New York Law Review

Tag: Nursing Home Regulation

  • Brightonian Nursing Home v. Daines, 22 N.Y.3d 566 (2014): Upholding State Oversight of Nursing Home Asset Transfers

    Brightonian Nursing Home v. Daines, 22 N.Y.3d 566 (2014)

    Economic regulations impacting property interests satisfy substantive due process if they are reasonably related to achieving a legitimate governmental purpose, and statutes delegating authority to administrative agencies are constitutional if they provide sufficient standards to guide the agency’s discretion.

    Summary

    This case concerns the constitutionality of New York Public Health Law § 2808 (5)(c), which requires nursing homes to obtain state approval before transferring equity or assets exceeding 3% of their annual revenue. The plaintiffs, nursing homes, argued the law violated substantive due process and improperly delegated legislative power to the Commissioner of Health. The Court of Appeals reversed the lower courts, holding the statute constitutional. The Court found the law reasonably related to the legitimate state interest of ensuring nursing home financial stability and protecting residents, and that the statute provided sufficient guidelines for the Commissioner’s discretion.

    Facts

    New York Public Health Law § 2808 (5)(c) prohibits residential health care facilities from withdrawing or transferring equity or assets exceeding three percent of their most recent annual revenue from patient care services without prior approval from the State Commissioner of Health.

    The law requires the Commissioner to make a determination within sixty days, considering the facility’s financial condition, any financial distress indicators, payment delinquencies to the Department, citations for immediate jeopardy or substandard care, and other appropriate factors.

    Plaintiffs, nursing homes, challenged the facial constitutionality of this provision, arguing it infringed on their property rights and represented an improper delegation of legislative authority.

    Procedural History

    The Supreme Court granted summary judgment to the plaintiffs, declaring Public Health Law § 2808 (5)(c) facially unconstitutional.

    The Appellate Division affirmed, finding the statute violated substantive due process and improperly delegated legislative power.

    The Court of Appeals granted the defendants leave to appeal.

    Issue(s)

    1. Whether Public Health Law § 2808 (5)(c) violates substantive due process by unreasonably infringing on nursing homes’ property rights?

    2. Whether Public Health Law § 2808 (5)(c) constitutes an unconstitutional delegation of legislative authority to the Commissioner of Health?

    Holding

    1. No, because the statute is reasonably related to the legitimate governmental purpose of ensuring the financial viability of nursing homes and protecting their vulnerable residents.

    2. No, because the statute provides sufficient standards to guide the Commissioner’s discretion in reviewing withdrawal applications.

    Court’s Reasoning

    The Court of Appeals reasoned that economic regulations violate substantive due process only when there is absolutely no reasonable relationship between the regulation and a legitimate governmental purpose. The Court emphasized that judicial review of economic regulations is deferential, and the regulation must be “so outrageously arbitrary as to constitute a gross abuse of governmental authority” to be unconstitutional.

    The Court found that Public Health Law § 2808 (5)(c) was rationally related to the legitimate goals of preserving the financial viability of nursing homes and protecting their residents. The Court reasoned that even facilities with positive net worth could face instability from substantial asset withdrawals, and the 3% threshold based on annual revenue was a reasonable way to identify potentially problematic withdrawals.

    Regarding the delegation of legislative authority, the Court held that the statute provided sufficient guidance to the Commissioner. Although the statute included a catch-all phrase (“and such other factors as the commissioner deems appropriate”), the Court interpreted this phrase as limited to factors relating to the facility’s financial condition and quality of care. The Court stated: “a reasonable amount of discretion may be delegated to the administrative officials.”

    The Court noted that the statute’s “freeze” on assets exceeding the 3% threshold was temporary, lasting only 60 days while the Commissioner reviewed the application, and was justified by the need to avoid financially imprudent withdrawals with potentially irreversible consequences. The Court concluded that “the additional regulatory increment about which plaintiffs now complain cannot be viewed as a constitutionally untoward assault upon the private property interests of facility owners”.

  • Matter of Birnbaum v. State, 73 N.Y.2d 638 (1989): Government Regulation Requiring Continued Business Operation Is Not a Taking

    Matter of Birnbaum v. State, 73 N.Y.2d 638 (1989)

    A state regulation requiring a business, particularly one in a pervasively regulated industry like nursing homes, to continue operating for a reasonable period to allow for alternative arrangements does not automatically constitute a taking under the Fifth Amendment.

    Summary

    The New York Court of Appeals held that the State’s action of requiring a nursing home to remain open until alternative arrangements could be made for patients did not constitute a “taking” of property requiring compensation. The nursing home owners sought to close the facility due to unprofitability, but the state intervened to prevent immediate closure, citing regulations requiring notice and approval. The court reasoned that the nursing home industry is heavily regulated, and the state’s action was a reasonable measure to prevent a public emergency, not an unconstitutional taking.

    Facts

    Bernard Birnbaum operated Abbott Manor Nursing Home. After his death, his executors (respondents) found the nursing home unprofitable due to insufficient Medicaid reimbursement rates. They attempted to increase reimbursement rates, sell the facility, or find a receiver, but were unsuccessful. Respondents notified relatives of Medicaid patients of the imminent closure of the nursing home.

    Procedural History

    The State sought and obtained a temporary restraining order to prevent the nursing home’s closure. The Supreme Court appointed coreceivers to operate the facility and held the State responsible for operating costs. The Appellate Division determined the Court of Claims had sole jurisdiction regarding compensation. The Court of Claims later granted summary judgment to respondents, finding a “taking.” The Appellate Division affirmed. The New York Court of Appeals reversed.

    Issue(s)

    Whether the State’s action of requiring a nursing home to remain open and operating until reasonable alternative arrangements could be made for the continued care of the patients constituted a “taking” of property under the Fifth and Fourteenth Amendments of the U.S. Constitution and Article 1, Section 7 of the New York Constitution.

    Holding

    No, because the State’s actions, preventing the precipitous closing of a nursing home in contravention of the regulations of the Department of Health, did not constitute a “taking” of property under the Federal or State Constitutions.

    Court’s Reasoning

    The court reasoned that the nursing home industry is subject to extensive state regulation to control costs and ensure adequate provision of facilities. Regulations prevent nursing homes from discontinuing operation without 90 days’ notice and the Commissioner of Health’s approval. The court applied factors used to determine if a taking has occurred: the economic impact of the government’s action, its frustration of reasonable investment-backed expectations, and the action’s public purpose. Citing Penn Central Transp. Co. v New York City, 438 U.S. 104 (1978). The court cited Justice Holmes stating that a person “cannot be compelled to carry on even a branch of business at a loss, much less the whole business”. However, the court emphasized the narrowness of that rule, and that a person’s right to cease operations is not a per se taking in a pervasively regulated industry with administrative procedures for terminating service. The court held that a business “may be made to suffer interim reasonable losses, without compensation, for a reasonable period of time during which solutions accommodating the public and private interests can be devised.” The State conferred upon the owners the exclusive right to operate a nursing home because the public interest required exclusivity. Therefore, the State may enforce the obligation that there not be immediate termination of nursing home services, because such use of the property threatens imminent injury to the public. “Long ago it was recognized that ‘all property in this country is held under the implied obligation that the owner’s use of it shall not be injurious to the community’ “, citing Keystone Bituminous Coal Assn. v DeBenedictis, 480 U.S. 470 (1987).