In the Matter of New Surfside Nursing Home, LLC, et al., Appellants,v.Richard F. Daines,, et al., Respondents.

Brief

N.Y.January 16, 2014

120 BROADWAY, NEW YORK N.Y. 10271-0332 • PHONE (212) 416-8020 • FAX (212) 416-8962 *NOT FOR SERVICE OF PAPERS http://www.ag.ny.gov STATE OF NEW YORK OFFICE OF THE ATTORNEY GENERAL ERIC T. SCHNEIDERMAN ATTORNEY GENERAL BARBARA D. UNDERWOOD SOLICITOR GENERAL November 22, 2013 The Honorable Andrew W. Klein Clerk of the Court New York Court of Appeals 20 Eagle Street Albany, NY 12207-1095 Re: Matter of New Surfside Nursing Home, LLC v. Daines Appeal No. APL-2013-00153 Dear Mr. Klein: Pursuant to Rule 500.11(d) of the Rules of Practice of this Court, I respectfully submit this letter on behalf of respondents-respondents Richard F. Daines, M.D., and Robert L. Megna. On review pursuant to Rule 500.11(d), this Court should affirm the dismissal of the article 78 petition brought by New Surfside Nursing Home, LLC and Meadow Park Rehabilitation and Health Care Center, LLC (the nursing homes), which challenges the Department of Health’s administrative classification of care provided to their residents for Medicaid reimbursement purposes. The Appellate Division, Second Page 2 Andrew W. Klein, Chief Clerk November 22, 2013 Department correctly dismissed the nursing homes’ petition on two independent grounds: the petition both is time-barred and fails on the merits. First, the petition is untimely, because it was brought more than four months after DOH issued final audit results reclassifying the nursing homes’ residents into a lower cost category for the purpose of Medicaid reimbursement. The nursing homes do not dispute that these final audit results were issued more than four months before they filed the petition, or that it was the audit results that caused them the concrete injury at issue here. Under settled law, these undisputed facts demonstrate that the petition is time-barred. The nursing homes argue that a prior decision of this Court established special statute-of- limitations principles for Medicaid reimbursement cases, but the decision does no such thing. Second, the petition has no merit. Indeed, the nursing homes have abandoned the only claims they raised in their petition, which asserted that the existing reimbursement regulations were inadequate and that DOH had promised them that it would deem their novel treatment to have qualified for a higher cost category than provided for by the Page 3 Andrew W. Klein, Chief Clerk November 22, 2013 regulation. Evidently recognizing that the lower courts correctly rejected those claims, the nursing homes now argue solely that their services already qualified for the higher category under the existing regulation. Their new claim is unpreserved: it was never raised in Supreme Court, only raised on reply in the Appellate Division, and neither lower court addressed it. In any event, the new claim is meritless because it misreads the regulation and rests on factual assertions that are contradicted by the allegations of the petition. STATEMENT OF THE CASE A. Nursing Homes’ Medicaid Reimbursement Rates The State Department of Health is responsible for setting Medicaid reimbursement rates for nursing facilities that are reasonably related to the costs that they must incur. Public Health Law § 2807(3). One component of the DOH reimbursement rate is tied to the facility’s reported costs in providing services such as nursing care and physical and occupational therapy, 10 N.Y.C.R.R. § 86-2.10(b)(1), (c)(1), based on the particular care needs of a facility’s residents (See A. 107-108). Page 4 Andrew W. Klein, Chief Clerk November 22, 2013 The regulations classify those care needs by directing a facility to place each of its residents into one of sixteen categories, according to the relative level of facility resources required to provide care and treatment to a resident in that category. (A. 107-111, 758.) The categories are based on five resident types, defined according to specifically diagnosed physical or mental conditions (A. 111.) Those types are subdivided into the sixteen categories based on a resident’s functional ability to perform the “Activities of Daily Living” (ADL), which are basic physical tasks such as feeding, walking, and toileting. (A. 111, 758.) Each category indicates a different level of resource utilization, and is assigned a numeric value—the Case Mix Index, or CMI. (A. 154, 755.) The “ADL scores . . . drive the reimbursement system”: the “more physically independent the patient is,” with respect to the Activities of Daily Living, the “lower [the] CMI value.” (A. 67.) Conversely, patients receiving more “intensive . . . therapies designed to improve their ‘functional ADL ability’” are assigned a higher CMI value. (A. 67.) The higher the weighted average of a facility’s CMI, the higher the facility’s reimbursement rate. (A. 68.) Page 5 Andrew W. Klein, Chief Clerk November 22, 2013 A facility must determine the appropriate category for each of its residents every six months, using an assessment instrument created by DOH: the Patient Review Instrument, or PRI. 10 N.Y.C.R.R. §§ 86-2.11(b), 86-2.30. DOH, in turn, is required to audit each facility’s PRI assessments, 10 N.Y.C.R.R. § 86-2.30(e)(1)-(2), and does so at least once every eighteen months for each facility (A. 760). If an auditor determines that a facility’s classification of a resident into a category does not satisfy the criteria for that category, the resident’s classifications on the PRI are controverted, or revised, to reflect the correct category for the treatment and care provided to that resident. (A. 164-165.) After the audit, the facility’s CMI is adjusted based on the revised PRI classification, 10 N.Y.C.R.R. § 86-2.30(e). The adjusted CMI is used to recalculate the patient-care-cost component of the facility’s reimbursement rate for the relevant period. (See A. 766.) Two of the highest scoring resource-utilization categories in the PRI are known as the “Heavy Rehabilitation/Restorative Therapy” categories. Residents in those two categories receive one-on-one physical or occupational therapy from a licensed professional at least five days a week, and have been receiving that therapy for at least four Page 6 Andrew W. Klein, Chief Clerk November 22, 2013 weeks. (A. 111, 152, 163.) To qualify as “Restorative Therapy” under the PRI, the treatments provided in these therapy sessions must have the potential to improve an individual’s functional/ADL status—that is, improve the resident’s ability to complete the activities of daily living— within a short and predictable period of time, as documented in the therapy plan and progress notes. (A. 151; see A. 138.) B. The Nursing Homes’ “Neurobiological” Program In 1998, appellant New Surfside established what it termed a “neurobiological” program for certain of its residents.1 The program was designed to treat individuals with “cognition impairments from mental illness or brain injury” who would otherwise be confined to “psychiatric institutions” (A. 46, 49). The program’s goal was to help such individuals “control or redirect [their] behavior” (A. 72), so that they could live “in the community or in a less restrictive environment than a mental institution” (A. 46). Most residents in the neurobiological program were already capable of performing the Activities of Daily Living, and were physically 1 An identical neurobiological program was soon established by appellant Meadow Park, as well. (A. 57.) Page 7 Andrew W. Klein, Chief Clerk November 22, 2013 able to live independently (A. 82); their difficulties stemmed instead from “neurobehavioral,” not physical, limitations. (A. 77.) The neurobiological program’s “services were separate and distinct from those Medicaid- type services typically . . . provided to the general frail elderly nursing home population.” (A. 47.) As a result, according to the petition, the “existing [DOH] regulations governing PRI’s and Medicaid reimbursement were not designed to address, capture or measure the types of services and cognitive benefits provided to patients treated in the program.” (A. 54.) Though the care under the neurobiological program did not aim to improve residents’ ability to perform the Activities of Daily Living, New Surfside, and later Meadow Park, nonetheless classified their “neurobiological” residents as falling into the Heavy Rehabilitation/Restorative Therapy categories, two of the highest resource-utilization categories in the PRI (A. 57). The nursing homes allege that representatives of DOH told them that DOH “would accept” this classification “while the State evaluated an appropriate add on” to the CMI for neurobiological residents (A. 55, 56). Page 8 Andrew W. Klein, Chief Clerk November 22, 2013 DOH’s regulations sometimes provide for an “add-on” to the otherwise-applicable CMI for a resident in a defined type of specialty care unit, as certified by DOH. See, e.g., 10 N.Y.C.R.R. § 86-2.10(n)(1) (CMI add-on covering specialty care to residents with traumatic brain injuries). Any regulation providing for an add-on must be submitted for approval by the federal Centers for Medicare and Medicaid Services, see 42 C.F.R. pt. 430 and, if approved, may only apply prospectively, id. § 430.20. DOH did not ultimately promulgate any regulation providing for an add-on for a “neurobiological” program, let alone obtain federal approval for such a regulation. Moreover, beginning in February 2003, with the completion of the audit of New Surfside’s July 2000 PRI submission, DOH auditors concluded that its neurobiological residents did not receive care satisfying the assessment criteria applicable to the Heavy Rehabilitation/Restorative Therapy categories, and therefore controverted the PRI classifications for such residents.2 2 The auditors also controverted Meadow Park’s classification of its neurobiological residents as falling within the Heavy Rehabilitation/Restorative Therapy categories, beginning in August 2004 with the audit of Meadow Park’s May 2000 PRI submission. (A. 765.) Page 9 Andrew W. Klein, Chief Clerk November 22, 2013 New Surfside brought an article 78 proceeding in Supreme Court, Albany County in July 2003 to challenge the results of the audits (A. 611-656), but the case was ultimately marked off the calendar after New Surfside failed to pursue it (see A. 765 n.5). Thereafter, the nursing homes continued to receive final PRI audits that controverted its PRI submissions for neurobiological residents, but did not further challenge those audits. The last set of Meadow Park’s final audit results at issue here were sent by letter to Meadow Park in May or June 2009; and the last set of New Surfside’s final audit results were sent to New Surfside in July 2009. (A. 765.) C. Proceedings Below The nursing homes did not file an article 78 petition challenging the final audit results until April 2010, nine months after the last set of final audit results had been mailed to New Surfside. The nursing homes brought their petition in Supreme Court, Queens County, to challenge each set of final audit results reclassifying the nursing homes’ neurobiological residents, as well as DOH’s ministerial recalculation of Page 10 Andrew W. Klein, Chief Clerk November 22, 2013 the nursing homes’ reimbursement rates based on the final audit results.3 The petition asserted that the audit results and the rate revisions were arbitrary and capricious because DOH’s regulations were ill-suited to measuring the care provided in the neurobiological program. (See A. 61-62, 77-78, 82, 91-94, 99.) The petition also claimed that the nursing homes had designated their neurobiological residents as receiving Restorative Therapy only after “State officials agreed and promised” that this designation would be deemed appropriate for reimbursement purposes “while the State evaluated an appropriate add-on,” and asserted that it was therefore arbitrary and capricious for the State’s auditors to nonetheless controvert the Restorative Therapy designation. (A. 99; see A. 81-83, 99.) The petition did not assert that the care 3 The final PRI audit results led to rate revisions for services rendered by New Surfside and Meadow Park from May/July 2000 through December 31, 2009. (A. 495, 571, 767.). As a result of these rate revisions, DOH determined that New Surfside had received excess reimbursement of approximately $14.5 million and Meadow Park had received excess reimbursement of approximately $12.7 million. (A. 767, 841-842.) The petition does not challenge any aspect of the rate revisions, or the amount of excess reimbursement calculated, apart from contesting the reclassification of its neurobiological residents in the final audit results. Page 11 Andrew W. Klein, Chief Clerk November 22, 2013 provided in the neurobiological program actually qualified as Restorative Therapy under the language of the existing regulation, and indeed acknowledged that most of the residents in the neurobiological program already were able to perform the Activities of Daily Living (A. 82). Supreme Court, Queens County (Kelly, J.) dismissed the petition. The trial court held that the nursing homes’ challenge to the underlying audit results was time-barred. (A. 19.) The court also rejected the petition on the merits, holding that DOH’s adherence to existing regulations in revising the nursing homes’ reimbursements was not arbitrary and capricious, and that the Department was not equitably estopped from enforcing those regulations. (A. 16-18.) In its principal brief on appeal to the Appellate Division, Second Department, the nursing homes continued to press the claim raised in their petition, arguing that DOH’s auditors should have disregarded the regulations on the books, because they could not rationally be applied to the nursing homes’ neurobiological residents. See Nursing Homes 2d Dep’t Opening Br. at 33-34, 37-39. In its reply brief, however, the nursing homes reversed field, claiming—for the first time—that the audit results were arbitrary and capricious for failing to recognize that Page 12 Andrew W. Klein, Chief Clerk November 22, 2013 the treatments of the neurobiological program actually qualified as Restorative Therapy under those same regulations. See Nursing Homes 2d Dep’t Reply Br. at 18-24. The Second Department did not address the new claim pressed by the nursing homes for the first time in reply, but instead addressed the claim raised in the nursing homes’ petition. The Appellate Division rejected that claim on the merits, holding that it was not arbitrary and capricious for DOH to apply “existing regulations in conducting the audits,” because those regulations were “binding upon the agency” as much as on regulated entities. Matter of New Surfside Nursing Home LLC v. Daines, 103 A.D.3d 637, 640 (2d Dep’t 2013). The court emphasized that a “facility is not entitled to Medicaid reimbursements sought in violation of applicable regulations,” even for “properly rendered” services, id. at 640-41, and that a facility could not invoke equitable estoppel to require DOH to provide such improper reimbursements, id. at 641. Any other arguments, the court held, were “either without merit or not properly before this Court.” Id. The Second Department also agreed with the trial court that the nursing homes’ petition was time-barred in any event, because the Page 13 Andrew W. Klein, Chief Clerk November 22, 2013 challenge was “not brought within four months after the petitioners' receipt of the audit results,” id., the point at which the nursing homes “fully understood” that their reimbursements would be reduced, id. The Second Department rejected the nursing homes’ argument that DOH’s action was not final and binding until the reimbursement-reductions themselves were carried out. Id. Justice Austin dissented. Id. at 641-45. The Second Department granted leave to appeal on the nursing homes’ motion. Matter of New Surfside Nursing Home, LLC v. Daines, 2013 N.Y. Slip Op. 76261(U) (2d Dep’t 2013). By letter dated July 19, 2013, this Court directed that the appeal be heard under the alternative procedure set forth in Rule 500.11. Page 14 Andrew W. Klein, Chief Clerk November 22, 2013 ARGUMENT I. The Appellate Division Correctly Held that the Petition Is Time-Barred. A. It Is Undisputed that the Nursing Homes Sued More than Four Months After the Issuance of the Final Audit Results that They Challenge. The four-month statute of limitations applicable to article 78 petitions begins to run when an agency action is “final and binding,” C.P.L.R. 217(1). Under the settled law of this Court, agency action is “final” when the agency has “reached a definitive position on the issue that inflicts actual, concrete injury.” Matter of Best Payphones, Inc. v. Dep’t of Info. Tech. & Telecomm., 5 N.Y.3d 30, 34 (2005). An injury is actual or concrete when it is not “contingent,” Matter of Eadie v. Town Bd. of N. Greenbush, 7 N.Y.3d 306, 317 (2006), meaning that the injury “may not be prevented or significantly ameliorated by further administrative action or by steps available to the complaining party,” Matter of Essex County v. Zagata, 91 N.Y.2d 447, 453 (1998) (quotation marks omitted). Here, the nursing homes acknowledge that they failed to file their article 78 petition within four months of receipt of any of the sets of Page 15 Andrew W. Klein, Chief Clerk November 22, 2013 final audit results that it challenges. The nursing homes also do not dispute that DOH is legally bound to adjust a facility’s CMI, and thus recalculate the facility’s reimbursement rate, in accordance with final audit results. See 10 N.Y.C.R.R. § 86-2.30(e)(5). Nor do they dispute that such adjustments may not be “ameliorated by further administrative action,” Matter of Essex County, 91 N.Y.2d at 453, because audit results are not administratively appealable, 10 N.Y.C.R.R. §§ 86-2.14(a)(3), 86-2.30(e)(5). In addition, the nursing homes do not contest that they knew when they received the final audit results at issue that their corresponding reimbursements would inevitably be reduced, nor that their awareness of impending reimbursement reductions would normally suffice to trigger the four-month article 78 statute of limitations. Indeed, in 2003, New Surfside brought an article 78 petition shortly after receiving the first set of final audit results reclassifying their patients into a lower cost category (see A. 611-656), though it later abandoned that proceeding, Nursing Homes Ltr. at 21. The nursing homes essentially contend that there is an exception to the general, well-settled principles governing the article 78 statute of Page 16 Andrew W. Klein, Chief Clerk November 22, 2013 limitations that applies solely in Medicaid nursing home rate cases. The nursing homes assert that this exception holds that the statute of limitations never begins to run in nursing home rate cases until DOH sends the facility a revised rate sheet. But no such special rule for nursing home rate cases exists, and the nursing homes cite no authority that supports their contention. The nursing homes rely mainly on this Court’s decision in New York State Association of Counties v. Axelrod, 78 N.Y.2d 158 (1991), but that case establishes no categorical rule that an article 78 petition challenging nursing home rates is timely if filed within four months of the facility’s receipt of revised rate sheets, regardless of whether a prior final administrative determination caused concrete injury to the facility. In Association of Counties, the nursing home challenged new reimbursement regulations more than four months after the issuance of the regulation, but within four months after receiving rate sheets that applied the new regulations to its particular circumstances. This Court rejected the argument that the petition was time-barred, determining that, on the facts there, facilities were unable to determine how they would be affected by the new regulations at all—much less whether Page 17 Andrew W. Klein, Chief Clerk November 22, 2013 they were aggrieved—prior to the issuance of new reimbursement rate sheets. 78 N.Y.2d at 163-64, 165-66. Thus, the Court held, the issuance of rate sheets triggered the article 78 statute of limitations in that case. Id. at 165-66. Association of Counties therefore did not involve the circumstance presented here, where final audit results issued to the particular facility caused concrete injury, where the amount by which the facility’s Medicaid reimbursement would be reduced based on final audit results was a ministerial calculation, and where the article 78 proceeding challenged only the particular administrative determinations that were contained in the audit results. No audit results were issued at all in Association of Counties. In that case, DOH had made no administrative determination specific to the facility in question, apart from its issuance of revised Medicaid rate sheets. Therefore, nothing in Association of Counties suggests that the issuance of rate sheets is always the triggering act for the article 78 statute of limitations, even where a prior final administrative determination specific to the facility in question is under challenge. Nor does anything in Association of Counties say that nursing home rate Page 18 Andrew W. Klein, Chief Clerk November 22, 2013 cases are exempt from the general legal principle calling for a “pragmatic evaluation” in each case of whether the particular agency action at issue is definitive and “inflicts an actual, concrete injury.” Matter of Essex County, 91 N.Y.2d at 453 (quotation marks omitted). The nursing homes also rely on four Appellate Division decisions (Ltr. at 9-11), but, like Association of Counties, none of these cases involved audit results. Nor did those decisions otherwise have occasion to consider whether receipt of a rate sheet is necessary to trigger the limitations period even when the facility is definitively aware that it has been aggrieved by an earlier final administrative determination. The nursing homes offer (Ltr. at 13-14 & n.4) a number of policy reasons that receipt of rate sheets should always be the triggering event for the purpose of the article 78 statute of limitations, but none withstands scrutiny. Contrary to the nursing homes’ contention, the Appellate Division’s decision would not require it to have brought 22 separate article 78 petitions. If New Surfside had followed through on its 2003 article 78 petition, instead of abandoning it, and had prevailed in challenging the reclassification of its residents, that ruling would Page 19 Andrew W. Klein, Chief Clerk November 22, 2013 have governed future years, absent changes in factual circumstances. No further article 78 litigation would have been required. Nor will the Appellate Division’s holding dampen parties’ ability to engage in negotiation or conciliation efforts by triggering premature litigation, as the nursing homes argue. Ltr. at 13. It is common for parties engaged in meaningful settlement discussions to enter into agreements to toll the statute of limitations to avoid the expense of litigation for a period while such discussions continue. Such a tolling agreement is the correct way to address concerns about short-circuiting settlement discussions by filing litigation. But no such tolling agreement was entered into here. Nor does Justice Austin’s dissent provide any reason to doubt that the petition is time-barred. The nursing homes conspicuously do not rely on the argument set forth in the dissent—they merely suggest (Ltr. at 51-53) that the dissent’s “lengthy” factual “evaluation and exposition” shows the benefit of recognizing a categorical “rate-sheet” exception to normal limitations principles. But this Court has made clear that for article 78 limitations purposes, a “pragmatic evaluation” of the Page 20 Andrew W. Klein, Chief Clerk November 22, 2013 particular effect of the agency determination being challenged is precisely what is required. Matter of Essex County, 91 N.Y.2d at 453. In any event, Justice Austin was incorrect in suggesting that DOH’s consideration of regulations establishing a reimbursement add- on for neurobiological patients created ambiguity as to whether the audit results were final, see 130 A.D.3d at 643-44. It is undisputed that any new add-on regulation could only apply prospectively, see supra at 8, and thus could not have affected the legal consequences of the audits conducted under the existing regulations. The nursing homes’ classification of their neurobiological residents as within the Heavy Rehabilitation/Restorative Therapy categories, with a correspondingly high CMI, would have been improper and appropriately controverted even if DOH had later established a separate CMI add-on for neurobiological programs going forward—which it did not. And the fact that DOH did not revise the rate of reimbursements for past care provided by the nursing homes while DOH considered prospective regulatory changes did not and could not create ambiguity regarding the binding legal effect of the extant audit results. The nursing homes’ Page 21 Andrew W. Klein, Chief Clerk November 22, 2013 failure to bring an article 78 proceeding within four months of receipt of any of those final audit results renders the present petition time-barred. B. The Statute of Limitations Defense Is Not Barred By Judicial Estoppel. The nursing homes are also mistaken in arguing (Ltr. at 22-25) that respondents are judicially estopped from raising a statute-of- limitations defense. Judicial estoppel precludes a party from taking a legal position that is inconsistent with a prior position it has persuaded a court to adopt in litigation against the same party. Stewart v. Chautauqua County Bd. of Elections, 14 N.Y.3d 139, 149-50 (2010). The nursing homes contend that judicial estoppel applies because the State previously argued that a related claim for money damages brought by Meadow Park in the Court of Claims was premature, when final audit results had already issued, but no reduction in the facility’s reimbursement had yet occurred. The doctrine has no application here for three separate reasons. First, the State itself did not take a position in the prior Court of Claims action on the accrual of a claim for money damages relating to Medicaid reimbursement revisions. Rather, the State merely pointed Page 22 Andrew W. Klein, Chief Clerk November 22, 2013 out that Meadow Park’s notice of intention and verified claim itself expressly conceded that its claim had not yet accrued, and that this concession rendered the claim jurisdictionally defective. (See A. 925 (“[C]laimants state in . . . the notice of intention that . . . no claims had ‘yet accrued.’”); A. 926 (“Meadowpark . . . states that no claim has accrued . . . claimants have, in fact, referred to any claims relating to Meadowpark . . . as ‘anticipated.’”).) Second, even if the State had pressed its own position on claim- accrual in the prior Court of Claims action—and the State did not—it would not be inconsistent to argue that a claim under the Court of Claims Act for recovery of money damages that will result from an administrative determination accrues later than an article 78 cause of action to challenge the administrative determination itself. See, e.g., Waterman v. State, 19 A.D.2d 264, 266 (4th Dep’t 1963) (noting that for the purposes of filing a claim against the State, a “claim accrues” when damages have accrued (quotation marks omitted)). And third, there is no basis in the record to conclude that the State “succeeded” in the Court of Claims action (Nursing Homes Ltr. at 24) by persuading the court of a position regarding the timeliness of that action. The Court of Page 23 Andrew W. Klein, Chief Clerk November 22, 2013 Claims never ruled that Meadow Park’s claim was premature. The record reflects only that Meadow Park voluntarily “agreed to with[draw] its name from the caption” of the claims action following a conference among the parties and the court, and nothing more. (A. 876.) There is no basis to hold that respondents are judicially estopped. II. The Nursing Homes’ Contentions on the Merits Are Unpreserved and Baseless In addition to holding the petition to be time-barred, the Appellate Division also dismissed it on independent merits grounds. The nursing homes assert (Ltr. at 46) that the Appellate Division did not address its actual claims on the merits, and instead was “diverted” by a “factually false” characterization of the nursing homes’ petition by respondents. But a reading of the nursing homes’ petition confirms that, as the Appellate Division correctly recognized, the petition claimed that DOH’s determinations should be annulled because the existing regulations were inadequate to address its neurobiological program, and because employees of DOH allegedly promised the nursing homes that its residents would be given a higher cost classification than the regulation permitted. Page 24 Andrew W. Klein, Chief Clerk November 22, 2013 The nursing homes’ petition asserted that the audit controversions at issue were arbitrary and capricious because they obeyed a regulation that was “not addressed to patients in the Neurobiological Program.” (A. 99.) The petition also alleged that DOH’s employees and contractors had purportedly “assured New Surfside . . . that DOH would accept the Restorative Therapy/Heavy Rehabilitation designation in PRI’s for patients treated in the Neurobiological program” (A. 82-83), and had given the same promise to Meadow Park (A. 99). The Appellate Division rejected these claims because DOH is obligated to apply the existing regulations, not regulations that might be adopted in the future, and because the alleged representations by state officials did not equitably estop the State from correctly applying the law. Matter of New Surfside, 103 A.D.3d at 640-41. The nursing homes have not attempted to press the petition’s claims in its letter brief to this Court, and thereby have abandoned the only claims in this proceeding that are preserved. Instead, the nursing homes now put forward the contrary argument, not raised in their petition, that DOH’s reclassification of the care provided to its residents was arbitrary and capricious for failing to recognize that the neurobiological program actually did “compl[y] with Page 25 Andrew W. Klein, Chief Clerk November 22, 2013 the pertinent [reimbursement] criteria” for Restorative Therapy “under [the] existing State regulation.” (Ltr. at 30.) This new claim was never presented to Supreme Court, and it was raised only on reply in the Appellate Division. Neither court below addressed any contention that the nursing homes’ neurobiological program constitutes Restorative Therapy under the language of the existing regulation. The newly raised claim is therefore unpreserved and not properly before the Court. See Bingham v. N.Y. City Transit Auth., 99 N.Y.2d 355, 359 (2003). Even if the claim had been preserved, it is meritless. While the nursing homes contend that DOH auditors misinterpreted DOH’s own regulations (Ltr. at 30-39), this Court has made clear that the agency receives deference in the interpretation of its own regulations. DOH’s interpretation “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). The nursing homes attempt to surmount this high barrier by arguing that their cognitive treatments qualify as occupational therapy under certain definitions, and arguing that this establishes that the treatments fall within the PRI’s definition of Restorative Therapy. Ltr. Page 26 Andrew W. Klein, Chief Clerk November 22, 2013 at 30-33. But the nursing homes acknowledged in their article 78 petition that the occupational therapy envisioned by the PRI was “traditional . . . therapy suited only for a typical [g]eriatric resident” with physical impairments. (A. 91.) And more significantly, the requirement that a treatment qualify as physical or occupational therapy is but one of three independent elements of the PRI definition of Restorative Therapy. Even if one were to assume that the neurobiological treatments qualified as occupational therapy, those treatments would still have to satisfy the other two Restorative Therapy criteria to merit the application of the higher cost classification. They cannot do so. To qualify as Restorative Therapy, a treatment must create “potential for increased functional/ADL ability” (A. 151 (capitalization removed))—that is, improvement of a patient’s ability to perform the physical Activities of Daily Living, like eating, mobility, and toileting (A. 137). The nursing homes acknowledged as much in their article 78 petition. (See A. 87 & n.8.) But, as the nursing homes also acknowledged in their petition, their neurobiological treatments cannot satisfy that requirement, because “the typical patient selected for Page 27 Andrew W. Klein, Chief Clerk November 22, 2013 treatment in the [neurobiological] program would already be largely if not entirely physically independent in their Activities of Daily Living.” (A. 82 (emphasis added).) Rather than address the physical capacities of its patients, the neurobiological program is aimed at helping individuals with “mental illness or brain injury” learn to “control or redirect [their] behavior,” and at “teach[ing] them skills related to . . . personal hygiene, . . . money management, . . . interpersonal skills, food shopping, . . . nutrition,” and the like. (A. 46, 175, 47). The purpose of the program is to provide treatments tailored to “individuals with neurobehavioral challenges that no longer require the intensity of . . . secure specialized behavioral unit[s]” (A. 77)—not to afford “those Medicaid-type services typically . . . provided to the general frail elderly nursing home population.” (A. 47.) Thus, while the nursing homes assert that their program had “proven successful” by the time of the audits at issue (Ltr. at 33), that success consisted of controlling residents’ behavioral issues—e.g,, decreasing patients’ “verbal disruption, physical aggression and socially inappropriate behavior[]” (A. 312). There is nothing indicating that the neurobiological program increased residents’ ability to perform basic Page 28 Andrew W. Klein, Chief Clerk November 22, 2013 “physical activities” like eating or walking up and down stairs. (See A. 137.) As the nursing homes conceded in their article 78 petition, though, it is those basic physical activities that are “reviewed” for “actual improvement” to “assess[] whether a patient is receiving reimbursable Restorative Therapy.” (A. 87 n.8.) Indeed, the regulations’ failure to address cognitive therapy designed to control behavioral difficulties, and exclusive focus on therapy’s potential to improve residents’ ability to complete the activities of daily living, was the basis for the petition’s now-abandoned claim that applying the regulations to the nursing homes’ neurobiological program was itself arbitrary and capricious. (See A. 99.) Furthermore, a Restorative Therapy treatment must also have the potential to improve functional status as to the activities of daily living “within a short and predictable period of time.” (A. 151.) The nursing homes make no attempt to argue that any improvement produced by the neurobiological program occurred within a short and predictable period, and there is no support in the record for that proposition. This is another fatal defect in the nursing homes’ new claim that their treatments satisfied the Restorative Therapy criteria under the existing regulation. Page 29 Andrew W. Klein, Chief Clerk November 22, 2013 The nursing homes also assert in the alternative (Ltr. at 39-45) that even if DOH’s auditors reasonably determined that their neurobiological program did not qualify as Restorative Therapy (two of the highest cost categories), those auditors irrationally reclassified residents in the program into “the lowest care category” by “default” (Ltr. at 41). The auditors did no such thing—the audit results themselves make clear that many patients were reclassified as falling in care categories above the lowest. (See, e.g., A. 392, 499 (column labeled “RUG POST-AUDIT”).) Far from reclassifying patients by default, the auditors simply corrected the nursing homes’ mistaken designation of the neurobiological patients as receiving Restorative Therapy, then placed each patient into the care category that was appropriate under DOH’s regulations once that correction was taken into account. That some neurobiological patients were reclassified as requiring little physical care merely reflects the fact, which the nursing homes’ petition acknowledged, that those patients were “largely if not entirely physically independent in their Activities of Daily Living” (A. 82). The nursing homes also argue (Ltr. at 41-44) that the proposed reimbursement regulations providing for higher reimbursements that Page 30 Andrew W. Klein, Chief Clerk November 22, 2013 were never enacted shows that DOH’s reclassifications applied resource-utilization categories that were too low. But this is merely the nursing homes’ original, abandoned merits argument in different clothing. As the nursing homes now concede, it was not arbitrary and capricious for DOH’s auditors to classify their patients according to the governing classification regulations. Tellingly, the nursing homes have made no attempt to specify any category, other than Restorative Therapy, that they believe any neurobiological patient should have been placed into. And as we have shown, their contention that their patients should have been classified in the Restorative Therapy category has no legal merit. Page 31 Andrew W. Klein, Chief Clerk November 22, 2013 CONCLUSION For the foregoing reasons, the judgment denying appellants’ article 78 petition and dismissing the proceeding should be affirmed. Respectfully submitted, Mark H. Shawhan Assistant Solicitor General (212) 416-6325 mark.shawhan@ag.ny.gov