STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HOLLYWOOD HILLS NURSING HOME, )

)

Petitioner, )

)

vs. ) CASE NOS. 82-1228

) 83-0845

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, this cause was heard by Linda M. Rigot, the assigned Hearing Officer of the Division of Administrative Hearings, on November 17, 1983, in Miami, Florida.

Petitioner Hollywood Hills Nursing Home was represented by Howard Todd Jaffe, Esquire, Hollywood, Florida; and Respondent Department of Health and Rehabilitative Services was represented by Joseph L. Shields, Esquire, Tallahassee, Florida.

As a result of audits, Respondent made certain adjustments to Petitioner's Medicaid cost reports for the fiscal years ending June 30, 1980, and June 30, 1981. Petitioner disputed Respondent's adjustments and filed petitions for formal hearing in Case No. 82-1228 as to fiscal year ending June 30, 1980, and in Case No. 83-845 as to the fiscal year ending June 30, 1981. Those cases were subsequently consolidated since the same issues were involved in the Medicaid audit adjustments for both fiscal years. Accordingly, the issue for determination is the propriety of each adjustment.

Petitioner presented the testimony of Donald E. Harder, Arthur White, and Steve M. Raizen. Respondent presented the testimony of Stanley William Swindling, Jr., and John Thomas Donaldson. Additionally, Petitioner's Exhibits numbered 1 through 6 and Respondent's Exhibits numbered 1 and 2 were admitted in evidence.

Both parties submitted posthearing proposed findings of fact in the form of a proposed recommended order. To the extent that any proposed findings have not been adopted in this Recommended Order, they have been rejected as not having been supported by the evidence, as having been irrelevant to the issues under consideration herein, or as constituting unsupported argument of counsel or conclusions of law.

FINDINGS OF FACT

1. The parties stipulated during the course of the formal hearing in this cause that the adjustments made by Respondent to Petitioner's Medicaid cost report for the fiscal year ending June 30, 1981, were the same as the adjustments made by Respondent to Petitioner's Medicaid cost report for the

   fiscal year ending June 30, 1980. They therefore presented evidence and arguments on the adjustments made for 1980 with the stipulation that if Petitioner prevailed regarding any item which was adjusted for 1980, then that item would automatically be so adjusted for 1981. The parties further stipulated that the cost item "return on equity" is merely a function of the other proposed adjustments and, therefore, if the Petitioner prevailed on other disputed adjustments herein, then "return on equity" would be automatically revised to reflect an increase.

   
   

2. Respondent proposed an adjustment to Petitioner's Medicaid cost report for the fiscal year ending June 30, 1980, in the amount of $15,223 for short- term liabilities. At the commencement of the formal hearing, Respondent withdrew its adjustment to that item and stipulated that Petitioner was correct in its position. Accordingly, that portion of the dispute has been withdrawn from consideration herein.

   
   

3. Petitioner claimed $5,191 as the advertising cost for Hollywood Hills Nursing Home in the fiscal year ending June 30, 1980, which amount represents the cost of a large, yellow pages advertisement in the Southern Bell Telephone Directory. Respondent disallowed all Southern Bell advertising cost except for the sum of $178.20, which represents the cost of a simple alphabetical listing in the yellow pages. The advertisement in question is excessive in size and primarily consists of the name of the facility, a reproduction of the facility's logo, a picture of the facility, and a picture of a very happy couple. The ad is not primarily informational but rather is clearly promotional and intended to increase patient utilization. Accordingly, Respondent properly, disallowed this cost item and properly allowed the cost of a simple alphabetical listing, the norm in the nursing home industry at the time.

   
   

4. In the fiscal year ending June 30, 1980, Petitioner included in its cost report the sum of $37,147.18 representing the "Herlee consulting fee," and Petitioner further claimed a similar amount as a cost item in its 1981 report. Respondent disallowed this reported home office cost. This cost includes salaries for Herbert and Leonore Kallen and other allocated expenses of the "home office" such as rent, automobiles, utilities, insurance, depreciation and amortization thereof, legal fees, and outside consulting fees. Respondent disallowed all Herlee expenses. The Kallens own three health care providers which are located in two facilities, to wit: Hollywood Hills Nursing Home and Hollywood Pavilion Psychiatric Hospital located in the same facility in Hollywood, Florida; and Norwichtown Convalescent Home located in Norwichtown, Connecticut. Contracts were entered into on behalf of these providers whereby they would be managed by Herlee Management Company, another of the Kallens' corporations. Although Herlee, Inc., was formed to manage the Kallens' two physical facilities under the "chain organization" provisions of the health insurance manual, none of the Herlee or home office costs are proper. No documents reflect the proportion of the Kallens' time which is spent in managing Hollywood Hills Nursing Home. Petitioner's evidence ranges from the Kallens spending an approximate 12.5 percent of their time to them spending an approximate 75 percent of their time related to Petitioner. The evidence is simply not credible. No time sheets exist; likewise, no records exist regarding any duties performed at any particular time. Rather, both the administrator and the "executive manager" of Hollywood Hills Nursing Home are full-time employees of Herlee Management Corporation, both of whom were capable of performing and did perform all of the duties alleged to have been performed by the Kallens at unknown times. The Herlee home office cost/Herlee consulting fee is not documented, is not reasonable, is duplicitous rather than necessary, and is not related to any patient care. Any time spent by the Kallens in the management of

   Hollywood Hills Nursing Home, if any, was spent merely as a protection of their financial investment. In further support of the lack of documentation to substantiate this cost item, it is noteworthy that Petitioner's witnesses did not even agree on the location of the Kallens' home office. Respondent properly disallowed the Herlee cost items as to the Kallens and properly allowed only that portion of the cost which related to the salary and benefits paid to the full-time employee of Herlee who also served as the nursing home administrator.

   
   

5. The Kallens acquired Hollywood Hills Nursing Home through a purchase of stock rather than through a purchase of assets. Petitioner, therefore, took its vendor's basis for depreciation purposes directly from the books of its predecessor. When the audit of 1980 and again of 1981 revealed that Petitioner had no documentation on which to substantiate the basis used for depreciation, Respondent could have disallowed all property costs. Rather than doing so and possibly forcing Petitioner out of the Medicaid program or out of business, Respondent utilized the next best source of information, a 1969 appraisal indicating a verified construction cost, although utilizing that appraisal was admittedly a departure from normal audit procedures. The deviation from normal auditing principles is proper in this situation where Petitioner could provide no documentation to substantiate its basis for depreciation, and the appraisal provided estimates of cost at the time the facility was constructed. The adjustments made by Respondent for both 1980 and 1981 were therefore proper.

   
   

6. Petitioner claimed $7,844 as an amortization expense for the fiscal year ending June 30, 1980, and $6,747 as the amortization expense for the fiscal year ending June 30, 1981. Amortization expense is the cost of acquiring the original mortgage on the facility and is a legitimate and recognized expense which is reimbursable under Medicaid regulations. Respondent totally disallowed Petitioner's claimed amortization expense since Petitioner possesses no data showing the actual cost of financing. Petitioner also failed to present any evidence as to when the Kallens purchased the facility, as to when the mortgage was placed on the facility, and as to whether the Kallens assumed a prior mortgage or obtained their own financing. Accordingly, Respondent properly disallowed the amortization expense in both Petitioner's 1980 and 1981 cost reports.

   
   

7. Respondent had made a total adjustment for non-legend drugs in the amount of $15,244 for 1980 and 1981 combined. At the formal hearing, counsel requested an opportunity to attempt to work out an independent solution to this adjustment in order to remove that adjustment from consideration herein. The parties have agreed posthearing that $11,185 out of the Respondent's $15,244 adjustment should be disallowed and overpayment deductions by Respondent have been erroneous. Accordingly, Petitioner is entitled to receive from the Respondent the amount of $11,185 representing this non-legend drugs item.

   
   

   CONCLUSIONS OF LAW

   
   

8. The Division of Administrative Hearings has jurisdiction over the subject matter hereof and the parties hereto. Section 120.57(1), Florida Statutes.

   
   

9. Section 10C-7.481, Florida Administrative Code, provides in part that: "The burden of proof is upon the provider to affirmatively demonstrate its entitlement to the Medicaid reimbursement." Petitioner has failed to carry that burden as to all items in dispute herein. The parties have stipulated that the 1980 short-term liabilities adjustment of $15,223 was erroneous, and Respondent has withdrawn that adjustment. Likewise, the non-legend drugs item for 1980 and

1981 has been resolved by the parties, and they have further stipulated as to the amount of overpayments erroneously deducted by Respondent for this item in 1980 and 1981. Additionally, the parties have stipulated that the item covering return on equity is simply a mathematical computation to be adjusted if Petitioner prevails on some of the items in dispute in this proceeding.

Petitioner fails in proving its entitlement to the Herlee consulting fee (home office costs) depreciation, and amortization as reimbursable expenses for the reason that Petitioner has failed and continues to fail to provide any documentation upon which these expense items can be based. Lastly, Petitioner's argument that its ad is informational falls upon an examination of the ad in question itself; clearly, the ad is promotional and is intended to increase patient utilization.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered upholding Respondent's adjustments to Petitioner's Medicaid cost reports for the fiscal years ending June 30, 1980, and June 30, 1981, as to advertising, the Herlee consulting fee/home office costs, depreciation, and amortization; making any adjustment necessary as to Petitioner's return on equity; withdrawing Respondent's adjustment for short- term liabilitites for 1980; and memorializing the terms of the parties' stipulation as to non-legend drugs.

DONE and RECOMMENDED this 4th day of April, 1984, in Tallahassee, Leon County, Florida.

LINDA M. RIGOT, 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 4th day of April, 1984.

COPIES FURNISHED:

Howard Todd Jaffe, Esquire 1915 Harrison Street

Hollywood, Florida 33020-5098

Jay Adams, Esquire Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32301

David H. Pingree, Secretary Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32301

Docket for Case No: 82-001228

Orders for Case No: 82-001228