave Plaintiffs without sufficient reimbursement payments to ensure quality

of access or equality of treatment and jeopardize Plaintiffs’ operations.

163. The chargebacks could also have disastrous collateral consequences for PIaintiffs.

The amount of the chargeback is being treated as a revenue reduction in 201 1. As such, it

reduces a Facility’s retained earnings for the year. In the case of some nursing facilities, the

reduction of their retained earnings will render them insolvent and constitute a default under their

loan covenants, impairing their ability to borrow or requiring them to accelerate payments on

outstanding loans.

164. Unless enjoined, the effect of the reduction in Medicaid reimbursement rates will

be catastrophic for Medicaid recipients throughout New York, as well as service providers like

Plaintiffs. The rate reductions will result in reimbursement being cut so drastically that nursing

facilities may be forced to curtail services; lay off employees, risking compromise to the quality

of care; where possible, discourage Medicaid admissions in favor of Medicare or private

insurance paid patients whose rates are not subject to these drastic reimbursement cuts; file for

Chapter 11 bankruptcy protection, clearly posing a danger to the orderly care of patients; or, in

some cases, cause the Facilities to cease operations altogether.

165. Unlike most private businesses, nursing homes are regulated and, in response to

drastic reductions in Medicaid reimbursement, cannot simply reduce costs proportionately. And

they obviously cannot reduce costs retroactively. There are limitations on the cost controls that

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facilities can put in place; certain staff are mandated by regulation; and, of course, when dealing

with human lives and frail elderly residents, some economies are simply impossible.

To avoid having to provide services for which they will not be fairly 166.

compensated, nursing homes in New York cannot simply opt not to accept Medicaid patients.

The State effectively requires nursing homes to accept Medicaid patients because it will not issue

a Certificate of Need authorizing a nursing facility to operate or approve a change in ownership

unless the facility agrees to accept a certain percentage of Medicaid admissions.

167. DOH, acting through the Public Health Council (now the PHHPC), has adopted

regulations requiring facilities which have submitted applications for change of ownership to

comply with so-called Medical Access Regulations requiring that they admit Medicaid patients

at a rate at least equal to 75% of the county-wide Medicaid average of Medicaid admissions. 10

N.Y.C.R.R. 0 0 670.3(~)(2). Thus, most facilities, including all of Plaintiffs, cannot simply

refuse to admit Medicaid patients.

168. The licensed operator of Plaintiff Park Gardens and its accountants have stated

that the Medicaid reimbursement rates fall far short of covering the costs of providing nursing

home services to Park Garden’s Medicaid-eligible patients. The operator has stated that he

cannot afford services sufficient to provide the level of care required by Federal regulations to

Medicaid patients where the reimbursement paid is below the actual cost of providing such care.

For the rate period commencing May 1,2009, the Medicaid reimbursement payments that Park

Gardens actually received exceeded $247 per patient per day. According to the rate sheets

provided by the State, based on the change in methodology due to the scale back and use of

Medicaid-only case mix, Park Gardens’ Medicaid reimbursement rate was reduced to about

$235.56 per patient per day from May 1,2009 to December 3 1,2009, and to about $225.31 in

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20 10. Even after giving effect to mitigation, these retroactive changes result in an

“overpayment” to Park Gardens between May 1,2009 and December 3 1,201 0 of $1,748,790

which the State is recouping from the current Medicaid reimbursement payments made to Park

Gardens - which are already about 10% lower than the 2008 Medicaid reimbursement rates - at

the rate of 10% of the weekly Medicaid reimbursement payment.

169. Absent the injunction Plaintiffs seek, frail, elderly Medicaid-eligible individuals

may lose access to the quality 24-hour skilled nursing care they require in order to “attain or

maintain the highest practicable physical, mental and psychosocial well-being of each resident,”

as required by 42 U.S.C. 3 1395i-(b)(2). See also 42 C.F.R. 3 483.25.

170. In short, there is real and immediate risk of harm to the Facilities and Medicaid

recipients due to the Medicaid reimbursement reduction implemented pursuant to the Laws of

2009.

FIRST CLAIM FOR RELIEF (Laws of 201 1 - Injunctive Relief Based on Violation of 42 U.S.C. 3 1396a(1)(30)(A)

and the Supremacy Clause)

17 1.

172.

Plaintiffs repeat and reallege Paragraphs 1 through 170 as if set forth fully herein.

Under the Supremacy Clause of the United States Constitution, U.S. Const. art.

VI, cl. 2, the Constitution “and the Laws of the United States which shall be made in Pursuance

thereof. . . shall be the supreme Law of the Land; and the Judges in every State shall be bound

thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”

173. By choosing to participate in Medicaid, the State of New York obligated itself to

comply with certain Federal statutes and regulations, including Sections 30(A).

174. Pursuant to Section 30(A), the State had a duty to consider efficiency, economy,

quality of care, and equality of access when establishing reimbursement rates. Specifically,

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Section 30(A) required New York to “provide such methods and procedures relating to . . .

payment for, care and services available under the plan . . . as may be necessary . . . to assure

that payments are consistent with efficiency, economy, and quality of care and are sufficient to

enlist enough providers so that care and services are available . . . at least to the extent that such

care and services are available to the general population in the geographic area.”

175. New York State violated Section 30(A) by implementing a Medicaid

reimbursement rate reduction without giving sufficient weight to - or even considering -the

impact of the rate reduction on quality of care or equality of access for Medicaid beneficiaries. It

also violated 42 U.S.C. 3 1396a(a)(l9) by failing to take into account the best interests of

Medicaid recipients.

176. There is no evidence that Defendants intend to comply with the requirements of

Section 30(A) or 42 U.S.C. 0 1396a(a)(19).

177. New York State’s new Medicaid reimbursement rates in general, and the scale

back adjustment in particular, do not satisfy the requirements of Section 30(A) because

reimbursement rates will not be sufficient to assure “quality of care” and “equality of access” to

services.

178. In establishing the new Medicaid reimbursement rates, New York State took

nothing into account other than budgetary considerations. The State decided the amount by

which it wanted to reduce Medicaid spending and, based solely on that number, it backed into

the reimbursement rates referred to in its June 201 1 Letter.

179. New York State’s reimbursement methodology violates the Supremacy Clause

and is therefore preempted by Federal law. By virtue of the foregoing, enforcement of the Laws

of 201 1 should be enjoined.

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180. There is no administrative remedy available to challenge the statutory and

regulatory promulgation complained of herein.

18 1. Plaintiffs have no adequate remedy at law.

SECOND CLAIM FOR RELIEF (Appeal Cap - Injunctive Relief Based on Violation of 42 C.F.R. 6 447.253

and the Supremacy Clause)

182.

183.

Plaintiffs repeat and reallege Paragraphs 1 through 18 1 as if set forth fully herein.

Federal regulations require that the “Medicaid agency must provide an appeals or

exception procedure that allows individual providers an opportunity to submit additional

evidence and receive prompt administrative review, with respect to such issues as the agency

determines appropriate, of payment rates.” 42 C.F.R. 0 447.253.

184. Section 2808( 17)(b) of the New York Public Health Law is in direct conflict with

42 C.F.R. 0 447.253. By preventing the Conmissioner of Health from considering rate appeals

in excess of an aggregate annual amount of $50 million or $80 million (depending on the year),

and permitting the Commissioner to “prioritize such rate appeals, including consideration of

which facilities the commissioner determines are facing significant financial hardship as well as

such other considerations as the commissioner deems appropriate,” Section 2808( 17)(b) does not

comply with the requirement of 42 C.F.R. 0 447.253 that the Medicaid agency provide a

procedure allowing providers to submit additional evidence and receive prompt review.

185. Section 30(A) requires that a state Medicaid plan provide methods and procedures

relating to the utilization of, and payment for, care and services under the plan as may be

necessary to assure that payments are consistent with efficiency, economy, and quality of care.

By giving priority to appeals filed by nursing facilities which are “facing significant financial

hardship,” Section 2808( 17)(b) penalizes those facilities which are operating efficiently and

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economically, and gives them no incentive to continue to do so. Accordingly, Section

2808(17)(b) also conflicts with Section 30(A).

186. Section 2808( 17)(b) of the New York Public Health Law violates the Supremacy

Clause and is therefore preempted by Federal law. By virtue of the foregoing, enforcement of

Section 2808(17)(b) of the New York Public Health Law should be enjoined.



188. Plaintiffs have no adequate remedy at law.

THIRD CLAIM FOR RELIEF (Appeal Cap - Injunctive Relief Based on Violation of the Equal Protection and Due Process

Clauses of the United States Constitution and the New York State Constitution)

189.

190.


By imposing an annual cap on rate appeals of $50 million rate period April 1 ,

201 1 through March 3 1,2012, and $80 million for the three years thereafter, Section 2808(17)(b)

of the New York Public Health Law treats certain nursing homes differently from others without

any rational basis. There is no reason why some nursing homes should have the right to appeal

erroneous rate determinations while other nursing homes, whose rates have also been calculated

improperly, are denied the right to any remedy. There is also no correlation between the validity

of an appeal and whether it will be acted upon, processed, and paid under Section 2808( 17)(b) of

the New York Public Health Law.

19 1. By reason of the foregoing, Section 97 of the Laws of 20 1 1 violates the Equal

Protection Clause of the Constitutions of the United States and New York State.

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192. Denying some nursing facilities any right to relief from the erroneous

computation of their reimbursement rates constitutes a violation of the Due Process Clause of the

Constitutions of the United States and New York State.




FOURTH CLAIM FOR RELIEF (Mitigation - Injunctive Relief Based on Violation of the Equal Protection Clause

of the United States Constitution and the New York State Constitution)

195.

196.


New York State apparently recognized that the changes it made in its

reimbursement methodology would have a serious adverse effect on nursing facilities. However,

the mechanism it put in place in an attempt to remedy this harm - Section 97 of the Laws of

20 1 1 - violates the Equal Protection Clause of the Constitutions of the United States and New

York State because there is no rational basis for its differential treatment of similarly situated

nursing facilities.

197. While nursing facilities experiencing a net reduction of more than $6 million in

their Medicaid reimbursement from the rebasing and scaleback for the period April 1 , 2009

through March 3 1 , 201 1 are entitled to a further adjustment of their rates such that their net

reduction is reduced to zero, facilities with a negative reduction of $5,999,999.00 or less receive

only a 50% adjustment. There is no rational basis for this two-tier adjustment, nor is there any

reason why a threshold loss of $6 million was selected in order to receive a 100% reduction of

the negative impact.

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198. By reason of the foregoing, Section 2808( 17)(b) of the New York Public Health

Law violates the Equal Protection Clause of the Constitutions of the United States and New York

State.




FIFTH CLAIM FOR RELIEF (Injunctive Relief Based on Violation of New York State Law)

20 1.

202.


Under New York law, Medicaid reimbursement rates for nursing homes are to be

set on a per diem basis and are to be prospective in nature, taking into account both capital costs

and operating costs. The changes made pursuant to the Laws of 201 1 do not comport with New

York law because they set per diem rates that are not prospective.

203. In addition, while Medicaid rates are initially “provisional,” the term

“provisional” refers solely to the fact that rates may be adjusted upon an audit of a nursing

facility’s costs. Thus, 18 N.Y.C.R.R. 5 5 17.3 provides that “provisional” rates become final

following an audit, but it does not establish any basis for retroactively changing rates except by

means of an audit.

204. To the extent that the Laws of 201 1 make retroactive changes in the Medicaid

reimbursement rates for nursing homes that are not based on an audit, the Laws of 201 1 violate

New York law and are invalid and unenforceable.




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SIXTH CLAIM FOR RELIEF (Laws of 201 1 - Injunctive Relief Based on Violation of Due Process)

207. Plaintiffs repeat and reallege Paragraphs 1 through 206 as if set forth fully herein.

208. To the extent that the Laws of 201 1 make retroactive changes in the Medicaid

reimbursement rates for nursing homes which are not based on an audit of a nursing facility’s

costs, the Laws of 201 1 violate the due process clause of the Constitutions of the United States

and New York State because Plaintiffs had a right to expect that their rates could only be altered

on the basis of an audit and the Laws of 201 1 deprive Plaintiffs of that right.


regulatory promulgations complained of herein.


SEVENTH CLAIM FOR RELIEF (Injunctive Relief Based on Improper Delegation of Legislative Authority In Violation of the Constitutions of the United States and New York State)

2 1 1. Plaintiffs repeat and reallege Paragraphs 1 through 2 1 1 as if set forth fully herein.

212. Section 2808( 17)(b) permits the Commissioner to “prioritize[e] such rate appeals,

including consideration of which facilities the commissioner determines are facing significant

financial hardship as well as such other considerations as the commissioner deems appropriate.”

By failing to set forth clear standards, Section 2808(17)(b) gives the Commissioner unfettered

discretion in determining which nursing homes may pursue appeals of their reimbursement

computations, and constitutes an improper delegation of legislative authority in violation of the

Constitutions of the United States and New York State.

2 13. There is no administrative remedy available to challenge the statutory and



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EIGHTH CLAIM FOR RELIEF (Case Mix - Injunctive Relief Based on Violation of Due Process)

2 15. Plaintiffs repeat and reallege Paragraphs 1 through 2 15 as if set forth fully herein.

216. In other states, nursing facilities can elect not to be providers of Medicaid services

if reimbursement rates are insufficient to cover their costs. But, as a practical matter, nursing

facilities in New York do not have that option. In order to be authorized to operate, the State not

only requires that they accept Medicaid recipients in their facilities, but it effectively requires

that they accept certain levels of Medicaid recipients. New York thus requires nursing facilities

to provide services to Medicaid recipients even if the nursing facilities will not be reimbursed for

the costs they incur in doing so.

21 7. To the extent that the Laws of 201 1 requires nursing facilities to provide

Medicaid services without just compensation, it constitutes a taking in violation of the due

process clause of the United States and New York Constitution.

2 18. There is no administrative remedy available to challenge the statutory and



NINTH CLAIM FOR RELIEF (Case Mix - Injunctive Relief Based on Violation of New York State Law)

220.

221.

Plaintiffs repeat and reallege Paragraphs 1 through 21 9 as if set forth fully herein.

Defendants violated New York State Public Health Law 0 2808(2-b)(g), as added

by Part 36 of the Laws of 2007, by failing to include all Medicaid-eligible individuals (Le.,

including those who are dually eligible for both Medicare and Medicaid as well as those whose

care is paid for by Medicaid) in the computation of the case mix component of the Medicaid

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reimbursement rate methodology. Accordingly, implementation of the methodology should be

enjoined.




TENTH CLAIM FOR RELIEF (Retroactive Banking Adjustment - Injunctive Relief Based on

Violation of New York State Law)

224.

225.


Public Health Law 9 2807-c( 10)(c)(3) is applicable to Medicaid reimbursement

rates established on and after April 1,2000, and it provides for banking adjustments to be applied

prospectively to trend factors for the current year, rather than retroactively to prior periods.

226. Public Health Law $ 2807(7) proscribes retroactive rate-making.

227. By retroactively implementing a negative banking adjustment that eliminated the

trend factor for the period 2008 forward, Defendants violated Sections $ 5 2807(7) and 2807-

c( 1 O)(c)(3) of the Public Health Law.




ELEVENTH CLAIM FOR RELIEF (Scale Back - Due Process/Equal Protection)

230.

23 1.

Plaintiffs repeat and reallege Paragraphs 1 through 229 as if fully set forth herein.

To the extent that the scale back is applied proportionally to further reduce the

reimbursement payments to nursing facilities whose payments were decreased under the Laws of

201 1, it violates the Due Process and Equal Protection Clauses of the Constitutions of the United

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States and New York State because it serves no rational purpose. Such nursing facilities did not

receive any part of the increase that is being scaled back. Accordingly, as applied to such

nursing facilities, including each of the Plaintiffs herein, the scaleback is irrational.




TWELFTH CLAIM FOR RELIEF (Declaratory Judgment that the Medicaid Reimbursement Rate Reduction

Pursuant to the Laws of 201 1 Violates Federal and State Law)

234.

235.

Plaintiffs repeat and reallege Paragraphs 1 through 233 as if fully set forth herein.

By reason of the foregoing, an actual controversy exists between the parties

concerning whether the reimbursement reduction set forth in the Laws of 201 1 violates Section

30(A) of the Social Security Act. Accordingly, to clarify the legal relations of the parties, this

Court should issue declaratory relief pursuant to 28 U.S.C. 3 2201.

WHEREFORE, Plaintiffs demand judgment as follows:

1) On the First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth,

and Eleventh Claims for Relief, preliminarily and permanently enjoining Defendants, their

agents, servants, employees, successors, assigns, and all those acting in concert with them from

(a) implementing the Medicaid rate reductions applicable to Plaintiffs embodied in Chapter 59 of

the Laws of 201 1; (b) retroactively reducing Medicaid reimbursement rates; and (c) restoring the

Medicaid reimbursement payments which were improperly recouped and making Medicaid

reimbursement payments to Plaintiffs from June 20,201 1 forward at rates that comply with all

applicable federal and state law; and

e

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2) On the Twelfth Claim for Relief, declaring that the Medicaid rate reductions

applicable to Plaintiffs embodied in Chapter 58 of the Laws of 20 1 1 are unconstitutional, void,

and unenforceable; and

3) Granting such other and further relief to Plaintiffs as to the Court may seem just

and proper, including an award of costs and attorneys’ fees.

Dated: New York, New York November 9,201 1

DUANE MORRIS LLP

By:

Susan V. Kayser 1540 Broadway New York, New York 10036 Tel. (212) 692-1000 Fax: (212) 692-1020 Attorneys for Plaintiffs

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Index No. 11 1014-201 1

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK

BRIDGE VIEW NURSING HOME, INC.; CLIFFSIDE NURSING HOME, INC.; EAST END HEALTH CARE, INC. d/b/a WESTHAMPTON CARE CENTER; FOREST VIEW NURSING HOME, INC.; FULTON COMMONS CARE CENTER, INC.; KENNETH GAUL 11, LLC d/b/a CEDAR LODGE NURSING HOME; LAWRENCE NURSING CARE CENTER, INC.; MAYFAIR CARE CENTER, INC.; MEADOWBROOK CARE CENTER, INC.; MICHAEL MELNICKE d/b/a CATON PARK NURSING HOME; MIDWAY NURSING HOME, INC.; PARK GARDENS REHABILITATION AND NURSING CENTER, LLC; PARK HOUSE CARE CENTER, LLC; PROMENADE NURSING HOME, INC.; RIVER VALLEY CARE CENTER, INC.; ROCKAWAY CARE CENTER LLC; SHEEPSHEAD NURSING AND REHABILITATION CENTER, LLC; SUNSHINE CARE CORP. d/b/a HEMPSTEAD PARK NURSING HOME; UNION PLAZA NURSING HOME, INC.; VJJ HOLDING COMPANY, LLC d/b/a WOODHAVEN NURSING HOME; WOODCREST REHABILITATION & RESIDENTIAL HEALTH CARE CENTER, LLC; and FLUSHING MANOR GERIATRIC CENTER, INC. d/b/a WILLIAM 0. BENENSON REHAB PAVILION,

Plaintiffs,

-against-

ANDREW CUOMO, as Governor of the State of New York, and NIRAV R. SHAH, M.D., M.P.H., as Commissioner of the New York State Department of Health,

SECOND AMENDED COMPLAINT FOR INJUNCTIVE

Defendants.

.. AND DECLARATORY RELIEF

DUANE MORRIS LLP 1540 Broadway

New York, NY 10036

Attorneys for Plaintiffs (2 12) 692- 1 000


Nursing Home Complaint

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Transcript of Nursing Home Complaint