Matter of Avon Nursing Home v. Axelrod, 83 N.Y.2d 977 (1994)
When a federal court invalidates a state regulation affecting Medicaid reimbursement rates, the state must recalculate those rates under the previously existing structure, irrespective of ongoing efforts to retroactively validate the invalidated regulation.
Summary
This case concerns the New York State Department of Health’s (DOH) implementation of a regional input price adjustment factor (RIPAF) in 1987 to calculate Medicaid reimbursement rates for nursing homes. The Second Circuit Court of Appeals declared the RIPAF invalid because the State failed to comply with federal requirements under the Boren Amendment. Subsequently, nursing homes initiated CPLR article 78 proceedings challenging the application of RIPAF to their rates for prior years. The New York Court of Appeals held that because the federal court had nullified the RIPAF adjustment, the DOH was required to recalculate the reimbursement rates for the affected years without regard to RIPAF, pending any successful efforts by the State to obtain federal approval for retroactive application of a revised rate structure.
Facts
In 1986, the DOH implemented a new methodology for calculating Medicaid reimbursement rates for nursing homes. To address a perceived hardship for publicly operated facilities with high labor costs, DOH introduced the RIPAF in 1987 (10 NYCRR 86-2.10[c][3][i]). The RIPAF adjusted reimbursement rates based on regional input prices.
Procedural History
1. The United States Court of Appeals for the Second Circuit declared the RIPAF adjustment invalid in Pinnacle Nursing Home v. Axelrod, 928 F.2d 1306 (1991), finding that the State had failed to comply with the Boren Amendment’s requirements for federal approval.
2. Following the Second Circuit’s decision, several nursing homes commenced CPLR article 78 proceedings to annul DOH’s application of the RIPAF adjustment to the calculation of their reimbursement rates for prior years.
3. The Appellate Division’s orders were appealed to the New York Court of Appeals.
4. In the Matter of Brothers of Mercy Nursing & Rehabilitation Ctr., the order of the Appellate Division was reversed and the judgment of the Supreme Court, Albany County, reinstated.
Issue(s)
1. Whether the DOH must recalculate Medicaid reimbursement rates for nursing homes based on the rate structure in place before the implementation of the RIPAF adjustment, given the Second Circuit’s ruling that the RIPAF adjustment was invalid due to non-compliance with federal requirements.
Holding
1. Yes, because the Second Circuit’s decision nullifying the RIPAF adjustment remains undisturbed, the DOH must recalculate the reimbursement rates for the affected years using the previously existing rate structure, without considering the RIPAF adjustment.
Court’s Reasoning
The Court of Appeals emphasized the binding effect of the Second Circuit’s decision, stating that the RIPAF adjustment had been nullified and respondents must recalculate reimbursement rates accordingly. The court rejected the argument that the defect was merely procedural and could be cured, reasoning that the federal courts had already nullified the rate adjustment.
The court also dismissed the State’s arguments based on ongoing efforts to obtain federal approval of a pre-1992 effective date for the rate structure, clarifying that the State could pursue remedies if it succeeded in those efforts, citing Matter of Jewish Home & Infirmary v. Commissioner of N.Y. State Dept. of Health, 84 N.Y.2d 252.
The court concluded that the nursing homes were entitled to have their rates recalculated and to be reimbursed for any amounts owed due to the recalculation. The court found it unnecessary to determine whether the RIPAF adjustment promulgated in 1987 lacked a rational basis, given the dispositive effect of the Second Circuit’s ruling.