A recent legal filing challenges the process by which federal authorities assign quality ratings to skilled nursing facilities, alleging that errors in audit procedures have led to significant financial harm and reputational damage without proper opportunity for appeal. The complaint was filed by Our Lady’s Center for Rehabilitation and Healthcare, LLC in the United States District Court for the District of New Jersey on April 21, 2026, naming Mehmet Oz in his official capacity as Administrator of the Centers for Medicare and Medicaid Services (CMS) as defendant.
According to the court documents, Our Lady’s Center asserts that CMS made errors during payroll-based journal assessments at its Pleasantville, New Jersey facility. These alleged errors were factored into CMS’s Five Star Quality Rating System without providing the facility with a fair or impartial hearing. The complaint states, “These errors will cost Plaintiff $450,000 in 2026, and, if not corrected will continue to impair their position in the competitive market, further reduce their Medicaid reimbursement rates, and destroy the reputational integrity of the facility in the community.”
The Five Star Quality Rating is used by consumers when choosing care facilities and also affects payments from CMS as well as contracts with managed care organizations. Our Lady’s Center claims it is entitled under federal and state law to contest any deficiencies cited during audits before penalties are imposed. However, according to the complaint, “Defendant has denied Plaintiff the opportunity to contest the payroll-based journal assessment (hereinafter ‘PBJ Audit’) at a fair and impartial evidentiary hearing.” The plaintiff further alleges that CMS violated both due process rights under the Fourteenth Amendment of the United States Constitution and provisions of the Administrative Procedure Act (APA).
The dispute centers on how staffing data is collected through PBJ audits—a system implemented by CMS in 2015—and how results impact star ratings before providers can appeal. According to filings, an October 2, 2024 letter from CMS informed Our Lady’s Center that discrepancies in submitted staffing hours could result in a one-star staffing rating if not resolved within seven days. The original audit was conducted by contractor Myers & Stauffer; after an internal appeal upheld its findings, no further appeals were available through Myers & Stauffer or CMS prior to publication of downgraded ratings.
As described in court documents: “The downgraded Five-Star Rating was immediately published on the CMS website… Because of the downgraded Star Rating, Our Lady’s Center will lose $9 per Medicaid patient per day as of July 2026, which totals approximately $450,000 annually.” The plaintiff argues this immediate downgrade occurs without adequate notice or opportunity for independent review: “With the PBJ audit, a nursing facility’s Star Quality Rating is lowered immediately upon an audit determination. The facility’s compensation is irreversibly reduced before any appeal hearing is held.”
The lawsuit outlines three main causes of action: violation of substantive and procedural due process under the Fourteenth Amendment; violation of the Administrative Procedure Act; and a request for declaratory judgment regarding CMS’s PBJ audit procedures. Among other remedies, Our Lady’s Center asks that judgment be entered against Defendant on all counts; that courts declare current practices unlawful; that results from PBJ audits not be published until all appeals are exhausted; that violation notices issued under PBJ audits be voided; and for any other equitable relief deemed just by the court.
Attorney Talia Mazza of sb2 inc., based in Harrisburg, Pennsylvania represents Our Lady’s Center for Rehabilitation and Healthcare LLC. The case number is 1:26-cv-04200.
