Grand S. Point v. Bassett

2024 NY Slip Op 03364

Grand South Point, LLC, Doing Business as The Grand Rehabilitation and Nursing at South Point, et al., Appellants, v. Mary T. Bassett, as Commissioner of Health, et al., Respondents.

No. CV-23-0159

Supreme Court of New York, Third Department

June 20, 2024

Calendar Date: April 23, 2024

Harter Secrest & Emery LLP, Rochester (F. Paul Greene of counsel), for appellants.

Letitia James, Attorney General, Albany (Brian Lusignan of counsel), for respondents.

Before: Pritzker, J.P., Reynolds Fitzgerald, Ceresia, McShan and Mackey, JJ.

Mackey, J.

(1) Appeal from an order of the Supreme Court (Peter A. Lynch J.), entered December 16, 2022 in Albany County, which granted defendants' motion to dismiss the amended complaint, and (2) motion to strike plaintiffs' reply brief.

In 2021, the Legislature enacted Public Health Law § 2828, titled "Residential health care facilities; minimum direct resident care spending," which limits the ways nursing homes in New York can spend their revenues (L 2021, ch 57, part GG, § 1). ^[1] Public Health Law § 2828 creates a spending mandate, which requires that, "[b]eginning on and after January [1, 2022], every residential health care facility shall spend a minimum of [70%] of revenue on direct resident care, and [40%] of revenue shall be spent on resident-facing staffing" (Public Health Law § 2828 [1] [a]). The spending mandate further requires that

"[15%] of costs associated with resident-facing staffing contracted out by a facility for services provided by registered professional nurses or licensed practical nurses... or certified nurse aides... shall be deducted from the calculation of the amount spent on resident-facing staffing and direct resident care" (Public Health Law § 2828 [1] [b]). ^[2]

Defendant Commissioner of Health is directed to "promulgate regulations governing the disposition of revenue in excess of expenses for residential health care facilities" (Public Health Law § 2828 [1] [a]) as the law caps nursing home profits at "[5%] of total operating and non-operating expenses" (hereinafter the excess-revenue cap) (Public Health Law § 2828 [1] [c] [i]). The Commissioner is also directed to "deposit such recouped funds into the nursing home quality pool" (Public Health Law § 2828 [1] [c] [i]), which is a stream of funds "to be funded at the discretion of the [C]ommissioner" to "facilitat[e] quality improvements" in residents' healthcare (Public Health Law § 2808 [2-c] [d]). ^[3] Funds deposited into the quality pool are reinvested into nursing homes that comply with certain minimum standards (see 10 NYCRR 86-2.42). The statute further provides the Commissioner with the authority to make regulations implementing the quality pool, although such regulations must be "developed in consultation with the nursing home industry and advocates" (Public Health Law § 2808 [2-c] [d]). The Commissioner may, however, "waive the requirements of [Public Health Law § 2828] on a case-by-case basis [when] a nursing home... demonstrates... that it experienced unexpected or exceptional circumstances that prevented compliance" (Public Health Law § 2828 [4]). Finally, Public Health Law § 2828 states that the "[C]ommissioner shall issue regulations, seek amendments to the state plan for medical assistance, seek waivers from the federal Centers for Medicare and Medicaid Services, and take such other actions as reasonably necessary to implement this section" (Public Health Law § 2828 [5]).

On November 17, 2022, the Commissioner adopted a regulation, 10 NYCRR 415.34, to implement the provisions of Public Health Law § 2828, including the spending mandate and the excess-revenue cap, which applied retroactively to April 1, 2022. The regulation provides:

"By January 1, 2022, residential health care facilities shall comply with the following minimum expenditures:

(1) 70[%] of revenue shall be spent on direct resident care; and

(2) 40[%] of revenue shall be spent on resident-facing staffing.

(i) All amounts spent on resident-facing staffing shall be included as a part of amounts spent on direct resident care; and

(ii) 15[%] of costs associated with resident-facing staffing that are contracted out by a facility for services provided by registered professional nurses, licensed practical nurses, or certified nurse aides shall be deducted from the calculation of the amount spent on resident-facing staffing and direct resident care" (10 NYCRR 415.34[d] [1]-[2]).

The regulation further provides for recoupment by the Commissioner of "excessive total operating revenue" where "the facility's total operating revenue exceeds total operating and non-operating expenses by more than five percent of total operating revenue" or

"the facility fails to spend the minimum amount necessary to comply with the minimum spending standards for resident-facing staffing or direct resident care, as set forth in subdivision (d) of this Section, as calculated on an annual basis, or for 2022, on a pro-rata basis for April 1, 2022 through December 31, 2022" (10 NYCRR 415.34 [e] [1]).

The regulation dictates that in the event of noncompliance:

"(i) [The Commissioner] shall issue a notice of noncompliance to a facility subject to recoupment for excessive total operating revenue, which indicates the amount to be remitted based on the amount of excess revenue or the difference between the minimum spending requirement and the actual amount of spending on resident-facing staffing or direct care staffing, as applicable, as well as acceptable forms of payment.

(ii) Upon receipt of a notice of noncompliance pursuant to subparagraph (i), the facility shall remit the total amount indicated in the notice of noncompliance by November first in the year following the year in which the expenses are incurred" (10 NYCRR 415.34 [e] [2]).

Penalties for failure to remit the total required fee under the regulation by the due date "includ[e] but [are] not limited to" a lawsuit by the Department of Health (hereinafter DOH), "deductions or offsets from payments made pursuant to the Medicaid program, and imposition of penalties pursuant to Section 12 of the Public Health Law" (10 NYCRR 415.34 [e] [3]). Funds recouped by DOH under the regulation "shall be deposited by the [Commissioner] into the [quality pool], pursuant to Section 2808 (2-c) (d) of the Public Health Law" (10 NYCRR 415.34 [e] [4]).

The regulation also clarifies the waiver provision of Public Health Law § 2828, indicating what information a waiver applicant must provide:

"[a] facility may apply to the Commissioner for a waiver of applicability of this Section on the basis of unexpected or exceptional circumstances that prevented compliance. Such application shall detail the specific unexpected or exceptional circumstance experienced by the facility; when the facility first learned of such circumstances; why the facility could not have anticipated such circumstances arising; actions the facility took to address such circumstances; expenses incurred as a result of addressing such circumstances; when the facility expects such circumstances to be resolved; and what preventive steps the facility is taking to ensure that such circumstances do not unexpectedly arise in the future. The Commissioner shall have discretion to approve or reject applications submitted pursuant to this paragraph, and shall provide the facility with the basis for the Commissioner's determination within a reasonable timeframe upon receipt of a complete application" (10 NYCRR 415.34 [c] [2]).

In determining whether to grant or deny a waiver application based on unexpected or exceptional circumstances, factors the Commissioner will assess include, but are not limited to "whether the facility should have anticipated such events occurring"; "whether any other residential health care facilities licensed by [DOH] experienced similar circumstances but have not applied for a waiver under this paragraph"; and "whether the facility has implemented sufficient policies and procedures to ensure such events do not recur" (10 NYCRR 415.34 [c] [2] [i]-[iii]). Furthermore, "[f]or the purposes of assessing whether a facility has met the minimum spending requirements, a facility may apply to the Commissioner to have certain revenues and expenses excluded from the calculation of the facility's total revenue and total expenditures," provided that the facility demonstrates to the Commissioner that the revenues and expenses were incurred due to "a natural disaster, where a federal, State, or local declaration of emergency has been issued" or "the facility has received extraordinary, non-recurring revenue which, in the discretion of the Commissioner, does not accurately reflect operating revenue for the purposes of this rule, including but not limited to revenue received through insurance or legal settlements" (10 NYCRR 415.34[d] [3]). The regulation also provides a list of facilities excluded from the term "residential health care facilities" as used in the regulation (10 NYCRR 415.34 [c] [1]; see 10 NYCRR 415.34 [b]).

In September 2022, plaintiffs - 130 nursing homes, also known as "residential health care facilities," located in and licensed by the state - filed an amended complaint against the Commissioner and defendant Director of the Budget, seeking, among other things, a declaration that Public Health Law § 2828 was unconstitutional on its face and as applied to plaintiffs (see CPLR 3001). ^{[4] [5]} Plaintiffs have participated at all relevant times and continue to participate in the Medicaid and Medicare programs. Specifically, plaintiffs seek declarations that Public Health Law § 2828: (1) was an unconstitutional delegation of legislative authority under the NY Constitution; (2) violated a separate and earlier enacted stat...