                          State of New York
                   Supreme Court, Appellate Division
                      Third Judicial Department
Decided and Entered: June 11, 2015                     520040
________________________________

In the Matter of PARK MANOR
   REHABILITATION AND HEALTH
   CARE CENTER, LLC,
                    Appellant,
      v                                     MEMORANDUM AND ORDER

NIRAV SHAH, as Commissioner
   of Health of the State of
   New York, et al.,
                    Respondents.
________________________________


Calendar Date:   April 24, 2015

Before:   Peters, P.J., Garry, Egan Jr. and Lynch, JJ.

                             __________


      O'Connell & Aronowitz, Albany (Cornelius D. Murray of
counsel), for appellant.

      Eric T. Schneiderman, Attorney General, Albany (Victor
Paladino of counsel), for respondents.

                             __________


Lynch, J.

      Appeal from a judgment of the Supreme Court (Devine, J.),
entered January 23, 2014 in Albany County, which, in a proceeding
pursuant to CPLR article 78, granted respondents' motion to
dismiss the petition.

      Petitioner owned and operated a nursing home facility in
the City of Middletown, Orange County until March 2010, when the
facility was sold to its current operator. The facility provided
services to patients who were eligible for both Medicaid and
Medicare Part B benefits. To account for this dual coverage, the
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Department of Health (hereinafter DOH), headed by respondent
Commissioner of Health, adopted a regulation that "carves out"
from the initial Medicaid reimbursement rate an estimated amount
of the Medicare Part B reimbursement that the facility would
first receive for services provided (see 10 NYCRR 86-2.17 [m]).
In turn, DOH is required to perform a reconciliation comparing
the amount of Medicare reimbursement that the facility actually
received with the amount withheld from the Medicaid rates. The
net result could demonstrate that the facility received an
underpayment or overpayment of Medicaid funds.

      In 2008, petitioner filed a Medicaid reimbursement rate
appeal with DOH, seeking over $600,000 in claimed underpayments
from 1995 to 2007. DOH acknowledged receipt of the appeal, but
did not complete the required reconciliation. After selling the
facility, petitioner continued to demand that DOH process its
appeal. When petitioner's February 8, 2013 demand letter went
unanswered, petitioner commenced this CPLR article 78 proceeding
seeking to compel respondents to complete the reconciliation and
pay the outstanding balance directly to petitioner. Supreme
Court granted respondents' motion to dismiss the petition for
lack of standing, and this appeal by petitioner ensued.

      We affirm. Standing requires a party to demonstrate both
an injury-in-fact and an injury falling "within the zone of
interests or concerns sought to be promoted or protected by the
statutory provision under which the agency has acted" (New York
State Assn. of Nurse Anesthetists v Novello, 2 NY3d 207, 211
[2004]). Petitioner has clearly demonstrated an injury-in-fact
particularly since it initiated the rate appeal while it was
still the owner/operator (see Matter of Dental Socy. of State of
N.Y. v Carey, 61 NY2d 330, 334 [1984]). The more difficult
question is whether petitioner meets the zone of interests
component as a former owner/operator. Our review shows that the
governing statute and regulations contemplate the payment of
Medicaid reimbursement to the current provider of medical
services or the current operator of a nursing home facility.
Specifically, Social Services Law § 367-a (1) (a) mandates that
all payments "shall be made to the person, institution, state
department or agency or municipality supplying such medical
assistance" and expressly prohibits the assignment of a
                               -3-                520040

reimbursement claim to a third party. This legislation was
designed to "relieve DOH from the potential liability and
increased administrative burdens involved in such assignments"
(Legislative Mem, 1971 McKinney's Session Laws of NY at
2419-2420; see IMFC Professional Servs. v State of New York, 59
AD2d 1047, 1048 [1977]). Correspondingly, nursing home
facilities qualify for Medicaid payments provided that they
possess a valid operating certificate issued by the Commissioner
(see Public Health Law § 2801 [2], [3], [4] [b]; 10 NYCRR 86-2.1
[a]). An operating certificate "shall only be used by the
established operator for the designated site or operation" (10
NYCRR 401.2 [b]). When, as here, the owner/operator sells a
facility to a party who intends to continue operating the
facility, it may transfer the operating certificate to the new
operator only upon approval of the Public Health Council (see 10
NYCRR 401.3 [c]). Read together, these provisions establish that
it is the current operator of a nursing home facility – i.e., the
holder of a valid operating certificate – that is entitled to
receive Medicaid payments and, thus, is the protected party
within the statutory zone of interest.

      This construction is consistent with DOH's methodology of
processing all payments and recovery of overpayments of Medicaid
funds through the current operator.1 Moreover, the purchase
agreement between petitioner and the current operator provides
that any reimbursement due petitioner from the rate appeal would
constitute "trust funds" that the current operator is obligated
to directly turn over to petitioner – a provision that reflects
the understanding of the contracting parties that Medicaid
reimbursements would be processed through the licensed operator
of the facility.2


     1
        As explained in the affidavit of Cynthia Treis, an
associate health care analyst with DOH, any overpayment or
underpayment of Medicaid reimbursements are adjusted through the
Medicaid reimbursement rate due the current operator of a
facility.
     2
        Correspondingly, as a condition of DOH's approval for the
licensing of the current owner to operate the facility, the
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      As such, we conclude that Supreme Court correctly
determined that petitioner, as a former owner/operator, lacks
standing to pursue this proceeding (see Matter of Astor Gardens
Health Care Ctr. v Novello, 304 AD2d 961, 963 [2003]). The
record confirms that as between petitioner and the current
operator, petitioner has contractually preserved its entitlement
to any reimbursement that may be due. Nonetheless, even if, as
petitioner claims, the current operator is uncooperative and has
no incentive to participate, it is the entity that has standing
to pursue a recovery of any Medicaid reimbursements determined
upon a reconciliation.

     Peters, P.J., Garry and Egan Jr., JJ., concur.



     ORDERED that the judgment is affirmed, without costs.




                             ENTER:




                             Robert D. Mayberger
                             Clerk of the Court




purchase agreement expressly obligates the current owner to
assume liability to DOH for all Medicaid overpayments made to
petitioner prior to the closing date. Petitioner in turn remains
contractually liable to the current owner for any such
overpayments.
