New Jersey court upholds state’s authority to suspend Medicaid providers
The Office of the State Comptroller secured a legal victory this week in its ongoing effort to safeguard the integrity of New Jersey’s Medicaid program and hold companies providing care to vulnerable nursing home residents accountable.
On June 23, the Appellate Division of the Superior Court of New Jersey upheld the comptroller’s authority, exercised through its Medicaid Fraud Division, to temporarily suspend Medicaid providers for “good cause,” including suspected criminal or civil violations or a lack of responsibility.
“This ruling should serve as a clear message: providers and their affiliates who seek to participate in New Jersey’s Medicaid program must meet standards of transparency, responsibility, and compliance,” said Acting State Comptroller Kevin Walsh. “We are grateful to the court for affirming OSC’s legal and regulatory framework that allows us to fulfill that mission.”
In January 2024, the Medicaid Fraud Division notified Centers Agency LLC and Centers Lab NJ LLC that they would be temporarily suspended, effective in 120 days. The suspension followed serious concerns triggered by an investigation conducted by the Medicaid Fraud Control Unit of the New York Attorney General’s Office into nursing homes owned and operated by Kenneth Rozenberg and Daryl Hagler.
The New York Attorney General alleged Rozenberg and others siphoned off $83 million in public funds for personal enrichment and caused harm to nursing home residents in that state. Rozenberg owned 95 percent of the New Jersey labs, and his wife owned the remaining 5 percent. The state comptroller had already moved to suspend Rozenberg, Hagler and their two nursing homes in New Jersey from Medicaid participation in light of the allegations.
Just two days before the labs’ suspension was set to take effect, attorneys for the Rozenbergs claimed ownership of the labs had been transferred to Uri Lerner and requested that the suspension be lifted.
Last year a Superior Court judge appointed an independent receiver to manage the Deptford Center for Rehabilitation and Healthcare and the Hammonton Center for Rehabilitation and Healthcare, two nursing homes owned by Rozenberg and Hagler. The appointment came after the comptroller’s office moved to suspend both the owners and facilities from New Jersey’s Medicaid program.
Because of the receivership, the comptroller’s office temporarily placed those suspensions on hold, pending developments in the New York fraud case, the state’s own investigation, or a decision by the court-appointed receiver to close the facilities, according to a letter sent to Hagler and the Rozenbergs.
In the June 23 Appellate decision, the court found the Medicaid Fraud Division acted within its legal discretion, citing “substantial credible evidence” and the office’s mandate to protect public funds. The division determined that documents submitted in support of the ownership transfer raised serious doubts as to whether the transfer had actually occurred. Lerner co-owned another business in New York with the Rozenbergs, casting further doubt on whether the transfer was a true arms-length transaction.
The court affirmed the division’s authority to suspend Medicaid providers under N.J.A.C. 10:49-11.1, which authorizes the temporary suspension of Medicaid providers based on good cause, including suspected criminal or civil violations or indications of a lack of responsibility.
In addition to upholding the suspension, the court addressed the labs’ contention that they should be allowed to continue offering services to Medicaid beneficiaries at no charge during the suspension period. The Medicaid Fraud Division had objected, and the court sided with the agency, citing state regulations that bar suspended entities from engaging in “any activity” related to the Medicaid program, whether compensated or not. The ruling emphasized that the restriction is consistent with the state’s broader goal of shielding Medicaid beneficiaries from potential harm and ensuring accountability among providers.
“In examining the language of the regulation, the term ‘any; preceding the word activity, means precisely that and is not limited to only 17 A-3985-23 compensated activities. Therefore, the use of the term ‘any’ broadly defines the prohibited activity,” reads the court decision. “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.”
The temporary suspension remains in effect. The labs are still entitled to a hearing before the Office of Administrative Law, where they can present additional evidence.
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Krystal Knapp is the founder of The Jersey Vindicator and the hyperlocal news website Planet Princeton. Previously she was a reporter at The Trenton Times for a decade. Prior to becoming a journalist she worked for Centurion, a Princeton-based nonprofit that works to free the innocent from prison. A graduate of Smith College, she earned her master's of divinity degree from Princeton Theological Seminary and her master's certificate in entrepreneurial journalism from The Craig Newmark School of Journalism at CUNY.
