Court Opinion

ID: 5813072
Source: CourtListenerOpinion
Date Created: 2022-01-12 18:53:57.181351+00
Date Added: 2024-06-11T08:42:54.790921
License: Public Domain

Kane, J. P. (dissenting).
Although diplomatically called the establishment of a "tentative” rate by the majority, in plain words and fact the respondents simply froze 1976 Medicaid reimbursement rates at existing 1975 levels. This the majority says they were permitted to do by section 2808 of the Public Health Law. We disagree. It also concludes that chapter 76 of the Laws of 1976 authorized their later action in fixing new rates for 1976 retroactively and that such action neither impaired any contractual rights nor offended relevant Federal statutes and regulations. Again we disagree. The judgment of Special Term should be affirmed with certain modifications.
We believe that this proceeding was properly maintained pursuant to CPLR article 78. Petitioners’ basic complaint is that respondents failed to perform their statutory duties and, in fact, exceeded their authority. While a determination fixing rates is involved, the petition does not ask for certiorari review of a matter ordinarily deemed a legislative act; it seeks redress in the classic nature of prohibition and mandamus to restrain an allegedly unauthorized activity and to compel compliance with those duties. In any event, we would not hesitate to treat the present litigation as an action for declaratory judgment (cf. Matter of Lakeland Water Dist. v Onondaga County Water Auth., 24 NY2d 400; Matter of White Plains Nursing Home v Whalen, 53 AD2d 926; Matter of Severino v Ingraham, 45 AD2d 564). However, petitioners did not obtain an order allowing them to maintain this proceeding as a class action (CPLR 902). Since governmental operations are involved and subsequent petitioners would be adequately protected under the principles of stare decisis, the judgment of Special Term should be modified by deleting references to class relief (Matter of Jones v Berman, 37 NY2d 42, 57).
Turning to the substantive aspects of this proceeding, it should be recalled that petitioners first questioned the lawfulness of the rate freeze in February of 1976. In answer to their petition, it was alleged that section 2808 of the Public Health Law supplanted all or a portion of section 2807 thereof and that certain fiscal considerations and statutory uncertainty made it necessary to approve "interim” rates. An affidavit of the respondent Commissioner of Health expanded on these justifications. The fiscal considerations were said to be the *121serious financial plight of the City of New York and its resulting impact on the budget of the State. The supposed statutory uncertainty was founded on the expected passage of a proposed Medicaid revision bill which would have frozen reimbursement rates from January 1, 1976 through March 31, 1977. The former reason undoubtedly supplied motivation to conserve State resources, but it hardly conferred authority on respondents to single out residential health care facilities as a target for effecting such savings. The latter explanation was completely worthless. In addition to the fact that the Legislature did not bring their prediction into reality, respondents were obviously not entitled to anticipate future legislation but were bound to follow the statutes then in existence until they were changed.
In apparent recognition of the inherent weakness of these arguments, the majority seizes upon respondents’ reference to section 2808 of the Public Health Law and maintains that it set a new standard for the establishment of Medicaid reimbursement rates which authorized the freeze initially imposed. This will surely come as welcome news to respondents, particularly since they never claimed that statute possessed such a broad effect before Special Term or in their brief and argument in this court. The afore-mentioned affidavit of the Commissioner of Health merely stated that section 2808 "appears to supplant all, or at least a portion of the traditional rate setting provisions of [s]ection 2807” and concluded in a self-serving fashion that "[u]ntil this issue is resolved it would not be prudent to go forward with 1976 reimbursement.” If this represents solid reliance on some newly found standard, it is a remarkably timid manner of expressing it. In our view that statute simply directed the promulgation of interim regulations, exactly as it was worded, and the Commissioner of Health apparently so understood it for he did adopt a new regulation pursuant thereto, before the rate freeze was imposed, which reaffirmed and continued the effectiveness of his former regulations (see former 10 NYCRR 86.34, eff Oct. 14, 1975). Far from establishing any new standard, section 2808 required only that certain interim regulations be consistent with Federal regulations on the same subject. The standard contained in subdivision 3 of section 2807 was not repealed, as one might expect had the Legislature truly intended section 2808 to take its place, but remained intact and partially survived amendments made by chapter 76 of the Laws of *1221976. Furthermore, even if what a "prudent buyer” would pay constitutes some type of standard, we fail to appreciate how it materially differs from the "costs of efficient production” language. Not often in the normal course of business may a careful buyer obtain something for less than the cost of its efficient production; he certainly cannot do so repeatedly for very long.
Finally, nowhere in the record or briefs before us have respondents even suggested that the frozen rates "closely approximated” the rates mandated by section 2808 as stated by the majority. Petitioners have not attempted to prove that the "tentative” rates were inconsistent with section 2808 because, until now, they were never given any reason to believe that statute might have played a part in respondents’ decision to freeze those rates. The issue is not whether proper 1976 rates would be higher or lower than those in use during 1975, but whether respondents had authority to act as they did when they did. Nothing contained in section 2808 of the Public Health Law expressly or impliedly empowered respondents to set an interim or temporary rate and, pending the adoption of valid regulations thereunder, they were obliged to follow the statutes and regulations then in effect. Quite plainly they did not do so and, accordingly, we agree with Special Term that the rate freeze was illegal, null and void.
Our disagreement with the second conclusion of the majority stems from the interpretation we place on chapter 76 of the Laws of 1976. As a general rule, statutes are prospectively construed unless a clear legislative expression to the contrary appears (Matter of Mulligan v Murphy., 14 NY2d 223; McKinney’s Cons Laws of NY, Book 1, Statutes, § 51). The majority finds such an expression in section 18 of that enactment whereby the amendments to subdivision 2 of section 2807 of the Public Health Law were deemed to have been in effect on and after January 1, 1976. However, the same section also provided that "[t]his act shall not be construed to alter, change, affect, impair or defeat any rights, obligations, duties or interests accrued, incurred or conferred prior to the enactment of this act” (L 1976, ch 76, § 18). While residential health care facilities have no property rights in prospective reimbursement rates, it seems clear to us that they do possess an "interest” in receiving payment for services already rendered which would be "affected” by a retroactive application of the challenged legislation. The language of the enactment *123is at least ambiguous and, therefore, we would decline to give it retrospective effect.
Assuming, arguendo, that petitioners’ rates were properly frozen and that the Legislature meant to permit the retroactive application of chapter 76 of the Laws of 1976, two questions must still be resolved; could retroactive application of new rates be constitutionally accomplished without impairing contractual rights and did the particular action of the respondents in October of 1976 avoid the infringement of such rights?
Petitioners would surely not object to a retroactive windfall and the first inquiry poses difficulty only when the retrospective rates are lower than those previously in effect. La-Crescent Constant Care Center v State (301 Minn 229) supplies no answer when this occurs for there the petitioner was contending that its provider agreement had incorporated the State Plan and associated statutory standard so that it had an affirmative contractual right to a rate of reimbursement higher than was then being paid. No element of retroactivity was involved in that case. Here, however, petitioners are asserting that their provider agreements contain sufficient terms to serve as a defensive shield to a later reduction in those reimbursement rates and we agree. Residential health care facilities must execute provider agreements with the State as a precondition to participation in the Medicaid program (see US Code, tit 42, § 1396a, subd [a], par [27]) and, having done so, the fact that no specific payment rates are set forth does not mean that a contractual accord with the State has not been achieved. Mention of the State Plan is obviously a shorthand device used to signify the contractual arrangement chosen by the parties for determining the method and amount of payment to be made for services rendered. We do not wish to imply that a provider agreement may never be altered through some prospective change in the State Plan, but no matter how the Legislature might validly suspend or change the obligations thereby created (see Home Bldg. & Loan Assn, v Blaisdell, 290 US 398; Matter of Department of Bldgs, of City of NY. [Philco Realty Corp.], 14 NY2d 291), it could not have intended nor would it have been constitutionally permissible to abrogate them retroactively (see Flushing Nat. Bank v Municipal Assistance Corp. for City of N. Y, 40 NY2d 731; Patterson v Carey, 52 AD2d 171).
The answer to the second question is somewhat complicated *124by the fact that respondents have conceded on this appeal that their action in October of 1976 will produce a reimbursement rate which is higher for some residential health care facilities than the initially frozen rate while for others it will be even lower. Its effect on these petitioners has not been developed in this record. Nevertheless, in our opinion petitioners’ new 1976 rates may not be retroactively applied, following the foregoing analysis, if they are lower than the originally frozen rates. Parenthetically, this would also hold true if their new rates are lower than rates recalculated according to the statutes and regulations in effect on November 1, 1975, but we are still assuming that the primary freeze was valid and that chapter 76 of the Laws of 1976 was intended to be retroactively applied.
The majority discovers no necessity for petitioners to accept Medicaid patients and reasons that respondents’ notification that the tentative reimbursement rates might be adjusted downward eliminated the need to accord them a hearing before recouping any difference between their frozen rates and the new rates. Although we do not think it necessary to presently decide whether residential health care facilities must accept Medicaid patients, these petitioners have alleged that they are required to do so and respondents have "admitted” that in their answer. The parties have thus foreclosed review of that issue in this proceeding and, for whatever their legal worth, 10 NYCRR 730.2 and the language of the provider agreements tend to support their stipulation. In any event, we are not actually concerned with whether the proposed recoupment works a deprivation of property (cf. Matter of Sigety v Ingraham, 29 NY2d 110, 115), but whether it causes an impairment of contractual obligations. That it would most certainly do and no description of the original rate as being "tentative” or a subsequent hearing could cure that infirmity. Of course, absent the instant stipulation and provider agreements we would then face the situation addressed by the majority. If that were the case, we still fail to perceive how vested property rights in the form of payments made for services already rendered can be made to disappear according to the label applied to those payments in the first instance (Matter of White Plains Nursing Home v Whalen, 53 AD2d 926, supra).
Lastly, our views obviate the necessity of considering the entire scope of petitioners’ claim that the reimbursement *125freeze and retroactive application of new rates conflicts with certain Federal statutes and regulations (see US Code, tit 42, § 1396a, subd [a], par [13], cl [E] and CFR 250.30 [a] [3]). Special Term properly decided this proceeding on the basis of New York law and adequately protected petitioners by directing the recomputation of 1976 rates. The additional injunctive relief granted was unnecessary and its judgment should be further modified accordingly. However, were it not for our declaration concerning the impermissibility of applying chapter 76 of the Laws of 1976 retroactively, we would be inclined to agree with petitioners on this point (see Hospital Assn, of N. Y. State v Toia, 428 F Supp 848; Catholic Med. Center v Rockefeller, 305 F Supp 1268, affd 430 F2d 1297, app dsmd 400 US 931). The opposite interpretation placed upon the HEW regulation by an administrator is not impressive when the statute seems to require his superior’s approval and verification of cost-finding methods after July 1, 1976.
To recapitulate our position, although class action and injunctive relief were either unwarranted or unnecessary, respondents undertook the rate freeze without lawful authority. They should recalculate those rates in accordance with the statutes and regulations in effect on November 1, 1975 and make appropriate payments to petitioners if their recalculated rates prove to be higher than their frozen rates. Chapter 76 of the Laws of 1976 may not be utilized retroactively, but we have no reason to question the propriety or future application of rates established in conformity therewith. If retrospective application of that enactment were legally possible, the rates thereunder for such a period could not be lower than petitioners’ recalculated rates and if the recalculation were itself unnecessary, the rates thereunder could not then be lower than those originally frozen.
The judgment of Special Term should be modified as indicated and affirmed.
Larkin and Herlihy, JJ., concur with Mahoney, J.; Kane, J. P., and Main, J., dissent and vote to affirm in an opinion by Kane, J. P.
Judgment reversed, on the law and the facts, and petition dismissed, without costs. Upon service of a copy of the order to be entered hereon together with notice of entry, the prelimi*126nary injunction heretofore granted by order of this court, entered November 19, 1976, is vacated.