STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
CORDES HEALTH CARE MANAGEMENT ) CORP., d/b/a GAINESVILLE NURSING ) CENTER; CORDES HEALTH CARE ) MANAGEMENT CORP., d/b/a LAKEVIEW ) MANOR; CORDES HEALTH CARE )
MANAGEMENT CORP., d/b/a ) JEFFERSON NURSING CENTER; and ) LAKEVIEW MANOR NURSING HOME, )
)
Petitioners, )
)
vs. ) CASE NOS. 82-0460
) 82-0462
DEPARTMENT OF HEALTH AND ) 82-0490
REHABILITATIVE SERVICES, ) 82-1915
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, James E. Bradwell, held a public hearing in these consolidated cases on December 13, 1982 and on March 3, 1983 in West Palm Beach and Orlando, Florida respectively. The parties requested, and were granted leave to file post-hearing proposed briefs, etc. in support of their respective positions. The parties, through their representatives and counsel, waived the requirement that the Recommended Order be filed within thirty (30) days after receipt of the hearing transcript. 1/
APPEARANCES
For Petitioners: Karen L. Goldsmith and
Michael J. Bittman, Attorneys Dempsey & Slaughter, P.A. Post Office Box 1980 Orlando, Florida 32802
For Respondent: Joseph Shields, Esquire
Department of Health and Rehabilitative Services
1323 Winewood Boulevard, Room 406
Tallahassee, Florida 32301
ISSUES
The issues presented for decision herein are whether or not the Respondent's calculations and disallowances of certain depreciation expenses, mortgage loan interest expenses and the administrators' salaries were properly reduced and/or recalculated by the Respondent. 2/
FINDINGS OF FACT
Based upon my observation of the witnesses and their demeanor while testifying, the pre-hearing stipulation, post-hearing memoranda and the entire record compiled herein, I hereby make the following relevant findings of fact.
Background
At all times material hereto, Lakeview Manor Nursing Home, Gainesville Nursing Center and Jefferson Nursing Center were licensed nursing homes and certified to participate in the Florida Medicaid Program. (Stipulation)
On January 1, 1980, Lakeview Manor Nursing Home was purchased by Maclen Investments, Inc. On May 1, 1980, Gainesville Nursing Center was purchased by Maclen Enterprises of Gainesville, Inc. On May 1, 1980, Jefferson Nursing Center was purchased by Maclen Enterprises of Monticello, Inc. All three nursing homes were purchased as ongoing operations.
Mr. Leonard Cordes is president of each of the nursing homes and owns fifty percent of the corporate stock. Mr. Mac Moyse is vice-president of each of the nursing homes and owns the other fifty percent of corporate stock.
Mr. Cordes lives in Hollywood, Florida and spends all of his time on the business of operating and management of the nursing homes. Mr. Moyse lives in Canada and is a non-active owner.
Cordes Health Care Management Corporation was established in May, 1980, when it became apparent that Messrs. Cordes and Moyse were going to purchase Gainesville and Jefferson Nursing Centers. Mr. Cordes is president of Cordes Health Care Management Corporation and is the sole owner. (post hearing letter dated May 18, 1983.
Cordes Health Care Management Corporation is the managing agent for Lakeview Manor Nursing Home, Gainesville and Jefferson Nursing Centers. Mr. Cordes oversees the total operation of the three nursing homes for the management company.
The fiscal year of Cordes Health Care Management Corporation, Gainesville Nursing Center and Jefferson Nursing Center is December 31. The fiscal year of Lakeview Nursing Home is June 30.
Mr. Cordes prepared some of the initial bookkeeping data before turning this information to Mr. Meyer Cohen, CPA. Mr. Cohen thereafter prepared cost reports based on the information supplied him by Mr. Cordes (Sometimes referred to as Petitioner or the provider)
Peat, Marwick, Mitchell and Company (PNM) performed post-audits of the cost reports of all three nursing homes at the time that Cordes took over the operations.
Exit conferences were held to discuss the results of the audits. Both Messrs. Cordes and Cohen disagreed with some adjustments made by the auditors and more particularly the adjustments to depreciation, interest and management costs.
The auditors from Peat, Marwick, and Mitchell and Company came to the management company (Cordes) to obtain the necessary information for their audits.
The Toronto-Dominion Bank Loan
The audit reports of both Gainesville and Jefferson Nursing Centers contained an adjustment for interest paid to the Toronto Dominion Bank (a Canadian hank) for loans used to purchase these two nursing homes. (Petitioners' Exhibits 7 and 8)
Gainesville and Jefferson Nursing Centers were purchased from a Mr. Riviera. The purchase of these two nursing homes required an initial deposit of seventy-five thousand dollars ($75,000). Mr. Cordes deposited ten thousand ($10,000) of his personal funds and the remaining sixty five thousand ($65,000) was obtained through a loan from the Toronto-Dominion Bank. The sixty five thousand ($65,000) loan proceeds were deposited directly to Maclen Investments, Inc.
As a condition of the sale, the seller required the buyers to assume an existing one hundred forty-six thousand five hundred dollar ($146,500) mortgage held by Maplewood Bank and Trust Company, Maplewood, New Jersey. At the time of this transaction, the Maplewood Bank was charging interest at a rate of 21 percent and required that that mortgage be repaid in two (2) years. To avoid these terms, Mr. Moyse arranged a one hundred forty-six thousand five hundred dollar ($146,500) loan from the Toronto-Dominion Bank on behalf of the nursing homes. Mr. Moyse was able to obtain a 13 percent interest rate based on his long standing relationship with that bank.
The loan from the Toronto-Dominion Bank was remitted directly to the Maplewood Bank and Trust Company, Maplewood, New Jersey to retire the above- referenced mortgage. (Petitioner's Exhibit 16)
The Toronto-Dominion Bank is not allowed by Canadian law to make loans to United State Corporations. Mr. Moyse, a Canadian, therefore arranged a loan in order to purchase the two (2) nursing homes.
Mr. Moyse obtained the funds from the Toronto-Dominion Bank as a representative of the nursing homes. Repayment of the principal and interest on the two loans from the Toronto-Dominion Bank are carried as liabilities on the books of Gainesville and Jefferson Nursing Centers. (Petitioner's Exhibit 15)
The Toronto-Dominion Bank sends Mr. Cordes a monthly bill for interest owing on these two loans. Checks from Mr. Cordes are mailed directly to the Toronto-Dominion Bank covering the principal and interest on the loans arranged by Mr. Moyse and are paid from checks drawn on the accounts of Gainesville and Jefferson Nursing Centers. Mr. Moyse never took possession of any of the loan proceeds nor of the interest and principal payments.
Mr. Cordes and Mr. Moyse are liable on the loan to the Toronto Dominion Bank due to the fact that they jointly own the corporation which purchased the nursing centers with proceeds of the loan from the Toronto- Dominion Bank.
The Seventy Five Day Ru1e 3/
In each of the audits at issue herein, the auditors made certain disallowances on the grounds that Mr. Cordes' salary was not paid within the seventy-five day period. (Petitioners' Exhibits 5, 6, 7 and 8)
HRS disallowed approximately thirty-two thousand dollars ($32,000) as not paid within the seventy-five day period following close of the fiscal year for the various nursing centers.
During 1980, Mr. Cordes was an employee of Cordes Health Care management Corporation and has never been an employee of any of the nursing homes.
Cordes Health Care Management Corporation receives a monthly fee from each of the nursing homes for services which are provided including managerial and financial services provided by Mr. Cordes.
For the twelve-month period ending December 31, 1980, Mr. Cordes earned $60,000 from Cordes Health Care Management Corporation. The $60,000 salary was paid as follows: $13,250 was paid on a weekly basis (Petitioners' Exhibit 12); $19,050 was accrued and paid by check on January 12, 1981 (Petitioners' Exhibit 11); and a promissory note executed on March 1, 1981, in the amount of $27,700. (Petitioners' Exhibit 10)
Mr. Cordes has received payment of the check and promissory note. The promissory note was signed by the Secretary of Cordes Health Care Management Corporation, Miss Bevilacqua. Cordes Health Care Management Corporation issued checks to satisfy the promissory note which were endorsed and loaned back to Cordes Health Care Management Corporation.
Recalculation of Depreciable Basis and Interest
The auditors from PMM made adjustments to depreciation and interest after recalculating the depreciable basis for the nursing centers. (Petitioners' Exhibits 5 through 8)
Mr. Cordes purchased Lakeview Manor Nursing Rome in January, 1980, from Mr. Robert Becht who purchased it from one, Dr. Romano. The building was constructed in 1919 and opened in 1921 as the Royal Palm Hotel, Palm Beach, Florida.
Lakeview Manor Nursing Home was operated as a hotel until it was licensed as a nursing home in 1965. HRS derived the depreciable basis by calculating the reproduction cost of Lakeview Manor Nursing Home.
The Romanos made substantial renovations and improvement to Lakeview during 1975. These included reconstruction of porches, fireproofing the ceiling, renovation of the plumbing and fixtures, electrical conduit, installation of fire alarms and smoke detectors, air conditioning, duct work and installation of a tile floor. These renovations and improvements approximated one hundred three thousand dollars ($103,000). (Testimony of Rodney G. Romano) Based on the extensive repairs and renovations performed by the Romanos, the useful life of Lakeview was extended. (See Petitioners' Exhibit 13; and Testimony of Mr. Jack Price received herein as an expert real estate appraiser)
Petitioners' challenge the HRS depreciation adjustments to Gainesville and Jefferson Nursing Centers on the basis that (1) the auditors failed to depreciate land investments over a shorter period of time than the building and
(2) due to the age of both facilities. 4/
A summary of the adjustments (disallowances) to the provider's depreciation and interest accounts appear below:
audit report of Lakeview Nursing Home for the six month period ending June 30, 1980:
Depreciation - $14,669
Interest - $20,575
audit report of Lakeview Nursing Home for the fiscal year ending June 30, 1981:
Depreciation - $27,172
Interest - $36,811
audit report of Gainesville Nursing Center for the 8-month period ending December 31, 1980:
Depreciation $5,475
Interest $11,858
audit report of Jefferson Nursing Center for the 8-month period ending December 31, 1980:
Depreciation - $11,976
Interest - $6,02,9 (TR Volume 3, page 101).
A provider who purchases a building must value such at the lesser of the purchase price, the market value or the reproduction cost less straight line depreciation over the life of the asset to the date of sale. In the case of Lakeview Manor Nursing Home for the six-month period ending June 30, 1980, HRS recalculated the depreciation expense based upon reproduction costs. Mr. Kenneth Conners 5/ analyzed the appraisal and concluded that the reproduction cost was greater than the purchase price paid (TR Volume 2, page 18). The appraisal report for Lakeview, on page 31, states that the building is thirty
(30) percent depreciated (Petitioner's Exhibit 9). Page 42 of the appraisal reflects the building was converted into a nursing home during 1964. Page 30 of that appraisal reveals that the building was constructed as a hotel and is approximately fifty years old. The total estimated reproduction costs, as stated on page 31 of the appraisal, is one million ninety four thousand thirty dollars ($1,094,030). (Petitioners' Exhibit 9) To determine the total reproduction costs, both HRS and Mr. Conners agree that the reproduction cost is as contained in the appraisal; i.e., one million ninety four thousand thirty dollars ($1,094,030).
Mr. Conners depreciated the building using a ratio of 50/167' because the building was fifty (50) years old and was thirty percent (30 percent) depreciated. (Petitioners' Exhibit 20)
HRS used a different ratio based upon an estimated useful life of twenty years. Accordingly, as reflected in Petitioners' Exhibit 21, Mr. Conners computed the allowable depreciation as sixteen thousand three hundred twenty
nine dollars ($16,329) rather than the fifteen thousand seven hundred forty dollars (15,740) allowed by HRS. The Petitioners claim the difference of five hundred eighty nine dollars ($589) as allowable depreciation which should be reimbursed to the provider.
In the case of Lakeview Nursing Home for the six-month period ending June 30, 1980, HRS made an interest adjustment based on their determination that reproduction cost was lower than the purchase price. According to Mr. Conners' calculations, the reproduction cost is greater than the purchase price and the interest claimed by the provider is allowable. It is so found.
Petitioners claim the entire interest expense amount of forty thousand three hundred twenty nine dollars ($40,329) whereas HRS disallowed nineteen thousand seven hundred fifty four dollars ($19,754). (Petitioners' Exhibit 21)
Mr. Conners computed the depreciation and interest expense for Lakeview Manor Nursing Home for fiscal year ending June 30, 1981. (Petitioners' Exhibits 20, 21, and 22) According to those calculations, the proper amount of depreciation and interest expenses is one hundred twelve thousand ninety eight dollars ($112,098) Of this amount, HRS allowed ninety seven thousand seven hundred thirty five dollars ($97,735). Petitioners claim the difference, i.e, fourteen thousand three hundred sixty three dollars ($14,363) as reimbursable depreciation and interest expense which should be credited to the provider.
For the eight-month period ending December 31, 1980, HRS auditors applied a twenty-three (23) year life to different components of assets. The appraisal of Gainesville Nursing Center (page 18) indicates that the main structure of the nursing home was built in 1957 with the latest addition being built in 1967. (Petitioners' Exhibit 13) The appraiser thereafter estimates that the building has already depreciated approximately twenty-five percent.
The main portion of the building being twenty-three years old and having already depreciated approximately twenty-five percent, Mr. Conners used the ratio 23/92 to depreciate the main building. Likewise, Conners used the ratio 13/52 to depreciate the newer portion of the Building. (TR Volume 2, pages 31-32). Conners calculated the reproduction cost at one million seven thousand two hundred twenty eight dollars ($1,007,22,8). Since the purchase price was one million sixty nine thousand five hundred dollars ($1,069,500) there was excess purchase price of sixty two thousand two hundred seventy two dollars ($62,272). Mr. Conner determined that allowable depreciation amounted to thirty two thousand one hundred sixteen dollars ($32,116) whereas HRS only allowed twenty nine thousand six hundred five dollars ($29,605) as allowable depreciation reimbursable to the provider. Petitioner thus claims the difference of two thousand five hundred eleven dollars ($2,511) as reimbursable depreciation expense to Gainesville Nursing Center. (Petitioners' Exhibit 23)
In determining interest expense for Gainesville Nursing Center for the eight-month period ending December 31, 1980, Mr. Conners determined that the allowable loan figure was nine hundred fifty seven thousand two hundred twenty eight dollars ($957,228) and the unallowable loan figure was thirty eight thousand eight hundred seventy two dollars ($38,872). Based on his calculations, the allowable interest on these loans is seventy one thousand six hundred ninety seven dollars ($71,697) (This amount does not include the unallowable portion of interest on the loan in excess of the purchase price).
HRS allowed fifty two thousand eight hundred forty five dollars ($52,845) as allowable interest expense, the difference of eighteen thousand
eight hundred fifty two dollars ($18,852) is, according to Petitioners, reimbursable to Gainesville Nursing Center as allowable interest expense. (Petitioners' Exhibit 24)
The appraisal of Jefferson Nursing Center (page 9) reveals that the building was constructed approximately sixteen years ago. (Petitioners' Exhibit
18) The appraisal reveals that fifteen percent of the building has been depreciated. Based on that appraisal, Mr. Conners calculated the ratio for depreciation on this building at 16/106. Using his calculation for depreciation, Mr. Conners determined that the total amount for allowable depreciation was twenty nine thousand three dollars ($29,003). Of that amount, HRS allowed twenty seven thousand three hundred thirty nine dollars ($27,339) as allowable depreciation expense. The Petitioners claim the difference, i.e., one thousand six hundred sixty four dollars ($1,664) as reimbursable to Jefferson Nursing Center as allowable depreciation expense. (Petitioners' Exhibit 25)
Mr. Conners also determined that allowable interest for Jefferson Nursing Center was forty six thousand fifty three dollars ($46,053) whereas HRS allowed forty thousand three hundred fifty three dollars ($40,353). Petitioners claim the difference of fifty seven hundred dollars ($5,700) as an allowable interest expense which should be reimbursable to Jefferson Nursing Center. (Petitioners' Exhibit 25)
The schedules prepared by Mr. Conners uses a forty year useful life. A summary of Mr. Conners' calculation appears as follows:
audit report of Lakeview Nursing Home for the six month period ending June 30, 1980:
depreciation erroneously disallowed -
$589.00.
interest erroneously disallowed -
$20,575.00.
audit report of Lakeview Manor Nursing Home for fiscal year ending June 30, 1980: depreciation and interest erroneously disallowed - $14,363.00.
audit report of Gainesville Nursing Center for the eight-month period ending December 31, 1980:
depreciation erroneously disallowed -
$2,511.00.
interest erroneously disallowed -
$18,852.00.
audit report of Jefferson Nursing Center for the eight-month period ending December 31, 1980:
The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this action. Chapter 120.57(1), Florida Statutes.
The parties were duly noticed pursuant to the notice provision of Chapter 120, Florida Statutes.
Competent and substantial evidence was offered to support the Petitioners' claim for a reimbursement from the Respondent for the amounts claimed based on Respondent's recalculation of the Petitioners' depreciation and interest accounts. The Respondent's recalculation of the depreciation expense by using a different ratio based on an estimated useful life of twenty years is not supported by the work papers, the appraisal or any other valid source. The calculations of the allowable depreciation expense by Mr. Conners in the amount of sixteen thousand three hundred twenty nine dollars ($16,329) rather than the fifteen thousand seven hundred forty dollars (15,740) allowed by HRS for a difference of five hundred eighty nine dollars ($589) should, therefore, be reimbursed to the provider. Likewise, the interest expense claimed by Petitioners in the amount of forty thousand three hundred twenty nine dollars ($40,329) appears reasonable under the circumstances herein. Accordingly, Lakeview Nursing Home is entitled to be reimbursed in the amount of twenty thousand five hundred seventy five dollars ($20,575) for fiscal year ending June 30, 1980 and fourteen thousand three hundred sixty three dollars ($14,363) for fiscal year ending June 30, 1981.
Based on the foregoing findings of fact, competent and substantial evidence was offered to warrant a recommendation to reimburse the Petitioners for the recalculation of the depreciation and interest expenses of Gainesville Nursing Center for the fiscal year ending December 31, 1980 and recommend that the Petitioners be reimbursed in the amounts claimed as allowable depreciation and interest expenses.
Based on the foregoing findings of fact and conclusions, competent and substantial evidence was offered to warrant a recommendation that the Petitioners be reimbursed for the depreciation and interest expenses disallowed based on the recalculations of the Jefferson Nursing Center for the eight month period ending December 31, 1980. It is so concluded.
In this regard, the Petitioners have met their burden of proving their entitlement to reimbursement for the amounts claimed within the meaning of Rule 10C-7.481(6), Florida Administrative Code. Finally, these conclusions were not disputed by competent and substantial evidence by Respondent. 6/
Based on the conclusion herein that the Respondent's auditors failed to properly compute straight line depreciation or follow the estimate of the appraisers for depreciation for Gainesville or Jefferson Nursing Centers (Respondent's Exhibits 3 and 4), I shall recommend that the Respondent reimburse the Petitioners for the amounts disallowed based on the recalculations by its auditors.
Competent and substantial evidence was offered to establish that the salary paid to Mr. Leonard Cordes by Cordes Health Care Management Corporation is reimbursable because it was paid within seventy-five days from the close of the cost reporting period of the home office. These salary costs were home office costs for a management company and are allocable to the various
facilities to which the services were provided. (Section 2150 of HIM-15) The evidence herein reveals that the providers attached a schedule for the allocation of allowable cost to the facilities involved herein which were served by the home office (Cordes Health Care Management Corporation) and these amounts were received by Mr. Cordes within seventy-five days of the close of the fiscal year of Cordes Health Care Management Corporation.
In this regard, the seventy-five day rule allows payment to be made by a negotiable instrument which was part of the method of payment involved herein. (HIM-15, Section 906.4) The required negotiable instrument was issued to Mr. Cordes on March 1, 1981 by Mrs. Bevilacqua, secretary for Cordes Health Care Management Corporation. After further reviewing the evidence herein, Mr. Cordes' agreement to accept his payment, part of which was received in the form of a note, is understandable in view of the cash flow problems that Lakeview Nursing Home was then experiencing. During all times relevant herein, Mr. Cordes was not an employee of the nursing home, but rather was an employee of Cordes Health Care Management Corporation.
Competent and substantial evidence was offered herein to establish that the interest paid to the Toronto-Dominion Bank on a loan to purchase Gainesville Nursing and Jefferson Nursing Centers is an allowable interest expense. In this regard, evidence herein reveals that the loan from the
Toronto-Dominion Bank was used to purchase the two nursing centers, and the loan proceeds were deposited directly in accounts for the purchase of the two nursing homes. The two principals involved herein, Mr. Cordes and Mr. Moyse, needed alternative financing on a mortgage to the Maplewood Bank and Trust Company because that bank was charging interest at a rate of twenty one percent and required the entire repayment within two years. Mr. Moyse was able to obtain a thirteen percent interest rate on this loan based on his extensive dealings with the Toronto-Dominion Bank. After due consideration of the circumstances herein, it is concluded that the interest and principal payments on the Toronto-Dominion Bank loans are reimbursable. (HIM-15, Section 2150.2(d)) 7/
Based on the foregoing findings of fact and conclusions of law, it is hereby RECOMMENDED that the Respondent enter a Final Order reimbursing the Petitioners for the amounts set forth in the Petition for Reimbursement as modified herein.
RECOMMENDED this 1st day of November, 1983, in Tallahassee, Florida.
JAMES E. BRADWELL, 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 1st day of November, 1983.
ENDNOTES
1/ Petitioner's counsel has submitted a proposed Memorandum which was considered by me in preparation of this Recommended Order. To the extent that the proposed findings and conclusions are not incorporated in this Recommended Order, said proposed findings, etc. were deemed either irrelevant, immaterial or not otherwise supported by record evidence.
2/ The parties, pursuant to a pre-hearing stipulation, stipulated and agreed that two thousand ($2,000) dollars in capitalized legal fees should have been included in Lakeview Manor's 1981 Cost Report. This amount was reportedly mistakenly omitted by the provider and constitutes an allowable expense (pre- hearing stipulation of December 2, 1982).
3/ This rule requires that unpaid compensation to stockholder- employees shall be paid within 75 days after the cost reporting period to be includable in allowable costs. Section 906.4, HIM-15.
4/ The Respondent has agreed that if audit adjustments are reversed to the effect that they alter return on equity capital, that figure will be recalculated. (Stipulation of December, 1982)
5/ Kenneth Conner was received as an expert in health care accounting.
6/ The 1980 audit report for Lakeview reflects a nine thousand dollar ($9,000) negative adjustment to capitalize legal fees expended to acquire a license. The parties agree that these legal costs should have been capitalized and that the 1981 cost report will show a two thousand dollar ($2,000) positive adjustment for legal fees.
7/ Specific amounts are herein sometimes net referred to based on the parties' stipulation to the effect that if audit adjustments are reversed to the effect that they alter return on equity capital, that figure will be revisited by the parties pursuant to their stipulation of December, 1982.
COPIES FURNISHED:
Karen Goldsmith, Esquire and Michael F. Bittman, Esquire Dempsey & Slaughter, P.A. Post Office Box 1900 Orlando, Florida 32802
Joseph Shields, Esquire Department of HRS
1323 Winewood Blvd.
Tallahassee, Florida 32301
David Pingree, Secretary Department of Health &
Rehabilitative Services 1323 Winewood Blvd.
Tallahassee, Florida 32301
================================================================= AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA
DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES
CORDES HEALTH CARE MANAGEMENT | |
CORP., d/b/a GAINESVILLE | |
NURSING CENTER; CORDES HEALTH | |
CARE MANAGEMENT CORP., d/b/a | |
LAKEVIEW MANOR; CORDES HEALTH | CASE NOS. 82-0460 |
CARE MANAGEMENT CORP., d/b/a | 82-0462 |
JEFFERSON NURSING CENTER; and | 82-0490 |
LAKEVIEW MANOR NURSING HOME, | 82-1915 |
Petitioners,
vs.
DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES,
Respondent.
/
FINAL ORDER
This cause came on before me for the purpose of issuing a final agency order. The Hearing Officer assigned by the Division of Administrative Hearings (DOAH) in the above styled case has submitted a Recommended Order to the Department of Health and Rehabilitative Services (HRS). A copy of that Recommended Order is attached hereto.
(A) Audit Services - meaning HRS Office of Audit Services - filed Exceptions to the Recommended Order. A copy of Audit Services' Exceptions is attached hereto as Exhibit A.
HRS RULING AND STATEMENT ON THE EXCEPTIONS
(AA) AUDIT SERVICES EXCEPTION (1) The Exception has merit and is sustained.
The three Medicaid providers are (i) Maclen Investments, Inc., d/b/a Lakeview Manor (hereafter Maclen Investments, Inc.); (ii) Maclen Enterprises of Gainesville, Inc., d/b/a Gainesville Nursing Centers (hereafter Maclen Enterprises of Gainesville, Inc.), and (iii) Maclen Enterprises of Monticello, Inc., d/b/a Jefferson Nursing Center (hereafter Maclen Enterprises of Monticello, Inc.). Cordes Health Care Management Corporation is not a Medicaid provider. It has no provider agreement with HRS in respect to the Medicaid program. Cordes is only a home office for the three Medicaid providers.
The evidentiary facts clearly show that the Medicaid providers received a large sum of money, namely the $146,500 noted in the Recommended Order. The
Hearing Officer, however, has misinterpreted the legal effects of the evidentiary facts. It is somewhat irrational to conclude that the Canadian Bank loaned $146,500 to either Maclen Investments, Inc., Maclen Enterprises of Gainesville, Inc., or Maclen Enterprises of Monticello, Inc., without a written loan agreement. The best evidence of the $146,500 loan is the written loan agreement itself.
On the other hand, it is probable and logical that Mr. Moyse would deliver
$146,500 to either of the three Medicaid providers. He is 50 percent shareholder of each provider. It is foreseeable that Mr. Moyse would not make use of some sort of written instrument. Whether Mr. Moyse delivered the money as a gift, a loan or an equity investment is an unanswered question.
The determination as to whether the Canadian Bank made a loan to either of the three Medicaid providers is a determination of an ultimate fact, especially when viewed under the guided lines of the Medicaid program. Considering the evidentiary facts found by the Hearing Officer, HRS hereby concludes that the arrangement made by Mr. Moyse with the Canadian Bank and the subsequent delivery of $146,500 to the three Medicaid providers did not create a loan between the Bank and the Medicaid providers. The existence of such liability would violate Canadian banking laws. It follows that monies paid by the providers to the Bank is not an allowable interest expense. Under no circumstances is the principal on the loan to be reimbursed. (If the $146,500 is a shareholder loan, the guidelines of the Medicaid program prohibit interest paid to a shareholder as an allowable cost. The loan would be considered equity capital.) Audit Services Exception (1) is sustained and the Recommended Order is modified in accordance herewith.
(AA) AUDIT SERVICES EXCEPTION (2) - The Exception has merit and is sustained. The Seventy-Five Day Rule is measured beginning with the end of the applicable cost reporting period. The accounting year end of the home office does not trigger the Seventy-Five Day Rule.
The home office is not a Medicaid provider. It did not file a separate and distinct cost report in its individual capacity. Cost reports were filed by Maclen Investments, Inc., Maclen Enterprises of Gainesville, Inc., and Maclen Enterprises of Monticello, Inc. Only by way of Schedule H of the above referenced cost reports, including supporting schedules as required by the instructions for cost report Schedule H, was the home office required to document its allocation of expenses. There is no separate and distinct cost reporting period associated with the home office.
Regarding the application of the Seventy-Five Rule, the conclusion of law contained in the Recommended Order is rejected. The conclusion amounts to an erroneous or otherwise inappropriate interpretation and application of law. The correct interpretation and application compel a different result.
Certain compensation to Mr. Cordes was reported in the 6/30/80 cost reporting period. The home office allocated that compensation and offered it as unpaid earnings of Mr. Cordes. In order for the unpaid, accrued compensation to be included as an allowable cost for the 6/30/80 cost reporting period, the actual payment must have been made within 75 days after the close of that period. Since the actual payment was made on March 1, 1981, the cost cannot be an allowable cost for the 6/30/80 cost reporting period. Audit Services Exception (2) is sustained and the Recommended Order is modified in accordance herewith.
(AA) AUDIT SERVICES EXCEPTION (3) - There are adequate merits in the exception, and therefore, it is sustained. As in the case of any expert testimony, the expert opinion of Mr. Kenneth Conners is worth no more than the reasons on which it is based. The methodology resorted to for calculation of the depreciated replacement costs for the three facilities incorporates unrealistically long economic lives. That is, Lakeview Manor has been assigned a life of 167 years; Gainesville Nursing Center has been assigned 92 years, and Jefferson Nursing Center 106 years.
A contradictory method is then applied by Mr. Connors. The facilities are depreciated over shorter lives of 40 years, and less for subsequent cost reporting purposes.
The combination of these methods to calculate allowable interest and depreciation (to be paid by the Medicaid program) is exorbitant, prohibitive and destructive. Mr. Connors combined methodologies are rejected.
The Medicaid program makes use of BHI guidelines for determining economic lives of facilities. New facilities are assigned 40 or less years. As to other than new facilities, provisions of the Medicaid program permit the intermediary and the Medicaid provider to agree upon a life shorter than 40 years. For the three facilities belonging to the three Medicaid providers, an agreement occurred relative to the lives of the other than new facilities. The agreement occurred when the Petitioners submitted budgeted cost reports and the intermediary, i.e., Florida's Medicaid Program Office, accepted the reports and the related interim rates were granted based upon the budgeted cost report.
Accordingly, calculations made by HRS Audit Services in respect to (i) depreciated basis for the facilities; (ii) the estimated useful lives, and (iii) the allowable interest were reasonable and correct. Contrary conclusions appearing in the Recommended Order are hereby rejected. Audit Services Exception (3) is sustained and the Recommended Order is modified in accordance herewith.
FINDINGS OF FACT
Following a review of the complete record, the Department hereby adopts the findings of fact made by the Hearing Officer but with the inclusion of rejections and modifications set out and explained in HRS Ruling and Statement On The Exceptions
CONCLUSIONS OF LAW
The overall conclusions of law stated by the Hearing Officer are rejected. The conclusions amount to an erroneous or otherwise inappropriate interpretation and application of law. The correct interpretation and application, which compel a different result, is set out in HRS Ruling and Statement On The Exceptions. Consequently,
It is ADJUDGED that the amount of reimbursement to which the Petitioners is entitled is an amount fixed by the HRS Ruling and Statement On The Exceptions.
The Recommended Order is modified in accordance with said Ruling and Statement and the Final Order herein is issued accordingly.
ORDERED this 30th day of March, 1984, in Tallahassee, Florida.
Copies furnished to:
DAVID H. PINGREE
Secretary
Karen Goldsmith, Esquire and Michael F. Bittman, Esquire Dempsey & Slaughter, P.A. Post Office Box 1900 Orlando, Florida 32802
Joseph Shields, Esquire Department of HRS
1323 Winewood Blvd.
Tallahassee, Florida 32301
James E. Bradwell, Hearing Officer Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32301
| Issue Date | Proceedings |
|---|---|
| Apr. 03, 1984 | Final Order filed. |
| Nov. 01, 1983 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Mar. 30, 1984 | Agency Final Order | |
| Nov. 01, 1983 | Recommended Order | The interest payments by Petitioners on a loan to purchase nursing center is an allowable interest expense and reimbursable. |
DEPARTMENT OF BANKING AND FINANCE vs. PHILIP DENNIS AND MEDI FUND, INC., 82-000460 (1982)
WORTHWHILE DEVELOPMENT III, LTD. vs FLORIDA HOUSING FINANCE CORPORATION, 82-000460 (1982)
DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION vs SHERRLY DISHON BROWN, 82-000460 (1982)
TWIN TOWERS DEVELOPMENT vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 82-000460 (1982)
