KOCH, D.O., ERIC J. v. SHEEHAN, JAMES G. , 940 N.Y.S.2d 734 ( 2012 )

SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
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CA 11-01309
PRESENT: SCUDDER, P.J., CENTRA, PERADOTTO, LINDLEY, AND MARTOCHE, JJ.
IN THE MATTER OF ERIC J. KOCH, D.O.,
PETITIONER-RESPONDENT,
V OPINION AND ORDER
JAMES G. SHEEHAN, NEW YORK STATE MEDICAID
INSPECTOR GENERAL, RESPONDENT-APPELLANT.
ERIC T. SCHNEIDERMAN, ATTORNEY GENERAL, ALBANY (VICTOR PALADINO OF
COUNSEL), FOR RESPONDENT-APPELLANT.
BROWN & TARANTINO, LLC, BUFFALO (SUSAN A. EBERLE OF COUNSEL), FOR
PETITIONER-RESPONDENT.
Appeal from a judgment (denominated order and judgment) of the
Supreme Court, Erie County (Diane Y. Devlin, J.), entered August 24,
2010 in a proceeding pursuant to CPLR article 78. The judgment
granted the petition.
It is hereby ORDERED that the judgment so appealed from is
unanimously affirmed without costs.
Opinion by MARTOCHE, J.: Respondent, the New York State Medicaid
Inspector General, appeals from a judgment granting the CPLR article
78 petition, thereby vacating respondent’s determination excluding
petitioner from participating in the New York State Medicaid Program
and reinstating petitioner retroactively to March 10, 2010 as a
participating physician in the Medicaid Program. We are called upon
to consider for the first time the scope of the authority of the
Office of the Medicaid Inspector General (OMIG) insofar as it relates
to physician conduct not involving Medicaid patients.
OMIG
The Department of Health (DOH) is the state agency responsible
for administering the state’s Medicaid Program (see Social Services
Law § 363-a; 18 NYCRR 504.1 [d] [12]). Within the DOH, the OMIG was
established in 2006 as an independent entity responsible for detecting
and preventing fraud, waste, and abuse in the Medicaid Program (Public
Health Law §§ 30, 30-a, 31, 32). Among other things, respondent is
authorized to exclude enrolled health care providers from the Medicaid
Program (see § 32 [6]), and to “perform any other functions that are
necessary or appropriate to fulfill the duties and responsibilities of
the office in accordance with federal and state law” (§ 32 [24]).
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In order to provide medical care, services, and supplies to
Medicaid recipients and to receive Medicaid reimbursement, a person
must enroll as a provider in the Medicaid Program (see 18 NYCRR 504.1
[b] [1]). The relationship between the DOH and the provider is an at-
will contractual relationship, and there is no inherent entitlement to
being a Medicaid provider (see Matter of Bora v New York State Dept.
of Social Servs., 152 AD2d 10, 12-13).
The federal Medicaid regulations permit the Office of the
Inspector General to exclude a Medicaid provider who furnishes
substandard services to patients, whether or not they are Medicaid
patients (see 42 CFR 1001.701 [a] [2]), and further require that the
state agency have the same authority to do so (see 42 CFR 1002.210).
The DOH regulations provide several bases for terminating or excluding
a provider from the Medicaid Program. Indeed, pursuant to 18 NYCRR
504.7 (a), the provider’s participation may be terminated by the DOH
on 30 days’ notice without cause. In certain circumstances,
termination is mandatory, such as when the provider is excluded or
terminated from participating in the federal Medicare program (see 18
NYCRR 515.8 [a] [1]), or when the provider’s license is terminated,
revoked or suspended (see 18 NYCRR 504.7 [d] [1]). In addition, the
OMIG has the authority to exclude a provider for “unacceptable
practices” within the meaning of 18 NYCRR 515.2. Such “unacceptable
practices” include, among other things, the failure to meet
professionally recognized standards for health care (see 18 NYCRR
515.2 [b] [12]).
The regulations authorize the DOH to exclude a provider found to
have committed professional misconduct, as follows:
“Upon receiving notice that a person has been
found to have violated a State or Federal
statute or regulation pursuant to a final
decision or determination of an agency having
the power to conduct the proceeding and after
an adjudicatory proceeding has been
conducted, in which no appeal is pending, or
after resolution of the proceeding by
stipulation or agreement, and where the
violation resulting in the final decision or
determination would constitute an act
described as professional misconduct or
unprofessional conduct by the rules or
regulations of the State Commissioner of
Education or the State Board of Regents, or
an unacceptable practice under this Part, or
a violation of article 33 of the Public
Health Law, the department may immediately
sanction the person and any affiliate” (18
NYCRR 515.7 [e]).
The OMIG regularly receives, for its review, copies of consent
agreements and orders from the Office of Professional Medical Conduct
(OPMC). The Board of Professional Medical Conduct and the OPMC
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(collectively, OPMC) serve, respectively, as the investigatory and
adjudicatory arms of the DOH concerning allegations of professional
misconduct by physicians (see Public Health Law § 230 et seq.;
Education Law § 6530). In the event that the OPMC enters into a
consent agreement and order (Consent Order), the OMIG’s Exclusions
Unit reviews such Consent Orders to determine whether the provider
should be allowed to continue as a Medicaid provider or should be
excluded from the Medicaid Program.
The DOH Proceeding against Petitioner
Petitioner has been licensed to practice medicine in New York
State since 2003, and has specialized in the field of internal
medicine. The OPMC investigated petitioner’s involvement in the care
of two patients who were not receiving Medicaid, and ultimately filed
a statement of charges alleging that petitioner failed to meet
accepted standards of care in nine respects with regard to the two
patients. Thus, petitioner was charged with committing misconduct
under Education Law § 6530 (3), erroneously referred to by the DOH in
its Specifications of Charges as section 6230 (3). Negotiations
ensued, and petitioner entered into a Consent Order. According to the
terms of the Consent Order, petitioner was pleading “no contest to the
specifications, in full satisfaction of the charges” against him in
exchange for an agreement to a specified penalty. He agreed to be
placed on probation for a period of 36 months and to comply with
various conditions. He further agreed that his failure to comply with
any conditions of the Consent Order would constitute misconduct under
Education Law § 6530 (29). The Consent Order further provided that,
if the OPMC did not adopt the Consent Order, none of the terms of the
Consent Order would bind petitioner “or constitute an admission of any
of the acts of alleged misconduct.” The OPMC adopted the Consent
Order effective June 9, 2009.
The CPLR Article 78 Proceeding
On March 4, 2010, the OMIG issued a notice of immediate agency
action, excluding petitioner as a provider from the Medicaid Program
and placing him on the “OMIG list of persons disqualified from
Medicaid.” According to the affidavit of a registered nurse in the
OMIG, the Exclusions Unit regularly reviews penalties imposed by OPMC
against health care providers over whom OPMC has jurisdiction. The
nurse averred that she reviews OPMC consent orders and the associated
charges, “to determine if the conduct of the individual that led to
the imposition of a penalty by OPMC rises to the level that would
warrant the individual’s exclusion as a provider in the Medicaid
Program.” She reviewed the Consent Order at issue here and stated
that “[a]mong the findings” in the Consent Order were those involving
the two patients and, based on OPMC’s findings, she “believed” that
petitioner’s conduct was so negligent that the OMIG should exercise
its discretion under 18 NYCRR 515.7 (e) and exclude petitioner from
participating as a provider in the Medicaid Program. She made that
recommendation to the Exclusions Unit, which adopted her
recommendation. The exclusion became effective on March 10, 2010.
Petitioner submitted a response to the termination dated July 1, 2010
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and argued that the sanction was unreasonable and that he should be
reinstated immediately as a participant in the Medicaid Program. By
letter dated July 28, 2010, OMIG rejected as untimely what it deemed
to be an appeal of its decision. In the interim, however, petitioner
commenced this CPLR article 78 proceeding on July 9, 2010, contending
that the OMIG’s determination was arbitrary and capricious and that
the penalty imposed shocked one’s sense of fairness. We deem it
important to address petitioner’s apparent failure effectively to
exhaust his administrative remedies, inasmuch as his administrative
appeal was dismissed as untimely and it does not appear that he
challenged that dismissal. It is seemingly inevitable that
petitioner’s administrative appeal would have been denied on the
merits even in the event that it had been timely submitted given
respondent’s avid opposition to this CPLR article 78 proceeding. As
we noted in Matter of Caso v New York State Pub. High School Athletic
Assn. (78 AD2d 41, 45-46), “[t]he Court of Appeals has held . . . that
the exhaustion rule is not inflexible and need not be followed when[,
inter alia,] . . . resort to an administrative remedy would be futile”
(see generally Siegel, NY Prac § 560, at 966 [4th ed]). In addition,
it does not appear on the record before us that respondent has ever
raised any issue concerning petitioner’s failure to exhaust his
administrative remedies, thus casting a shadow of doubt on the merits
of respondent’s dismissal of the administrative appeal, which has
never been litigated. We thus shall consider the merits of the CPLR
article 78 proceeding.
In a supporting affidavit, petitioner averred that, since being
excluded from the Medicaid Program, he has “been unable to completely
fulfill [his] duties as both [his] internist and hospitalist practices
with respect to [his] patients who are Medicaid patients.” In
addition, he averred that the decision to exclude him from Medicaid
benefits was causing immediate harm to his patients and his career and
could “substantially impact [his] ability to earn an income now and
into the future.” Respondent submitted a verified answer asserting
that the determination was not arbitrary and capricious. Supreme
Court granted the petition without writing and ordered petitioner
retroactively reinstated to the Medicaid Program as a participating
physician.
Discussion
Respondent contends that the OMIG’s determination excluding
petitioner from the Medicaid Program is not arbitrary and capricious
or unlawful. Specifically, respondent contends that the OMIG has the
authority to exclude petitioner from the Medicaid Program pursuant to
18 NYCRR 515.7 (e) based on the Consent Order in which petitioner did
not contest having committed misconduct by practicing medicine with
negligence in the treatment of two elderly emergency room patients.
According to respondent, the OMIG has a duty to ensure that quality
care is provided to Medicaid patients, even though petitioner pleaded
no contest to the charges and the charges did not involve Medicaid
patients. Respondent views the authority of the OMIG broadly and
cites in support of its position various New York State Supreme Court
decisions involving similar circumstances (see e.g. Matter of Blab v
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Sheehan, Sup Ct, Albany County, Sept. 30, 2010, Sackett, J., index No.
4275-10; Matter of Halliday v State of New York Off. of Medicaid
Inspector Gen., Sup Ct, Albany County, July 2, 2010, Connolly, A.J.,
index No. 2575-10). Addressing Halliday first, we note that the court
stated that the petitioner was charged by OPMC with charges of, inter
alia, “negligence, which constituted acts of professional misconduct
under the Education Law,” and that there was no dispute that the
petitioner entered into a settlement agreement with OPMC in which the
petitioner pleaded no contest to at least one of the specifications
alleging negligence. The court then extrapolated therefrom that,
because Education Law § 6530 (3) provides that “practicing the
profession with negligence on more than one occasion” constitutes
“professional misconduct,” the OMIG had the authority to exclude the
petitioner from the Medicaid Program. Similarly, the court in Blab,
relying on Halliday, concluded that the Consent Agreement and Order
under which the petitioner pleaded no contest to two of the
specifications therein gave the OMIG authority under 18 NYCRR 515.7
(e), incorrectly cited by the court in Blab as 517.7 (e), to exclude
the petitioner from participation as a provider in the Medicaid
Program.
On the other hand, in Matter of Mihailescu v Sheehan (25 Misc 3d
258), Supreme Court (Figueroa, J.) reached a contrary result under
similar facts. There, the petitioner executed a Consent Agreement
waiving her right to contest OPMC’s formal charges and agreed to a 12-
month suspension of her medical license. Because the petitioner’s
license was suspended, the OMIG automatically terminated the
petitioner from participation as a Medicaid provider pursuant to 18
NYCRR 504.7 (d) (1). The petitioner’s license subsequently was
reactivated, but the OMIG denied her application for reinstatement to
the Medicaid Program. The court in Mihailescu concluded that the
OMIG’s refusal to reinstate the petitioner was arbitrary and
capricious, relying in part on the fact that the OMIG did not
investigate or independently evaluate the petitioner, but instead
automatically denied the petitioner’s application for reinstatement
based on the content of the Consent Agreement. The court concluded
that, because the DOH was satisfied that after the 12-month penalty
the petitioner could be safely returned to hospital employment under
stipulated conditions, the OMIG’s “perfunctory refusal” to reinstate
the petitioner was baseless (id. at 266).
Likewise, in Napoli v Sheehan (Sup Ct, Erie County, May 25, 2010,
Drury, J., index No. I2009-14524), the petitioner entered into a
Consent Agreement in which the petitioner did not contest one
specification of committing professional misconduct pursuant to
Education Law § 6530 (3). The penalty to which the petitioner agreed
in the Consent Agreement subjected him to censure and reprimand,
completion of a continuing education program, and a single review of
his medical and office records. The penalty allowed the petitioner to
continue in his professional practice, provided that he fulfilled the
conditions of the Consent Agreement, as is the case here. The OMIG
reviewed the Consent Agreement and notified the petitioner that he was
being excluded from the Medicaid Program. The court held that the
“real issue” was that the petitioner would not have entered into the
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Consent Agreement not to contest the charges of professional
misconduct if the petitioner was not to be permitted to carry on with
the practice of medicine. The court thus wrote that the admission of
no contest to the charges and the agreed on sanction “must be
considered together and the admission alone should not be used as a
basis to deny the petitioner his ability to practice medicine.” The
court concluded that the respondent’s determination to exclude the
petitioner from the Medicaid Program based solely on his decision not
to contest a charge of professional misconduct, without any
independent review of the underlying facts and a disregard of OPMC’s
related sanctions that would allow the petitioner to continue
practicing medicine, was without a rational basis and was arbitrary
and capricious.
We conclude that the analysis of those courts that have
invalidated the OMIG’s determination excluding physicians from the
Medicaid Program based on Consent Agreements with OPMC are persuasive,
and we therefore adopt a similar analysis here.
Where, as here, a petition does not raise a substantial evidence
issue, a court’s inquiry is “limited to whether denial of petitioner’s
application was arbitrary, capricious or affected by an error of law”
(Matter of Senior Care Servs., Inc. v New York State Dept. of Health,
46 AD3d 962, 965; see Matter of Pell v Board of Educ. of Union Free
School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester
County, 34 NY2d 222, 231-232). Further, a court “may not substitute
its judgment for that of the [agency] where . . . the determination is
neither irrational nor arbitrary and capricious” (Matter of Sacandaga
Park Civic Assn. v Zoning Bd. of Appeals of Town of Northhampton, 296
AD2d 807, 809). It is also axiomatic that administrative agencies are
to be afforded great deference with regard to the construction given
statutes and regulations by the agency responsible for their
administration, provided that such construction is not irrational or
unreasonable (see Matter of Howard v Wyman, 28 NY2d 434, 435, rearg
denied 29 NY2d 749).
Applying those standards, we conclude that the OMIG’s
determination was arbitrary and capricious. The initial charges of
negligence were investigated by the OPMC, the appropriate arm of the
DOH, and ultimately petitioner agreed to plead no contest to the
specifications in full satisfaction of the charges against him. The
penalty imposed did not include any suspension, but rather was akin to
censure or reprimand with conditions. To adopt respondent’s view
would create an irrational result that would allow petitioner to
continue to treat non-Medicaid patients, but be prohibited from
treating Medicaid patients. Additionally, as the court noted in
Napoli, it seems unlikely that petitioner would have agreed to the
Consent Order had he known that he effectively would not be allowed to
continue to practice medicine, because the charges to which he pleaded
no contest would be used against him factually to exclude him from the
Medicaid Program. We adopt the reasoning of Supreme Court in
Mihailescu (25 Misc 3d 258), as follows:
“The instant proceeding illustrates the
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point. Here, the Department of Health,
through OPMC and the Board, was indisputably
responsible for protecting non-Medicaid and
Medicaid patients alike by determining
whether their health and safety could be
entrusted to petitioner’s care, and, if so,
on what terms. Given the obvious importance
of avoiding duplicative departmental work and
potentially inconsistent intra-departmental
results, the [L]egislature did not likely
intend that the [OMIG] in such a case might
second-guess the Department by also
investigating or evaluating whether the
physician in question would present a
potential danger to a subset of the patient
population, i.e., Medicaid recipients. The
[OMIG] was likelier meant instead to defer to
the conclusions of his [or her] sister
departmental units in such regard . . . To be
sure, the agreement contained petitioner’s
concession that she would not contest the two
charges against her. But it also in effect
contained, as noted above, the Department’s
conclusion that, after the 12-month penalty,
she could safely be returned to hospital
employment under the stipulated conditions.
In the face of such acknowledgment by
departmental staff who had directly and at
length been involved in the review of
petitioner’s case, the [OMIG]’s perfunctory
refusal to reinstate petitioner—thus
hampering her return to such employment—was
baseless. In other words, it was arbitrary
and capricious” (id. at 266 [emphasis
added]).
As in Mihailescu and Napoli, there is no indication in the record
that the OMIG investigated or independently evaluated petitioner, but
instead it simply excluded him from the Medicaid Program based upon
the Consent Order. Accordingly, under the circumstances presented
here, we conclude that the determination was arbitrary and capricious
and that the judgment should be affirmed. In light of our conclusion,
there is no need to address petitioner’s contention that the penalty
was so disproportionate to the offense as to shock one’s sense of
fairness.
Entered: March 23, 2012 Frances E. Cafarell
Clerk of the Court