Daleview Nursing Home v. Axelrod — 62 N.Y.2d 30

Majority

p. 30

In the Matter of Daleview Nursing Home, Appellant, v David Axelrod, as Commissioner of Health of the State of New York, et al., Respondents.

Argued March 23, 1984;

decided May 10, 1984

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Headnote

POINTS OF COUNSEL

Thomas F. Gleason and Cornelius D. Murray for appellant.

I. The retroactive readjustment undertaken by respondents unfairly punishes appellant for respondents’ errors and frustrates the cost containment theory of the prospective reimbursement system. CMatter of Beekman-Downtown Hosp. v Whalen, 44 NY2d 124 ; Hurlbut v Whalen, 58 AD2d 311 ; Matter of Mayflower Nursing Home v Office of Health Systems Mgt., 59 NY2d 935 ; Matter of Sigety v Ingraham, 29 NY2d 110 ; Matter of Blue v Whalen, 57 AD2d 240 ; Matter of Kaye v Whalen, 56 AD2d 111 , 44 NY2d 754 , 439 US 922 .) II. The facts at bar present a compelling case for invocation of an estoppel against the State. (Bender v New York City Health & Hosps. Corp., 38 NY2d 662 ; Public Improvements v Board ofEduc., 56 NY2d 850 ; Williams Press v State of New York, 37 NY2d 434 ; Community Health Servs. v Califano, 698 F2d 615 ; Matter of Sheppard-Pollack, Inc. v Tully, 64 AD2d 296 ; State of New York v McBride Transp., 56 Mise 2d 90; State of New York v New York Movers Tariff Bur., 48 Mise 2d 225; Schuster v Commissioner of Internal Revenue, 312 F2d 311 ; United States v Lazy FC Ranch, 481 F2d 985 .)

Robert Abrams, Attorney-General (Alan W. Rubenstein and Peter H. Schiff of counsel), for respondents.

Petitioner should be required to repay the overpayment that it has received; its claim respondents are estopped from recovering such overpayment lacks merit. CMatter of Hamptons Hosp. & Med. Center v Moore, 52 NY2d 88 ; Matter of Gavigan v McCoy, 37 NY2d 548 ; Matter of Newcomb v New York State Teachers’ Retirement System, 36 NY2d 953 ; Williams Press v State of New York, 37 NY2d 434 ; Public Improvements v Board ofEduc., 56 NY2d 850 ; Granada Bldgs, v City of Kingston, 58 NY2d 705 ; Matter of Jamestown Lodge v Catherwood, 31 AD2d 981 ; Matter of Lee, 107 Mise 2d 928; Beth Israel v Berman, 114 Mise 2d 440, 92 AD2d 531 ; State of New York v Rockland County, 74 AD2d 921 ; Matter ofEbling v New York State Civ. Serv. Comm., 305 NY 221 .)

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OPINION OF THE COURT

The overpayment of Medicaid reimbursement paid to a residential health care facility as a result of computer error in fixing the rate of reimbursement may be recovered by the State notwithstanding that the operator of the facility had no way of discovering the error and was not advised of it until seven months after State officials became aware of it. The order of the Appellate Division should, therefore, be affirmed, with costs.

The facts are not in dispute. Petitioner Daleview Nursing Home operates a combined nursing and health care facility in Farmingdale, Long Island. Both nursing and health-related care are covered by the Medicaid program (US Code, tit 42, § 1396 ff), participation by any given facility being a matter of choice for the provider. Reimbursement rates for both facilities were fixed for 1980 and 1981 approximately 60 days prior to the commencement of the particular year. In reliance upon those rates, petitioner elected to continue participation in the Medicaid program.

On June 22, 1981, petitioner was advised by the State’s Office of Health Systems Management that its 1980 and 1981 reimbursement rates had been computed incorrectly due “to electronic data processing problems” and that it had been overpaid to the extent of $150,961 during the 18-month period the incorrect rates had been in effect. It is undisputed that although petitioner did not receive notice of the error until June, 1981, it had been discovered by the State in November, 1980 and that on April 1, 1981, petitioner entered into a new union contract which raised employees’ salaries.

To review and enjoin the retroactive reduction and reimbursement thus imposed upon it, petitioner commenced this article 78 proceeding. Relying upon Matter of Hamptons Hosp. & Med. Center v Moore ( 52 NY2d 88 ) and Matter of University of Rochester-Strong Mem. Hosp. v Whalen ( 61 AD2d 867 , mot for lv to app den 44 NY2d 646 ), Special Term dismissed the petition. On similar reasoning the Appellate Division affirmed, with one Justice dissenting on the ground that the State’s failure to act for seven

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months after discovery of the error “should be classified as a considered judgment” and that the failure to notify petitioner was “egregious and inexcusable.” We affirm.

We have held many times that estoppel is not available against a governmental agency in the exercise of its governmental functions (Matter of City of New York v City Civ. Serv. Comm., 60 NY2d 436 , 449; Granada Bldgs, v City of Kingston, 58 NY2d 705 , 708; Public Improvements v Board of Educ., 56 NY2d 850 , 852; Matter of Hamptons Hosp. & Med. Center v Moore, 52 NY2d 88 , 93, supra; Matter of Galanthay v New York State Teachers’ Retirement System, 50 NY2d 984 , 986; Board of Supervisors v Ellis, 59 NY 620 , 625). And, as was made clear in Moore (52 NY2d, at p 93, n 1), such exception as has been made to that rule is of “very limited application” and has been “addressed to an unusual factual situation.”

Petitioner does not dispute that the overpayment which the State seeks to recoup resulted from a computer error by reason of which not all of the factors required to be considered in fixing petitioner’s reimbursement rate were taken into account. Nor does it seek to contest the common-law right of action, also long recognized in this State (People v Journal Co., 213 NY 1 , 8; Board of Supervisors v Ellis, 59 NY 620 , 624 ff, supra; People v Fields, 58 NY 491 , 505; Matter of Fahey v Whalen, 54 AD2d 1097 , app dsmd 41 NY2d 900 ), to recover an overpayment of governmental moneys.

It argues, rather, (1) that respondent was not engaged in a governmental function, (2) that petitioner budgeted on the basis of the rate fixed by the computer and had no way of discovering during the 18 months it was being overpaid at the rate of almost $9,000 a month that the computer had erred, and (3) that at least as to the seven months after the State discovered the error but withheld informing petitioner of it, what is involved is not an error in calculation but an error of judgment.

The first two contentions can be quickly disposed of. In contracting with petitioner pursuant to the Medicaid program for skilled nursing care and health-related care for persons in need of those services, the Commissioner of

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Health was acting in a governmental capacity (Schaubman v Blum, 49 NY2d 375 , 379; Matter of Carillo v Axelrod, 88 AD2d 681 ); indeed was acting as a “regulatory governmental agency” (Solnick v Whalen, 49 NY2d 224 , 232). Moreover, the severely limited recognition of estoppel as a defense to an action for recoupment stems not from the thought that the recipient of an overpayment may not have equities in his or her favor, but from considerations of sovereign immunity, protection of the public fisc, and separation of powers (Lee v Munroe, 7 Cranch [11 US] 366, 370; Board of Supervisors v Ellis, 59 NY 620 , 625, supra; see Berger, Estoppel Against the Government, 21 U of Chi L Rev 680, 683), leading to the conclusion that it is better that the recipient “should now and then suffer by such mistakes, than to introduce a rule against the abuse of which * * * it would be very difficult for the public to protect itself” (Board of Supervisors v Ellis, supra, at p 625 ). If there is to be change in that long-accepted rule, as petitioner suggests, the change should come from the Legislature.

Judgment enters the equation not as an exception to the no-estoppel rule, but because the common-law right of recoupment does not extend to payments made under a statute which predicates determination of the amount to be paid upon judgmental considerations involving expertise and thus leaves that determination to the quasi-legislative discretion of the governmental official making it (Matter of Catholic Med. Center v Department of Health, 48 NY2d 967 , 968-969; Hurlbut v Whalen, 58 AD2d 311 , 318-319, mot for lv to app den 43 NY2d 643 ; United States v Barlow, 132 US 271 , 280; see Matter of Mayflower Nursing Home v Office of Health Systems Mgt., 59 NY2d 935 , 938; Matter of University of Rochester-Strong Mem. Hosp. v Whalen, 61 AD2d 867 , 868, mot for lv to app den 44 NY2d 646 , supra). Such judgment, if any, as was involved in the failure to inform petitioner of the error for seven months after the Commissioner discovered the computer error cannot be brought within that concept.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

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Chief Judge Cooke and Judges Jasen, Jones, Wacht-ler, Simons and Kaye concur.

Order affirmed, with costs.

Cases cited

Hurlbut v. Whalen 58 AD2d 311 N.Y. App. Div. 1977-07-12 at 318-319 p. 31, p. 34
Mayflower Nursing Home v. Office of Health Systems Management of the Department of Health 59 NY2d 935 N.Y. 1983-06-28 at 938 p. 31, p. 34
In re Sigety v. Ingraham 29 NY2d 110 N.Y. 1971-07-07 p. 31
Blue v. Whalen 57 AD2d 240 N.Y. App. Div. 1977-05-12 p. 31
Kaye v. Whalen 56 AD2d 111 N.Y. App. Div. 1977-02-14 p. 31
Bender v. New York City Health & Hospitals Corp. 38 NY2d 662 N.Y. 1976-02-19 p. 31
Public Improvements, Inc. v. Board of Education 56 NY2d 850 N.Y. 1982-06-08 at 852 p. 31, p. 33
Williams Press, Inc. v. State 37 NY2d 434 N.Y. 1975-07-08 p. 31
Sheppard-Pollack, Inc. v. Tully 64 AD2d 296 N.Y. App. Div. 1978-11-09 p. 31
Hamptons Hospital & Medical Center, Inc. v. Moore 52 NY2d 88 N.Y. 1981-01-15 at 93 p. 31, p. 32, p. 33
Gavigan v. McCoy 37 NY2d 548 N.Y. 1975-10-21 p. 31
Newcomb v. New York State Teachers' Retirement System 36 NY2d 953 N.Y. 1975-06-16 p. 31
Granada Buildings, Inc. v. City of Kingston 58 NY2d 705 N.Y. 1982-12-02 at 708 p. 31, p. 33
In re Jamestown Lodge 1681 Loyal Order of Moose, Inc. 31 AD2d 981 N.Y. App. Div. 1969-03-10 p. 31
Ebling v. New York State Civil Service Commission 305 NY 221 N.Y. 1953-04-09 p. 31
City of New York v. City Civil Service Commission 60 NY2d 436 N.Y. 1983-12-01 at 449 p. 33
Galanthay v. New York State Teachers' Retirement System 50 NY2d 984 N.Y. 1980-06-26 at 986 p. 33
Board of Supervisors of Richmond County v. Ellis 59 NY 620 N.Y. 1875-02-02 at 625, at 624 p. 33, p. 34
People v. Journal Co. 213 NY 1 N.Y. 1914-11-10 at 8 p. 33
People v. Fields 58 NY 491 N.Y. 1874-11-10 at 505 p. 33
Fahey v. Whalen 54 AD2d 1097 N.Y. App. Div. 1976-11-05 p. 33
Schaubman v. Blum 49 NY2d 375 N.Y. 1980-02-12 at 379 p. 34
Carillo v. Axelrod 88 AD2d 681 N.Y. App. Div. 1982-05-06 p. 34
Solnick v. Whalen 49 NY2d 224 N.Y. 1980-01-08 at 232 p. 34
Catholic Medical Center of Brooklyn & Queens, Inc. v. Department of Health 48 NY2d 967 N.Y. 1979-12-19 at 968-969 p. 34
United States v. Barlow 132 US 271 SCOTUS 1889-12-02 at 280 p. 34