In the Matter of South Island Orthopaedic Group, P.C., Appellant,v.Thomas P. DiNapoli, as Comptroller of the State of New York, et al., Respondents.BriefN.Y.April 2, 2013To be Argued by: MATTHEW F. DIDORA (Time Requested: 30 Minutes) APL-2013-00041 and APL-2013-00042 Albany County Clerk’s Index Nos. 724/10 and 4182/09 Court of Appeals of the State of New York In the Matter of the Application of MARVIN H. HANDLER, M.D., P.C., Petitioner-Appellant, For a Judgment under Article 78 of the Civil Practice Law and Rules, - against - THOMAS DINAPOLI, Comptroller of the State of New York, Respondent-Respondent, - and - UNITED HEALTHCARE INSURANCE COMPANY OF NEW YORK, Respondent. ----------------------------------------------- (For Continuation of Caption See Reverse Side of Cover) JOINT REPLY BRIEF FOR PETITIONERS-APPELLANTS RUSKIN MOSCOU FALTISCHEK, P.C. Attorney for Petitioners-Appellants 1425 RXR Plaza East Tower, 15th Floor Uniondale, New York 11556 Tel.: (516) 663-6600 Fax: (516) 663-6779 Date Completed: October 29, 2013 Index No.: 724/10 In the Matter of the Application of SOUTH ISLAND ORTHOPAEDIC GROUP, P.C., Petitioner-Appellant, For a Judgment under Article 78 of the Civil Practice Law and Rules, - against - THOMAS DINAPOLI, Comptroller of the State of New York, and UNITED HEALTHCARE INSURANCE COMPANY OF NEW YORK, Respondents-Respondents. Index No.: 4182/09 TABLE OF CONTENTS TABLE OF AUTHORITIES ................................................................................... iii PRELIMINARY STATEMENT ............................................................................... 2 ARG'UMENT ............................................................................................................ 4 POINT I: THE STATE CONSTITUTION DOES NOT PERMIT THE COMPTROLLER'S REVIEWS OF HANDLER'S AND SOUTH ISLAND'S BILLING RECORDS ............................... 4 A. The Label Assigned to the Comptroller's Reviews is Irrelevant ................................................................................. 4 B. The Comptroller Cites No Authority that Upheld Similar Conduct ......................................................................... 7 1. Neither Handler nor South Island Have a Contract with the State ..................................................... 9 2 Neither Handler nor South Island Participate in a State-Sponsored Plan .............................................. 11 C. The Comptroller Has Other, Constitutionally Authorized Means Available to it to Ensure Compliance with the Empire Plan ........................................... 14 D. This Case Does Not Involve the Comptroller's Subpoena Powers ..................................................................... 17 POINT II: NO ONE CAN CONFER BROADER AUDITING POWERS ON THE COMPTROLLER THAN ARTICLE V, SECTION 1 AUTHORIZES ....................................... 18 A. Handler's and South Island's Challenges to the Comptroller's Audits Are Ripe ................................................ 20 B. Handler and South Island Cannot Consent to Expand the Comptroller's Audit Authority ............................. 22 1 C. Neither the Comptroller nor United Can Rely on the Illegally Seized Evidence ..................................... 24 CONCLUSION ....................................................................................................... 27 11 TABLE OF AUTHORITIES CASES PAGE ASA Inst. of Bus. & Computer Tech. v. McCall, 281 AD2d 849 (3d Dept 2001) ................................................. 12, 14 Blue Cross & Blue Shield of Cent. New Yorkv. McCall, 89 NY2d 160 (1996) ............................................. 10, 15 Diemer v. Diemer, 8 NY2d 206 (1960) ...................................................... .4-5 Finn's Liquor Shop, Inc. v. State Liquor Auth., 24 NY2d 647, rearg den, 25 NY2d 777, cert den sub nom, NYS Liquor Auth. v. Finn's Liquor Shop, Inc., 369 u.s. 840 (1969) ................................................................................ 23, 26 Glenbriar Co. v. Lipsman, 5 NY3d 388 (2005) ............................................ 24 Heary Bros. Lighting Protection Co., Inc. v. Intertek Testing Services, N.A., 4 NY3d 615 (2005) .................................... 24 Martin H Handler, MD., P. C. v. Comptroller, 88 AD3d 1187 (3d Dept 2011), lv to app dismissed, 19 NY3d 953 (2012) .............................................................................. 6-7, 16 Matter of Blossom View Nursing Home v. Novello, 4 NY3d 581 (2005) ................................................................................. 20, 21 Matter ofBoydv. Constantine, 81 NY2d 189 (1993) ....................... 24, 25,26 Matter of Elmira Business Inst. v. New York State Dep'tofEduc., 116AD2d 133 (3d Dept), appgranted, 69 NY2d 601 (1986), aff'd, 70 NY2d 758 (1987) ............................. 11-12, 13 Matter of N.Y. World's Fair 1964-1965 Corp. v. Beame, 22 AD2d 611 (1st Dept), aff'd, 16 NY2d 570 (965) .............. 9, 11, 13 People v. Calloway, 71 AD3d 1493 (4th Dept), lv to app den, 15 NY3d 748 (2010) ........................................................ 22,23 iii Quayle v. State, 192 NY 47 (1908) ..................................................... 9, 10, 13 Schneckloth v. Bustamante, 412 US 218 (1973) ..................................... 22, 23 Stiles v. Batavia Atomic Horseshoes, Inc., 81 NY2d 950 (1993), rearg den, 81 NY2d 1068 (1993) .............................. 24 Wynn v. AC Rochester, 273 F3d 153 (2d Cir 2001) ...................................... 19 STATUTES AND OTHER AUTHORITIES NY State Constitution, Article V, § 1 .................................................... passim NY State Constitution, Article VI,§ 3(a) ..................................................... 24 NY CPLR § 5501(b) (McKinney's 2013) ..................................................... 24 NY CPLRArticle 78 (McKinney's 2013) .................................................... 12 NY Education Law§ 665 (McKinney's 2013) ............................................. 12 NY Education Law§ 665(3)(b) (McKinney's 2013) ................................... 12 NY State Finance Law§ 4 (McKinney's 2013) ........................................... 10 NY State Finance Law Article II, § 8 (McKinney's 2013) ............................ 6 NY State Finance Law§ 9 (McKinney's 2013) ..................................... 17, 18 NY General City Law§ 20 (McKinney's 2013) .......................................... 11 NY General City Law§ 93 (McKinney's 2013) .......................................... 11 8 NYCRR 126.10(a) ...................................................................................... 12 Karger, The Powers of the New York Court of Appeals, § 13.1, 3rd Edition (2005) ............................................................................... 24 IV An Unwelcomed Surprise: How New Yorkers Are Getting Stuck with Unexpected Medical Bills from Out-of-Network Providers, Department ofFinancial Services (March 7, 2012) ......................................................................... 16-17 v Petitioners-Appellants in this combined appeal, Martin H. Handler, M.D., P.C. and South Island Orthopaedic Group, P.C., submit the following Joint Reply Brief in response to the Brief for Respondent DiNapoli submitted by the Comptroller and the Brief for Respondent United Healthcare Insurance Company ofNew York and in further support of their appeal from the Memorandum and Orders of the Appellate Division, Third Department, which reversed the decisions of the two trial term justices and held that article V, section 1 of the State Constitution permits the Comptroller's office, without the issuance of a subpoena, to conduct a performance audit of the financial billing records of a private, out-of- network medical provider, which does not have a contract with the State or United Healthcare and which does not participate in any State-sponsored program, to determine whether the out-of-network provider "routinely waived" Empire Plan members' out-of-pocket costs. For the reasons set forth below and in the Joint Brief for Petitioners- Appellants, the Third Department's Memoranda and Orders must be reversed and those of the trial courts re-instated and affirmed. The Comptroller exceeded the constitutional limitations on its audit authority, and the Comptroller and United must be precluded from taking any action based upon the constitutionally defective audits. 1 PRELIMINARY STATEMENT The sole issue involved on this appeal is whether article V, section 1 of the State Constitution permits the Comptroller to review the financial billing records of private, out-of-network healthcare providers to determine whether the providers "routinely waived" Empire Plan members' out-of-pocket expenses. The Comptroller does not and cannot argue that the Constitution authorizes it to audit the out-of-network providers such as Handler and South Island. Instead, in an attempt to justify its audit reports, the Comptroller stretches its audit power beyond its breaking point. Recognizing that it cannot audit Handler or South Island directly, the Comptroller relies upon the fiction that it was auditing United, not Handler and South Island, and that its reviews of the out-of-network providers' billing records were parts of the United audits. In the Comptroller's view, because it can audit United, the State's health insurer for the Empire Plan, and other entities that have contracts with the State; and because it can audit the participants in State- sponsored programs, such as the Tuition Assistance Program, to ensure that the participants comply with the terms of the program; and because these audit powers include the ability to conduct post-payment audits, the Comptroller can also review Handler's and South Island's private records to determine if they comply with the requirements of the Empire Plan. 2 The flaw with the Comptroller's reasoning is that neither Handler nor South Island participates in the Empire Plan. Both have elected to remain outside of the Plan. As a result, there is no contract between either of them and the State or United. Moreover, neither submits vouchers for payment or receives payment from the State. In all instances, Handler and South Island are paid by their patients, private individuals. Thus, none of the Comptroller's stated powers apply to Handler or South Island. The Comptroller does not cite a single case in which the Comptroller's audit powers were extended as far as it urges this Court to do here. Handler and South Island are separated from the State by two levels: their patients and United, both private, non-State actors. The Comptroller's argument, if adopted by this Court, would effectively eliminate any limitations on the Comptroller's audit powers and would convert article V, section 1 into a limitless grant of investigatory power over all private individuals. As a fallback position in the event the Court determines that the Comptroller's reviews violated the Constitution, the Comptroller adopts several arguments in an attempt to persuade the Court to excuse its violations. First, the Comptroller argues that Handler's and South Island's challenges are moot because the audits are complete. Second, the Comptroller claims that Handler and South Island consented to the Comptroller's conduct. Finally, the Comptroller relies 3 upon an inapplicable balancing test to argue that public policy favors reliance on the constitutionally defective audit reports. None of these arguments, however, are capable of expanding the limits on the Comptroller's audit powers delineated in article V, section 1. Because the Comptroller lacked the constitutional authority to review Handler's and South Island's records, Handler and South Island are powerless to confer additional powers on the Comptroller that the Constitution does not. ARGUMENT I. THE STATE CONSTITUTION DOES NOT PERMIT THE COMPTROLLER'S REVIEWS OF HANDLER'S AND SOUTH ISLAND'S RECORDS A. The Label Assigned to the Comptroller's Reviews is Irrelevant The Comptroller hopes to prevail on this appeal by winning a labeling war. The Comptroller hinges its success on the characterization of its conduct as audits of United only, not Handler or South Island. The Comptroller does not even attempt to argue that its conduct is constitutionally valid if the Court determines that the Comptroller was in fact auditing the out-of-network providers. But the Comptroller's efforts are unavailing, because the legality of State conduct (or any conduct for that matter) is not determined based upon the label assigned to the conduct. Just as the success of a pleading does not tum on the name attributed to the cause of action but rather on the facts alleged, see Diemer v. 4 Diemer, 8 NY2d 206, 212 (1960), so too the validity of the Comptroller's conduct here does not depend on whether it is characterized as audits of United or audits of the out-of-network providers. The proper focus is the actual conduct complained of, and there is no dispute between the parties as to what the Comptroller did. The Comptroller and United do not dispute any of the following material facts: Handler and South Island are non-participating providers under the Empire Plan (DiNapoli Brief, p. 11 ); Handler and South Island are out-of-network providers (DiNapoli Brief, p. 11 ); Neither Handler nor United have a contract with the State or United; Neither the State nor United make any payments directly to Handler or South Island (see DiNapoli Brief, p. 9). Handler and South Island are paid directly by their patients, who are private individuals (DiNapoli Brief, p. 9); The Comptroller's reports declared that it was "primarily focused on whether [Handler and South Island] routinely waived Empire Plan members' out-of-pocket costs, and if so, to quantify the overpayments made by United" (R. 94, 776); 5 The Comptroller's reports declared that it "reviewed ... [Handler's and South Island's] financial records" to accomplish its objective (R. 94, 776); The Comptroller's reports stated that it conducted its "performance audit[ s] in accordance with generally accepted government auditing standards," which "require that [the Comptroller] plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for [its] findings and conclusions based on [its] audit objectives" (R. 94, 776); The Comptroller performed the "audit ... pursuant to the State Comptroller's authority as set forth in Article V, Section 1 of the State Constitution and Article II, Section 8 of the State Finance Law" (R. 94, 776); The Comptroller never issued a subpoena to Handler or South Island. 1 1 Despite these indisputable facts, the Comptroller attempts to distance itself from its prior statements and downplays the extent of its conduct. For example, while the Comptroller previously described its audit as a "performance audit" in the audit reports (R. 94, 776), the Comptroller now denies that it conducted a "performance audit." (Comptroller's Brief, p. 30). Instead, the Comptroller characterizes its conduct only as "very limited examinations of petitioners' billing records." (Comptroller's Brief, p. 31). Similarly, while the Comptroller originally declared that its findings were based on "sufficient, appropriate evidence" (R. 94, 776), it now claims that its examination of the out-of-network providers' records "were narrow in scope." (Comptroller's Brief, p. 29). The Third Department's decision was based on the same understatement ofthe Comptroller's conduct. See Martin H Handler, MD., P.C. v. 6 This Court must determine whether under these facts the Comptroller's conduct was authorized by article V, section 1. Neither the Comptroller nor United cite a single case in which any court upheld the Comptroller's review of a private entity's records under similar circumstances. For the reasons set forth below and in our Joint Brief for Appellants, the Comptroller's conduct must be declared unconstitutional, and the Comptroller and United enjoined from taking any action based upon the conclusions or findings of the constitutionally defective audit. B. The Comptroller Cites No Authority that Upheld Similar Conduct The Comptroller's primary argument to justify its conduct is that the routine waiver of Empire Plan members' out-of-pocket costs has an impact on State funds and therefore ought to be subject to review by the Comptroller. Both the Comptroller and the Third Department believe that no other entity has the ability to monitor Plan members' payment of out-of-pocket costs. In their view, only the Comptroller's office possesses the requisite competency to do so. The Comptroller and the Third Department are wrong, and their reasoning is flawed. The Comptroller does not take a direct path to the conclusion that its reviews of Handler's and South Island's records were constitutional, however, and instead attempts to construct a logical chain from the text and purpose of article V, Comptroller, 88 AD3d 1187, 1191 (3d Dept 2011), lv to app dismissed, 19 NY3d 953 (2012). The Comptroller's and Third Department's efforts to minimize its conduct- and in the process contradict the Comptroller's prior assertions- is demonstrative of the fact that the Comptroller must view its conduct as constitutionally defective. 7 section 1 to its determination to review Handler's and South Island's private billing records. The strength of the Comptroller's argument is dependent upon each link in the chain holding firm against any attack. The failure of any one link destroys the entire argument chain. As set forth below, each link in the Comptroller's chain is brittle and crumbles under the actual facts. The chain begins with the Comptroller's citation to article V, section 1 of the Constitution, which authorizes it to" 'audit all vouchers before payment' and provides that the 'payment of any money of the state, or of any money under its control ... except upon audit by the [C]omptroller, shall be void.' " (DiNapoli Brief, pp. 20, 22). From there, the Comptroller states that the article V, section 1 audit power permits the Comptroller to "audit[] private entities such as United that contract with the State," including conducting post-payment audits. (DiNapoli Brief, pp. 20, 22). The Comptroller next argues that the "Legislature has specifically directed the Comptroller to audit payments to the State's employee health insurance contractor." (DiNapoli Brief, pp. 20, 21). The Comptroller argues that these audits include the right to determine whether the contractor has complied with the requirements of the State contract. (DiNapoli Brief, p. 25). Finally, the Comptroller concludes that it can also audit private medical practices that do not submit payment vouchers to the State, do not receive State money, and are not parties to any contract with the State, such as Handler and South Island. 8 This argument is flawed on multiple levels: neither Handler nor South Island submit vouchers for payment to the State; neither has a contract with the State; and neither participates in the Empire Plan and accordingly are not required to comply with its terms. 1. Neither Handler nor South Island Have a Contract with the State The Comptroller relies upon Quayle v. State, 192 NY 47 (1908), and Matter of N.Y. World's Fair 1964-1965 Corp. v. Beame, 22 AD2d 611 (1st Dept), aff'd, 16 NY2d 570 (1965), to support the assertion that a claim for payment for work done under a contract with the State must be presented to the Comptroller for audit. These cases, however, are factually distinguishable from the current appeal, and they demonstrate the error in the Comptroller's reasoning. The plaintiff in Quayle had entered into a contract by assignment with the State pursuant to which he agreed to perform certain public printing jobs required by the State. Quayle, 192 NY at 49. Upon completion ofthe contract, the plaintiff commenced an action against the State in the Court of Claims. /d. The cause of action on appeal sought to recover an alleged balance due under the contract. The Court of Claims dismissed this cause of action, and the Appellate Division affirmed. /d. at 50. The Court of Appeals affirmed the dismissal as well. The Court's analysis focused on the jurisdiction of the Court of Claims. The relevant statute exempted 9 from the Court's jurisdiction any "claim submitted by law to any other tribunal or officer for audit or determination." /d. at 50. Section 4 of the State Finance Law imposed on the Comptroller the duty to examine, audit, and liquidate the claims of all persons against the State if the payment would be made out of the treasury. /d. at 51. The evidence demonstrated that the Comptroller had reviewed, audited, and liquidated plaintiffs invoices and determined that plaintiff was not entitled to any additional payment. /d. at 53-54. Under these facts, this Court held that the Court of Claims did not have jurisdiction over plaintiffs first cause of action. Instead, the plaintiff should have commenced a direct action against the Comptroller to challenge the conclusions of the audit. /d. at 54. Unlike the plaintiff in Quayle, it is undisputed that neither Handler nor South Island were parties to a contract with the State. In fact, both have made the deliberate decision to remain independent from the State and opted not to participate in the Empire Plan. Because neither Handler nor South Island have a contract with the State, neither submitted a payment request to the State that was subject to review by the Comptroller.2 World's Fair is also distinguishable on the facts and the law. The issue there was whether the New York City Charter authorized the City comptroller to compel 2 Quayle is distinguishable for another reason. It was decided by the Court of Appeals in 1908, nearly twenty years before the governmental restructuring that led to the adoption of article V, section 1 in 1925. When Quayle was decided, the Comptroller had far greater authority than after the adoption of the current article V, section 1. See Blue Cross & Blue Shield of Cent. New Yorkv. McCall, 89NY2d 160,167 (1996). 10 the petitioner, a municipal corporation that leased land under a contract with the City ofNew York, to appear before it with its financial records and provide testimony. Matter ofN. Y World's Fair 1964-1965 Corp., 22 AD2d at 613. The Appellate Division held Section 20 of the General City Law and Section 93 of the New York City Charter together confer upon the City comptroller, as agent of the City, the power to issue the subpoena duces tecum and ad testificandum and the municipal corporation. !d. at 617. World's Fair did not involve an analysis of the State Comptroller's audit authority under article V, section 1 of the State Constitution as this case does, and this case does not involve Section 20 of the General City Law or Section 93 of the New York City Charter as World's Fair did. There is simply nothing in the court's holding that has any application to the current appeal. Thus, the Comptroller cannot justify its reviews of Handler's and South Island's billing records under its stated authority to audit work done under a contract with the State, as neither Handler nor South Island have a contract with the State 2. Neither Handler nor South Island Participate in a State-Sponsored Plan In support of its argument that the Comptroller's audit powers include the ability to ensure compliance with State-sponsored programs, the Comptroller relies on Matter of Elmira Bus. Inst. v. New York State Dep 't of Educ., 116 AD2d 133 11 (3d Dept), app granted, 69 NY2d 601 (1986), aff'd, 70 NY2d 758 (1987), and ASA Ins. of Bus. & Computer Tech. v. McCall, 281 AD2d 849 (3d Dept 2001 ), both of which involved the New York State Tuition Assistance Program. While Handler and South Island do not challenge the individual holdings of each of these cases, appellants do challenge their applicability to the current dispute. Elmira and ASA Institute are both distinguishable on the facts, and their holdings are utterly irrelevant. TAP provides tuition assistance to college-level students who attend eligible schools. TAP grants are paid directly from the State to the school. Eligibility to receive TAP payments requires that the school meet certain criteria set by the Education Commissioner. See NY Education Law§ 665 (McKinney's 2013); 8 NYCRR 126.1 O(a) (relating to available courses of study, facilities, and resources). In Elmira, the Comptroller- pursuant to Education Law§ 665(3)(b)- audited the petitioner's compliance with the eligibility requirements set by the Commissioner. The Comptroller concluded that the petitioner did not offer its course programs in accordance with the TAP requirements during a seven-year period. The petitioner commenced an Article 78 proceeding that challenged (i) the State Education Department's adoption of the Comptroller's audit report and (ii) the State Higher Education Services Corporation's demand for a refund of the 12 TAP payments made to petitioner during the seven-year period. Elmira Bus. Inst., Inc., 116 AD2d at 134-35. Elmira did not involve a challenge to the Comptroller's audit authority. The petitioner never alleged that the Comptroller did not have the authority to conduct the audit. Instead, the petitioner's challenges, and therefore the court's analysis, focused on the conclusions reached by the Education Department and Higher Education Services Corporation. Thus, for this reason alone, Elmira is inapposite as it does not speak to the only issue involved on this appeal. Elmira is inapplicable for an additional reason. The petitioner there had voluntarily applied to receive TAP payments. It had agreed to comply with the Education Commissioner's requirements in exchange for TAP payments on behalf of its students. In this manner, the petitioner transacted business with the State and was similarly situated to the petitioners in Quayle and World's Fair. But Handler and South Island stand in a markedly different posture than the Elmira petitioner. Unlike the petitioner in Elmira, Handler and South Island do not participate in any State-sponsored plan. They are considered out-of-network providers under the Empire Plan, meaning that they have not agreed to abide by its terms. Because they are out-of-network, the State never pays Handler or South Island. Thus, just because the Comptroller audited the petitioner in Elmira, does 13 not also mean that it could also review Handler's and South Island's billing records to determine ifthey complied with Empire Plan. ASA Institute of Bus, another case involving the Comptroller's audit of a school's TAP eligibility, is inapplicable for the same reason. The issue there was whether the Comptroller's conclusions in the audit were arbitrary and capricious, not whether the Comptroller had the power to conduct the audit in the first instance. Furthermore, the fact that the petitioner participated in the TAP program, while Handler and South Island do not participate in the Empire Plan, so distinguishes the two cases that ASA Institute can have no bearing here. Thus, the Comptroller's review of Handler's and South Island's billing records cannot be justified under the Comptroller's alleged authority to ensure compliance with a State-sponsored plan, as neither Handler nor South Island participate in the Empire Plan. C. The Comptroller Has Other, Constitutionally Authorized Means Available to it to Ensure Compliance with the Empire Plan In the absence of any legal justification for the result it seeks, the Comptroller turns to public policy to justify its conduct. According to the Comptroller (and the Third Department), its review of out-of-network provider's private financial billing records is the only way to ensure that Empire Plan members comply with the Plan's requirement that they pay all deductible and coinsurance amounts payable to a non-participating provider. Handler and South 14 Island do not deny the importance of ensuring that Empire Plan beneficiaries honor their contractual commitments, but that goal does not justify the Comptroller's unilateral expansion of its audit powers. The Comptroller cannot bestow upon itself additional powers simply because it believes it is performing a worthy function. The 1925 amendments to article V, section 1 were intended to limit and confine the functions of the Comptroller's office. See Blue Cross, 89 NY2d at 167-68. But just because the Comptroller cannot ensure compliance with the Empire Plan (at least in the manner it did here), does not mean that the Plan members' compliance goes unchecked. There are other, constitutionally valid means of achieving that result. Empire Plan members and beneficiaries are parties to a written contract with United, as reflected by the certificate of insurance. That certificate already includes safeguards to ensure that members pay the out-of- pocket costs. The certificate expressly permits United to recover from the members any amounts allegedly overpaid as a result of the member's failure to pay the coinsurance or deductible. Specifically, the Empire "Plan reserves the right to recover from enrollees benefits paid inconsistent with the provisions of this section of the Certificate of Insurance." (R. 11 7 (emphasis added)). The certificate also provides as follows: "IfUnitedHealthcare pays benefits under this [Empire] Plan for covered medical expenses incurred on your account, and it is found that 15 UnitedHealthcare paid more benefits than should have been paid because all or some of those expenses were not paid by you ... UnitedHealthcare will have the right to a refund from you. 3 The amount of the refund is the difference between the amount of benefits paid by UnitedHealthcare for those expenses and the amount of benefits which should have been paid by UnitedHealthcare for those expenses." (R. 134). These provisions are more than sufficient to appease the Third Department's concerns that some "entity ... retain oversight" over the payment of out-of-pocket costs. See Martin H. Handler, 88 AD3d at 1191, fn. 1. United could also require as part of that contract that the Empire Plan members provide proof of payment of their out-of-pocket costs each time out-of- network benefits are paid by United as part of the Plan or insurance contract. These records in the hands of United, a State contractor, would likely be available for audit by the Comptroller's office. Alternatively, United could distribute questionnaires to Plan beneficiaries to inquire whether they paid the out-of-pocket costs. Neither of these options would run afoul of the Constitution, but rather would confine the matter to the real parties in interest: the insurer and the insured. Finally, the Department of Financial Services regulates health insurers (and most other insurers) and has jurisdiction over out-of-network providers' billing practices. See An Unwelcome Surprise: How New Yorkers Are Getting Stuck with 3 "You" is defined by the Plan to mean "the enrollee, and ... an eligible dependent member of the enrollee's family." (R. 111). 16 Unexpected Medical Bills from Out-of-Network Providers, report ofthe Department of Financial Services (March 7, 2012). If there is an issue with any out-of-network providers' waiver of Empire Plan members' out-of-pocket costs (and Handler and South Island dispute that there is), it is for DFS to investigate and act upon, not the Comptroller. Thus, there is no merit to the Comptroller's argument that without the audits here, there is no way to ensure that Empire Plan members pay their out-of-pocket costs. There are various alternative means of ensuring compliance, none of which violate the State Constitution. D. This Case Does Not Involve the Comptroller's Subpoena Powers Throughout its Brief, the Comptroller makes repeated references to its subpoena power under State Finance Law § 9 and suggests -without any legal support- that it could have obtained Handler's and South Island's billing records via subpoena. This argument is fatally tautological. All that State Finance Law § 9 provides is that the Comptroller can issue subpoenas "in reference to any matter within the scope of an inquiry or investigation." But for this power to have any relevance here, the Comptroller must first have the constitutional and statutory authority to conduct the particular inquiry or investigation. As Handler and South Island have argued throughout, the Comptroller has no jurisdiction over out-of- network providers' billing practices with their patients. 17 Furthermore, the Comptroller's references to its subpoena power are a red herring because no subpoenaes were ever issued by the Comptroller and the Comptroller never invoked its Section 9 subpoena power. Instead, the Comptroller performed its audit "pursuant to the State Comptroller's authority under Article V, Section 1 ofthe State Constitution and Article II, Section 8 of the State Finance Law," both of which address only the Comptroller's audit powers. Neither article V, section 1 nor State Finance Law Section 9 confer subpoena power on the Comptroller. II. NO ONE CAN CONFER BROADER AUDITING POWERS ON THE COMPTROLLER THAN ARTICLE V, SECTION 1 AUTHORIZES The Comptroller's alternative argument is that even if the Court determines that it acted beyond its constitutional grant of authority, the Court should disregard that violation and nonetheless uphold the conclusions reached in each audit report. In this manner, the Comptroller asks this Court to afford it powers the Constitution does not. The Court must decline that request. The Comptroller raises three arguments in support of its request that the Court disregard the lack of constitutional support for its reviews of Handler's and South Island's records: (i) Handler's and South Island's challenges are moot because the results of the audits have been made public, (ii) Handler and South Island consented to the Comptroller's audit, and (iii) the exclusion of illegally obtained evidence is not automatically required. 18 These arguments, however, ignore the basic premise that the Constitution defines the outer limits of governmental authority which cannot be extended absent an amendment to the Constitution. Private citizens cannot unilaterally expand the government's authority beyond what is set forth in the Constitution. A classic example of this is seen with the federal courts' subject matter jurisdiction, the boundaries of which are set by the Federal Constitution. If a federal court lacks the constitutional authority to adjudicate a particular case, then no amount of participation or consent by the litigants can cure that defect. Even if the matter proceeds through trial, the result must be declared void if the court lacked jurisdiction over the case. See Wynn v. AC Rochester, 273 F3d 153, 157 (2d Cir 2001) ("[T]he parties cannot confer subject matter jurisdiction where the Constitution and Congress have not."). In other words, parties cannot agree among themselves to expand the constitutional limits on federal subject matter jurisdiction. Similarly, in this case, the Comptroller lacked the constitutional power to review Handler's and South Island's financial records, and everything that followed from these reviews is void ab initio. A private entity simply cannot rewrite the Constitution and confer additional powers on any branch of government -including the Comptroller- that do not otherwise exist. For this reason, each of the Comptroller's alternative grounds for upholding its actions must be rejected. 19 A. Handler's and South Island's Challenges to the Comptroller's Audits Are Ripe The Comptroller argues that Handler's and South Island's challenges to the audits are "moot" because the audit reports have already been made public and cites Matter of Blossom View Nursing Home v. Novello, 4 NY3d 581 (2005), in support of that argument. The specific portion of Blossom View relied upon by the Comptroller is footnote 1, where this Court held that "Blossom's request for injunctive and declaratory relief with respect to the audit of its 1994 PRis is moot because DOH has already commenced and completed this audit." /d. at 596, fn.1. Blossom View, however, does not support the Comptroller's argument that its audit reports should be upheld, but rather buttresses Handler's and South Island's argument that neither the Comptroller nor United can rely upon the audits. Blossom View involved the petitioner's challenge to the Department of Health's announcement in 2002 that it would audit petitioner's patient review instruments (PRis) submitted in 1994, 1995 and 1996.4 Petitioner sought to enjoin the audit from proceeding. /d. at 584. Petitioner's challenge to the audit was not based on any constitutional ground. There was no dispute that the DOH, as the administrator of the State's Medicaid program, could audit the PRis submitted by petitioner. 4 PRis are submitted by residential health care facilities and summarize each patient's condition to determine the facility's Medicaid reimbursement rates. 20 For reasons that are not explained in the Court's decision, the DOH had already conducted its audit of petitioner's 1994 PRJ submissions by the time the Court issued its decision. Because the audit was complete, the Court concluded that the request to enjoin it from taking place was moot. !d. at 584, fn. 1. For the years in which no audit had yet been performed ( 1995 and 1996), the Court held that the DOH had not complied with the governing Medicaid regulations and therefore enjoined the audits. /d. at 595. But that was not the end of the opinion. This Court held that the audit of the 1994 submissions - while complete - also did not comply with the governing regulations. /d. Even though the Court could not stop the audit from taking place (because it was finished), the Court did prohibit the DOH from taking any action based upon that defective audit. /d. The Comptroller's reliance on footnote 1 in the Blossom View decision is misplaced because neither Handler nor South Island is attempting to enjoin an audit that already occurred. Rather, Handler and South Island are seeking to declare the Comptroller's reviews and audit reports unconstitutional and to preclude the Comptroller and United from taking any action based the defective audits, and on that latter point, Blossom View supports their position. If the DOH could not rely on an audit that did not adhere to administrative regulations, then a 21 fortiori the Comptroller and United should not be permitted to rely on a constitutionally defective audit. B. Handler and South Island Cannot Consent to Expand the Comptroller's Audit Authority The Comptroller also argues that Handler and South Island waived the right to challenge the Comptroller's authority to review their records by permitting the State's auditors to conduct their reviews. Both Supreme Court justices considered this same argument below and rejected it. (R. 14, 616). The Comptroller analogizes the providers to the criminal defendant in People v. Calloway, 71 AD3d 1493 (4th Dept), lv to app den, 15 NY3d 748 (20 1 0), who was convicted of criminal possession of a firearm in the third degree. The Fourth Department affirmed the trial court's denial of the defendant's motion to suppress evidence obtained during the police's warrantless search of the car the defendant was driving, finding that the defendant voluntarily consented to the search. The Calloway court cited to the United States Supreme Court's decision in Schneckloth v. Bustamante, 412 US 218 (1973), which held that when the subject of a warrantless search is not in custody and the State attempts to justify a search on the basis of consent, the Fourth and Fourteenth Amendments require that the State demonstrate that the consent was voluntarily given and not the result of duress or coercion, express or implied. /d. at 248-49. The principles enunciated in 22 Calloway and Schneckloth are inapplicable, and the Comptroller's reliance on them is misplaced. As an initial matter, this case is not analogous to warrantless search cases. The Comptroller showed up at Handler's and South Island's doorsteps armed with audit letters, which on their face declared to be "the audit authority," and demanded access to their books and records without any limitation or other safeguard against unwarranted governmental intrusion. (see R. 616). These audit letters make this case akin to a search warrant case, where the police conduct a search under the color of law. In such situations, it would be unreasonable to expect the target of the search to slam its doors in the face of the government. Rather, the proper course, and the one followed by Handler, is to allow the government access and later challenge the government's use of any information or documentation that was obtained through the unconstitutional warrant. See Finn 's Liquor Shop, Inc. v. State Liquor Auth., 24 NY2d 647, 661, rearg den, 25 NY2d 777, cert den sub nom, NYS Liquor Auth. v. Finn's Liquor Shop, Inc., 369 U.S. 840 (1969). Furthermore, even if Calloway and Schneckloth are applicable to this appeal, they do not compel the result the Comptroller seeks, i.e., affirmance of the audit reports. The issue of consent in the context of a governmental search is inherently a factual determination. There has never been a factual determination that 23 Handler's and South Island's permission to allow the Comptroller's auditing to conduct their reviews was voluntarily given and not the result of duress or coercion, and this Court is without power to make that factual determination, as explicitly provided by the State Constitution, article VI, section 3(a) and CPLR 5501(b). In reversing the original trial term orders, the Appellate Division, Third Department did not "expressly or impliedly [find] new facts" (I d.), and thus this Court's review on this appeal is limited to only questions oflaw. See Glenbriar Co. v. Lipsman, 5 NY3d 388, 392 (2005); Stiles v. Batavia Atomic Horseshoes, Inc., 81 NY2d 950,951 (1993), rearg den, 81 NY2d 1068 (1993); see also Karger, The Powers ofthe New York Court of Appeals, §13.1, 3rd Edition (2005); compare, Heary Bros. Lighting Protection Co., Inc. v. Intertek Testing Services, N.A., 4 NY3d 615, 618 (2005) (power to review exists where effect of appellate division ruling was to reverse factual finding). C. Neither the Comptroller nor United Can Rely on the Illegally Seized Evidence Finally, the Comptroller argues, for the first time on this appeal, that the evidence obtained during its illegal reviews of Handler's and South Island's financial billing records, and the Comptroller's resulting audit reports, should be admissible in some unknown future proceeding against Handler and South Island based on a balancing test articulated by this Court in Matter of Boyd v. Constantine, 81 NY2d 189 ( 1993 ). But that balancing test is inapplicable here and 24 does not permit either the Comptroller or United to rely upon the information taken from the providers' offices. The issue in Matter of Boyd was whether evidence obtained through an unlawful search conducted by the Buffalo City Police, which was surpressed in a criminal prosecution, could be used in an administrative proceeding commenced by the Division of State Police. /d. at 192. The petitioner in Boyd, an off-duty State Trooper, received a summons by the Buffalo City Police charging him with possession of marihuana. /d. Thereafter, the Division of State Police charged the petitioner with violating the State Police regulations by possessing marihuana. The petitioner denied the charges and requested a hearing. /d. Before the hearing took place, the Buffalo City Court granted the petitioner's motion in the criminal proceeding and suppressed all of the evidence obtained during the search. /d. However, during the administrative proceeding before the Division of State Police, the judicial hearing officer admitted the evidence over the petitioner's objection and recommended that petitioner be discharged. /d. The Superintendent of State Police accepted the recommendation and dismissed petitioner. /d. The petitioner commenced an Article 78 proceeding and challenged the introduction of the suppressed evidence during the administrative proceeding. /d. at 192-93. This Court allowed the use of the suppressed evidence in the 25 administrative hearing and in doing so distinguished between cases in which the State agency that collected the illegally obtained evidence attempts to use it and cases in which some other State agency attempts to use the evidence. See id. at 194-95. In the former, the traditional exclusionary rule applies to act as a deterrent against the illegal collection of evidence. /d. at 194; see also Finn 's Liquor Shop, Inc., 24 NY2d at 661 (holding that the State Liquor Authority could not use illegally obtained evidence that had been obtained by Buffalo City Police, who were acting as agents of the Authority). But in the latter, where the agency seeking to use the illegal evidence was not involved in the search, the deterrence rational no longer applies, and courts engage in a balancing test that weighs the foreseeable deterrent effect against the adverse impact of suppression on the truth finding process. Matter of Boyd, 81 NY2d at 195. In Boyd, the evidence relied upon by the Division of State Police was obtained by the Buffalo City Police, a separate governmental body. But the principles of Boyd are inapplicable on this appeal. There is currently no pending administrative or other proceeding pending against Handler or South Island. The balancing analysis only applies if the administrative agency that relies upon the suppressed evidence was not involved in its collection. It is premature for this Court to determine whether the evidence obtained by the Comptroller can be used against Handler or South Island, as that determination depends on who wants 26 to use the information and for what purpose - both of which are unknown at this point. CONCLUSION For all the foregoing reasons, the Order should be affirmed in its entirety. Article V, section 1 does not empower the Comptroller to audit a private medical provider that has no contract with the State and does not receive State money. Further, because the Comptroller had no constitutional authority to conduct the reviews, Handler and South Island were powerless to bestow that authority upon him. Therefore, the Memoranda and Orders of the Appellate Division, Third Department must be reversed and those of the trial courts reinstated. Dated: Uniondale, New York October 28, 20 13 RUSKIN MOSCOU F AL TISCHEK, P.C. 27 tl ew F. Did ra rk S. Mulholland Joseph R. Harbeson Attorney for Petitioners-Appellants 1425 RXR Plaza East Tower, 15th Floor Uniondale, New York 11556 ( 516) 663-6600 mdidora@rmfpc.com
