As recounted in our recent analysis of the 2018-19 New York State Budget (“Enacted Budget”), the Enacted Budget included new restrictions on fiscal intermediaries participating in the Consumer Directed Personal Assistance Program (“CDPAP”) designed to prevent the dissemination of “false or misleading” advertisements. Effective April 1, 2018, the newly enacted § 365-f(4-c) of the New York Social Services Law requires fiscal intermediaries to seek pre-approval for advertisements directed at Medicaid program recipients before they are released, and imposes escalating penalties for non-compliance – including revocation of the fiscal intermediary’s license to provide services after two or more false or misleading advertisements are distributed.
By way of background, the CDPAP program is a Medicaid program that allows chronically ill or physically disabled individuals to exercise a greater degree of control and choice with respect to the provision of essential services ranging from assistance with activities of daily living (ADLs) to skilled nursing services. The program – which allows recipients to hire almost anyone other than their spouse, child or parent to provide these services – provides a marked level of independence over traditional home care models where recipients must accept whatever provider is sent by the program’s vendor. In addition to freedom of choice, CDPAP aides are able to perform a host of services that ordinarily can only be performed by nurses or certified home health aides.
Unlike traditional home care models, CDPAP aides are employed by the consumer. Fiscal intermediaries help consumers facilitate their role as employer by: providing wage and benefit processing for consumer directed personal assistants; processing income tax and other required wage withholdings; complying with workers’ compensation, disability and unemployment requirements; maintaining personnel records; ensuring health status of assistants prior to service delivery; maintaining records of service authorizations or reauthorizations; and monitoring the consumer’s/designated representative’s ability to fulfill the consumer’s responsibilities under the program.
On June 26, 2018, the Consumer Directed Personal Assistance Association of New York State, Inc. and various fiscal intermediary members (collectively plaintiffs) filed a complaint against the New York State Department of Health (DOH) and its Commissioner Howard Zucker (Commissioner) (collectively defendants) in the Northern District of New York, alleging in sum and substance that § 365-f(4-c) violates their right to commercial free speech as protected by the New York and United States Constitutions. Plaintiffs sought a temporary and permanent injunction enjoining defendants from implementing the new restrictions and a declaration that § 365-f(4-c) is unconstitutional. See Consumer Directed Personal Assistance Association of New York State, Inc. et al v. Zucker et al, Index. No. 1:18-cv-00746.
More specifically, the plaintiffs allege that the advertisements regarding CDPAP are protected commercial speech because they concern a lawful activity and express the plaintiffs’ support for self-direction and consumer choice provided by the program and the requirement that they submit their advertisements for approval burdens, restricts and otherwise infringes upon those rights. plaintiffs also claim that the DOH lacks a substantial interest in reviewing the advertisements and that prior approval of advertisements does not advance any legitimate governmental interest – particularly in light of the fact that the state already has laws governing false and deceptive advertising (i.e., General Business Law § 349). Furthermore, the plaintiffs maintain that even if the DOH had a legitimate interest in preventing false and misleading advertisements, requiring prior approval is not sufficiently narrowly tailored to serve that interest.
As explained below, because plaintiffs moved for, and were denied, a preliminary injunction – prohibiting the DOH from implementing § 365-f(4-c) until the legality of the new law can be fully decided – we now more or less know how this case will ultimately be decided. In this case, as in all cases where preliminary relief is sought, it does not bode well for plaintiffs that the court denied the preliminary injunction, given that such relief is only withheld where the movant fails to establish a clear or substantial likelihood that they will ultimately be able to succeed on the merits.
In concluding that plaintiffs failed to establish a sufficient likelihood of success, the court applied the four-part inquiry laid out by the Supreme Court in Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557 (1980)), to determine whether § 365-f(4-c) is an impermissible regulation of commercial free speech in violation the First Amendment: “ whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask  whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine  whether the regulation directly advances the governmental interest asserted, and  whether it is not more extensive than is necessary to serve that interest.”
The parties did not dispute the first element. With respect to the second element, the plaintiffs argued that had the State’s true purpose been to regulate false or misleading advertisement, such a purpose would be substantial, but here the true purpose for instituting the new restrictions was to decrease awareness of the CDPAP program in order to limit the State’s own expenditures on the program. According to the plaintiffs, the evidence of the DOH’s ulterior motive was evident from the fact that the restrictions were passed as part of the Enacted Budget. The court was not distracted by this argument, finding instead that where, as here, the statute’s intentions are facially obvious they need not consider such “extra-textual ‘evidence.’” Even if the court had considered the issue, the fact that the restrictions were passed as part of the 2018-19 Executive Budget is hardly evidence that the restrictions are fiscally motivated. Indeed, the Governor traditionally uses the budget process to advance his policy agenda, and the inclusion of § 365-f(4-c) appears to be no exception to that rule. It is also worth noting that requiring vendors of Medicaid services to submit advertisements for approval is not a new phenomenon in New York. Indeed, Managed Long Term Care plans have long been subject to such requirements – both as part of their contracts with the State and in regulation. We are unaware of any claim that such a program was intended to, or has resulted in a decrease in enrollment in these plans.
The court also gave short shrift to the plaintiffs’ arguments regarding the fourth element – whether the restrictions were more extensive than necessary. Although the plaintiffs and the court would agree that less restrictive means are available, the standard does not require that the Legislature implore the least restrictive means conceivable, only one that is reasonable and in proportion to the interest to be served.
Ultimately, the resolution of this case will likely turn on the evidence marshaled by both sides in support of the third element – whether the regulation directly advances the State’s interest in preventing false and misleading advertising by CDPAP fiscal intermediaries. As noted by the court, for purposes of this element, “a governmental body seeking to sustain a restriction on commercial speech must demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree.” The State need not “produce empirical data . . . accompanied by a surfeit of background information” in order to meet its burden in this respect, and can rely instead on “reference to studies and anecdotes pertaining to different locales altogether.”
Here, the DOH tendered an affidavit of Donna Frescatore, the Medicaid Director of New York State and Deputy Commissioner of DOH to meet its burden. Deputy Commissioner Frescatore noted, inter alia, that CDPAP recipients must be able to rely on the materials they receive to evaluate and choose the best available options and that false and misleading advertising not only complicates this process, it often leads ineligible individuals to request services, burdening local authorities. Mrs. Frescatore also identified a host of “[e]xamples of advertisements that misstate, misrepresent, or overstate what the [Fiscal Intermediaries] and CDPAP provide have:  failed to explain that Medicaid eligibility is required to receive services;  suggested that CDPAP pays people to stay at home;  stressed that no training is required, without explaining that the consumer is responsible for training their assistants through CDPAP;  failed to explain that the service has to be a Medicaid covered service to be obtained through CDPAP; and  included services like dog walking and escort services when in actuality, such services are rarely, if ever,. . . covered by Medicaid.”
At oral argument, the DOH confirmed to the court that these were examples of advertisements that the DOH had actually seen – a contention they will now have to prove. Should the DOH be unable to substantiate these claims, they may well find themselves unable to meet their burden on this issue. Indeed, the court noted that while these representations are sufficient standing alone at this early point in the litigation, a different result may be warranted upon a more fully developed record. For now, we will have to await the completion of discovery and the likely filing of a summary judgment motion(s) to know how this case will ultimately come down, a process that generally takes eight months to a year to complete in the Northern District of New York.
Having failed to secure the desired preliminary injunction, § 365-f(4-c) remains the law of the land. In September of 2018, the DOH issued specific guidance on the program for all advertising by fiscal intermediaries on or after November 1, 2018. According to the guidance, “inaccurate descriptions of the CDPAP program or the roles and responsibilities of CDPAP participants, designated representatives, fiscal intermediaries, and/or aides will be considered false or misleading.” The guidance further prohibits cold-calling and door-to-door solicitation.
Advertisements may be submitted by email, however if the advertisement is a website, a hard-copy must also be submitted. The DOH will have thirty days to review the advertisements, the advertisements may not be utilized by the provider until approved by the DOH or thirty days has passed without response from the DOH. In the event an adverse decision is issued, the fiscal intermediary will have thirty days to appeal the decision, if the decision is upheld, however, the fiscal intermediary will be required to pay a penalty.
Advertising materials that were used prior to November 1, 2018 are not required to be submitted for review. That being said, however, providers have the option of submitting such materials by December 31, 2018 for review and inclusion in the DOH’s “amnesty” program. In the event that voluntarily submitted advertisement is found to be false or misleading the fiscal intermediary will be required to discontinue use of the advertisement within thirty days, but the advertisement will not count for purposes of determining whether to revoke the fiscal intermediary’s license for distributing two or more false or misleading advertisements.
If you have any questions or would like additional information on any of the above referenced issues, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.