Opinion
20201/2003.
July 10, 2009.
The Parties :
Plaintiff, CONCOURSE REHABILITATION NURSING CENTER, INC., (also referred to as CONCOURSE or the nursing home) operates and maintains a residential health care facility in the Bronx.
Defendant, MARK H. VAN GUYSLING, is Assistant Director of the Division of Health Care Financing within the New York State Department of Health, Office of Health Systems Management. As such, he has supervisory responsibility over the Division, which establishes Medicaid reimbursement rates for facilities, and administers the statutory and regulatory provisions relating to health care financing for acute and long term facilities, including skilled nursing facilities. The Division also collects and administers hospital assessments pursuant to Public Health Law 2807-d. Defendant, ANTONIA C. NOVELLO, M.D., as Commissioner of the New York State Department of Health, directs and establishes the rates of reimbursement to nursing homes for services rendered to Medicaid eligible patients.
(See Van Guysling Affidavit, dated June 23, 2006, p. 1).
(See Third Amended Complaint, ¶ 11; this allegation was "admitted" by Defendants in their Answer).
Procedural History :
Defendants made a prior motion for summary judgment to dismiss Plaintiff's Complaint, prior to providing discovery. Consequently, this Court issued an interim Order, dated January 4, 2005, pursuant to which this Court conducted several conferences with Counsel between February 2005 and January 2006, to flush out the issues and the respective positions of the parties. This Court heard from Counsel, (and in their presence also heard from Defendants' employee, Richard Pellegrini, by telephone), and encouraged the parties to resolve the issues raised. That motion was ultimately withdrawn in January 2006, when the parties entered into a stipulation that permitted Plaintiff to amend its complaint, arising from the legislature's enactment, in 2004 and 2005, of additional amnesty statutes. This Court advised Defendants to complete relevant discovery prior to engaging in further summary judgment motion practice. A Preliminary Conference was scheduled by the Court to be held on April 25, 2006, in the Discovery Part: Part Eleven. Nonetheless, Defendants admittedly refused to engage in discovery, and "argued that no further discovery was necessary" for the resolution of the next summary judgment motion which Defendants planned to present to this Court. (See Defendants' Counsel's Affirmation, by Peterson, dated June 26, 2006, p. 5-6).
Mr. Richard Pellegrini is Director of the Bureau of Financial Management and Information Support. (See Van Guysling Affidavit, dated June 23, 2006, p. 6).
This summary judgment motion, which Defendants chose to make without completing discovery, resulted in this Court's Interim Order, dated April 10, 2007, wherein this Court determined that the motion was deficient since the Affidavits of their employees, Van Guysling and Mr. Field, were not properly notarized. This Court held that it would consider giving Defendants the opportunity to cure their deficient submission, if, by May 7, 2007, Defendants submitted corrected Affidavits together with a further Affidavit which clearly stated how much money Defendants owed Plaintiff at the time of the March 31, 2001 amnesty deadline. Counsel were also scheduled to appear in Court on May 7, 2007, to narrow down, clarify, and orally argue the issues presented. The parties agreed to adjourn that Court appearance to June 25, 2007. However, Defendants' Counsel failed to provide this Court with two (2) of the required notarized Affidavits. At that conference, the Court requested that Counsel provide further information to clarify several issues. In response, Counsel provided supplemental Affirmations at the Court conference held on August 13, 2007 — when both Counsel, (together with Defendants' employee, Mr. Pellegrini, who appeared by telephone), attempted to clarify issues.
(See Order, dated April 10, 2007, by the undersigned).
The Affidavits which were not provided on time were the correctly notarized: Field Affidavit, dated June 21, 2006, and the Van Guysling Reply Affidavit, dated September 21, 2006.
Medicaid Program :
The Medicaid Program was established pursuant to Title XIX of the Federal Social Security Act, 42 U.S.C. § 1396, et seq. It is a jointly funded by the federal and state government, and assists persons who otherwise would be unable to afford medical care. The Department of Health is responsible for setting Medicaid reimbursement rates for nursing homes such as the Plaintiff. Assessments under "Cash Receipts Assessment Program", PHL § 2807-d(1)(a) :
(See Van Guysling Affidavit, dated June 23, 2006, p. 2).
Under the "Cash Receipts Assessment Program", set forth in Public Health Law § 2807-d, hospitals and nursing facilities, such as the facility maintained by Plaintiff, " are charged assessments on their gross receipts received from all patient care services and other operating income, less personal needs allowances and refunds, on a cash basis in the percentage amounts and for the periods specified in subdivision two of [Public Health Law § 2807-d]. Such assessments shall be submitted by or on behalf of hospitals [and nursing facilities] to the commissioner." [emphasis added] Public Health Law § 2807-d(l)(a). The aforesaid assessments were initially instituted for the period beginning on January 1, 1991, at the rate of .6%. Subsequent amendments extended, and increased, the assessments until 1999. They were resumed for the period beginning from April 1, 2002 through March 31, 2007. The extensions and increased assessments were summarized by the Court of Appeals as follows:
Defendants do not explain what is meant by the term "refunds".
Assessments subsequent to March 31, 2007 are not at issue herein. (See Van Guysling Affidavit, dated June 23, 2006, p. 3).
"In 1992, the Legislature extended the original .6% assessment and imposed an "additional assessment" of 1.2% (L 1992, ch 41, § 5; Public Health Law § 2807-d [2] [b] [ii]). That enactment provided, however, that . . . the additional 1.2% assessment as applied to RHCF [residential health care facilities] Medicaid receipts would be a reimbursable cost of care (id., § 11; Public Health Law § 2807-d [10] [b]). In 1995, the Legislature enacted a "further additional assessment" of 3.8% on RHCF gross receipts, and again provided that . . .tax paid on Medicaid receipts would be a reimbursable expense (L 1995, ch 2, § 136; Public Health Law § 2807-d [2] [b] [iii])."
Port Jefferson Health Care Facility v. Wing, 94 N.Y.2d 284, 288 (1999). The Port Jefferson matter is relevant to the issues in the case at bar since twenty-one residential care facilities commenced an action, in 1995, against the NYS Commissioner of Social Services, challenging this statutory scheme, because it reimbursed residential care facilities for assessments paid on receipts for the care of Medicaid patients but not for the care of the non-Medicaid patient population. The plaintiffs inPort Jefferson sought:
See also Miriam Osborn Mem'l Home Ass'n v. Chassin, 100 N.Y.2d 544 (2003).
"declaratory and injunctive relief, and a refund of gross receipt taxes paid. On [their] appeal, they rely entirely on the claim that their Fourteenth Amendment rights to equal protection of the law have been violated by the statutory scheme in which the State imposes a 1.2% and 3.8% gross receipts tax upon all of the receipts of all RHCFs, but only reimburses RHCFs for taxes paid on receipts for the care of Medicaid patients. They assert that this statutory scheme unconstitutionally discriminates against RHCFs whose non-Medicaid patient population (i.e., private pay patients and patients whose nursing home fees are funded by insurers, health maintenance organizations or the Federal Veterans Administration) is larger than the State-wide average of 20%."
Port Jefferson Health Care Facility v. Wing, 94 N.Y.2d 284, 288 (1999). In Port Jefferson, because the subject assessments were held to be invalid in 1997 by the Supreme Court, as affirmed by the Appellate Division in 1999, many nursing homes did not pay the assessments. It was not until December 16, 1999, that the Court of Appeals, reversing the lower Courts, held that the assessments were constitutional in Port Jefferson Health Care Facility v. Wing, 94 N.Y.2d 284 (1999).
See Port Jefferson Health Care Facility v. Wing, 253 A.D.2d 548, 550 (2d Dept. 1998).
(See Plaintiff's Third Amended Complaint, ¶ 70).
FIRST AMNESTY PROGRAM
Defendants explain that, in response to the non-payment of assessments by numerous facilities during the Port Jefferson lengthy litigation contesting the validity of Public Health Law 2807-d, amnesty legislation was enacted with respect to the "Cash Receipts Assessments Program", in the year 2000. This legislation provided, in relevant part, as follows: " monthly assessments due for any period prior to January 1, 2000, which are paid in full, and accompanied by appropriate reports . . . and which are received on or before March 31, 2001, shall not be subject to interest or penalties as otherwise provided . . . however, . . . with regard to all assessment, interest and penalty amounts collected by the commissioner of health by the effective date of this act, the interest and penalty provisions . . . shall remain in full force and effect and such amounts [already] collected shall not be subject to further . . . adjustment." [emphasis added]
(See Defendants' Memo of Law, by Peterson, dated June 27, 2006, p. 5).
A copy of the First Amnesty Legislation, which he parties cite as Chapter 57 of the Laws of 2000, was provided in Exhibit "4" of Van Guysling Affidavit, dated June 23, 2006, and referred to therein at p. 6.
Contentions
The substance of Plaintiff CONCOURSE's claims in this action is that it is entitled to obtain the benefit of the first amnesty program, (to wit, the waiver of the subject interest and penalties), because it timely filed the requisite reports; and that the assessments should be considered as paid in full within the meaning of the statute because, as of March 31, 2001, Defendants owed it substantial money (payments, reimbursements, and refunds) in amounts that exceeded the assessments due. (See Plaintiff's Aff, by its Officer, Neiman, dated May 4, 2007).
However, Defendants argue that, since the Plaintiff CONCOURSE's reports were not accompanied by its payment for the assessments principal, in the amount of $2,122,153.00, it was not entitled to receive the benefit of the amnesty program. Consequently, (in addition to the $2,122,153.00), Defendants billed Plaintiff the additional amount of $1,169,936.00 for interest at the rate of 12%, plus the amount of $530,444.00 for a maximum penalty, totaling $1,700,380, pursuant to Defendants' March 11, 2003 correspondence by Van Guysling.
(See Van Guysling Affidavit, dated June 23, 2006, p. 9-10, and his correspondence, dated March 11, 2003, at Exhibit "12"). This action was commenced soon thereafter, in June 2003. It is noted that, by correspondence dated Dec. 7, 2001, Defendants had initially billed Plaintiff the amount of $788,992.00 for interest at the rate of 12%, plus the amount of $530,444.00 for maximum penalty, totaling $1,319,436. (Id., Van Guysling's correspondence, dated Dec. 7, 2001, at his Exhibit "7"). The exact amount that was ultimately recouped by Defendants is not clear.
-Accounting
With regard to an accounting requested by Plaintiff, Plaintiff's allegations include that Defendants owed CONCOURSE the following as of the March 31, 2001 amnesty deadline: (1) $1,797,692.76; (2) $199,000; (3) $767,319; and (4) $4,000,000. (See Supp Aff by Plaintiff's Officer, Neiman, dated July 25, 2007).
(1) $1,797,692.76. Defendants admit that this figure is for "retroactive rate adjustments which applied to services CONCOURSE rendered from November 1, 1995 through October 21, 2001." (See Field Supp Affidavit, dated April 26, 2007, p. 4). Defendants fail to offer a rational excuse for their failure to pay this sum of money to CONCOURSE until October 2001-which was six (6) years after CONCOURSE rendered the corresponding services to patients. Defendants merely state that they did not pay this money to CONCOURSE by March 31, 2001: "because, upon information and belief, the rate revisions had not yet been calculated by the Department and had not yet been approved by the Director of the Division of the Budget as of March 31, 2001." (See Field Supp Affidavit, dated April 26, 2007). This "excuse" is full of self-serving double-talk.
Mr. Dana Field is a Program Research Specialist with the Bureau of Accounts Management of the NYS Department of Health.
(2) $199,000. Defendants admit that this figure represents "the reimbursable Cash Receipts Assessment payments for the calendar years1992 through 1999" [emphasis added] — which Defendants failed to reconcile, and reimburse to Plaintiff, until June 2006. (See DOH's correspondence, p. 4, of Exhibit "14", in Van Guysling Affidavit, dated June 23, 2006). This $199,000 was owed to CONCOURSE pursuant to Public Health Law 2807-d(10)(b), which provides that certain assessments would "be a reimbursable cost to be reflected as timely as practicable in rates of payment applicable within the assessment period." [emphasis added]
Defendants fail to explain why they did not reimburse any of this money to Plaintiff by March 31, 2001. By their March 2002 correspondence, Defendants indicate that they would not provide Plaintiff with the subject reimbursements because Plaintiff had not paid its cash receipts assessment payments for the periods from April 1998 through December 1999. However, this does not address why Defendants did not provide the statutorily-required reconciliations for the prior years, between 1992 through 1997; especially since, as far back as February 2000, CONCOURSE had fully paid its assessments for the period up to March 1997. Plaintiff seeks damages resulting from Defendants' unexplained failure to comply with the statutorily-prescribed "as timely as practicable" manner.
(See Plaintiff's Memo of Law, by its Officer, Neiman, dated Aug. 18, 2006, p. 14-15). Also, for example, Defendants state that, as of Feb 29, 2000, Plaintiff was delinquent for payments from April 1997 to March 1998. This further substantiates Plaintiff's allegation that it was up-to-date on its payments up until March 1997. (See letter by Carl Dembrosky, dated Feb. 29, 2000, at Exhibit "3" to Van Guysling Affidavit dated June 23, 2006. See also Field Affidavit, dated June 21, 2006, p. 6).
(3) $767,319. Defendants admit that, as of March 31, 2001, they owed Plaintiff payment for services in the amount of two checks, that had been issued but not yet released, dated March 19, and 26, 2001, which were in the amounts of $466,771.19 and $300,547.34, respectively. (See Field Affidavit, dated April 26, 2007).
(4) $4,000,000. Defendants do not dispute Plaintiff's allegation that, as of March 31, 2001, Defendants owed Plaintiff this money for "Patient Review Instruments" (PRI), relating to the years 1998 and 1999. (See Plaintiff's Supp Aff by its Officer, Neiman, dated July 25, 2007, p. 3). It is not clear why Defendants did not pay Plaintiff this money until 2006.
Since the total of these figures amounts to more than the amount of the assessment principal due in March 2001, Plaintiff CONCOURSE claims that it has been damaged in the amount of interest and penalties at issue herein because, as a result of Defendants' negligent, or intentional, failure to timely pay money owed to it, Plaintiff CONCOURSE suffered cash flow problems which prevented it from paying the assessment principal by March 31, 2001. Because of the nature of its business as a nursing home, CONCOURSE gave priority to paying the nursing, medical supplies, and food costs for its patients. (See Aff by Plaintiff's Officer, Neiman, dated May 4, 2007).
SECOND AND THIRD AMNESTY PROGRAMS A second amnesty provision was enacted in 2004; and a third amnesty provision was enacted in 2005. These provided that facilities which, by February 2005, paid the principal amount of their assessments due for the period at issue herein (and the period prior to January 2003), would not be subject to 50% of the interest and penalties otherwise due. However, (similar to the first amnesty), there would be no adjustment for interest and penalty amounts already collected prior to the effective dates of the acts. Contentions
According to Plaintiff, the second amnesty provision was enacted in August 2004; and the third amnesty provision was enacted in April 2005. (See Plaintiff's Third Amended Complaint, ¶ 128-140, and Eleventh Claim for Relief at ¶ 199).
(See Defendants' Memo of Law, by Peterson, dated June 27, 2006, p. 5). A copy of the Second and Third Amnesty legislation was not provided by the parties, but is attached hereto, and cited by the parties as Part C, § 29 of Chapter 58 of he laws of 2004, and Part C, § 24 of Chapter 58 of the laws of 2005.
Thus, as an alternative, Plaintiff claims that it is entitled to obtain the full benefit of the second and third amnesty program, to wit, a waiver of 50% of the interest and penalties that were recouped from it as a result of its inability to pay the assessment principal by March 31, 2001. Plaintiff's Eleventh Cause of Action alleges that CONCOURSE is entitled to judgment directing Defendants to apply all monies recouped "on account" to assessment principal so as to enable Plaintiff to obtain the full benefit of the second and third amnesty.
A debtor may apply payments in the manner it desires, (as discussedinfra); thus, Plaintiff could derive the full benefit of the second and third amnesty program if the money Defendants recouped was applied first to principal, and then (the remaining money attributable to interest and penalties) held "on account", pending this Court's determination.
In this regard, the assessments at issue here (from April 1997 to December 1999) were "recouped" by Defendants beginning from April 2003 and continuing until January 2006.
(See Field Affidavit, dated June 21, 2006, p. 2).
Defendants state that they applied the "money recouped for unpaid gross receipts assessments, to each delinquent month's principal, interest, and penalties, in chronological order, with the oldest month's first." (See Van Guysling Affidavit, dated June 23, 2006, p. 17; and Van Guysling Reply Affidavit, dated Sept. 21, 2006, p. 3).
However, in this regard, both parties rely on the legal principles set forth in Beyer Bros. of Long Island Corp. v. Kowalevich, 89 A.D.2d 1005 (2d Dept. 1982), where the Court explains:
As a general rule, the debtor has the right to specify to which debt he wishes a payment to be applied. In the absence of such a designation, the creditor may make it. When neither the debtor nor the creditor makes such an application, the court will make it as equity and justice require (see Camp v Smith, 136 NY 187, 201), and, usually, the funds will be applied to the debts in the order of time in which they stand in the account (see Carson v Federal Reserve Bank of N.Y., 254 NY 218, 232. . .). [emphasis added]
Beyer Bros, of Long Island Corp. v. Kowalevich. 89 A.D.2d 1005 (2d Dept. 1982).
The applicable well-established principles were also long-ago aptly articulated by Justice Cardozo:
"To determine whether the balance had been used up, the court applied the rule . . . whereby "the successive payments and credits" are to be appropriated "in discharge of the items of debt antecedently due in the order of time in which they stand in the account," the first payments out extinguishing the first payments in. . . . We have no thought to suggest that this or any other formula as to the application of payments to the items of an account is of such inflexible validity as to admit of no exceptions. Whatever rule is framed will be subordinated to the broader principle that an application, usually appropriate, may be varied by the court when variance is necessary to promote the ends of justice." [emphasis added]
Carson v. Federal Reserve Bank, 254 N.Y. 218, 232 (1930).
In Defendants' Memo of Law, by Peterson, dated June 27, 2006, p. 25-26, Defendants rely on the same principles in Beyer, supra, andCarson, supra.
Defendants admit that they are aware that Plaintiff preferred that Defendants apply the "money recouped to the principal due for all delinquent months before applying any of the money to accrued interest and penalties." (See Van Guysling Affidavit, dated June 23, 2006, p. 17; and Van Guysling Reply Affidavit, dated Sept. 21, 2006, p. 3). Plaintiff further makes this point by stating, for instance, as follows:
"There is no question that Plaintiff intended [that the recoupments be applied] only to the principal and not to the interest or penalties in the matter, as Plaintiff has contested the . . . interest and penalties. In this case, as soon as the Defendants commenced [, in April 2003, taking] monies from payments made to Plaintiff by way of offset of the medicaid payments [referred to as recoupment], Plaintiff immediately [in June 2003] commenced this lawsuit objecting, inter alia, to the . . .penalties and interest. What better manner of objecting to, and claiming that the payments should be applied to principal only, rather than interest and penalties, could Plaintiff exercise in these circumstances."
(See Plaintiff's Memo of Law, dated Aug. 18, 2006, by Plaintiff's Officer, Neiman, p. 19-21).
Conclusion
In addition to Plaintiff's having exercised its right to choose how the recoupments should be applied, the law is clear that this Court may, nonetheless, direct that the payments to the items of this account be applied in the manner which promotes the ends of justice. The amnesty statutes are remedial statutes intended to provide amelioration to facilities such as CONCOURSE — whose lifeblood is the cash flow that allows it to provide nursing, medical supplies, food, and other necessities to its vulnerable patients who include our aging population.
By failing to timely pay Plaintiff the inordinate amounts of money due to it, Defendants' unapologetic bureaucracy has caused damage to Plaintiff. Accordingly, the Defendants' Motion and Plaintiff's Cross Motion are resolved by granting Plaintiff CONCOURSE the following relief:
The subject payments, (recouped by Defendants from April 2003 through January 2006), shall be applied first to the assessment principal which was in the amount of $2,122,153.00. The remaining amounts, attributable to interest and penalties that Defendants recouped due to the Plaintiff's inability to pay the assessment principal by March 31, 2001, shall be deemed to have been held "on account", or constructively "on account", during the pendency of this matter. Thus, Plaintiff is entitled to have 50% of the subject interest and penalties waived, and Plaintiff is thereby entitled to receive the full benefit of the second and third amnesty programs.
Thus, the interest and penalty "recoupments" held in constructive account are not deemed amounts "already collected prior to the effective dates of the acts" within the meaning of the second and third amnesty programs.
In light of this resolution, that part of Defendants' Motion which seeks to convert this matter into an Article 78 proceeding, as well as some other contentions made by the parties, are deemed academic.
Accordingly, within 30 days from the date of the entry of this Order: Defendants shall provide Plaintiff with calculations as to the total interest and penalties which it billed and recouped from Plaintiff (between April 2003 and January 2006) as a result of the Plaintiff's inability to pay the subject assessment principal by March 31, 2001. The parties shall stipulate to the sum which Defendants shall reimburse to Plaintiff, (which amounts to 50% of the total interest and penalties), and shall file, in Court, that written stipulation together with a copy of this Order served with Notice of Entry. If Plaintiff believes in good faith that the calculations presented by Defendants are not accurate, then the parties shall, first, meet in person, within 45 days from the date of this Order, to resolve the issue — without forcing this Court to involve an independent accountant who would be paid by the persons who obstruct the long-overdue resolution of this dispute.
In Van Guysling's March 11, 2003 correspondence, Defendants indicated that the amount of interest and penalties totaled $1,700,380. (See Exhibit "12" to Van Guysling's Affidavit, dated June 23, 2006). However, it is not clear if that is the actual sum that was ultimately billed and recouped.
Plaintiff's Counsel, (together with its accountant, or similar professional, if Plaintiff designates one), shall be permitted to meet with Defendants' employees having the requisite knowledge.
Therefore, within 60 days from the date of the entry of this Order: Defendants shall reimburse, to Plaintiff CONCOURSE, 50% of the subject total interest and penalties.
This sum would total $850,000, if the total interest and penalties amounted to the sum of $1,700,380, as was indicated in Van Guysling's March 11, 2003 correspondence. (See Exhibit "12" to Van Guysling's Affidavit, dated June 23, 2006).
"This straightforward application of the traditional judicial review function to a particular record and regulation . . .will help to insure that powerful regulatory officials conform to ordinary standards of documented and rational rule making. The courts should not be relegated to searching for and fashioning justifications for agency actions" — such as the chronic payment delays by Defendants occurring herein — which are unjustifiable. New York State Ass'n of Counties v. Axelrod, 78 N.Y.2d 158, 169 (1991).
This constitutes the order and judgment of this Court.