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In the Consolidated Matters of Mercerville Center, Madison Center and Jersey Shore v. Department of Health and Senior Services

November 4, 2011

IN THE CONSOLIDATED MATTERS OF MERCERVILLE CENTER, MADISON CENTER AND JERSEY SHORE, APPELLANTS,
v.
DEPARTMENT OF HEALTH AND SENIOR SERVICES, RESPONDENT.



On appeal from the New Jersey Department of Health and Senior Services.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued: October 19, 2011 -

Before Judges Axelrad and Sapp-Peterson.

In this appeal, Mercerville Center, Madison Center, and Jersey Shore nursing facilities that receive Medicaid funding (collectively appellants), challenge the authority of the Department of Health and Senior Services (DHSS) to conduct clinical acuity audits of appellants' 2006 cost reports. We sua sponte dismiss this appeal for failure of appellants to exhaust their administrative remedies, and remand the matter to DHSS.

On April 28, 2010, DHSS' auditors sent notices to 125 nursing facilities, including appellants, advising that DHSS would be conducting clinical acuity audits of the facilities' 2006 cost reports. About thirty facilities, including appellants, contacted DHSS challenging the audits on the ground they were time barred, alleging the cost reports were filed prior to March 31, 2007 and the audits commenced after March 31, 2010, the statutory deadline under N.J.A.C. 8:85-4.1. Devon L. Graf, Director of DHSS' Nursing Facility Rate Setting and Reimbursement (NFRSR) Program replied that the due date for submitting the 2006 cost reports was automatically extended from March 31, 2007 to April 30, 2007, and thus the audits were timely commenced within three years.

On May 17, 2010, appellants' attorney sent a letter on behalf of each appellant to Graf, characterized as a formal appeal contesting the clinical acuity audits and a request for a Level II hearing with the Office of Administrative Law (OAL). He claimed Graf's May 4, 2010 email constituted a Level I decision. Graf responded by letter of May 20, 2010, advising a Level II hearing was premature as a Level I hearing had not yet been conducted. Appellants' attorney then sent a letter to Graf on June 18, 2010, characterized as a formal appeal of the clinical acuity audit and a request for a Level I hearing with his office. The letter advised that appellants were also petitioning DHSS' Commissioner for a Level II hearing before the OAL based on their belief Graf's prior responses constituted a Level I decision regarding the audits.

On June 18, 2010, appellants' attorney also sent a letter to DHSS Commissioner Poonam Alaigh stating their position that:

(l) Graf's interpretation of the regulations, that the extension was "automatic" and did not have to be requested by the nursing facilities, was incorrect and thus the Commissioner should find the audits were untimely, and (2) even if the extension was automatic, the Commissioner should find the time period for commencing the audits "on site" had passed and she should thus stay the audits. Appellants requested the Commissioner "immediately enter a decision providing that these appeals filed on May 17, 2010 be certified for a Level II hearing by [DHSS] before the [OAL] concerning the matter of a Clinical Acuity Audit by [the auditor] on behalf of [DHSS]." He further requested the Commissioner "stay [DHSS'] determination, or its failure to initiate the audits within the proper timeframe[,]" concluding:

In light of the importance of this issue to the facilities, if we do not hear from you in response to this request for a stay by the close of business on Friday, June 25, 2010, we will deem you have to have denied our request for a stay and will seek judicial intervention in order to pursue that relief. In the meantime, thank you for your prompt attention to our request.

The Commissioner did not respond nor issue a final order or decision. On July 14, 2010, appellants filed an appeal from a "State Agency decision entered on June 25, 2010." The case information statement reflected that the appeal was commenced because no response was received from the DHSS Commissioner within the allotted time provided in appellants' June 18, 2010 letter. The enumerated issues to be raised on appeal were an interpretation of the regulatory three-year period for audits, whether the agency was permitted to grant blanket extensions to regulations, and an assessment of the facts. Appellants' brief similarly argued the audits were untimely and unlawful, and DHSS' justification of suspected fraudulent activity on the part of appellants was improper.

On August 23, 2010, Ruth Charbonneau, Director of DHSS' Office of Legal and Regulatory Affairs, notified appellants' attorney in writing that the agency initiated the audits within three years of the extended due date, and regardless of the due date, DHSS had "good cause" for waiving the limitation. She additionally advised that pursuant to N.J.A.C. 8:85-4.1(c), a nursing facility may request a hearing before the OAL regarding this waiver by DHSS within 20 days of receipt of the letter. Appellants made no request for a hearing before the OAL. Instead, they proceeded with the current appeal.

Under New Jersey Court Rules, appeals may be taken to the Appellate Division "to review final decisions or actions of any state administrative agency or officer[.]" R. 2:2-3(a)(2). Appellate review is not permitted "so long as there is available a right of review before any administrative agency or officer, unless the interest of justice requires otherwise[.]" R. 2:2-3(a)(2). Appellate courts do not render advisory opinions or function in the abstract. N.J. Civil Serv. Ass'n v. State, 88 N.J. 605, 612 (1982). Therefore, ordinarily, an appellant needs to exhaust his or her administrative remedies before seeking appellate review, unless it is in the interest of justice to allow the appeal to proceed. Borough of Matawan v. Monmouth Cnty. Bd. of Taxation, 51 N.J. 291, 296 (1968).

The principal aim in avoiding premature review of administrative determinations is to keep the court from "becoming entangled in abstract disagreements over administrative policies, and also to refrain from judicial interference until an administrative decision has been formed and its effects felt in a concrete ...


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