In the Matter of New Surfside Nursing Home, LLC, et al., Appellants,v.Richard F. Daines,, et al., Respondents.BriefN.Y.January 16, 2014To be argued by: SUDARSANA SRINIVASAN 15 minutes requested Supreme Court, Queens County- Index No. 10185/10 ~upreme ~ourt of tbe ~tate of .t!ebl ~ork ~ppellate t!libision- ~econb t!lepartment In the Matter of the Application of NEW SURFSIDE NURSING HOME, LLC and MEADOW PARK REHABILITATION AND HEALTH CARE CENTER, LLC, Petitioners-Appellants, For a Judgment Pursuant to Article 78 of the Civil Practice Law & Rules Docket No. 2010-10100 -against- RICHARD F. DAINES, Commissioner of the New York State Department of Health, and ROBERT L. MEGNA, Budget Director of the New York State Division of Budget, Respondents-Respondents. BRIEF FOR RESPONDENTS RICHARD DEARING Deputy Solicitor General SUDARSANA SRINIVASAN Assistant Solicitor General of Counsel ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Respondents 120 Broadway, 25th Floor New York, New York 10271 (212) 416-8921 Dated: August 5. 2011 TABLE OF CONTENTS Page ·TABLE OF AUTHORITIES .......................................................... iii PRELIMINARY STATEMENT ......................................................... 1 QUESTIONS PRESENTED ............................................................ 3 STATEMENT 0 F THE CASE .....•................................................... 4 A. Statutory and Regulatory Background ... ~ ..................... 4 1. The mechanics of the RUG-II determination ........ ~ 5 2. The Patient Review Instrument (PRI) ................... 7 3. "'The PRI audit process ........... · .................................. 9 4. Specialty units ..................................................... ·. 11 B. Factual Background ..................................................... l3 .. C. Proceedings· Below ........................................................ 15 ARGUMENT ....................................................... · ........................... 17 POINT I - PETITIONERS' CLAIMS ARE TIME- BARRED BECAUSE THEY FILED THEM MORE THAN FOUR MONTHS AFTER RECEIVING THE FINAL PRI AUDIT RESULTS ................................................................ 17 A. The Statute of Limitations Runs from Receipt of the PRI Audit Results, Not from Receipt of Revised Rate Sheets .......................... 18 B. J.udicial Estoppel is Inapplicable ....................... 24 1 TABLE OF CONTENTS POINT II - THE DEPARTMENT OF HEALTH RATIONALLY IMPLEMENTED THE RESULTS OF THE PRI AUDITS BY REVISING PETITIONERS' MEDICAID REIMBURSEMENT RATES PURSUANT TO Page STATE REGULATIONS ......................................... 27 A. DOH Properly Applied the PRI Audit Results in Revising Petitioners' Medicaid Reimbursement Rates .............................. ~ ......... 28 B .. Petitioners' Effort to Revise Their Own PRI Classifications Fails For Additional · Reasons .......................... · ..................................... 34 CONCLUSION ............................................................................... 35 11 I . i I l . ! i i I ~ • I t t . k t TABLE OF AUTHORITIES Cases Page(s) Bronx-Lebanon Special Care Ctr., Inc. v. DeBuono, 269 A.D.2d 195 (1st Dep't 2000) ................................................ 33 Comm'r of Soc. Servs. ex rel. Maudlyn V.R. v. Paul C., 73 A.D.3d 459 (ld Dep't 2010) ............................................... · .... 26 Concourse Rehab. & Nursing Ctr., Inc.· v. Novello, 45 A.:Q.3d 366 (1st Dep't 2007) .................................................. 19 Ferreira v. Wyckoff Heights Med. Ctr., 81 A.D.3d 587 (2d Dep't 2011) ................................................... 26 Kurcsics v. Merchs. Mut. Ins. Co., 49 N.Y.2d 451 (1980) .................................... ~ ............................ 27 Matter of A.R.E.B.A. Casriel, Inc. v. Novello, 298 A.D.2d 134 (1st Dep't 2002) .......................................... 29, 32 Matter of Alterra Healthcare Corp. v. Novello, 306 A.D.2d 787 (3d Dep't 2003) ...........•......................... 18, 21, 24 Matter of Best Payphones, Inc. v. Dep't of Info~ Tech. and Telecomm., . 5 N.Y.3d 30 (2005) ......................................... ~ ........................... 18 Matter of Charles A. Field Delivery Serv. (Roberts), 66 N.Y.2d 516 (1985) .. · ............................................................... 30 Matter of Elcor Health Servs. v. Nof!ello, . 100 N.Y.2d 273 (2003) .................... ~ .......................................... 27 Matter of Frick v. Bahou, 56 N.Y.2d 777 (1982) ............. ~ ................................................... 30 Matter of Henn v .. Perales, 186 A.D.2d 7 40 (2d Dep't 1992) .................................................. 33 111 TABLE OF AUTHORITIES (cont'd) Cases Page(s) Matter of Jennings v. Commissioner, 71 A.D.3d 98 (2d Dep't 2010) ..................................................... 28 Matter of Nazareth Home of Franciscan Sisters v. Novello, 7 N.Y.3d 538 (2006) ................................................................... 28 Matter of Terrace Healthcare Center, Inc. v. Novello, 54 A.D.3d. 643 (1st Dep't 2008) .................................................. 19 Matter of Trager v. Kampe, 287 A.D.2d 643 (2d Dep't 2001), .. aff'd, 99 N.Y.2d 361 (2003) ....................................................... 30 N. Y. State Ass 'n of Counties v. Axelrod, 199 A.D. 2d 752 (3d Dep't 1993), rev'd on other grounds, 85 N. Y.2d 326 (1995) (per curiam) ............................................ 22 N.Y. State Ass 'n, of Counties v. Axelrod, 78 N.Y.2d 158 (1991) ................................................................. 22 Prisco v. State, 62 :f\.D.3d 978 (2d Dep't 2009) ................................................... 25 Terry Contracting, Inc. v. State, . 27 A.D.2d 499· (2d Dep't 1967) ................................................... 25 Waterman v. State, . 19A.D.2d 264 (4thDep't 1963) ................................................. 26 Westmount Health Facility v. Comm 'r of the N.Y. State Dep 't of Health, 205 A.D.2d.991 (3d Dep't 1994) ................................................. 22 lV ! . i i TABLE OF AUTHORITIES (cont'd) Statutes Page(s) C.P.L.R 217(1) ...................................................................................... 18, 25 7803 ..................................................................... · ....................... 25 Public Health Law § 2807 ................................................................ 4 Regulations 10 N.Y.C.R.R. J)t. 415 ·························o~ooo••••··~·····••••o•o••••···························•o•••••• 11 J)t. 710 .. 0 ••••••••••••••••••••••••••• 0 0 •••••••••••••••••••••••••••••••••••••••••••••••••••••••• 11 § 86-2.10 ............................................................................. 5, 9, 12 § 86-2.11 ................................................................................... 7' 8 § 86-2.30 ............................................................................... Jlassim § 415.36 ······················~·······························································11 § 415.37 ...................................................................................... 11 §415.39 .................. · .................................................................... 11 42 C.F.R. I>t. 430 ........................................................... ~ .................. 12 v PRELIMINARY STATEMENT The method used to calculate a nursing facility's Medicaid reimbursement rates requires the facility to classify each resident into a fiXed category. prescribed by regulations that reflect the resident's relative resource needs. The Department of Health audits the facility's periodic classifications of its residents to verify that they accurately apply the regulatory categories and adjusts those classifications as necessary to avoid excessive reimbursement. Petitioners New Surfside Nursing Home and Meadow Park Rehabilitation and Health Care Center (together "petitioners") are residential health-care facilities seeking to annul the· result~ of audits performed by the Department of Health on their 2000-2005 patient classifications, and to prevent the implementation of revised Medicaid reimbursement rates based upon those audits which would require petitioners to repay $25 million of Medicaid overp~yments due to inaccurate classification of residents by petitioners. Petitioners claim that they are entitled to an enhanced Medicaid reimbursement level for thpse patients because they provided certain nursing home residents with specialized treatment in self-designated "Neurobiological Units." Pet~tioners concede that under the existing regulations these "neuro- biologi.caf' patients did not receive the services that would qualify them for ,the highest categories of reimbursement, but argue nonetheless that the Department's revisions of those patients' classifications are irrational bec~use petitioners' treatment of the misclassified residents was successful and because the Department proposed, but did not adopt, regulations that could have prospectively increased petitioners' reimbursement rates. Supreme Court, Queens County (Kelly, J.) denied the petition, finding that petitioners' challenge to the audit results were time-barred by the applicable four-month statute of limita- tions and that, in any event, the Department's actions were reasonable and in compliance with existing regulations. This Court should affrrm. Petitioners did not pursue a timely article 78 challenge to the audit results issued from 2 f I I I f I f t t I I ! f I l t I ' I I i f I I ~ ~ ~ t t f f [ f t ! I ' f i t I I ~ ~ l r •' J February 2003 to July 2009, and are now time-barred from challenging the rate revisions. On the merits, the Department of Health correctly applied the existing regulations-a point that petitioners essentially concede. The Department has never promulgated regulations establishing separate enhanced Medicaid reimbursements for the treatment petitioners claim to have provided. Absent such regulations, the Department is bound by the applicable statutes and regulations. in calculating petitioners' reimbursement rates, and because petitioners do not quarrel with the Department's interpretation or application of those statutes and regulations, their claim has no merit. QUESTIONS PRESENTED 1. Does the statute of limitations bar pet~tioners' challenge to the audit results reclassifying their residents where this article 78 action was commenced more than four months after petitioners were informed that the audits at issue were finalized? Supreme Court ruled that the suit was time-barred. 2. On the merits, did the Department of Health's audits of petitioners, resulting in changes to petitioner.s' Medicaid reimbursement rates, reasonably implement the regulations governing classification of residents? Supreme Court held that the Department acted reasonably. STATEMENT OF THE CASE A. Statutory and Regulatory Background The Medicaid program, established in 1965 by Title XIX of the Social Security Act (codified at 42 U.S.C. §§ 1396-1396w-2), is a joint federal-state program that pays for medical care for those unable to.afford it. Under article 28 of the Public Health. Law, the Department of Health is charged with the responsibility of setting Medicaid reimbursement rB:tes for nursing facilities at a level that . is reasonably related to the costs incurred by "efficiently and economically operated f~cilities." Public Health Law § 2807(3) . . The specific method for computing nursing facility reimbursement rates is set forth in 10 N.Y.C.R.R. subpart 86-2. In 1986 the Department implemented the Long Term Care Case Mix Reimbursement System, a new Medicaid reimbursement 4 l meth that would reimburse nursing care facilities based on the characteristics of its patients (A. 106-132). See 10 N.Y.C.R.R. § 86- 2.30. Under this methodology, the per p_atient/per day Medicaid rate for nursing homes is coin posed primarily of an oper·ating-cost component and a capital-cost component. (A. 754-755). See 10 N.Y.C.R.R. § 86-2.10(a)(7), (b)(1)(ii), and (b)(2). The operating-cost component includes direct costs, such as nursing care, social services, and occupational and physical therapy, and indirect costs such as administrative costs, housekeeping, and food and laundry service. See 10 N.Y.C.R.R. § 86-2.10(c)(l), (d)(1). Direct-cost calculations are based upon a patient classification system known as "RUG-II" that established sixteen resource utilization groups, or RUGs, based on a calculation of the relative cost of caring for certain categories of residents with similar care needs (A. 110). 1. The mechanics of the . RUG-II determination The sixteen RUG-II categories are in turn grouped into five resident types, or conditions. In descending order of resource utilization, those five- types are (1) Heavy Rehabilitation,. 5 (2) Special Care, (3) Clinically Complex, (4) Severe Behavioral, and (5) Reduced Physical Functioning (A. 757-758; see A. 110-112). The higher the average resource utilization across the. facility's resident population, the greater the facility's reimbursement rate. The resident groups are defined according to specifically diagnosed physical or mental conditions. For example, "Special Care" residents have serious chronic medical conditions such as coma or quadriplegia and "Heavy Rehabilitation" residents· receive physical or occupational therapy services that meet specified standards and have a restorative goal at least five days a week (A. 111). A patient who does not have a condition qualifying for one of the frrst four groups is automatically placed in the frfth group: Reduced Physical Functioning (A. 112, 758). These five groups are further divided into subgroups based on the resident's functional ability· to perform the activities of daily living, which is measured· by the resident's score on the Activities of Daily Living Index that reflects a resident's need for supervision and assistance in feeding and toileting (A. 111, 758). Each of the sixteen RUG-II categories is a different combination of 6 . I I . I ! I t I these two components: the resident type and functional ability (A. 758, 154). Each RUG-II category indicates a different level of resource consumption, and is assigned a numeric value ranging from .55 for the "Reduced Physical Functioning A" category to 1. 79 ·for the "Heavy Rehabilitation B" category (A. 154). This numeric value is known as the Case Mix Index, or CMI (A. 755). The higher the weighted average of a facility's CMI, the higher the facility's reimbursement rate. Therefore the direct-cost component of a facility's reimbursement rate varies depending on the RUG classifications of its resident population. 2. The Patient Review Instrument (PRI) To determine the, appropriate RUG-II category for its residents a facility must prepare a Patient Review Instrument (PRI) for each of its residents every six months, 1 regardless of whether Medicaid pays for that patient's care (A. 1.33). 10 1 In addition, twice a year, at a halfway point between the biannual PRI submission, each facility must also complete and score a PRI for every resident admitted or discharged since the last scoring period (A. 758). 10 N.Y.C.R.R. § 86-2.11(b). 7 N.Y.C.R.R. § 86-2.11(b); see also id. § 86-2.30(a). DOH's PRI form and accompanying instructions are set forth in § 86-2.30. The PRI, which may be prepared only by a registered nurse who has completed a Department-approved patient case-mix assessment program, details each resident's conditio.n; including medical diagnosis and treatments, activities of daily living, and.spe~ialized services required, such as physical ancl. occupational therapies, during the four weeks preceding completion o~ the form (A. 758). See 10 N.Y.C.R.R. § 86-2.30(c)(2). The PRl instructions require that all "qualifiers" must be met before a P~I question can be answered affirmatively. These qualifiers include the time period, frequency of care, medical record documentation, and the inapplicability of specific exclu- sions. (A. 139, 162.) For example, PRI Question #27, concerning physical and occupational therapies, requires information on the level of therapy received (~.g., whether it is maintenance therapy . . that "stabilize[s] or slow[s] functional deterioration") and requires that receipt of specialized therapy (e.g., speech therapy) be · disregarded in response to the question. (A. 138, 759.) Responses 8 to the PRI. questions, in turn, dete·rmine the patient's place~ent in the RUG-II hierarchy. 10 N.Y.C.R.R. § 86-2.10(c). · 3. The PRI audit process The Department of Health must "monitor and review" eac~ facility's patient assessment activities, including PRis, to determine "whether the residential health care facility 1s complying with the assessment requirements." 10 N.Y.C.R.R. § 86- 2.30(e)(l)-(2). The Department contracts with an independent organization to perform all PRI audits at least once every eighteen months at each facility. The reviewers perform their audits without knowing whether Medicaid or some other source pays for any particular resident's care. (A. 760.) The Department may conduct up to three different levels of PRI audits. For a typical Stage I audit, reviewers randomly select the records of forty patients and independently assess those patients' need for assistance with their activities of daily liv~ng. The reviewers complete an audit form that verifies whether all relevant qualifiers have been satisfied for that resident's specific classification. Reviewers may also consult medical records and 9 engage 1n discussion with caregivers In verifying a resident's I E needs regarding activities of daily living and in completing the audit form. (A. 164.) . For example, for patients classified as receiving restorative therapy in the Heavy Rehabilitation category, there must be verifying documentation showing that "[t]here is positive potential for improved functional status within a short and predictable period of time." Id. at § 86-2.30(e). Where .. qualifiers are not met, the resident's classifications are controverted, or revised, to reflect the correct level of treatment. and care provided to that resident (A. 164-165). At the conclusion of the Stage I audit, reviewers return the completed forms to the Department of Health, noting. the reasons for any revisiqns to residents' classifications. If the discrepancy · between the audited results for the forty-resident sample and the PRis submitted by the facility assessments is "statistically significant," the Department will conduct a Stage II and, if necessary, a Stage III audit. (A. 761-762.) If the facility's PRis are found to have a statistically significant difference following the Stage III audit, the facility must hire an outside contractor to 10 prepare its PRis for the next year. See 10 N.Y.C.R.R. § 86- 2.30(£)(1). Mter the audit, the revised PRis are substituted for the facility's PRis, and the facility's CMI is _corre~pondingly adjusted. Id. at § 86-2.30(e). The adjusted CMI is then used to recalculate the direct cost component of the facility's reimbursement rate for the PRI period (A. 766). 4. Specialty units The Department of Health. certifies some nursing homes to operate specialty units to serve a specific type_ of resident. In order to operate these specialty units, a ·nursing home must obtain the approval of the Department in accordance with the approval requirements of Public Health Law § 2802 and 10 N.Y.C.R.R. part 710~ These units must comply with specific · operational requirements set forth in 10 N.Y.C.R.R. part 415. For example, the Department has approved some nursing homes to operate discrete units for AIDS treatment, traumatic brain injuries, or behavioral interventions. See 10 N.Y.C.R.R. § 41~.37 (AIDS unit); § 415.36 (head-injury unit); § 415.39 (behavioral intervention 11 unit). The Department has never promulgated regulations establishing operational requirements · or unique Medicaid I i reimbursement provisions for a specialty neurobiological unit, such as those operated by petitioners here. Residents in certified specialty units are evaluated u~ing the same PRis and assessment criteria that are used for residents of nonspecia1ty nursing-home . units. Specialty units, however, receive an additional enhanced Medicaid reimbursement for these residents because the otherwise applicable CMI is increased by a certain amount set forth in regulations. See, e.g., id. § 86- 2.10(n)(1) (providing for a 1.49 increase for traumatic brain- injured residents). In the absence of such regulations, the Department may not apply an enhanced Medicaid reimbursement rate. Furthermore, for Medicaid reimbursement rates to be enhanced, these regulations must be approved as an amendment to the state Medicaid plan by the federal Centers for Medicare and Medicaid ' Services, the federal agency overseeing state Medicaid programs. See 42 C.F.R. pt. 430. Upon approval by the federal agency, a· rate I I 12 enhancement applies beginning with the first day of the calendar quarter in which the_plan amendment was submitted, and cannot apply retroactively to any earlier period (see A. 764). B. Factual Background New Surfside prepares and submits its PRI data for all of its . . residents in January and July of each year. Meadow Park prepares and submits PRI data in ·May and November of each year. The Department's independent contractor audited these biannual submissions and began controverting-that 1s, revising-certain PRI designations that petitioners had reported for certain residents. These audits of the biannual· submissions determined, based on review of the petitioner's records for the residents, that the PRis for certain residents were incorrectly answered. Pursuant to its regulations, the Department was required to implement the audit results by adjusting petitioners' . CMI scores. See 10 N.Y.C.R.R. § 86-2.30(e). Beginning in February 2003, with the completion of the audit of New Surfside's July 2000 PRI ~ubmission,· the auditors controverted the Restorative Therapy/Heavy Rehabilitation PRI d~signations 13 reported by the petitioners for "neurobiological" residents. These I revisions were made because, according to the petitioners' records, the residents did not receive the care and meet the qualifiers necessary for those qualifications. In June 2003, New Surfside filed an article 78 proceeding in I Supreme Court, Albany County challenging the results of the audits (A. 611-656), but did not pursue ~he case after i~ was · marked off the calendar (see A. 765 n. 5). Meadow Park, with co- claimant Willoughby Rehabilitation and Health Care Center, filed suit against the State in the Court of Claims challenging the May 2000 PRI audit, but later withdrew from the case (A. 875-876). Both New Surfside and Meadow Park continued to receive final PRI audits that controverted their PRI submissions for patients in the . "Neurobiological Program." Petitioners, however, did not further challenge those PRI audits. The last PRI submissions used in the rate revisions at issue here were made by New Surfside in July 2005 for made by Meadow Park in May 2004. The final audit results used in the rate revisions at issue were sent by letter to petitioners no late_r 14 than July 2009. (A. 765.) These PRI audit revisions resulted in rate revisions for services rendered by the petitioners from May/July 2000 through December 31, 2009 (A. 767). These rate revisions were provided to petitioners by letters dated March 30, 2010 (A. 495, 571). As a result of these rate revisions, the Department of Health determined that New $urfside had received excess reimbursement of approximately $14.5 million and Meadow Park had received excess reimbursement of approximately $12.7 million (A. 767). P~titioners were notified by letter dated May 3, 2010 that.they would have to repay these amounts (A. 841-842). C. Proceedings Below Petitioners commenced this hybrid article 78 proceeding by order to show cause dated April 23, 2010, seeking, among other things, to enjoin the Department of Health from implementing revised rates of Medicaid reimbursement based upon the results of the PRI audits, and permission to amend the PRis petitioners' had 15 submitted with "artificially.lower"2 RUG-II classifications for their neurobiological patients (A. 22-25). By order and judgment dated September 15, 2010, Supreme Court, Queens County (Kelly, J.) denied the petition. In a memorandum decision, the court concluded that the Department was entitled to deference in interpreting. its own regulations and that its revision of petitioners' Medicaid reimbursement rates was reasonable (A. 16-18). The court found that the petitioners were "not entitle[d] ... to rate enhancements that do not exist under the DOH's regulatory sche~e, even if such c~re was provided" because the agency was "obligated to comply with existing regulations" (A. 17). Supreme Court further dismissed petitioners' request to revise previously submitted PRis, finding that there was "no basis in law or procedure ... to permit such revision" and that in any event these claims are time-barred because petitioners 2 Petitioners allege that because the State controverted their classifications, they "felt coerced and pressured to· submit lower PRI scores to the State than were warranted by the care and treatment" they actually provided their designated neurobiological patients (A. 1 00). 16 I I i jl r 4 y ~ J. received the final audit results more than_ four months prior to ; c9n1mencing this proceeding (A. 19). ·This appeal followed (A. 2-3). ARGUMENT POINT I PETITIONERS' CLAIMS ARE TIME-BARRED BECAUSE THEY FILED THEM MORE THAN FOUR MONTHS AFTER RECEIVING THE FINAL PRI AUDIT RESULTS The Department reaches a final, definitive position on ·Medicaid reimbursement rates when it sends final audit results to a facility, which include any controverted patient classifications in the facility's original PRI submissions. The Department imple- ments. these audit results by adjusting the facility's Medicaid reimbursement rates. A facility seeking t9 challenge controverted patient classifications in their PRI submissions and the attendant Medicaid rate changes through an article 78 proceeding must do · so by filing suit within four months of having received its final ' audit results. Here, petitioners knew that their reimbursement rates would be reduced upon receipt of the final audit results they 17 had been receiving for over seven years; however, petitioners did not challenge any of the PRI audits at issue here within the applicable statute of limitations and are therefore time-barred. A. The Statute of· Limitations Runs from Receipt of the PRI Audit Results, Not from Receipt of ltevised Rate Sheets. The article 78 statute of limitations requires that proceedings be commenced within four months after the determination to be reviewed becomes "final and binding upon the petitioner." C.P.L.R 217(1). The Court of Appeals has identified two requirements for determining when an action is "final and . binding": "First, the agency must have reached a definitive position on the issue that inflicts actual, concrete injury and second, the injury inflicted may not be prevented or significantly ameliorated by further administrative action or by steps available to the complaining party." llfatter of Best Payphones, Inc. v. Dep't of Info. Tech. & Telecomm., 5 N.Y.3d 30, 34 (2005); accord Matter of Alterra · Healthcare Corp. v. Novello, 306 A..D.2d 787, 788 (3d Dep't 2003). 18 r l l I J I ~ It is undisputed that petitioners filed suit well more than four months after they received the audit results they challenge here-the last of which they received in July 2009, nearly nine months before they filed suit in April 2010 (see A. 39). ·As Supreme Court found, petitioners, by not raising any timely objection to the audit reports, allowed those audit results to become final (A. 16). Petitioners argue that their suit is timely because it was · filed within four months of their receipt of revised rate sheets, although no~ within four months of their receipt of the audit ·results. Pets. Br. at 4 7-48. But this is incorrect. The courts have affirmed that the article 78 limitations period runs from the pe~itioner's receipt of the results of a PRI audit. See Matter of Terrace Healthcare Center, Inc. v. Novello, 54 A.D.3d 643, 643 (1st Dep't 2008) (dismissing as time-barred a healthcare facility's. petition. challenging DOH reviews of its PRI submissions that had been filed more than four months after the audits · were performed); Concourse Rehab. & Nursing Ctr., Inc. v. Novello, 45 A.D.3d 366, 367 (1st Dep't 2007) (holding that plaintiffs' claims 19 that DOH improperly controverted the scores of certain patients in its PRI audits should have been raised in an article 78 · proceeding and were subject to the four-month statute of limitations). These holdings are well founded. Here, the ·Department reached a final, definitive position when it consistently sent petitioners final audit results controverting the patient classifications in petitioners' biannual PRI submission. These fin.al audits necessarily entailed rate revisions inflicting "actual, concrete" injury on the petitioners, because DOH is bound to adjust a facility's CMI, and thus the facility's reimbursement rate, in accordance with the audit results. See 10 N.Y.C.R.R. § ·86-. . 2.30(e). Under applicable regulations, no further administrative appeal is available to contest the auditors' PRI determinations (see A. 762). Petitioners either must accept the results of the audit or file suit within the app.licable statue of limitations. Petitioners' reliance on receipt of the revised Medicaid rate sheets has no relevance for limitations purposes in this proceeding, because the rate revisions were inevitable once the . 20 final audit results were reached. See Matter of Alterra Healthcare, 306 A.D.2d at 788 (affirming dismissal as time-barred where statute of limitations began when facility "fully understood the implication of DOH's determination"). Petitioners fully understood the implication of the final audit results. Indeed, in -2003 New Surfside commenced a timely article 78 proceeding challenging the audit of their July 2000 PRI submission (see A. 611-656), specifically alleging in its petition that no further administrative review was available for the audit and that "[t]his proceeding has been served and filed within four ( 4) months of the State's issuance of Petitioner's PRJ audit report letter" (A. 640). Furthermore, petitione.rs concede that they understood the implications of the audit results because they "began self-auditing and preparing and submitting artificially reduced PRis to the State" (Br. at 56) fearing they "might be criminally or civilly charged with Medicaid fraud" (Br .. at 55). By these indications, New Surfside clearly indicated its awareness of the statute of limitations for PRI audits. 21 In their limitations argument, petitioners mistakenly. rely on cases (Br. at 47-48) where no audit was ever performed, and thus the issuance of revised rate sheets was the first .notice a facility received that its rates would be adjusted downward. See N.Y. State Ass'n of Counties v. Axelrod, 78 N.Y.2d 158, 165 (1991) (challenging a Medicaid regulation that uniformly reduced the reimbursement rates for nursing homes); N.Y. State Ass 'n of Counties v. Axelrod, 199 A.D. 2d 752 (3d Dep't 1993) (challenging a Medicaid regulation that provided an across-the-board reduction in Medicaid reimbursement), rev'd on other. grounds, 85 N.Y.2d 326 (1995) (per curiam); Westmount Health Facility v. Comm'r of theN. Y. State Dep't of Health, 205 A.D.2d 991, 992 (3d Dep't 1994) (challenging reimbursement rates related to project costs for th~ construction of a new nursing facility). These cases are inapposite because prior to receipt of the revised rate sheets, these facilities had no way of determining whether they were aggrieved. See, e.g., N.Y. State Ass'n of Counties, 78 N.Y.2d at 165 (noting that a "DOH determination could not be deemed 'final' for article 78 purposes until [petitioner's] members were able to ascertain the 22 consequences of the [determination] so that its impact could be accurately assessed, including ·awareness whether the facilities were aggrieved"). He.re, as previously discussed, receipt of t.he completed audits provided the necessary information for petitioners to know their rates would inevitably be revised downward. Furthermore, there is no foundation for petitioners' claim that the Department of Health did not "treat any of the subject audit results as final and binding." Pets. Br. at 49. As discussed above, the completed audits are binding on the Department, which must adjust a facility's CMI in conformity with the audits. See 10 N.Y.C.R.R. § 86-2.30(e). Nor. is it relevant that the Department was engaged in proposed rule-making to try to certify a new neurobiological step-down unit for enhanced rates, because the proposal was never adopted, and even if it had been, it could not have applied retroactively (see A. 763-764). See Pets. Br. at 50-51. The Department's rule~making activities in no way affected the fi~ality of the petitioners' audit results and the binding nature of the revised Medicaid reimbursement rates for the periods covered 23 by the audits. Cf. Matter of Alterra Healthcare, 306 A.D.2d at 789 (noting that "applications for reconsideration ... [and] discussions with DOH representatives ... do not toll the statute of limitations period"). B. Judicial Estoppel is Inapplicable. Contrary to petitioners' contention, judicial estoppel does not apply here based on the State's position in the prior Court of Claims action flied in party by Meadow Park. The State's position in that action simply is not inconsistent with its position here. See Pets. Br. at 52-55. Petitioners claim that the State took the allegedly inconsistent position in the Court of Clai~s case "that Meadow Park's claims had not accrued because it had not yet received its I Q revised rate sheets" (Br. at 55); however, the State's motion to dismiss was based upon the cla.imants' own allegations that their claims had not accrued and were merely "anticipatory" (see A. 926). Meadow Park's notice of intention specifically alleged that "the State ·has· not yet complet~d its review of Patient Review Instruments for residents treated at claimants Meadowpark [sic], 24 [and] the claims asserted herein have not yet accrued" (A. 898). Therefore, the State properly argued that based on their own admissions, the claimants had failed .to meet the jurisdictional pleading requirements for a Court of Claims case (A. 925-926). Furthermore, a proceeding challenging an administrative determination under article 78 is far different from a claim for money damages in the ·court of Claims, and those different causes of action need not accrue at the same time. It is well-established that for the purposes of filing a claim against the State under the Court of Claims Act, "a claim accrues when damages are reasonably ascertainable." Prisco v. State, 62 A.D.3d 978, 978 (2d _Dep't 2009); see also Terry Contracting, Inc. v. State, 27 A.D.2d 499, 501 (2d D~p't 1967) ("The time-limiting statutory provisions of section 10 of the Court of Claims Act have been construed as meaning that the time limitation does not start to run until the extent of the damage can be ascertained."). Under article 78, a cause ·of action accrues when th~ challenged agency determination becomes "final and binding." See C.P.L.R. 217(1); 7803. Thus, . there is no inconsistency in asserting that Meadow Park's cause of 25 action under article 78 accrued at an earlier time than its claim for money damages under the Court of Claims Act. See Waterman v. State, 19 A.D .. 2d 264, 266 (4th Dep't 1963) (notin·g that for the purposes of filing a claim against the State t_he "expression 'claim accrued' is not identical with the expression 'cause of action accrued"' because "the words 'claim accrued' have the same meaning as 'damages accrued"'). In any event, the doctrine of judicial estoppel applies only when a party has secured "a judgment in his or her favor by adopting the prior position." S~e Ferreira v. Wyckoff Heights Med. Ctr., 81 A.D.3d 587 (2d Dep't 2011); see also Comm'r of Soc. Servs. ex rel. Maudlyn V.R. · v. Paul C., 73 A.D.3d 459, 470 (ld Dep't 2010) (finding that District Attorney's decision not to prosecute was not a favorable judgment for application of judicial estoppel). Here, because Meadow Park voluntarily withdrew from the prior action, the State did not obtain a judgment in its favor and cannot be estopped. 26 POINT II THE DEPARTMENT OF HEALTH RATIONALLY IMPLEMENTED THE RESULTS OF THE PRI AUDITS BY REVISING PETITIONERS' MEDICAID REIMBURSEMENT RATES PURSUANT TO STATE REGULATIONS Even if the petition were not time-barred, the petitioners' claims would fail on the merits. It .is well-established that an agency's interpretation of its own regulations "is controlling and will not be disturbed in the absence of weighty reasons." Matter of Elcor Health Servs. v. Novello, 100 N.Y.2d 273, 280 (2003) (quotation marks omitted). Where an agency action "involves knowledge and understanding of underlying operational practices or entails an evalu.ation of factual data and inferences ... the courts regularly defer to the governmental agency charged wit.h the. responsibility for · administration of the statute." Kurcsics v. Merchs. Mut. Ins. Co., 49 N.Y.2d 451, 459 (1980). If the agency's "interpretation is not irrational or unreasonable, it will be upheld." Id. In the context of Medicaid, the courts have recognize_d that "'even relatively informal' interpretations warrant 'respectful 27 consideration due to the complexity of the [Medicaid] statute and the considerable expertise of the administering agency."' Matter of Jennings v. Commissioner, 71 A.D.3d 98, 109 (2d Dep't 2010) · (quoting Morenz v. Wilson-Coker, 415 F.3d 230, 235 (2d Cir. 2005)). Therefore, the Department of Health "is entitled to a high degree of judicial deference" when acting in the area of Medicaid rate-setting, and petitioners must show t~at its methodology is "unreasonable and unsupported by any evidence." Matter of Nazareth Home of Franciscan Sisters v. Novello, 7 N.Y.3d 538, 544 (2006) (quotation marks omitted). A. DOH Properly Applied the PRI Audit Results in Revising Petitioners' Medicaid Reimbursement Rates. Petitioners have not alleged that the Department. or its independent contractor auditors contravened established regulations in issuing the revised Medicaid reimbursement rates. Nor do petitioners contest the fact that there are no regulations providing enhanced rates for their "neurobiological" patients. See Pets. Br. at 31. Instead, petitioners assert that controverting the 28 designation of petitioner's neurobiological patients from the heavy rehabilitation reimbursement care category to lower Medicaid reimbursement categories, even in accordance with established . regulations., was arbitrary and capricious. Pets. Br. at 36-39. Granting petitione_rs the relief they_ request in this case would require .the Department to essentially ignore its own regulations requiring that PRI audits be used to revise reimbursement rates (A. 762), and reach a result contrary to its past determinations concerning Medicaid reimbursement. See 10 ;J · N.Y.C.R.R. § 86-2.30(e). Petitioners here are responsible for. the ~! 1 overpayment amounts because "Medicaid payments are only . ~ authorized when providers and their services are in compliance with all applicable statutes, rules and regulations." Matter of A.R.E.B.A. Casriel, Inc. v. Novello, 298 A.D.2d 134, 135 (1st Dep't 2002) (upholding DOH's recoupment of Medicaid reimbursements made to facility which provided services to patients exceeding that which it was certified to provide). Indeed, the result that petitioners seek, which would require the Department to ignore applicable regulations and past agency 29 precedent, would itself be arbitrary and irrational. See Matter of Charles A. Field Delivery Serv. (Roberts), 66 N.Y.2d 516, 517 (1985) ("[A]n administrative agency which neither adheres to its own prior precedent :Q.Or indicates its reason for reaching a different result on essentially the same facts is arbitrary and capricious."). There is no basis for petitioners to claim that the Department acted irratio~ally in complying with existing regulations and precedent. See Matter of Frick v. Bahou, 56 N.Y.2d 777, 778 (1982) ("The rules of an administrative agency, duly promulgateq, are binding upon the agency as well as upon any other person who might be affected."); Matter of Trager v. Kampe, 287 A.D.2d 643 (2d Dep't 2001) ("An administrative agency is bound by the language of its own regulation and cannot construe it in such a manner that the plain language on the face of the regulation is rendered meaningless." [quotation marks omitted]), aff'd, 99 N.Y.2d 361 (2003). Petitioners' arguments challenging the rationality of the Department's enforcement of the audits are meritless. First, m petitioners patently misunderstand the screening given to 30 patients discharged to petitioners' nursing. homes. Petitioners assert that the State "certified that [the residents] were qualified to receive treatment in the Neurobiological Program" (Br. at 36), but patients discharged to petitioners' facilities received no special screening.. More to the point, the petitioners' "neurobiological units" were not specialized units under the regulations: the Department licensed those beds as "regular nursing home beds" (A. 335). In fact, because there are no regulations governing the type of care that patients in these so-called specialty units were to receive, it is impossible for the Department to "screen" patients for such care. The State's screening safeguards are simply general procedures "which must be cleared before any discharge to a nursing home," such as the assessing the "compare[ative] appropriateness of nursing h.ome placement versus home health care" (A. 336 [emphasis added]). Second, the claimed "success" of petitioners' neurobiological . unit (Pets. Br. 39-42) is immaterial in determining whether they 1 are entitled to rate enhancements that do not exist under the - ~ ~ fl ~ Department's regulatory scheme. "It is irrelevant that the services ~ ~! J ~· ~ 31 j :i ~ -~ In question were provided properly, since they were provided without the certification necessary to seek payment from the Medicaid system." Matter of A~R.E.B.A. Casriel, Inc., 298 A.D.2d at 135 (involving a facility billing for alcoholism rehabilitation serv~ces beyond the ~umber of certified beds). Moreover,- contrary to petitioners' claims, these PRI audits did not place all "neurobiological patients" in the "lowest level care category, Reduced Physical Functioning A." Pets Br. at 17, 43-45. In fact, many residents were placed in categories higher than that · designation, as· is evident from the column in the audit resul~s labeled "RUG POST-AUDIT' (see A. 392, 499). Furthermore, petitioners have conceded that the "patients treated in the Neurobiological Program were not like other patients typically captured as Restorative Therapy/Heavy Rehabilitation patients" because these patients were "largely if not entirely physically independent in_ their Activities of Daily Living" (A. 82). In any event, the Department's revisions were not capricious because the Department simply. adhered to its own regulations requiring verification of whether all relevant qualifiers have been satisfied 32 l ·for that resident's specific RUG-II classification. See 10 N.Y.C.R.R. § 86-2.30; see also Bronx-Lebanon Special Care Ctr., Inc. u. DeBuono, 269 A.D.2d 195, 196 (1st Dep't 2000) (upholding determination where "petitioner failed to show that the Department of Health neglected to consider the factors set forth in regulations"). Similarly, it is of no import that the Department made "efforts to enact regulations designed to properly reimburse homes for Neurobiological Program patients" (Br. at 35), because proposed regulations (see A. 764) do not alter the Department's obligation to comply with existing regulations. See Matter of Henn u. f!erales, 186 A.D.2d 740, 741 (2d Dep't 1992) (finding that the agency is not bound by interim guidelines which are "to be considered only in the interim, pending future action by the State Legislature"). 33 B. Petitioners' Effort to .Revise Their Own PRI Classifications Fails For Additional Reasons. In addition to challenging the results of the Department's PRI audits, petitioners argue that they should be permitted to I incre.ase their own RUG-II classifications for their neurobiological ~ patients, and resubmit their own PRI data. Pets. Br. at 55-57. As discussed above, the PRI audits results at issue here are now final and the petition is untimely, and in any event there is absolutely no authority to support petitioner's request for any relief, let alone its unprecedented request to be allowed to revise its own PRI classifications. 34 . ; c·oNCLUSION For the foregoing reasons, this Court should affirm the Supreme Court's September 15, 2010 judgment and order dismissing the petition. Dated: New York, NY August 5, 2011 RICHARD DEARING Deputy Solicitor General SUDARSANA SRINIVASAN Assistant Solicitor General of Counsel By: Respectfully submitted, ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Respondents s Assistant Solicitor General 120 Broadway New York, NY 10271 Telephone (212) 416-8921 . Reproduced on Recycled Paper 35 GERTIFICATE OF COMPLIANCE PURSUANT TO 22 NYCRR § 670.10.3(£) The foregoing brief was prepared on a computer. A proportionally spaced typeface was used, as follows: Name of typeface: Century Schoolbook Point size: 14 Line spacing: Dpuble The total number of words in the brief, inclusive of point headings and footnotes and exclusive of pages containing the table of contents, table of citations, proof of service, certificate of compliance, or any authorized addendum containing statutes, rules, regulations, etc., is 5,650.