NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-3985-23
CENTERS AGENCY, LLC and CENTERS LAB NJ LLC, d/b/a MEDLABS DIAGNOSTIC,
Petitioners-Appellants,
v.
STATE OF NEW JERSEY, OFFICE OF THE STATE COMPTROLLER, THE MEDICAID FRAUD DIVISION, and JOSH LICHTBLAU, in his official capacity,
Respondents-Respondents. _______________________________
Submitted February 4, 2025 – Decided June 23, 2025
Before Judges Firko and Augostini.
On appeal from an interlocutory order of the New Jersey Office of the State Comptroller, Medicaid Fraud Division.
Hartmann Doherty Rosa Berman & Bulbulia LLP, Jason C. Cyrulnik (Cyrulnik Fattaruso LLP) of the New York bar, admitted pro hac vice, and Ian M. Dumain (Cyrulnik Fattaruso LLP) of the New York bar, admitted pro hac vice, attorneys for appellants (Jeremy B. Stein, Kelly A. Zampino, Jason C. Cyrulnik, and Ian M. Dumain, on the briefs).
Matthew J. Platkin, Attorney General, attorney for respondents (Sookie Bae-Park, Assistant Attorney General, of counsel; Francis X. Baker, Deputy Attorney General, on the brief).
PER CURIAM
On leave granted, plaintiffs Centers Agency, LLC, and Centers Lab NJ
LLC d/b/a MedLabs Diagnostic (the Labs) appeal from an interlocutory agency
decision by defendant State of New Jersey, Office of the State Comptroller,
Medicaid Fraud Division (MFD) temporarily suspending the Labs from
participating in the New Jersey Medical Assistance and Health Services
(Medicaid) program. The Labs' suspension was based primarily on concerns
arising from a New York Medicaid fraud case involving Labs' owner, Kenneth
Rozenberg.
In June 2023, the New York Attorney General filed a 309-page verified
complaint against Kenneth Rozenberg and others, "alleging they had
misappropriated in excess of $83 million in Medicare and Medicaid funding
through four long-term care facilities operated in the State of New York," and
neglected and harmed the residents of these nursing facilities. During the same
month, the New Jersey Department of Health (DOH) issued a Curtailment of
A-3985-23 2 Admissions Order against a New Jersey nursing facility owned by Kenneth
Rozenberg, directing those admissions be curtailed and imposing a corrective
action plan.
During this time, Kenneth Rozenberg and Beth Rozenberg owned the
Labs. On January 25, 2024, MFD notified the Labs of its intention to suspend
the Labs, effective 120 days from the date of the notice, "from further
participation in any capacity in the New Jersey Medical Assistance and Health
Services" (Medicaid) and other programs administered in whole or in part by
the Division of Medical Assistance and Health Services (DMAHS). The reason
for the temporary suspension was that Kenneth Rozenberg was a ninety-five
percent owner, and Beth Rozenberg was a five percent owner of the Labs. On
July 3, 2024, MFD notified the Labs that, effective July 11, 2024, the suspension
would take effect.
On July 9, 2024, the Labs notified MFD that the Rozenbergs no longer
owned the Labs. The Rozenbergs had executed assignments, relinquishing
ownership to Uri Lerner (Lerner), who became the one hundred percent owner
of the Labs effective July 8, 2024. MFD, however, declined to rescind the
suspension, which took effect on July 11, 2024.
A-3985-23 3 In reviewing this interlocutory decision, the narrow issue before us is
whether MFD's decision to temporarily suspend the Labs' participation from the
Medicaid program was arbitrary, capricious or unreasonable and not supported
by the substantial credible evidence at this juncture. Based on our review of the
record and governing law, we affirm.
I.
A. MFD's Regulatory Authority.
The federal government provides New Jersey "financial assistance" under
Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 to 1396w-8, to support
"residents lacking sufficient means to pay for necessary medical services." In
re A.N., 430 N.J. Super. 235, 243 (App. Div. 2013) (citing 42 U.S.C. § 1396-1).
The statutory framework governing New Jersey's participation in the federal
Medicaid program is through the New Jersey Medical Assistance and Health
Services (NJMAHS) Act, N.J.S.A. 30:4D-1 to -19.5. The DMAHS, which
administers the Medicaid program, is the agency "responsible for protecting the
interests of the New Jersey Medicaid Program and its beneficiaries." E.B. v.
Div. of Med. Assistance & Health Servs., 431 N.J. Super. 183, 192 (App. Div.
2013) (citing N.J.A.C. 10:49–11.1(b)). "The State of New Jersey expends more
than $9 billion in taxpayer funds to fund the Medicaid program each year" and
A-3985-23 4 "has a continuing responsibility to ensure that funds expended under the
Medicaid program are used appropriately and efficiently to promote the public
health." N.J.S.A. 30:4D-54(a), (b).
In 2007, the New Jersey Legislature enacted the Medicaid Program
Integrity and Protection Act (the Act), N.J.S.A. 30:4D-53 to -64, in part, to
address "[f]raud, waste, and abuse by providers and recipients in the Medicaid
program . . . ." N.J.S.A. 30:4D-54(c). The Act established the Medicaid
Inspector General, and subsequently, the Legislature transferred the
responsibilities of detecting, preventing and investigating Medicaid fraud to
MFD. See N.J.S.A. 30:4D-54, -57.
The Office of the State Comptroller created MFD "[t]o conduct and
supervise all State government activities, except those of the Medicaid Fraud
Control Unit in the Department of Law and Public Safety, relating to Medicaid
integrity, fraud, and abuse . . . ." N.J.S.A. 30:4D-57(a)(2); see N.J.S.A. 52:15C-
23. Under the statute, MFD investigates fraud, waste, and abuse, performs
background checks on all Medicaid provider applicants, and coordinates
oversight efforts among all State agencies that provide and administer Medicaid
services and programs. See N.J.S.A. 30:4D-57.
A-3985-23 5 N.J.S.A. 30:4D-17.1 and N.J.A.C. 10:49-11.1, with the approval of the
Director, authorizes MFD to suspend a Medicaid provider "for good cause." Of
the enumerated acts set forth in N.J.A.C. 10:49-11.1(d) that may establish good
cause for suspension, N.J.A.C. 10:49-11.1(i) provides:
The Medicaid Agent or DMAHS may suspend a person in the public interest for any cause specified in (d) above, or upon a reasonable suspicion that such cause exists, or when, in the opinion of the Medicaid Agent or DMAHS, such action is necessary to protect the public welfare and the interests of the Medicaid or NJ FamilyCare program.
Reasonable suspicion is
. . . established by a judgment or order of an administrative agency, or court of competent jurisdiction, or by a judgment of conviction, grand jury indictment, accusation, arrest, or by evidence that such violations of civil or criminal law did in fact occur.
[N.J.A.C. 10:49-11.1(j)(5).]
B. Labs Ownership.
On January 25, 2024, based on the allegations of Medicaid fraud and abuse
in New York and the New Jersey curtailment order, MFD, with the Director's
authorization, sent written notification to the Labs that they would be
temporarily suspended from the Medicaid program in 120 days. The parties
began discussions toward resolving the matter. On June 26, 2024, MFD
A-3985-23 6 requested plaintiffs to certify that they had self-suspended and were no longer
providing services or submitting claims to the Medicaid program as of June 17,
2024. Plaintiffs did not sign the certification.
On July 3, 2024, MFD issued amended notices of suspension, advising
plaintiffs that their suspension would be effective on July 11, 2024. On the same
date, plaintiffs, through counsel, informed MFD that Lerner was the prospective
buyer of the Labs. However, plaintiffs assured MFD that the "Lab[s] will not
be sold without MFD's knowledge/consent, to the extent MFD would like to
weigh in on that process." Plaintiffs expressed "[t]he hope [that] the transaction
[would] be consummated by mid-July." On July 9, 2024, the Labs advised MFD
that effective July 8, 2024, the Labs were under new ownership. As a result,
plaintiffs asserted that MFD should rescind the suspension because "the basis
for the forthcoming suspensions and terminations" had been eliminated.
Plaintiffs provided copies of documents to demonstrate that the
Rozenbergs had assigned their ownership interest to Lerner. In further support
of the transfer of ownership, plaintiffs provided a copy of the 2022 Schedule K-
1 from the Partnership's Income Tax Return.
However, MFD declined to lift plaintiffs' suspension due to some
inconsistencies in those documents that raised concerns regarding the
A-3985-23 7 authenticity of the alleged transfer of ownership. Those inconsistencies
included: (1) plaintiffs' Medicaid applications identified the Rozenbergs as sole
owners — Kenneth having ninety-five percent ownership and Beth having five
percent ownership of Center Agency; (2) the Medicaid applications did not
identify Lerner as having ownership interest in the Labs and the allegations
contained in the June 28, 2023 New York verified petition; and (3) one of the
assignment documents had a handwritten annotation that reduced Kenneth
Rozenberg's ownership interest from ninety-five to ninety percent. Moreover,
in the New York verified complaint, Lerner is identified as having an 11.25%
shared ownership interest with the Rozenbergs in the SeniorCare EMS facility.
On July 18, 2024, after the suspension took effect, MFD advised the
provider community that the Labs had been suspended from participation in the
Medicaid program as of July 11, 2024. The notice emphasized that the
suspension was temporary but advised providers to cease making referrals to the
Labs for services and if they failed to comply, they may be subject to a civil
enforcement action.
C. Procedural History.
On July 11, 2024, plaintiffs filed a verified complaint and order to show
cause in the Chancery Division, seeking to enjoin MFD from imposing the
A-3985-23 8 temporary suspension. On July 26, 2024, the court denied injunctive relief and
dismissed plaintiffs' complaint with prejudice. The Labs then sought emergent
relief, which we denied on July 30, 2024. Plaintiffs next sought leave to appeal,
which we granted on August 19, 2024.
On September 11, 2024, while the present appeal was pending, the Labs
requested that MFD provide a statement of reasons for the suspensions and a
fair hearing before the Office of Administrative Law (OAL), pursuant to
N.J.A.C. 10:49-11.1(k). MFD declined to refer the matter to the OAL given the
pending appeal and until the appellate proceedings were resolved.
On February 18, 2025, we granted, without prejudice to the merits panel's
right to disregard the supplemental material, MFD's motion to supplement the
record with additional claims data documentation. The Labs objected to this
application. However, on March 6, 2025, we granted the Labs motion also
without prejudice to supplement the record with a certification from the Labs
Chief Executive Officer providing clarification regarding the claims data
submitted by MFD. MFD asserts that the additional claims data demonstrates
that despite the Labs' representations to the contrary, between July 11, 2024, and
January 29, 2025, the Labs submitted 26,778 claims for reimbursement to the
Medicaid Program. Most of the claims were rejected; however, some claims
A-3985-23 9 totaling $3,587.93 were paid to MedLabs Diagnostic from the Medicaid
program.
In response to this additional claims data, the certification from Labs'
Chief Executive Officer, Elie Schiff, provided clarification regarding this data.
Schiff certified that on June 14, 2024, she verbally instructed the Labs' billing
vendor to put all New Jersey Medicaid claims on hold effective June 17, 2024.
Schiff further certified that the claims data provided by MFD does not state that
the Labs submitted the claims for reimbursement directly to the Medicaid
Rather, Schiff asserts that eighty-five percent of the proffered data "reflect
submissions that Medicare [not the Labs] made to New Jersey Medicaid in an
(unsuccessful) attempt to recover co-insurance from Medicaid on behalf of
patients[] whose primary insurance was Medicare." According to Schiff, the
remaining fifteen percent were "inadvertently submitted . . . because [the
vendor] overlooked and failed to block submissions to certain Medicaid health
maintenance organization in implementing" her prior instructions.
On appeal, plaintiffs raise two points for our consideration: (1) the Labs
suspension was improper because the factual basis for the suspension was moot;
and (2) MFD has no legal basis to bar the Labs from providing free services.
A-3985-23 10 II.
An appellate court's review of an administrative agency determination is
both limited and deferential. In re Carter, 191 N.J. 474, 482 (2007); McKnight
v. Bd. of Rev., Dep't of Lab., 476 N.J. Super. 154, 162 (App. Div. 2023). "A
reviewing court 'must be mindful of, and deferential to, the agency's expertise
and superior knowledge of a particular field.'" Allstars Auto Grp., Inc. v. N.J.
Motor Vehicle Comm'n, 234 N.J. 150, 158 (2018) (quoting Circus Liquors, Inc.
v. Governing Body of Middletown Twp., 199 N.J. 1, 10 (2009)) (internal
quotation marks omitted). "Deference to an agency decision is particularly
appropriate where interpretation of the [a]gency's own regulation is in issue."
I.L. v. N.J. Dep't of Hum. Servs., 389 N.J. Super. 354, 364 (App. Div. 2006).
"[U]nless there is a clear showing that [the agency's decision] is arbitrary,
capricious, or unreasonable, or that it lacks fair support in the record ," it should
be sustained. In re Herrmann, 192 N.J. 19, 27-28 (2007). Under that standard,
the scope of appellate review is guided by three major inquiries: (1) whether the
agency's decision conforms with relevant law; (2) whether the agency's decision
is supported by substantial, credible evidence in the record; and (3) whether in
applying the law to the facts, the administrative agency "clearly erred" in
reaching its conclusion. Allstars, 234 N.J. at 157 (quoting In re Stallworth, 208
A-3985-23 11 N.J. 182, 194 (2011)). The party challenging the administrative action bears the
burden of showing that the agency's decision did not meet that standard. Lavezzi
v. State, 219 N.J. 163, 171 (2014).
However, "an appellate court is 'in no way bound by the agency's
interpretation of a statute or its determination of a strictly legal issue.' " R.S. v.
Div. of Med. Assistance & Health Servs., 434 N.J. Super. 250, 261 (App. Div.
2014) (citation omitted).
A.
The Labs contends that MFD acted beyond its authority and without a
factual basis for issuing the suspension. The Labs argues that there is no
question that Lerner is the sole owner of the Labs, and therefore, the basis for
the suspension no longer exists. These assertions are without merit for two
reasons: (1) the substantial credible evidence in the record at the time of the
suspension supported MFD's decision to issue the temporary suspension; and (2)
based upon reasonable suspicion, MFD was well within its authority to issue the
temporary suspension to a known affiliate of the Labs.
The undisputed facts in the record demonstrate that two days before the
suspension took effect, the Labs advised MFD that they were now under new
ownership. The Labs provided MFD with two assignment of membership
A-3985-23 12 interests documents signed by Kenneth and Beth Rozenberg. However, MFD
responded that these documents did not establish an arms-length transfer of
ownership. First, the documents purported to transfer the Rozenbergs' interest
to Lerner, who already claimed to have a five percent ownership interest in the
Labs. Neither DOH nor DMAHS had any documentation supporting the alleged
transfer. Instead, the records of these state agencies reflected the Rozenbergs as
the sole owners of the Labs.
One of the assignment of interests documents provided contained a
handwritten annotation, modifying Kenneth Rozenberg's interest from ninety-
five down to ninety percent without explanation. Moreover, the assignment
documents did not state the consideration provided for this transfer of
ownership. Then, on July 23, 2023, twelve days after the suspension went into
effect, the Labs provided MFD with a 2022 Schedule K-1 form, reflecting
Lerner's "distributive share of partnership tax items" from the Labs. This
document, however, could not have been considered by MFD prior to the
effective date of the suspension.
In light of the Labs' representation that it would not be sold without MFD's
knowledge and consent, MFD found this unexpected transfer of full ownership
only days before the suspension took effect with little supporting documentation
A-3985-23 13 questionable. MFD concluded that this documentation was insufficient to avert
the suspension from taking effect. We are satisfied that this temporary
suspension decision by MFD was grounded in the substantial credible evidence
and was not arbitrary, capricious nor unreasonable under these circumstances.
B.
After reviewing the additional evidence before it, MFD decided not to lift
the suspension based on the Labs' purported transfer to Lerner. Rather, MFD
determined that Lerner was a "known affiliate" of the Labs. The scope of a
suspension under N.J.A.C. 10:49-11.1(m) may include "all known affiliates of
a person" and such determinations are made on a case-by-case basis. Affiliates
are defined as "persons having an overt or covert relationship such that any one
of them directly or indirectly controls or has the power to control another."
N.J.A.C. 10:49-11.1(c).
Here, the evidence established that the Rozenbergs and Lerner were
business associates. In addition to the Labs' assertion that Lerner owned a five
percent interest in the Labs before becoming its sole owner, the Rozenbergs and
Lerner had a shared ownership interest in a New York business, SeniorCare
EMS, which was identified in the New York verified complaint. MFD found
A-3985-23 14 this shared business enterprise provided sufficient evidence at this juncture to
establish Lerner as a known affiliate of the Labs.
However, the allegations in the New York complaint amplified this
concern. According to the complaint, between "2014 through 2020,
[r]espondents . . . [including Kenneth Rozenberg], failed to identify interest
expenses paid to, and 'Non-Arm's Length Arrangements' with, numerous Related
Parties." The complaint further alleged that in 2020, one of the New York
nursing facilities "did not list any Related Parties in any section of [its] Cost
Report," although the facility made payments to those facilities which included
$162,900 paid to "Centers Lab NJ, LLC and $10,572 to SeniorCare EMS."
Therefore, the record supports MFD's decision to continue the temporary
suspension at this juncture based upon sufficient evidence to suggest that Lerner
is a known affiliate of the Labs and until further investigation as to the Labs'
ownership and operation is conducted.
On September 11, 2024, the Labs requested a fair hearing in the OAL to
contest the suspension in accordance with N.J.A.C. 10:49-11.1(k). MFD did not
proceed with this hearing because we had granted leave to appeal and had
jurisdiction over the proceedings. See R. 2:9-1(a). As MFD notes, upon
resolution of this appeal, the administrative proceedings may proceed, providing
A-3985-23 15 the Labs the opportunity to challenge the temporary suspension and submit
additional evidence in support of their position.
Consistent with its statutory obligations, particularly N.J.A.C. 10:49-
11.1(i), which permits the suspension of a person upon reasonable suspicion
"when, in the opinion of . . . DMAHS [or MFD], such action is necessary to
protect the public welfare and the interests of the Medicaid or NJ FamilyCare
program," MFD acted within its statutory authority to issue and maintain the
suspension pending further investigation into this matter.
C.
The Labs contends that MFD has no legal authority to prohibit it from
providing services to Medicaid beneficiaries at no cost in order to maintain its
provider relationships pending the resolution of these allegations. MFD
objected to the Labs continuing to provide services even without billing for
those services. Consistent with its practice, after the suspension was issued,
MFD notified the provider community of the Labs' temporary suspension.
Under N.J.A.C. 10:49-11.1(b)(1), entities suspended for any reason "shall
not be involved in any activity relating to the New Jersey Medicaid and/or NJ
FamilyCare programs." In examining the language of the regulation, the term
"any" preceding the word activity, means precisely that and is not limited to only
A-3985-23 16 compensated activities. Therefore, the use of the term "any" broadly defines the
prohibited activity. Further, this interpretation is consistent with MFD's broad
authority and mandate to protect the Medicaid program and its beneficiaries
from misuse and fraud and the potential negative effects on patient health. See
E.B., 431 N.J. Super. at 192. We are satisfied that MFD's decision to prohibit
the Labs from continuing to provide services without billing Medicaid
beneficiaries during the time of the temporary suspension was within its
statutory authority and was not unreasonable or arbitrary.
In conclusion, we affirm MFD's temporary suspension of the Labs,
including the prohibition from continuing to provide services to Medicaid
beneficiaries without billing for the services. MFD's temporary suspension is
not a final agency decision. The Labs has requested a statement of reasons and
a fair hearing in the OAL in accordance with N.J.A.C. 10:49-11.1(k). At this
time, the request should be transmitted and the matter returned to the
administrative process for a fair hearing to afford the parties the opportunity to
present additional evidence and address the Labs' continuing suspension.
Affirmed.
A-3985-23 17