STATE OF NEW YORK
`SUPREME COURT COUNTY OF ALBANY
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`GRAND SOUTH POINT, LLC D/B/A THE GRAND REHABILITATION
`AND NURSING AT SOUTH POINT, ET AL.,
`
` Plaintiffs-Petitioners,
`v.
`JAMES V. MCDONALD, M.D., M.P.H., AS COMMISSIONER OF
`HEALTH OF THE STATE OF NEW YORK, OR HIS PREDECESSOR OR
`SUCCESSOR IN OFFICE, AND BLAKE G. WASHINGTON, AS DIRECTOR
`OF THE DIVISION OF BUDGET, OR HIS PREDECESSOR OR SUCCESSOR
`IN OFFICE,
` Defendants-Respondents.
`INDEX NO. 903081-23
`
`HON. JULIAN D.
`SCHREIBMAN, J.S.C.
`
`ORAL ARGUMENT
`REQUESTED
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`MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS-RESPONDENTS’ MOTION TO DISMISS
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`May 23, 2025 HARTER SECREST & EMERY LLP
`F. Paul Greene, Esq.
`Christina M. Deats, Esq.
`Attorneys for Plaintiffs-Petitioners
`1600 Bausch & Lomb Place
`Rochester, New York 14604-2711
`(585) 232-6500
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`TABLE OF CONTENTS
`PAGE
`TABLE OF AUTHORITIES ................................................................................................................... ii
`PRELIMINARY STATEMENT .............................................................................................................. 1
`FACTS .............................................................................................................................................. 2
`BACKGROUND AND RATE INSUFFICIENCY.................................................................................. 2
`PHL § 2828 AND SUBSEQUENT DEVELOPMENTS ....................................................................... 5
`ARGUMENT ...................................................................................................................................... 8
`POINT I L EGAL STANDARD ................................................................................................... 8
`POINT II P LAINTIFFS’ CLAIMS CONCERNING ENFORCEMENT FOR
`MEASUREMENT YEARS 2022 AND 2023 ARE NOT BARRED BY RES
`JUDICATA OR COLLATERAL ESTOPPEL ..................................................................... 9
`POINT III P LAINTIFFS’ CLAIMS CONCERNING MEASUREMENT YEARS 2022
`AND 2023 STATE A CAUSE OF ACTION ................................................................... 11
`POINT IV M ANDAMUS LIES TO REQUIRE DEFENDANTS TO COMPLY WITH PHL
`§ 2807(3) ............................................................................................................... 15
`POINT V P LAINTIFFS’ REMAINING CAUSES OF ACTION SHOULD BE
`DISMISSED WITHOUT PREJUDICE ........................................................................... 17
`POINT VI D EFENDANTS’ REMAINING ARGUMENTS ARE WITHOUT MERIT ............................. 18
`CONCLUSION .................................................................................................................................. 20
`CERTIFICATE OF COMPLIANCE ....................................................................................................... 21
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`TABLE OF AUTHORITIES
` PAGE(S)
`CASES
`219 Broadway Corp. v. Alexander’s, Inc.,
`46 N.Y.2d 506 (1979) ................................................................................................................8
`Bradley v. Whalen,
`58 A.D.2d 664 (3d Dep’t 1977) ...............................................................................................19
`BT Bourbonnais Care, LLC v. Norwood,
`866 F.3d 815 (7th Cir. 2017) .............................................................................................16, 18
`Carr v. Wegmans Food Markets, Inc.,
`182 A.D.3d 667 (3d Dep’t 2007) ...............................................................................................8
`Cavanaugh v. Doherty,
`243 A.D. 92 (3d Dep’t 1998) .....................................................................................................8
`Grand South Point, LLC et al. v. Bassett,
`230 A.D.3d 49 (3d Dep’t 2024) ...............................................................................................10
`Klostermann v. Cuomo,
`61 N.Y.2d 525 (1984) ..............................................................................................................18
`Landau, P.C. v. LaRossa, Mitchell & Ross,
`11 N.Y.3d 8 (2008) ....................................................................................................................9
`Matter of Police Benevolent Ass’n v. New York,
`150 A.D.3d 1375 (3d Dep’t 2017) ...........................................................................................14
`Morehouse v. Horicon Plan. Bd.,
`85 A.D.2d 769 (3d Dep’t 1981) .................................................................................................9
`Storey v. Cello Holdings, LLC,
`347 F.3d 370 (2d Cir. 2003).......................................................................................................9
`UBS Sec. LLC v. Highland Cap. Mgmt., L.P.,
`159 A.D.3d 512 (1st Dep’t 2018) ..............................................................................................9
`White Plains Nursing Home v. Whalen,
`53 A.D.2d 926 (3d Dep’t 1976) ...............................................................................................19
`STATUTES
`42 U.S.C. § 1396a(a)(13)(A) .......................................................................................15, 16, 17, 18
`N.Y. C.P.L.R. 3211 ....................................................................................................................8, 10
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`N.Y. C.P.L.R. 3211(a)(2) .................................................................................................................8
`N.Y. C.P.L.R. 3211(a)(5) .................................................................................................................8
`N.Y. C.P.L.R. 3211(a)(7) .................................................................................................................8
`N.Y. C.P.L.R. 5013 ..................................................................................................................10, 17
`N.Y. Public Health Law § 2807(2) ..................................................................................................3
`N.Y. Public Health Law § 2807(3) ........................................................................................ passim
`N.Y Public Health Law § 2807(7) .............................................................................................5, 11
`N.Y. Public Health Law § 2828 ............................................................................................. passim
`N.Y. Public Health Law § 2828(1)(a) ............................................................................................15
`N.Y. Public Health Law § 2828(1)(c) ........................................................................................5, 15
`OTHER AUTHORITIES
`10 N.Y.C.R.R. § 415.34 .................................................................................................1, 11, 12, 14
`10 N.Y.C.R.R. § 415.34(e)(1)(ii) ...................................................................................................10
`10 N.Y.C.R.R. § 415.34(e)(2) ..................................................................................................11, 12
`10 N.Y.C.R.R. § 415.34(e)(2)(i)-(ii) ..........................................................................................6, 10
`10 N.Y.C.R.R. § 415.34(e)(3) ........................................................................................................12
`18 N.Y.C.R.R. Part 518 .................................................................................................................19
`18 N.Y.C.R.R. § 517.14 .................................................................................................................19
`18 N.Y.C.R.R. § 518.6 ...................................................................................................................19
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`Plaintiffs-Petitioners (“Plaintiffs”) hereby submit this Memorandum of Law in opposition
`to Defendants-Respondents’ (“Defendants”) motion to dismiss, brought by Notice of Motion,
`dated March 14, 2025. Plaintiffs also submit the Affirmation of F. Paul Greene, Esq., dated
`May 23, 2025, with exhibit (“Greene Aff.”), the Affidavit of Chelsea Murray, CHFP, dated
`May 22, 2025, with exhibit (“Murray Aff.”), the Affirmation of Aaron Kaufman, dated May 20,
`2025, with exhibit (“Kaufman Aff.”), and the Affidavit of Mark Curletta, MBA, dated May 21,
`2025 (“Curletta Aff.”).
`PRELIMINARY STATEMENT
`As Plaintiffs have already demonstrated in this matter, from its inception, PHL § 2828 has
`been a moving target. In its original form, the statute was gravely harmful to nursing homes and
`their residents, such that the Legislature has since altered it three separate times, each time
`reducing the scope of harm that the statute creates. This action initially challenged the first
`amended version of the statute and, through amendment of the pleading, has since been updated
`to address the statute’s current version, which has narrowed the relevant harm for the Court’s
`consideration. Beyond this, other courts have decided certain issues raised in this suit in parallel
`actions, such that the remaining scope of this action is narrower than originally conceived. In the
`end, however, and as demonstrated herein, several important and independent issues concerning
`PHL § 2828 remain for this Court to resolve, including the impact of the Commissioner’s
`unexplained delay of nearly two years in implementing the statute, which Plaintiffs assert bars any
`enforcement for spending in rate years 2022 and 2023, given the timing mandated by the statute
`and the express rules concerning notice of alleged noncompliance adopted by the Department of
`Health (the “Department”) in its own implementing regulations, 10 N.Y.C.R.R. § 415.34.
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`Given the above, and as further detailed herein, this action should be narrowed to its
`appropriate scope and the proceed on the issues that remain.
`FACTS
`As set forth in the Second Amended Verified Petition and Complaint (“Complaint”) and
`left unrebutted by Defendants on their Motion to Dismiss, the facts relevant to this action and
`Defendants’ motion are as follows:1
`Background and Rate Insufficiency
`Nursing homes in New York are in crisis. They have been vastly underfunded for years,
`although they serve the medically necessary, morally right, and constitutionally mandated
`function of providing care for the State’s most needy and vulnerable residents, on the State’s
`behalf. (See, e.g., Complaint ¶¶ 1; 47 (up to $50 per resident per day shortfall in
`reimbursement); 51-54 (no Medicaid rate trend factor increase for 14 years and the State has
`refused to rebase rates, despite statutory obligation to do so); Murray Aff. ¶ 4 (average Medicaid
`shortfall is now $91 per resident per day).) For its part, the Department of Health, which plays a
`key role in recommending policy to the Legislature, has, over the last decade, lost the
`institutional knowledge necessary to understand the complexities of its own Medicaid program
`and the way in which funding changes impact facilities and their residents. (See Complaint
`¶¶ 59-60.) This loss of institutional knowledge has occurred via retirements and other attrition,
`with the Department failing to replace key rate-setting expertise, once lost. This, in turn, has led
`to delays in enforcement and other administrative process, such as the decades-long delay in
`Medicaid rate appeals processing, and is now exacerbated by the nearly two full years of delay in
`enforcing PHL § 2828. (See id. ¶¶ 61-63 (Medicaid rate delay caused by lack of Department
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`1 Capitalized terms not otherwise defined herein use the definitions given in the Complaint.
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`staffing and expertise); 64 (because of loss of rate-setting expertise, Department has been unable
`to grasp the extremely negative effect of many of its policies, and unable to assess sufficiency of
`the rate under PHL § 2807(3)); 75, 92, 190 (Defendants’ delays in enforcing statute harming
`facilities); 128 (Department has failed to issue mandatory FAQs informing facilities how PHL
`§ 2828 would be enforced, if at all).)
`This cycle of rate starvation and unending administrative delay is not what the
`Legislature intended for our eldest loved ones and fellow New Yorkers, however. Rather, as a
`baseline, the State Medicaid Act requires sufficient funding to meet the expenses that must be
`incurred by an efficiently and economically operated facility. See PHL § 2807(3). This
`reimbursement floor was set by the Legislature in 1982 and requires regular work and
`reassessment by the Department, specifically that the Department apply a number of fact-specific
`factors and the conduct informed analysis with each new rate schedule sent to the Division of the
`Budget for approval, to determine whether the rates reflected in that schedule are sufficient.2 See
`id. (See also Complaint ¶ 45.) Because of its losses in staffing, however, the Department has
`apparently not conducted this analysis, required of it several times per year with each new rate
`package, for over twenty years, basing its last-such determination on a study conducted before
`widespread use of the Internet, i.e., during the first Clinton administration. (See Complaint
`¶¶ 43-45 (last known determination made under PHL § 2807(3) dates from 2003); 222-24 (study
`
`2 For its part, the Division of the Budget must apply the findings made by the Department of Health in this regard. If
`the rates are determined to be sufficient, the Division of the Budget approves them. See PHL § 2807(2) (“Rate
`approvals.”). If not, one would assume that the Division of the Budget, in its role as chief financial advisor to the
`Governor, would take action and recommend a change to ensure proper funding for necessary medical care. See
`About Us – NYS Division of the Budget, available at https://www.budget.ny.gov/about-us/ (“The Division of the
`Budget, serving as the Governor’s chief financial advisor charged with executing the Governor’s constitutional
`fiscal duties, is responsible for weighing and considering competing demands on State resources.”) The Division of
`the Budget has been made a party here, inter alia, because it has apparently been complicit in the Department’s
`failures in this regard. It has either been willfully blind to the Department’s ongoing failure to comply with PHL
`§ 2807(3) or it has abdicated its duty to ensure proper allocation of State funds.
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`used in 2003 determination was itself already 10 years old at the time). And, as a matter of
`timing, the Penalties under PHL § 2828, which are at the core of this proceeding, were mandated
`to immediately follow the rate year in which applicable spending was measured. In practice,
`however, Defendants have delayed in enforcing the statute, thereby increasing the amount of the
`Penalties, via interest that accrues with each passing day of delay; and the lack of certainty and
`potential impact felt by providers. (See Murray Aff. ¶¶ 24-25, 27, 29; Kaufman Aff. ¶¶ 6-9, 11;
`Curletta Aff. ¶¶ 7-10.)
`Why the delay? Because of its ever-increasing lack of rate-setting expertise, the
`Department, when obtaining passage of PHL § 2828, apparently overlooked a key flaw in its
`plan: instead of redistributing funds among facilities in a “budget neutral” manner, PHL § 2828
`creates a regime where nearly half a billion dollars in Medicaid funds are taken out of the system
`each year and returned to federal coffers. (See Complaint ¶ 87 (current estimates indicated that
`up to $800 million in Penalties may be moved into the “Quality Pool” for redistribution); 159
`(New York’s Medicaid Plan funded in significant part by the federal government); see also
`Murray Aff. ¶¶ 17 (New York “Federal Medicaid Assistance Percentage” or “FMAP” is
`currently 50%); 18 (federal Centers for Medicaid and Medicare Services recoups FMAP portion
`of any penalties recovered under Medicaid program); Greene Aff. ¶¶ 17-18 (if Defendants
`contend that the Penalties are Medicaid “overpayments,” then the Department must return
`recouped funds to CMS). This only underscores the facially absurdity of PHL § 2828, despite its
`salutary intentions, the statute harms all New York facilities, and their residents, by making
`significantly less money available for care, not more.
`And lastly, the PHL § 2828 regime, and Defendants’ implementation thereof, harms
`Plaintiffs, in that their significant goodwill and business value has been irreparably harmed. All
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`facilities in the state, whether for-profit or not-for-profit, are now capped at earning 5% above
`expenses, a limitation that clearly reduces their market value in an active commercial market.
`(See Murray Aff. ¶ 25; Curletta Aff. ¶ 10; Greene Aff. ¶ 5.) In addition, the lack of certainty and
`the potential for retroactive application of PHL § 2828 - - although the statute mandates
`prospective application only - - have commercial impact. What rational buyer would buy a
`nursing home potentially subject to unenforced Penalties without reducing the offer price? (See
`Greene Aff. ¶¶ 5-6.)
`PHL § 2828 and Subsequent Developments
`As outlined in the Complaint, PHL ¶ 2828 was adopted in 2021 as an apparent vehicle to
`increase staffing, by redistributing funds in a “budget neutral” manner, based on spending levels
`and net revenue. (See Complaint ¶¶ 67-73.) The Legislature mandated that this redistribution
`occur, if at all, in a timely fashion, with the resulting Penalties to be collected “in the year
`following the year in which [relevant] expenses are incurred.” See PHL § 2828(1)(c). And the
`Legislature required due process in relation to such collection, either by “bringing suit in a court
`of competent jurisdiction on its own behalf after giving notice of such suit to the attorney
`general,” or providing notice of and then making “deductions or offsets from payments made
`pursuant to the Medicaid program.” See id.; see also PHL ¶ 2807(7) (requiring 60-days advance
`notice of changes to Medicaid payments). Following this due process mandate, the Department
`of Health, in the regulations it adopted to implement PHL § 2828, defined a clear, prospective
`process, which must be made upon advance notice and finalized, if at all, by “November first in
`the year following the year in which [measured] expenses are incurred:”
`(2) Remission of excess revenue.
`(i) The Department shall issue a notice of noncompliance to a facility
`subject to recoupment for excessive total operating revenue, which indicates
`the amount to be remitted based on the amount of excess revenue or the
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`difference between the minimum spending requirement and the actual
`amount of spending on resident-facing staffing or direct care staffing, as
`applicable, as well as acceptable forms of payment.
`(ii) Upon receipt of a notice of noncompliance pursuant to subparagraph (i),
`the facility shall remit the total amount indicated in the notice of
`noncompliance by November first in the year following the year in which
`the expenses are incurred.
`See 10 N.Y.C.R.R. § 415.34(e)(2)(i)-(ii) (outlining notice and opportunity to be heard before
`funds are remitted under PHL § 2828, all before the November 1 deadline in the year following
`the measurement year).
`This is not surprising, as the whole premise behind the current prospective Medicaid
`reimbursement regime is to provide certainty of funding, so that facilities can appropriately plan
`for and finance their operations, in the most efficient manner possible. (See Murray
`Aff. ¶¶ 23-24; Kaufman Aff. ¶¶ 4-5; Curletta Aff. ¶¶ 5-6.) It goes without saying that uncertainty
`in funding creates operational insufficiencies, including the need to amass contingency funds and
`delay necessary expenditures as a risk management maneuver. (See Murray Aff. ¶¶ 23-24.)
`Regardless of these due process protections and strict timing requirements, the statute
`was extremely harmful in its original form, such that the majority of nursing homes in the state
`commenced legal challenges against it. (See Complaint ¶¶ 28-29 (identifying the parallel
`actions).) In response, the Legislature amended the statute three times to mitigate its most
`harmful effects, e.g., by redefining “revenue” to only include relevant revenue sources and to
`otherwise reduce the likelihood that Penalties would be issued. The Legislature, likely
`inadvertently however, left the rules for rate-year 2022 unchanged, which rules have become a
`main focus of this proceeding. The Legislature also did nothing to address the irrational
`“feedback loop” created by the statute, nor did it address the federal funding issue addressed
`above, i.e., that the federal government will recoup 50% of any Penalty issued, resulting in
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`potentially up to half a billion dollars or more in Medicaid funds leaving the State annually,
`harming both facilities and their residents.
`The “feedback loop” created by the statute is perhaps its most absurd feature, as written.
`Under the statute, funds are taken from facilities for failure to meet arbitrary spending
`requirements, or for exceeding equally arbitrary net revenue limits, and then deposited into the
`so-called “Quality Pool.” Those same funds are then distributed via the “Pool” to facilities
`meeting satisfying certain quality measures. So far, so good, if the statute went on to address the
`impact of these awards, which it does not. Specifically, a “Quality Pool” award counts as
`revenue under PHL § 2828, such that unless a facility vastly overspent in relation to staffing in
`the measurement year, it will be subject to a PHL § 2828 Penalty upon receipt of a “Quality
`Pool” award, clawing back the very funds awarded to it via the “Pool.” (See Murray
`Aff. ¶¶ 7-15.) And this cycle continues, with Penalties becoming awards becoming Penalties and
`so forth, such that monies go in and out of the “Pool” with no opportunity for use in a manner
`benefitting residents or a facility.3
`So what we are left with is a regime that inadvertently reduces state Medicaid funding to
`facilities by up to half a billion dollars per year, sending these much-needed funds back to the
`federal authorities, and locks up the remaining funds collected by the Penalties in a constant back
`and forth between facilities and the “Quality Pool” that in no way meets the goals of the statute,
`i.e., to increase funding to high-quality homes for staffing purposes. This is the core irrationality
`challenged in the statute and its implementing regulations here.
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`3 Tellingly, Defendants fail to address this feedback loop at all, let alone explain how it can benefit residents.
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`ARGUMENT
`POINT I
`LEGAL STANDARD
`Defendants seek dismissal under N.Y. C.P.L.R. 3211(a)(2), (5)4, and (7). Such a motion
`seeks drastic relief and must clearly demonstrate that plaintiff has no cause of action based on the
`facts and circumstances placed before the Court. See 219 Broadway Corp. v. Alexander’s, Inc.,
`46 N.Y.2d 506, 509 (1979) (“If we find that the plaintiff is entitled to a recovery upon any
`reasonable view of the stated facts, our judicial inquiry is complete and we must declare the
`plaintiff’s complaint to be legally sufficient.”). For this reason, all non-conclusory allegations in
`the pleading are deemed true, and every reasonable inference is drawn in non-movant’s favor.
`See Cavanaugh v. Doherty, 243 A.D. 92, 98 (3d Dep’t 1998) (“[T]he court is required to view
`every allegation of the complaint as true and resolve all inferences in favor of the plaintiff . . . .”)
`(quotation marks and citation omitted). In addition, when considering the sufficiency of the
`pleading on a N.Y. C.P.L.R. 3211 motion, the Court should freely consider factual submissions
`made in opposition to the motion but may not consider factual submissions made in support of
`the motion. Carr v. Wegmans Food Markets, Inc., 182 A.D.3d 667, 668-69 (3d Dep’t 2007)
`(nonmovant may submit factual proof to support sufficiency of pleading, movant may not). For
`this reason, the Court should reject out of hand the Affirmation submitted in support of
`Defendants’ motion from Valerie A. Deetz, dated March 10, 2025 (Doc. No. 142), to the extent
`that Affirmation is submitted in support of Defendants’ motion, as that Affirmation makes
`factual allegations that may not be heard on a motion to dismiss.
`
`4 Defendants’ jurisdictional argument is that Plaintiffs allegedly failed to exhaust administrative remedies in relation
`to their Public Health Law § 2807(3) claim, and their N.Y. C.P.L.R. 3211(a)(5) argument is based on alleged res
`judicata and collateral estoppel.
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`POINT II
`PLAINTIFFS’ CLAIMS CONCERNING ENFORCEMENT FOR MEASUREMENT YEARS 2022
`AND 2023 ARE NOT BARRED BY RES JUDICATA OR COLLATERAL ESTOPPEL
`As set forth below in Point V, certain claims in this action fall away, given the decision
`of the Appellate Division in Grand South I5 and decisions in the parallel actions, Little Sisters
`and LeadingAge New York, Inc. et al. v. Hochul. That being said, the key differentiating fact in
`this case - - which was not at issue and has therefore not been decided in any prior case - - is
`whether the Commissioner’s apparent delay in enforcing the Penalties under PHL § 2828 renders
`any enforcement for spending in measurement-years 2022 and 2023 improper. Indeed,
`Defendants admit this when they argue, without support, that Plaintiffs’ claim in relation to
`enforcement of PHL § 2828 for measurement years 2022 and 2023 is allegedly unripe. It goes
`without saying that a claim cannot be both unripe and allegedly already decided. See Storey v.
`Cello Holdings, LLC, 347 F.3d 370, 383 (2d Cir. 2003) (“Claims arising subsequent to a prior
`action need not, and often perhaps could not, have been brought in that prior action; accordingly,
`they are not barred by res judicata regardless of whether they are premised on facts representing
`a continuance of the same ‘course of conduct.’”); UBS Sec. LLC v. Highland Cap. Mgmt., L.P.,
`159 A.D.3d 512, 513 (1st Dep’t 2018) (res judicata does not apply where the conduct at issue
`occurs after commencement of the prior action); Morehouse v. Horicon Plan. Bd., 85 A.D.2d
`769, 769-70 (3d Dep’t 1981) (petitioner’s submission of new facts in second proceeding was not
`barred by res judicata). And in order for a decision to have preclusive effect, it must have been
`made on the merits. See Landau, P.C. v. LaRossa, Mitchell & Ross, 11 N.Y.3d 8, 13 (2008)
`(dismissal without prejudice “lacks a necessary element of res judicata”). The Grand South I
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`5 Plaintiffs in Grand South I have moved the Court of Appeals for leave to appeal. Should that motion be granted,
`and should ultimate relief be granted to the Grand South I Plaintiffs in any respect, Plaintiffs herein reserve the right
`to assert any claims rendered valid by but left undecided by the Court of Appeals in Grand South I.
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`decision referenced by Defendants upheld the trial court’s N.Y. C.P.L.R. 3211 dismissal without
`prejudice, and therefore does not create preclusive effect. See Grand South Point, LLC et al. v.
`Bassett, 230 A.D.3d 49 (3d Dep’t 2024) (affirming 3211 dismissal and only granting merits
`relief in relation to constitutionality of PHL § 2828 under a due process and equal protection
`analysis); N.Y. C.P.L.R. 5013 (unless otherwise specified, dismissal prior to close of evidence is
`without prejudice).6
`And the Third Department , in Grand South I, addressed the importance of the
`Department’s annual review of compliance under PHL § 2828, which review Defendants appear
`to have abdicated here with their unexplained delays in enforcement.
`As for plaintiffs’ prejudice, compliance with Public Health Law § 2828 is
`reviewed annually, so plaintiffs can adjust their conduct regularly; plaintiffs would
`also be informed by defendants of any pending action before it was taken, so they
`are not in a situation where industry planning requires deciding a hypothetical issue
`prematurely (see 10 NYCRR 415.34 [e] [1] [ii]; [2] [i]).
`
`See Grand South Point, 230 A.D.3d at 62 (emphasis added). As each rate year passes without
`apparent enforcement, Plaintiffs are in the dark as to potential noncompliance and are robbed of
`the opportunity to change their spending practices where possible. Because Defendants have
`apparently not met their obligation to review compliance annually, Plaintiffs have clearly been
`harmed in a way not anticipated in Grand South I nor any other prior case, and their resulting
`claims are therefore not barred by res judicata or collateral estoppel.
`
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`6 For this reason, Grand South I has no impact concerning Plaintiffs’ claim for Article 78 relief, given the clear
`irrationality of the PHL § 2828 “feedback loop” or the federal takeback of Penalty funds, outlined above.
`FILED: ALBANY COUNTY CLERK 05/23/2025 04:57 PMINDEX NO. 903081-23
`NYSCEF DOC. NO. 177 RECEIVED NYSCEF: 05/23/2025
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`11
`POINT III
`PLAINTIFFS’ CLAIMS CONCERNING MEASUREMENT YEARS 2022 AND 2023
`STATE A CAUSE OF ACTION
`Plaintiffs assert two things in relation to measurement years 2022 and now 2023 as a
`matter of substantive timing under PHL § 2828: (i) that the statute and implementing regulations
`require the Department to issue a “notice of noncompliance” before any alleged Penalties
`become due, and (ii) when read in coordination with PHL § 2807(7), such a notice had to issue
`no later than September 2 of the year immediately following the measurement year, i.e., 60 days
`prior to the Penalty due date. See PHL § 2828 (Penalties due by November 1 of the year
`following the expense measurement year); 10 N.Y.C.R.R. § 415.34(e)(2) (in order for Penalties
`to become due, the Department must first issue a notice of noncompliance, such that the facility
`can remit the Penalties by November 1 of the year following the measurement year); PHL
`§ 2707(7) (any such notice must issue 60 days in advance of the anticipated recoupment).7 This
`timing is key, of course, because nursing homes must be able to plan for their financial
`operations, understanding well in advance what sort of revenue will come in and what may be
`taken away. These issues were simply not before the Courts in Grand South I nor in the parallel
`actions, nor could they be, as those cases were all commenced before the first November 1, 2023
`Penalty deadline.
`
`7 PHL § 2828 applies to Medicaid rate changes, and Defendants argue that the recoupment of Penalties under PHL
`§ 2828 and 10 N.Y.C.R.R. § 415.34 is not a rate change. Defendants are wrong as a factual matter, however, and
`their assertion is irrelevant to measurement years 2022 and 2023. In the first instance, Plaintiffs have alleged and
`shown in their opposition that the Penalties will be taken out via rate reductions, as is the Department’s usual
`practice. (See Complaint ¶¶ 13-15