Baywood, LLC v. Office of the Medicaid Inspector Gen.

188 A.D.3d 1193

137 N.Y.S.3d 125

In the Matter of BAYWOOD, LLC, appellant,

v.OFFICE OF the MEDICAID INSPECTOR GENERAL, et al., respondents.

2019–01859

Index No. 80080/18

Supreme Court, Appellate Division, Second Department, New York.

Argued - June 24, 2020

November 25, 2020

Holland & Knight LLP, New York, NY (Sean C. Sheely of counsel), for appellant.

Letitia James, Attorney General, New York, NY (Steven C. Wu and Philip J. Levitz of counsel), for respondents.

WILLIAM F. MASTRO, J.P., LEONARD B. AUSTIN, JOHN M. LEVENTHAL, ROBERT J. MILLER, JJ.

DECISION & ORDER

In a proceeding pursuant to CPLR article 78 to review a determination of the respondent Office of the Medicaid Inspector General dated June 27, 2018, the petitioner appeals from an order and judgment (one paper) of the Supreme Court, Richmond County (Wayne M. Ozzi, J.), dated January 29, 2019. The order and judgment granted the respondents' cross motion to dismiss the petition, denied the petition, dismissed the proceeding, and denied, as academic, the petitioner's motion for leave to serve discovery demands.

ORDERED that the order and judgment is affirmed, with costs.

In 2009, the respondent Office of the Medicaid Inspector General (hereinafter OMIG) notified the petitioner, an assisted living facility, of its intent to review the petitioner's Assisted Living Program applications for Medicaid reimbursement during the period from April 3, 2003, through December 31, 2007. At the time, regulations provided that medical evaluations, used to establish that the program could support the residents' physical and social needs, were required to be signed by a physician (see 2013 N.Y. Reg Text 343677[NS] ). In 2014, the regulation at issue was amended to provide that medical evaluations could also be signed by a physician assistant or nurse practitioner (see former 18 NYCRR 488.4 [d][1] ). Subsequent to the 2014 amendment, the Department of Health issued a "Dear Administrator Letter" (hereinafter DAL) stating that two specific medical evaluations—APL Medical Evaluation (DSS 4449C) and ALP Medical Evaluation–Interim (DSS 4568)—"must continue to be signed by a physician." OMIG issued its final audit report of the petitioner on June 27, 2018. In the report, OMIG determined that, in several instances, the medical evaluation at issue was improperly signed only by a physician assistant, and not a physician, and that the petitioner had received certain amounts in Medicaid overpayments during that period.

After OMIG issued its final audit report and commenced efforts to recover the overpayments, the petitioner requested, pursuant to 18 NYCRR part 519, an administrative hearing to challenge the audit report's findings. On the same day, the petitioner commenced the instant proceeding pursuant to CPLR article 78, inter alia, to annul the 2018 final audit report on the grounds that it was affected by an error of law and was arbitrary, capricious, and an abuse of discretion. The petitioner also moved, by order to show cause granted August 27, 2018, to stay all further administrative proceedings during the course of the instant special proceeding, including enforcement efforts by the respondent related to the final audit report. Thereafter, the petitioner moved for leave to serve discovery demands on the respondents. The respondents cross-moved to dismiss the petition, arguing that the petitioner failed to exhaust its administrative remedies before seeking judicial intervention. By order and judgment dated January 29, 2019, the Supreme Court granted the respondents' cross motion to dismiss the petition, denied the petition, dismissed the proceeding, and denied, as academic, the petitioner's motion for leave to serve discovery demands. The petitioner appeals.

We agree with the Supreme Court that the petitioner was required to exhaust its administrative remedies before commencing the instant special proceeding. "It is hornbook law that one who objects to the act of an administrative agency must exhaust available administrative remedies before being permitted to litigate in a court of law" ( Watergate II Apts. v. Buffalo Sewer Auth., 46 N.Y.2d 52, 57, 412 N.Y.S.2d 821, 385 N.E.2d 560 ; see Matter of AAA Carting & Rubbish Removal, Inc. v. Town of Stony Point, N.Y., 159 A.D.3d 1036, 1038, 74 N.Y.S.3d 276 ). "The exhaustion rule, however, is not an inflexible one. It is subject to important qualifications. It need not be followed, for example, when an agency's action is challenged as either unconstitutional or wholly beyond its grant of power, or when resort to an administrative remedy would be futile or when its pursuit would cause irreparable injury" ( Watergate II Apts. v. Buffalo Sewer Auth., 46 N.Y.2d at 57, 412 N.Y.S.2d 821, 385 N.E.2d 560 [citations omitted]; see Town of Oyster Bay v. Kirkland, 81 A.D.3d 812, 815, 917 N.Y.S.2d 236, affd 19 N.Y.3d 1035, 954 N.Y.S.2d 769, 978 N.E.2d 1237 ).

The petitioner argues that the petition raises a constitutional challenge because it alleges that OMIG exceeded its authority, and violated N.Y. Const., art III, § 1, when it relied on the DAL, and not the regulations in effect in 2018, in determining that certain medical evaluations were insufficient...