STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SWEETING NURSING HOME, )

)

Petitioner, )

)

vs. ) CASE NO. 78-1563

) STATE OF FLORIDA, DEPARTMENT OF ) HEALTH AND REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William E. Williams, held a public hearing in this case on July 10, 1979, in Ft. Lauderdale, Florida.

APPEARANCES

For Petitioner: Sanford L. Muchnick, Esquire

5950 Washington Street, Suite 401

Hollywood, Florida 33023

For Respondent: Harold L. Braynon, Esquire

201 West Broward Boulevard

Ft. Lauderdale, Florida 33301

Respondent, State of Florida Department of Health and Rehabilitative Services ("Respondent") disallowed certain items of operational cost and expense claimed by Petitioner, Sweeting Nursing Home ("Petitioner"), a Medicaid health- care provider. Respondent notified Petitioner that Petitioner had received over-payments of $97,324, as revealed by an on-site audit, and directed Petitioner to repay that sum to the State of Florida. In response to this assertion, Petitioner requested a formal hearing pursuant to Section 120.57(1), Florida Statutes. Thereafter, the undersigned Hearing Officer from the Division of Administrative Hearings was assigned to conduct the final hearing in this cause. Final hearing was scheduled by Notice of Hearing dated April 5, 1979.

At the final hearing, Petitioner called Philip Bergman and Irving Lampert as its witnesses. Respondent called Vincent Naples as its only witness.

Neither Petitioner nor Respondent offered any exhibits for inclusion in the record.

FINDINGS OF FACT

1. At the outset, it should be noted that the record in this proceeding is much less remarkable for its content than for what it fails to contain. The dispute between Petitioner and Respondent appears to revolve around Petitioner's objections to Respondent's disallowance of certain claimed items of operational costs and expense in the operation of Petitioner's nursing home. Respondent's

   disallowance was apparently based upon an audit of Petitioner's books, none of which were introduced into evidence, conducted by a private accounting firm, no representative of which was called to testify at the final hearing, which accounting firm submitted to Respondent a report, which was neither offered nor received into evidence. The only "pleading" on file in this cause is a letter dated March 20, 1978, from the office of Petitioner's certified public accountant, which letter is not signed by any individual, but simply bears the imprimatur of that firm. This letter details certain "specific areas of disagreement" and requests a formal administrative hearing thereon. Nowhere in this letter are the specific reasons for disagreement detailed. Respondent chose not to file any pleadings in response to the aforementioned letter.

   
   

2. Because of the lack of detail in the "pleadings", the Hearing Officer, by Order dated April 25, 1979, required counsel for Petitioner and Respondent to meet together no later than fifteen days prior to the date of final hearing in this cause, which at that time had been set for July 10, 1979, to prepare a prehearing stipulation. The Order required the prehearing stipulation to be filed no later than ten (10) days prior to the date set for final hearing, and further required that the prehearing stipulation contain:

   
   

   1. a concise statement of the nature of the controversy;

   2. a brief, general statement of each party's position;

   3. a list of all exhibits, which shall be prenumbered, to be offered at the hearing, noting any objections thereto, and the grounds for each objection;

   4. a list of the names and addresses of all witnesses intended to be called at the hearing by each party. Expert witnesses shall be so designated.

   5. a concise statement of those facts which are admitted and will require no proof

      at hearing, together with any reservations directed to such admission;

   6. a concise statement of those issues of law on which there is agreement;

   7. a concise statement of those issues of fact which remain to be litigated;

   8. a concise statement of those issues of law which remain for determination by the Hearing Officer;

   9. a concise statement of any disagreement as to the application of the rules of evidence;

   10. a list of all motions or other matters

       which require action by the Hearing Officer;

   11. the signature of counsel for all parties.

       
       

3. At the time of convening the final hearing in this proceeding on July 10, 1979, counsel for Petitioner and Respondent had failed to confer and prepare the prehearing stipulation required by the Hearing Officer's Order of April 25, 1979. As a result, the Hearing Officer agreed to proceed with the taking of testimony, subject to counsel for Petitioner and Respondent complying with the requirements of the prehearing order within seven (7) days from conclusion of the final hearing.

4. On July 19, 1979, counsel for Petitioner and Respondent filed a Joint Stipulation, in two parts, which contained, in part, the following pertinent information:

   
   

   The nature of the controversy concerns itself with the claim of the [Petitioner] for the year ending March 31, 1976, as more fully set forth in the "adjustments to Statement of Cost of

   Operations" audit by Elmer Fox, Westheimer & Co., dated June 17, 1977, with particular reference to the following items:

   (1) Excess depreciation claimed on building through providers' use of original cost before adjustment for reduced basis

   from forgiveness of indebtedness ($ 6,912)

   (2) Excess depreciation erroneously
   calculated	($ 6,619)
   (3) The return on equity erroneously
   calculated	($30,873)
   (4) Owner/Administrator compensation
   	($ 5,287)

   
   

5. In the prehearing stipulation, counsel for Petitioner and Respondent also agreed that a total of $13,513, covering insurance expense, housekeeping services and expenses for unallocatable income should be allowable to Petitioner for operational expenses.

   
   

6. In addition, the following facts were stipulated to by counsel for Petitioner and Respondent:

   
   

   3. (a) Petitioner, Sweeting Nursing Home is a facility located in Broward County, Florida, accepting Medicaid Nursing Home patients. Respondent, the Department of Health and Rehabilitative Services, is a department of the State of Florida charged by law with administrating [sic] the Medicaid program which includes auditing

   all nursing homes accepting Medicaid patients.

   At the request of the Department of Health and Rehabilitative Services, Elmer fox, Westheimer, & Co., an accounting firm in Broward County, did a fiscal year end audit of Sweeting Nursing Home for the period of March 31, 1975 to March 31, 1976. The audit report dated June 17, 1977, was forwarded to the Department of Health and Rehabilitative Services with certain recommended disallowances which included the following items:

   1. Depreciation $13,531.00

   2. Return on Equity 30,873.00

   3. Owner's compensation

   disallowance 5,287.00 After reviewing the Fox, Westheimer audit,

   the Department of Health and Rehabilitative Services' Audit, Evaluation and Review Unit

   initially notified the Sweeting Nursing Home that it had been overpaid the sum of

   $97,324.00, which sum was later reduced by stipulations between the parties. The nursing home requested certain adjustments and a reduction of the amount of overpayment. However, the Department disallowed the adjustments requested by letter addressed to

   Irving Lambert [sic] dated March 13, 1978, and Sweeting Nursing Home requested an Administrative Hearing.

   1. The Department of Health and Rehabilitative Services approved the FYE Audit Report, with disallowances, and takes the position that Sweeting Nursing Home is not entitled to the adjustments claimed by the nursing home in the areas enumerated in Paragraph (a).

   2. No exhibits to be offered.

   * * *

   1. Both parties admit that the audit was made by Elmer Fox, Westheimer, and Co.

   2. Both parties agree that the Department of Health and Rehabilitative Services had a legal right to audit Sweeting Nursing Home for Medicaid purposes. Further, that Fox, Westheimer, & Co., performed the audit in a manner perscribed [sic] by law.

   3. There are two issues of fact which remain to be litigated:

      1. Depreciation - "Did the Department

         of Health and Rehabilitative Services' validly disallow the Nursing Home's class depreciation on certain equipment, i.e., was the method used by Sweeting in depreciating certain equipment acceptable and consistent with the Medicaid HIM Manual?"

      2. "Was the Department of Health and Rehabilitative Services correct in disallowing the owner's compensation claimed by Sweeting Nursing Home?"

   4. The principal issue of law involved herein is the determination of "What is historical cost?" Historical cost touches on both item (1) of Paragraph (a), Depreciation

   and item (2) of Paragraph (a), Return on Equity. "May a Nursing Home, for Medicaid purposes,

   use an amount as historical costs of a facility, when such amount, subsequent to the original purchase, was reduced substantially by a forgiveness of an indebtedness agreement?"

   The Department of Health and Rehabilitative Services takes the position that the historical cost was $817,654.00 minus the $276,577.00 forgiveness of the indebtedness or actual historical cost of $541,077.00

7. Despite the above-mentioned provisions of the prehearing stipulation that no exhibits were to be offered, counsel for Petitioner in another section of the prehearing stipulation, which, as previously noted, was filed seven (7) days after the conclusion of the final hearing, indicated that:

   
   

   Petitioner relies upon as its principal exhibit the Medicare Provider Manual, HIM-15, together with all reports submitted to the Florida Department of Helath [sic] and Rehabilitative Services heretofore and objects to the introduction of the Elmer Fox audit dated June 17, 1977, since no testimony was presented with respect to said audit.

   
   

8. Petitioner's objection in the prehearing stipulation to the introduction of the audit report was, in fact, moot, since the report was not offered into evidence at the final hearing by counsel for Respondent. In addition, neither counsel for Petitioner nor counsel for Respondent requested that the Hearing Officer take official notice of, nor did they attempt to introduce into evidence, either the Medicare Provider Manual, HIM-15; any rules or regulations of the State of Florida Department of Health and Rehabilitative Services; any applicable depreciation guidelines adopted by the American Hospital Association; or any depreciation guidelines promulgated by the Internal Revenue Service. In fact, no documents of any kind were offered for inclusion in the record in this proceeding by either Petitioner or Respondent.

   
   

9. As indicated in the prehearing stipulation, there are four areas of disagreement between Petitioner and Respondent: the amount claimed as depreciation on Petitioner's building; the amount of depreciation claimed on certain items of equipment; the amount claimed as return on equity; and owner/administrator compensation.

   
   

10. Although the record reflects that Petitioner used an original cost figure of $817,654.00 in calculating depreciation on its building, and that Respondent's auditors apparently used $541,077.00, there are no facts of record to substantiate the use of either amount. These same figures were apparently also used in calculating Petitioner's "return on equity", again with no factual justification for their use. Likewise, there is no competent evidence to demonstrate the manner in which Petitioner calculated depreciation on its equipment, or even the specific items of equipment on which such depreciation is claimed. Finally, although the record demonstrates that Petitioner's owner/administrator was paid $10,000 as salary for the fiscal year in question, and that he spent 25 percent to 30 percent of his time involved in the administrative functioning of the facility, there are no facts in this record on which to base a determination of the reasonableness of that salary or the owner's entitlement thereto.

    
    

11. There is, in short, neither any competent evidence in this record concerning the methodology employed by Petitioner in computing the allowances to which it deems itself entitled, nor any reliable explanation of Respondent's rationale for disallowing those claims. To further complicate matters, the failure of both Petitioner and Respondent to introduce into evidence, or to request official notice of applicable governmental rules, regulations and guidelines against which to measure their respective claims, renders any meaningful resolution of their dispute impossible on this record.

    CONCLUSIONS OF LAW

    
    

12. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this action. Section 120.57(1), Florida Statutes.

    
    

13. Section 409.268(1)(a), Florida Statutes, requires nursing homes participating in the Medicaid program to ". . . [a]nnually forward to the department a true and accurate statement of its cost of providing care." Properly construed, this statutory provision requires that a nursing home seeking Medicaid funds affirmatively demonstrate its entitlement thereto by providing information which is, or should be, readily available to it in the form of business records maintained in the ordinary course of providing patient care. Accordingly, in the context of a Section 120.57(1), Florida Statutes, hearing, the burden of proof rests with a nursing home, such as Petitioner in this case, which is affirmatively asserting its entitlement to receive Medicaid funds. See, Balino v. Dept. of Health and Rehabilitative Services, 348 So.2d

    349 (Fla. 1st DCA 1977).

    
    

14. Section 120.61, Florida Statutes, provides for official recognition of evidentiary matters upon request by any party to a Section 120.57(1), Florida Statutes, proceeding. In the absence of a request that official notice be taken of an officially published rule or regulation of a state or federal agency, whereby the pertinent text of such a rule or regulation is made to appear as a part of the record in a formal administrative proceeding, basing a decision on such a rule or regulation constitutes reversible error. Poirier v. Dept. of Health and Rehabilitative Services, 351 So.2d 50 (Fla. 1st DCA 1977).

    
    

15. In a formal administrative proceeding, such as that involved in the instant case, Section 120.58(1)(a), Florida Statutes, provides that:

    
    

    . . . [A]ll . . . the evidence of a type commonly relied upon by reasonably prudent persons in the conduct of their affairs shall be admissible, whether or not such evidence would be admissible in a trial in the courts of Florida. . . Hearsay evidence may be used for the purpose of supplementing or explaining other evidence, but it shall not be sufficient in itself to support a finding unless it would be admissible over objection in civil actions. This paragraph applies only to proceedings under s. 120.57.

    
    

16. As indicated in the Findings of Fact section of this Recommended Order, Petitioner submitted no documentary evidence to substantiate its claim for operational costs and expenses disallowed by Respondent. By the same token, Respondent introduced no documentary evidence to explain its rationale for disallowing those claims. However, in view of the fact that Petitioner bears the burden of proving its entitlement to receipt of Medicaid funds, Petitioner's failure to establish a prima facie case is dispositive of this cause, notwithstanding Respondent's failure to elucidate its position. Petitioner's submission of testimony from its certified public accountant generally describing the contents of Petitioner's business records, which were not offered into evidence, and the accountant's explanation of his disagreement with the report prepared by Respondent's accountants, which report was also not in evidence, is insufficient to support any findings of fact. Further, the failure

of both Petitioner and Respondent to request official notice of applicable federal and state rules and regulations against which even the stipulated facts must be gauged requires dismissal of the petition for failure to establish by substantial competent evidence entitlement to the relief requested by Petitioner, except for the amount of $13,513.00, which both Petitioner and Respondent have agreed should be allowed to Petitioner for insurance expense, housekeeping services, and expense for unallocatable income.

RECOMMENDED ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the State of Florida,

Department of Health and Rehabilitative Services, allowing Petitioner's claim in

the amount of $13,513.00 for insurance expense, housekeeping services, and expenses for unallocatable income, and denying the remainder of the relief requested by the Petitioner.

DONE AND ORDERED this 16th day of November, 1979, in Tallahassee, Florida.

William E. Williams Hearing Officer

Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301

(904) 488-9675

COPIES FURNISHED:

Sanford L. Muchnick, Esquire Litman, Muchnick and Wasserman

Suite 401, Hollywood Federal Building 5950 Washington Street

Post Office Box 3616 Hollywood, Florida 33023

Harold Braynon, Esquire District X DHRS

201 W. Broward Boulevard, Suite 408A Fort Lauderdale, Florida 33301

Docket for Case No: 78-001563

Orders for Case No: 78-001563