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. REPLY 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: August 11, 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 Argument........................................................................................................... 3 Point I The State Is Required by Law to Promptly and Reasonably Process the Woodside Homes’ Rate Appeals ................................................................................. 3 A. Mandamus Lies to Compel the State to Promptly and Reasonably Process the Homes’ Pending Rate Appeals ........................................... 3 B. The Homes Are Entitled to Article 78 Relief Because the State’s Application of the Rate Appeal Cap Is Unlawful ......................... 8 C. The State’s Authorities Concerning a Private Right of Action Are Inapposite ............................. 10 Point II: PHL § 2808(17)(b) Should Not Be Subject to a Disfavored Retroactive Application ........................................................ 12 Point III: If PHL § 2808(17)(b) Is Subject to Retroactive Application Such Retroactive Application Unconstitutionally Deprives the Homes of Their Vested Property Rights ......... 15 A. The Homes Have Not Waived Their Constitutional Challenge ....................................... 15 B. Retroactive Application of PHL § 2808(17)(b) Is Impermissible Under the Chu Factors .............. 17 Conclusion ........................................................................................................ 20 iii TABLE OF AUTHORITIES Page(s) CASES Alliance of Am. Insurers v. Chu, 77 N.Y.2d 573 (1991) ..................................................................................passim Blossom View Nursing Home v. Novello, 4 N.Y.3d 581 (2005) ....................................................................................... 7, 18 Cnty. of St. Lawrence v. Daines, 81 A.D.3d 212 (3d Dep’t 2011) .......................................................................... 12 Concourse Rehab. & Nursing Ctr. v. Whalen, 249 F.3d 136 (2d Cir. 2001) ................................................................. 2, 9, 10, 12 Dutchess County Dep’t of Soc. Servs. ex rel. Day v. Day, 96 N.Y.2d 149 (2001) ........................................................................................... 6 Harris v. McRae, 448 U.S. 297 (1980) ............................................................................................ 11 Hospital Center at Orange v. Guhl, 331 N.J. Super. 322 (N.J. App. Div. 2000) .............................................. 2, 11, 12 In re NYAHSA Litigation, 318 F. Supp. 2d 30 (N.D.N.Y. 2004) .................................................................. 10 James Square Assocs. LP v. Mullen, 21 N.Y.3d 233 (2013) ......................................................................................... 14 Klostermann v. Cuomo, 61 N.Y.2d 525 (1984) ........................................................................................... 7 Kurcsics v. Merchants Mut. Ins. Co., 49 N.Y.2d 451 (1980) ........................................................................................... 6 Lorillard Tobacco Co. v. Roth, 99 N.Y.2d 316 (2003) ........................................................................................... 6 Majewski v. Broadalbin-Perth Cent. Sch. Dist., 91 N.Y.2d 577 (1998) ................................................................................... 12, 14 iv New York City Health & Hospitals Corp. v. McBarnette, 84 N.Y.2d 194 (1994) ....................................................................................... 8, 9 Nostrom v. A.W. Chesterton Co., 15 N.Y.3d 502 (2010) ........................................................................................... 6 Sanders v. Winship, 57 N.Y.2d 391 (1982) ........................................................................................... 6 STATUTES 42 U.S.C. § 1983 ...................................................................................................... 10 42 U.S.C. § 1988 ...................................................................................................... 11 N.Y. C.P.L.R. 7803(3) ........................................................................................... 8, 9 N.Y. Soc. Serv. Law § 363-a ..................................................................................... 4 N.Y. Pub. Health L. § 2808(15) ........................................................................... 5, 13 N.Y. Pub. Health L. § 2808 (17)(a) ..................................................................passim N.Y. Pub. Health L. § 2808 (17)(b) ..................................................................passim N.Y. Pub. Health L. § 2808 (17)(c) ............................................................... 7, 13, 14 OTHER AUTHORITIES 42 C.F.R. § 447.253(a) ............................................................................................... 4 42 C.F.R. § 447.253(e) ......................................................................................passim 10 N.Y.C.R.R. § 86-2.14(b) ..............................................................................passim L. 2010, Ch. 109, § 30.............................................................................................. 5 L. 2010, Ch. 109, § 40(b) ............................................................................... 3, 8, 13 1 PRELIMINARY STATEMENT The Woodside Homes have the clear legal right to compel the Department of Health (“DOH”) to pay lawfully owed Medicaid reimbursement rates dating back to the year 2000, which have been withheld due to simple mathematical errors in the agency’s rate-setting process. DOH argues that, while it is bound to honor both federal regulations and the terms of its own State Medicaid plan requiring “prompt” and “reasonable” administrative review of these errors, the Homes lack standing to seek relief in any court, whether on the State or federal level. DOH readily concedes its utter failure to provide anything remotely resembling prompt or reasonable review of the 95 rate appeals timely filed by the Woodside Homes, along with the over 7,500 other rate appeals languishing statewide for some three decades. The very real result of this delay for the Woodside Homes is that they have been shortchanged approximately $1 million in duly owed Medicaid reimbursement for services rendered between 2000 and 2009, with no hope of interest on past due amounts and no indication of when they may receive relief in the future. The State does not refute this harm; it only assails the remedy. The State contends that only the federal government can compel it to honor its legal duty of “prompt” and “reasonable” review, and that the Woodside Homes must endure the financial repercussions indefinitely. The State is dead wrong. 2 The Second Circuit Court of Appeals has made clear that, while the Woodside Homes would have no cause of action in federal court to compel DOH to honor the explicit requirements of its State Medicaid plan incorporating the “prompt” and “reasonable” administrative review requirements, violation of the State Medicaid plan is actionable as a matter of state law. See Concourse Rehab. & Nursing Ctr. v. Whalen, 249 F.3d 136, 147 (2d Cir. 2001). Indeed, the authority cited by the State on this issue is in accord with the common sense proposition adopted by the Concourse court, i.e., that a State administrative agency can be held to the requirements of its own State Medicaid plan by the courts of the same State. Hospital Center at Orange v. Guhl, 331 N.J. Super. 322, 328, 335 (N.J. App. Div. 2000). Without such legal recourse, the State can delay indefinitely in paying the Woodside Homes and others lawful Medicaid rates correctly calculated under the methodology set in the State’s own Medicaid plan. The State also benefits from its own miscalculations, by retaining funds that lawfully belong to the appealing Homes, not the State Treasury. This, of course, creates the perverse incentive for the State to improperly calculate Medicaid rates in the first place - - to the Homes’ significant detriment - - as long as the appeals pipeline remains broken. And - - perhaps more importantly - - there is nothing in the appeals “cap” contained in N.Y. Public Health Law (“PHL”) § 2808(17)(b) requiring or 3 necessarily implying that it must be applied retroactively to halt processing of the Woodside Homes appeals, some of which predate the “cap” by over a decade. Indeed, the Legislature made crystal clear in L. 2010, Ch. 109, § 40(b) that the “cap” should apply prospectively only. If - - contrary to the clear directive of the Legislature - - the “cap” were applied retroactively, such retroactive application would run afoul of the constitutionality factors laid out by this Court in Alliance of Am. Insurers v. Chu, 77 N.Y.2d 573, 589 (1991). For these reasons, and those set forth in the Woodside Homes’ Opening Brief, the decision of the Appellate Division, Fourth Department, dismissing the Petition herein should be reversed. ARGUMENT POINT I THE STATE IS REQUIRED BY LAW TO PROMPTLY AND REASONABLY PROCESS THE WOODSIDE HOMES’ RATE APPEALS. A. Mandamus Lies to Compel the State to Promptly and Reasonably Process the Homes’ Pending Rate Appeals. State law, federal law, and New York’s Medicaid State plan together require the State to promptly and reasonably process all nursing home Medicaid rate appeals. The State ignores this requirement, arguing instead that the rate appeal “cap” under PHL § 2808(17)(b) supersedes it. This is contrary to basic principles of statutory and regulatory construction. The State cannot simply ignore governing 4 law in the name of balancing the budget. Mandamus lies to compel the State to perform its legal duty in this regard. Specifically, federal law requires the State to provide nursing homes with an appeals process that promptly corrects errors in Medicaid rates. 42 C.F.R. § 447.253(e). Further, under N.Y. Soc. Serv. Law § 363-a and 42 C.F.R. § 447.253(a), (e), New York has given written assurances to the federal Centers for Medicare and Medicaid Services that the State is providing the required prompt administrative review process. (R. 103-04.) Giving effect to these federal requirements, PHL § 2808(17)(a) requires that rate appeals must be decided “within a reasonable period,” which the State has defined to be one year from filing, see 10 N.Y.C.R.R. § 86-2.14(b). The State argues that the “cap” in PHL § 2808(17)(b) supersedes the requirements of PHL § 2808(17)(a) (“within a reasonable period”) and 10 N.Y.C.R.R. § 86-2.14(b) (“within one year”), rendering them null and void. The State is wrong, and the terminology it uses to describe PHL § 2808 is misleading. Specifically, the State describes PHL § 2808(17)(b) as containing both a “moratorium,” halting rate appeals processing for a limited amount of time (currently until March 31, 2015), and a monetary “cap” limiting the amount of appeals that can be paid in a fiscal year. (R. at 65.) The State offers this description of PHL § 2808(17)(b) when discussing the section’s predecessors, each 5 of which contained a separate “moratorium,” in each case lasting one year, and a “cap” at a certain dollar amount. See PHL § 2808(15), (17)(a). PHL § 2808(17)(b), however, contains no separate “moratorium,” only a monetary “cap,” which - - in its first iteration - - also only lasted one year, i.e., until March 31, 2011. PHL § 2808(17)(b); L. 2010, Ch. 109, § 30. This limitation is telling. In its first three attempts to limit rate appeals - - PHL §§ 2808(15), (17)(a), and (17)(b), as originally promulgated - - the State stayed within the confines of what it has determined as “reasonable” and “prompt,” i.e., one year. See 10 N.Y.C.R.R. § 86-2.14(b). It was only after the 2011 amendment to PHL § 2808(17)(b) - - which extended the “cap” until March 2015, i.e., an unprecedented 5 years from inception - - that the State began to contend that it had legal justification to delay rate appeal processing indefinitely. It must be remembered that - - for the years prior to the 2011 amendment to PHL § 2808(17)(b) - - the State would regularly stipulate to a processing schedule whenever a Home sought mandamus relief concerning appeals that were over one year old. (R. at 72.) Prior to 2011, the State would not, for example, proffer any statutory or other justification for the years of delay that had accumulated in the rate appeals system. Similarly, here, the State offers no justification for the thousands of appeals that collected in the processing pipeline prior to the 2011 amendment to 6 PHL § 2808(17)(b), arguing, rather, that a “moratorium” has been placed on the decades of backlog, hence tying DOH’s hands from addressing it. Yet, there is no “moratorium” here, only a “cap.” And PHL § 2808(17)(b) (“within a reasonable period”) and 10 N.Y.C.R.R. § 86-2.14(b) (“within one year”) still apply, as does the overarching requirement under federal law that administrative review be “prompt.” 42 C.F.R. § 447.253(e). Mandamus lies to enforce these provisions, which coexist perfectly well with the “cap,” as long as the “cap” is applied prospectively only. The law supporting such a holding is clear. A statutory and regulatory scheme related to the same subject matter must be read together to achieve coherent results and give effect to all provisions. See Dutchess County Dep’t of Soc. Servs. ex rel. Day v. Day, 96 N.Y.2d 149, 153 (2001); Sanders v. Winship, 57 N.Y.2d 391, 395-96 (1982). One provision in a regulatory scheme, i.e., the “cap,” cannot be construed to render others, i.e., PHL § 2808(17)(a) and 10 N.Y.C.R.R. § 86-2.14(b), superfluous. See Nostrom v. A.W. Chesterton Co., 15 N.Y.3d 502, 508 (2010). On such a pure question of statutory interpretation, there is no basis to defer to the interpretation offered by an administrative agency. Lorillard Tobacco Co. v. Roth, 99 N.Y.2d 316, 322 (2003); Kurcsics v. Merchants Mut. Ins. Co., 49 N.Y.2d 451, 459 (1980). 7 The language in PHL § 2808(17)(b) giving it effect “[n]otwithstanding any inconsistent provision of law or regulation” does not change this analysis. It is not inconsistent to require the State to decide rate appeals “within a reasonable period,” as required by PHL § 2808(17)(a), and to apply the “cap” prospectively only, as the Legislature intended. See L. 2010, Ch. 109, § 40(b). In fact, § 2808(17)(c) requires the State to promulgate rules for prioritizing rate appeals in a manner that balances these concerns. And - - in any event - - PHL § 2808(17)(a) begins with the same “notwithstanding” language as PHL § 2808(17)(b), thus throwing the State’s argument into a logical spiral. The fact that the governing regulations do not require payment within a specific time limit is of no consequence. (See Respondents’ Br. at 27.) Even if the law leaves the Commissioner with some limited discretion as to what constitutes “a reasonable period” in which to process rate appeals, see PHL § 2808(17)(a), the State’s delay here is clearly unreasonable. See Blossom View Nursing Home v. Novello, 4 N.Y.3d 581, 595-96 (2005) (state action concerning nursing home Medicaid rates must be timely; it cannot be “timeless”). Accordingly, mandamus lies to compel the State to comply with its legal obligation to promptly and reasonably process all rate appeals, including Petitioners’ appeals, which have clearly suffered an unreasonable delay. See Klostermann v. Cuomo, 61 N.Y.2d 525, 540 (1984) (mandamus lies to “compel 8 acts that officials are duty-bound to perform, regardless of whether they may exercise their discretion in doing so”). The “cap,” as shown by its enacting legislation, L. 2010, Ch. 109, § 40(b), applies prospectively only, not as a “moratorium” halting appeals existing prior to the “cap.” Hence, the “cap” is no impediment to mandamus relief. B. The Homes Are Entitled to Article 78 Relief Because the State’s Application of the Rate Appeal Cap Is Unlawful. Under N.Y. C.P.L.R. 7803(3), the State’s application of the rate appeal “cap” is “affected by an error of law” and “arbitrary and capricious.” The State’s claim that the rate appeal “cap” completely supersedes its obligation to promptly and reasonably process rate appeals is, as described above, erroneous as a matter of law. Where a state agency “has incorrectly interpreted an applicable statute or regulation, the determination may be affected by an error of law.” Weinstein, Korn, & Miller, New York Civil Practice, § 7803.01. Thus, if a State agency misconstrues a regulatory regime of general applicability, the agency’s conduct may properly be challenged as unlawful or arbitrary under N.Y. C.P.L.R. 7803(3). See New York City Health & Hospitals Corp. v. McBarnette, 84 N.Y.2d 194, 204- 05 (1994). In relation to State’s Medicaid plan, the Second Circuit has made clear that the requirements of the State plan are actionable as a matter of state law. See 9 Concourse Rehab. & Nursing Ctr. v. Whalen, 249 F.3d 136, 147 (2d Cir. 2001). The Concourse court denied relief under federal law for purposes of enforcing a State plan, but it made clear that state-law relief remains available to hold the State to the requirements of its own plan. See id. This is not to say that the plaintiffs are without recourse; they have simply chosen the wrong forum in which to bring their claims. There exists a colorable claim that the State’s use of the “actual improvement” standard - which appears nowhere in the State plan - conflicts with the relevant qualifiers and therefore violates the State’s plan. However, as we have previously noted, the failure of a State to comply with its own plan is a matter of state law that cannot properly be brought before the federal courts. See id. Here, the State’s interminable delay in processing Petitioners’ rate appeals “conflicts with the relevant qualifiers” [i.e., “prompt administrative review” and “reasonable period”] and therefore “violates the State’s plan.” See id. In New York, Plaintiffs may obtain relief for this conflict under N.Y. C.P.L.R. 7803(3). See New York City Health & Hospitals Corp., 84 N.Y.2d at 204-05. Further, under N.Y. C.P.L.R. 7803(3), the State’s reading of the “prompt” and “reasonable” requirements is “arbitrary” and “capricious.” (R. 28.) Under no construction of the facts at bar can it be said that Petitioners have had “prompt” or “reasonable” review of their claims. The State does not seriously contend otherwise. 10 C. The State’s Authorities Concerning a Private Right of Action Are Inapposite. The State spends much of its Opposition Brief arguing that Petitioners cannot enforce 42 C.F.R. § 447.253(e) via a private right of action. (See Respondents’ Br. at 21-31.) This argument misses the mark. As set forth above, the State’s obligations under its State Medicaid plan are enforceable under N.Y. C.P.L.R. Article 78 as matter of state law. See Concourse Rehab. & Nursing Ctr., 249 F.3d at 147. The cases the State proffers to the contrary are inapposite. Specifically, the NYAHSA Litigation case dealt with the limited issue of whether 42 C.F.R. § 447.253(e) created a federal right enforceable under 42 U.S.C. § 1983. See In re NYAHSA Litigation, 318 F. Supp. 2d 30, 40-41 (N.D.N.Y. 2004). In this regard, the NYAHSA decision stands for the same premise as Concourse, which, after all, issued from the controlling court. Further, the NYAHSA Court specifically limited its holding to the “narrow circumstances” of that case. See id. at 41. The NYAHSA decision does nothing to abrogate a Home’s right to enforce a State plan as a matter of state law. Indeed, the state law claims in NYAHSA, which included a claim to enforce the State’s Medicaid plan, were dismissed without prejudice for lack of supplemental jurisdiction once the federal claims were dismissed. See id. at 42. 11 Similarly, the partial holding cited by the State in its second case, Hospital Center at Orange v. Guhl, is also limited to the issue of whether a federal cause of action lies under 42 C.F.R. § 447.253(e), specifically to support a claim for attorneys’ fees under 42 U.S.C. § 1988. See 331 N.J. Super. at 344. In the remainder of the Guhl Court’s holding, not addressed by the State, the Guhl Court made clear that a state “must operate its [Medicaid] program in compliance with the federal statute and regulations.” Id. at 332 (citing Harris v. McRae, 448 U.S. 297, 301 (1980)). The Guhl court’s holding in this regard - - which the State completely ignores - - could not have been more clear: We conclude that the Division has an obligation to decide Medicaid rate appeals within a reasonable period of time, and that the Division failed to satisfy that obligation in processing the appeals that precipitated this action. Id. at 328, 335 (granting declaratory relief that the delay in rate appeal processing was unreasonable). On the facts, the Guhl Court found that a rate appeal delay of “a full three years” “violated [the State’s] statutory responsibilities” to provide “prompt administrative review.” Id. at 333, 335; see also 42 C.F.R. § 447.253(e). Even though there was no private right of action available to the Guhl plaintiffs on their § 1988 claim for attorneys’ fees, the Guhl plaintiffs properly sought and received relief as a matter of state law for the state’s delay, based on the “prompt administrative review requirement.” Id. at 330. 12 In this regard, Guhl completely eviscerates the State’s argument that 42 C.F.R. § 447.253(e) bars Petitioners from seeking relief; rather Guhl strongly supports Petitioners’ application here. As made clear both in Guhl and Concourse, both the “prompt administrative review” requirement under 42 C.F.R. § 447.253(e) and the other substantive provisions of the State’s Medicaid plan - - specifically PHL § 2808(17)(a) and 10 N.Y.C.R.R. § 86-2.14(b) - - are actionable as a matter of state law. POINT II PHL § 2808(17)(B) SHOULD NOT BE SUBJECT TO A DISFAVORED RETROACTIVE APPLICATION. “It is a fundamental canon of statutory construction that retroactive operation is not favored by courts and statutes will not be given such construction unless the language expressly or by necessary implication requires it.” Majewski v. Broadalbin-Perth Cent. Sch. Dist., 91 N.Y.2d 577, 584 (1998). Courts therefore presume that statutes affecting substantive rights have only prospective application, unless it is entirely clear that the legislature intended for them to apply retroactively. See Cnty. of St. Lawrence v. Daines, 81 A.D.3d 212, 214-15 (3d Dep’t 2011). Because the retroactive application of statutes is disfavored, and because the language of PHL § 2808(17)(b) does not require retroactive application, it should be applied only prospectively to rate appeals filed after its April 2010 effective date. 13 Nothing in PHL § 2808(17)(b) expressly or by necessity requires that the “cap” apply to rate appeals filed prior to its effective date. Indeed, the Legislature was crystal clear when enacting PHL § 2808(17)(b) that it was not intended to have retroactive effect: this act shall not be construed to alter, change, affect, impair or defeat any rights, obligations, duties or interests accrued, incurred or conferred prior to the effective date of this act See L. 2010, Ch. 109, § 40(b). The retroactivity analysis should end there. Seeing this, the State attempts to manufacture a “necessary implication” of retroactivity by pointing to the prior appeals moratorium in PHL § 2808(15). The State argues that because that moratorium was defined in relation to when services were rendered, the current “cap” under PHL § 2808(17)(b) is - - by extension - - not so limited. (See Respondents’ Br. at 18.) The State’s argument in this regard is perfectly backward. The State is right to look to PHL § 2808(15) to interpret PHL § 2808(17)(b), but wrong in the inference it draws. The language of PHL § 2808(15) demonstrates that the Legislature is fully capable of defining a moratorium in terms of when services were rendered if it so desires. Here, it did not do so. Indeed, there is no moratorium in PHL § 2808(17)(b), only a “cap.” Likewise, PHL § 2808(17)(c) - - passed in 2011, one year after PHL § 2808(17)(b) - - does not show that PHL § 2808(17)(b) must be applied retroactively. (See Respondents’ Br. at 17.) PHL § 2808(17)(c) requires DOH to 14 promulgate regulations prioritizing the backlog of rate appeals, including rate appeals filed prior to April 2011. This does not show that the pre-existing payment “cap” under PHL § 2808(17)(b) must, by necessity, be retroactive. It simply shows the State’s acknowledgement of the magnitude of the backlog it had created, irrespective of any “cap.” It must be remembered in this regard, that the thousands of rate appeals pending as of 2011 (when the “cap” was extended to last an unprecedented 5 years) amassed during a period in which there was no “cap.” PHL § 2808(17)(c) recognizes the inequity of this situation and requires that the State take action, which the State has yet to do. Finally, this Court has recently rejected the State’s argument that budgetary concerns can justify retroactive application of a statute. (See Respondents’ Br. at 18-20.) Financial savings alone, regardless of the state of the budget, cannot justify retroactivity. See James Square Assocs. LP v. Mullen, 21 N.Y.3d 233, 250 (2013); Majewski, 91 N.Y.2d at 588-89; Alliance of Am. Insurers v. Chu, 77 N.Y.2d 573, 589 (1991) (“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”). Further, the “cap” functions perfectly well as intended, i.e., as a savings measure, even if applied prospectively. Even with prospective application, the State would limit its expenditures on appeals filed after April 2010 to $80 million per year. 15 In sum, the language of PHL § 2808(17)(b) does not require retroactive application, the Legislature expressly limited PHL § 2808(17)(b) to prospective application, and the State has failed to show that retroactive application is necessary for the “cap” to function properly. Accordingly, the rate appeal “cap” may not apply retroactively; rather it should apply only to rate appeals filed after the statute’s April 2010 effective date. POINT III IF PHL § 2808(17)(B) IS SUBJECT TO RETROACTIVE APPLICATION, SUCH RETROACTIVE APPLICATION UNCONSTITUTIONALLY DEPRIVES THE HOMES OF THEIR VESTED PROPERTY RIGHTS. A. The Homes Have Not Waived Their Constitutional Challenge. Contrary to the State’s argument (see Respondents’ Br. at 31-32), the Homes have not waived their argument that the retroactive application of PHL § 2808(17)(b) would unconstitutionally deprive them of their vested property rights. The retroactivity of this statute has been at issue since the proceedings in Supreme Court. In this regard, the Homes’ Article 78 Petition clearly alleged that the State’s failure to comply with its legal obligation to promptly and reasonably process rate appeals was unconstitutional. (R. at 29.) In response, the State argued that PHL § 2808(17)(b) applies retroactively to prevent the State from having to promptly and reasonably process rate appeals filed prior to the statute’s effective date. (See R. 66 ¶ 19.) The issue of 16 retroactivity was fully litigated by the parties at Supreme Court and the Appellate Division, and was ruled upon by both courts. (See R. 9, 271 (decisions of Supreme Court and Appellate Division).) As discussed above, retroactive statutes are constitutionally suspect and therefore subject to heightened scrutiny. Accordingly, if a Court determines that a statute applies retroactively, it must then apply a set of defined factors to determine whether retroactive application is constitutionally permissible. Chu, 77 N.Y.2d at 586. The State recognizes this requirement in its brief, arguing that the mandatory Chu factors favor the retroactive application of the statute. (See Respondents’ Br. at 31-32.) It is undisputed that the retroactivity of PHL § 2808(17)(b) was at issue before both Supreme Court and the Appellate Division. Supreme Court did not need to apply the mandatory Chu factors, because it determined that PHL § 2808(17)(b) did not apply retroactively. (See R. 10-11.) Having determined that the rate appeal cap applied retroactively, however, the Appellate Division erred in failing to consider whether such retroactive application was constitutional, as noted in the Homes’ motion to reargue before the Appellate Division. (R. 289.) The constitutional implications of the retroactive application of PHL § 2808(17)(b) have therefore been at issue throughout this litigation and are properly before this Court. 17 B. Retroactive Application of PHL § 2808(17)(b) Is Impermissible Under the Chu Factors. As the State recognizes (see Respondents’ Br. at 32), to determine whether a statute may lawfully be applied retroactively, courts must balance the factors defined in Chu, 77 N.Y.2d at 586. Applying these factors shows that the State’s retroactive application of PHL § 2808(17)(b) is improper. As a threshold matter, the State does not dispute that the Homes have a property interest in receiving proper payment for services already rendered based on established Medicaid rates. (See Petitioners’ Opening Br. at 25-26.) Instead, the State contends that this right is not extinguished by retroactive application of the cap, it is merely delayed. (Respondents’ Br. at 32.) This argument is unavailing. Under the State’s erroneous application of the law, a rate appeal could remain forever banished to administrative purgatory. The State’s depiction of PHL § 2808(17)(b) as “temporary” does nothing to change this. It is true that PHL § 2808(17)(b) expires in April 2015, but it must be remembered that the thousands of pending rate appeals as of the inception of PHL § 2808(17)(b) in 2010 amassed during the years in which there was no “cap.” It is cold comfort for the State to imply that the “cap” may someday be lifted, only to have the Homes be relegated to the quagmire that has been the Medicaid rate appeals process for decades. 18 Such ongoing indefinite delay deprives the Homes of their right to a decision, and thus effectively deprives them of their right to payment at the lawfully promulgated rate. This is improper as a matter of law. See Blossom View, 4 N.Y.3d at 595-96. Such delay also weighs heavily against a retroactive application of the rate appeal “cap” under the Chu factors. The Medicaid rates paid to nursing homes have never covered the actual, allowable operating costs incurred by the Homes in providing care to Medicaid residents. (R. 90 ¶¶ 9-11.) This is particularly true for facilities located in the Rochester area, such as the Petitioners. (See R. 98.) Given these limitations, it is unfair and contrary to the public interest to deprive the Homes of prompt adjudication of rate appeals, so that they may at least receive the full Medicaid rate to which they are lawfully entitled. Similarly, the Homes are entitled to rely on preexisting law, i.e., the rate appeal process in place when their rate appeals were filed, see Chu, 77 N.Y.2d at 586, and the State’s deprivation of the Homes’ right to prompt and reasonable adjudication of rate appeals is unreasonable and unfair. This is particularly so because the chronological scope of the retroactivity of the State’s proposed interpretation of PHL § 2808(17)(b) is immense, reaching back to any undecided rate appeals, regardless of when they were filed, many now decades old. See id. It must be remembered in this regard that the Homes cannot recover interest for 19 delayed rate appeals. Hence, as a very practical matter, the value of the appeals to the Homes goes down, as does the cost to the State, with each passing day of delay. In response, the State cynically argues that such broad retroactivity should be excused because the Homes did not seek Article 78 relief earlier. (See Respondents’ Br. at 34.) This argument is again completely backward. It was not incumbent upon the Homes to sue the State to force it to comply with its own rate appeal system. Rather, the duty was always on the State to promptly and reasonably process rate appeals. PHL § 2808(17)(a); 10 N.Y.C.R.R. § 86-2.14(b). And - - as a practical matter - - the last appeal made part of the action below was filed in October 2009, a matter of months before the contested “cap” present in PHL § 2808(17)(b) came into force. CONCLUSION F or the reasons stated above and in their Opening Brief, 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 such other and further relief as this Court deems just, equitable, and proper. Dated: Rochester, New York August 11, 2014 Respectfully submitted, HARTER SECREST & EMERY LLP By: _{/1_/~_~---I--cfi~~·~_· _ 20 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