Claimant's motion (M-65288) for summary judgment pursuant to CPLR 3212 seeking
a determination of liability against the defendant for interest due to the
delayed payment of $3.3 million in Medicaid funds resulting from the
application of an incorrect statistical rate by the defendant is denied.
Defendant's cross-motion for summary judgment is granted and the claim is
dismissed. The claim at issue here, denominated a "first amended claim"
(Claimant's Exhibit A), appears to assert three causes of action: (1) damages
stemming from breach of a provider agreement and the defendant's refusal to
comply with an October 1989 letter agreement; (2) interest on monies allegedly
due following the alleged breach of the provider agreement and the parties'
October 1989 letter agreement; and (3) an alleged violation of claimant's rights
under federal and state Medicaid laws. In its Wherefore clause the first
amended claim also seeks equitable relief, viz., an accounting or alternatively
a court order directing specific performance as well as an award of interest,
reasonable attorneys fees and costs and disbursements of this action.
Critical to an understanding of the claim are certain facts which are not in
dispute. Concourse Nursing Home was a sole proprietorship operated by Marvin
Neiman and licensed by the State of New York to operate a 240 bed nursing home
or residential health care facility located at 1072 Grand Concourse, Bronx, New
York. According to claimant the New York State Department of Social Services
(DSS) was the single state agency responsible for the operation of the state
Medicaid Program pursuant to 42 USC § 1396 et seq. until 1999, at
which time its function in this regard was merged into and assumed by the New
York State Department of Health (DOH). Because some of the facts underlying
this claim preceded the merger both DSS and DOH officials were involved.
References made hereafter to the State should be deemed to refer to whichever of
the two agencies were empowered to act at the time of the determination at
issue. The state's Medicaid Program was developed pursuant to Title XIX of the
federal Social Security Act (42 USC § 1396 et seq.) and operates as
a joint federal and state Medicaid assistance program for persons found eligible
for such assistance. In part the program provides for payment to residential
health care facilities by state and local governments for services rendered to
eligible persons. To obtain federal funds each participating state must operate
its Medicaid program in accordance with a state plan meeting the requirements
set forth in 42 USC § 1396a. The State Hospital and Planning Council, a
body within DOH, adopts and amends rules and regulations governing the
establishment by DOH of schedules of rates, payments and reimbursements for
Reimbursement rates for services rendered by nursing homes to Medicaid eligible
residents are paid at rates established by DOH and approved by the Director of
the Budget (formerly established by the Commissioner of DSS or his agents)
pursuant to Public Health Law § 2807 and are paid to providers who have
established their eligibility to receive payment by the execution of a Medicaid
Provider Agreement (see sample agreement, Claimant's Exhibit E). It is
not disputed that claimant executed the necessary provider agreements during the
time periods at issue here and was eligible for Medicaid reimbursement.
Some history of claimant's pursuit of the Medicaid reimbursement at issue in
this case is necessary. Following a lengthy strike by workers at claimant's
nursing home a labor agreement was signed in 1981 between the workers' employer
(an entity other than claimant, hereinafter the "employer") and the workers'
union (Local 144 Hotel, Hospital & Allied Service Employees Union
hereinafter the "union"). At that time the State had a policy which provided
reimbursement for increased Medicaid costs occasioned by union contracts and had
specifically agreed to reimburse residential health care facilities for such
costs through a memorandum of agreement with various trade associations of which
claimant was a member. The labor agreement between the union and the employer
provided that its increased salary provision would become effective only if and
when DOH implemented the increases and paid the contractually increased amounts
to the claimant. DOH allegedly refused to pay the increases for non-union staff
at claimant's facility (alleged to have been a large number of employees) and
the union refused claimant's proposal to pay the wage parity monies received
from DOH to the employer corporation which would then allocate the monies among
claimant's union and non-union workers. The union thereafter commenced an
arbitration proceeding which resulted in an award against the employer of
approximately 12 million dollars for the period 1981-1987. Thereafter the union
commenced an action in the United States District Court for the Southern
District of New York against both the employer and the claimant herein. The
District Court confirmed the arbitration award against the employer but denied
such relief as against the claimant.
It is alleged that during this time DOH suspended consideration of several of
claimant's Medicaid rate appeals. DOH's suspension of those rate appeals plus
the reversal of an accrual on Concourse's cost report reduced Medicaid rates
paid to claimant during the 1986-1991 period.
Marvin Neiman, claimant's sole proprietor, prepared a letter agreement dated
October 6, 1989 (Claimant's Exhibit F) which was submitted to and accepted by
William J. Gormley, Deputy Director of the Division of Health Facility Planning
within DOH. Pursuant to that letter agreement DOH agreed to process claimant's
rate appeals which were unrelated to the wage parity issue and which had been
placed in pending or suspended status. DOH further agreed to restore the
accrual previously eliminated from claimant's rate calculation. These agreed
upon actions on behalf of DOH increased claimant's reimbursement rates by
approximately 8.9 million dollars. Pursuant to the agreement claimant paid 7.1
million dollars of the amount received from DOH to the union to distribute to
its members. In fact, claimant alleges that it ultimately paid 7.65 million
dollars to resolve the dispute and that a total of 10.3 million dollars was paid
to the union including amounts due for the intervening period.
As previously noted an appeal unrelated to the wage parity issue remained
unresolved before DOH. According to claimant that appeal was "related to errors
in the rate computation for claimant in connection with statistical issues for
the proper adjustment factors for the application of the cost ceilings ('rate
calculation statistical error monies')" (see Neiman affidavit, para 22).
While it is not clear to the Court exactly what this language means, it appears
that DOH acknowledged the existence of an unresolved appeal by Concourse which
admittedly had a Medicaid impact of 3.3 million dollars and that such appeal
was addressed at a meeting between Concourse representatives and DOH staff on
April 16, 1991 (see Claimant's Exhibit G).
For reasons which are not immediately apparent but which claimant attributes to
union displeasure (see Neiman affidavit, para 23) the 3.3 million dollars
in Medicaid reimbursement was not paid to claimant. Claimant thereafter sought
a Court order directing the payment from DOH in a Supreme Court action which was
dismissed for lack of jurisdiction. That dismissal was affirmed by order of the
Appellate Division, First Department, entered March 9, 1999 (Exhibit C). It
appears that the Supreme Court's dismissal and the affirmance by the Appellate
Division were based upon the fact that the Court of Claims has exclusive
jurisdiction to hear and decide causes of action against DOH sounding in
contract. The Appellate Division decision did not address the issue of interest
payable upon delayed Medicaid fund reimbursement payments (see Exhibit
In July or August 1996 claimant received the 3.3 million dollars in Medicaid
reimbursement which had been contested since 1991. Claimant's recovery was
short lived, however, since it was informed that the wage parity monies
previously received by Concourse had been incorrectly calculated. 2.1 million
dollars of the 3.3 million paid to claimant in 1996 was thereafter recouped from
monies payable to Concourse on subsequent Medicaid reimbursement invoices.
Concourse disputed the State's decision to recalculate the wage parity monies
in an administrative appeal which was decided in favor of Concourse and the 2.1
million dollars which had been recouped was paid to claimant pursuant to a
stipulation of settlement dated October 30, 2000 (Claimant's Exhibit J).
Claimant's affidavit in support of the motion makes clear that although
originally fashioned as a claim for breach of contract the claim has "reduced
itself to a claim only for interest on the State's delayed payment of the 3.3
million" (Neiman affidavit, paragraph 32), monies which Mr. Neiman identifies as
"related to the incorrect statistical rate" (Neiman affidavit, paragraph 31).
This proposition is made evident in paragraphs
the amended claim. The claim thus distills to claimant's assertion that it is
entitled to $2,718,606.25 in interest based upon the State's delay in paying
Medicaid reimbursement monies due the claimant as the result of errors in
calculating and applying inappropriate statistical rates (see
affidavit, para 31; Kaufman affidavit, para 4-9).
Binding precedent prohibits the award of interest where it is alleged that
Medicaid reimbursement monies have been wrongfully withheld. As the Appellate
Division, Third Department noted more than twenty years ago in Demisay v
Whalen, 84 AD2d 902, 903, "[w]hile it seems equitable that the position
taken by plaintiff should be affirmed and interest paid, there is no statute
authorizing payment of interest in this type of action, nor can any be inferred.
It is for the Legislature to statutorily authorize such payments if, in its
wisdom, it so ordains." It is equally settled that interest is unavailable
where Medicaid rates are required to be recalculated (and monies paid) due to
errors or omissions affecting the establishment of a reimbursement rate
(see, Trustees of Masonic Hall & Asylum Fund, Matter of, v
Commissioner of New York State Dept. of Health, 193 AD2d 249, appeal
dismissed 83 NY2d 802; see also, Rye Psychiatric Hosp. Ctr.,
Matter of v Surles, 218 AD2d 853, lv to appeal denied 87 NY2d 803,
cert denied 517 US 1233). The same is true regarding Medicaid claims
given pending status which were extended beyond the time constraints fixed by
regulation for resolution of such claims (see, Ostrow, Matter
of, v Bane, 213 AD2d 651).
Claimant has not demonstrated on this motion that there is any statutory basis
under which interest is recoverable upon the delayed payment of Medicaid
reimbursement funds as alleged herein. Claimant seeks to rely upon CPLR §
5001(a) which in relevant part provides: