New York Court Strikes Down CDPAP Reimbursement Changes

In a significant development for fiscal intermediaries (FIs) and the Consumer Directed Personal Assistance Program (CDPAP), a New York Supreme Court Justice ruled on March 20, 2025, that the New York State Department of Health (DOH) acted unlawfully in implementing a three-tiered reimbursement methodology for FI administrative costs without following the required administrative procedures.

Background: The Legal Challenge

As previously covered in our blog, a group of FIs filed a lawsuit on July 22, 2024, challenging DOH's decision to revise the reimbursement model for FI administrative costs. The changes, set to take effect on Aug. 1, 2024, aimed to reduce costs by restructuring payments from a "per customer per month basis" into a three-tiered fee-for-service (FFS) reimbursement methodology based on the number of care hours provided to each consumer. According to a June 28, 2024, presentation by DOH, the revised reimbursement methodology would have reduced costs by 9.5 percent on average, depending on the state region. The petitioners argued, among other things, that the three-tiered administrative rate methodology is a "rule" that was unlawfully adopted by DOH in violation of the rulemaking procedures established in the State Administrative Procedure Act (SAPA) and New York State Constitution. SAPA's definition of "rule" includes any legislative or quasi-legislative norm or prescription that establishes a pattern or course of conduct for the future and acts as a general principle applied regardless of other relevant facts and circumstances. According to the petitioners, the three-tiered reimbursement methodology fell within this definition and should have undergone formal rulemaking procedures, including public notice and comment, and DOH's failure to follow these procedures rendered its implementation invalid.

DOH's Argument and Court's Ruling

DOH argued that the methodology was not a "rule" under SAPA but rather a discretionary action taken under its contractual agreements with Managed Medicaid Care Plans (MMCPs). Specifically, DOH asserted that the reimbursement methodology was properly adopted and implemented pursuant to the model contract between DOH and MMCPs. DOH cited legal precedent, arguing that the case law distinguishes between ad hoc decisions based on individual circumstances and legislative rulemaking, with only the latter requiring SAPA compliance. By characterizing the reimbursement methodology as a contractual term rather than a regulatory mandate, DOH sought to justify its implementation without the procedural safeguards of SAPA.

The court rejected DOH's argument, determining that the three-tiered methodology constituted a "rigid quasi-legislative norm" without reference to individual facts or circumstances, rather than a discretionary contractual decision. The court pointed to explicit directives in the Medicaid update published by DOH and the model contract requiring FIs and MMCPs to adhere to the new methodology without negotiation. The court concluded that since the methodology was applied broadly and conclusively dictated reimbursement terms for all affected entities, it should have undergone formal rulemaking under SAPA. Finding no valid exemption to SAPA's requirements, the court ruled that DOH's implementation of the methodology was unlawful, arbitrary and an abuse of discretion.

Implications for FIs and MMCPs

The court's ruling invalidating the reimbursement change is a major victory for FIs and MMCPs, which have been receiving lower reimbursement rates since Aug. 1, 2024, when the change went into effect. It is unclear at this time whether those rates will be retroactively adjusted under the original methodology.

Holland & Knight attorneys will continue to track developments in this case, including any appeals and court directives to recalculate the reimbursement rates.