Barclay Damon Awarded Injunction From NYS Supreme Court in Favor of Downstate DME Providers

When faced with dramatic cuts in Medicaid reimbursement for incontinence supplies, a group of durable medical-equipment (DME) providers sought representation from Barclay Damon LLP in a lawsuit against New York State. Through an Article 78 proceeding, plaintiffs alleged the severity of the cuts would eliminate local home-delivery-service networks, leaving a de facto mail-order-only system in its place. The Kings County Supreme Court issued a decision and order on September 28, 2018, issuing a preliminary injunction in the plaintiffs' favor through the pendency of the litigation,ⁱ representing a big win for the DME and pharmacy provider communities.

Through its statutory authority,ⁱⁱ the NYS Department of Health (DOH) implemented the Incontinence Supply Management Program to assure quality-control standards for the provision of incontinence supplies.ⁱⁱⁱ Through this program, a "preferred vendor" contract was awarded to Twin Med, LLC, a Minnesota shipping company that offered low prices, but failed to provide the benefits of home delivery and customer service afforded by the existing community-based network of local DME supply providers in Downstate New York.

The challenged Medicaid reimbursement rates were based on this preferred contract, which served as the center of the state's reimbursement methodology for incontinence supplies. However, if implemented, the new rate methodology would eliminate local providers and funnel the millions spent by New York State on these critical products to mail-order businesses based in other states. After a delayed implementation of the new rates, the DOH issued a revised schedule of reimbursement rates of the preferred contract pricing plus 50 percent, ignoring the specific objections and concerns presented by the plaintiffs. Despite the increase from preferred pricing plus 30 percent to 50 percent, the proposed rates would still result in significant loss of revenue—particularly when product recipients were enrolled in Medicaid Managed Care Plans"”and would be unsustainable for providers on a long-term basis.

The plaintiffs, including a group of Downstate DME providers receiving payment through Medicaid and Medicaid Managed Plans, as well as Medicaid-covered individuals suffering from medical conditions requiring the use of incontinence supplies, were able to make a compelling showing of merit and harm, resulting in a preliminary injunction preventing the new Medicaid reimbursement pricing from going into effect in the foreseeable future. The court agreed that the reduced reimbursement rates would lead to significant revenue loss, compromising suppliers' ability to provide reliable services to recipients, and confirmed that unreasonable hardship existed, as a result of utilizing a drop-shipment system in place of hand delivery.

If the rate reductions were to go into effect, the existing incontinence-provider supply network would dwindle and eventually cease to exist, forcing NY community-based providers to leave the network and allowing only Medicaid's preferred vendor to survive. Utilizing a drop-shipment method of delivery would be nothing short of impossible, due to the risk of theft or damage of the supplies and disabled recipients' physical inability to retrieve supplies from the doorsteps of their homes or buildings. Forcing Downstate DME providers to close their doors would erase the community-based network recipients rely upon, as the incontinence supply providers do much more than simply hand-deliver supplies. Frequent contacts and visits create valuable and necessary provider-recipient relationships, wherein providers assist with instructions for use, ensure the delivery and receipt of appropriate products, and provide much-needed support to some of New York's must vulnerable populations.

The Brooklyn Supreme Court found a likelihood of success on the merits, concluding that the plaintiffs demonstrated the unreasonableness of this pricing policy and that the state failed to use documented empirical data and rules in setting the reimbursement rates. Although the state defendants argued the rate schedule was rationale and based on commonly used pricing models utilizing preferred providers, the court concluded the state failed to take the economic realities of Downstate NY-based suppliers into account, including costs of operation and insurance, among others. As such, the court agreed the drastic price reductions would result in the forced closure of these community-based providers.

The court also concluded that these compelled closures would limit Medicaid recipients' access to services through the existing provider network, in contravention of statute. The operation at a substantial loss would lead to providers withdrawing from the incredibly important community-based provider network and would force recipients to rely on burdensome drop-shipment delivery methods. This would, in turn, limit access to services through the existing provider network—a right that the Social Services Law is designed to protect.^iv Thus, the court concluded the plaintiffs had made a meritorious showing of unreasonableness. These findings, in addition to a showing of irreparable injury and a balancing of the equities in favor of the plaintiffs, entitled the DME providers and service recipients to an injunction barring the implementation of the new rates until litigation between the parties is resolved.

In addition to this precedent-setting preliminary injunction decision, the court also denied the state's cross-motion for a change of venue from Kings County to Albany County. Although the state defendants asserted that the NY Civil Practice Laws and Rules require the matter to be prosecuted in Albany County,^v the court found its argument that the challenged determination, proceedings, and material events took place in Albany to be unpersuasive. Instead, the court concluded that Kings County was a proper venue for the dispute, as many of the plaintiffs either reside or have principal places of business in Kings County, and the state defendants failed to any hardship or prejudice.^vi

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ⁱIn re AAA Elite Medical Equipment Inc. v. Zucker, Index No. 506392/2017 (NY Sup. Ct. Kings Cty., Sep. 28, 2018).
ⁱⁱSee NY SSL § 365-a(2)(g).
ⁱⁱⁱSee NY SSL § 365-1(2)(g)(v).
^ivSee NY SSL § 365-a(2)(g)(v).
^vSee NY CPLR § 506(b).
^viThe court cited the CPLR's conflict of venue provisions as the authority to do so. See NY CPLR § 502.