In the Matter of Woodside Manor Nursing Home, et al., Appellants,v.Nirav R. Shah, M.D.,, et al., Respondents.BriefN.Y.February 17, 2015To be Argued by: THOMAS G. SMITH (Time Requested: 20 Minutes) APL-2014-00083 Monroe County Clerk’s Index No. 12-1306 Court of Appeals of the State of New York WOODSIDE MANOR NURSING HOME, AVON NURSING HOME, THE BRIGHTONIAN, CONESUS LAKE NURSING HOME, ELM MANOR NURSING HOME, HORNELL NURSING HOME, HURLBUT NURSING HOME, NEWARK MANOR NURSING HOME, PENFIELD PLACE, SENECA NURSING AND REHABILITATION CENTER, SHOREWINDS NURSING HOME, WEDGEWOOD NURSING HOME, Petitioners-Appellants, - against - NIRAV R. SHAH, M.D., AS COMMISSIONER OF HEALTH OF THE STATE OF NEW YORK, AND ROBERT L. MEGNA, AS DIRECTOR OF THE BUDGET OF THE STATE OF NEW YORK, OR THEIR SUCCESSORS, Respondents-Respondents. BRIEF FOR PETITIONERS-APPELLANTS Of Counsel: Thomas G. Smith, Esq. F. Paul Greene, Esq. John P. Bringewatt, Esq. HARTER SECREST & EMERY LLP Attorneys for Petitioners-Appellants 1600 Bausch & Lomb Place Rochester, New York 14604 Tel.: (585) 232-6500 Fax: (585) 232-2152 Dated: June 3, 2014 i DISCLOSURE STATEMENT Pursuant to Rule 500.1(f) of this Court, none of Petitioners-Appellants have parents, subsidiaries, or affiliates. ii TABLE OF CONTENTS Table of Authorities ................................................................................................. iii Preliminary Statement ............................................................................................... 1 Statement of Jurisdiction ........................................................................................... 3 Questions Presented .................................................................................................. 4 Statement of Facts ..................................................................................................... 5 A. The Woodside Homes’ Grievance ....................................................... 5 B. The Decisions of the Courts Below ................................................... 12 Argument................................................................................................................. 13 Point I: The Statutory Cap Cannot Be Read to Permit Indefinite Delays in DOH’s Adjudication of Administrative Rate Appeals in Violation of Both Federal and State Law. ............. 14 A. Federal and State Law Require the Prompt Adjudication of Rate Appeals........................................ 15 B. The Rate Appeal Cap Cannot Eliminate the Requirement of Prompt Administrative Review. .......... 16 C. Mandamus Lies to Compel the State to Promptly Decide Petitioners’ Rate Appeals. ................................. 17 Point II: The Rate Appeal Cap Should Not Be Given a Disfavored Retroactive Application. .......................................................... 21 Point III: The Retroactive Application of PHL § 2808(17)(b) Unconstitutionally Impairs Petitioners’ Vested Property Rights. ...................................................................................... 25 Conclusion .............................................................................................................. 29 iii TABLE OF AUTHORITIES Cases Alliance of Am. Insurers v. Chu, 77 N.Y.2d 573 (1991) ............................................................................ 3-4, 25-28 Altamore v. Barrios-Paoli, 90 N.Y.2d 378 (1997) ........................................................................................ 18 ATM One, LLC v. Landaverde, 2 N.Y.3d 472 (2004) .......................................................................................... 17 Bennett v. New Jersey, 470 U.S. 632 (1985) ........................................................................................... 22 Blossom View Nursing Home v. Novello, 4 N.Y.3d 581 (2005) .......................................................................................... 19 City of New York v. Novello, 65 A.D.3d 112 (1st Dep’t 2009) ........................................................................ 19 Cnty. of Herkimer v. Daines, 60 A.D.3d 1456 (4th Dep’t 2009) ...................................................................... 23 Cnty. of St. Lawrence v. Daines, 81 A.D.3d 212 (3d Dep’t 2011) ................................................................... 23, 26 Concourse Rehab. & Nursing Ctr., Inc. v. Whalen, 249 F.3d 136 (2d Cir. 2001) .............................................................................. 16 Employees Ret. Sys. of Ala. v. Resolution Trust Corp., 840 F. Supp. 972 (S.D.N.Y. 1993) .................................................................... 20 Giaquinto v. Comm’r of N.Y. State Dep’t of Health, 11 N.Y.3d 179 (2008) ....................................................................................... 16 James Square Assocs. LP v. Mullen, 21 N.Y.3d 233 (2013) ........................................................................................ 24 Klostermann v. Cuomo, 61 N.Y.2d 525 (1984) .................................................................................. 18, 20 iv Majewski v. Broadalbin-Perth Cent. Sch. Dist., 91 N.Y.2d 577 (1998) .................................................................................. 21, 24 Morales v. Gross, 230 A.D.2d 7 (2d Dep’t 1997) ........................................................................... 22 Oberlander v. Perales, 740 F.2d 116 (2d Cir. 1984) .............................................................................. 26 Sanders v. Winship, 57 N.Y.2d 391 (1982) ........................................................................................ 17 Signature Health Center v. State, 92 A.D.3d 11 (3d Dep’t 2011) ............................................................................. 9 Tobias v. Lissberger, 105 N.Y. 404 (1887) .......................................................................................... 20 U.S. Pack Network Corp. v. Travelers Prop. Cas., 23 A.D.3d 299 (1st Dep’t 2005) ........................................................................ 20 White Plains Nursing Home v. Whalen, 53 A.D.2d 926 (3d Dep’t 1976) ......................................................................... 26 Other Authorities 42 U.S.C. § 1396a ............................................................................................... 5, 15 42 C.F.R. § 431.107 .................................................................................................. 5 42 C.F.R. § 447.45(d) ............................................................................................. 15 42 C.F.R. § 447.253(a) .................................................................................. 8, 15, 19 42 C.F.R. § 447.253(e) ...................................................................... 8, 15, 16, 17, 19 New York State Constitution, Article XVII, § 1 ...................................................... 5 N.Y. C.P.L.R. 5602(a)(1) .......................................................................................... 3 N.Y. Pub. Health Law § 2807(3) .............................................................................. 6 v N.Y. Pub. Health Law § 2808(15) .......................................................................... 23 N.Y. Pub. Health Law § 2808(17)(a) ............................................................ 8, 16, 17 N.Y. Pub. Health Law § 2808(17)(b) .............................................................. passim N.Y. Pub. Health Law § 2808(17)(c) ................................................................ 11, 24 N.Y. Soc. Servs. Law § 363-a ....................................................................... 5, 15, 17 10 N.Y.C.R.R. § 86-2.13 ...................................................................................... 7, 8 10 N.Y.C.R.R. § 86-2.14 ................................................................................ 7, 8, 16 1 PRELIMINARY STATEMENT This appeal, on behalf of twelve upstate nursing facilities, addresses the systemic failure of the State Department of Health (“DOH”) to honor a federal regulatory mandate and related state law requiring that nursing homes’ administrative rate appeals receive “prompt” adjudication, “within a reasonable period.” The Appellate Division Fourth Department ruled that DOH has unfettered, unreviewable discretion to determine that its ongoing refusal to process thousands of decades-old rate appeals somehow meets the “prompt” and “reasonable period” legal mandates. (R. 271.) Additionally, this appeal questions whether New York Public Health Law (“PHL”) § 2808(17)(b), a 2010 State law, which creates a monetary cap on the dollars DOH must annually pay to correct its mathematical errors in setting Medicaid rates, applies retroactively - - thereby suspending indefinitely DOH’s review of all but a handful of more than 7,500 rate appeals filed over three decades by nursing facilities statewide, all still languishing in Corning Tower. The Appellate Division, in reversing the decision of Supreme Court, held that the annual statutory cap is lawfully retroactive, despite this Court’s strong disfavor of retroactive statutes; despite the Legislature’s silence as to any retroactive intent; and despite the fact that the statute, as retroactively applied, 2 plainly impairs the constitutionally protected property rights of nursing facilities to payment at lawfully established rates for services previously provided. Under New York law, whenever DOH ratesetters make a computational error in setting a nursing home’s Medicaid rate, that facility must first exhaust its administrative remedies, by filing an administrative rate appeal with DOH within four months. Only after administrative review and adjudication can a facility, if still aggrieved, seek judicial review in the State Courts. This administrative rate appeal process is plainly intended to encourage early and expeditious resolution of mathematical mistakes made by DOH personnel, and to avoid unnecessarily burdening the judiciary. Beyond dispute, DOH’s administrative review process has utterly failed and become wholly dysfunctional. This Article 78 proceeding seeks to compel DOH to perform its legal duties. DOH does not - - and cannot - - dispute that its extraordinary procrastination has caused the Woodside Homes and others throughout the State to receive significantly less in Medicaid reimbursement than they are lawfully entitled to receive under the State’s established Medicaid reimbursement methodology. Permitting DOH to indefinitely suspend its administrative review of nearly ten thousand pending rate appeals unjustly rewards the State for DOH’s mathematical errors, by allowing the State to indefinitely withhold payment of the lawfully 3 calculated reimbursement rates owed for the extensive services these homes have already provided to the elderly, infirm poor. The issues raised in this Article 78 proceeding directly affect, not only the 12 Woodside nursing facilities and their 95 administrative rate appeals pending since 2000, but all facilities statewide that await DOH’s “prompt” correction of often simple, indisputable mathematical errors in DOH’s rate computations. STATEMENT OF JURISDICTION This Court has jurisdiction over this appeal because the Order of the Appellate Division, Fourth Department, dated January 3, 2014, finally denied Petitioners’ Article 78 Petition in its entirety and dismissed the proceeding. See N.Y. C.P.L.R. 5602(a)(1). On April 8, 2014, this Court granted Appellants’ motion for leave to appeal. (R. 243.) Each of the issues raised herein is properly preserved on appeal. The retroactivity of PHL § 2808(17)(b) was raised by the State in its initial opposition to the Article 78 Petition (see R. 66), and was litigated by the parties at Supreme Court and the Appellate Division (see R. 9, 271 (decisions of Supreme Court and Appellate Division)). Putting the retroactivity of PHL § 2808(17)(b) at issue necessarily raises whether such retroactive application would be constitutional, as retroactive statutes are subject to searching judicial review. See Alliance of Am. Insurers v. Chu, 77 N.Y.2d 573, 586 (1991). Furthermore, Petitioners raised below 4 the issue of whether the retroactive application of PHL § 2808(17)(b) would unlawfully deprive them of their property rights (see Pet’r’s App. Div. Br. at 17), and likewise challenged the State’s arbitrary and capricious application of the rate appeal cap in their Petition (see R. 28). Likewise, Petitioners raised their contentions concerning the incompatibility of Respondents’ application of the rate cap with other provisions of federal and state law in their Petition (see R. 28) and before the Appellate Division (see Pet’r’s App. Div. Br. at 1, 16-17). QUESTIONS PRESENTED 1. By authorizing and perpetuating indefinite delays in processing Medicaid rate appeals, does Respondents’ application of the rate appeal cap under PHL § 2808(17)(b) violate state and federal law and New York’s federally- approved State Medicaid Plan? 2. Does the rate appeal cap retroactively extinguish Petitioners’ legal right to prompt and timely processing of those Medicaid rate appeals filed before the effective date of the statute? 3. If the cap imposed by PHL § 2808 (17)(b) does apply retroactively, does such retroactive application unconstitutionally impair Petitioners’ vested property rights to payment for services already provided at the lawfully promulgated Medicaid rate? 5 STATEMENT OF FACTS A. The Woodside Homes’ Grievance The Woodside Nursing Home Petitioners, comprised of 12 nursing facilities owned and operated for some 70 years by the Hurlbut family in the greater Rochester area (“Petitioners” or the “Woodside Homes”), challenge the failure of DOH to process and resolve their 95 timely-filed Medicaid rate appeals, dating back to the year 2000. These 95 appeals reside, wholly unaddressed, in bureaucratic limbo. (R. 21-27.) Since the inception of the joint state/federal Medicaid program in the mid- 1960s, the Woodside facilities, along with other, privately owned facilities, have participated in the Medicaid program. They provide intensive, round-the-clock healthcare services to impoverished, elderly citizens who qualify for Medicaid assistance, in return for the guaranty of lawfully calculated reimbursement. See 42 U.S.C. § 1396a; N.Y. Soc. Servs. Law § 363-a. Effectively, the Woodside Homes act as partners with the State and DOH in assuring that the State of New York meets its obligation under the New York State Constitution to provide “aid, care and support of the needy.” New York State Constitution, Art. XVII, § 1. More specifically, each of the Woodside Homes has entered into a Medicaid Agreement with the State of New York pursuant to 42 C.F.R. § 431.107 whereby, in exchange for providing the elderly poor with the required array of residential 6 health care services meeting the high standards of care mandated by state and federal law, the State agrees to pay Medicaid reimbursement that is “reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated facilities.” PHL § 2807(3). (R. 89 ¶ 7.) On average, approximately 70% of the residents in the Woodside Homes are Medicaid-sponsored residents, meaning that the only compensation the Homes receive for the care provided to them is through the Medicaid reimbursement rates issued by DOH. (R. 89 ¶ 8.) Indisputably, the Medicaid rates paid to nursing homes under DOH’s ratesetting methodology have never covered the actual, allowable operating costs incurred by facilities like Petitioners in providing care to Medicaid residents. (R. 90 ¶¶ 9-11.) In 2007, for example, homes in the Rochester Region were underpaid in their Medicaid reimbursement rates by 21%. (R. 98.) These “shortfalls” in Medicaid reimbursement result in annual deficits (i.e., losses) on Medicaid resident care at each of the Woodside Homes. For example, the Medicaid reimbursement deficit suffered at Petitioner The Shore Winds alone totaled almost $28 million in the eight years from 2003 through 2010 - - approximately $3.5 million in Medicaid deficits per year. (R. 100.) In attempting to offset these Medicaid reimbursement shortfalls and generate positive earnings, the Woodside Homes must rely upon revenues from non-Medicaid residents, i.e., residents who pay substantially higher 7 private pay rates or residents entitled to the higher rates paid by the distinct, purely federal Medicare Program. (R. 90 ¶ 13.) This proceeding, however, does not challenge the adequacy of the Medicaid rates as correctly calculated under the existing reimbursement methodology. Instead, Petitioners only seek to compel DOH to address and determine their pending rate appeals according to the lawfully established reimbursement methodology. Each of the Woodside Homes’ 95 administrative appeals simply seeks to correct the typically indisputable, computational errors that the Homes’ accountants have detected in DOH’s Medicaid rates. These honest but harmful bureaucratic slips have caused the Woodside Homes to receive nearly $1 million less in Medicaid reimbursement than DOH was lawfully obligated to pay from 2000-2009. (R. 73 ¶ 16.) Because of the complexity of New York’s Medicaid reimbursement methodology, and the demands imposed upon DOH’s Medicaid ratesetting staff, DOH commonly makes mathematical or computational errors that aggrieve nursing homes. Recognizing this reality, DOH has a long-established, regulatory procedure for addressing and resolving such grievances through an administrative rate appeal process adopted at 10 N.Y.C.R.R. § 86-2.13 and § 86-2.14. Federal law mandates that DOH assure the federal Centers for Medicare and Medicaid Services (“CMS”) that a viable rate appeal procedure exists in New York 8 to promptly correct its computational errors. DOH must provide CMS with written assurances that it actually provides “prompt administrative review” of errors resulting from the rate computation process as a necessary provision of its federally-approved Medicaid State Plan, as well as whenever New York seeks CMS approval of a Plan Amendment. See 42 C.F.R. § 447.253(a), (e); (R. at 103- 04.) More specifically, DOH purports to meet this legal obligation by making the following, federally mandated representations to CMS: The State of New York provides an appeal procedure that allows individual providers to submit additional evidence and receive prompt administrative review, with respect to such issues as the Department of Health determines appropriate. This requirement is met through the provisions of 10 NYCRR § 86-2.13 and § 86-2.14. (R. 103 (emphasis added).) Based upon these federal requirements, the State Legislature, in PHL § 2808(17)(a), explicitly provided that: Beginning April First, Nineteen Hundred Ninety Nine and thereafter, the Commissioner shall consider such rate appeals within a reasonable period. (emphasis added). In accordance with these legal mandates, DOH has adopted a regulatory definition of “within a reasonable period,” as meaning that DOH must adjudicate nursing facility rate appeals within one year of the filing of such appeals. 9 10 N.Y.C.R.R. § 86-2.14(b). This regulatory requirement has never been amended or repealed. Each of the Woodside Homes filed timely administrative rate appeals seeking to correct computational or mathematical errors committed by DOH in setting reimbursement rates in years 2000 through 2009. (See R. 21 ¶¶ 24-26.) As DOH concedes, not a single one of the 95 separate rate appeals filed by the Woodside Homes from 2000 through 2009 has been addressed by DOH at any time, let alone adjudicated promptly, or within a year after filing. The Woodside Homes’ certified public accountant estimates the value of these pending rate appeals (i.e., the amount of Medicaid reimbursement unlawfully withheld by DOH from 2000-2009 due to its mistaken calculations) at roughly $1 million. (R. 73 ¶ 16.) While DOH assesses interest on Medicaid overpayments that it recoups from nursing facilities, DOH pays zero interest upon the reimbursement dollars it must eventually repay facilities due to its computational errors. See Signature Health Center v. State, 92 A.D.3d 11, 17 (3d Dep’t 2011); (R. 72 ¶ 11.) Thus, reimbursement lawfully owed to the Woodside Homes from 2000-2009 - - but withheld due to DOH’s mistakes - - will bear no interest for the many years between the date services were rendered and the date DOH correctly pays what has long been due. (Id.) 10 In Article 78 proceedings brought by nursing homes in years prior to 2010, seeking to compel DOH to adjudicate similarly aged rate appeals, DOH routinely stipulated to Court orders requiring DOH to resolve those particular pending rate appeals within a fixed period of time such as 3 or 6 months. (R. 94 ¶ 31, 72 ¶ 10.) In this current Article 78 proceeding, however, DOH refused to do so, contending that it has no legal obligation: to provide “prompt administrative review”; to “consider such rate appeals within a reasonable period”; or to adjudicate these rate appeals “within one year of their filing.” Instead, DOH maintains that PHL § 2808(17)(b), enacted in 2010, authorizes it to continue ignoring all but a select, limited number of pending rate appeals each year, including those filed years before the implementation of the statute. (R. 66.) Specifically, PHL § 2808(17)(b) imposes an $80 million cap on the dollar value of Medicaid rate appeals that DOH may pay each year, beginning in April 2010, and extending until March 31, 2015. DOH contends that, despite the mandates of New York State and federal law, it is fully entitled to assign the Woodside Homes’ 95 pending rate appeals - - all of which were filed before April 2010 - - indefinitely to the proverbial, bureaucratic “back burner,” until the Woodside Homes “are facing significant financial hardship,” however DOH interprets that term. Under DOH’s reasoning, 11 if, and only if, DOH resolved all rate appeals of so-called “hardship” facilities within the annual $80 million cap on total rate appeal payments, would any other rate appeals (such as those of the Woodside Homes) even be considered for review. Incredibly, despite the statutory obligation imposed upon DOH to “promulgate regulations establishing priorities and timeframes for processing rate appeals,” PHL § 2808(17)(c) (emphasis added), DOH has utterly failed to do so for over four years. And, of course, in the four years since this statute was adopted, none of the Woodside Homes’ 95 aged rate appeals have been processed. Effectively, DOH claims that only undefined “hardship” facilities have the legal right to receive lawfully correct reimbursement rates. As a result, all of the Woodside Homes, as well as others, that fail to meet this undefined criteria must suffer indefinitely from unlawfully calculated rates. Based on PHL § 2808(17)(b), DOH maintains that it is indefinitely excused from processing the overwhelming majority of pending rate appeals, as it is constrained by the annual rate appeal cap. (R. 66.) As of January 2012, the backlog created as a result had grown to an astounding 7,500-plus administrative rate appeals filed by nursing homes as long ago as the 1980s. (See R. 106 (DOH listing of all pending rate appeals and their dates of filing).) The Woodside Homes 12 filed this Article 78 proceeding in February 2012 to compel DOH to process their 95 outstanding rate appeals. (R. 56.) B. The Decisions of the Courts Below Supreme Court, in a Decision dated June 18, 2012, rejected Respondents’ argument that PHL § 2808(17)(b) excuses it from processing the Woodside Homes’ 95 rate appeals, concluding that the statute does not apply retroactively to appeals filed before the April 2010 effective date of the statute. (R. 9.) Supreme Court concluded that DOH was legally obligated to process the Woodside Homes’ rate appeals, and issued a writ of mandamus ordering DOH to do so. The Court did not reach the discrete issue of DOH’s arbitrary and capricious failure to comply with the timeliness mandates of federal and state law. The Appellate Division, Fourth Department, in an Order dated October 4, 2013, and a superseding, corrected Order dated January 3, 2014, reversed, concluding that the statutory cap imposed by PHL § 2808(17)(b) applies retroactively, and finding that DOH could not be compelled to comply with the provisions of federal and state law requiring prompt adjudication of rate appeals, thereby denying the Petition in its entirety. (R. 271.) The Appellate Division did not reach the issue of whether DOH’s actions and the underlying statute were arbitrary and capricious, and without rational basis, as alleged in the Petition in this proceeding. (R. 28.) 13 ARGUMENT The Appellate Division first erred in failing to order DOH to comply with applicable federal and state law that indisputably require it to adjudicate administrative rate appeals in a “prompt” manner. The Appellate Division also misapprehended this Court’s binding precedent concerning Supreme Court’s power to compel DOH’s compliance with these plain provisions in an Article 78 proceeding. Additionally, the Appellate Division erroneously held that the rate appeal cap imposed by PHL § 2808(17)(b) is entitled to a judicially disfavored retroactive application based upon an alleged “necessary implication” requiring such application. By interpreting the statute as it did, the Appellate Division consigned the Woodside Homes’ rate appeals, and thousands more like them, to a timeless bureaucratic black hole, even though the cap never existed until years after the Woodside Homes’ rate appeals were timely filed. Finally, even if the Legislature did intend for the rate appeal cap to retroactively apply to Petitioners’ rate appeals, such retroactive application would unconstitutionally impede Petitioners’ vested property rights to payment for services already rendered at DOH’s established Medicaid rates. The proper functioning of New York’s Medicaid reimbursement system is critically important to ensuring that facilities like Petitioners receive the lawfully 14 calculated Medicaid rates needed to continue providing the required high quality care for the State’s elderly, infirm poor. PHL § 2808(17)(b) does not permit DOH to indefinitely withhold payments due to facilities such as Petitioners, and the decision of the Appellate Division should be reversed. POINT I THE STATUTORY CAP CANNOT BE READ TO PERMIT INDEFINITE DELAYS IN DOH’S ADJUDICATION OF ADMINISTRATIVE RATE APPEALS IN VIOLATION OF BOTH FEDERAL AND STATE LAW. Indisputably, the State’s Medicaid rates do not cover the actual, Medicaid- allowable operating costs of the Woodside Homes in caring for Medicaid residents. However, receiving at least the lawfully allotted rate is essential to funding their operations and providing needed care to State-sponsored Medicaid residents. DOH’s application of the rate appeal cap under PHL § 2808(17)(b) adversely impacts not just the 95 Woodside appeals, but several thousand other, wholly unaddressed Medicaid rate appeals filed by nursing homes across the State. Under the Appellate Division’s decision, all but a handful of these timely-filed rate appeals, some pending for decades, will remain indefinitely suspended as long as DOH chooses not to prioritize them under the limited annual dollar cap. The Appellate Division erred by failing to compel DOH to dutifully comply with the explicit provisions of federal and state law that require the “prompt” adjudication of Medicaid rate appeals. In so ruling, the Fourth Department 15 allowed the rate appeal cap under PHL § 2808(17)(b) to vitiate supervening federal and State legal mandates requiring the timely processing of rate appeals. A. Federal and State Law Require the Prompt Adjudication of Rate Appeals. As part of its Medicaid State Plan, each state participating in Medicaid is required to adopt a method for determining rates of payment to service providers. See 42 U.S.C. § 1396a(a)(13)(A). Federal law explicitly requires participating states to maintain an appeals procedure providing “prompt administrative review” for correcting errors in its Medicaid payment rates. 42 C.F.R. § 447.253(e); see also 42 C.F.R. § 447.45(d) (detailing State Plan requirements for timely claims review and providing that claims must generally be paid within one year of when they are submitted). New York law requires DOH to maintain an up-to-date and compliant State Plan. See N.Y. Soc. Serv. Law § 363-a. As part of any change or update to a State Plan, a state must assure the federal CMS that the required rate appeals process exists and is functioning. See 42 C.F.R. § 447.253(a), (e). DOH has accordingly provided CMS with written assurances attesting to its “prompt administrative review” of “errors resulting from the rate computation process.” (R. 103-04.) Addressing the timeliness requirements for rate appeal adjudication under federal law, New York law further provides that rate appeals must be decided “within a reasonable period.” PHL § 2808(17)(a). This “reasonable period” has 16 been defined by regulation to require DOH to act on rate appeals within one year of the deadline for submission of the appeals by homes. 10 N.Y.C.R.R. § 86- 2.14(b). This law and regulation remain in effect. B. The Rate Appeal Cap Cannot Eliminate the Requirement of Prompt Administrative Review. DOH’s failure to process and adjudicate Petitioners’ 95 rate appeals, most pending for more than a decade, cannot possibly be considered either “prompt” or “reasonable” as required by federal and state law. See 42 C.F.R. § 447.253(e); PHL § 2808(17)(a); 10 N.Y.C.R.R. § 86-2.14(b). Unmistakably, both state and federal law require that rate appeals be decided expeditiously, not left in an indefinite administrative cloud, subject to a failed DOH appeal system in which they may never be adjudicated. This Court has recognized “the federal interest in assuring the supremacy of the federal Medicaid Act.” Giaquinto v. Comm’r of N.Y. State Dep’t of Health, 11 N.Y.3d 179, 189 (2008). Likewise, the Second Circuit has made clear that a state’s violation of its Medicaid State Plan is actionable under state law. See Concourse Rehab. & Nursing Ctr., Inc. v. Whalen, 249 F.3d 136, 147 (2d Cir. 2001). Accordingly, DOH’s application of the rate appeal cap under PHL § 2808(17)(b), whereby payment for rate appeals not fitting under the cap is withheld indefinitely, cannot be permitted to trample the requirements for 17 Medicaid compliance imposed by federal law, state law, and New York’s Medicaid State Plan. Regulations and statutes addressing the same subject matter must be construed together to avoid conflict. See Sanders v. Winship, 57 N.Y.2d 391, 395- 96 (1982); see also ATM One, LLC v. Landaverde, 2 N.Y.3d 472, 477 (2004) (regulations subject to same canons of construction as statutes). Accordingly, PHL § 2808(17)(b) cannot reasonably be read to completely subsume the statutory command of PHL § 2808(17)(a) that “the Commissioner shall consider such rate appeals within a reasonable period” (emphasis added). And PHL § 2808(17)(b) cannot prevail over the explicit, supervening federal mandate for “prompt” administrative review, see 42 C.F.R. § 447.253(e), or over DOH’s obligation to honor the explicit terms of its federally-approved Medicaid State Plan, see N.Y. Soc. Serv. Law § 363-a. Accordingly, the rate appeal cap cannot be read to permit an indefinite delay in processing certain rate appeals. C. Mandamus Lies to Compel the State to Promptly Decide Petitioners’ Rate Appeals. In considering this issue, the Appellate Division had no basis whatsoever to conclude that Respondents had complied with these legal mandates. Instead, the Court held that whether payment was “prompt” involved a wholly discretionary 18 determination. (R. 275.) Accordingly, the Fourth Department held that mandamus did not lie to compel Respondents’ compliance. (Id.) This holding, which emasculates the requirement of prompt administrative review, misconstrues this Court’s binding precedent and reasoning concerning mandamus to compel. This Court has emphasized that, for mandamus purposes, “acts the exercise of which is discretionary” must be distinguished from “acts which are mandatory but are executed through means that are discretionary.” Klostermann v. Cuomo, 61 N.Y.2d 525, 539 (1984); see also Altamore v. Barrios- Paoli, 90 N.Y.2d 378, 385 (1997). Mandamus is appropriate to “compel acts that officials are duty-bound to perform, regardless of whether they may exercise their discretion in doing so.” Klostermann, 61 N.Y.2d at 540. The requirement that rate appeals be decided “promptly” and “within a reasonable [time] period” is plainly mandatory. The only discretion left to agency officials is to determine the particular time within which a “prompt” determination must be made. The requirements of “prompt administrative review” and adjudication taking place “within a reasonable period” are clear and enforceable. Surely, DOH cannot redefine the plain meaning of “prompt” to suit its purposes. Common dictionary definitions of the adjective “prompt” include: 19 “quick to act or do what is required,” “punctual,” and “done at once or without delay;” Webster’s New World Dictionary of American English, Third College Ed., 1991; “on time; punctual, done without delay;” American Heritage Dictionary, Second College Ed., 1991. Federal law imposes a mandatory obligation to process rate appeals promptly, and conditions CMS approval of changes to a state’s Medicaid Plan upon reasonable assurances that the state is providing “prompt administrative review.” See 42 C.F.R. § 447.253(a), (e). The plain meaning of “prompt,” combined with the CMS approval requirement, makes clear that the requirement of timely processing of appeals is mandatory, not directory. See City of New York v. Novello, 65 A.D.3d 112, 116-17 (1st Dep’t 2009) (“Where the statutory term is so clear and unambiguous as to belie any interpretation other than its expressed peremptory term, courts are without authority to enlarge or limit this unambiguous language.”). As a matter of law, the indefinite delay created by Respondents’ application of PHL § 2808(17)(b) - - approaching three decades for some facilities - - cannot be “prompt.” See Blossom View Nursing Home v. Novello, 4 N.Y.3d 581, 595-96 (2005) (noting that, where administrative agency action is concerned, “timely is not synonymous with timeless,” and finding DOH’s attempt to conduct certain 20 audits more than six years after services were rendered to be “untimely as a matter of law”). The New York courts “reject [the] argument that the word ‘prompt’ is ambiguous.” U.S. Pack Network Corp. v. Travelers Prop. Cas., 23 A.D.3d 299, 300 (1st Dep’t 2005) (ruling as a matter of law that required notifications provided 6 and 15 months after loss were not “prompt”); Tobias v. Lissberger, 105 N.Y. 404, 412 (1887) (holding that “[p]rompt is synonymous with ‘quick,’ ‘sudden,’ ‘precipitate.’”). Similarly, a statutory requirement for action “within a reasonable period” is an enforceable mandate. See Employees Ret. Sys. of Ala. v. Resolution Trust Corp., 840 F. Supp. 972, 981-82 (S.D.N.Y. 1993). Under Klostermann, 61 N.Y.2d at 539-40, therefore, mandamus does lie to compel Respondents to obey the legal mandate requiring “prompt” adjudication of the Woodside Homes’ rate appeals, even if the execution of this command leaves some limited measure of discretion to DOH to determine an exact timeline for promptly processing the appeals. DOH should be ordered to comply with the law and decide Petitioners’ rate appeals without further delay. During a time when heavy political pressure is imposed upon DOH to cut costs, particularly in its Medicaid program, the State reaps significant - - albeit legally unjustified - - cost savings whenever ratesetters make mathematical errors that wrongly lower facilities’ Medicaid rates without the required prompt 21 correction. Such costs savings, however, cannot be condoned under the law. For these reasons, even if the rate appeal cap applies retroactively to Petitioners’ rate appeals, it cannot be interpreted to permit indefinite delay in processing the appeals. This Court must hold the State accountable to governing federal and state law and order DOH to adjudicate Petitioners’ pending rate appeals. POINT II THE RATE APPEAL CAP SHOULD NOT BE GIVEN A DISFAVORED RETROACTIVE APPLICATION. This Court has held that it is “a fundamental canon of statutory construction” that the retroactive application of statutes is disfavored. Majewski v. Broadalbin- Perth Cent. Sch. Dist., 91 N.Y.2d 577, 584 (1998). A statute thus will only be interpreted to apply retroactively where its “language expressly or by necessary implication requires it.” Id. The Appellate Division misapplied these principles in a manner that affects thousands of pending Medicaid rate appeals, including those of Petitioners. Governor Cuomo himself has emphasized why retroactive laws are so heavily disfavored: We tend to frown on retroactive laws because people operated under one set of laws and under one set of expectations and then you change the rules. To do that retroactively we frown upon that as a state and as a society. See Cuomo: We Frown Upon ‘Retroactive Disclosure,’ Time Warner News 22 Sate of Politics, http://www.nystateofpolitics.com/2012/08/cuomo-we- frowns-upon-retroactive-disclosure/. The rate appeal cap statute does not, on its face or by necessary implication, require retroactive application. The statute’s effective date was April 2010, not any time before that, see L. 2010, § 1, part B, §§ 30, 40, with an amendment effective April 2011 to extend the cap into 2015, see L. 2011, ch 59, § 1, part H, §§ 98, 111. On its face, PHL § 2808(17)(b) thus only refers to application of the cap prospectively, i.e., for appeals filed in fiscal years beginning April 1, 2010 and ending March 31, 2015. Put another way, the statute has a clear beginning, April 1, 2010, and a clear end, March 31, 2015. Nothing on the face of the statute stretches it beyond these explicit bounds. Given this clear language and the heavy presumption against the retroactive application of statutes, PHL § 2808(17)(b) should not be interpreted to reach back and extinguish the right to payment for services already rendered and for rate appeals already submitted. Rather, it can apply only prospectively to claims submitted after the April 1, 2010 effective date. See Morales v. Gross, 230 A.D.2d 7, 10 (2d Dep’t 1997) (“statutes affecting substantive rights and liabilities are presumed to have only prospective effect” (quoting Bennett v. New Jersey, 470 U.S. 632, 639 (1985))). 23 Following these principles in the context of another cap on Medicaid expenditures, both the Third and Fourth Departments have held that such caps do not apply retroactively to Medicaid expenditures made in years before the particular cap was imposed. See Cnty. of St. Lawrence v. Daines, 81 A.D.3d 212, 215 (3d Dep’t 2011); Cnty. of Herkimer v. Daines, 60 A.D.3d 1456, 1457 (4th Dep’t 2009). Furthermore, the Legislature has demonstrated that, when it does desire a cap on rate appeals to be defined in terms of when past services were rendered, it knows how to do so. In fact, a prior restriction under PHL § 2808(15) created a moratorium defined by when “services [were] provided by residential health care facilities.” The PHL § 2808(17)(b) cap contains no such language. Accordingly, PHL § 2808(17)(b) applies only to rate appeals filed after its April 2010 effective date. Nor does the statutory purpose of the cap require retroactive application. The Appellate Division erroneously concluded that the Legislature’s intent to reduce costs by enacting the cap necessarily means that it must be applied retroactively. This is simply not so. Indisputably, the existence of an $80 million annual cap on payment of prospectively filed rate appeals still assures significant fiscal savings for the State. 24 The goal of financial savings thus does not by necessary implication mean that PHL § 2808(17)(b) must apply retroactively. In Majewski, 91 N.Y.2d at 588- 89, this Court rejected a similar argument that, because greater savings would result from retroactive application of a statute, the Legislative must have intended retroactivity. This Court has recently reemphasized this point. See James Square Assocs. LP v. Mullen, 21 N.Y.3d 233, 250 (2013) (noting that “raising money for the State budget is not a particularly compelling justification” for the retroactive application of a statute). Likewise, contrary to the Appellate Division’s view, the adoption of PHL § 2808(17)(c) in 2011 does not necessarily imply retroactive application. PHL § 2808(17)(c) provides that DOH shall promulgate regulations establishing priorities for processing rate appeals, including rate appeals filed prior to April 2011. This does not necessarily mean that the payment cap in PHL § 2808(17)(b) must apply retroactively. Instead, the clearest reading of this provision is simply that the State must devise a framework for processing all pending rate appeals, including both rate appeals filed after April 1, 2010 to which the payment cap applies, and the backlog of previously filed rate appeals to which the cap does not apply. The Appellate Division erred in applying a disfavored retroactive interpretation to PHL § 2808(17)(b) because neither the statute’s language nor the 25 legislative intent underlying the provision requires it. This Court should not permit DOH to enforce a retroactive application of the rate appeal cap that consigns the appeals of facilities throughout the State to a bureaucratic black hole. POINT III THE RETROACTIVE APPLICATION OF PHL § 2808(17)(B) UNCONSTITUTIONALLY IMPAIRS PETITIONERS’ VESTED PROPERTY RIGHTS. Even if the rate appeal cap is held to apply retroactively, such retroactive application - - effectively tabling for decades the correct Medicaid payments lawfully owed to healthcare providers for past services - - is unconstitutional. The Appellate Division failed to apply this Court’s binding precedent calling for mandatory, heightened scrutiny of retroactive statutes, and its decision should be reversed for this reason as well. Retroactive legislation is unconstitutional if it impairs the vested property rights of those affected by the legislation. Alliance of Am. Insurers v. Chu, 77 N.Y.2d 573, 585-86 (1991). Retroactive statutes are thus subject to heightened scrutiny. A number of factors must be considered in determining whether retroactive application is permissible, including “fairness to the parties, reliance on pre-existing law, the extent of retroactivity[,] and the nature of the public interest to be served by the law.” Id. at 586. Any retroactive application of the rate appeal cap unconstitutionally destroys Petitioners’ property right to payment for services previously rendered in reliance 26 upon the established Medicaid rate. Although providers may not have a property interest in future Medicaid payments, New York law recognizes a property right to payment at established Medicaid rates for services already provided. White Plains Nursing Home v. Whalen, 53 A.D.2d 926, 927 (3d Dep’t 1976), aff’d 42 N.Y.2d 838 (1977); see also Oberlander v. Perales, 740 F.2d 116, 120 (2d Cir. 1984) (“New York acknowledges a property interest in money paid for services already performed in reliance on a duly promulgated reimbursement rate.”); Cnty. of St. Lawrence, 81 A.D.3d at 216 (declining to apply Medicaid cap retroactively and noting that right to reimbursement accrued at the time when services were rendered). If the Appellate Division’s decision is allowed to stand, the Woodside facilities will see their 95 rate appeals delayed indefinitely under DOH’s application of the rate appeal cap, significantly impairing if not destroying their property right to lawful payment. The factors outlined by this Court in Chu, 77 N.Y.2d at 586, weigh heavily against permitting retroactive application of PHL § 2808(17)(b). DOH’s application of the rate appeal payment cap unfairly consigns the Woodside Petitioners’ rate appeals, many of which were filed years ago, to bureaucratic limbo. 27 First, the retroactive application of the rate appeal cap strips Petitioners of their right to reimbursement for services already rendered, and does so in direct contradiction to preexisting law requiring prompt and correct Medicaid reimbursement. The State may not lawfully impair the Woodside Homes’ “reasonable expectations” based on the legal regime previously established by the State. See Chu, 77 N.Y.2d at 586 (noting that State may not impair vested property rights because “persons should be able to rely on the law as it exists and plan their conduct accordingly”). Second, the chronological reach of the cap is great. The retroactive application of PHL § 2808(17)(b) would reach back to extinguish rate appeals that have been pending for years, including some of Petitioners’ appeals that have been pending for more than a decade. See id. (calling on courts to consider “the extent of retroactivity” in applying searching judicial review to retroactive statutes). Third, the public interest is not served by denying timely adjudication of rate appeals to nursing facilities that depend on Medicaid reimbursement to fund their operations. See id. Given the undisputed fact that DOH’s Medicaid rates do not fully compensate nursing homes for the care they provide to residents, withholding these lawful payments could jeopardize these facilities’ ability to continue to provide quality patient care while maintaining financial viability. It is thus essential that, at 28 the least, the Woodside Homes be fairly reimbursed according to the lawfully established payment methodology. The mandated expeditious administrative review is thwarted by the retroactive application of the rate appeal cap, which prevents Petitioners from receiving lawful compensation for the care they have provided to the elderly poor throughout the State. Furthermore, the State’s desire to save money through the retroactive application of a statute is not a legitimate public policy justification. See id. at 588-89 (“the State’s commitment [to follow the law] would be meaningless if it could be overcome by its desire to use the funds for other purposes”). In the Order appealed from, the Fourth Department concluded that the rate appeal cap was retroactive, but failed to analyze whether the retroactive application of PHL § 2808(17)(b) impeded Petitioners’ vested property rights, as this Court’s precedent requires it to do. Even if this Court agrees that the Legislature intended for PHL § 2808(17)(b) to apply retroactively, such retroactive application is unlawful because it impedes the Woodside Homes’ vested right to payment for services already rendered. CONCLUSION For the reasons stated above, Petitioners-Appellants respectfully request that this Court issue an Order: (i) reversing the Appellate Division's January 3, 2014 corrected Order; (ii) compelling DOH to immediately adjudicate Petitioners' pending rate appeals; and (iii) granting Petitioners-Appellants such other and further relief as this Court deems just, equitable, and proper. Dated: Rochester, New York June J, 2014 Respectfully submitted, HARTER SECREST & EMERY LLP By: ______________________ __ 29 Thomas G. Smith, Esq. F. Paul Greene, Esq. John P. Bringewatt, Esq. Attorneys for Petitioners 1600 Bausch & Lomb Place Rochester, New York 14604 (585) 232-6500