68 N.Y.2d 741 (1986)
An administrative agency’s rule-making authority cannot extend the meaning of statutory language to situations not intended by the statute; therefore, the Commissioner of Health acted arbitrarily by denying Supplemental Hospital Index Factor (SHIF) benefits based on a hospital’s ability to afford increased labor costs when the statute only allowed consideration of factors related to the reasonableness of hospital costs.
Summary
New York Hospital and New York Eye and Ear Infirmary sought SHIF waivers to cover increased labor costs. The Commissioner of Health denied the waivers, citing the hospitals’ sufficient assets to cover the costs. The Court of Appeals held that the Commissioner’s denial based on the hospitals’ “affordability” was arbitrary and exceeded statutory authority. The statute required reimbursement rates to be reasonably related to the costs of efficient service production, and the hospitals’ overall financial status was irrelevant to the reasonableness of labor costs. The court remitted the matter for reconsideration without considering affordability.
Facts
New York Hospital and New York Eye and Ear Infirmary, independent hospitals, applied for SHIF waivers for rate periods between 1978 and 1982, seeking reimbursement for increased labor costs stemming from multiyear labor agreements. The Commissioner of Health denied their applications, determining that both hospitals had sufficient assets to cover the increased costs, based on a “current ratio” test comparing assets to liabilities. Group-affiliated hospitals were treated differently, with waivers granted if the group’s liabilities exceeded assets, regardless of an individual member’s financial status.
Procedural History
The hospitals initiated Article 78 proceedings challenging the Commissioner’s denial. Special Term consolidated the proceedings and a declaratory judgment action, upholding the rationality of the reimbursement rate structure but ordering a trial to determine whether the eligibility requirements were arbitrarily applied. The Appellate Division reversed, granting summary judgment to the hospitals and concluding that the Commissioner lacked statutory authority to use an “affordability” test. The Court of Appeals modified the Appellate Division’s order, remitting the matter to the Commissioner for a determination of benefits without considering “affordability”.
Issue(s)
Whether the Commissioner of Health exceeded his statutory authority and acted arbitrarily by denying SHIF waivers based on the hospitals’ ability to afford increased labor costs, when the governing statute mandated consideration of factors related to the reasonableness of hospital costs.
Holding
Yes, because by considering the hospitals’ ability to afford increased labor costs, the Commissioner exceeded the statutory mandate, which required reimbursement rates to be reasonably related to the costs of efficient service production, making the denial of SHIF benefits arbitrary.
Court’s Reasoning
The Court of Appeals determined that the Commissioner’s actions were arbitrary because they were based on a factor (affordability) that was not authorized by the statute. The statute (Public Health Law § 2807 [3], L 1969, ch 957, § 4) directed the Commissioner to consider “the elements of cost, geographical differentials in the elements of cost considered, economic factors…costs of hospitals of comparable size, and the need for incentives to improve services and institute economies”. The court emphasized that while a hospital’s financial wealth might relate to its ability to meet increased labor costs, it has no relevance to assessing the reasonableness of labor costs within the hospital service industry. The court cited Matter of Trump-Equitable Fifth Ave. Co. v Gliedman, 57 NY2d 588, 595, stating that an administrative agency cannot extend the meaning of statutory language to situations not intended to be embraced within the statute, nor may it promulgate a rule out of harmony with the plain meaning of the statutory language. The court noted that the Commissioner was effectively adding a criterion that the legislature had not included in the statute. The court also cited Matter of Kew Gardens Sanitarium v Whalen, 55 AD2d 226, 229, affd on opn below 43 NY2d 675, stating that denial of a waiver predicated on a factor unrelated to the reasonableness of hospital costs was arbitrary. The court modified the Appellate Division’s order to remit the case to the Commissioner for a new determination of benefits without considering affordability.