County of Monroe v. Kaladjian

— Judgment affirmed without costs. Memorandum: Supreme Court properly annulled respondents’ determination that denied petitioner’s request for an increase in its 1991 Medicaid reimbursement rate. When the 1983 base year costs of Monroe Community Hospital (the Hospital) were established in 1986, pursuant to new regulations promulgated by the Department of Health (DOH), the Hospital submitted to DOH an estimate of its electricity costs because it shared an electric meter with three other buildings owned by petitioner. The estimated electrical usage for the 1983 base year was 6,929,954 kilowatt hours. In 1990, a separate meter was installed for the Hospital that allowed it to determine its actual annual electrical usage and cost. Significantly, the Hospital discovered that its 1990 actual electrical usage was 8,761,200 kilowatt hours. Based upon that discovery, the Hospital sought an increase in its prospective Medicaid reimbursement rate, but it erroneously attributed the increase to the "upgrading and modernizing of electrical systems”. The request was denied and an administrative appeal was taken. Petitioner, upon that appeal, clarified the reason for its request stating that the installation of the separate meter for the Hospital in 1990 enabled it to determine its actual electrical usage and costs. The denial was upheld on the administrative appeal. Thereafter, petitioner commenced this CPLR article 78 proceeding. Supreme Court annulled respondents’ determination. We affirm. Medicaid reimbursement rates to hospitals must be "reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities” (Public Health Law § 2807 [3]). To achieve the legislative directive, regulations were promulgated for the computation of reimbursement rates (see, 10 NYCRR subpart 86-2). The computation of the "basic rate” includes direct, indirect, noncomparable and capital costs (see, 10 NYCRR 86-2.10 [b] [1] [ii]). The noncomparable component includes costs which, because of their nature, are not subject to peer group comparisons, including electricity costs (see, 10 NYCRR 86-2.10 [f]). Once the basic rate is established and certified, a medical facility may request a revision because of errors in the data it submitted, so long as those errors were brought to the attention of the Commissioner of DOH within 120 days of the receipt of the rate computation schedule (see, 10 NYCRR 86-2.13 [a]; 86-2.14 [a] [2]). Here, those errors were timely made known to the [1081] Commissioner. Furthermore, contrary to the contention of the minority, petitioner did not abandon its original claim of error. Rather, it clarified the basis for its claim in the administrative appeal. The minority’s argument that petitioner is endeavoring to obtain a change in the calculation of its base rate was not an argument advanced by respondents either at Supreme Court or on this appeal, and thus, is not before us (Foster Co. v Terry Contr., 34 AD2d 638, 639). On the record before us, we conclude that respondents’ denial of petitioner’s application for an upward revision of its reimbursement rate based upon its actual electrical usage was arbitrary and capricious and in direct contravention of the Public Health Law and its implementing regulations. All concur, except Boomer, J. P., and Pine, J., who dissent and vote to reverse in the following Memorandum.