## Facts

- New York City Health and Hospitals Corporation (NYCHHC), a public benefit corporation operating hospitals and residential care facilities, disputed state Medicaid reimbursement determinations.
- NYCHHC filed a declaratory judgment action challenging two components of Medicaid reimbursement:
  - Defendants applied a “recalibration adjustment,” promulgated in December 1991, to compute residential-care facility rates for rate years 1989–1991.
  - After a shift to per-case hospital reimbursement effective January 1, 1988, the State initially paid “straddle” patients (stays spanning the change) using the older per-diem method, but a July 3, 1989 agency letter limited per-diem treatment largely to “acute” straddle patients and required “alternative level of care” patients to be reimbursed under the per-case system, with recoupment of overpayments.
- A hospital association previously challenged the July 3, 1989 directive in a timely Article 78 proceeding and obtained relief for member hospitals; NYCHHC did not intervene or bring its own timely challenge.
- In October 1991, NYCHHC sought refunds based on that earlier litigation; after the agencies refused, NYCHHC commenced this declaratory judgment action alleging the July 3, 1989 directive was unlawful, arbitrary, and capricious.
- The trial court dismissed as untimely under CPLR 217’s four-month limit; the Appellate Division applied a three-year limitations period under CPLR 214(2) and reinstated the action.

## Issues

1. Whether a declaratory judgment action challenging promulgated Medicaid reimbursement rates or directives as irrational or affected by error of law is governed by CPLR 217’s four-month limitations period applicable to proceedings against a body or officer.
2. Whether a plaintiff may use declaratory judgment pleading to obtain a longer limitations period when the dispute is substantively reviewable in an Article 78 proceeding.
3. When the limitations period accrues for challenges to Medicaid rate-setting or reimbursement directives (final and binding agency action versus later payment refusals).

## Decision

- The Court of Appeals held that CPLR 217’s four-month statute of limitations applies to declaratory judgment actions that directly challenge Medicaid reimbursement rates or directives as irrational or affected by error of law, where the claim could be brought under Article 78.
- The Court rejected application of CPLR 214(2)’s three-year limitations period in this context.
- The Court concluded NYCHHC’s challenge to the July 3, 1989 “straddle” directive was time-barred because it was brought well beyond four months after the definitive agency action.
- As to the residential-care recalibration issue, the Court applied its companion holding that retroactive rate-making of that type was prohibited by statute, while maintaining that the same four-month timeliness framework governs such rate challenges.
- The Appellate Division’s order was reversed, effectively reinstating dismissal of the action as untimely.

## Legal Principles

- A court selects the statute of limitations based on the substance of the dispute and the nature of the relief sought, not the procedural label used by the plaintiff.
- When the underlying dispute could be resolved in an Article 78 proceeding, CPLR 217’s four-month limitations period governs even if the plaintiff pleads a declaratory judgment action.
- Promulgated Medicaid reimbursement rates and related payment directives are subject to Article 78 review when challenged as irrational or affected by error of law; their rate-making or “quasi-legislative” character does not bar such review for these claims.
- The limitations period accrues upon a final and binding agency determination (such as issuance of a controlling directive or promulgation of the relevant rate rule), and a later refusal to pay or refund generally does not restart the clock.

## Conclusion

The Court of Appeals required Medicaid rate and directive challenges framed as declaratory judgment claims to be brought within CPLR 217’s four-month period when the claims are substantively Article 78-type challenges to the legality or rationality of agency rate determinations, rendering NYCHHC’s delayed challenge untimely.


N.Y.C. Health & Hosps. Corp. v. McBarnette, 84 N.Y.2d 194 (N.Y. 1994)