STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Petitioner, )

)

vs. ) CASE NO. 79-712

)

KERNON'S SU CASA, on behalf ) of itself and VEAZEY'S )

RESTORIUM, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above- styled case on 16 October 1979 at Tampa, Florida.

APPEARANCES

For Petitioner: Amelia Park, Esquire

HRS District VI Counsel 4000 West Buffalo Avenue Tampa, Florida 33614

For Respondent: William H. Frecker, Esquire

512 East Kennedy Boulevard Tampa, Florida 33602

and

Vincent P. Nuccio, Esquire Post Office Drawer 1319 Tampa, Florida 33601

Following audits for the fiscal years ending September 30, 1972, September 30, 1973 and September 30, 1976 Petitioner claimed some $156,973 in overpayments fat Medicaid patients made to Respondents during the period covered by the audits. Respondents protested the assessments and requested a hearing. At a prehearing conference on 20 June 1979 the parties agreed to enter into a prehearing stipulation listing those items in the audit report which had been accepted and/or reconciled and include therein those items to be disputed at this hearing. This stipulation was signed by both parties and forwarded to the Hearing Officer by letter date September 21, 1979.

In this stipulation it was agreed that for the fiscal year ending September 30, 1972 Respondents accept audit adjustments totalling $22,349, Petitioner retracts adjustments totalling $1,100 and $104,984 of adjustment remains in dispute. These items in dispute include advertising, officers' life insurance, compensation of owners and rent expense.

With respect to the audit adjustment for fiscal year ending September 30, 1973 Respondent accepts the adjustments totalling $73,837, Petitioner withdraws the adjustment for travel expenses in the amount of $734 and $113,093 of adjustments remains in dispute. These items in dispute include owners' compensation, directory advertising, payroll taxes and rent expense.

For the fiscal year ending September 30, 1976, Respondents acknowledge adjustments totalling $19,799. Petitioner withdrew adjustment for warehouse rental of $840, leaving adjustments totalling $100,236 in dispute. Those disputed items include forgiveness of note receivable to owner, owners' salaries, employee benefits, professional fees, interest paid to owner, and undocumented miscellaneous revenue.

At the commencement of the hearing Respondents moved for a continuance on the grounds that one essential witness was ill, under doctor's care, and could not appear to testify. This witness, Fairolene Veazey, is one of the owners. The motion for continuance was denied; however, the Respondent was advised that the deposition of this witness or affidavit if stipulated to by the parties could be submitted as a late-filed exhibit. An affidavit by Mrs. Veazey as to her duties at the nursing home was received on 8 November 1979 with the parties' stipulation.

At the hearing, two witnesses were called by Petitioner, three witnesses were called by Respondents and five exhibits were admitted into evidence. The testimony of two of Respondent's witnesses was limited to the duties they performed during the periods involved. The third witness for Respondents had no personal knowledge of the duties performed at the nursing home prior to 1977 by the owners whose compensation was questioned. He testified generally that the per diem costs at Respondents' nursing home was between $1 and $1.50 lower than the average cost of the other nursing homes in Florida. Respondents were allowed two weeks within which to depose a witness with personal knowledge of the average per diem costs of nursing homes and this deposition could be submitted as a late-filed exhibit. As of this date, this late-filed exhibit has not been submitted.

Respondent's motion for rehearing filed 2 November 1979 for the purpose of allowing Respondents to introduce records of Respondent for the years involved in these audits is denied. Not only could that evidence have been offered at this hearing but also Rule 28-5.25(9), Florida Administrative Code, precludes the Hearing Officer granting a motion for rehearing or reconsideration.

FINDINGS OF FACT

1. Veazey's Restorium was operated in Tampa for many years as a skilled- care 72-bed nursing home by George Veazey, Jr. and his wife, Fairolene Veazey, as owners.

   
   

2. During the years here involved, Respondents contracted with the Social and Economic Services program office to provide services as a skilled nursing home. The Florida Medicaid Program permits payment for services performed based upon a recognized maximum or reasonable costs plus 6 percent, whichever is lower. The charges here disputed are directly related to the computation of patient costs authorized to be paid to Respondent for Medicaid patients.

   
   

3. In 1972, Raymond Kernon and his wife, Jacqueline, bought into the business and Mrs. Kernon, a professional registered nurse, took over as Director of Nursing at the facility.

4. A new nursing home was constructed containing 120 beds and the patients were moved to the new facility in August, 1973. In 1976 the Kernons purchased the Veazeys' interest in the nursing home and changed the name to Kernon's Su Casa.

   
   

5. The land on which the new facility is built is owned by Ve-Ker, a corporation whose stock is owned by the owners of the nursing home. No specific testimony was submitted regarding the land ownership except that of Mrs. Kernon, who testified she and her husband owned the Ve-Ker corporation. It appears from the corporate name that the Veazeys originally were shareholders of the corporation, but no evidence on this was presented. It was not contested that common ownership of the land and the nursing home existed.

   
   

6. During 1972 Raymond Veazey, the brother of George L. Veazey, Jr., was the administrator of the nursing home. In 1973 George Louis Veazey, III, the son of the owners, was administrator.

   
   

7. George L. Veazey, Jr. was in charge of the kitchen prior to the hiring of a dietician subsequent to fiscal year 1973. During this period he made up menus and bought groceries, laundry and medical supplies. He ran errands for patients, carried them for doctor's visits, shopping, and acted as general handyman while not occupied in the kitchen. He had no job title in 1972 but in 1973 his title was Kitchen Supervisor. Prior to his departure in 1976, he acted as a general handyman and performed numerous tasks, the principal one being purchasing agent. Upon his departure no one was hired to replace him.

   
   

8. No testimony was presented regarding the duties performed by Raymond Veazey or George Louis Veazey, III, while they were assigned as administrator. This is significant only to show that if they performed as full-time administrators and did not have time to perform the duties for which George L. Veazey, Jr. was paid, the latter's work was necessary and beneficial.

   
   

9. In 1972 George L. Veazey, Jr. was in charge of the kitchen and purchased supplies for the home, George L. Veazey, III, was assistant administrator and Raymond Veazey was the administrator. By allowing only the salary for one administrator to perform all of these functions in a 72-bed nursing home, Petitioner disallowed $10,954 of the total salary expense for these three people. In addition, Petitioner disallowed $5,300 of the salary paid to Fairolene Veazey. Mrs. Veazey's testimony respecting her duties, which was submitted by affidavit after the hearing concluded, shows that many of the functions she performed were necessary and proper and that the disallowance of more than $3,000 of her total salary was not appropriate.

   
   

10. Other items disallowed by Petitioner in the audit included:

    
    

    1. $1,525 in telephone directory advertisement. No evidence was presented to rebut Petitioner's testimony that the purpose of this advertising was to entice patrons to the nursing home;

       
       

    2. Cost of officers' life insurance policy where the provider was the beneficiary. No evidence was presented to rebut the testimony that the provider was a direct beneficiary of this policy or policies.

       
       

    3. Cost of an administrator's license in the amount of $87. No evidence was presented to show a need for more than one administrator at a 72- bed facility.

    4. Rent in the amount of $86,640 apparently allocated but never paid to the Ve-Ker corporation. No evidence was submitted that this rent was actually paid, or that the Ve-Ker corporation was not owned by the same shareholders that owned the nursing home.

       
       

11. Similarly, with respect to the 1973 audit, the $1,644 for directory advertising and rent expense in the amount of $87,360 were disallowed for the same reasons as these items were disallowed in 1972 and no evidence was presented to show this disallowance to be in error.

    
    

12. Salaries in 1973 for owners was again reduced to the maximum salary for one full-time administrator and the maximum salary for a full-time director of nursing. This reduced the salaries to $21,004 in administration from more than $50,000 paid to owners, George Veazey, Jr., George Veazey, III, Jacqueline Kernon, Fairolene Veazey, Ramond Kernon and Ray Estes, son-in-law of Kernon.

    
    

13. No evidence was presented indicating that George L. Veazey, III, was fully occupied as administrator and could not have performed some of those services which his father actually performed and for which compensation was disallowed. Similarly no evidence was presented that Kernon or his son-in-law provided services beneficial to the patients. Evidence presented would indicate that no salary was approved for anyone other than the Administrator and Director of Nursing. Fifty percent of the salaries claimed for those other owners should be allowed. Fairolene Veazey obviously performed some beneficial function other than as housekeeper for which compensation could and should be authorized. George Veazey, Jr. was performing an essential function in 1973 for which he is entitled to compensation. Although his position as Kitchen Supervisor was not filled when his services were terminated in 1976, George Veazey, Jr. obviously performed many functions related to patient care. The fact that his specific position was not filled after his departure is not sufficient, standing alone, to say he did not perform essential services related to patient care. Many businesses learn they can do without the services of a particular employee after he leaves, whereas that was not believed true before his departure. The fact this employee was an owner does not change the concept. Fifty percent of Veazey's disallowed salary should be restored.

    
    

14. With respect to those items disallowed on the 1976 audit, all of Respondents' evidence was directed at owners' compensation and no evidence was presented by Respondents to rebut Petitioner`s witnesses who stated the following expenses are not allowed because not patient-related:

    
    

    1. Forgiveness of a note receivable from George Veazey, Jr. in the amount of $28,774 in connection with Provider's purchase of Treasury stock.

       
       

    2. Professional fees incurred by Provider in connection with buy-out agreement with George L. Veazey, Jr. in the amount of $2,150.

       
       

    3. Interest paid to Randolph Kernon of $1,475.

       
       

    4. Offset of undocumented miscellaneous revenue against general and administrative expenses in amount of $1,215.

       
       

    5. Legal expenses in the amount of $330.

       
       

    6. Interest expense on loan from former shareholder in the sum of

       $4,414.

       
       

       Provider.

    7. Sales tax totaling $2,747 by Ve-Ker on rents collected by

       
       

    8. Employee benefits on disallowed salary. This item covers several

       owners' salaries which were disallowed. No evidence was presented to show any basis for benefits if the salary to which the benefit is pertinent is removed.

       
       

15. Mrs. Jacqueline Kernon during the periods in question performed her duties as Director of Nursing, but also exercised additional supervisory duties in her role as owner. These duties consisted of being on call every weekend, remaining at the nursing home late every evening, visiting the nursing home on weekends, paying extra attention to the personal needs of the patients, spending

    70 to 80 hours per week at the nursing home, and generally operating the nursing home efficiently and effectively. The work over and above that normally expected of a Director of Nursing should be compensated at 25 percent of the salary allowed her for Director of Nursing. This finding is based partially on the fact that the patient per-day cost at this nursing home is substantially lower than the costs in other comparable nursing homes in Florida.

    
    

    CONCLUSIONS OF LAW

    
    

16. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of these proceedings.

    
    

17. Nursing homes providing services to Medicaid patients are required to comply with HIM-15 in allocating their costs and charges. Here the principal issue litigated was the compensation received by the owners and the members of their families. Section 902.1 HIM-15 provides:

    
    

    The allowance of compensation for services of sole proprietors and partners is the amount determined to be the reasonable value of the services rendered regardless of whether there is any actual distribution of the profits of the business.

    
    

    Reasonableness is defined in Section 902.3 HIM-15 as:

    
    

    Reasonableness requires that the compensation allowance be such an amount as would ordinarily be paid far comparable services by comparable institutions depending upon the facts and cir- cumstances of each case. Reasonable compensa- tion is limited to the fair market value of services rendered by the owner in connection with patient care. Fair market value is the value determined by the supply and demand factors of the open market.

    
    

18. Under the principles set out in HIM-15 regarding the compensation of owners of nursing homes, the compensation paid to an owner or a member of his family must be comparable and within the allowable ranges for similar services available on the open market. Any owner claiming compensation in excess of this allowable range has the burden of proving the compensation he claims is

    reasonable. With the exceptions noted above for George Veazey, Jr., Fairolene Veazey and Jacqueline Kernon, Respondents failed to sustain that burden.

    
    

19. The largest item disallowed involved rental payments. The regulations are clear that rental payments are not allowed between related parties. Here the owners of the provider and Ve-Ker, Inc., the lessor, are the same. These parties being related, the rent shown on the books of the provider was properly disallowed. Disallowance of the rental payment carries with it disallowance of the sales tax paid on these rental payments.

    
    

20. Advertising costs which are intended to increase patient utilization of the provider's facility are not allowed under the regulations. The Yellow- page advertising costs here involved were disallowed on that basis. While any advertising of the facility itself may be said to tend to increase utilization, a simple listing in the Yellow Pages of a phone book would appear to be essential for the general public to learn of the availability and location of nursing homes in the locality. The advertisement here complained of was more than a simple one-line listing in the Yellow Pages under "Nursing Homes's". Accordingly, these costs were properly disallowed.

    
    

21. Employee benefits disallowed were those associated with the salaries which were not allowed. Disallowance of those salaries carried with it disallowance of the benefits associated with the salaries.

    
    

22. Generally the disallowed costs and charges were those shown not to be patient-related. These include legal and accounting fees, as well as insurance premiums on the life of the officers of the provider with the provider as the beneficiary. Costs unrelated to patient care are not allowable by the regulations. The life insurance premiums here involved are specifically disallowed by the regulations.

    
    

23. From the foregoing it is concluded that all costs disallowed by Petitioner be upheld except the following:

Far Fiscal Year 1972

Fifty percent of the salary disallowed for George Veazey, Jr. should be restored and fifty percent of the salary disallowed for Fairolene Veazey should be restored.

For Fiscal Year 1973

Fifty percent of the disallowed portions of the salaries should be restored.

For Fiscal Year 1976

Disallowed salaries should be reduced by twenty-five percent of the salary authorized for Mrs. Kernon as Director of Nursing, by $11,000 for George Veazey, Jr., and by $2,000 for Fairolene Veazey.

It is

RECOMMENDED that all costs disallowed on the audits be approved except those noted in the above conclusions.

Entered this 17th day of December, 1979.

K. N. AYERS Hearing Officer

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

(904) 488-9675

COPIES FURNISHED:

Amelia Park, Esquire HRS District VI Counsel 4000 W. Buffalo Avenue Tampa, Florida 33614

William H. Frecker, Esquire

512 East Kennedy Boulevard Tampa, Florida 33602

Vincent P. Nuccio, Esquire

P. O. Drawer 1319 Tampa, Florida 33601

Docket for Case No: 79-000712

Orders for Case No: 79-000712