STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

EAST MANOR MEDICAL CARE CENTER, )

)

Petitioner, )

)

vs. ) CASE NO. 78-1350

) FLORIDA DEPARTMENT OF HEALTH AND ) REHABILITATIVE SERVICES, )

)

Respondent. )

)

FINDINGS OF FACT, CONCLUSIONS OF LAW, AND RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, G. Steven Pfeiffer, conducted a final hearing in this case on June 26, 1979, in Sarasota, Florida.

APPEARANCES

For Petitioner: Kenneth A. Behar

Boston, Massachusetts

For Respondent: Anthony N. DeLuccia

Fort Myers, Florida

At issue in this proceeding is the amount of compensation that the Petitioner is entitled to receive under the Medicare Program for services performed by the Petitioner during the fiscal year which ended March 31, 1976. The Department issued an audit report on May 23, 1978, claiming that the Petitioner was overcompensated during that fiscal year. While several issues were originally raised in the audit report, the parties resolved all of them except the issue of the amount the Petitioner was entitled to claim as allowable depreciation expenses attributable to building depreciation.

The final hearing was scheduled as set out above by notice dated May 1, 1979. The Petitioner called the following witnesses: Robert Kearney, the Petitioner's reimbursement manager; and Herbert Fink, a real estate appraiser who was accepted as an expert witness competent to render opinions respecting reproduction costs of buildings. The Department called the following witnesses: Norman Powe, an auditor employed by the Department; and Ken Conners, an audit evaluation and review analyst employed by the Department. Exhibits 1 through 10 were identified and received into evidence. The parties requested an extended period following the hearing for submission of posthearing legal memoranda, and several extensions to that schedule were granted.

FINDINGS OF FACT

1. The Petitioner operates a 121-bed skilled nursing facility in Sarasota, Florida. The Petitioner serves as a provider of nursing care facilities under

   the Medicaid and Medicare Programs which are operated in part by the Department. For its fiscal year ending March 31, 1976, the Petitioner submitted to the Department a statement of cost of operations. It claimed an allowable depreciation expense of $42,563, of which $25,480 was attributable to building depreciation.

   
   

2. The Petitioner's statement of cost of operations was audited by the accounting firm of Coopers & Lybrand on behalf of the Department. The accounting firm concluded that Petitioner should be allowed building depreciation only in the amount of $12,500.

   
   

3. Petitioner computed its $25,480 building depreciation by taking its original purchase price ($764,400) and dividing it by a useful life of thirty years. It appears that the Petitioner purchased the facility in an arms length transaction and that the $764,400 purchase price reflects the fair-market value of the property at the time of the purchase. The accounting firm used a much lower figure to represent the fair-market value; however, it is not apparent from the audit or the worksheets, or from any other evidence in the record what the reason for the lower figure might have been.

   
   

4. There was conflicting testimony with respect to the reproduction costs of the buildings at the time that Petitioner purchased them. While the testimony was conflicting, the only competent evidence as to the reproduction costs was the testimony of Herbert Fink, who was accepted at the hearing as an expert witness competent to render opinions with respect to reproduction costs of commercial properties. Using accepted appraising techniques, Mr. Fink determined the reproduction cost of the buildings on the purchase date to have been $582,730. That figure is found to be the appropriate valuation.

   
   

5. Although the Petitioner utilized a thirty-year useful life in determining the appropriate amount of depreciation, Petitioner conceded at the hearing, and it is otherwise apparent that the useful life should be calculated as 36.75 years.

subject matter of this proceeding, and over the parties. Section 120.57(1), Florida Statutes.

8. The manner in which the Petitioner should establish the appropriate depreciation for its buildings is set out in a document known as "HIM-15" at Section 104.14(A). It provides:

For depreciable assets acquired after July 1970, the cost basis of the depreciable assets shall not exceed the lower of the current reproduction cost adjusted for straight-line depreciation over the life of the assets to the time of the sale, or

the fair-market value of the tangible assets purchased.

The fair-market value of the Petitioner's building is $764,400. The reproduction cost at the time of purchase was $582,730. Since the reproduction cost is the lesser of the figures, it should be utilized in conjunction with a

36.75 year useful life to determine the appropriate building depreciation expense.

RECOMMENDATION

Based upon the foregoing findings of fact and conclusions of law, it is, hereby

RECOMMENDED:

That a final order be entered finding that the Petitioner should be allowed depreciation for its building computed by dividing the reproduction costs of the building ($582,730) by the useful life of the building (36.75 years). This amount is less than the amount that was actually claimed by the Petitioner and the Petitioner should reimburse the Department for the difference in a mutually acceptable manner of payment.

Recommended this 7th day of December, 1979, in Tallahassee, Florida.

G. STEVEN PFEIFFER Hearing Officer

Division of Administrative Hearings

101 Collins Building Tallahassee, Florida 32301 (904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 7th day of December, 1979.

COPIES FURNISHED:

Kenneth A. Behar, Esquire BEHAR & KALMAN

11 Beacon Street

Boston, Massachussettes 02108

Anthony DeLuccia, Jr., Esquire District VII

Department of Health and Rehabilitative Services

Post Office Box 2258

Ft. Myers, Florida 33902

Docket for Case No: 78-001350

Orders for Case No: 78-001350