A coalition of nursing home providers in New York State on Thursday filed a lawsuit against the state’s Department of Health (DOH), alleging violations of federal and state law with regard to hundreds of millions in Medicaid funding cuts.

“These rate reductions were motivated purely out of budgetary concerns, with no consideration for the residents in the nursing home or the facilities that have to provide the care that is necessary for these residents,” the plaintiffs argued in the suit. “Because DOH’s actions were arbitrary, capricious and in violation of the law, they should be annulled.”

The lawsuit, which was filed on Thursday in Albany County State Supreme Court, identifies more than 100 nursing homes that are affected by the cuts.

The plaintiff coalition includes LeadingAge NY, the Healthcare Association of New York State (HANYS), the New York State Health Facilities Association (NYSHFA), Southern New York Association (SNYA), Greater New York Health Care Facilities Association (GNYHCFA), and the Continuing Care Leadership Coalition (CCLC).

The DOH is seeking to make the new rates effective for all nursing homes starting November 6.

The lawsuit focuses on adjustments to the state’s case mix index (CMI), which the DOH uses to calculate the rates for each facility. According to the DOH, the change would lead to $246 million in savings, inclusive of both reduced state and federal dollars; the state would see net savings of $123 million, leading to the loss of matching federal funds for Medicaid.

The state originally used a method in which it based each SNF’s average Medicaid case mix index on two snapshot days in January and July of each year. Under the old method of calculating rates, the DOH would use the patient acuity assessments submitted by SNFs to the federal government within 13 days of a patient’s admission, and every 92 days thereafter to make case-mix adjustments to reimbursement rates.

The DOH would use the Minimum Data Sets (MDS) closest to the snapshot dates to put residents into categories with associated CMI rates, and calculate the average CMI for each SNF.

But under the DOH’s new method, it would use all MDS assessments submitted from August 8, 2018 through March 31, 2019. On October 9, the department sent SNF administrators a letter detailing what the reimbursement rates would be, retroactive to July 1.

The new method is a major source of contention not just because of the cuts, but because of differing interpretations of the legislative language that the DOH has cited as the basis for the change. A provision in New York’s final budget for the State Fiscal Year 2019-2020 authorized a workgroup for discussing and making recommendations on the method used to calculate CMI adjustments for SNF rates.

“The FY 2020 State Budget that was passed by the Legislature included a change in the method used to reimburse nursing homes statewide, in order to ensure that nursing homes are paid accurately and fairly based on the care needs (“acuity”) of the 80,000 New Yorkers they serve at an annual cost of approximately $6 billion,” the DOH said in a statement to Skilled Nursing News. “The Department does not expect this change to result in any disruption to nursing home residents and the care they receive, and is reviewing the court case.”

Providers disagreed with the assessment that the language in the budget included a change to the case mix.

“I think providers and organized labor understood it as: The group would work in partnership with the state to look at case mix, and to make recommendations on changes to the case mix system, in contemplation of — among other things — [the Patient-Driven Payment Model] and other provisions,” NYSHFA president and CEO Stephen Hanse told SNN in June.

At the end of June, the Nursing Home Acuity Workgroup submitted a report to various departments of the state arguing that the change proposed by the DOH would put the financial viability of nursing homes at risk.

In the lawsuit, the coalition argued — citing 2017 cost report data — that 41% of all nursing homes in New York operated at a loss in that year, a number that would grow to 56% if the cuts are implemented.

“Upon information and belief, approximately 43% of the nursing homes projected to have negative operating margins under the revised methodology, including a number of Provider Petitioners, received four or five stars (out of five) from CMS,” the lawsuit alleges. “Indeed, upon information and belief, half of CMS’ highest-rated, five-star nursing homes, including certain Provider Petitioners, will have a negative operating margin under the new methodology.”

The actions taken by the DOH use statistics and information from 2007 to set reimbursement rates, the coalition also noted in its release announcing the suit.

In the lawsuit, the providers called for the court to annul the DOH’s methodology for the July 1 case mix adjustment, order the department to recalculate the July 1 case-mix adjustment within 60 days, and reimburse the petitioners for any underpayments.

They also called for the court to make the DOH use a 5% limit on case-mix changes, which prevents them from going up or down more than 5%. The department had indicated it would not invoke that limit for the new case-mix methodology.

The federal government has yet to approve the state plan amendment (SPA) submitted by the state, and “upon information and belief,” requested more information from the DOH, according to the lawsuit.

“Nevertheless, the state has decided to ‘damn the torpedoes’ and move ahead with the cuts without Federal approval, as reflected in a so-called ‘DAL’ (Dear Administrator Letter) sent by DOH on October 9, 2019, to all nursing homes finally advising them of the rate cuts,” the lawsuit said. “Even if, however, the Federal Government approved the State Plan, DOH’s change in methodology would violate state law and regulation.”