Federal lawsuit seeks to block nursing home profit cap and staffing mandates imposed by state law that took effect Jan. 1

A federal lawsuit brought by the operators of more than 250 nursing homes in New York seeks to set aside a new state law that limits their profits and mandates minimum spending on direct care expenses.

The suit, which was joined by three nursing home advocacy groups, was filed in Albany County on Dec. 29 to block the new law just as it was to take effect at the start of the new year.

The law, proposed by former-Gov. Andrew Cuomo, was part of the 2021 budget package passed last April.

It requires nursing home operators to spend at least 70% of their revenue on direct resident care expenses and 40% of their revenue on direct care staff. It also imposes a profit — or surplus, for nonprofit operators — cap of 5% of their revenues. The “excess” profit or surplus would be paid to the state Department of Health and deposited into a “quality pool” to enhance the Medicaid reimbursement rates of certain nursing homes.

The lawsuit says the new law is effectively a taking of private property without just compensation, in violation of the U.S. Constitution.

Facing increasing heat over his administration’s handling of the pandemic crisis and nursing home resident deaths, false reporting of fatality data and accusations of an intentional coverup, Cuomo last February announced he would introduce reform legislation in his 30-day amendments to his executive budget proposal that would focus on “low-performing hospitals” and for-profit nursing homes.

“If you’re a for-profit nursing home, I believe it should be mandated how much you put back into the facility and how much profit you can make,” Cuomo said.

For-profit homes are trying to make a profit and “it’s too easy to sacrifice patient care,” Cuomo said.

The announcement came two weeks after the release of a report by Attorney General Letitia James stating that her investigation found the administration had underreported nursing home residents’ deaths by up to 50% — and less than a week after his top aide Melissa DeRosa admitted to Democratic lawmakers that the administration had not provided data sought by the U.S. Department of Justice in an inquiry state officials believed to be politically motivated.

Critics of the former governor called his actions an attempt to deflect attention away from the growing public outcry and political blowback.

New York nursing home operators would have had to pay the state approximately $824 million in 2019 under the new requirements — of which approximately $313 million would be attributable to the 5% profit/surplus cap and approximately $511 million would be attributable to the 70%/40% spending mandate, according to the lawsuit.

The plaintiffs include nursing home operators on Long Island, including the operator of the Westhampton Care Center, which says it would have been assessed a penalty of $3,516,187 in 2019, attributable to a penalty assessed under the 70% / 40% spending mandate and profit/surplus cap.

The law requires the state health commissioner to adopt regulations to implement the revenue requirements. State Commissioner of Health Dr. Mary Bassett is the sole defendant in the suit, which seeks to permanently enjoin the department adopting those regulations.

Gov. Kathy Hochul on Dec. 31 signed an executive order temporarily suspending the 70%/40% spending mandate through Jan. 30. Hochul cited “the staffing shortage caused by the Covid-19 public health emergency” as the reason for the suspension.