New York City Health & Hospitals Corp. v. McBarnette

OPINION OF THE COURT

This appeal raises the question we left open in New York State Assn, of Counties v Axelrod ( 78 NY2d 158 , 166) (NY-SAC): what Statute of Limitations should be applied to declaratory judgment actions brought to challenge promulgated Medicaid reimbursement rates on the ground that they are irrational or affected with error of law. Reaffirming the principles that were articulated in such cases as Solnick v Whalen ( 49 NY2d 224 ), we hold that in the circumstances presented here the four-month Statute of Limitations for proceedings against a body or officer is applicable (see, CPLR 217).

Plaintiff, which operates both hospitals and residential care facilities, commenced this declaratory judgment action to challenge two separate aspects of its Medicaid reimbursement rate. The first part of plaintiff’s challenge sought relief from defendants’ effort to use a "recalibration adjustment” that was promulgated in December 1991 to calculate its residential-care facility rates for the rate years between 1989 and 1991 (10 NYCRR 86-2.31 [a]). The proper resolution of this issue is governed by Matter of Jewish Home & Infirmary v Commis

The second part of plaintiffs challenge involves a disputed change in the manner in which hospitals are reimbursed for services provided to certain of their patients. Effective January 1, 1988, defendants replaced their existing per-diem method of computing reimbursement with a new per-case approach. Services for patients whose hospital stays "straddled” the period before and after the new system’s effective date were initially to be reimbursed under the former perdiem computation method. However, by letter dated July 3, 1989, the Commissioner of Social Services, after consultation with the Department of Health (DOH) and the Division of the Budget, advised hospitals providing service to Medicaid recipients that only those "straddle” patients categorized as needing "acute” care would be subject to the apparently more favorable per-diem rate. Services to "alternative level of care” patients, i.e., those who could be cared for in residential nursing facilities, would be reimbursed on the newer per-case basis. Reimbursement amounts in excess of the allowable rates that had already been paid were to be recouped through reductions in current payments.

The July 3, 1989 rate decision was challenged in a timely CPLR article 78 proceeding brought by the Hospital Association of New York State (Matter of Hospital Assn, v Axelrod, 165 AD2d 152 [Feb. 14, 1991], lv denied 78 NY2d 853 ) (HA-NYS). Although it was aware of the HANYS litigation, plaintiff, which is not a member of the Hospital Association, decided not to intervene or commence a separate suit, choosing instead to rely on that organization’s efforts to obtain relief.

The Appellate Division held in HANYS that the statute governing reimbursement for "straddle patients” did not leave room for distinguishing between "acute care” patients and "alternative level of care” patients. Accordingly, the policy was deemed arbitrary and unlawful ( 165 AD2d, at 154-155 ). As a result of that decision, defendants, who represent agencies responsible for administering the Medicaid program, were ordered to repay to the Hospital Association and its members any funds that had been withheld or recouped pursuant to the invalidated decision.

In October of 1991, plaintiff applied for a refund of moneys

On cross motions for summary judgment, the Supreme Court ordered defendants to recalculate plaintiff’s nursing home reimbursement rate without regard to the "recalibration adjustment.” With respect to the claims that were based upon the invalidated "straddle patient” rate determination, Supreme Court concluded that the four-month Statute of Limitations for CPLR article 78 proceedings was applicable and that, accordingly, those claims were time-barred.

On plaintiffs appeal, the Appellate Division affirmed the first aspect of Supreme Court’s ruling, but reversed on the latter point. Holding that the action was, in reality, one for reimbursement under title XIX of the Social Security Act ( 42 USC § 1396 et seq.), the Appellate Division cited the Second Circuit’s decision in Hollander v Brezenoff ( 787 F2d 834 ), applied the three-year limitations period for actions to recover on a liability imposed by statute (CPLR 214 [2]) and ruled the action timely. Inasmuch as the merits had previously been resolved in HANYS (supra), the Court granted plaintiff summary judgment on its claim for a refund. This appeal, taken by permission of this Court, ensued.

Initially, we note that the Appellate Division’s reliance on Hollander v Brezenoff (supra) was misplaced. The only issue in Hollander was whether a proceeding to enforce a social service agency’s obligation to pay a Medicaid provider was governed by the six-year limitations period for actions on a contractual obligation (CPLR 213 [2]) or was instead governed by the three-year period for actions on a liability imposed by statute (CPLR 214 [2]). The court was not called upon to consider whether the shorter four-month limitations for proceedings against a body or officer (CPLR 217) was applicable. Consequently, its holding has no persuasive significance here.

The proper starting point for determining which Statute of Limitations should be applied in a proceeding or action against a State or municipal governmental entity is this Court’s 1980 decision in Solnick v Whalen ( 49 NY2d 224 , supra). In that case, the Court held that when the proceeding has been commenced in the form of a declaratory judgment action, for

Plaintiff contends that an article 78 proceeding is inapplicable here because the challenged agency decision is legislative in nature in that it applies across the board to all hospitals providing care to "straddle patients.” In support of this position, plaintiff cites a line of cases holding that article 78 does not lie to challenge a legislative act (e.g., Bryant Ave. Tenants’ Assn. v Koch, 71 NY2d 856 ; Matter of DuBois v Town Bd., 35 NY2d 617 ; Matter of Kovarsky v Housing & Dev. Admin., 31 NY2d 184 ; Matter of Overhill Bldg. Co. v Delany, 28 NY2d 449 ). However, despite the unquestionable validity of this line of cases, we conclude that further analysis is necessary because there remains some confusion as to what constitutes a "legislative act” (compare, Press v County of Monroe, supra, at 703-704 , with id., at 704-706 [Jasen, J., dissenting], and Sol-nick v Whalen, supra, at 231; see, 8 Weinstein-Korn-Miller, NY Civ Prac j| 7801.02, at 78-11), and, consequently, the formula on which plaintiff relies is insufficient to resolve the issue presented by plaintiff’s case.

Among the apparent sources of the confusion is Matter of Lakeland Water Dist. v Onondaga County Water Auth. ( 24

Lakeland was followed by Solnick v Whalen (supra, at 231-232, and n 3), in which this Court, in an effort to explain that decision, suggested that an agency rate-setting determination may be "legislative” or "administrative” depending upon whether it is an "across-the-board” ruling or is instead determinative only of an "individualized rate[ ] established for a particular litigant”. However, in Press v County of Monroe (supra), a case involving a generally applicable rate schedule, the Court simply relegated the analysis in Lakeland to a "cf. ” citation and did not follow, or even discuss, the Solnick distinction. Instead, it referred to an entirely different principle, i.e., that article 78 is not the proper vehicle for challenging the constitutionality of a legislative enactment (see, e.g., Matter of Ames Volkswagen v State Tax Commn., 47 NY2d 345 , 348; New York Pub. Interest Research Group v Steingut, 40 NY2d 250 , 254; Matter of Merced v Fisher, 38 NY2d 557 , 559) and then went on to hold that the rate-setting decision at issue was not "legislative” because it lacked a number of traits that ordinarily characterize enactments of a legislative body ( 50 NY2d, at 701-704 ). Despite Press, subsequent cases involving rate setting and other types of governmental determinations have relied on the Solnick distinction between generalized and individualized decision-making (see, e.g., Matter of Klein v Axelrod, 54 NY2d 818 , affg 81 AD2d 935 ; cf, Eve v Power Auth., 123 AD2d 532 [relying on Lakeland distinction premised on notice and hearing requirements]; but cf., Lenihan v City of New York, 85 AD2d 562 , affd 58 NY2d 679 ).

Viewed in the proper light, the difficulty in this field seems to lie not in the rationales or results of the salient cases, but rather in the ambiguity of the terminology and the absence of a cohesive analytical structure to lend perspective to the

We are not persuaded by plaintiff’s opposing contention that the policies represented by the decision in Matter of Jones v Berman ( 37 NY2d 42 ) militate against such a rule because it compels all potentially aggrieved litigants to bring duplicative suits rather than waiting to see what the outcome will be in a pending test case. In Jones, the Court held only that a class action is generally an inappropriate vehicle for asserting a claim against a governmental entity, since "where governmental operations are involved” similarly situated parties other than the individual litigant "will be adequately protected under the principles of stare decisis” (37 NY2d, at 57; accord, Matter of Rivera v Trimarco, 36 NY2d 747 , 749). By its terms, that holding concerns itself only with the inefficiency of using the class action form when the prospective rights of interested nonlitigants can be safeguarded by other means. Nothing in the Jones decision suggests that the same policies justify either the use of a long limitations period or the creation of a toll solely to enable aggrieved parties to sit on their existing rights pending the outcome of an early challenge brought by others (cf., American Pipe & Constr. Co. v Utah, 414 US 538 , 554).

Finally, inasmuch as plaintiff had lost the right to challenge the validity of the underlying rate decision through its own inaction, it had no legal basis for its October 1991 post-HANYS demand for a refund of the moneys that had been recouped pursuant to the recently invalidated "straddle patient” policy. Thus, to the extent that plaintiff’s complaint asserted a timely cause of action based on the refusal of that demand, the claim was lacking in substantive merit and was properly rejected. We decline to adopt plaintiff’s contention that equal protection principles guarantee it the same relief as was afforded to the members of the Hospital Association of New York, all of whom received refunds after the HANYS decision was handed down. Since the Hospital Association was a party in HANYS and had standing to represent its members, defendants could rationally distinguish between those members, whose rights had been adjudicated in HANYS, and plaintiff, a nonparty whose rights had not been addressed in

Accordingly, the order of the Appellate Division should be modified, without costs, by reinstating the judgment of the Supreme Court and, as modified, affirmed.

Chief Judge Kaye and Judges Simons, Bellacosa, Smith, Levine and Ciparick concur.

Order modified, etc.