STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CONVALESCENT CENTER OF )

GAINESVILLE, )

)

Petitioner, )

)

vs. ) CASE NOS. 79-585

) 80-1018

FLORIDA DEPARTMENT OF HEALTH AND ) REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, on September 23, 1982, in Gainesville, Florida. The issues for determination at the hearing were whether petitioner is responsible for reimbursing the Department of Health and Rehabilitative Services for medicaid overpayments in the amount of $56,183 for the 1975 fiscal year and $5,700 for the 1979 fiscal year.

APPEARANCES

For Petitioner: Mitzi Cockrell Austin

Scruggs & Carmichael

One Southeast First Avenue Post Office Drawer C Gainesville, Florida 32602

For Respondent: Joseph L. Shields

Office of Audit and Quality Control Services

Building One, Room 406 1323 Winewood Boulevard

Tallahassee, Florida 32301 INTRODUCTION

The respondent Department of Health and Rehabilitative Services made some

24 audit adjustments to the petitioner's 1975 Statement of Cost of Operations prepared for Medicaid reimbursement purposes. In Case No. 79-585, petitioner is contesting nine of those adjustments relating to auto expenses, general insurance, life insurance, bonus to owner, social security taxes, telephone expenses, interest expenses, food expenses and depreciation expenses. For the fiscal year 1979, respondent made 19 audit adjustments and petitioner is contesting six of them in Case No. 80-1018. The six contested adjustments relate to decreases in the amounts claimed by petitioner for apartment rental, travel, business entertainment, loss on sale of fixed assets, proprietor's

compensation and the Medicare adjustment. The two cases were consolidated for hearing purposes.

At the hearing, petitioner presented the testimony of Paul C. Allen, petitioner's Administrator from 1968 to 1981; Marjorie Allen, the Administrator's wife and a 95 percent stockholder in petitioner; Ray P. Bolt, who was accepted as an expert witness in the area of health care accounting; and William F. McDavid, who was accepted as an expert witness in the field of accounting. Petitioner's Exhibits 1 through 7 and 9 through 16 were received into evidence.

Respondent presented the testimony of John T. Donaldson, who was accepted as an expert witness in the area of health care accounting. Respondent's Exhibit A was received into evidence.

At the conclusion of the hearing, both parties were afforded the opportunity to submit closing arguments and proposed findings of fact and proposed conclusions of law. Counsel for the respondent filed proposed findings of fact and conclusions of law for both cases on January 28, 1983. Counsel for the petitioner filed proposed findings of fact and proposed conclusions of law regarding Case No. 79-585 on June 15, 1983. To the extent that the parties' proposed findings of fact are not included in this Recommended Order, they are rejected as not being supported by competent substantial evidence adduced at the hearing, irrelevant or immaterial to the issues in dispute or as constituting conclusions of law as opposed to findings of fact.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found:

1. At all times pertinent to this proceeding, petitioner University Home Foundation, Inc., d/b/a Convalescent Center of Gainesville, was a nursing home providing skilled nursing care to Medicaid eligible patients. Petitioner was certified to participate in the Florida Medicaid Program. Respondent is the agency responsible for the administration and payment of Medicaid funds. An eligible entity is required to maintain adequate business records capable of audit by the respondent.

   
   

   Fiscal Year 1975

   
   

2. Petitioner filed with the respondent its cost report for the fiscal year January 1, 1975 to December 31, 1975, claiming reimbursable expenses of some $737,000. After an audit of the cost report by respondent, petitioner was informed in January of 1979 that adjustments amounting to approximately $131,000 were necessary and that petitioner was responsible for an overpayment of

   $56,183. Petitioner was advised by the respondent that its accounting records for the 1975 fiscal year were maintained in an incomplete and unsatisfactory manner. At the time petitioner's Administrator, Paul C. Allen, received this audit report, he did not have access to the work papers of the certified public accountant who prepared the cost report, but he did have access to the nursing home's financial records.

   
   

3. As noted in the Introduction, petitioner is not contesting all the audit adjustments made by the respondent to its 1975 cost report. It is contesting only those disallowances of expenses relating to two automobiles and a mobile telephone, life and general insurance, a $20,000 bonus to the owner,

   social security taxes, a directory advertisement, interest, food and depreciation.

   
   

4. Automobiles and mobile telephone. While allowing automobile expenses claimed for a 1969 Dodge Dart (used by the kitchen and maintenance staff for purchasing supplies) and a 1973 Ford station wagon (used mainly to transport patients), the respondent's auditor disallowed expenses claimed for a 1973 Cadillac (11 months) and a 1975 Lincoln Continental (1 month), as well as the expenses related to a telephone in these cars. The auditor concluded that these automobiles were used by the owner for personal use, were not related to patient care and that the expenses claimed were not documented. Administrator Paul C. Allen admitted that he drove these cars between the nursing home and his residence located 22 miles away and that he did not keep mileage logs for those vehicles. He estimates that 52 percent of the use of the automobiles was directly related to the nursing home business and patient care, and reimbursement is sought for this amount. This estimate is derived from starting with an average of 25,000 miles per year which the cars were driven, and deducting the 44 mile round trip to and from the Administrator's residence for

   260 working days in a calendar year, resulting in 11,440 miles of the car's use for personal purposes. The remaining mileage, 13,560 (52 percent of 25,000) is claimed as being used for nursing home business or patient care. A telephone in these cars was also claimed as a reimbursable expense inasmuch as it was used like a "pager" when the Administrator was not on the nursing home premises.

   This mobile telephone expense, as well as the interest claimed, was disallowed by the respondent's auditor on the basis that it was an unnecessary cost of running a nursing home and was not directly related to patient care.

   
   

5. Insurance. On its cost report, petitioner claimed expenses for a general hospitalization insurance policy on its employees and a life insurance policy on the Administrator. No supporting documentation was offered on the general insurance, and this expense was consequently disallowed because there was no indication that such insurance coverage was ever furnished. According to the Administrator, the mortgage loan commitment for the nursing home required that a $100,000 life insurance policy be maintained on the owner/Administrator to secure repayment of the loan in the event of his death. The documentation for such a requirement was not available to the Administrator because the nursing home was refinanced in 1976. Expenses claimed for life insurance on Mr. Allen was disallowed because the $100,000 life insurance policy constituted a fringe benefit to the owner, and the nursing home was at least an indirect beneficiary of an insurance policy on the Administrator.

   
   

6. Bonus to owner and taxes. While petitioner contests the respondent's disallowance of a $20,000 bonus to the owner and $3,893 claimed as expenses related to the payment of social security taxes, no competent evidence was presented by the petitioner on these two items. In fact, Administrator Allen could not recall whether or not he received a bonus in 1975, and petitioner's expert accountant did not know what was actually paid to petitioner's staff in 1975. The $20,000 bonus was adjusted out by the respondent because it exceeded the amount allowable as an owner's salary. The tax expenses disallowed were those which exceeded the comparison between petitioner's general ledger and the payroll tax returns.

   
   

7. Food expenses. While the respondent's auditors were able to verify from invoices approximately $63,800 claimed by petitioner as food expenses, there was no supporting documentation for the remaining $848 claimed. Petitioner was unable to provide such documentation at the hearing.

8. Depreciation expense. Normally, an asset is capitalized and expensed or depreciated when it is incurred or installed. The fire sprinkler system for the petitioner's nursing home was capitalized in May of 1974, but payment on the system was expensed again in 1975. The petitioner provided no supporting documentation for this expenditure.

   
   

9. Directory advertisement. According to Mr. Allen, the petitioner spent

   $317 for an advertisement in the yellow pages of a local telephone directory. The ad consisted of a small box to show the address of the facility for the benefit of the families of present and future patients. The ad itself was not produced as evidence at the hearing. Expenses for yellow page advertisements are allowed when the ads inform the public of the services which are provided. Such expenses are not allowed when the contents of the ad are not related to patient care or when the ad is in excess of what other nursing homes in the same geographic location are using. No evidence was produced as to other nursing home directory advertisements in the area.

   
   

   Fiscal Year 1979

   
   

10. Apartment rental. For the 1979 fiscal year, the petitioner claimed as an allowable expense the sum of $1,190 paid as apartment rental for the Administrator's son who performed maintenance duties for the nursing home. The Administrator testified that the apartment was near the facility, that a maintenance person needed to be on call 24 hours a day, and that the rental amount was considered part of the son's compensation for his duties with the nursing home. This expense was disallowed by the respondent inasmuch as there was not sufficient supporting documentation to illustrate that the rental costs were part of the services provided to the nursing home. Since the $1,190 was paid to a related party for the cost of apartment rental, it must be demonstrated that such costs do not exceed the price of comparable services or supplies which could be purchased elsewhere. There was nothing in the rental agreement to indicate that payment of the rent was considered part of the lessee's salary by the nursing home to assure 24 hours of maintenance care, nor was any other documentary evidence adduced to this effect.

    
    

11. Travel. In its 1979 cost report, petitioner claimed travel expenses for trips taken by the Administrator and his wife to Hawaii, Mexico and Australia. It was alleged that these trips were taken for educational purposes. While expenses for the Hawaii program were allowed, respondent did not allow

    $3,528 claimed as expenses for the trips to Australia and Mexico. Petitioner presented an agenda of the program relating to the Australia trip which revealed that the program was in connection with the annual meeting of INTERCARE, an international nonprofit association dedicated to the improved quality of life for the convalescent and chronically ill. No evidence was produced relating to the trip to Mexico. The respondent disallowed expenses relating to the trips to Mexico and Australia taken by the Administrator and his wife on the basis that such expenses were unreasonable and unnecessary. It was not considered prudent for a nursing home administrator to travel this extensively and claim reimbursement in his Medicaid nursing home cost report. Respondent also considered the fact that a portion of the expenses claimed were for a party related to the owner/Administrator.

    
    

12. Business entertainment. The respondent disallowed $565 claimed by petitioner as business entertainment, because this amount related to liquor purchased for an employee Christmas party. Expenses claimed for food for that social function were allowed by the respondent.

13. Loss on sale of fixed asset. Petitioner claimed as an expense the loss it realized from a wrecked 1979 Lincoln automobile. It was requested that the loss be added to the cost of the new replacement vehicle, also a 1979 Lincoln, for depreciation purposes and recovered over the useful life of such vehicle through depreciation write-offs. Whether or not either of the 1979 Lincoln's were allowed for reimbursement purposes was not established at the hearing. According to the Health Insurance Manual 15, gains or losses realized from the exchange or trade-in of depreciable assets are not included in the determination of allowable costs.

    
    

14. Proprietor's compensation. The respondent disallowed the amount of

    $15,000 claimed by the petitioner as compensation for the Director of Social Services for the third and fourth quarters of 1979. That position was held by the Administrator's wife, Marjorie Allen, who also was a 95 percent stockholder in the corporation which owned the nursing home. According to Mrs. Allen, the duties she performed as social services director, a full-time position, included the transporting of patients to medical appointments, the taking of social histories from newly admitted patients, working with the patients and their families and working with different organizations and agencies. The petitioner's facility also had an Activities Director in 1979, who assisted in such things as crafts and sewing and cooking classes. The $15,000 was disallowed by respondent because there was no supporting documentation produced that the salary related to patient care, because Mrs. Allen was a related party and because there appeared to be a duplication of services between the Activities Director and the Social Services Director.

    
    

15. Medicare adjustment. Adjustments for Medicare can be made to reflect changes resulting from Medicare audits in the year that the differences become known. The recomputation is performed in the provider's cost report for the year in which the difference becomes known. Petitioner did introduce evidence that the Medicare adjustment for 1979 should be $119,398 in lieu of the respondent's adjustment of $123,648. As of the date of the hearing, respondent had not been afforded the opportunity to review the final adjusted Medicare cost report.

    
    

    CONCLUSIONS OF LAW

    
    

16. The burden is on the petitioner in these proceedings to affirmatively demonstrate by competent substantial evidence its entitlement to reimbursement of expenses incurred while in the Medicaid program. When the respondent performs an audit of the facility's annual cost report, the audit report constitutes prima facie evidence of the propriety of the adjustments contained therein. Rule 10C-7.481(6), Florida Administrative Code. As a condition to participation in the Medicaid program, a provider is required to maintain adequate and accurate fiscal records, including books of original entry and supporting documentation from which costs of operation can be determined. Rule 10C-7.48(6)(c), Florida Administrative Code.

    
    

17. The Findings of Fact set forth in this Recommended Order result almost entirely from either the oral testimony of the Administrator or from accountants who had no knowledge of the actual operation of the petitioner's facility. The petitioner's expert witness had no firsthand knowledge of the nursing home operations and cited no supporting documentary evidence to explain his disagreement with the audit adjustments. Except by auditing tangible documentation, or physically observing an activity, an auditor has no means by which to independently verify alleged payments for services rendered by a provider. There must be adequate documentation to illustrate that items for

    which reimbursement is claimed are necessary, reasonable in cost and related to patient care.

    
    

18. Petitioner has totally failed to sustain its burden of proof in this proceeding. The oral representation, with no supporting documentation, that a third vehicle with a mobile telephone was necessary, reasonable in cost and patient related is not sufficient to support a claim for reimbursement. There was no evidence that the Administrator owned or utilized another vehicle for his personal use, and it is highly unlikely that he personally used these vehicles only for round trips to and from his residence only 260 days per year. Insufficient evidence was presented to illustrate that the telephone in these automobiles was necessary to patient care or reasonable in cost. It would seem to have been a simple matter, even given the lapse of time between the hearing date and the audits of the 1975 and 1979 cost reports, to have gathered some form of supporting documentation for the claimed expenses regarding insurance, salaries to personnel and directory advertisements.

    
    

19. It serves no useful purpose to discuss in further detail the various items in dispute in this proceeding. Were the Hearing Officer to do so, she would only be reiterating the rationale of the respondent's auditors in disallowing the claimed expenses. The facts set forth in the preceding section amply demonstrate that the propriety of the adjustments made by the respondent with respect to the 1975 and 1979 cost reports have not been rebutted by the presentation of competent substantial evidence on petitioner's behalf.

    
    

20. During the hearing, the respondent HRS did express its willingness to review petitioner's Medicare cost report for adjustments made for the year 1979, and to take such adjustments into account in determining the correct amount of petitioner's Medicaid overpayment.

RECOMMENDATION

Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that a Final Order be entered finding the petitioner liable for the overpayments set forth in the final audit reports of the petitioner's Medicaid cost reports for 1975 and 1979, less any adjustment required for the 1979 Medicare cost report.

Respectfully submitted and entered this 22nd day of June, 1983, in Tallahassee, Florida.

DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 22nd day of June, 1983.

COPIES FURNISHED:

Mitzie Cockrell Austin, Esquire Scruggs & Carmichael

One Southeast First Avenue Post Office Drawer C Gainesville, Florida 32602

Joseph L. Shields, Esquire Office of Audit & Quality Control Services Department of Health and

Rehabilitative Services Building One, Room 406 1323 Winewood Blvd.

Tallahassee, Florida 32301

David Pingree Secretary

Department of Health and Rehabilitative Services

1323 Winewood Blvd.

Tallahassee, Florida 32301

Docket for Case No: 79-000585

Orders for Case No: 79-000585