r. stuart huffVs.melissa f. a11aman|Department of Children a... -- eLawyers

Judges: DANIEL MANRY
Agency: Department of Children and Family Services
Latest Update: Dec. 30, 1992
Summary: The issue for determination in this proceeding is whether Petitioner is entitled to reimbursement for underpayment of Medicaid expenses, and, if so, the amount of such underpayment.Assignee of Broker trustee, who was assigned claim by bankrupt medicaid pro- vider agnst DHRS for unreimbursed expenses, should be paid amount of claim.

87-2888

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

KRESTVIEW G & J INVESTMENTS )

)

Petitioner, )

)

vs. ) CASE NO. 87-2888

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER TABLE OF CONTENTS

RECOMMENDED ORDER 1
APPEARANCES 1
STATEMENT OF THE ISSUE 1
PRELIMINARY STATEMENT 2
FINDINGS OF FACT 5
1. Background 5
2. Amounts At Issue 13
  5.02(a) Property Related Expenses 13
  5.02(a)(1) Section 1122 14
  5.02(a)(2) Other Disallowances 15
  5.02(b) Expenses Unrelated To Property 16
  5.02(b)(1) Documentation 16
  5.02(b) (2) Other Disallowances 17
  5.02(c) Limitation Of Amounts At Issue 21
  5.02(c)(1) Dissallowances Admitted By Petitioner 21
  5.02(c)(2) Mandatory Limitations On Medicaid Expenses 22
  5.02(c)(3) Pretermitted Issues 22
  5.02(d) Expenses At Issue 24
3. Bankruptcy 25
  5.03(a) The Bankrupt Estate 25
  5.03(b) Preparation Of Cost Reports 27
  5.03(c) Assignment To Petitioner 29
  5.03(c)(1) Consideration Paid 29
  5.03(c)(2) Asset Acquired 30
  5.03(c)(3) Respondent And The Bankruptcy Court 30
  5.03(d) Continued Preparation Of Cost Reports 32
4. Documentation 33
  5.04(a) Amount Of The Expense 33
  5.04(b) Relation To Patient Care 35
  5.04(c) Payment 36
5. Allocations From The Home Office 38
6. Allocations Between Facilities 38
7. Already Paid Or Covered By Another Program 39
8. Legal Fees 39
9. Section 1122 41
  5.09(a) Unauthorized Review Of Leases 41
  5.09(b) Previous Authorized Review Of Leases 44
  5.09(c) No Capital Expenditure Occurred 45
  5.09(d) Agency Determinations, Findings, And Recommendation 46 5.09(d)(1) Determinations 47
  5.09(d)(2) Findings And Recommendations 48
  5.09(e) Procedural Defects 50
  5.09(e)(1) Determinations That Capital
  Expenditure Had Occurred 50
  5.09(e)(2) Determination Of Failure To Submit Proposal
  For Review Of A Capital Expenditure . . . . 51
  5.12(a) Final Rate And Rate Application Period 59
  5.12(b) Settlement Of Overpayment And Underpayment . . 60
  5.12(b)(1) Overpayment 61
  5.12(b)(2) Underpayment 62
  5.12(c) Reimbursement For Underpayment 62
  5.12(c)(1) Prior Proceeding 63
  5.12(c)(2) This Proceeding 65
  5.12(c)(3) Final Accounting 67
CONCLUSIONS OF LAW 69
1. Reserved Rulings 70

6.01(a) Authenticity 70

6.01(b) Hearsay 72

6.01(b) (1) Other Rulings 77

6.01(b) (2) The Public Records Exception 78

6.01(c) Unfair Surprise 78

6.01(d) Respondent Is Bound By Res Judicata 80

6.01(e) No Waiver Of Objections Not Raised In The

Prehearing Stipulation		83
6.02 No Waiver Of The Claim Against Respondent		83
6.02(a) No Waiver Under Bankruptcy Law		85
6.02(b) No Waiver Under State Law		88
6.03 Petitioner Is Not Barred By Collateral Estoppel		90
6.04 Petitioner Is Not Barred By Res Judicata		91
6.05 Setoff		94
6.05(a) Right To Assert Setoff Under Bankruptcy Law	. .	94
6.05(b) Right To Assert Setoff Under State Law		97
6.06 Merits Of Respondent's Setoff		98
6.07 Petitioner's Claim		100
6.07(a) Documentation		102
6.07(b) Legal Fees		105
6.07(c) Section 1122		105
6.07(d) Accrual And Payment		107
7. RECOMMENDATION		111	APPENDIX
113
Petitioner's Proposed Findings of Fact		113
Respondent's Proposed Findings of Fact		114

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

KRESTVIEW G & J INVESTMENTS, )

)

Petitioner, )

)

vs. ) CASE NO. 87-2888

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to written Notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Daniel Manry, held a formal hearing in the above-styled case on October 23, 1989, and from November 28, 1989, through

December 4, 1989, in Miami, Florida.

APPEARANCES

FOR PETITIONER: R. Stuart Huff, Esquire

Mark L. Mallios, Esquire

Law Offices of R. Stuart Huff

330 Alhambra Circle

Coral Gables, Florida 33134

FOR RESPONDENT: Melissa F. A11aman, Attorney

William H. Garvin, III, Esquire Ervin, Varn, Jacobs, Odom & Ervin Post Office Drawer 1170

305 South Gadsden Street Tallahassee, Florida 32302

STATEMENT OF THE ISSUES

The issue for determination in this proceeding is whether Petitioner is entitled to reimbursement for underpayment of Medicaid expenses, and, if so, the amount of such underpayment.

PRELIMINARY STATEMENT

Petitioner challenges adjustments made by Respondent in final audits of five cost reports submitted by Petitioner. Petitioner is the assignee of the bankruptcy trustee in a bankruptcy proceeding filed by B & K Investments, Inc. ("B & K"). Prior to the bankruptcy proceeding, B & K was doing business in Miami, Florida as Krestview Nursing Home ("Krestview") and Towne House Convalescent Center ("Towne House"). 1/

Petitioner requested a formal hearing, by letter dated June 18, 1987, to contest adjustments in the first audit report issued by Respondent. 2/ The matter was referred to the Division of Administrative Hearings on July 9, 1987,

for assignment of a hearing officer to conduct a formal hearing. Hearing Officer Diane Kiesling was assigned to conduct this proceeding by an initial Order entered on July 20, 1987. A formal hearing was scheduled for September 17, 1987.

An Order of Abeyance was entered on September 14, 1987, so that final audits of the other cost reports could be

The final audits of the five cost reports were completed, and Petitioner was notified of the final audit adjustments by five separate letters from Respondent dated April 7, 1989. This proceeding was rescheduled pursuant to a number of continuances.

During the continuances, Hearing Officer Kiesling granted Petitioner's Motion to Compel Answers to Interrogatories and for Attorney's Fees pursuant to the Order On Pending Motions entered on August 24, 1989. 3/ A formal hearing was scheduled for October 23-27, 1989. The matter was transferred to Hearing Officer Michael Parrish on or before October 5, 1989, and to the undersigned on or about October 23, 1989.

Petitioner's Renewed Motion To Compel was granted by Hearing Officer Parrish on October 5, 1989. The order, in relevant part, required Respondent to explain what was missing from documentation of expenses determined by Respondent to be inadequate documentation.

Prior to the formal hearing, the undersigned heard oral arguments on Respondent's Motion For Summary Disposition And Partial Summary Disposition and on Respondent's Motion In Limine. Ruling on both motions was reserved for disposition in this Recommended Order. The issues in the Motion In Limine were resolved pursuant to stipulation among the parties prior to the start of the formal hearing. The parties presented unilateral prehearing stipulations pursuant to the Prehearing Order entered on April 11, 1989, as amended by the Prehearing Order of Hearing Officer Parrish entered on October 5, 1989.

At the formal hearing, Petitioner and Respondent each presented the testimony of three witnesses. The parties presented 46 joint exhibits which were admitted in evidence pursuant to joint stipulation. Petitioner presented

72 exhibits for admission in evidence. Petitioner's exhibits were numbered prior to the formal hearing and are not numbered from 1-72. Respondent presented

21 exhibits for admission in evidence which are numbered 1-21. Rulings on a number of objections to the admissibility of the parties' respective exhibits were reserved for disposition in this Recommended Order. Reserved ruling are addressed in the Conclusions of Law in this Order.

A transcript of the formal hearing was ordered and filed with the undersigned on February 12, 1990. The time for filing proposed findings of facts and conclusions of law was extended pursuant to the joint request of the parties. Proposed findings of fact and conclusions of law were timely filed by Petitioner on April 30, 1990, and by Respondent on April 27, 1990. Respondent also filed a Memorandum of Law On Issues Reserved for Post-Hearing Ruling By The Hearing Officer. The parties? proposed findings of facts are addressed in the Appendix to this Recommended Order.

FINDINGS OF FACT

Some of the findings of fact relevant to this proceeding have been determined in two previous administrative proceedings, a federal district court
case, and a federal bankruptcy action. The findings of fact made in the prior administrative and civil cases are discussed in the background of this proceeding.
Petitioner is a wholly owned subsidiary of Suburban Nursing and Mobile Homes, Inc., of Ohio ("Suburban"). Suburban is a holding company which owns the stock of numerous corporations engaged in the operation of nursing homes or mobile home parks. At all times material to this proceeding, the stock of Suburban was owned or controlled by the late Gerald D. Keller and members of his family ("Keller").
Petitioner's assets include the land, buildings, and equipment used in the operation of Krestview Nursing Home ("Krestview") and Towne House Convalescent Center ("Towne House"). Krestview and Towne House are located in the greater metropolitan area of Miami, Florida.
Prior to May 5, 1977, Krestview and Towne House were operated by the Wilson management group ("Wilson"). Wilson fell on dire financial straits. Criminal charges were pending against Wilson, and the closure of Krestview and two other nursing homes managed by Wilson was imminent. In an effort to avoid closure of the nursing homes, Respondent contacted Keller and asked if Keller would operate the nursing homes threatened with closure until a qualified operator could be located. A primary consideration underlying Respondent's request was the high mortality rate that could be expected if large numbers of elderly patients were relocated to other nursing homes.
B & K Investments, Inc. ("B & K") was a Florida corporation wholly owned by Suburban on May 5, 1977. B & K had a current registration, a federal tax number, and the qualified personnel required to operate the nursing homes. At tile request of Respondent, B & K became the licensed provider for Krestview and Towne House. The land, buildings, and equipment used to operate Krestview and Towne House were leased to B & K by Petitioner.
The lease to Wilson was terminated and new lease was executed by B & K and Petitioner. B & K agreed to a net lease containing substantially the same terms as the lease to Wilson. Under the terms of the net lease, the lessee in possession was required to pay all taxes and insurance premiums on real and personal property used in the operation of Krestview and Towne House.
B & K incurred expenses for legal fees in the successful defense of an action brought by a labor. The labor union brought the action to prevent B & K from taking over the operation of Krestview and Towne House unless B & K assumed the collective bargaining obligations of its predecessor. Local 1115 Joint Bd. Nursing Home v. B & K Investments, 436 F.Supp 1203 (S.D. Fla. 1977) [hereinafter, "Local 1115"].
An agreement was entered into between B & K and Respondent for the operation of the nursing homes by B & K. The agreement provided that B & K would have no liabilities for debts or obligations attributable to the prior period of operation by Wilson.
B & K paid the real property taxes for 1976 and the allocable portion of real property taxes for 1977 that were owed by Wilson for the prior period of operation. Respondent refused to reimburse B & K for those expenses even though the lease required a lessee in possession to pay property taxes and even thought
payment of such taxes was a practical necessity to prevent a tax sale and subsequent redemption of the tax certificate.
A formal hearing was conducted by Hearing Officer Ken Ayers to determine whether B & K should be reimbursed for the payment of real property taxes for 1976 and 1977. A Recommended Order in Division of Administrative Hearings Case No. 79-720 was entered on November 27, 1979. The Order recommended that B & K should not be reimbursed for real property taxes attributable to the prior period of operation by Wilson. The findings of fact and conclusions of law in the Recommended Order were adopted by Respondent in a Final Order entered on December 13, 1979, in Department of Health and Rehabilitative Services v. B & K Investments, Inc. d/b/a Krestview Nursing Home, and G & J Investments Corp., 2 F.A.L.R. 111-A (Fla. Dept. of Health and Rehabilitative Servs.) [hereinafter, "HRS v. B & K"].
B & K operated Krestview and Towne House from May 5, 1977, through August 31, 1977, while it was related by stock ownership to Petitioner. Medicaid rules prohibited the payment of rent by a provider to a landlord that was a related-party. B & K and Petitioner were related sibling corporations. The stock of the two corporations was owned by a common parent.
Respondent disallowed the reimbursement of expenses for rent paid to a related party, and & K requested a formal hearing. The issue was resolved in the same formal hearing that was conducted to resolve the issue of whether B & K should be reimbursed for payment of real property taxes owed by Wilson. In HRS
v. B & K, it was determined that. B & K should not be reimbursed for expenses incurred for rental payments to a related party.
All of the stock of B & K was sold to an unrelated party to eliminate any conflict with Medicaid rules. The B & K stock was sold to Crestwood Care Centers of Florida, Inc. ("Crestwood") in an arms-length transaction completed on August 31, 1977. Respondent executed a conditional provider agreement for the operation of Krestview on November 14, 1977. An unconditional provider agreement for the operation of Krestview was executed by Respondent on December 19, 1978. 4/ The provider agreements authorized the operation of the two facilities pursuant to a Medicaid plan developed by the state and approved by the federal government (the "Medicaid plan").
Respondent amended its Medicaid plan on October 1, 1977. The amended plan adopted a "prospective" method of reimbursement and repealed the "retrospective" method of reimbursement previously applied by Respondent. /5 The provider agreements executed by Respondent after it amended its Medicaid plan specifically authorized the retroactive method of reimbursement. /6
The relationship between B & K and Respondent became increasingly strained. A medicaid audit evaluation and review analyst for Respondent speculated that, ". . . the Ohio group would get out of the business in Florida.'
Respondent had complete control of B & K's sole source of cash flow for the operation of Krestview and Towne House. 7/ Respondent substantially affected B & K's cash flow by setting reimbursement rates inconsistently during 1978 and 1979, and by withholding Medicaid reimbursement payments of approximately $700,000 between July 1, 1979, and August 31, 1979. B & K sought protection in bankruptcy court in an emergency proceeding precipitated by Respondent.
B & K filed a petition in bankruptcy on August 3, 1979. The primary asset of B & K was the money allegedly due from Respondent for unreimbursed Medicaid expenses. The bankruptcy trustee determined that cost reports required by Respondent for reimbursement of such expenses should be submitted if they could be prepared. For numerous reasons, the cost reports required considerable time and effort to prepare. They were eventually filed on February 7, 1983, for review and audit by Respondent.
Respondent returned the cost reports submitted by Petitioner for the reasons stated in Respondent's letter dated March 25, 1983. First, Respondent alleged that the cost reports were filed after the end of the fiscal year of B &
K. Second, Respondent claimed that the cost reports could only be used to set a new rate for the month following the filing of the cost report. Third, a retroactive payment allegedly could not be made to a facility with costs exceeding annual payments. Finally, the cost reports allegedly had been subject to a final audit by Respondent and the provider or bankruptcy trustee failed to timely file its request for hearing after the final audits were issued.
The bankruptcy trustee desired to close the bankruptcy proceeding and assigned its interest in the claim for unpaid Medicaid reimbursements to Petitioner. Petitioner requested a formal hearing to contest Respondent's refusal to review and audit the cost reports.
A formal hearing was conducted by Hearing Officer Sharyn L. Smith on October 14, 1983, to determine whether Respondent should accept the cost reports for review and audit. The Recommended Order in Division of Administrative Hearings Case No. 83-1769 entered on February 6, 1984, recommended that Respondent should accept the cost reports for review and audit.
The findings of fact and overall recommendation of the Hearing Officer were adopted by Respondent in the Final Order in G & J Invs. Corp. v. Department of Health & Rehabilitative Servs., 6 F.A.L.R. 3788 (Fla. Dept. of Health & Rehabilitative Servs.), appeal dismissed, No. BA-57 (Fla. 1st DCA Nov. 5, 1984) [hereinafter "G & J v. HRS"]. The Final Order stated that all other conclusions of law were rejected. The parties in G & J v. HRS and in this proceeding are identical.
On August 22, 1984, all of the cost reports were submitted for review and audit by Respondent in accordance with the Final Order entered in G & J v. HRS. Three cost reports were submitted for Krestview for the fiscal years ending May 31, 1978, and May 31, 1979, and for the three month period ending August 31, 1979. Two cost reports were submitted for Towne House for the fiscal year ending May 31, 1979, and for the three month period ending August 31, 1979. The cost report submitted for the fiscal year ending May 31, 1978, replaced the cost report originally submitted for the same period.
Respondent reviewed and audited the cost reports for Krestview and Towne House, allowed a substantial portion of the claimed expenses, and made various adjustments and disallowances with regard to the remaining expenses (the "audit adjustments"). The reasons for the audit adjustments and the amount of the audit adjustments are set forth in the final audit reports prepared by Respondent. Audit reports for Krestview for the fiscal years ending May 31, 1978, and May 31, 1979, and for the three month period ending August 31, 1979, are referred hereinafter, respectively, as "EAR 5/31/78", "EAR 5/31/79", "EAR 8/31/79", Audit reports for Towne House for the fiscal year ending May 31, 1979, and for the three month period ending August 31, 1979, are referred to hereinafter, respectively, as "TAR 5/31/79" and "TAR 8/31/79".
Respondent disallowed expenses in the aggregate amount of $1,748,636. Petitioner claims that it has been underpaid in the aggregate amount of $528,879 after deduction for certain disallowances admitted by Petitioner prior to the formal hearing and after reduction for mandatory limits imposed on Medicaid expenses by applicable law. Respondent claims that an overpayment was made to B & K in the aggregate amount of $1,125,910.10 Respondent asserts the overpayment as a setoff against Petitioner's claim for underpayment in the amount of
$528,879.

5.02(a) Property Related Expenses
Property related expenses comprised the largest portion of total expenses disallowed in the amount of $1,748,636. Some property related expenses were disallowed for more than one reason.

5.02(a) (1) Section 1122
Property related expenses, including rent, taxes, interest, depreciation, and insurance, were disallowed `by Respondent in the aggregate amount of $962,426. 11/ One of the reasons for disallowing all property related expenses included the alleged use of federal funds for capital expenditures in violation of Section 1122 of Public Law 92-603 (1972) (referred to hereinafter as either "Section 1122" or the "Section 1122 issue"). Section 1122 generally prohibits the use of federal funds by Medicaid providers for capital expenditures in excess of $100,000 without the prior approval of the then Department of Health, Education and Welfare ("HEW"). /12
Property related expenses in the amount of $575,925 /13 were disallowed solely on the basis of the Section 1122 issue. Property related expenses in the amount of $386,501 were disallowed for reasons in addition to the Section 1122 issue. Resolution of the Section 1122 issue in favor of Respondent, therefore, would dispose of a substantial portion of the disallowances involving property related expenses but not all of those disallowances.

5.02(a) (2) Other Disallowances
Property related expenses in the amount of $386,501 were disallowed for reasons in addition to the Section 1122 issue. Respondent disallowed
$202,680 for the additional reason that there was no actual payment of the individual items comprising that amount. /14 Expenses in the amount of
$111,344 were disallowed as payments to a related party. /15
Respondent disallowed expenses in the amount of $42,029 because they were allegedly attributable to a "prior period". /16 The disallowance of this amount is a single entry in KAR 5/31/78. The period prior to the period covered by KAR 5/31/78 was the period of operation by Wilson. The "prior period" in EAR 5/31/78, therefore, refers to the period of operation by the previous provider.
Finally, property related expenses in the amount of $30,448 were disallowed as insufficiently documented. /17 Property related expenses that were disallowed for insufficient documentation comprise only a portion of the total expenses disallowed as insufficiently documented. Expenses unrelated to property were also disallowed as insufficiently documented.
5.02(b) Expenses Unrelated To Property
Disallowances in the amount of $786,210 involve expenses unrelated to property. Expenses unrelated to property were disallowed either for lack of documentation or for other reasons.

5.02(b) (1) Documentation
Expenses unrelated to property were disallowed in the amount of
$445,479 on the grounds that they were insufficiently documented. Respondent claims that documentation of expenses in the amount of $274,081 was insufficient with respect to the expenses, their relationship to patient are, or both. /18 Other expenses unrelated to property which were disallowed as insufficiently documented included accrued employee expenses in the amount of $99,163, /19 the allocation of expenses from the home office to the provider in Florida in the amount of /20 $25,311, and various other expenses in the aggregate amount of
$46,924. When the amount of property related expenses and expenses unrelated to property are taken into account, expenses in the aggregate amount of $475,927 were disallowed for insufficient documentation.

5.02(b) (2) Other Disallowances
Expenses unrelated to property were disallowed in the amount of
$340,731 for reasons other than the lack of documentation. The reasons given in the audit reports for such disallowances were varied.
Expenses in the amount of $51,310 were disallowed as either not accrued, accrued but not paid, or both. 21 When property related expenses and expenses unrelated to property are taken into account, expenses in the amount of
$253,990 were disallowed as either not accrued, accrued but not paid, or both.
/ 22
Expenses in the amount of $34,456 were disallowed as attributable to the previous "owner" of Krestview and Towne House. /23 However, ownership of the physical assets required to operate Krestview and Towne House, including the land, buildings, and equipment was never transferred from Petitioner. Nor was the stock of Petitioner ever transferred from its parent. The reference in the audit reports to the previous "owner" of Krestview and Towne House, therefore, is construed to mean the previous provider who used the land, buildings, and equipment owned by Petitioner to operate Krestview and Towne House, i.e., Wilson.
Legal fees in the amount of $26,804 were disallowed by Respondent as not related to patient /24 Respondent claims that the legal fees were incurred by the provider in connection with a union matter in which the provider was found to be in violation of the National Labor Relations Act.
Expenses disallowed in the amount of $42,079 were attributed by Respondent to adjustments to the providers return on equity. /25 Disallowances to adjust the provider's return on equity were made as a result of disallowances based on the Section 1122 issue.
Respondent disallowed expenses allocated from the provider's home office in the amount of $67,575 as non-reimbursable even though such expenses were sufficiently documented. /26 Expenses claimed by Krestview in the amount
of $37,994 were disallowed as related to Towne House but not otherwise allowable ("allocations between facilities") /27
Expenses in the amount of $34,607 were disallowed as already paid, covered by another program, a previously entered expense, or attributable to a prior period ("already paid or covered by another program") 23 Expenses unrelated to property were disallowed in audit reports other than KAR 5/31/78 as attributable to a "prior period." The periods preceding audit reports subsequent to EAR 5/31/78 do not necessarily include either the period prior to the transfer of operations to B & K or the period prior to the transfer of B & K stock to an unrelated party. The meaning of the reference in the subsequent audit reports to a "prior period," therefore, is ambiguous and is an issue that Petitioner is required to prove.
Expenses in the amount of $22,046 were disallowed for the purpose of making adjustments in the cost. /29 Expenses in the amount of $5,446 were disallowed as either personal or imprudent. /30 Expenses in the amount of
$3,265 were disallowed as related to depreciation or improvements to /31 property. The audit reports do not state whether the property improved or the property subject to depreciation is real property or personal property. That is an issue Petitioner is required to prove. Expenses in the amount of $5,968 were disallowed as unrelated to the business of the provider. /32 Finally, expenses in the amount of $9,181 were disallowed to offset other income of the provider.
/33
Adjustments to expenses in the amount of $204,785 were allowed but reclassified to different cost centers. /34 Those adjustments are not at issue in this proceeding.

5.02(c) Limitation Of Amounts At Issue
Petitioner claims that it has been underpaid in the net amount of
$528,879. The net amount of underpayment claimed by Petitioner represents the amount of underpayment after total expenses disallowed by Respondent in the amount of $1,748,636 are reduced by the amount of disallowances admitted by Petitioner and by the amount of mandatory limits on Medicaid expenses.
Petitioner's failure to address certain issues during the formal hearing further limited the issues and the amounts of the issues to be determined in this Recommended Order.

5.02(c) (1) Disallowances Admitted By Petitioner
Petitioner admitted prior to and during the formal hearing that Respondent properly disallowed expenses in the aggregate amount of $304,305.34. Disallowances admitted by Petitioner are comprised of expenses disallowed for insufficient documentation in the amount of $131,168.34, and other expenses disallowed in the aggregate amount of $173,137.
Other expenses in the amount of $173,137 involve both property related expenses and expenses unrelated to property. Petitioner admitted that property related expenses in the amount of $111,344 were properly disallowed as payments to a related party and that expenses in the amount of $42,029 were properly disallowed as attributable to a prior period. Petitioner admitted that expenses unrelated to property in the amount of $19,764 were properly disallowed. /35
5.02(c) (2) Mandatory Limitations On Medicaid Expenses
The net amount of underpayment claimed by Petitioner was determined after reductions for mandatory limits on Medicaid expenses. The actual gross amount of underpayment claimed by Petitioner is $698,875. Petitioner admits, however, that the gross amount of underpayment should be reduced by $169,996 as a result of "ceilings" or "caps" imposed by applicable statutes and rules. The net amount of underpayment claimed by Petitioner after reduction for such mandatory limits on Medicaid expenses is $528,879.

5.02(c) (3) Pretermitted Issues
The issues to be determined in this Recommended Order and the amounts of those issues are limited to issues which satisfy two conjunctive tests. First, the issues must not have been admitted prior to the formal hearing. Second, the issues must have been addressed by Petitioner during the formal hearing. Issues not addressed by Petitioner during the formal hearing need not be determined on their merits but may be determined summarily as a threshold matter ("pretermitted issues") /36
Petitioner admitted prior to the formal hearing that disallowances in the amount of $304,305.34 were proper. Disallowances in the amount of
$1,444,330.66 were not admitted prior to the formal hearing and formed the basis for the underpayment claimed by Petitioner in gross and net amounts of $698,875 and $528,879. /37
Pretermitted issues involved only expenses unrelated to property disallowed in the aggregate amount of $81,405.66. The aggregate amount of pretermitted issues is comprised of the following individual amounts and disallowances: (a) $14,692 disallowed as attributable to the previous owner;
/38 (b) $20,807.66 disallowed as already paid or covered by another /39 program; (c) $22,046 disallowed as adjustments to cost reports; (d) $5,446 disallowed as personal or imprudent; (e) $3,265 disallowed as depreciation and improvements; (f) $5,968 disallowed as unrelated to the business of the provider,; and (g) $9,181 disallowed as an offset against other income.

5.02(d) Expenses At Issue
The issues remaining to be determined in this Recommended Order involve both property related expenses and expenses unrelated to property in the aggregate amount of $1,362,925. That amount is comprised of the following individual amounts and disallowances (the "expenses at issue"): (a) property related expenses and expenses unrelated to property disallowed in the amount of
$344,758.66 as insufficiently documented; (b) expenses unrelated to property disallowed in the amount of $67,575 as improper allocations from the home office; (c) expenses unrelated to property disallowed in the amount of $37,994 as improper allocations between facilities; (d) expenses unrelated to property which were disallowed in the amount of $13,799.34 as already paid or covered by another program; /40 (e) legal fees unrelated to property disallowed in the amount of $26,804; (f) property related expenses disallowed in the amount of
$575,925 solely on the basis of Section 1122; (g) expenses unrelated to property disallowed in the amount of $42,079 as adjustments to return on equity; and (h) property related expenses and expenses unrelated to property disallowed in the amount of $253,990 as either not accrued, accrued but not paid, or both.
B & K filed a petition in bankruptcy on August 3, 1979, in the United States District Court for the Southern District of Florida, Bankruptcy No. 79- 925-BK-JE-B (the "bankruptcy proceeding"). The bankruptcy proceeding was conducted pursuant to Chapter 7 of the Bankruptcy Code of 1978 (the "Bankruptcy Code") /41 A Discharge of Bankrupt was entered on November 15, 1979. A final decree closing the bankruptcy file was entered on August 26, 1987.

5.03(a) The Bankrupt Estate
Claims against the bankrupt estate included claims filed by Respondent and Petitioner. Respondent filed proof of claim in the amount of
$1,179,278.51. Petitioner filed a proof of claim for administrative expenses in the amount of $35,000, a priority claim for unpaid rent in the amount of
$105,000, and a non-priority claim for unpaid rent in the amount of $292,750.65. No objection was made to any of the unsecured claims. Funds in the bankrupt estate were sufficient to pay only priority claims.
The bankrupt estate included two assets. One asset consisted of the bankrupt's interest in two nursing homes that housed approximately 320 Medicaid patients i.e., Krestview and Towne House. The other asset consisted of the bankrupt's claim for monies due and owing from Respondent for the underpayment of Medicaid reimbursement payments..
All right, title, and interest of B & K in the assets of the estate passed to the bankruptcy trustee when the petition in bankruptcy was filed. The claim against Respondent for unreimbursed Medicaid expenses became the property of the estate. B & K ceased to be the real party in interest for purposes of enforcing the claim against Respondent. The bankruptcy trustee had the duty of enforcing B & K's claim against Respondent. /42
The bankrupt's interest in Krestview and Towne House was abandoned by Order of Abandonment entered by the bankruptcy court on August 31, 1979. The trustee was relieved of all further responsibilities for the custody and operation of both nursing homes.
The claim for monies due from Respondent was retained as the sole asset of the bankrupt estate. The amount of that claim required approximately three years to document and determine.

5.03(b) Preparation Of Cost Reports
The bankruptcy trustee determined that cost reports required by Respondent for Krestview and Towne House should be submitted if they could be prepared. The bankruptcy trustee was unable to make sense of the books and records of the bankrupt to the point where the trustee felt she could make a claim for monies due from Respondent. B & K was unable to pay its accountant to prepare the cost reports required by Respondent.
The bankruptcy trustee recommended to the court that the cost reports should be prepared on a contingency fee basis by Nursing Home Consultants, Inc. ("Consultants"). Consultants is an Ohio corporation engaged in the business of providing accounting services to health care organizations and a wholly owned subsidiary of Suburban. /43
The proposal to have Consultants prepare. the cost reports on a contingent basis was accepted by the bankruptcy court. An order appointing Consultants to prepare the cost reports was entered on January 11, 1980. Faced with court action, B & K's accountant eventually relinquished his work papers in December, 1980. In the words of the bankruptcy court, ". . . this pile of books
. . ." was turned over to Consultants ". . . to audit the books and file the claims and press the claims."
Preparation of the cost reports required by Respondent was a long and arduous task. It required checks to be matched to invoices and patient records to be verified. The first cost report was completed by Consultants in July, 1981, forwarded to the bankruptcy trustee, and filed with Respondent. Respondent returned the cost report to Consultants because the signatory of the cost report was not a certified public accountant in Ohio. Consultants obtained the required signature and returned the cost report to Respondent.

5.03(c) Assignment To Petitioner
All of the cost reports had not been completed in July, 1982. Both the bankruptcy trustee and the bankruptcy judge desired to close the bankruptcy estate and ascertain what, if any, assets were available. Petitioner offered to purchase the interest of the bankruptcy trustee in the claim of the bankrupt against Respondent for unreimbursed Medicaid expenses. Petitioner's offer was accepted by the trustee and ratified and approved by the bankruptcy court on September 24, 1982.

5.03(c)(1) Consideration Paid
The consideration paid by Petitioner to acquire the interest of the bankruptcy trustee included both cash and non-cash elements. Petitioner paid
$5,000 in cash and agreed not to exercise its legal right to take action in the bankruptcy proceeding to recover priority claims for unpaid rent in the amount of $105,000 and administrative expenses in the amount of $35,000. Petitioner also agreed not to exercise its legal right to take action in the bankruptcy proceeding to recover the non-priority claim for unpaid rent in the amount of
$292,750.65. Petitioner's offer was approved by the bankruptcy court, and Petitioner's claims were stricken by Order On Objections To Claims entered on March 11, 1983.

5.03(c) (2) Asset Acquired
The asset acquired by Petitioner is reflected in the five cost reports submitted for review and audit by Respondent. Petitioner's written offer to the bankruptcy trustee stated that:

the cost reports, and figures
extrapolated therefrom, reflect an `asset' of the bankrupt in the form of monies dub and owing from the State of Florida.
The bankruptcy trustee filed a Motion For Rule To Show Cause on or before August 25, 1982 (the "Motion"). The Motion requested the bankruptcy court to enter an order to show cause why the offer by Petitioner should not be accepted by the bankruptcy trustee. The Motion expressly incorporated by reference the terms of Petitioner's written offer and made the written offer part of the Motion.
The Motion was approved by the bankruptcy court by Order On Rule To Show Cause entered on September 24, 1982. The Order On Rule To Show Cause expressly incorporated the terms of Petitioner's written offer attached to the Motion. The Order On Rule To Show Cause, in relevant part, provides:

That the offer made by [Petitioner], a copy of said offer more specifically detailed and attached to the Trustee's . . . Motion, be and the same is hereby ratified and approved.
5.03(c)(3) Respondent And The Bankruptcy Court
Respondent appeared at a hearing conducted on September 23, 1982, to determine whether Petitioner's offer should be accepted. Respondent's objection to the assignment was specifically denied, and Respondent did not appeal the order approving the assignment.
The transcript of the hearing reveals that Respondent urged the bankruptcy court to retain the claim for the benefit of all creditors. The bankruptcy court noted that the only asset of the bankrupt was the claim for unreimbursed Medicaid payments. In an exchange between counsel for Respondent and the court, the court said:

a claim is a puff of wind until it is translated by a capable attorney into proof and argument, against a solvent Defendant, to the point where it becomes money. .
The [Petitioner] has . . . an administrative claim . . . for some $35,000, and . . . a priority rent claim of $105,000. /44
[The Petitioner] is willing to cancel those two and also pay $5,000 to the estate. In other words, the estate has a $145,000 bird in the hand.
You urge me to tell this trustee to let that bird fly away and attempt, perhaps for the next two years, to see if this trustee can get anything on these accounts You
give me a very hard choice. /45

The hard choice presented by Respondent in that case was rejected by the bankruptcy court.

5.03(d) Continued Preparation Of Cost Reports
After the first cost reports were submitted to Respondent, Respondent notified Consultants that the cost reports were not in acceptable form and that additional information would be required, including balance sheets and revenues for Crestwood. Consultants began again to gather the additional information requested by Respondent.
Petitioner filed cost reports containing the additional information on February 7, 1983. Respondent declined to accept the cost reports for review and audit. An administrative proceeding was conducted to determine whether Respondent should accept the cost reports. Respondent agreed to accept the cost reports in G & J v. HRS.
The cost reports claimed an underpayment in the gross amount of
$745,037 and an underpayment in the net amount of $359,229, after taking into account applicable ceilings on allowable expenses. Neither the gross nor the net amounts of the claimed underpayment included the cost report for Krestview for the fiscal year ending on May 31, 1978. Petitioner prepared a revised cost report to replace the original cost report submitted by B & K on November 1, 1978. /46
Petitioner sufficiently documented expenses disallowed by Respondent in the aggregate amount of $344,758.66. Documented expenses consisted of those disallowed in the amount of $25,990.66 in KAR 5/31/78, $140,329 in KAR 5/31/79,
$128,006 in KAR 8/31/79, $26,330 in TAR 5/31/79, and $24,103 in TAR /47
8/31/79. Petitioner documented the amount of the expense, its relation to patient care, and the record of payments from Respondent /48

5.04(a) Amount Of The Expense
Petitioner documented the amount of the disallowed expenses with records that included either original invoices, cancelled checks, or both. The records also included supporting information such as delivery receipts and receiving reports signed by employees of Krestview and Towne House. The delivery receipts and receiving reports showed that goods and services issue in this proceeding were received. The delivery receipt also contained the number of the cancelled check used to pay for the goods or services delivered. The cancel led check was verified against paid invoices. Many invoices were not located at the time the records were reviewed by field auditors because they were misfiled or filed in accordance with an unknown filing system.
The records were voluminous and filled approximately 50 boxes. The records included books of original entry, original invoices, cancelled checks, personnel records, payroll records, payroll journals, pay claim listings, and other supporting documentation from which costs of operation were determined.
The records originally obtained from the bankruptcy trustee were in such a state that Consultants had to completely reconstruct the operation of Krestview and Towne House. The records were first sorted into logical groups. Then cash accounts were reconciled to each account for each reporting period covered in each cost report. Each check was listed by number, amount, identity of vendor, and category.
Consultants contacted the suppliers and purveyors for each facility to review their records for the years in question. Information was also obtained from federal, state, and county agencies, including the Medicare/Medicaid intermediary. The information obtained from government agencies included: computer printouts of reimbursement checks, vendor payment checks, and patient activity records from Respondent; all invoices from the Dade County Department of Human Resources, Health Services Division; and B & K's banking records.
The records and the cost reports prepared from those records were reviewed and tested by certified public accountants in accordance with generally accepted auditing standards ("GAAS"). The examination included tests of the accounting records and other auditing procedures considered necessary under the circumstances. /49
Petitioner is the custodian of the records used to document the expenses claimed in the cost reports pursuant to the order of the bankruptcy court. The records were delivered to Mrs. Ruth Eldridge at Consultants by the CPA for B & K pursuant to the order of the bankruptcy court. Mrs. Eldridge has over 30 years of experience in the health care industry and has prepared hundreds of cost reports for various nursing homes subject to Medicaid and Medicare requirements. Mrs. Eldridge was personally responsible for preparing and verifying the records and cost reports. Her testimony at the formal hearing was credible and persuasive.

5.04(b) Relation To Patient Care
Disallowed expenses documented by Petitioner were related to patient care. The expenses were reasonable in amount and in line with amounts paid by other providers in the same geographic area. The goods and services purchased were of the same kind and character as that provided to other providers in the same geographic area.
The population of patients in Krestview and Towne House was monitored by daily census records taken by nurses at each nursing station within each facility. The names of patients appearing on the daily census reports corresponded to names of patients appearing on the nurses daily activity reports. The expenses listed in the five cost reports correlated to the patient days listed in the record of payments from Respondent.

5.04(c) Payment
Petitioner sufficiently documented the record of payments from Respondent to B & K. Respondent withheld all payments to B & K from July 1, 1979, through August 31, 1979. Respondent withheld payments in the approximate aggregate amount of $700,000.
Petitioner documented the record of payment with the paid claim listing provided to Petitioner by Respondent's agent. Respondent entered into a contract with Systems Development Corporation of Tallahassee, Florida ("SDC") to process Medicaid claims and issue reimbursement checks to providers. Pursuant to that contract, SDC maintained a paid claim listing and backup documentation for reimbursement payments made to providers.
The paid claim listing is a computer printout containing the names of each individual Medicaid recipient in Krestview and Towne House for the periods at issue in this proceeding. In addition to the name of each Medicaid patient, the paid claim listing shows the identification number of each patient, the months that each patient was in the facility, the date of service rendered by month, the amount of payment from other sources, including patient contributions, and the net amount remitted by Respondent. Paid claim listings were audited by Respondent each month.
Petitioner was directed by Respondent to obtain the paid claim listing from SDC for the purpose of determining the record of payments made by Respondent to B & K. When Petitioner asked Respondent how to obtain information evidencing such payments, Respondent instructed Petitioner to contact SDC. Mrs. Eldridge wrote to SDC asking for a paid claim listing. SDC responded by mailing a computer printout to Mrs. Eldridge containing the paid claim listings for Krestview and Towne House.
Paid claim listings were audited by Respondent to assure that rates established by Respondent were properly input by SDC into the computer system. The reimbursement rate for B & K was adjusted downward by Respondent effective June 19, 1979. While the paid claim listing shows that the rate adjustment was never implemented, it also shows that no payments were made to B & K after June 30, 1979.
Expenses in the amount of $67,575 were properly allocated from the home office. The method of allocation was reasonable and sufficiently documented.
Expenses incurred by Krestview and Towne House for services provided to each facility by the home office were allocated based upon the number of patient days for each facility. Allocating expenses based upon the number of patient days is the generally accepted method used for allocating expenses in cost reports when more than one facility is operated by the same home office and services are rendered to both facilities.
Expenses in the amount of $37,994 were allocated between Krestview and Towne House. The method of allocating expenses between facilities was reasonable and sufficiently documented. The expenses were allocated between facilities based upon a case-by-case determination of which individual expense was actually incurred by each facility. Expenses incurred by one facility but paid by a check from the other facility were allocated to the facility that incurred the expense. All of the expenses allocated between facilities were related to patient care.
Expenses in the amount of $13,799.34 were proper expenses and were not already paid or paid under alternative programs. These expenses included pharmaceutical and nursing home supplies actually purchased by Krestview and Towne House. The expenses were disallowed because another program generally paid for that type of expense. The amount of expenses paid by other programs, however, was limited. The excess of the actual expense over that paid by the other program was a proper expense incurred by the facility. If the amount of prescription order by the physician, for example, exceeded the amount paid by the alternative program or if the amount of the supplies needed by the facility exceeded the maximum paid by the alternative program, then the facility had to pay the difference. The amount of the difference ended up as an actual expense of each nursing home
Legal fees in the amount of $26,804 are allowable expenses. They are reasonable expenses incurred as a precondition for the delivery of health services. The legal fees were not incurred in violation of the National Labor Relations Act. Local 1115.
The legal fees were incurred in connection with activities related to collective bargaining, contract negotiations, and procedures which flow from enforcement of the terms of a collective bargaining contract either in a
collective or individual setting. The legal fees were necessary to maintain operations by the provider and were a precondition of the delivery of health services.
The legal fees at issue were incurred by the provider in connection with activities related to the enforcement of the terms of a collective bargaining contract. A labor union attempted to prevent the transfer of management operations to B & K unless B & K agreed to assume the obligations of the collective bargaining agreement between the union and B & K's transferor. The labor union's attempt resulted in litigation in federal district court. Local 1115.
The court specifically found that the case began as an attempt by the labor union to prevent the transfer of the management operation of Krestview and Towne House unless the transferee agreed to assume the obligations of the collective bargaining agreement between the labor union and the transferor. The court did not find that B & K was in violation of the National Labor Relations Act.
Respondent improperly characterized a portion of the legal fees as organizational or start-up costs associated with the transfer of ownership to B & K. Respondent improperly required the legal fees to be capitalized and amortized rather than currently deductible.
Property related expenses in the aggregate amount of $809,053 /50
are ordinary expenses which are properly allowable as current deductions against ordinary income. They are related to patient care and are reimbursable Medicaid expenses.
Respondent's determination that the expenses at issue were capital expenditures was incorrect and was made in a procedurally deficient manner. The expenses at issue are not capital expenditures that must be capitalized and either amortized or depreciated over time. Respondent's determination that such expenses were capital expenditures failed to comply with applicable federal and state requirements for making determinations, findings, and recommendations upon which the federal government made the decision to deny reimbursement of expenses on the basis of the Section 1122 issue.

5.09(a) Unauthorized Review Of Leases
Federal law enacted in 1975 required states to have either a program for granting or denying certificates of need ("CON") or a program that required prior approval for capital expenditures in excess of $100,000 in accordance with Section 1122. The certificate of need program was purely a state program. The Section 1122 program was a federal program administered by states pursuant to contract between the state and federal governments. States were authorized under the federal legislation to establish and administer both a CON program and a Section 1122 program.
HEW had exclusive authority to determine. whether a capital expenditure had occurred without prior approval, whether to impose sanctions, and what sanctions to impose, if any. The HEW determination was based on findings and recommendations of the state agency administering the plan. The state agency was required to give the provider an opportunity for a fair hearing before presenting findings and recommendations to HEW.
Both types of programs were established and administered in Florida by Respondent until sometime in June, 1978. The Office of Community Medical Facilities was the office responsible for administering the Section 1122 program for Respondent. In June, 1978, the contract under which Respondent administered the Section 1122 program for HEW expired.
The contract under which Respondent administered the Section 1122 program expired prior to the time any action was taken by Respondent in connection with B & K and Section 1122. Respondent first requested that it be permitted to review the two leases for Krestview and Towne House pursuant to Section 1122 on March 2, 1979. Respondent's request was made to B & K approximately eight months after Respondent's contract to administer the federal program expired.
Respondent's Office of Community Medical Facilities notified the president of B & K by separate letters dated March 2, 1979, that a "capital expenditure" in the form of the leases for Krestview and Towne House had "occurred." The separate letters stated that the lease agreements had not been reviewed ". . . as required by Section 1122, P.L. 92-603. Acting as the Designated Planning Agency (DPA) in the Section 1122 review program . . .," Respondent offered to ". . . review the . . . capital expenditure[s] under the Section 1122 program for conformity with standards, plans and criteria."
Respondent had no contractual authority on March 2, 1979, to conduct a review of the leases for Krestview and Towne House on behalf of the federal government. Even if Respondent had authority to review the leases, that authority was limited to a review of the leases for the purpose of determining whether lease payments made from May 5, 1977, until sometime in June, 1978, constituted capital expenditures. Respondent withheld reimbursement of all Medicaid expenses after June 30, 1979, in an effort to recoup all lease payments irrespective of when they were made.

5.09(b) Previous Authorized Review Of Leases
The two leases for the operation of Krestview and Towne House were net leases entered into between B & K and Petitioner on May 5, 1977. HRS v. B &
K. The terms of the net leases required the lessee to pay property related expenses including taxes and insurance on real and personal property. Id. The leases contained substantially the same terms and conditions as those by which the previous provider had operated the two facilities prior to the time B & K assumed operations at the request of Respondent. Id.
The two leases for Krestview and Towne House were included in a review by Respondent's Office of Community Medical Facilities in 1978, prior to the expiration of the contract to administer the Section 1122 program. The purpose of tile review was to determine if there was ". . . a purchase made of the nursing facilities. . . " and if there was ". . . any action to be taken under Section 1122, Public Law 92-603. See Joint Exhibit 27.
Respondent's review focused on transactions between B & K and its parent company and the stock purchase agreement between B & K's parent and Petitioner as the transferor of the stock. The stock purchase agreement expressly incorporated the two leases between B & K and Petitioner. On April 11, 1978, Respondent's Office of Community Medical Facilities notified the president of B & K that the ". . stock transfer . . . is not reviewable . . .
under Section 1122, . . . as it will have no effect on depreciation, interest or fair return on investment for reimbursement purposes." See Joint Exhibit 28.

5.09(c) No Capital Expenditure Occurred
Lease payments made by B & K to Petitioner for use of the Krestview and Towne House facilities did not constitute capital expenditures within the meaning of Section 1122. The lease payments were properly chargeable as a currently deductible expense of operation and maintenance based on GAAP.
Lease payments could be treated as capital expenditures if lease payments were made pursuant to a transaction which was cast in the form of a lease but which in substance was an installment sale (a "virtual purchase"). A lease could be recharacterized as a virtual purchase if the lease payments exceeded the fair rental value in the geographic area, the term of the lease was less than the useful life of the facility, and the provider had either an option to renew the lease at a significantly reduced rental rate or an option to purchase at a price significantly less than the fair market value of the facility.
The terms of the two leases for Krestview and Towne House did not satisfy any one of the requirements of a virtual purchase. The lease payments individually and in the aggregate did not exceed fair rental value for the geographic area. The terms of the leases did not exceed the useful life of the facilities. The terms of the leases included neither an option to renew at a rental rate significantly less than the fair rental value nor an option to purchase at a price significantly less than the fair market value of the facilities. There is nothing in either of the two leases to suggest that the agreements were anything but a straight lease or that the payments were anything but bona fide lease payments.
Respondent's determination in 1978 that the rental rate for Krestview and Towne House exceeded the fair rental value of the two facilities was dismissed by Respondent prior' to a formal hearing in 1979. HRS v. B & K at 2. A desk review by Respondent's Office of Audit Service disallowed an increase in rent on May 31, 1976, prior to the time B & K began operations of the two facilities. Respondent's field audit allowed the rental increase. Petitioner requested a formal hearing to determine ". . . `an appropriate and acceptable rental amount'. . ." Respondent's Office of Audit Service received a copy of each of the leases for the two facilities on February 19, 1979. The issue of the whether the rental rate was reasonable was dismissed prior to the formal hearing. Id.

5.09(d) Agency Determinations, Findings, And Recommendation
Respondent determined the substantial interests of B & K in two separate determinations. First, Respondent made a threshold determination that a "capital expenditure" had occurred in the form of lease payments made under two leases far Krestview and Towne House. Second, Respondent determined that B & K failed to submit a proposal for review of a "capital expenditure." Both of Respondent's determinations constituted findings without an opportunity for a fair hearing in violation of state and federal law. Based upon those findings, Respondent submitted recommendations to HEW that led to the exclusion of amounts attributable to such "capital expenditures" in determining Medicaid reimbursement payments to B & K.
5.09(d) (1) Determinations
Respondent's first determination of B & K's substantial interests took the form of separate "implicit" determinations made on March 2, 1979. /51 Respondent's Office of Community Medical Facilities stated in separate letters to B & K dated March 2, 1979, that correspondence had been received from Respondent's Office of Audit Service ". . . indicating that a capital expenditure . . . [had] occurred . . . ." See Joint Exhibit 20 (emphasis added). In the next paragraph, Respondent offered ". . . to review the above mentioned capital expenditure under the Section 1122 program . . . ." (emphasis added) The next paragraph advised B & K that it had only 30 days to initiate a request for review . . ." of the capital expenditure or risk the withholding of payments
Respondent explicitly determined on April 10, 1979, that a "capital expenditure" had occurred in the form of lease payments for Krestview and Towne House. On April 10, 1979, Respondent's Office of Community Medical Facilities stated in a letter to counsel for Petitioner that ". . . it is the determination of [Respondent] and this office that the lease transactions were a capital expenditure and subject to review under Section 1122 of P.L. 92-603." See Joint Exhibit~22.
Respondent's second determination of B & K's substantial interests took the form of separate written determinations on May 15 and 16, 1979, that B & K had failed to submit a proposal for review of a capital expenditure. On May
15 and 16, 1979, Respondent's Office of Community Medical Facilities made numerous findings in written correspondence to HEW. Respondent found, in relevant part, that B & K had undertaken action under Section 1122 involving the acquisition of two nursing homes at an aggregate cost of $8,300,000 without submitting a proposal for review of such costs.

5.09(d) (2) Findings And Recommendations
Respondent's determinations that a "capital expenditure" had occurred and that B & K had not submitted a proposal for review of such "capital expenditures" constituted findings under applicable federal law. HEW notified the president of B & K on May 25, 1979, that HEW had ". . reviewed the findings and recommendations of [Respondent] with respect to the proposed capital expenditure [of $8,300,000] . . ." (emphasis added). See Respondent's Exhibit 6.
Respondent recommended to the federal government that amounts attributable to "capital expenditures" be excluded in determining Medicaid reimbursement payments to B & K. On May 15 and 16, 1979, Respondent's Office of Community Medical Facilities recommended to the appropriate office of HEW that "
. . . amounts attributable to this capital expenditure be excluded in determining payments to the proponent under Titles V, XVIII and XIX of the Social Security Act for services furnished." See Joint Exhibits 23 and 24, Part IV, D, of attached Record Of State And Local Action Under Section 1122 Of The Social Security Act. The letter of transmittal from Respondent to HEW represented that the correspondence contained Respondent's "recommendation."
The findings and recommendations made by Respondent to HEW formed the basis for HEW's decision to withhold reimbursements for capital expenditures.
On May 25, 1979, HEW notified Respondent that HEW had ". . . reviewed the bindings and recommendations of [Respondent] with respect to the proposed
capital expenditure [of $8,300,000] . . . ." Based upon Respondent's findings and recommendations, HEW determined that reimbursement would be indefinitely withheld for the "capital expenditure."

5.09(e) Procedural Defects
Respondent determined the substantial interests of B & K without giving B & K an opportunity for a fair hearing. Respondent's notice to B & K on March 2, 1979, did not clearly state that a determination had been made of the occurrence of a capital expenditure. That determination was only "implied" /52 Respondent did not explicitly state that a determination had been made of the occurrence of a capital expenditure until Respondent made that disclosure in its letter to counsel for Petitioner on April 10, 1979. That disclosure, however, was addressed by Respondent to counsel for Petitioner and was not addressed to B & K. Neither notice included a statement of B & K's appeal rights with respect to either Respondent's "implicit" or explicit determinations that a "capital expenditure" had occurred.

5.09(e)(1) Determinations That Capital Expenditure Had Occurred
Respondent's notice to B & K on March 2, 1979, failed to disclose B & K's appeal rights concerning Respondent's "implicit" determination that a "capital expenditure" had occurred. Respondent's notice offered to ". . review the . capital expenditure . . . . [,] stated that B & K had 36 days to " . . . initiate a request for review [of the capital expenditure] in compliance with DHRS Rule 10-5 . [,]" and further stated that failure to ". . . initiate such a request for review leaves no basis for a finding of conformity and may be grounds for indefinite withholding of Medicare/Medicaid reimbursements by DHEW." The copies of administrative rules attached to the notice on March 2, 1979, addressed neither B & K's rights to appeal Respondent's implicit determination that a capital expenditure had occurred nor the procedures for such appeals.
See Joint Exhibit 20.
The notice to counsel for Petitioner on April 10, 1979, of Respondent's explicit determination that a "capital expenditure" had occurred contained no statement of appeal rights available to B & K. The notice merely stated that Respondent had determined that the lease payments ". . . were capital expenditures . . ." and referred counsel for Petitioner to state and federal laws relied upon by Respondent for its determination.

5.09(e) (2) Determination Of Failure To Submit Proposal For Review Of A Capital Expenditure
The first written notice of Respondent's determination that B & K had failed to submit a proposal for review of a capital expenditure was given to B & K in the form of copies of Respondent's written correspondence to the federal government. That written notice was received by B & K after Respondent mailed its findings and recommendations to HEW. The notice of determination failed to inform B & K of any appeal rights concerning Respondent's determination of B & K's substantial interests. The notice of determination also made findings and recommendations relied upon by HEW without- first giving B & K an opportunity for a fair hearing.
B & K was not given 30 days to request a formal hearing. The notices of March 2, 1979, were received ) by B & K on March 21, 1979. The time to submit a proposal for review of a "capital expenditure" expired on or about April 21, 1979. April 22, 1979, was the first day that Respondent could have
determined that B & K had not timely filed a proposal for review of a "capital expenditure." There is no evidence in the record that Respondent made such a determination on April 22, 1979.
Even if Respondent determined in free form agency action conducted on April 22, 1979, that a proposal for review of a "capital expenditure" had not been timely filed, B & K would have had 30 days under applicable federal regulations, or until May 22, 1979, to request a formal hearing concerning Respondent's determination. Respondent, however, notified the federal government on May 15 and 16, 1979, that Respondent had determined that no proposal for review of a "capital expenditure" had been timely filed. Respondent's notice to the federal government was dated approximately six to seven days prior to the last day of the 30 day period in which B & K was entitled to request a formal hearing.
May 15, 1979, was the first day that the failure to timely file a proposal for review of a capital expenditure could have been determined by Respondent in any manner other than free form agency action. May 15 and 16, 1979, were the dates of Respondent's written notices to the federal government that no proposal for review of a capital expenditure had been filed. The notices of Respondent's determinations were also mailed to B & K on May IS and 16, 1979. The last days to request a formal hearing concerning Respondent's determinations were Jane 15 and 16, 1979. A formal hearing was requested by counsel for Petitioner on May 29, 1979.
The request for a formal hearing from counsel for Petitioner was sufficient to put Respondent on notice that its proposed agency action was being contested. In any event, the issue of who requested the formal hearing and his or her authority to represent B & K is a moot point. The federal government instructed Respondent to withhold Medicaid reimbursements for capital expenditures before the request for formal hearing could be made. On May 21, 1979, the federal government received Respondent's notices of May 15 and 16, 1979. On May 25, 1979, HEW notified Respondent that HEW had determined that B & K failed to submit a review for proposal and that reimbursement would be indefinitely withheld for the `capital expenditure [of $8,300,000] . . . ." See Respondent's Exhibit 6. /53
Even if a point of entry had been provided to B & K, it was not a clear point of entry. The point of entry provided to B & K on March 2, 1979, was a 30 day window of time to submit an application for review of a "capital expenditure." Respondent never informed B & K of its appeal rights concerning either Respondent's threshold determination that a capital expenditure had occurred or Respondent's determination that ". . . no proposal [had been] submitted. . ." for review of a "capital expenditure." The manner in which Respondent determined B & K's substantial interests and the manner in which Respondent attempted to fulfill its due process obligations was, at best, confusing and unclear. Respondent's conduct precipitated more than one attempt by more than one law firm to ascertain what action had in fact been taken by Respondent. See Joint Exhibits 21, 25, 26.
Expenses in the amount of $253,990 were either properly accrued and properly paid. A portion of those expenses were discharged in bankruptcy. The remaining portion was assigned to Petitioner for payment.
5.10(a) Accrual
An invoice for each expense claimed in the cost reports was received at the time the goods or services were delivered. The provider had knowledge of the amount due for such goods or services. The obligation to pay for the goods or services was incurred in the ordinary course of business. The amount of the obligation and time for payment gas fixed and determined between the parties to each transaction. The provider either paid the obligation or intended to pay the obligation at the time the provider received the invoice.
B & K, the bankruptcy trustee, and Petitioner have always intended to pay expenses disallowed as not properly accrued. Petitioner never abandoned the claim for reimbursement of expenses. Pursuant to the assignment approved by the bankruptcy court Petitioner prepared the needed cost reports and "pressed" the claim against Respondent for reimbursement of Medicaid expenses. Pursuant to the Final Order in G & J v. HRS, Petitioner submitted the cost reports required by Respondent for review and audit on August 22, 1984. More than four years later, Respondent completed its review and audit of the cost reports. Petitioner has consistently pursued the payment of expenses disallowed by Respondent.

5.10(b) Payment
Expenses disallowed in the audit reports in the amount of $253,990 were properly paid within the meaning of applicable Medicaid rules. /54 Applicable Medicaid rules require payment within one year after the end of the cost reporting period in which the liability was incurred. Payment may occur up to three years after the end of the cost reporting period in which the liability was incurred if there is valid justification for the delay. Valid justification includes cash flow difficulties and accounting errors in the receipt and processing of bills. See discussion at Conclusions of Law, Sac. 6.07(d), infra.
Valid justification existed for not paying expenses disallowed as unpaid within one year after the end of the cost reporting period in which the liabilities were incurred. B & K encountered cash flow difficulties when Respondent cut off the sole source of cash flow required to pay expenses disallowed by Respondent as unpaid. B & K also encountered accounting errors in the receipt and processing of bills for the cost of goods and services when Respondent adjusted the reimbursement rate to be paid to B & K to recoup expenses disallowed retroactively to May 5, 1977.
The cash flow difficulties and accounting errors experienced by B & K were caused by action undertaken by Respondent without reasonable care. 55/
The lease payments from B & K to Petitioner were made pursuant to leases that here substantially the same as those under which the previous provider operated Krestview and Towne House. The leases under which B & K operated the two facilities had been included in a review conducted by Respondent the previous year. When Respondent incorrectly determined that the lease payments were capital expenditures, Respondent did so pursuant to a contract with the federal government that had previously expired. Respondent made recommendations to the federal government based upon findings that were substantively incorrect and that were procedurally deficient. Notices to B & K of action taken or to be taken by Respondent were untimely, deficient, and unclear. When Respondent explicitly stated what action it had taken, the notice of that action was not mailed to B & K.
Liabilities for expenses disallowed as unpaid were incurred in the period covered by cost reports for the fiscal year ending May 31, 1979, and for the three month period ending August 31, 1979. See, KAR 8/31/79, TAR 5/31/79, and TAR 8/31/79. An automatic stay was imposed by applicable bankruptcy law when the petition in bankruptcy was filed on August 3, 1979; within one year after the end of the cost reporting period in which the liabilities were incurred. The automatic stay enjoined any action for the payment of expenses until the bankruptcy proceeding was closed.
The three year period allowed for payment of expenses under applicable Medicaid rules was tolled upon the filing of the petition in bankruptcy. The three year period ran from May 31, 1979, to August 3, 1979, when the petition in bankruptcy was filed. The automatic stay enjoined further action until the bankruptcy file was closed. The bankruptcy file was closed on August 27, 1987. This proceeding began on July 9, 1987, during the pendency of the automatic stay imposed under applicable bankruptcy law. /56 The three year period allowed under applicable Medicaid rules for payment of Medicaid expenses will not begin to run again until the conclusion of this proceeding. 57/
Expenses unrelated to property in the amount of $42,079 were improperly disallowed by Respondent as adjustments to return on equity. The adjustments to return on equity were made as a result of the lease payments disallowed as "capital expenditures." One of the purposes of a review under Section 1122 is to determine whether a particular expenditure will have an affect on ". . . depreciation, interest or fair return on investment for reimbursement purposes." See Respondent's letter to B & K on April 11, 1978 in Joint Exhibit 28.
Two methods of reimbursement for Medicaid expenses were used by Respondent from May 5, 1977, through August 31, 1979. The retrospective method of reimbursement was issued prior to October 1, 1977. The prospective system was used effective October 1, 1977.
Application for approval of the change in methods of reimbursement was submitted by Respondent to the appropriate office of HEW on December 12, 1977, received by HEW on December 15, 1977, and approved by HEW on April 26, 1978. The effective date of the change was October 1, 1977. The adoption of the prospective method of reimbursement was merely a continuation of the previously existing Medicaid program with no new or additional economic impact to the state, private persons, or others. G & J v. HRS at 10.

5.12(a) Final Rate And Rate Application Period
Both methods of reimbursement are used to establish a per diem rate of reimbursement ("final rate"). The final rate is determined under both methods of reimbursement for a particular provider by dividing allowable costs by allowable Medicaid patient days. 58/ Allowable costs are those costs reported by providers on annual cost reports submitted to Respondent after upward or downward adjustments, if any, are made by Respondent and agreed to by the provider.
The final rate established under the retrospective method of reimbursement is applied backward over the period covered by the cost report. The final rate is also used as the interim rate to be paid until the next cost report is filed by the provider.
The final rate established under the prospective method of reimbursement is applied forward during the period covered by the next cost report to be filed. The final rate includes an inflation factor to compensate the provider for the fact that the final rate is calculated prior to the rate application period.

5.12(b) Settlement Of Overpayment And Underpayment
An overpayment occurs when the actual annual payments received by a provider exceed the actual annual allowable costs included in the cost report filed by the provider. An underpayment occurs when the actual annual allowable costs included in the cost report filed by the provider exceed the actual annual payments received by the provider during the period covered by the cost report.
An overpayment and an underpayment are generally settled in the same process in which final rates and interim rates are determined. The customary method of settling an overpayment and an underpayment assumes that the provider is an ongoing business. The customary method of settlement does not address a provider who terminates its operations as a result of bankruptcy or otherwise.

5.12(b) (1) Overpayment
The customary method of settling an overpayment is different under the retrospective and prospective methods of reimbursement. Under the retrospective method of reimbursement, an overpayment is recovered by Respondent either by a mutually acceptable plan negotiated between Respondent and the provider or by withholding regular payments to the provider. Recovery by withholding of payments, however, can be used only after the provider is offered an opportunity for a fair hearing and, if requested, a fair hearing is completed and a final decision is entered.
Under the prospective method of reimbursement, an overpayment is not recovered retrospectively. Instead, the amount of overpayment is excluded from the allowable costs used in calculating the final rate to be applied subsequently during the rate application period. The exclusion of an from allowable costs has the effect of reducing the final rate subsequently received by the provider during the rate application period.

5.12(b) (2) Underpayment
An underpayment is treated similarly under the retrospective and prospective methods of reimbursement. When a provider's actual annual allowable costs included in the cost report filed under the retrospective method of reimbursement exceed the actual annual payment from Respondent, the interim rate paid until the next cost report is filed is increased by an allowance of nine percent in lieu of retroactive payments. When a provider's actual annual allowable costs included in the cost report filed under the prospective method of reimbursement exceed the actual annual payment from Respondent, the final rate to be applied during the next rate application period is increased in proportion to the actual annual allowable costs included in the cost report.
5.12(c) Reimbursement For Underpayment
Petitioner is entitled to reimbursement of an underpayment under either the retrospective or prospective methods of reimbursement. Some of the findings of fact that are relevant to this factual issue were made in the Recommended Order in G & J v. HRS. The findings of fact in the Recommended Order were adopted in Respondent's final order. Other findings of fact that are relevant to this factual issue are made in this proceeding.

5.12(c) (1) Prior Proceeding
The Recommended Order in G & J v. HRS found that underpayment could be recovered by a provider upon receipt of a properly completed claims document. The Recommended Order found that a claims document included a cost report.
The Recommended Order in G & J v. HRS rejected Respondent's assertion that cost reports can only be used to set a new rate and cannot be used to establish the amount of retroactive payments. The Recommended Order found that the purpose of the cost reports was not limited to the establishment of a new rate.
Respondent was aware that Petitioner was preparing cost reports for audit and that B & K was out of business. The establishment of a new rate for an ongoing business is not the only purpose for filing cost reports. Cost reports may also be filed to obtain retroactive payments if such payments are not otherwise prohibited. G & J v. HRS.
Florida Administrative Code Rule 10C-7.48(6) (i) does not prevent retroactive reimbursement for an underpayment. The Recommended Order based its determination upon four findings of fact. Most importantly, the Recommended Order found that retroactive reimbursement for an underpayment was specifically contemplated in the provider agreement entered into between B & K and Respondent. 60/ Any rights to such reimbursement were assigned to Petitioner by the bankruptcy trustee pursuant to the order of the bankruptcy court.
Second, Retroactive reimbursement of underpayment was contemplated in Respondent's "Instructions to Cost Reports for Nursing Homes Participating in the Florida Medicaid Program." Florida Administrative Code Rule 10C-7.48 provides that cost reports are to be completed in accordance with Respondent's instructions.
Third, retroactive reimbursement of an underpayment was not eliminated by the adoption of a "totally new prospective system of payment." The adoption of the prospective system of payment was merely a continuation of the Medicaid program with no new or additional economic impact to the state, private persons, or others.
Fourth, Florida Administrative Code Rule 10C-7.48(6) (i) does not prohibit all retroactive payments bat rather only retroactive reimbursement of those costs which exceed annual payment." A definition of "annual payment" could not be established by Respondent. B & K never experienced an established and consistently applied rate during 1978 and 1979. Instead, B & K experienced a series of eight different crates in less than 12 months. The policy of Respondent was that rates became effective on the first day of each month after a cost report was filed. The Respondent's policy, however, was inapplicable because rates for B & K were not set with any consistent pattern or principle in mind.
5.12(c) (2) This Proceeding
Both the retrospective and prospective methods of reimbursement authorize the recovery of an underpayment by a provider under two sets of circumstances. First, underpayment can be recovered by the provider if an audit determines that there were errors on the cost reports and actual costs were greater than reported costs. Second, the provider agreement expressly states that "[i]n instances of nonpayment or under- payment . . . the [Respondent] shall make payment to the Provider upon receipt of properly completed claims documents." (emphasis added)
Both sets of circumstances required to recover an underpayment are satisfied in this proceeding. First, actual costs incurred by B & K exceeded reported costs as adjusted by Respondent. The excess of actual costs over adjusted reported costs was caused by errors made in the audit reports prepared by Respondent. Second, the provider agreement executed by Respondent after it adopted the prospective method of reimbursement requires payment to Petitioner upon the receipt of properly completed claims documents. A cost report is a properly completed claims document.
Respondent's claim that the prospective method of reimbursement must be used in this proceeding is inconsistent with Respondent's actions in two respects. First, Respondent executed provider agreements with B & K which authorized the use of the retrospective method of reimbursement after Respondent amended its plan and adopted the prospective method of reimbursement. Second, when Respondent adjusted B & K's rate to recoup capital expenditures, Respondent did not base the adjustment on the prior cost reporting period as is done in the prospective method of reimbursement. Rather, Respondent went back retrospectively and based the adjustment on all cost reporting periods since B & K began operation of Krestview and Towne House.
Once it has been determined that Petitioner is entitled to recovery of an underpayment, the only issues to be determined are the form and amount of such recovery. The customary form of recovering an underpayment under either the retrospective or prospective method of reimbursement is an increase in the final rate. The customary form of recovering an underpayment is ineffectual whenever the provider has terminated business operations through bankruptcy or otherwise.
A provider that has terminated business operations does not lose its right to recover underpayment merely because the customary form of recovering underpayment is no longer an effectual form of recovery. Such a provider remains entitled to recover an underpayment through an effectual form of payment. The most effectual form of recovering an underpayment for a provider that has terminated its business is a lump sum payment determined in a final accounting.

5.12(c) (3) Final Accounting
Expenses at issue in the amount of $1,362,925 are allowable and properly included in the five cost reports reviewed and audited by Respondent. Adjustments to reported costs made in the five audit reports disallowed expenses in the aggregate amount of $1,748,636. Petitioner admitted prior to the formal hearing that disallowances by Respondent in the aggregate amount of $304,305.34 were proper. Of the remaining $1,444,330.66 to be determined at the formal hearing, Petitioner failed to present evidence with respect to $81,405.66. The
remaining expenses disallowed in the audit reports are expenses at issue in this proceeding. All of the expenses at issue are allowable and properly included in the five cost reports reviewed and audited by Respondent.
Allowable expenses are not reduced by any setoff claimed by Respondent. Respondent determined as a result of KAR 5/31/78 that overpayment had been made to B & K in the aggregate amount of $1,125,910. No overpayment was determined from Respondent's audit of the other cost reports. Respondent determined that the other cost reports served only to set the prospective final rate for the subsequent periods of operation.
Approximately $620,724 of the alleged overpayment resulted from Respondent's determination that the interim Medicaid per diem payment rate for Krestview's first period of operation by B & K was greater than the retrospectively determined Medicaid per diem payment rate for the same period. Approximately $505,186 of the aggregate amount of overpayment resulted from Respondent's determination that inaccuracies in original cost report for 5/31/78 caused an additional overpayment in the prospective Medicaid per diem payment rate for Krestview following Krestview's first period of operation. A major portion of the aggregate amount of claimed overpayment resulted from rent payments which were disallowed by HEW on the basis of the Section 1122 issue.
/61
The net amount of underpayment due from Respondent to Petitioner is

$447,473.34. The net amount of underpayment has been determined by reducing the net underpayment claimed by Petitioner in the amount of $528,879 by pretermitted issues in the amount of $81,405.66. Some of the limitations applicable to the gross underpayment claimed by Petitioner may have been applicable to some or all of the pretermitted issues. The burden of proof, however, is on Petitioner to show the proportion of the limitations applicable to the pretermitted issues.

Petitioner presented no evidence to show what proportion of the limitations applied to the pretermitted issues.

CONCLUSIONS OF LAW
1. The Division of Administrative Hearings has jurisdiction over this proceeding pursuant to Section 120.57(1), Florida Statutes. The parties were duly noticed for the formal hearing.
2. Petitioner has the burden of proof in this proceeding. The burden of proof in an administrative proceeding is on the party asserting the affirmative of the issue unless the burden is otherwise specifically established. Young v. State, Department of Community Affairs, 567 So.2d 2 (`Fla. 3d DCA 1990); Florida Department of Transportation v. J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981); Balino v. Department of Health and Rehabilitative Services, 348 So.2d
  349 (Fla. 1st DCA 1977). Petitioner must show by a preponderance of the evidence that the expenses at issue were erroneously disallowed in the audit reports, that Petitioner is entitled to recover an underpayment of Medicaid reimbursements, and the amount of such underpayment.
3. The defense of setoff is an affirmative defense for which Respondent has the burden of proof. Jacksonville Paper Co. v. Smith & Winchester Mfg. Co.,
  2 So.2d 890, 893 (Fla. 1941). Respondent must show by a preponderance of the evidence that it is entitled to assert the defense of setoff, that an overpayment of Medicaid reimbursements was made to the bankrupt, and the amount
  of the overpayment. See, e.g., Boymer v. Birmelin, 227 So.2d 358 (Fla. 3d DCA 1969) cert den. 400 U.S. 926 (1970); Knauer v. Levy, 115 So.2d 776 (Fla. 3d DCA 1959) (party asserting affirmative defense has the burden of proving the defense by a preponderance of the evidence).
4. Ruling was reserved on certain objections by Respondent to the admissibility of exhibits offered by Petitioner to document expenses disallowed by Respondent as insufficiently documented. Respondent objected that the exhibits were not authenticated in accordance with Section 90.901, Florida Statutes, and that the exhibits were inadmissible hearsay within the meaning of Sections 90.801 and 90.802. The rulings in this Recommended Order dispose of the rulings reserved during the formal hearing and supplement and explain rulings made on objections to numerous other exhibits. /62
  
  6.01(a) Authenticity
5. Respondent's objections that the exhibits were not authenticated in accordance with Section 90.901 Florida Statutes, are overruled. The requirement for authentication in Section 90.901 is satisfied by evidence sufficient to support a finding that the records in question are what Petitioner claims them to be.
6. The exhibits in question consist primarily of the records and supporting documentation used to prepare the cost reports and to document expenses incurred by B & K from 1977-1979 the provider and operator of Krestview and Towne House (the "records"). While a custodian with personal knowledge of the original preparation of the records did not testify at the formal hearing, evidence of the circumstances surrounding the origin, custody, and verification of the records is sufficient to support a finding that the records are authentic.
7. Petitioner was designated as the custodian of the records pursuant to the order of the bankruptcy court. The records were obtained from the B & K's accountant and delivered to Petitioner as custodian of the records for the bankruptcy trustee. Pursuant to the order of the bankruptcy court, the custodian delivered the records to Nursing Home Consultants, Inc. ("Consultants") for preparation of the cost reports submitted to Respondent for review and audit.
8. Mrs. Ruth Eldridge was the person at Consultants responsible for review of the records and preparation of the cost reports for audit by Respondent. Mrs. Eldridge has substantial experience in reviewing records and preparing cost reports and verified the records. Her testimony at the formal hearing was credible and persuasive.
9. Characteristics of the records, including their volume, appearance, and contents, disclose knowledge that only the provider could know. The records filled approximately 50 boxes. The long period of time that has elapsed since the records were originated, the extent and volume of the records, and the monumental task that would be required to fabricate such records make the potential for viable fraud unlikely. The records are the same kind of records relied upon by Respondent to allow expenses claimed in the cost reports in the amount of $5,446,890.
  6.01(b) Hearsay
10. Respondent's objections that the records constitute inadmissible hearsay are overruled. The records constitute hearsay within the meaning of Section 90.802, Florida Statutes. They are written statements made by someone other than the witnesses at the formal hearing offered in evidence to prove the truth of the matter asserted. The records, however, explain or supplement other evidence and, therefore, are admissible under the statutory exception in Section 120.58(1)(a).
11. The Final Order and Recommended Order in G & J Invs. Corp. v. Department of Health & Rehabilitative Servs., 6 F.A.L.R. 3788 (Fla. Dept. of Health & Rehabilitative Servs.), appeal dismissed, No. BA-57 (Fla. 1st DCA Nov. 5, 1984) [hereinafter "G & J v. HRS"] was admitted in Joint Exhibit 41. Respondent was required in that proceeding to accept the cost reports prepared by Petitioner for review and audit. Evidence admitted in Joint Exhibit 2 ("J- 2") contained the cost reports Respondent was required to audit, the findings and opinions of certified public accountants ("CPAs") contained in an accompanying letter, and supporting work papers of the CPAs who examined the cost reports.
12. Prior to the formal hearing, Respondent objected to the findings and opinions in the accompanying letter from the CPAs on the grounds of authenticity, relevancy and hearsay. However, Respondent waived its objection during the formal hearing.
13. The parties filed a Notice of Filing Joint Exhibits And Amended Exhibit List of Respondent with the undersigned on November 29, 1989 (the "Joint Exhibit List"). Respondent objected in the Joint Exhibit List to the admissibility of ". . . the accompanying letter by the CPAs on authenticity, relevancy and hearsay." When J-2 was admitted in evidence during the formal hearing, however, Respondent made no objection to the admissibility of J-2. 63/ Respondent did not object to the admissibility of J-2 at the time it was admitted in evidence, and J-2 was admitted without limitation.
14. Respondent's objection in the Joint Exhibit List is limited by its terms to the ". . . accompanying letter of the CPAs . . ." No objection was ever made to other portions of J-2, including the cost reports and supporting work papers of the certified public accountants who examined the cost reports. The records supplement and explain the cost reports and supporting work papers of the certified public accountants. The accompanying letter of the certified public accountants supplements and explains the cost reports and the supporting work papers of the CPAs who examined the cost reports.
15. Respondent's objection in the Joint Exhibit List to the admissibility of Petitioner's written offer to acquire the interest of the bankruptcy trustee is overruled. The written offer was incorporated by reference in the Motion of the bankruptcy trustee for an order approving the written offer and the order of the bankruptcy court approving the Motion. Both the Motion and the order were admitted in evidence without objection in Joint Exhibit 17. Petitioner's written offer explains and supplements the Motion and the order.
16. Evidence admitted in Joint Exhibit 5-15 ("J-5" through "J-15") contains copies of communications between Respondent's representatives and those of B & K with respect to allowable and disallowed expenses. The evidence in J-5 through J-15 includes work papers of Respondent's agents supporting the allowances and disallowances discussed in the written communications in J-5
  through J-15. The records in the exhibits objected to by Respondent explain or supplement the allowances and disallowances in J-5 through J-15.
17. Hearsay evidence "may" be used in an administrative hearing to supplement or explain other evidence. The admission of hearsay evidence that explains or supplements other evidence is not required by the terms of Section 120.58(1)(a), Florida Statutes, but is permitted in the discretion of the hearing officer. The exercise of that discretion should consider the trustworthiness of the evidence as shown either through circumstances or through the right to cross examination. See, e.g., Sections 90.803(1)-(3), and (16), Florida Statutes, which make hearsay admissible when the out-of-court declaration is made under circumstances that tend to assure its trustworthiness.
18. Circumstances surrounding the source of the records, the information in the records, and the method by which the records were reviewed and verified show that the records are sufficiently trustworthy to justify their admission in evidence. Preparation of the cost reports required a complete reconstruction of B & K's operation of Krestview and Towne House for the period May 5, 1977, through August 31, 1979. Consultants contacted each of B & K's suppliers and purveyors as to each facility and asked them to review their records for the years in question. Information was also obtained from federal, state, and county agencies, including the Medicare/Medicaid intermediary. The information obtained from government agencies included: computer printouts of reimbursement checks, vendor payment checks, and patient activity records from Respondent; all invoices from the Dade County Department of Human Resources, Health Services Division; and B & K's banking records.
19. The records were reviewed and tested by certified public accountants in accordance with generally accepted auditing standards ("GAAS"), including auditing procedures deemed necessary under the circumstances. The opinions and findings of the certified public accountants are not beyond the scope of permissible expert opinion authorized in Sections 90.701 through 90.705, Florida Statutes. Circumstances including the appearance, contents, and other physical characteristics of the records demonstrate the trustworthiness of the records.
20. The trustworthiness of the records evidenced by the surrounding circumstances is further supported by testimony from two witnesses who have substantial expertise and experience in the field and who personally reviewed the records. Mrs. Eldridge reviewed the records for Consultants. Consultants specializes in the preparation of cost reports for hospitals and nursing homes. Mrs. Eldridge has thirty years experience in the field and has prepared hundreds of cost reports. Mr. Stanley Swindling was characterized by Respondent's expert as one of the few individuals in Florida who is an expert in the Medicaid audit process. Mr. Swindling personally reviewed and verified many of the records and the expenses documented by such records.
21. The long period of time that has elapsed since the records were originated, the extent and volume of the records, and the monumental task that would be required to fabricate such records make the potential for viable fraud unlikely. The corporate entity that originated the records over 12 to 14 years ago no longer exists. Operation of Krestview and Towne House was surrendered to the bankruptcy trustee approximately 12 years ago. Consultants could not turn to the bankrupt corporation for assistance. Petitioner had filed suit against the bankrupt and its principals in its own attempt to recover losses suffered at the hands of B & K.
  6.01(b)(1) Other Rulings
22. Objections by both parties to the admissibility of certain exhibits are overruled on the grounds that the exhibits are admissions within the meaning of 90.803(18), Florida /64 Statutes. Rulings made during the formal hearing on objections to exhibits are supplemented by the rulings in this Recommended Order.
  
  6.01(b)(2) The Public Records Exception
23. The records are not public records that are excepted from the hearsay rule in Section 90.803(8), Florida Statutes. The fact that the records were produced pursuant to a court order of the bankruptcy court does not qualify the records as public records. See Roemelmeyer v. Richard A. Marshall Insurance Agency, 223 So.2d 753, 754 (3rd DCA 1969) (holding that inventories and schedules filed by claimants in bankruptcy suits were not admissible as public records).
  
  6.01(c) Unfair Surprise
24. Ruling was reserved on Respondent's objection to expert testimony by Mr. Swindling concerning the amount of the underpayment Petitioner is entitled to recover. Mr. Swindling testified to the amount of damages at the formal hearing even though he had answered during his pre-hearing deposition that he had formed no opinion as to the amount of damages. Respondent objected to the expert opinion of Mr. Swindling because it had not been revealed in a timely manner during discovery and because admission of the undisclosed evidence would result in prejudice to Respondent.
25. Respondent's objection is overruled on both grounds. The expert opinion of Mr. Swindling is not inadmissible on the ground that it was revealed in an untimely manner. Mr. Swindling testified during the formal hearing that he had not formed an opinion at the time of the prehearing deposition. No prehearing order required experts to form their opinions by a date certain. Unlike the federal rules of evidence, the rules of evidence in Florida do not require responses to discovery requests to be updated in the absence of a prehearing order to the contrary.
26. The expert opinion of Mr. Swindling is not inadmissible on the basis of prejudice to Respondent. The amount of damages to which Mr. Swindling testified is exceeded by other evidence admitted in J-2 and J-17 showing that B & K was underpaid in amounts greater than the amount stated by Mr. Swindling during the formal hearing. The cost reports in J-2 show that B & K was underpaid in the amount of $729,727. The written offer in J-17 shows that the claim against Respondent for underpayment was $745,037. There is, therefore, no prejudice to Respondent from the testimony of Mr. Swindling. 65/
  
  6.01(d) Respondent Is Bound By Res Judicata
27. Ruling was reserved on objections by Respondent to the relevancy of findings of fact and conclusions of law in the Recommended Order in G & J v. HRS. Respondent's objection is overruled. The Recommended Order was admitted in evidence in Joint Exhibit 41. Respondent's objections address the weight to be accorded the findings of fact and conclusions of law rather than their admissibility.
28. Respondent adopted the findings of fact in G & J v. HRS and is bound by them in this proceeding under the doctrine of res judicata. A final judgment on the merits is conclusive as to matters which were or could have been determined in the prior proceeding and will bar a subsequent action between the same parties on the same cause of action. McGregor v. Provident Trust Co. of Philadelphia, 162 So 323, 327 (Fla. 1935); Wacaster v. Wacaster, 220 So.2d 914 (Fla. 4th DCA 1969). See also Casines v. Murchek, 766 F.2d 1494, 1499 (11th Cir. 1985). The doctrine of res judicata is applicable to administrative proceedings. Hays v. State, Department of Business Regulation, Division of
  Pari-Mutuel Wagering, 418 So.2d 331, 332 (Fla. 3d DCA 1982); Carol City Utilities, Inc. v. Miami Gardens Shopping Plaza, Inc., 165 So.2d 199, 200 (Fla. 3d DCA 1964). The findings of fact in the Recommended Order in G & J v. HRS were determined on the merits of the factual issues.
29. Respondent's statement in G & J v. HRS that the conclusions of law in the Recommended Order were discarded did not discard findings of fact contained within the conclusions of law. The distinction between findings of fact and conclusions of law does not depend upon how such findings and conclusions are labeled in the Recommended Order. Kinney v. Department of State, Division of Licensing, 501 So.2d 129, 132 (Fla. 5th DCA 1987) (holding that erroneously labeling a factual finding as a conclusion of law does not make it so).
  Findings of fact may not be avoided by categorizing an adverse finding as a conclusion of law. Morris v. Department of Professional Regulation, 474 So.2d 841 (Fla. 5th DCA 1985); Leapley v. Board of Regents, 423 So.2d 431 (Fla. 1st DCA 1983). Any mislabeled findings of fact in the Recommended Order, therefore, were expressly adopted by Respondent.
30. The statement in the Final Order that purported to discard the conclusions of law failed to satisfy statutory requirements for rejecting findings of fact. The statement failed to reflect a review of the complete record, failed to state with particularity which findings were rejected, and failed to state the reasons for rejection. Any attempt to discard findings of fact contained within the conclusions of law through such a statement is an unenforceable violation of the requirements of Section 120.57(1)(b)9, Florida Statutes (1983). Bekiempis v. Department of Professional Regulation, 421 So.2d 693, 694 (Fla. 2d DCA 1982).
31. The cursory statement in the Final Order discarding the conclusions of law failed to fulfill Respondent's duty to explicate its policy and address countervailing arguments. An agency is required to explain its discretionary action affecting a party's substantial interests. McDonald v. Department of Banking and Finance, 346 So.2d 569, 582-584 (Fla. 1st DCA 1977).

An agency's final order must display the agency's rationale and must address countervailing arguments developed in the record and urged by the hearing officer's recommended findings ". . . and conclusions . . . ." Id. Even when policy considerations are involved and the agency has displaced the hearing officer's recommended conclusions because of such considerations, it is the agency's duty to explicate its policy and address countervailing arguments in the record and those urged by the hearing officer. Fraser v. Lewis, 360 So.2d 1116, 1118 (Fla. 1st DCA 1978).
Assuming arguendo that Respondent effectively rejected the conclusions of law in G & J v. HRS, the conclusions of law in the Recommended Order did not become part of the Final Order through the appeal process. Petitioner appealed the Final Order in G & J v. HRS. The conclusions of law were never reinstated in the appeal and the appeal was ultimately dismissed. The
fact that the Final Order was not entered within the 90 days prescribed in 120.68(8), Florida Statutes, is harmless error and does not transform the conclusions of law in the Recommended Order into conclusions of law in a final order. Department of Business Regulation, Division of Pari-Mutuel Wagering v. Hyman, 417 So.2d 671, 673 (Fla. 1982).

6.01(e) No Waiver Of Objections Not Raised In The Prehearing Stipulation
Ruling was reserved on Respondent's motion to strike objections made by Petitioner during the formal hearing but not reserved in the prehearing stipulation. Respondent's motion to strike is denied. The determination of whether objections not reserved in the prehearing statement are waived is discretionary with the undersigned. The denial of Respondent's motion to strike does not result in prejudice to Respondent when the nature of the objections made by Petitioner and the circumstances in which the objections were made are considered.
The non-cash consideration paid by Petitioner for the assignment of interest from the bankruptcy trustee constitutes forbearance. Declining or failing to exercise a legal right to take action adverse to the promisor constitutes forbearance. City of South Miami v. Dembinsky, 423 So.2d 988, 989 (Fla. 3d DCA 1982). Forbearance constitutes valid consideration for an agreement that benefits the promisee. Lea v. Suhl, 417 So.2d 1179, 1181 (Fla. 2d DCA 1982); City of Valparaiso, 141 So.2d 334, 335 (Fla. 1st DCA 19(32).
Forbearance constitutes consideration for a contract even though it is not provided for in express language or terms. Boymer v. Birmelin, 227 So.2d 358, 362 (Fla. 3d DCA 1969). Consideration is supplied when the surrounding facts and circumstances are such that it is reasonable to infer that forbearance was the consideration given for a contract. Id. Even though Petitioner's offer was cast in the form of a waiver of Petitioner's claim against the bankrupt estate, the surrounding facts and circumstances are such that it is reasonable to infer that forbearance was the consideration given for the assignment of the interest of the bankruptcy trustee.
The purpose of the assignment was to give Petitioner authority to enforce the responsibility of the bankruptcy trustee to collect and preserve the sole asset of the bankrupt estate. Claims of the debtor against third parties are property of the bankrupt estate which pass to the bankruptcy trustee when the petition in bankruptcy is filed. In re: Ozark Restaurant Equipment Co., Inc., 816 F.2d 1222 (8th Cir. 1987). /67 The bankruptcy trustee has the responsibility to assert such claims whenever necessary for collection or preservation of the estate. Id.
The manifest intent of the parties to the assignment, as approved by the bankruptcy court, was to give Petitioner authority to "press" the claim against Respondent for unreimbursed Medicaid expenses, including amounts owed to Petitioner for unpaid rent. The asset reflected in the cost reports included the claim for reimbursement of unpaid rent. The written offer defined the asset by reference to the cost reports. The written offer was incorporated by reference in the Motion filed by the bankruptcy trustee and in the order of the bankruptcy court.
6.02(a) No Waiver Under Bankruptcy Law
Even if the non-cash consideration given by Petitioner for the assignment of the interest of the bankruptcy trustee is characterized as a "waiver," Petitioner did not "waive" the debt owed to it by B & K for unpaid rent. A corporate debtor in a Chapter 7 proceeding is not legally entitled to receive a discharge from any claims against it. National Labor Relations Board
v. Better Building Supply Corp., 837 F.2d 377 (9th Cir. 1988); Farmers and Merchants Bank of Eatonton, Georgia v. W. Brinsfield (In the Matter of W. Brinsfield), 78 B.R. 364 (Bankr. M.D. Ga. 1987). 68/ Questions of dischargeability have no application in cases involving corporate debtors such as B&K. Official Creditors' Committee of James B. Downing & Company v. Agri Dairy Products, Inc. (In re James B. Downing & Company. In re Hoekstra), 74
B.R. 906 (Bankr. N.D. Ill. 1987). Petitioner and the bankruptcy trustee could not accomplish by "waiver" that which is prohibited by law.
The debt B & K owed to Petitioner survived the Chapter 7 proceeding, and Petitioner is entitled to "press" the claim for reimbursement of that debt against Respondent. Corporate debts survive a Chapter 7 bankruptcy proceeding and may be collected against parties other than the corporate debtor. Better Building Supply Corp., 837 F.2d at 379. Even a discharge of an individual debt in a Chapter 7 proceeding ". . . does not affect the liability of any other entity . . . for such debt." In re Lembke, 93 B.R. 701, 702 (Bankr. D. N.D. 1988). The discharge merely releases the debtor from personal liability. Id. The debt itself still exists. The debt can be collected from third parties that may be liable, including insurers. In re Lembke, 93 B.R. at 702-703. See also In re Holtkamp, 669 F.2d 505, 508-09 (7th Servs. 1982); Johnson v. Bondurant, 359 P.2d 861 (Kan. 1961); In re Mann, 58 B.R. 953 (Bankr. W.D. Va. 1986); In re White, 73 B.R. 983 (Bankr. D.D.C. 1987).

Any other outcome would result in a windfall to insurers, which receive premiums as the quid pro quo for providing insurance.

In re White, 73 B.R. at 985.
The obligation of Respondent to reimburse B & K for allowable expenses is analogous to the obligation of an insurer to pay the claims of its insured. Respondent's obligation for reimbursement of allowable expenses is a contractual obligation that arises from a valid contract entered into for sufficient consideration. While B & K did not pay premiums to Respondent, Respondent received sufficient quid pro quo from B & K. B & K undertook the operation of two nursing homes at Respondent's request under exigent circumstances so that Respondent could avoid closure of the nursing homes. The primary consideration underlying Respondent's request was the high mortality rate that could be expected if large numbers of elderly patients were relocated to other nursing homes. B & K thereafter carried out a function determined by the state to be necessary and operated the two nursing homes as part of a state administered federal program in accordance with the mandates of Respondent.
Petitioner's "waiver" of its claim against the bankrupt estate for unpaid rent "waived" only Petitioner's legal right to enforce its claim in the bankruptcy proceeding. Petitioner's "waiver" did not waive either the debt itself, the legal right to enforce the claim against third parties, or the bankruptcy trustee's claim against Respondent for unreimbursed Medicaid expenses owed to the bankrupt estate. The corporate debt owed by B & K to Petitioner survived the Chapter 7 proceeding. Petitioner, as the assignee of the
bankruptcy trustee, is fully authorized to "press" the claim against Respondent to collect reimbursement for all of the debts reflected in the cost reports, including that for unpaid rent. Respondent's Motion for Partial Summary Disposition is denied.

6.02(b) No Waiver Under State Law
Waiver is the intentional or voluntary relinquishment of a known right, or conduct which infers the relinquishment of a known right. Thomas N. Carlton Estate, Inc. v. Keller, 52 So.2d 131, 133 (Fla. 1951); Taylor v. Kenco Chemical & Mfg. Corp., 465 So.2d 581, 587 (Fla. 1st DCA 1985). The essential elements of waiver are: (a) the existence of a right or benefit which may be waived; (b) the knowledge of the right or benefit; and (c) the intention to relinquish the right.
The first two requirements for waiver are satisfied in this proceeding. The right of the bankruptcy trustee to assert a claim against Respondent for unpaid Medicaid expenses was in existence and could be waived at the time Petitioner waived its claim against the bankrupt estate for unpaid rent owed to Petitioner. Both Petitioner and bankruptcy trustee had actual knowledge of the right of the bankruptcy trustee.
The third requirement for waiver is not satisfied in this proceeding. Neither the bankruptcy trustee nor Petitioner intended to relinquish the claim against Respondent for unpaid Medicaid expenses. Petitioner paid approximately
$5,000 in cash and waived priority claims worth $140,000 in consideration of the assignment of the interest of the bankruptcy trustee in and to the claim against Respondent for unpaid Medicaid expenses. The assignment of the interest of the bankruptcy trustee, the consideration paid for that assignment, and the terms of the written offer to the bankruptcy trustee were approved by the bankruptcy court and incorporated into the order approving the assignment. A determination that a waiver occurred would fail to give purpose and effect to the terms of the assignment, the order approving the assignment, and the intent of the parties manifested in the assignment and order.
Waiver may be implied from conduct or acts that reasonably support a conclusion that a right has been waived. Keller, 52 So.2d at 133; Davis v. Davis, 123 So.2d 377, 381 (Fla. 1st DCA 1960). When waiver is implied from conduct, however, the conduct relied upon must make out a clear case of waiver. Taylor, 465 So.2d at 587; Fireman's Fund Insurance Company v. Vogel, 195 So.2d 20, 24 (Fla. 2d DCA 1967). The conduct of Petitioner and the bankruptcy trustee has not clearly evidenced an intent to waive any claim against Respondent for the unpaid Medicaid expenses. Rather, such conduct clearly evidences the intent of the parties not to waive the claim assigned to Petitioner. The bankruptcy trustee expended substantial time and effort to document and determine the amount of the claim against Respondent. Petitioner paid substantial consideration to the bankruptcy trustee for the right to pursue that claim and consistently pursued that claim from 1982 to the present.
Petitioner is not barred by the doctrine of judicial estoppel from either pursuing its claim against Respondent or from contesting Respondent's asserted setoff. The doctrine of judicial estoppel precludes a party from asserting in one proceeding a position that is inconsistent with that party's
position in a prior judicial proceeding. See, e.g., In re Holiday Isles, Ltd., 29 B.R. 827, 831 (Bankr. S.D. Fla. 1983); McKee v. State, 450 So.2d 563 (Fla.
3rd DCA 1984).
Petitioner has not taken inconsistent positions in the bankruptcy proceeding and in this proceeding. Petitioner takes the position in both proceedings that Respondent underpaid B & K in Medicaid reimbursement payments. Petitioner waived its claim against the bankrupt estate as part of the consideration for the assignment of the interest of the bankruptcy trustee in the claim of the bankrupt against Respondent. The claim of the bankruptcy trustee against Respondent for unreimbursed Medicaid expenses and the claim of Petitioner against B & K were carved out of the bankruptcy proceeding and assigned to Petitioner so that, in the words of the bankruptcy trustee, Petitioner could ". . . press the claims . . ." against the Respondent.
Petitioner has not taken inconsistent positions in the bankruptcy proceeding and in this proceeding with respect to Respondent's claim for an overpayment. No objection was made to any unsecured claim against the bankrupt estate, including that of Respondent. No objection was made because insufficient funds were available in the bankrupt estate to pay any claims other than priority claims as provided in Section 64(a)(4) of the Bankruptcy Code.
The merits of Respondent's claim against the bankrupt estate were never adjudicated in the bankruptcy proceeding. The failure to object to unsecured claims against the bankrupt estate under such circumstances is not an admission by Petitioner of the merits of Respondent's claim.
Petitioner is not barred by the doctrine of res judicata from either pressing the claim against Respondent or from contesting Respondent's asserted setoff. Under the doctrine of res judicata, a judgment on the merits is conclusive as to matters which were or could have been determined and will bar a subsequent action between the same parties on the same cause of action. McGregor, 162 So at 327 (Fla. 1935); Wacaster, 220 So.2d 914. See also Casines, 766 F.2d 1499. In order for the prior judgment to bar a subsequent action under the doctrine of res judicata, however, the first judgment must be entered on the merits. Weissinger v. United States, 423 F2d 782, 785-786 (5th Servs. 1968) vacated 423 F.2d 795 (1970); deCancino v. Eastern Airlines, Inc., 283 So.2d 97, 98-99 (Fla. 1973).
The issue of whether the claim against Respondent is a valid and enforceable claim was not determined on its merits in the bankruptcy proceeding. Similarly, a determination of the effect, if any, of Petitioner's waiver of its claim against the bankrupt on the Petitioner's claim against Respondent was never raised in the bankruptcy proceeding. Neither issue is barred by the doctrine of res judicata in this proceeding.
Petitioner is not barred by the doctrine of res judicata from contesting Respondent's claim of setoff in this proceeding. The claims of unsecured creditors could have been accepted by the bankruptcy court on their merits or on the basis that no funds were available in the bankrupt estate to pay such claims. The doctrine of res judicata does not apply to a judgment which might have rested on either of two grounds, only one of which goes to the merits. deCancino, 283 So.2d at 98.
The evidence in this proceeding suggests that Respondent's claim against the bankrupt estate was accepted by the bankruptcy court on the grounds
that no cash was available in the bankrupt estate to pay the claims of unsecured creditors. A judgment entered on any ground which does not involve the merits of a cause of action does not form the basis for application of the doctrine of res judicata. Cabinet Craft, Inc. v. A.G. Spanos Enterprises, Inc., 348 So.2d 920, 921-922 (Fla. 2d DCA 1977).
Respondent's claim for setoff is not presumed valid in this proceeding as a result of a presumption of validity in the bankruptcy proceeding. A properly filed proof of claim constitutes prima facie evidence in a bankruptcy proceeding of both the validity and amount of a claim. In re St. Augustine Gun Works, Inc., 75 B.R. 495, 499 (Bankr. M.D. Fla. 1987); In the Matter of Ruth H. Ward, 23 B.R. 45, 47 (Bankr. M.D. Fla. 1982). The burden in the bankruptcy proceeding is on the debtor or trustee to rebut the presumption of validity by affirmative proof. In re St. Augustine Gun Works, Inc., 75 B.R. at 497. Where a proof of claim filed in the bankruptcy proceeding is not objected to by the trustee prior to final decree and discharge, the claim and amount of claim are presumed valid in the bankruptcy proceeding. The presumption of validity of Respondent's claim in the bankruptcy proceeding, however, does not bar Petitioner from contesting the validity of Respondent's claim for a setoff in this proceeding. Such a result would permit the application of the doctrine of res judicata based upon a presumption rather than a final adjudication on the merits. In order for the doctrine of res judicata to bar a subsequent action, the merits of the issue must have been disposed of by a final adjudication in the former action. Cabinet Craft, Inc., 348 So.2d at 922.
Respondent's plea of setoff may be disposed of prior to a consideration of the merits of Petitioner's claim against Respondent. The amount of the setoff asserted by Respondent exceeds the amount of the claim by Petitioner against Respondent. A favorable disposition of Respondent's asserted setoff, therefore, would make it unnecessary to address the merits of Petitioner's claim.
When a plea of setoff is asserted, the plaintiff's cause of action is admitted and no proof is required of the plaintiff. Ness v. Cowdery, 149 So. 33, 34 (Fla. 1933). If Petitioner's claim is admitted for the purpose of determining the merits of Respondent's asserted setoff and if the issue of the setoff is resolved in favor of Respondent, then a determination of the merits of Petitioner's claim is moot. Wagner v. Wagner, 196 So.2d 453, 454 (Fla. 4th DCA 1967) (holding that, when an affirmative defense is raised, the facts pleaded thereby are denied and the opposing party's pleadings are taken to be true).

6.05(a) Right To Assert Setoff Under Bankruptcy Law
As a general proposition, Respondent is not barred by the Bankruptcy Code from asserting the defense of setoff in a non-bankruptcy proceeding based on a debt allegedly due Respondent and discharged in bankruptcy if Respondent satisfies the statutory prerequisites for a setoff. Section 553(a) of the Bankruptcy Code generally provides that the provisions of Title 11 (11 U.S.C., Sections 1-1231) do not ". . . affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the [bankruptcy proceeding] . . . ." Exceptions to the general right to a setoff are limited to those prescribed in Section 553. 69/
The undersigned has jurisdiction to determine whether Respondent has satisfied the prerequisites for a setoff under Section 553 of the Bankruptcy Code. Dubis v. National Steel Products Company (In re National Structures, Inc.), 74 B.R. 986 (Bankr. E.D. Wis. 1987). Respondent failed to satisfy the statutory prerequisites for asserting a setoff.
One of the prerequisites for asserting a setoff under Section 553(a) of the Bankruptcy Code is that the setoff must be based on a "mutual debt." Section 553(a), in relevant part, provides that the provisions of Title 11 do not ". . . affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the [bankruptcy proceeding] . . ." (emphasis added).
A debt owed by a creditor to a bankrupt is a "mutual debt," within the meaning of Section 553(a), if it arose from a different transaction than the debt discharged in bankruptcy. Paris v. Transamerica Insurance Group (In re Buckley & Associates Ins., Inc.), 67 B.R. 331, 334-335 (Bankr. E.D. Tenn. 1986). In Buckley, the court held that the right to a setoff under 11 U.S.C., Section 553(a) can arise whenever two parties owe "mutual" debts to each other that arise out of different transactions. The right of recoupment, however, arises out of a single transaction. The court in Buckley held that the theory of recoupment may not be used by a creditor of the bankrupt to reduce a debt to a Chapter 7 debtor pursuant to Section 553(a).
The right to assert a setoff under Section 553(a) of the Bankruptcy Code does not extend to Respondent in this proceeding. The debt allegedly owed by Respondent to Petitioner, as the assignee of the bankruptcy trustee, is not a mutual debt of the debt discharged in bankruptcy. The two debts did not arise from different transactions. The two debts arose from the same transaction or transactions. 70/ See, In re Dezarn, 96 B.R. 93 (Bankr. E.D. Ky. 1988) (holding that if the indebtedness to a bank is discharged in bankruptcy, the bank no longer has any setoff rights with respect to the debt).

6.05(b) Right To Assert Setoff Under State Law
Setoff is an affirmative defense which must be specifically plead pursuant to Florida Rules of Civil Procedure, Rule 1.110(d). Skaf's Jewelers, Inc. v. Antwerp Import Corp., 150 So.2d 260, 262 (Fla. 2d DCA 1963). Respondent raised the defense of setoff by Motion for Summary Disposition. Respondent's Motion for Summary Disposition is denied. The defense of setoff is not recognized under Florida law as it is asserted by Respondent in this proceeding.
The defense of setoff is recognized as presentable when the basis for the setoff springs from a different transaction than the transaction upon which the claim against Respondent is asserted. Metropolitan Casualty Ins. Co. of New York v. Walker, 9 So.2d 361, 362-363 (Fla. 1942); Jacksonville Paper Co., 2 So.2d at 893; Cherney v. Moody, 413 So.2d 866, 868 (Fla. 1st DCA 1982). See also, Howard Johnson, Inc. v. Florida, 157 F.2d 959, (5th Servs. 1946) (holding that a setoff is a counter demand which a defendant holds against a plaintiff arising out of a transaction extrinsic of the plaintiff's cause of action).
In Cherney, the court found that:
1. study of the subject of setoffs and recoupments brings us to the conclusion that the feature distinguishing a compulsory from a permissive counterclaim is the one that
  also distinguishes a recoupment from a setoff.
  Compulsory counterclaims . . . are
  those springing from the same transaction; permissive are those not having that characteristic. The former, therefore, seem to be recognized as presentable by recoupment; the latter by setoff . . .
  
  Cherney, 413 So.2d at 868. The distinction between setoffs and recoupments has not been abolished in Florida. Id.
In this proceeding, Respondent's defense of setoff is based upon the same transaction or transactions as the transaction or transactions upon which the claim against Respondent is based. The defense of setoff is not recognized under Florida law as presentable under such facts and circumstances.
Assuming arguendo that Respondent is entitled to assert the defense of setoff in this proceeding, Respondent failed to satisfy the burden of proof required to support its claim for setoff. Respondent's claim for setoff is based upon determinations of an overpayment using the prospective method of reimbursement rather than the retrospective method of reimbursement. Respondent failed to document the basis for the disallowances used by Respondent in calculating the overpayment claimed as the basis of its setoff.
The presumption of validity which arose in the bankruptcy proceeding with respect to Respondent's claim against the bankrupt estate does not operate to shift the burden of proof to Petitioner in this proceeding. In Roemelmeyer,
223 So.2d at 753, the court held that excerpts from a bankruptcy creditor's claim schedules did not constitute competent and substantial evidence for the purpose of proving the value of stolen property in an action brought by the bankruptcy trustee against an insurance agent for negligence. 71/ The court predicated its decision on the underlying principle that factual issues, such as proof of actual loss should be subject to cross examination. Roemelmeyer, 223 So.2d at 754.
Although the court in Roemelmeyer held that the bankruptcy schedules constituted inadmissible evidence, the court did not order a new trial on the issue of liability. The court held that the improperly admitted evidence did affect the question of liability. The court based its refusal to order a new trial on a finding that plaintiff's:

case in chief and burden of proof did not revolve on the bankruptcy schedules;
rather, the schedules were tendered purely and simply for the purpose of demonstrating the monetary damages suffered by virtue of the theft. Roemelmeyer, 223 So.2d at 754.
Respondent, unlike the plaintiff in Roemelmeyer, is attempting to use the proof of claim in a bankruptcy proceeding to satisfy its burden of proof and case in chief as to liability and the amount of liability. The rationale in Roemelmeyer precludes the use of a proof of claim from the bankruptcy proceeding for the purpose of satisfying Respondent's burden of proof with regard to Respondent's case in chief.
The statutes and rules relevant to this proceeding form a complex legal framework derived from federal and state statutes, rules, and regulations. The Medicaid program is authorized by Title XIX of the Social Security Act, 42
U.S.C. Sections 1396-96j (1976), and applicable federal regulations ("Title XIX"). At all times material to this proceeding, Title XIX authorized the payment of Medicaid funds to states with "State plans for medical assistance" which had been submitted by the state and which had been approved by the Secretary of Health and Human Services. 42 U.S.C., Section 1396. Section 409.266, Florida Statutes (1975 and 1977), and Section 409.268, Florida Statutes (Supp. 1976 and 1977), authorized Respondent to receive Medicaid funds on behalf of the State of Florida and to administer those funds pursuant to Title XIX.
The Florida Title XIX Long Term Care Reimbursement Plan, as it existed at those times material to this action, was embodied in Florida Administrative Code Rule 10C-7.48 (1/1/77), 72/ and amended by a State Plan Amendment relating to nursing home payment methodology, effective October 1, 1977 (the "Plan") 73/ The State Plan Amendment, in relevant part, changed the method of reimbursement for nursing homes from a retrospective method of reimbursement to a prospective method of reimbursement.
The Plan required each provider in the Florida Medicaid Nursing Home Program to submit a Uniform Cost Report no later than 90 days after the close of its cost reporting year. 74/ Each cost report was required to be prepared by an independent CPA on forms prescribed by Respondent. Each provider was required to prepare cost reports based upon the accrual method of accounting, in accordance with: (a) generally accepted accounting principles established by the American Institute of Certified Public Accountants ("GAAP"); (b) Medicare (Title XVIII) Principles of Reimbursement, Provider Reimbursement Manual ("HIM- 15"); (c) the Plan; (d) applicable state administrative rules; and (e) the States Nursing Home Reimbursement Manual.

6.07(a) Documentation
Petitioner sufficiently documented expenses and their relationship to patient care which were disallowed by Respondent in the aggregate amount of
$344,758.66. The records used by Petitioner to document expenses satisfied applicable requirements of the Plan, HIM-IS, and Respondent's policy regarding field audits.
The records maintained by Petitioner were complete, accurate financial and statistical records for each cost reporting year as required by the Plan. The records were maintained in sufficient detail to substantiate the cost data reported for a period of either three years or until audit findings had been resolved. The fiscal records included books of original entry and supporting documentation from which costs of operation are determined as required by Florida Administrative Code Rule 10C-7.48(7)(c). The accounting system of the provider contained a sufficient number of accounts to allow independent CPAs to prepare a complete cost report.
Cost information developed by Petitioner was current, accurate, and in sufficient detail to support payments made for services rendered to beneficiaries within the meaning of HIM-IS, Section 2300. Cost information was capable of being audited and included all necessary ledgers, books, records and original evidences of cost which pertain to the determination of reasonable
costs. Original evidences of cost included purchase requisitions, purchase orders, vouchers, requisitions for materials, inventories, labor time cards, payrolls, and bases for apportioning costs.
The records submitted by Petitioner included records generally required for documentation of accrued expenses under Respondent's policy field audits. The most typical documentation accepted by Respondent's auditors during a field audit was the original invoice. The original invoice was accepted as sufficient documentation in almost every instance. However, Respondent had no specific guidelines as to how much documentation could be required by an auditor. That decision was left to the professional judgment of each auditor.
The records contained complete, accurate financial and statistical records for each cost reporting year for the time prescribed in the Plan. The records included books of original entry, original invoices, cancelled checks, personnel records, payroll records, payroll journals, paid claim listings, and other supporting documentation from which costs of operation were determined.
The accounting system of the provider contained a sufficient number of accounts to allow an independent CPA to prepare a complete cost report. Florida Administrative Code Rule 10C-7.48(7)(c) (1/1/77). The records required to prepare the cost reports filled approximately 50 boxes. The information was first sorted into logical groups. Cash accounts were then reconciled to each account for each reporting period covered in each cost report. Each check was listed by number, amount, identity of vendor, and category. The cost reports were examined by an independent CPA in accordance with GAAP. The examination included tests of the accounting records and other auditing procedures considered necessary under the circumstances. The records were also reviewed by Respondent's auditors who allowed expenses in the aggregate amount of
$5,446,890.
Respondent's assertion that the documentation presented by Petitioner was insufficient because it was not presented at the time the final audits were conducted is rejected. See H.B.A. Corporation v. Department of Health and Rehabilitative Services, 482 So.2d 461, 468 (Fla. 1st DCA 1986) (holding that 30 days allowed after exit conference to submit additional evidence does not preclude additional evidence at a de novo hearing conducted pursuant to Section 120.57(1), Florida Statutes). The purpose of a proceeding conducted pursuant to Section 120.57(1), Florida Statutes, is to formulate agency action, not to review action taken previously b the agency. Couch Construction Company Inc. v. Department of Transportation, 361 So.2d 172, 176 (Fla. 1st DCA 1978); McDonald
346 So.2d at 584. The functions of a hearing officer in a proceeding conducted under Section 120.57(1) include the consideration of information that is current at the time of the hearing and the formulation of recommendations to correct deficiencies in proposed agency action. Hopwood v. Department of Environmental Regulation, 402 So.2d 1296 (Fla. 1st DCA 1981).

6.07(b) Legal Fees
Expenses incurred by B & K as legal fees in connection with Local 1115 were allowable expenses within the meaning of HIM-IS, Section 2180.1. The legal fees were reasonable expenses incurred in connection with activities related to collective bargaining and not disallowed under HIM-IS, Section 2180.2. The activities for which the expenses were incurred did not directly relate to attempts to influence employees respecting unionization, attempts to coerce employees, or attempts to interfere with or restrain the exercise of employee rights under the National Labor Relations Act. Rather, the expenses
were incurred in defense of a law suit brought by a labor union in an effort to force B & K to acquiesce to the rights of employees under the terms of a contract to which B & K was a stranger.

6.07(c) Section 1122
Property related expenses were improperly disallowed by Respondent on the basis of the Section 1122 issue. Respondent was required by Section 1122(g)(1) to make findings and recommendations with respect to capital expenditures proposed by or on behalf of a health care facility. The lease payments from B & K to Petitioner were not capital expenditures. They were the same kind of lease payments that had been historically allowed by Respondent as currently deductible expenses during the entire time Krestview and Towne House were operated by Wilson. Respondent incorrectly determined that the lease payments were capital expenditures.
Respondent's determination was procedurally deficient under applicable federal law. Respondent did not establish and maintain procedures pursuant to which a person proposing a capital expenditure could appeal a recommendation by Respondent and be granted an opportunity for a fair hearing. Section 1122(g) (3); See discussion at Findings of Fact, paras. 130-133.
Respondent was required by federal regulation to give B&K an opportunity for a fair hearing with respect to any adverse findings made by Respondent. 42 C.F.R. 100.106(c). The mandatory right to a hearing had to provide B & K with 30 days to request a hearing after B & K received notice of an adverse finding or recommendation by Respondent. 42 C.F.R. 100.106(c)(1). The findings of a hearing officer were required to supersede the findings of Respondent to the extent they were inconsistent. 42 C.F.R. 100.106(c)(4). If the hearing officer determined that no capital expenditure occurred, the determination was binding on HEW and HEW would not withhold reimbursement. 42
C.F.R. 100.108.
Respondent presented findings and recommendations to HEW without giving B & K 30 days to request a hearing after B & K received notice of Respondent's findings and recommendations. Respondent's findings and recommendations included the determination that the lease payments made by B & K were capital expenditures and the determination that B & K failed to apply for a review of such capital expenditures. The notice to B & K of Respondent's adverse findings and recommendations was confusing, unclear, and untimely.
Respondent violated applicable provisions of state law by determining the substantial interests of B & K without giving B & K an opportunity for a fair hearing pursuant to Chapter 120, Florida Statutes. Respondent determined the substantial interests of B & K by finding that the lease payments made by B & K were capital expenditures and by finding that B & K had not applied for a review of such capital expenditures. B & K was not given 30 days to request a formal hearing after B & K received notice of either determination. The notice that B & K did receive was confusing, unclear, and untimely. B & K was denied a clear point of entry under state law.

6.07(d) Accrual And Payment
Expenses documented by Petitioner were properly accrued. The records were prepared in accordance with the accrual method of accounting as required by
Florida Administrative Code Rule 10-7.48(7)(c) (1/1/77). Revenue was recorded when earned, regardless of when it was collected, and expenditures were recorded when they were incurred, regardless of when they were paid. HIM-IS, Section 2304.
Expenses claimed in the cost reports either were paid in the ordinary course of business or will have been paid within three years after the end of the cost reporting period in which the liability occurred. Applicable rules generally require the payment of expenses within one year after the end of the cost reporting period in which the liability was incurred. HIM-IS, Section 2302.1. Expenses not paid within one year, may be paid within three years after the end of the cost reporting period in which the liability occurred if sufficient written justification exists for the nonpayment of the expenses within the one year period. HIM-IS, Sec. 2305.
Petitioner presented sufficient written justification based upon documented evidence for the nonpayment of the expenses within one year as required by HIM-IS, Sec. 2305. Examples of valid justification in HIM-IS, Sec. 2305, include cash flow difficulties and accounting errors in the receipt and processing of bills for the cost of goods and services. The cash flow problems B & K faced were caused by Respondent, as were the accounting errors that led to the disallowances of expenses.
Time limitations on the payment of Medicaid expenses which are imposed by HIM-IS, Sections 2302.1 and 2305, are tolled by the filing of a petition in bankruptcy. Efforts to enforce the payment obligations of the bankrupt estate are subject to an automatic stay which arises by operation of law upon the filing of a petition in bankruptcy. 11 U.S.C. Section 362. The petition in bankruptcy was filed on November 15, 1979, within one year after the end of the cost reporting period in which expenses were disallowed for nonpayment. A debtor's claim against third parties is property of the bankrupt estate protected by the automatic stay. In re Viterwy, 81 B.R. 658 (Bankr. M.D. Fla. 1987). /75 The purpose of the automatic stay is to protect the relative position of creditors and to shield debtors from financial pressure during the pendency of the bankruptcy proceeding. Stringer v. Huet (In re Stringer), 847 F.2d 549 (9th Servs. 1988).
The file of the bankruptcy court was not closed until August 27, 1987. The claim against Respondent was assigned to Petitioner by the bankruptcy trustee pursuant to the order of the bankruptcy court entered on September 24, 1982. This proceeding began on June 18, 1987. /76
Respondent makes the unsupported claim that it will have to pay twice if it is required to pay Petitioner's claim for underpayment. Respondent claims that federal funds needed to reimburse B & K for its lease payments were withdrawn by HEW after Respondent recommended that reimbursement of the lease payments should be withheld. Since the money has already been paid by Respondent to the federal government, Respondent argues that it should not be required to pay Petitioner.
The potential for double payment, if any, is the result of action undertaken by Respondent without reasonable care. 77/ Action undertaken even gratuitously must be performed with reasonable care. Tri-State Systems, Inc. v. Department of Transportation, 500 So.2d 212, 216 (Fla. 1st DCA 1986); See also, Washington v. Kirksey, 811 F.2d 561 (11th Servs. 1987) (holding that even though the action of an Alabama school board was unavoidable, the school board could

not take such action in a manner that denied its employee due process). 78/ The financial consequences that result from such action by Respondent should not be passed on to Petitioner on the basis of equity, as that term is defined by Respondent.

7. RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that:

Respondent allow expenses claimed in the five cost reports in accordance with the findings of fact and conclusions of law set forth herein; and
Respondent pay to Petitioner unreimbursed expenses in the amount of
$447,473.34, together with interest to which Petitioner may be entitled under applicable statutes and rules, if any.
Jurisdiction over the amount of attorney's fees to be paid pursuant to the order of Hearing Officer Kiesling is retained for disposition by the undersigned after a separate formal hearing to be conducted only in the event the parties cannot agree on the amount of attorney's fees to be paid.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this day of July, 1991.

DANIEL MANRY

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 2nd day of July, 1991.

ENDNOTES

1/ The five cost reports cover the fiscal years ending May 31, 1978, May 31, 1979, and the three month period ending August 31, 1979. Three of the cost reports are for Krestview for the fiscal years ending May 31, 1978, May 31, 1979, and the three month period ending August 31, 1979. Two of the cost reports are for Towne House for the fiscal year ending May 31, 1979, and the three month period ending August 31, 1979.

2/ The audit report pertained to the cost report submitted for Krestview for the fiscal year ending May 31, 1978.

3/ The Order On Pending Motions also denied Respondent's Request for Oral Argument, denied Respondent's Motion for Extension of Time to Answer Interrogatories, and denied Respondent's Motion to Dismiss.

4/ A copy of the provider agreement for the operation of Towne House, if any, is not included in the record.

5/ The two methods of reimbursement are discussed at Findings of Fact, Sec. 5.12, infra.

6/ An agreement between Petitioner, B & K, Respondent, and Keller was originally executed on June 27, 1977, when the stock of B & K was owned by Petitioner. After the stock of B & K was transferred to an unrelated third party, a conditional agreement was executed for Krestview. The conditional agreement was effective from October 7, 1977, through September 30, 1978. It is

dated on November 1, 1977, for Krestview and on November 14, 1977, for Respondent. An unconditional agreement was signed by representatives of Krestview on December 1, 1977, and by representatives of Respondent on December 19, 1977. See Joint Exhibit 1. No similar agreement for Towne House was included in Joint Exhibit 1. In a separate administrative proceeding, however, it was found that the provider agreement between B & K and Respondent did not prohibit retrospective reimbursement for underpayment. See G & J Invs. Corp. v. Department of Health & Rehabilitative Servs., 6 F.A.L.R. 3788 (Fla. Dept. of Health & Rehabilitative Servs.), appeal dismissed, No. BA-57 (Fla. 1st DCA Nov. 5, 1984) and discussion infra. The provision relied upon for the finding of fact in the separate proceeding appears in both the conditional and unconditional agreement.

7/ B & K actually had miscellaneous income in the amount of $9,181. The amount of the miscellaneous income, however, was de minimis.

8/ See R-1 through R-3. 9/ See R-4 and R-5.

10/ Respondent filed a proof of claim against B&K in the bankruptcy court in the amount of $1,179,278.51 for Medicaid overpayment made to B&K by Respondent.

11/ See: KAR 5/31/78, paras. 26-28, and 36; KAR 5/31/79, paras. 23, 24, 26, and 27; KAR 8/31/79, paras. 1B-20, and 22; TAR 5/31/79, paras. 11-13; and TAR 8/31/79, paras. 1-17.

12/ The use of federal funds for capital expenditures in connection with Medicaid expenses is governed by 42 U.S.C., Section 1320 a - 1, Section 1122, as added to Title XIX by Public Law 92-603, and 42 C.F.R. 100.101 through 100.109. Relevant provisions in 42 U.S.C., Section 1320 a - 1 and 42 C.F.R. 100.101 through 100.109 explicate the definitions and applications relevant to Section 1122. The Medicaid program was authorized by Title XIX of the Social Security Act, 42 U.S.C. Sections 1396-96j (1976). Title XIX authorized the payment of federal Medicaid funds to states which had submitted state plans for medical assistance approved by the Secretary of Health and Human Services. Respondent was authorized by Section 409.266, Florida Statutes (1975 and 1977), and by Section 409.268j Florida Statutes, (Supp. 1976 and 1977), to receive such federal funds and administer the funds pursuant to Title XIX.

13/ See: KAR 5/31/78, paras. 28 and 36; KAR 5/31/79, paras. 26 and 27; KAR 8/31/79, paras. 19 and 22; TAR 5/31/79, paras. 11 and 13; and TAR 8/31/79, paras. 16 and 17.

14/ See: KAR 8/31/79, paras. 18 and 20; TAR 5/31/79, para. 12; and TAR

8/31/79, para. 15.

15/	See	KAR	5/31/78,	para. 27.
16/	See	KAR	5/31/78,	para. 26.
17/	See	KAR	5/31/79,	paras. 23 and 24

18/ See: KAR 5/31/78, para. 20; KAR 5/31/79, para. 4, 6, 9, 13, 14, 16, 17,

20-22, 30, 33, 35, 36, 38, 39, 42, 43, 45, 47, 48, 50, and 52; KAR 8/31/79,

paras. 1, 3, 5-15, 17, and 23-36; TAR 5/31/79, paras. 7, 15, 17, 20, 22, and 25;

and TAR 8/31/79, paras. 1, 2, 4 and 5, 7, 9, 10, 18, 20, 23, 24,; 27, 29,32, 36,

and 38;

19/ See: KAR 5/31/78, paras. 41, 46, and 53; KAR 5/31/79, paras. 41, 44, 46,

and 49; TAR 5/31/79, paras. 16, 19, 21, and 24; and TAR 8/31/79, paras. 26, 31,

34, and 39.

20/ See: KAR 5/31/79, paras. 2, 3, 5, 10, 12, 15, 18, 25, 28, 29, 34, and 40;

KAR 8/31/79, paras. 2 and 21; TAR 5/31/79, paras. 5, 6, and 10; and TAR 8/31/79,

para. 14.

21/ See: TAR 5/31/79, para. 9; and TAR 8/31/79, paras. 3, 6, 8, 11-13, 19, 21,

22, 25, 28, 30, 33, 35, 37, and 40-43.

22/ Property related expenses in the amount of $202,680 which were disallowed as unpaid are not included in expenses unrelated to property in the amount of

$340,731 which were disallowed for reasons other than the lack of documentation. 23/ See KAR 5/31/78, paras. 3, 21, 23, 33, 42, 47, 54, and 62.

24/ See KAR 5/31/78, para. 9.

25/ See KAR 5/31/79, para. 54; and KAR 8/31/79, para. 37. 26/ See KAR 5/31/78, paras. 14 and 15.

27/ The stated amount of expenses disallowed for this reason is the net amount. The gross amount of expenses disallowed for this reason is $70,094. However, Towne House was allowed expenses in the amount of $32,100. See: KAR 5/31/78, paras. 2, 4, 6, 7, 10, and 51; KAR 5/31/79, paras. 1, 7, 8, 11, and 31; KAR 8/31/79, para. 4; and TAR 5/31/79, paras. 1-4.

28/ See: KAR 5/31/78, paras. 13, and 65-67; KAR 5/31/79, paras. 37, 51, and

53; TAR 5/31/79, paras. 23, and 26; and TAR 8/31/79, para. 44.

29/ See: KAR 5/31/79, para. 19; and TAR 5/31/79, para. 8.

30/ See KAR 5/31/78, paras. 11, 18, 22, and 61.

31/ See: KAR 5/31/78, paras. 29, 30, and 35; and KAR 5/31/79, para. 32. The amount of disallowance is a net amount calculated after taking into account allowances and disallowances for this category of expense.

32/ See KAR 5/31/78, paras. 5,12,38, and 59.

33/ See: KAR 5/31/78, para. 50.

34/ See: KAR 5/31/78, paras. 16, 17, 19, 24, 25, 31, 32, 34, 40, 43, 45, 48,

52, 55, 57, 58, 63, and 68; and TAR 5/31/79, paras. 14 and 18. The net amount of the adjustments is zero.

35/ The total amount of expenses unrelated to property which were disallowed as expenses of the previous owner was $34,456. Petitioner admitted to the correctness of disallowances in the amount of $19,764.

36/ If the issues were addressed during the formal hearing, the issue becomes the sufficiency of proof presented with respect to those issues.

37/ The mandatory limits are used in computing the net amount of underpayment and are not items of disallowances.

38/ Expenses unrelated to property were disallowed as attributable to the previous owner in the amount of $34,456. Petitioner admitted prior to the formal hearing that expenses in the amount of $19,764 were proper. Petitioner, however, failed to address during the formal hearing expenses in the amount of

$14,692 which were not admitted prior to the formal hearing.

39/ The total amount of expenses disallowed as attributable to the previous owner was $34,607. Petitioner presented evidence during the formal hearing relevant to expenses in the amount of $13,799.34 which were disallowed as already paid or covered by another program.

40/ Expenses unrelated to property were disallowed in the total amount of

$34,607 as already paid or covered by another program. Petitioner failed to address expenses in the amount of $20,807.66 during the formal hearing. The mathematical complement in the amount of $13,799.34 was addressed during the formal hearing and must be determined in this Recommended Order.

41/ The Bankruptcy Code of 1978, 11 U.S.C. Secs. 101-1330, was enacted on November 6, 1978, pursuant to The Bankruptcy Reform Act of 1978 (Pub. L. No. 95- 598). The Bankruptcy Code of 1978 superseded The Bankruptcy Act of 1898, as amended.

42/ The trustee of a bankrupt corporation succeeds to the title of the corporation as to all rights both at common law and statutory law. U.S. for Use and Benefit of Baruch v. Paul Hardeman, Inc., 260 F. Supp 723 (M.D. Fla. 1966). After commencement of a bankruptcy proceeding, a corporate debtor is no longer the real party in interest in a state court law suit because claims asserted by the debtor become the property of the estate. In the Matter of Raymond Const.

Co. of Florida, Inc., 6 B.R. 793 (Bankr. M.D. Fla. 1980). See discussion in Conclusions of Law, Sec. 6.02, infra.

43/ The services of Consultants were offered on a contingency basis by Keller. Keller was the common shareholder of the parent of both Consultants and Petitioner. Keller had an obvious interest in providing the services of Consultants on a contingent basis since Petitioner had a secured claim against the bankrupt for administrative expenses and past due rent in the aggregate amount of $397,750.65.

44/ The correct amount of the claim was $30,000 and not $35,000.

45/ The written offer included a description of the hazards of litigation, i.e., obstacles to the collection of the remaining asset of the bankrupt, including the expense, difficulties, and delays anticipated in pressing the claim for monies due from Respondent.

46/ The cost reports for the fiscal year ending May 31, 1978, for Krestview and Towne House were originally submitted by B & K on November 1, 1978. The final audits of those cost reports was completed on December 26, 1979, for Krestview and on February 15, 1980, for Towne House. B & K filed for bankruptcy on August 3, 1979, before the final audits were completed. Petitioner submitted a cost report to replace the one originally filed for Krestview for the fiscal year ending on May 31, 1978. The cost report for Towne House for the same period is not at

47/ The total amount disallowed in TAR 8/31/79 for insufficient documentation totaled only $24,103. Expenses claimed to have been documented by Petitioner in the amount of $65,607 exceeds disallowed expenses by $41,504. Of that excess,

$37,994 is attributable to expenses reallocated between facilities. The disallowance of expenses allocated between facilities in the amount of $37,994 is discussed in Findings of Fact, Section 5.08, infra. The difference between

$41,504 and $37,994 has been disregarded.

48/ Respondent objected to the admissibility of the documentation used by Petitioner to determine the amount of underpayment claimed by Petitioner. See discussion in Conclusions of Law, Sec. 6.01, infra.

49/ The opinions and findings of the certified public accountants are not beyond the scope of permissible expert opinion authorized in Secs. 90.701 through 90.705, Fla. Stat.

50/ The original amount disallowed on the basis of the Section 1122 issue was

$962,426. Approximately $153,373 of the amount, was also disallowed as paid to a related party or attributable to the prior period. Petitioner admitted prior to the formal hearing that the amount of $153,373 was properly disallowed as paid to a related party or attributable to the prior period. Of the remaining

$809,053 disallowed on the basis of the Section 1122 issue, $202,680 was disallowed for the additional reason that it was never paid and $30,448 was disallowed as undocumented. The issue of documentation is discussed at Findings of Fact, Sec. 5.04 supra. The issue of payment is discussed at Findings of Fact, Sec. 5.10 infra.

51/ Evidence in the form of expert testimony presented by Respondent during the formal hearing characterized Respondent's determinations alternatively as either a simplified determinations or as determinations, findings, or recommendations with a lower case "d", a "f", or "r".

52/ The determination was characterized as an "implied" determination in expert testimony presented by Respondent.

53/ No deficiency is attributed to the suddenness of the response from the federal government. Applicable provisions under Sec. 1122 required that the state agency give the provider an opportunity for a fair hearing before presenting findings and recommendations to HEW. It can be fairly implied that the federal government assumed that Respondent had complied with the requirement to give B & K an opportunity for a fair hearing.

54/ Even though the obligation of B & K for unpaid rent totaled $397,750.65, the audit reports disallowed only $198,403 in unpaid rent. Payment of the difference of $199,347 is not at issue in this proceeding because it was not disallowed as unpaid.

55/ The legal significance of whether Respondent's actions were undertaken with reasonable care is discussed in Conclusions of Law, para. 91, infra.

56/ It Is unnecessary to determine whether the proceeding began when Petitioner requested a formal hearing on June 18, 1987, or when Petitioner's request for a formal hearing was referred to the Division of Administrative Hearings on July 9, 1987. Both dates preceded the closing of the bankruptcy case.

57/ Neither the one year period nor the three year period ever began to run with respect to expenses incurred in the three month period ending August 31, 1979, because the petition in bankruptcy preceded the date when both periods should have started.

58/ This is an oversimplified explanation of how the per diem rate is calculated. In actual practice, the methods of determining final rates involves various levels of care for which separate rates are used in the calculations of final rates. This explanation conforms to the expert testimony given presented by Respondent which assumed an average level of care.

59/ The allowance of nine percent was eliminated effective February 14, 1980.

60/ The conditional provider agreement and the unconditional provider agreement were executed by Respondent after the effective date of Respondent's adoption of the prospective method of reimbursement. See discussion at Findings of Fact, para. 14, N. 6 supra.

61/ The rent expenses were improperly disallowed after the improperly disallowed expenses are taken into account, expert testimony established an underpayment of approximately $90,000 for the fiscal year ending 5/31/78, using the prospective method of reimbursement. Recovery of such an underpayment would have increased the final rate paid in subsequent rate application periods.

62/ Rulings on authenticity and hearsay apply to numerous exhibits including Petitioner's Exhibits: 147-156, 158, 158(a), 159, 161-179, 181, 184-198, 200,

202-206, 207, 209, and 210. Transcript of November 28, 1989, at 11:00 a.m.,

page 7.

63/ The transcript of the record at the formal hearing discloses the following discussion between counsel for Respondent and the hearing officer regarding the testimony of J-2:

(Counsel) : Yes, sir, that is the only major exhibit, major composite exhibit.

(Hearing Officer): . . . There is no issue then with respect to these joint exhibits.

They are admitted by stipulation? (Counsel): Yes, sir.

64/ Exhibits admissible as party admissions include: Petitioner's Exhibits 13, 24, 199, and 204-205; and Respondent's Exhibits 1-5, 16,

65/ The gross amount of overpayment in J-17 in the amount $745,037 exceeds the gross amount of the overpayment testified to by Petitioner's expert in the

amount of $698,875. The amount of the net overpayment after reduction for ceilings is $359,229.01 in J-17 and $528,879 according to Petitioner's expert. The net amount in J-17, however, does not take into account the fiscal year ending May 31, 1978.

66/ Forbearance to enforce a legal right is sufficient to form a contract if the asserted claim is colorable or the claimant has a bona fide belief that the enforcement of the legal right would be successful. Matey v. Pruitt, 510 So.2d 351, 353 (Fla. 2d DCA 1987). See also, Vining v. Sutton, 242 So.2d 730 (Fla. 3d DCA 1971) (holding that asserted claim must be colorable); Henderson v.

Kendrick, 89 So. 635 (Fla. 1921); Uwanawich v. Gaudini, 334 So.2d 116 (Fla. 3d

DCA) cert. denied, 341 So.2d 1086 (Fla. 1976).

67/ See also, In re Teltronics Services, Inc., 762 F.2d 185 (2d Cir. N.Y. 1985) (holding that all claims belonging to a corporate bankrupt vest in the trustee in bankruptcy); In the Matter of Raymond Const. Co. of Florida, Inc., 6 B.R. 793 (Bankr. M.D. Fla. 1980) (holding that after the commencement of a bankruptcy proceeding, a corporate debtor is not the real party in interest in a state court claim asserted by the debtor).

68/ A discharge under Chapter 7 is provided only to an individual debtor. Since a corporate debtor is liquidated, it is unnecessary to provide it with a discharge. Diego v. Zamost (In re Zamost), 7 B.R. 859 (Bkrtcy. S.D. Calif.

1980).

69/ None of the exceptions to the right of setoff in Section 553 of the Bankruptcy Code preclude Respondent from asserting a setoff against Petitioner. Exceptions to the right of setoff in Section 553 are limited to circumstances in which: the creditor's claim is disallowed; the creditor acquired the claim during the 90 days preceding the filing of the bankruptcy petition while the debtor was insolvent; the debt being offset was incurred for the purpose of obtaining a right of setoff, while the debtor was insolvent and during the 90- day bankruptcy period. There is no competent and substantial evidence that any of the exceptions in Section 553 preclude Respondent from asserting a right to setoff.

APPENDIX TO RECOMMENDED ORDER CASE NO. 87-2888

Petitioner has submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. The paragraphs in Petitioner's proposed findings of fact are unnumbered. The number in the column captioned "Proposed Finding of Fact Number" refers to the unnumbered paragraph. The first unnumbered paragraph in "I. FACTUAL BACKGROUND" is referred to by the number L. The second unnumbered paragraph is referred to by the number 2. This pattern of reference continues from page 2 through page 30 of the proposed findings of fact. Since proposed findings of fact and conclusions of law are not separated, some "proposed findings of fact" are rejected as "conclusions of law."

Petitioner's Proposed Findings of Fact

Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1-6 Rejected as conclusion of law

		or preliminary statement
7		Accepted in findings 23,24
8		Rejected as conclusion of law
9		Accepted in part in findings 26, 27
		(characterizations are
		rejected as not supported
		by the evidence)
10		Accepted in findings 93
11		Accepted in finding 95
12		Accepted in finding 96
13-15		Rejected as conclusions of law
16		Accepted in findings 112-114
17		Rejected in part and
		accepted in part in findings 112-114
18		Accepted in findings 104-107
19		Rejected in findings 112-114
20		Rejected as conclusion of law
21		Accepted in findings 115-123
22		Accepted in findings 101-103
23		Accepted in findings 95-100
24-27		Rejected as conclusions of law
28-29,	32	Accepted in findings 70-83
30-31		Rejected as conclusions of law
33-35		Accepted in findings 88-92
36-39		Accepted in findings 124-136
40-45		Accepted in finding 87
46-48		Accepted in findings 156-159
49-51		Rejected as conclusions of law

Respondent submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted.

Respondent's Proposed Findings of Fact

Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection

1	Accepted	in	findings 20-22
2	Accepted	in	findings 2-3
3	Accepted	in	finding 5
4	Accepted	in	finding 17
5	Accepted	in	findings 56-59
6	Accepted	in	findings 60-64
7-10	Accepted	in	findings 22-23
	and 67-69
11-12	Accepted	in	finding 157
13	Rejected	as	conclusions of law
14	Accepted	in	findings 4, 11
15-17	Accepted	in	part in findings 101-103

(proposed findings regarding the scope of the inquiry are rejected as unsupported by the evidence)

Accepted in finding 114
Rejected in findings 118-123

20-21 Accepted in findings 111, 121

22 Accepted in part in finding 122 (proposed finding that procedure for reconsideration under federal law satisfied requirement for fair hearing before making findings and recommendations is rejected

as conclusion of law)

23-24 Rejected as irrelevant and immaterial

25-31 Rejected for the reasons stated in findings 16, 155

Accepted in findings 9-10
Accepted in finding 122
Rejected in finding 83
Accepted in findings 60-64
Accepted in part in finding 48 (proposed findings regarding
the quantity of proof submitted are rejected as conclusions of law)
Rejected as irrelevant and immaterial (the expenses were disallowed in the audit reports for other reasons)
Rejected as irrelevant and immaterial (expenses were improperly disallowed after taking the information into consideration)
Accepted in finding 50

COPIES FURNISHED:

Gary Clarke Assistant Secretary

Department of Health and Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, FL 32399-0700

John Slye, Esquire General Counsel

Department of Health and Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, FL 32399-0700

Sam Power, Clerk Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, FL 32399-0700

R. Stuart Huff, Esquire Mark L. Mallios, Esquire

Law Offices of R. Stuart Huff

330 Alhambra Circle

Coral Gables, Florida 33134

Melissa F. Allaman, Esquire William H. Garvin, III, Esquire Ervin, Varn, Jacobs, Odom & Ervin Post Office Drawer 1170

305 South Gadsden Street Tallahassee, Florida 32302

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

G & J INVESTMENTS CORPORATION,

Petitioner,

vs. DOAH CASE NO. 87-2888

DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES,

Respondent.

FINAL ORDER

The issue presented by this proceeding is whether the Department of Health and Rehabilitative Services ("HRS") owes to G&J Investments Corporation ("G&J"), as the assignee of B&K Investments, Inc. ("B&K"), any retroactive payments under the Medicaid program and, if so, the amount of the payments. A recommended order has been submitted to HRS and is attached hereto.

Although the findings of fact in the recommended order are not presented in the sequence and manner most likely to elicit a clear understanding of what happened, with the exception of the findings of fact, conclusions of law, interpretations of administrative rules and recommendations which are expressly rejected below, HRS is compelled to adopt the recommended order. However, after a review of the complete record, and adopting only those findings of fact contained in the recommended order which are based upon competent substantial evidence, HRS concludes that, under the applicable law, HRS owes no Medicaid payments to G&J.

The Claim of G&J

As will be further explained below, under the Medicaid program, Medicaid payments are made from the public fisc to a health-care provider as reimbursement for allowable costs incurred by the health-care provider in the provision of health care to an eligible Medicaid recipient. Between May 5, 1977, and August 31, 1979, G&J's assignor, B&K, operated two nursing homes: Krestview and Towne House. The retroactive Medicaid payments sought by G&J are
for costs which were disallowed by HRS for the period when B&K operated Krestview and Towne House. The costs were disallowed for various reasons, which are explained below. G&J also claims that some Medicaid payments were withheld from B&K while B&K was operating the two nursing homes. Whether the payments were actually withheld will be discussed below. In August 1979, B&K went into bankruptcy, and in 1982, G&J, who was one of B&K's creditors, purchased from B&K's bankruptcy trustee any claim B&K may have had for retroactive Medicaid payments.

Although HRS has always maintained that HRS is not permitted by law to make retroactive Medicaid payments, G&J nevertheless gained permission in 1984 to submit to HRS cost reports, which are explained below, for auditing to determine whether underpayments were made to B&K between May 5, 1977, and August 31, 1979, the period when B&K operated the two nursing homes. An accounting entity related to G&J, Consultants, prepared the cost reports and presented them to HRS for audit. As a result of the audit, HRS determined that B&K had received
$1,125,910 in Medicaid overpayment for the period when B&K operated the two nursing homes. The present proceeding follows from G&J's dissatisfaction with the results of the HRS audit.
The Amount at Issue

A preliminary issue, which the hearing officer sought to determine, is the actual amount claimed by G&J. Because HRS has concluded that, under the applicable law, HRS owes no Medicaid payments to G&J, the actual amount claimed is not pertinent to these proceedings. Because of ambiguities in the record and in the recommended order, the amount claimed by G&J is not clear. If this order should be overturned in whole or in part, the amount claimed by G&J will become an issue.
1. The Recommended Order
  
  Paragraphs 24 through 49, 156 and 159 of the findings of fact and paragraphs 24 through 26 of the conclusions of law are those paragraphs of the recommended order which are relevant to this issue.
  1. Rejected Findings of Fact
    
    After a review of the complete record, HRS rejects the following findings of fact, none of which are based upon competent substantial evidence: the second sentence of paragraph 24; the first and second sentences of paragraph 42; the second and fourth sentences of paragraph 45; the second sentence of paragraph 47; the first sentence of paragraph 48; paragraph 49; the first and second sentences, the first clause of the fourth sentence, and the sixth sentence of paragraph 156; and the first and second sentences of paragraph 159.
  2. Rejected Conclusions of Law
    
    The following conclusions of law, which are labeled as such, are rejected: the first and second sentences of paragraph 25; and paragraph 26.
2. G&J's Prehearing Stipulation: $300,000
  
  Although not addressed by the hearing officer, in its prehearing stipulation, G&J stated that its claim was for "approximately" $300,000. During the period at issue, G&J owned the land, buildings and equipment of Krestview and Towne House and, therefore, B&K was G&J's tenant. The $300,000 claimed by
  G&J consists of Medicaid payments which allegedly would be reimbursement for rents B&K owed to its landlord, G&J. Some of these Medicaid payments for rent were allegedly withheld from B&K.
3. The Swindling Testimony: $528,879
  
  G&J's expert, Swindling, testified at the formal hearing that the gross amount of underpayment claimed by G&J was $698,875. Swindling further testified that once this gross amount was reduced by Medicaid class ceilings, which are explained below, the net amount of underpayment claimed by G&J was $528,879.
  Because it was not revealed to HRS in response to discovery on the eve of the formal hearing, this Swindling testimony should have been excluded from evidence.
  
  During his deposition a few weeks before the formal hearing, Swindling testified that he had no opinion as to the amount of underpayment claimed by G&J. [Respondent's Exhibit 20.] In response to an interrogatory on November 27, 1989, the day before the formal hearing began, G&J's response revealed no change in the Swindling testimony on the amount of underpayment. [November 29, 1989, 4:00 P.M. Transcript at 36-37, 41-42; Respondent's Exhibit 21.]
  
  The hearing officer concluded that the Swindling testimony at the formal hearing was not revealed in an untimely manner and, therefore, that it was admissible. The hearing officer reached this conclusion because the rules of evidence do not require that responses to discovery requests be updated. The hearing officer's ruling completely ignores the fact, however, that HRS served, just prior to the formal hearing, supplemental interrogatories calculated to reveal any change in the Swindling testimony. The changed nature of the Swindling testimony was not revealed to HRS in G&J's responses to HRS's interrogatories.
  
  The hearing officer further concluded that HRS was not prejudiced by the admission of the Swindling testimony. The hearing officer based this conclusion on two factors. First, at the time G&J purchased B&K's claim for underpayments, B&K represented to the bankruptcy court that the gross amount of underpayment was $745,037. Second, G&J's cost reports state the gross amount of underpayment to be $729,727. The hearing officer concluded that there was no prejudice because the Swindling testimony stated an amount less that either of these two amounts.
  
  The hearing officer's conclusion erroneously elevated the bankruptcy representation and the cost reports to the level of opinion testimony.
  Furthermore, the net amount of the bankruptcy representation, after reduction for class ceilings, was actually $359,229. [Joint Exhibit 17.] This amount is less, not more, than the Swindling testimony. The net amount claimed in the cost reports is not clear. [Joint Exhibit 2.]
  
  Because HRS was led to believe there would be no opinion testimony as to the amount of underpayment, HRS was deprived of any opportunity to analyze Swindling's opinions, to investigate the rationale for the opinions or to effectively cross-examine Swindling on the basis of his analysis and opinions. In light of this obvious attempt by G&J to spring a trap with the Swindling testimony, the hearing officer erred in allowing the Swindling testimony at the formal hearing. As stated by the Florida Third District Court of Appeal:
  
  The requisite prejudice in such cases does not depend upon proof that the testimony was adverse in nature,
  but only that the objecting party was surprised in fact. [Citation omitted.] It is equally clear from the record that Capital Bank was without the ability to cure the prejudice, and that G&J's noncompliance with the pretrial order was not in good faith. We have repeatedly condemned such "ambush" tactics.
  
  Capital Bank v. G&J Invs. Corp., 468 So.2d 534, 535 (Fla. 3rd DCA 1985).
  
  There is no meaningful distinction between the failure to reveal an expert before trial in violation of a pretrial order in Capital Bank, and the failure to reveal expert testimony before the formal hearing in this proceeding, where HRS's supplemental interrogatories imposed a duty to reveal the nature of G&J's expert testimony. The Swindling testimony should not have been considered by the hearing officer; to permit the Swindling testimony was error. See Binder v. Kind Pest Control, 401 So.2d 1310, 1313-15 (Fla. 1981).
4. G&J's Representation to the Bankruptcy Court:
  $359,229
  
  When G&J purchased from B&K's bankruptcy trustee any claim B&K may have had for retroactive Medicaid payments, G&J represented to the bankruptcy court that the net amount of underpayment was $359,229. [Joint Exhibit 17.]
5. The Cost Reports: ?
  
  In the cost reports presented to HRS for audit, G&J claims that the gross amount of underpayment is $729,727. The net amount claimed is not clear. [Joint Exhibit 2.]
6. The Hearing Officer's Calculations: $1,362,925
The hearing officer, through a series of extensive calculations, concluded that the total amount of Medicaid payments disallowed by HRS was $1,748,636.
However, because some costs were disallowed for multiple reasons, it appears that the hearing officer may have counted some disallowed costs more than once. The hearing officer correctly determined that some disallowances were admitted by G&J to be proper, and that G&J failed to carry its burden as to other disallowances. The hearing officer concluded that the gross amount at issue is
$1,362,925.

Through a series of calculations which are unclear, the hearing officer appears to be satisfied that the $1,362,925 figure can be reconciled with the Swindling testimony. This is not at all self-evident. In any event, if any part of this order is overturned, with a resulting necessity of payment to G&J, it will be necessary to remand this proceeding for a calculation of the amount of underpayment therefore actually due.
The Medicaid Program

At all times material to this proceeding, the Social Security Act, 42

Sections 1396-1396j (1976), included the Medicaid program, 42 U.S.C. Sections 1396-1396j (1976). The Medicaid program describes its purpose and authorizes appropriations there for as follows:

For the purpose of enabling each State, as far as practicable under the conditions in such State, to
furnish (1) medical assistance on behalf of families with dependent children and of aged, blind, or disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services, and (2) rehabilitation and other services to help such families and individuals attain or retain capability for indepen- dence or self-care, there is hereby authorized to be appropriated for each fiscal year a sum sufficient to carry out the purposes of this subchapter. The sums made available under this section shall be used for making payments to States which have submitted, and had approved by the Secretary of Health, Education and Welfare ["HEW"], State plans for medical assistance.

42 U.S.C. Section 1396 (1976).

The Medicaid program authorizes the payment of federal funds to states which have submitted and have had approved by HEW "State plans for medical assistance." 42 U.S.C. Section 1396 (1976). At all times material to this proceeding, section 409.266, Florida Statutes (1975 & 1977), authorized HRS to receive such funds on behalf of the State of Florida and administer them to provide medical assistance to eligible persons. At all times material to this proceeding, section 409.268, Florida Statutes (Supp. 1976 & 1977), required any nursing home entering into a contract with the state for the purpose of providing such medical assistance to eligible persons to fully comply with all contracts and state and federal rules and standards promulgated under the medical assistance program.
1. The Recommended Order
  
  Paragraphs 14 and 133 through 155 of the findings of fact and paragraphs 27 through 33 and 70 through 72 of the conclusions of law are those paragraphs of the recommended order which are relevant to this issue.
  1. Rejected Conclusions of Law Mislabeled as "Findings of Fact"
    
    The following conclusions of law are mislabeled as "findings of fact" and are rejected: the second and third sentences of paragraph 14; and paragraphs
    133 through 155.
  2. Rejected Conclusions of Law
    
    The following conclusions of law, which are labeled as such, are rejected: the first sentence of paragraph 31; and paragraph 71.
2. The Plan
  
  At all times material to this proceeding, as required by the Medicaid program, Florida had a state plan for medical assistance, which was entitled the "Florida Title XIX Long Term Care Reimbursement Plan" [hereinafter the Plan]. 1/ In its relevant part, the Plan provides as follows:
  1. Cost Finding and Cost Reporting
    1. Each provider ... participating in the Florida Medicaid Nursing Home Program will
      submit a Uniform Cost Report no later than ninety (90) days after the close of its cost reporting year...
    2. All providers are required to detail their costs for their entire reporting year and in newly constructed facilities for the period of participation in the plan, if less than the full cost reporting year, for allowable costs under the Florida State Plan. The cost report must be prepared by the facility's independent Certified Public Accountant, on the forms prescribed by the Department of Health and Rehabilitative Services (HRS) and on the accrual basis in accordance with generally accepted accounting principles as established by the American Institute of Certified Public Accountants, the methods of reimbursement in accordance with Medicare (Title XVIII) Principles of Reimbursement, Provider Reimbursement Manual (HIM-15), the approved State Medicaid Plan, State of Florida Rules, and the States Nursing Home Reimbursement Manual ... Should a provider not file an acceptable cost report within 90 days after the close of its reporting period and the new rate, when finally established, is less than the previous rate, then the new rate will be retroactive to the first of the fourth month following the end of the provider's reporting year and recovery of any overpayment will be made....
  2. Audits
    
    Description of State's Procedures for Audits - General: Primary responsibility for the audit of providers will be borne by HRS. ... HRS shall determine the scope and format for on-site audits and desk reviews of the cost reports and financial records of providers. All cost reports will be desk reviewed within six months after their submission
    to HRS. All audits shall be based on generally accepted auditing standards of the AICPA and G.A.O. Specified Allowable Costs as described in Section III, Allowable Costs, for the computation of the cost of various services provided are based on the Provider Reimbursement Manual (HIM-15) promulgated by DHEW and similar publications, requirements of licensure and certification, and the definition of the service. The standards, desk reviews and on- site audits will be sufficient to ensure that only expense items allowable under the Plan are included in the cost report and are accurately determined, are allocable to the program and are reasonable.
3. Overpayments for those years or partial year determined by audit or desk review using prior approved State Plans will be reimbursable to HRS. Refunds for cost reimbursed after October 1, 1977 will be based on audits and desk
  reviews which indicate that the provider's cost report was incorrectly prepared...
4. Based on desk reviews, nursing homes shall be selected for on-site audits when it has been determined that expense items included in the cost report do not meet the requirements of allowable costs described in Section III of the Plan.

Allowable Costs

The following items of expense are allowable costs under the Plan:

C. Implicit in any definition of allowable costs is that those costs should not exceed what a prudent and cost conscious buyer pays for a given service or item. If costs are determined by HRS, utilizing the Title XVIII Principles
of Reimbursement, HIM-15 and this Plan, to exceed the level that a prudent buyer would incur then the excess costs would not be reimbursable under the Plan.
1. Costs applicable to services, facilities, and supplies furnished to a provider by organiza- tions related to a provider by common ownership or control will be governed by Medicare (Title
  XVIII) Principles of Reimbursement and HIM-15. Providers must identify such related organizations and costs in their Cost Report.
2. Costs which are otherwise allowable will be limited by the following provisions:
Standards and Methods Used to Determine Reasonable Cost-Related Payment Rates
1. Standards:
  1. Cost related class ceilings will be determined prospectively and will be
    effective annually on each October 1.
    All cost reports received as of each June
    30 will be used to establish these rates.
  2. Class ceilings will be set at a level which the State determines to be adequate to reimburse the allowable and reasonable cost of an economically and efficiently operated facility. This class ceiling will be the maximum amount paid to any provider in that class.
  3. Establishment of prospective class ceilings and an individual provider's reimbursement rate will reasonably take into account economic conditions and trends during the time periods covered by the payment rates.
  4. New or expanded services ... will be reimbursed at the time these services are offered to the patients, based upon a budget approved by HRS. Such
    budgets will be subject to desk review and audit. Upon completion of the desk review, new rates will be established using ... the cost report. Overpayments determined on audit as a result of differences between the budget and actual
    costs shall be refunded to HRS. New reim- bursement rates will not exceed the established class ceilings.
  5. Participation in the program will be limited to providers of service who accept as payment in full, the amounts paid in accordance with the rate structure.
  6. A provider's reimbursement for services provided under the Florida Medicaid
  Program will be the lower of: (a) the provider's usual and customary charges to the general public for such services or (b) the rates established for
  the provider under the class reimbursement plan. The rates will be determined annually based on the provider's submitted cost report.
  1. Prospective class ceilings will be established state-wide for each level of care and will be related to state-wide occupancy levels...
  2. The prospectively determined individual provider's rate will be adjusted if: (a) the information supplied by a particular
    provider is later found to be incorrect through error or intentional misrepresen- tation; ... or (c) other circumstances
    as determined applicable by HRS. Such adjustment shall not exceed the class ceiling established for each level of care.
  3. For a new provider in the Medicaid Nursing Home Program with no cost history, the prospective rate for each level of care
  shall be the lesser of: (a) class ceilings, (b) approved budget, (c) state- wide average cost....
2. Method
  1. Class Ceilings
    
    State-wide rates for each level of care will be determined based on the latest acceptable cost reports received by HRS as of each June 30 and shall be effective each October 1st....
  2. Individual Provider Reimbursement Rates
    
    All providers will be reimbursed the lower of the class ceiling or the cost of providing services to Medicaid patients such costs to be defined and adjusted by this plan.
    
    b. Each provider's cost shall be adjusted by applying an inflationary factor based on the predicted CPI.
    1. Based on ... the cost report the adjusted costs are used to derive the per diem rate for each level of care.
    2. The rates derived will be effective on the first day of the month
      following the month the cost report is received until such time as the next cost report is received or as provided for in f. below.
    3. If a provider's calculated per diem rate exceeds the class ceiling, he
      will receive the class ceiling. This rate will be effective until the following October 1st. If the class ceiling for that October 1st is changed, the provider will receive the lower of the new class ceiling
      or his computed rate based on his last cost report. This rate will be effective until a new cost report is filed.
    4. The individual provider's reimburse- ment rate for each level of care will
    be multiplied by 365 or 366 days and divided by 12 to determine the monthly payment.
    
    F. Prospective Rates
    
    Payment rates to providers will be determined prospectively and as required by 42 CFR 450.30 will be redetermined annually.
    
    VIII. Payment in Full
    
    Participation in the program shall be limited to providers of service who accept, as payment in full, the amounts paid in accordance with the State Plan.
    
    The Plan paras. I(A), (B), II(C), (D), III(C), (F), (G)(2), IV(A) (2)-(7), (9)- (11), (B)(1), (2)(b), (d)-(g), (F), VIII.
3. HRS Regulations Regarding Nursing Home Participation in the Medicaid Program
  
  At all times material to this proceeding, HRS promulgated regulations regarding nursing home participation in the Medicaid program. 2/ In their relevant part, the HRS regulations provide as follows:
  1. Requirements for participation in the Medicaid nursing care program are as follows:
    1. Execution of a provider agreement for participation in the Medicaid Program attached hereto as Appendix II and made a part hereof by reference...
    2. A cost report will be submitted as
      prescribed by [HRS] to cover the facility's fiscal year, within 90 days after the end of the cost report period....
  2. The following rules apply relative to reimbursement for nursing home care:
  1. To determine the cost settlement and the facility's rate for the following period, the facility shall submit a cost report prepared by an independent Certified Public Accountant firm. The report must be prepared on the forms prescribed by [HRS] and in conformity with accepted accounting principles as established by the American Institute of Certified Public Accountants and the methods of reimbursement outlined in the Department of Health, Education and Welfare publication, Provider Reimbursement Manual
    (HIM-15)... The facility agrees to maintain complete accurate fiscal records, including books of original entry and supporting documentation from which costs of operation are determined, that are applicable to Medicaid recipients for whom the facility has claimed and receive payment. These records, including those of any organization related to the facility by common ownership or control which has furnished services, facilities, or supplies to the facility, will be made available for audit upon request from authorized representatives of [HRS].... The books must be prepared following the accrual systems of accounting... The accounting systems must contain a sufficient number of accounts to allow the independent Certified Public Accountant to prepare a complete cost report....
  2. The facility payment rates shall be made effective the first day of the month following the receipt of the cost report by [HRS].
  3. Reports for periods other than those as specified in Section 7.48(6)(c) shall not be used as a basis for determining retroactive facility rate adjust- ments or facility rate determination.
  4. For a new facility in the Medicaid Program
    with no cost history, an interim cost per diem rate shall be established based upon the method used by Medicare.
    For an existing facility under bona fide new ownership, the previous owner's costs or a county-wide average whichever is higher may be used to establish interim rates...
    1. Retroactive payment shall not be made to nursing homes whose cost exceeds annual payment, an allowance of nine (9%) percent is provided in lieu of this. The allowance in lieu of retroactive adjustments
      will be increased by one-half of one percent on an annual basis for each rating category which exceeds the minimum standards as determined by [HRS]. Recovery of overpayment will be effected either by a mutually acceptable plan of repayment or if no mutually acceptable plan can be negotiated, [HRS] may withhold regular payments to the facility after opportunity for fair hearing is offered and, if requested, completed and a decision is rendered....
      
      Fla. Admin. Code Rule 10C-7.48(6)(b), (c), (7)(c)-(f), (i) (1/1/1977 & 10/1/1977).
4. The Standard Provider Agreement
  
  At all times material to this proceeding, the Skilled Nursing Home Care/Intermediate Care Facility Agreement for Participation in Florida's Medical Assistance Program [hereinafter the Standard Provider Agreement] was attached to the HRS regulations quoted above and made a par thereof by reference. 3/ Fla.
  Admin. Code Rule 10C-7.48(6)(b) (1/1/1977 & 10/1/1977). The Standard Provider Agreement provides, in its relevant part, as follows:
  
  As reflected in the individual patient agreement executed between the Provider and [HRS], the maximum recognized rate of Medicaid reimbursement established for the Provider (Medicaid vendor payment plus patient share) will be considered as payment in full for room, board, institutional (non-personal) laundry, professional nursing care and related services, and supplies and equipment as defined in the Medicaid Nursing Home Manual. Computer generated Institutional Care statements request- ing payment for a given period, shall constitute a valid invoice if completely and accurately executed and signature certified. Any change in the nursing home/intermediate care facility rate, financial resources of the recipient, absence of the recipient, or change in the facility's rate as determined by [HRS], shall terminate the individual agreement(s) and require the execution of a new individual agreement(s).
  
  The payment of any monies on behalf of a Medicaid recipient for a specified period of service which results in an amount received by the Provider in excess of that amount to which the Provider is entitled, shall be reported and refunded to [HRS]. In those instances where an overpayment circumstance is due to recipient error, there shall be no repayment demand imposed upon the Provider. In those instances of overpayment due to [HRS] errors in eligibility investigation and determination, there likewise shall be no imposition of responsibility upon the Provider. Overpayment attributable to manual
  or mechanical miscalculation or miscue resulting in a payment amount to which the Provider is not entitled, shall be refunded when identified and requested.
  
  In instances of non-payment or underpayment conditions due to error(s) not attributable to Provider who has furnished nursing home services and care to persons properly certified and eligible, [HRS] shall make payment to the Provider upon receipt of properly completed claims documents.
  
  A cost report will be submitted as prescribed by [HRS] to cover the facility's fiscal year, ... within 90 days after the end of the cost report period. Medicaid cost reporting will be accomplished in accordance with applicable procedures and methods detailed in the Medicare Provider Reimbursement Manual HIM-15. Non- compliance with these provisions may result in the reduction or interception of vendor payments after proper notice to Provider assuring his right of appeal and fair hearing.
  Both the Provider and [HRS] hereby agree to recognize and abide by all State and Federal Laws, Regulations, and Guidelines applicable to participation in and administra- tion of, the Title XIX Medicaid Program.
  
  The Standard Provider Agreement paras. [2]-[6].
5. Medicaid Payment Rates and Amounts
  
  At all times material to this proceeding, the Plan, the HRS regulations and the standard Provider Agreement quoted above provided the method for determining Medicaid payment rates and the amounts to be paid to nursing homes participating in the Medicaid program, including Krestview and Towne House.
  1. Prospective Per Diem Rate
    
    Payment rates for nursing homes are determined prospectively and are redetermined annually. The Plan para. IV(F). A nursing home is required to submit to HRS a cost report no later than ninety days after the close of the nursing home's cost-reporting year. The Plan para. I(A); Fla. Admin. Code Rule 10C-7.48(6)(c) (1/1/1977 & 10/1/1977); the Standard Provider Agreement para. [5]. The cost report must be prepared in accordance with generally accepted accounting principles, HEW's "Medicare Provider Reimbursement Manual" ("HIM- 15"), the Plan and rules promulgated by HRS. The Plan para. I(B); Fla. Admin. Code Rule 10C-7.48(7)(c) (1/1/1977 & 10/1/1977); the Standard Provider Agreement para. [5].
    
    Upon receipt by HRS, the cost reports are desk reviewed, using the same standards required in the preparation of the cost reports. If necessary, HRS will conduct an on-site audit of the cost report. The standards, desk reviews and on-site audits are to ensure that only expense items allowable under the Plan are included in the cost report, and that the expense items are accurately determined and reasonable. The Plan para. II.
    
    After the cost report has been audited using the standards required by the Plan and HRS regulations, the nursing home's allowable costs for the cost- reporting year are adjusted by applying an inflationary factor based on the predicted consumer price index. The Plan para. IV(B)(2)(b). The adjusted costs are used to derive the nursing home's per diem rate, the rate to be paid for each patient day. The Plan para. IV(B)(2)(d). The per diem rate is multiplied by 365 or 366 days to determine an annual rate per patient, which is divided by twelve to determine a monthly rate per patient. The Plan para. IV(B)(2)(g).
    The rate derived, as limited by "class ceilings," which are explained below, will be effective on the first day of the month following the month the cost report was received from the nursing home, and until such time as the next cost report is received from the nursing home. The Plan para. IV(B)(2)(e); Fla.
    Admin. Code Rule 10C-7.48(7)(d) (1/1/1977 & 10/1/1977). A nursing home's prospective rate will be adjusted if the information supplied by the nursing home to establish that rate is later found to be incorrect through error or intentional misrepresentation, or under other circumstances determined applicable by HRS. The Plan para. IV(A)(10).
  2. Class Ceilings
    
    Class ceilings for nursing homes participating in the Medicaid program are established by using all acceptable cost reports received from participating nursing homes during the course of the year. The Plan paras. IV(A)(2), (B)(1).
    Class ceilings are set at a level which the state determines to be adequate to reimburse the allowable and reasonable cost of an economically and efficiently operated nursing home. The Plan para. IV(A)(3). If a nursing home's calculated per diem rate exceeds the class ceiling, the nursing home will receive the class ceiling. The Plan para. IV(B)(2)(f). In other words, the nursing home will receive the lower of the calculated per diem rate or the class ceiling. The Plan paras. IV(A)(7), (B)(2).
  3. Interim "Prospective" Rate Budget
    
    Of course, during a nursing home's first cost-reporting year as a participant in the Medicaid program, or under new ownership, there is no previous cost report from which to calculate a prospective per diem rate. Therefore, an interim "prospective" rate must be assigned. This interim rate, which is subject to desk review and on-site audit, is based upon a budget approved by HRS, as limited by the class ceiling. The Plan paras. IV(A)(5), (11); Fla. Admin. Code Rule 10C-7.48(7)(f) (1/1/1977 & 10/1/1977).
  4. Monthly Payment
    
    Because occupancy levels can change from month to month, a nursing home submits to HRS a monthly statement of its total patient days for the month, in order to provide an accurate monthly multiplier for its per diem rate. A computer generated statement, if completely and accurately executed and signature certified, will constitute a valid invoice of patient days. The Standard Provider Agreement at para. [2]. Generally, if an overpayment results from an inaccurate statement attributable to a miscalculation, the over payment will be refunded to HRS. However, if the overpayment is the result of error on the part of a patient or HRS regarding a determination of the patient's eligibility for Medicaid, the nursing home need not refund the overpayment. The Standard Provider Agreement para. [3]. If there is an underpayment not attributable to the nursing home, and the nursing home has furnished nursing home services and care to an eligible patient, HRS will pay the nursing home upon receipt of a properly completed claim document. The Standard provider Agreement para. [4].
  5. Retroactive Annual Rate
    
    The audit of a cost report is used not only to establish a prospective per diem rate for the nursing home's following cost-reporting year; the audit will obviously also reveal whether the annual payment for the just-ended cost- reporting year deviated from the nursing home's actual allowable costs during the just-ended cost-reporting year. The cost report's actual allowable costs will establish a retroactive annual rate for the just-ended cost-reporting year. Fla. Admin. Code Rule 10C-7.48(7)(e) (1/1/1977 & 10/1/1977).
    
    If there has been an overpayment to the nursing home because the actual allowable costs were less than the annual payment received, recovery of the overpayment will be effected either by a mutually acceptable plan of repayment or by withholding future regular payments to the facility, after notice and an opportunity for fair hearing. The Plan paras. 11(C), IV(A)(5); Fla. Admin. Code Rule 10C-7.48(7)(i) (1/1/1977 & 10/1/1977); the Standard Provider Agreement para. [3]. If there has been an underpayment to the nursing home because the actual allowable costs were greater than the annual payment received, no retroactive payment will be made to the nursing home. Fla. Admin. Code Rule 10C-7.48(7)(i) (1/1/1977 & 10/1/1977). Instead, an allowance of up to nine
    percent above the prospective per diem rate is provided during the cost- reporting year following the determination of underpayment. Fla. Admin. Code Rule 10C-7.48(7)(i) (1/1/1977 & 10/1/1977).
  6. Payment in Full
    
    Fundamental to the Medicaid program is the principle that participation in the program is limited to providers of service who accept, as payment in full, the amount paid in accordance with the Plan. The Plan paras. IV(A)(6), VIII; the Standard Provider Agreement para. [2].
6. The Hearing Officer's Erroneous Conclusion that a Retroactive Payment May Be Made to a Nursing Home If the Audit of a Cost Report Reveals an Underpayment During a Previous Cost-Reporting Year

Despite the foregoing laws and regulations, the hearing officer concluded that, at the times material to this proceeding, a retroactive payment may be made to a nursing home if the audit of a cost report reveals an underpayment during a previous cost-reporting year.

HRS Is Not Estopped by Res Judicata

The hearing officer's erroneous conclusion is based on an erroneous conclusion that HRS is estopped by certain conclusions of law in the recommended order in G&J Investments Corp. v. Department of Health & Rehabilitative Services, 6 F.A.L.R. 3788 (Fla. Dept. of Health & Rehabilitative Servs. May 17, 1984), appeal dismissed, No. BA-57 (Fla. 1st DCA Nov. 5, 1984) [hereinafter G&J
v. HRS I]. The hearing officer concluded that the rejected conclusions of law in G&J v. HRS I were actually findings of fact. Therefore, the hearing officer concluded that the rejection of those conclusions of law in the final order was ineffective and that the conclusions of law became a part of the final order.

The hearing officer is in error. The relevant conclusions of law rejected in G&J v. HRS I were interpretations of administrative rules. As such, the conclusions of law were properly labeled conclusions of law. The agency in its final order may reject or modify conclusions of law and interpretations of administrative rules in a recommended order. Fla. Stat. Section 120.57(1)(b)(9) (1983).
The Relevant Conclusions of Law in the Recommended Order in G&J HRS I Were Erroneous

The hearing officer in G&J v. HRS I concluded that, at the times material to this proceeding, a retroactive payment could be made to a nursing home if the audit of a cost report reveals an underpayment during a previous cost-reporting year. The hearing officer's analysis in G&J v. HRS I was confined to a single sentence from the relevant HRS regulations and a single sentence from the Standard Provider Agreement. The hearing officer in G&J v. HRS I did not address the other relevant laws and regulations which are quoted and discussed above.

"Costs" and "Annual Payment"

Confronted with the first sentence of Florida Administrative Code Rule 10C- 7.48(7)(i) (1/1/1977 & 10/1/1977) (later codified at Fla. Admin. Code Rule 10C- 7.48(6)(i) (12/29/1977)), the hearing officer in G&J v. HRS I was unable to discern the meaning of "costs" and "annual payment." However, in the context of the Plan, the HRS regulations regarding nursing home participation in the Medicaid program and the Standard Provider Agreement, the definition of "costs" and the definition of "annual payment," for purposes of rule 10C-7.48(7)(i), become obvious. "Costs" are those allowable costs incurred by a nursing home during the course of its cost-reporting year. "Annual payment" is the total Medicaid amount paid to a nursing home during the course of its cost-reporting year. Both of these sums are derived from the audit of a cost report following the cost-reporting year.
The Eight Per Diem Rate Changes

The hearing officer in G&J v. HRS I was also influenced by the fact that, between Krestview and Towne House, B&K experienced eight changes in its per diem rates during a twelve-month period extending from 1978 to 1979. However, the hearing officer in G&J v. HRS I made no findings regarding the bases for these per diem rate changes, or whether they were increases or decreases or both.
B&K's first cost-reporting year ended on May 31, 1978, and it originally submitted its first cost reports, two months late, on November 1, 1978. At least one prospective per diem rate change each for Krestview and Towne House would result from the audit following the end of the previous cost-reporting year. The Plan para. IV(B)(2); Fla. Admin. Code Rule 10C-7.48(7)(d) (1/1/1977 & 10/1/1977).

Furthermore, a nursing home's prospective per diem rate will be adjusted during the cost-reporting year if the information supplied by the nursing home to establish the prospective per diem rate is later found to be incorrect through error or intentional misrepresentation or under other circumstances determined applicable by HRS. The Plan para. IV(A)(10). From the hearing officer's findings of fact in the present proceeding several bases for changes in the prospective per diem rate can be discerned: the disallowance of the 1976 and 1977 property taxes as allowable costs, the disallowances for failure to submit documentation, the disallowance of rental payments from B&K to G&J when both B&K and G&J were owned by the same entity, and the disallowance of rental payments as a result of B&K's failure to submit a proposal for review as required by section 1122 of the Social Security Act.

Each of these disallowances, and the ongoing audit involving B&K's first cost reports, would result not only in demands for repayment of overpayments which resulted during the previous cost-reporting year. The disallowances, as each was determined, would also alter the bases for the determination of Krestview's and Towne House's prospective per diem rates. Therefore, the prospective per diem rates during the cost-reporting year in which the prospective per diem rates were being paid would also be altered. Additionally, during their first cost-reporting years of operation by B&K, Krestview and Towne House were on budgets set by HRS, interim rates, rather than prospectively- determined rates. These interim rates were subject to audit and adjustment.
The Plan paras. IV(A)(5), (11); Fla. Admin. Code Rule 10C-7.48(7)(f) (1/1/1977 & 10/1/1977).

Given the numerous grounds upon which such a change may be made, the prospective or interim per diem rates for Krestview and Towne House may have
changed during the cost-reporting years in which those rates were being paid. However, this fact does not support the conclusion that a retroactive payment may be made to a nursing home if the audit of a cost report reveals an underpayment during a previous cost-reporting year.
The December 1980 Instructions

Nor is this conclusion supported by the December 1980 publication of "Instructions to Cost Reports for Nursing Homes Participating in the Florida Medicaid Program." The hearing officer in G&J v. HRS I concluded that these instructions contained specific provisions to determine an overpayment or underpayment. However, this publication was not published during the times material to this proceeding. Nor does the hearing officer in G&J v. HRS I explain why the determination of an underpayment would entitle the nursing home to a retroactive payment following the cost-reporting year in which the underpayment occurred.

The determination of an overpayment or underpayment in the just-ended cost- reporting year is an inevitable result of the audit of a cost report. Once allowable costs are determined, a determination necessary to set a prospective rate, and the annual payment made is determined, one need only subtract the smaller sum from the greater sum to determine the amount of the underpayment or overpayment. Doing so may serve several purposes, such as collecting overpayments, feeding budgetary analyses or setting prospective class ceilings, but it does not entitle the nursing home to a retroactive payment.
"Claims Documents"

The hearing officer in G&J v. HRS I also concluded that the sentence which comprises the fourth paragraph of the Standard Provider Agreement allows retroactive payment to a nursing home if the audit of a cost report reveals an underpayment during a previous cost-reporting year. The hearing officer in G&J

v. HRS I felt that a cost report was a "claims document." This conclusion is based on a single sentence taken out of context and completely ignores the Plan, the HRS regulations and the surrounding language of the Standard Provider Agreement.

Reading paragraph 4 of the Standard Provider Agreement in context with paragraphs 2 and 3, as well as with the Plan and the HRS regulations, it is obvious that "claims documents" are those statements or invoices by which a nursing home reports to HRS its total patient days for the month, in order to provide an accurate monthly multiplier for its per diem rate. Paragraph 2 of the Standard Provider Agreement speaks in terms of payment for an individual patient. Paragraphs 3 and 4 of the Standard Provider Agreement addresses instances of overpayment and underpayment resulting from care of an individual patient, and provide when such overpayment or underpayment may be corrected.

None of these provisions address cost reports.

E "Liquidated Damages"

Finally, the hearing officer in G&J v. HRS I sought to distinguish Pan American Hospital Corp. v. Department of Health & Rehabilitative Services, 433 So.2d 568 (Fla. 3rd DCA 1983), from the present proceeding. In Pan American Hospital Corp., a hospital sought retroactive Medicaid payments for allowable costs incurred in providing inpatient hospital services during previous cost- reporting years. Id. at 569. Retroactive payment was denied because the provider agreement for inpatient hospital services revealed that no retroactive

payments would be made for underpayments, and because the provider agreement provided a remedy for underpayments in the form of a percentage allowance for the year in lieu of retroactive payments. Id. at 570 & n.2.

The recommended order in Pan American Hospital Corp. states as follows: The form agreement between petitioner and respon-

dent, which they renewed annually, states: "It is

understood that reimbursement will be made on the basis of an interim payment plan in the form of a per diem cost rate, plus a percentage allowance for the year in lieu

of retroactive payment adjustment. However, ... in the event the hospital did not receive its audited reasonable costs in the year prior to the current year there the hospital may deduct from the refund the prior year deficiency." ... The agreement thus contemplated under- reimbursement and specified the method for recoupment,

if there was to be any. Any "retroactive payment adjustment," as the result of administrative proceedings or otherwise, is specifically ruled out.

Id. at 570 n.2 (emphasis added).

The hearing officer in Pan American Hospital Corp. concluded that the provisions of the provider agreement the hospital entered into operated in much the same way as a liquidated damages clause and precluded retroactive payments. The hearing officer in Pan American Hospital Corp. further concluded that "there is surely an overriding public policy requiring that a contractor with state government who voluntarily agrees to forego a claim against the public fisc be held to that agreement in administrative proceedings like these." Id. HRS agreed and the court of appeal affirmed. Id. at 371 & n.3.

Pan American Hospital Corp. is not distinguishable from the present proceeding. The provider agreement in Pan American Hospital Corp. provided for a percentage allowance for the year in lieu of retroactive payments. Id. at 570

n.2. This is in keeping with the then-current HRS regulations regarding inpatient hospital service provider participation in the Medicaid program. Those regulations provided: "In lieu of retroactive adjustments, 6% shall be added to a participating hospital's costs to determine a current reimbursement rate." Fla. Admin. Code Rule 10C-7.39(5) (1/1/1977 & 3/30/1978) (subsequently codified at Fla. Admin. Code Rule 10C-7.39(6) (1/2/1979)).

The Standard Provider Agreement involved in the present proceeding expressly provides that a participating nursing home must "abide by all State and Federal Laws, Regulations and Guidelines applicable to participation in" the Medicaid program. The Standard Provider Agreement para. [6]. Thus, the Standard Provider Agreement incorporates Florida Administrative Code Rule 10C- 7.48(7)(i) (1/1/1977 & 10/1/1977), which provides: Retroactive payment shall not be made to nursing homes whose cost exceeds annual payment, an allowance of nine (9%) percent is provided in lieu of this." Thus, under both the provider agreement in Pan American Hospital Corp. and the Standard Provider Agreement involved in the present proceeding, the provider has agreed to "liquidated damages" in lieu of retroactive payments.

G. G&J Is Not Entitled to Retroactive Payment for Any Underpayments to B&K that Nay Have Occurred During the Times at Issue in This Proceeding

Assuming, for the sake of argument, that B&K was underpaid during Krestview's and Towne House's cost-reporting years, and further assuming that G&J would be entitled to reimbursement for any underpayment to which B&K would have been entitled, G&J is not entitled to any payment because retroactive payments may not be made to a nursing home if the audit of a cost report reveals an underpayment during a previous cost reporting year. In lieu of retroactive payment, G&J would be entitled to an allowance of up to nine percent above the prospective per diem rate during a subsequent cost-reporting year.

However, in the present proceeding, Krestview and Towne House were no longer operated by B&K following the cost-reporting years at issue. Therefore, G&J, which as the successor to B&K is bound by Florida Administrative Code Rule 10C-7.48(7)(i) (1/1/1977 & 10/1/1977), is entitled to no retroactive payment or allowance in lieu thereof. Fundamental to the Medicaid program is the principle that participation in the program is limited to providers of service who accept as payment in full, the amount paid in accordance with the Plan. The Plan para. IV (A)(6), VIII; the Standard Provider Agreement para. [2]. B&K voluntarily agreed to this system of Medicaid payment and G&J, B&K's assignee, must be held to that agreement.

Disallowances for Insufficient Cost Documentation

G&J claims an underpayment for costs which were disallowed for insufficient documentation of the costs. Even were G&J entitled to retroactive payments, these amounts may not be paid to G&J because the costs were properly disallowed.
1. The Recommended Order
  
  Paragraphs 70 through 77 of the findings of fact and paragraphs 4 through
  23 and 73 through 79 of the conclusions of law are those paragraphs of the recommended order which are relevant to this issue.
  1. Rejected Findings of Fact After a review of the complete record, HRS rejects the following findings of fact, none of which are based upon competent substantial evidence: paragraphs 71 through 75; and paragraph 77.
    
    After a review of the complete record, HRS rejects the following findings of fact, to the extent that they are findings of fact and not conclusions of law mislabeled as "findings of fact," because they are not based upon competent substantial evidence: paragraph 70.
  2. Rejected Conclusions of Law Mislabeled as "Findings of Fact"
    
    The following conclusions of law are mislabeled as "findings of fact" and are rejected: paragraph 70.
  3. Rejected Conclusions of Law
  The following conclusions of law, which are labeled as such, are rejected: paragraph 5; the second clause of the second sentence of paragraph 6; paragraph 9; the first and fourth sentences of paragraph 10; the first sentence of paragraph 18; paragraph 19; the first sentence of paragraph 20; the first sentence of paragraph 21; the first sentence of paragraph 22; paragraphs 73 through 77; and the first through eighth sentences of paragraph 78.
2. Cost Documentation
  
  At all times material to this proceeding, HIM-15 provided in its relevant part as follows:
  
  Cost information as developed by the provider must be current, accurate, and in sufficient detail to support payments made for services rendered to beneficiaries. This includes all ledgers, books, records arid original evidences of cost (purchase requisitions, purchase orders, vouchers, requisitions for materials, inven- tories, labor time cards, payrolls, bases for apportion- ing costs, etc.), which pertain to the determination of reasonable cost, capable of being audited.
  
  HIM-15 Section 2304.
  
  It is undisputed that the documentation at issue here was not made available to HRS during the audit of the cost reports at issue in this proceeding. Therefore, HRS properly disallowed the costs for insufficient documentation. The issue in this proceeding is whether G&J has now sufficiently documented at the formal hearing the previously-undocumented costs. The issue, therefore, turns on whether the documents G&J has "discovered" since the audits are admissible in evidence so as to change the results of those audits.
  1. Lack of Authenticity
    
    Authentication of evidence is required as a condition precedent to its admissibility. Fla. Stat. Section 90.901 (1989). The evidence at issue was purportedly among documents obtained from B&K's accountant following court action in 1980, and has purportedly been in the hands of G&J or its related- party accountant since that date. The identity and number of the custodians prior to the documents' possession by B&K's accountant, however, is unknown. In other words, during the period at issue in this proceeding, the cost-reporting years of Krestview and Towne House, it is unknown in whose hands, and how many hands, these documents may have been. It is unknown whether the documents even existed, at least in their present form, during the period at issue.
    
    The hearing officer concluded that the documents are of such extent and volume that the potential for viable fraud was unlikely. In fact, the volume and ostensive age of the documents complicates the task of ascertaining whether inaccuracies and misallocations exist in the documents and whether the inaccuracies and misallocations are the result of honest error or otherwise.
    G&J offered no witnesses having direct knowledge of the documents or of the record-keeping process of the nursing homes, that might confirm the authenticity or accuracy of the documents, or explain the ambiguities and notations contained within the documents.
    
    The record-keeping requirements of HIM-15 exist to document expenses for payment from the public fisc. The sums claimed here are large. Admission of the documents without any live witness with direct knowledge of their contents effectively deprived HRS of it is right to cross-examination as to the contents of the documents. Where, as in this proceeding, the purported relevance of the documents went far beyond the mere existence of the documents, to the substance and accuracy of entries in the documents, the hearing officer erred in admitting the documents over HRS's authenticity objections. See Harwell v. Blake, 180 So.2d 173, 175 (Fla. 2nd DCA 1965).
  2. The Hearsay Does Not Merely Supplement or Explain Other Evidence
    
    It is undisputed that the documents are hearsay. However, otherwise inadmissible hearsay may support an agency determination if corroborated by other competent substantial evidence. Spicer v. Metro. Dade County, 458 So.2d 792, 794 (Fla. 3rd DCA 1984); Fla. Stat. Section 120.58(1) (a) (1989). The
    hearing officer erroneously concluded that the documents merely explain or supplement other evidence and are, therefore, admissible under section 120.58(1) (a), Florida Statutes (1989).
    
    The hearing officer admitted the hearsay documents into evidence on the ground that they merely explain and supplement the cost reports prepared by G&J. However, the documents are the ostensive source of the information contained in the cost reports, information which is in dispute. In essence, the hearing officer admitted evidence which had been used by the adverse party to create more evidence which the prior evidence now merely "supplements and explains." This is not a proper application of section 120.58(a)(1). The result is no different than if the hearsay were admitted to explain and supplement itself.
    
    G&J cannot bootstrap into evidence documents that are summarized in the cost reports by claiming that the otherwise inadmissible documents "explain or supplement" the cost reports. This tactic ignores the fact that HRS is effectively deprived of its right to challenge the content of the hearsay because there are no witnesses that have direct knowledge of the underlying transactions, and who may be cross-examined regarding that knowledge. The content of the documents is rendered unimpeachable in the absence of witnesses to, or other direct evidence of, the underlying transactions. The avoidance of such a prejudicial effect provides the rationale for tempering admission of hearsay evidence with the requirement that the offering party produce other, competent, evidence of the facts sought to be proven. G&J failed to present such other evidence.
  3. The Documents Are Not Admissions by HRS
    
    An admission is a statement offered against a party and is his own statement, and includes statements authorized by him or made by his agent within the scope of the agency. Fla. Stat. Section 90.803(18) (1989). The hearing officer found that Petitioner's Exhibits 13, 24, 199, 204 and 205; and Respondent's Exhibits 1 through 5 and 16 were admissions. Most of the exhibits are not relevant to the insufficient documentation issue. Only Petitioner's Exhibit 199 involves the hearsay documents here at issue.
    
    Although Petitioner's Exhibits 24, 204 and 205 are statements by HRS which were offered into evidence by G&J and are, therefore, admissions, the remaining exhibits are not admissions. Petitioner's Exhibit 13 is a statement by B&K, G&J's predecessor in interest and is, therefore, not an admission. Respondent's Exhibits 1 through 5 are HRS's own audit reports and are, therefore, not admissions. They are, however, admissible under the public records exception to the hearsay rule, Fla. Stat. Section 90.803(8) (1989). Respondent's Exhibit 16 is a statement by HRS and is, therefore, not an admission. It was, however, admitted without objection as a part of Joint Exhibit 5.
    
    Turning to the exhibit relevant to the insufficient documentation issue, Petitioner's Exhibit 199 is, in reality, a part of a composite exhibit introduced as Petitioner's Exhibits 198 and 199. This composite exhibit
    consists of an annotated copy of HRS's responses to interrogatories, to which additional documents, purportedly some of the cost documentation here at issue, have been attached by G&J. The cost documentation is not an admission by HRS.
    
    Even if, by the reference to Petitioner's Exhibit 199, the hearing officer intended to admit only that portion of the composite exhibit that consists of HRS's responses, which by themselves would be admissions, the handwritten annotations have been added to the face of HRS's responses by someone other than HRS. The alteration of and additions to HRS's responses is such that the interrogatory responses, as introduced, no longer constitute a statement by HRS being offered against HRS. If G&J wished to have HRS's responses to interrogatories admitted into evidence under the admissions exception to the hearsay rule, it should have offered the original or a clean unaltered copy of HRS's responses.
3. Because the Documents Are Inadmissible, There Is Insufficient Cost Documentation
The documents upon which G&J relied at the formal hearing to justify those costs which were disallowed because insufficiently documented are inadmissible on two independent grounds. First, the documents were not authenticated.
Second, the documents are hearsay for which no exception exists. On either ground, the documents are not reliable evidence and, indeed, by their ostensive age, nature and lack of control, are very likely to be unreliable.

As unauthenticated and hearsay documents not susceptible to cross examination, the documents should have been excluded, and the failure to exclude the documents was an error. Without the documents, there is no competent substantial evidence upon which to premise the hearing officer's conclusion that there was sufficient documentation of the costs at issue. Therefore, the insufficiently documented costs were properly disallowed pursuant to section 2304 of HIM-15.
Disallowance for Costs for Activities Interfering with or Restraining the Exercise of Employee Rights Under the National Labor Relations Act

G&J claims an underpayment for costs which were disallowed as costs for activities interfering with or restraining the exercise of employee rights under the National Labor Relations Act ("the NLRA"). Even were G&J entitled to retroactive payments, these amounts may not be paid to G&J because the costs were properly disallowed.
1. The Recommended Order
  
  Paragraphs 7 and 88 through 92 of the findings of fact and paragraph 80 of the conclusions of law are those paragraphs of the recommended order which are relevant to this issue.
  1. Rejected Findings of Fact
    
    After a review of the complete record, HRS rejects the following findings of fact, none of which are based upon competent substantial evidence: paragraph 7; and paragraph 89.
    
    After a review of the complete record, HRS rejects the following findings of fact, to the extent that they are findings of fact and not conclusions of law
    mislabeled as "findings of fact," because they are not based upon competent substantial evidence: paragraph 88; and paragraph 92.
  2. Rejected Conclusions of Law Mislabeled as "Findings of Fact"
    
    The following conclusions of law are mislabeled as "findings of fact" and are rejected: paragraph 88; and paragraph 92.
  3. Rejected Conclusions of Law
    
    The following conclusions of law, which are labeled as such, are rejected: paragraph 80.
2. Activities interfering With or Restraining the Exercise of Employee Rights Under the National Labor Relations Act
  
  At all times material to this proceeding, HIM-15 provided in its relevant part as follows:
  
  Costs incurred for activities directly related to influencing employees respecting unionization or related to attempts to coerce employees or otherwise interfer with or restrain the exercise of employee rights under the NLRA are not allowable costs for program purposes.
  Such costs are unallowable whether such activities are performed directly by the provider or through an indepen- dent contractor, consultant or outside attorney.
  
  HIM-15 Section 2180.1 (emphasis added).
3. Local 1115 v. B&K
  
  The facts relevant to this disallowance are found in Local 1115 Joint Board Nursing Home & Hospital Employees v. B&K Investments, Inc., 436 F. Supp. 1203 (S.D. Fla. 1977) [hereinafter Local 1115 v. B&K]. During the period of operation of Krestview and Towne House by Wilson, B&K's predecessor, Wilson entered into collective-bargaining contracts with Local 1115. Id. at 1205.
  After B&K acquired Krestview and Towne House from Wilson, the operation of the nursing homes was substantially the same as under Wilson and substantially the same employees continued to be employed. Id.
  
  Although B&K recognized Local 1115 as the official bargaining entity for the employees, B&K refused to be bound by the collective-bargaining contracts. Local 1115 sought a commitment from B&K that B&K would honor the provision in each collective-bargaining contract that "[t]his agreement shall be binding upon' the parties, their successors and assigns" or, alternatively, a commitment to arbitrate the rights and duties of the parties under the successorship clauses, pursuant to the collective-bargaining contracts' arbitration clauses.
  Having failed to obtain either of these commitments, Local 1115 petitioned in federal court to compel arbitration under the collective-bargaining contracts. Id. at 1206.
  
  The federal court found that B&K had taken over the assets of Wilson after extensive negotiations; had continued the operation of the nursing homes in substantially the same manner in which Wilson had operated them; and had
  stipulated with Local 1115 that B&K retained substantially all Wilson's former employees, thus establishing a "substantial continuity of identity of the work force." Under the controlling cases of the United States Supreme Court, therefore, the federal court concluded that B&K was bound by the arbitration clauses in the collective-bargaining contracts, and granted Local 1115's petition to compel arbitration under the collective-bargaining contracts. Id. at 1209. Whether B&K committed an unfair labor practice was not at issue in Local 1115 v. B&K and was, therefore, not determined.
4. Unfair Labor Practice
It is not necessary for present purposes to determine whether the activities contemplated by section 2180.3 of HIM-15 must always fall within the definition of "unfair labor practice." However, there can be no doubt that costs incurred for any activity which amounts to an "unfair labor practice," for purposes of the NLRA, are not allowable pursuant to section 2180.3 of HIM-15.

In its relevant part, section 8(a) of the NLRA defines "unfair labor practice" as follows:
1. It shall be an unfair labor practice for an employer--
  1. to interfere with, restrain, or coerce employees in the exercise of the rights [to self- organization; to form, join or assist labor organizations; to bargain collectively; etc.] guaranteed in [section 7 of the NLRA,] section 157 of this title;
(5) to refuse to bargain collectively with the representatives of his employees ...

29 U.S.C. Section 158(a)(1), (5) (1976).

In its relevant part, section 8(d) of the NLRA defines "to bargain collectively" as follows:
1. For the purposes of this section, to bargain collectively is the performance of the mutual obligation of the employer and the representative of the employees to meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions of employment, or the negotiation of an agreement, or any question arising thereunder, and the execution of a written contract incorporating any agreement reached if requested by either party, but such obligation does not compel either party to agree to a proposal or require the making of a concession: provided, that where there is
  in effect a collective-bargaining contract covering employees in an industry affecting commerce, the duty to bargain collectively shall also mean that no party to such contract shall terminate or modify such contract, unless the party desiring such termination or modifica- tion--
  1. serves a written notice upon the other party to the contract of the proposed termination
    or modification sixty days prior to the expiration date thereof, or in the event such contract contains no expiration date, sixty days prior to the time it is proposed to make such termination or modifica- tion;
  2. offers to meet and confer with the other party for the purpose of negotiating a new contract
    or a contract containing the proposed modifications;
  3. notifies the Federal Mediation and Conciliation Service within thirty days after such notice of the existence of a dispute, and simul- taneously therewith notifies any State or Terri- torial agency established to mediate and conciliate disputes within the State or Territory where the dispute occurred, provided no agreement has been reached by that time; and
  4. continues in full force and effect, without resorting to strike or lock-out, all the
    terms and conditions of the existing contract for a period of sixty days after such notice is given or until the expiration date of such contract, whichever occurs later ....
    29 U.S.C. Section 158(d)(1976)(emphasis added).
    
    The same conduct can constitute both the breach of a collective-bargaining contract and an unlawful refusal to collectively bargain during the life of the collective-bargaining contract. While a court may enforce the terms of the collective-bargaining contract, the authority to order an employer to cease and desist from an unfair labor practice lies with the National Labor Relations Board ("the NLRB"). P.R. Mallory & Co. v. NLRB, 411 F.2d 948, 953 (7th Cir.
    1969). Thus, a "court has jurisdiction independent of the NLRB and can decide whether to compel arbitration even though the particular action may constitute an unfair labor practice, so long as the action may also constitute a breach of the collective bargaining agreement." Local 229 Health & Welfare Fund v. Rapid Copy, Inc., 620 F. Supp. 202, 206 (D. Minn. 1985).
    
    In the present case, although the federal court found a breach of the collective-bargaining contracts, there has been no determination by the NLRB whether B&K's refusal to be bound by the collective-bargaining contracts, or their arbitration clauses, was or was not an unfair labor practice. For purposes of HIM-15, therefore, that determination must be made in the present proceeding. It is well established that under section 8(a)(5) of the NLRA, 29
    U.S.C. Section 158(a)(3)(1976), and section 8(d) of the NLRA, 29 U.S.C. Section 158(d)(1976), an employer may not unilaterally modify or repudiate a contract provision relating to a mandatory subject of collective bargaining. Midstate Tel. Corp. v. NLRB, 706 F.2d 401, 405 (2nd Cir. 1983). Repudiation of a valid collective-bargaining contract constitutes a refusal to bargain, in violation of section 8(a) (5) of the NLRA, 29 U.S.C. Section 158(a)(5)(1976). EPE, Inc. v. NLRB, 845 F.2d 483, 490 (4th Cir. 1988).
    
    Ordinarily, a successor employer is free to set initial hiring terms without first bargaining with the union. However, where it is clear that the new employer plans to retain all the employees in the unit, the successor must consult the union before altering the terms and conditions of employment.
    American Press, Inc. v. NLRB, 833 F.2d 621, 624 (6th Cir. 1987). The repudiation of an arbitration clause in a collective-bargaining contract is a unilateral unnegotiated change in working conditions and a refusal to bargain
    under section 8(a)(1) of the NLRA, 29 U.S.C. Section 158(a)(1)(1964), and section 8(a) (5) of the NLRA, 29 U.S.C. Section 158(d) (1964). Taft Broadcasting Co., WDAF AM-FM-TV v. NLRB, 441 F.2d 1382, 1382, 1385 (8th Cir.
    1971).
    
    NLRB v. Dent, 534 F.2d 844 (9th Cir. 1976), is indistinguishable from the present case. The facts in Dent are as follows:
    
    Up until June 1, 1972, Chico Convalescent Hospital (hereinafter referred to as "CCH") was part of a chain owned by Statewide Convalescent Hospitals. In the spring of 1972, the owners of the real property on which the hospital was situated cancelled Statewide's lease because of defaults in its rental obligations. An agreement was reached whereby Statewide conveyed title to all personal property associated with the hospital operation to the landlords in satisfaction of the rents owing to them.
    Thereafter, the landlords leased the hospital to the Dents, who assumed control of the operation on June 1.
    
    Although the hospital employees had been represented by the union for purposes of bargaining with Statewide, the Dents unilaterally reduced employee wages on June 15, two weeks after assuming control of CCH. On July 13, representatives of the Dents and the union met to negotiate a new contract for CCH employees. However, when the Dents refused to restore wages to their previous levels, the negotiations broke down, and, on July 29, the employees voted to strike over the unilateral wage cuts and the alleged failure of the company to bargain in good faith at the July 13 meeting.
    Id. at 845.
    
    The NLRB concluded that CCH had violated section 8(a)(1) of the NLRA, 29
    U.S.C. Section 158(a)(1)(1970), and section 8(a)(5) of the NLRA, 29 U.S.C. Section 158(a)(5)(1970), by its reduction in the wage rates on June 15 and by its refusal to restore the wages to their former levels on July 13. Id. The court of appeals enforced the NLRB's order after concluding as follows:
    
    Once an employer is under a duty to bargain collec- tively, it is a violation of that duty, and an unfair labor practice, to institute changes in conditions of employment without first consulting the union. N.L.R.B. v. Katz, 369 U.S. 736, 82 S.Ct. 1107, 8 L.Ed.2d 230
    (1962). A successor employer has an obligation to bargain with the incumbent union when it voluntarily takes over a bargaining unit which is largely intact and has been certified as the majority representative.
    N.L.R.B v. Burns International Security Services, Inc., 406 U.S. 272, 92 S.Ct. 1571, 32 L.Ed.2d 61
    (1972)...
    
    The record before us adequately supports the trial examiner's findings that the bargaining unit remained appropriate after the takeover by the Dents and that the presumption of the union's majority representative status was not rebutted. The Dents retained 35 of the 36 unit
    employees formerly employed by Statewide. They utilized the same premises, equipment, and supplies to care for the same sixty patients as had Statewide. Finally, the Dents themselves recognized the union as the bargaining representative of their employees at the July 13 meeting. Thus, under the Burns and Katz decisions, the unilateral changes in employee wages violated Section 8(a)(5) of the [NLRA, 29 U.S.C. Section 158(a) (5) (1970)].
    
    Dent, 534 F.2d at 845-46 (footnote omitted).
    
    In the present case, B&K retained substantially the same employees as the former employer, so that there was a substantial continuity of identify of the work force. Therefore, B&K had a duty to bargain collectively witch its employees. This duty included the duty to abide by the existing collective- bargaining contracts, including the arbitration clauses, until the expiration dates of those contracts. B&K violated this duty by refusing to be bound by the existing collective-bargaining contracts, including a refusal to arbitrate pursuant to those contracts.
    
    The repudiation of an arbitration clause in a collective-bargaining contract is a unilateral unnegotiated change in working conditions under section 8(a)(1) of the NLRA, 29 U.S.C. Section 158(a)(1)(1976), and under section 8(a)
  5. of the NLRA, 29 U.S.C. Section 158(a)(5)(1976). Taft Broadcasting Co., WDAF AM-FM-TV, 441 F.2d at 1382. Therefore, B&K engaged in an unfair labor practice, and B&K's attorneys fees incurred in B&K's attempt to repudiate the collective bargaining contracts were related to an attempt to interfere with or restrain the exercise of employee rights under the NLRA. As such, the attorneys' fees were properly disallowed pursuant to section 2180.3 of HIM-15.
Section 1122 Disallowances

The largest amount of underpayments claimed by G&J are for costs which were disallowed under section 1122 of the Social Security Act, and the resulting adjustments to B&K's return on equity. Even were G&J entitled to retroactive payments, these amounts may not be paid to G&J because the costs were properly disallowed.
1. The Recommended Order
  
  Paragraphs 93 through 123, 129, 132 and 158 of the findings of fact and paragraphs 81 through 85, 91 and 92 of the conclusions of law are those paragraphs of the recommended order which are relevant to this issue.
  1. Rejected Findings of Fact
    
    After a review of the complete record, HRS rejects the following findings of fact, none of which are based upon competent substantial evidence: the first sentence of paragraph 129.
    
    After a review of the complete record, HRS rejects the following findings of fact, to the extent that they are findings of fact and not conclusions of law mislabeled as "findings of fact," because they are not based upon competent substantial evidence: paragraph 93; paragraph 108; the first sentence of paragraph 109; the first sentence of paragraph 111; paragraph 115; the first and third sentences of paragraph 116; paragraph 118; the first, third and fourth sentences of paragraph 119; the first and third sentences of paragraph 120; the
    first and fourth sentences of paragraph 121; the first, second and third sentences of paragraph 122; the first, third, fourth and fifth sentences of paragraph 123; the fourth, fifth, sixth and seventh sentences of paragraph 129; the first sentence of paragraph 132; and footnote 61 to paragraph 158.
  2. Rejected Conclusions of Law Mislabeled as "Findings of Fact"
    
    The following conclusions of law are mislabeled as "findings of fact" and are rejected: paragraphs 93 through 97; the first and third sentences of paragraph 98; the first and second sentences of paragraph 100; paragraphs 104 through 106; paragraph 108; the first sentences of paragraph 109; the first sentence of paragraph 111; paragraph 115; the first and third sentences of paragraph 116; paragraph 118; the first, third and fourth sentences of paragraph 119; the first and third sentences of paragraph 120; the first and fourth sentences of paragraph 121; the first, second and third sentences of paragraph 122; the first, third, fourth and fifth sentences of paragraph 123; the fourth, fifth, sixth and seventh sentences of paragraph 129; the first sentence of paragraph 132; and footnote 61 to paragraph 158.
  3. Rejected Conclusions of Law
    
    The following conclusions of law, which are labeled as such, are rejected: paragraphs 81 through 85; the first sentence of paragraph 91; and paragraph 92.
2. Section 1122
  
  At all times material to this proceeding, HIM-15 provided in its relevant part as follows:
  
  Although for Medicare purposes the intermediary [HRS] is responsible for determining which of a provider's costs are related to patient care and for applying Medicare's principles of reimbursement to these costs, if a desig- nated planning agency has determined that a provider's proposed or actual expenditure of the type subject to review under Section 1122 of the Social Security Act is inconsistent with State or local planning requirements the costs relative to the expenditure ... cannot
  be recognized by Medicare and [HRS] shall disallow reimbursement related to these costs.
  
  HIM-15 Section 2422.2.
3. The Section 1122 Process
At all times material to this proceeding, the General Provisions, 42 U.S.C. Sections 1301-1320a-2 (1976), of the Social Security Act ("the Act"), 42 U.S.C. Sections 301-1396j (1976), included section 1122, 42 U.S.C. Section 1320a-1 (1976). Section 1122(a) states that the purpose of section 1122 "is to assure that Federal funds appropriated under titles ... XVIII [of the Act (Medicare'),
42 U.S.C. Sections 1395-1395qq (1976)] and XIX [of the Act (Medicaid), 42 U.S.C. Sections 1396-1396j (1976)] are not used to support unnecessary capital expenditures made by or on behalf of health care facilities which are reimbursed under any of such titles ..." 42 U.S.C. Section 1320a-1(a) (1976) (emphasis added).
Section 1122, and the regulations promulgated thereunder, provide a broad framework in which various federal and state agencies are to (1) receive from a health care facility or health maintenance organization information regarding a proposed capital expenditure for the health care facility or health maintenance organization; (2) review the information received; (3) make recommendations regarding the necessity of expending federal funds on the capital expenditure; and (4) determine whether Medicare and Medicaid reimbursements related to the capital expenditure will be withheld from the health care facility or health maintenance organization. Section 1122 and its accompanying regulations also provide various means by which a dissatisfied health care facility or health maintenance organization may appeal a recommendation or decision to withhold reimbursements.
1. The Framework of Federal and State Agencies involved in the Section 1122 Process
  
  In its relevant part, section 1122(b), 42 U.S.C. Section 1320a-1(b) (1976), provides:
  
  [HEW] ... shall make an agreement with any State under which a designated planning agency (which
  shall be an agency described in clause (ii) of subsection of this section that has a governing body or
  advisory board at least half of whose members represent consumer interests) will--
  1. make and submit to [HEW] together with
    such supporting materials as [HEW] may find neces- sary, findings and recommendations with respect to capital expenditures proposed by or on behalf of any health care facility in such State within the field of its responsibilities;
  2. receive from other agencies described in clause (ii) of subsection (d)(1)(B) of this section, and submit to [HEW] together with such supporting material as [HEW] may find necessary, the findings and recommendations of such other agencies with respect to capital expenditures proposed by or on behalf of health care facilities in such State within the fields of their respective responsibili- ties, and
  3. establish and maintain procedures pursuant
    to which a person proposing any such capital expen- diture may appeal a recommendation by the designated agency and will be granted an opportunity for a fair hearing ...
    
    whenever and to the extent that the findings of such designated agency or any such other agency indicate that any such expenditure is not consistent with the stan- dards, criteria, or plans developed pursuant to the Public Health Service Act to meet the need for adequate health care facilities in the area covered by the plan or plans so developed.
    42 U.S.C. Section 1320a-1(b) (1976) (emphasis added).
    
    In their relevant parts, section 1122(d)(1)(B)(ii), 42 U.S.C. Section 1320a-1(d)(1)(B) (ii) (1976), and accompanying regulations, reveal that the designated planning agency ("the DPA") designated under section 1122(b), 42
    U.S.C. Section 1320a-1(b) (1976), shall be either (1) the state planning agency established pursuant to sections 314(a), 42 U.S.C. Section 246(a) (1976), and 604(a), 42 U.S.C. Section 291d(a) (1976), of the Public Health Service Act; or
    (2) the public or nonprofit private agency or organization responsible for the comprehensive regional, metropolitan area, or other local area plan or plans referred to in section 314(b), 42 U.S.C. Section 246(b) (1976), of the Public Health Service Act covering the area in which the health care facility or health maintenance organization proposing a capital expenditure is located. 42 U.S.C. Section 1320a-1(d)(1)(B)(ii) (1976); 42 C.F.R. Section 100.105(a) (1977).
    
    In sum, the DPA shall be one of the agencies described in section 1122(d)(1)(B)(ii), 42 U.S.C. Section 1320a-1(d)(1)(B)(ii) (1976), which has a governing body or advisory board at least half of whose members represent consumer interests. 42 U.S.C. Section 1320a-1(b) (1976); 42 C.F.R. Section
    100.105 (1977). The DPA shall make and submit to HEW findings and recommendations with respect to a proposed capital expenditure. 42 U.S.C. Section 1320a-1(b)(1) (1976). The DPA shall also receive from other agencies fitting the description in section 1122(d)(1)(B)(ii), 42 U.S.C. Section 1320a1(d)(1)(B)(ii) (1976), and submit to HEW, findings and recommendations with respect to the proposed capital expenditure. 42 U.S.C. Section 1320a-1(b)(2) (1976).
    
    The DPA shall also provide a procedure pursuant to which a health care facility or health maintenance organization proposing a capital expenditure may appeal a recommendation made to HEW by the DPA. 42 U.S.C. Section 1320a-1(b)(3) (1976). However, section 1122(b), 42 U.S.C. Section 1320a-1(b) (1976), makes it clear that the appeal procedure must be provided by the DPA only "whenever and to the extent that the findings of" the DPA or other agencies fitting the description in section 1122(d)(1)(B)(ii), 42 U.S.C. Section 1320a-1(d)(1)(B)(ii) (1976), "indicate that any such expenditure is not consistent with the standards, criteria, or plans developed pursuant to the Public Health Service Act ... to meet the need for adequate health care facilities in the area covered by the plan or plans so developed." 42 U.S.C. Section 1320a-1(b) (1976) (emphasis added).
    
    At all times relevant to this proceeding, the DPA for the State of Florida was the Office of Community Medical Facilities ("the DPA-OCMF"). Fla. Admin.
    Code Rule 10-5.02(2) (1/1/1977 & 11/1/1977). The governing body or advisory board of the DPA-OCMF was the Statewide Health Coordinating Council ("SHCC"). Fla. Admin. Code Rule 10-5.02(5) (11/1/1977). 4/ A "public ... agency ... responsible for the comprehensive regional ... area plan ... and covering the area in which the health care facility or health maintenance organization proposing such capital expenditure is located," Section 1320a-1(d)(1)(B)(ii)(I), was a Health Systems Agency ("HSA"). Fla. Admin. Code Rule 10-5.02(4) (1/1/1977 & 11/1/1977). Thus, at all times material to this proceeding, the DPA-OCMF, SHCC, area HSAs and HEW all had roles to play in fulfilling the purpose of section 1122, that is, to assure that federal funds were not used to support unnecessary capital expenditures. 42 U.S.C. Section 1320a-1(a) (1976).
2. Capital Expenditures
  
  At all times material to this proceeding, section 1122(g), 42 U.S.C. Section 1320a-1(g) (1976), and accompanying regulations, provided in their relevant parts that, for the purposes of section 1122, "a `capital expenditure' is an expenditure which, under generally accepted accounting principles, is not properly chargeable as an expense of operation and maintenance" and which met one of several specified conditions, one of which was that the expenditure exceeded $100,000. 42 U.S.C. Section 1320a-1(g) (1976); 42 C.F.R. Section 100.103(a)(1) (1977).
  
  Thus, for purposes of section 1122, so far as this proceeding is concerned, a capital expenditure is an expenditure, in excess of $100,000, which is not properly chargeable as an expense of operation and maintenance. 42 U.S.C. Section 1320a-1(g) (1976). In other words, it is simply an expenditure in excess of $100,000 "for property, plant, or equipment." Annie M. Warner Hosp.
  v. Harris, 639 F.2d 961, 965 (3rd Cir. 1981); see also United States v. St. Joe Paper Co., 284 F.2d 430, 432 (5th Cir. 1980) ("[A]ll sums expended toward the acquisition, protection, or preservation of title to property from or by means of which income is intended to be produced are capital expenditures."); Oriole Homes Corp. v. United States, 705 F. Supp. 1531, 1533 (S.D. Fla. 1989) ("A capital expenditure is one which secures a benefit lasting beyond the current taxable year..."); Black's Law Dictionary 189 (5th ed. 1979) ("Expenditure for long term betterments or additions. Expenditure in nature of an investment for the future chargeable to capital asset account. An expenditure which should be added to the basis of the property improved.")
  
  Thus, the definition of "capital expenditure" for purposes of section 1122 conforms to the common meaning of "capital expenditure," that is, an expenditure for property, plant or equipment; but limits the definition to such expenditures in excess of $100,000. However, section 1122(e), 42 U.S.C. Section 1320a-1(e) (1976), expands the capital expenditure review process to include the acquisition of property, plant or equipment not only by purchase, but by lease, as well:
  
  Where a person obtains under lease or comparable arrangement any facility or part thereof, or equipment for a facility, which would have been subject to an exclusion under subsection (d) of this section if the person had acquired it by purchase, [HEW] shall (1) in computing such person's rental expense in determining the Federal payments to be made under [Medicare and Medicaid] with respect to services furnished in such facility, deduct the amount which in [HEW's] judgment is a reason- able equivalent of the amount that would have been excluded if the person had acquired such facility or such equipment by purchase, and (2) in computing such person's return on equity capital deduct any amount deposited under the terms of the lease or comparable arrangement.
  42 U.S.C. Section 1320a-1(e) (1976) (emphasis added); accord 42 C.F.R. Section 100.103(b)(1) (1977).
  
  The Medicaid regulations explain the necessity of the expanded definition of capital expenditure:
  1. Equivalent deduction if a facility is obtained
    by a lease. If a person obtained by lease or comparable arrangement any facility, part of a facility, or equipment for a facility that would have been con- sidered a capital expenditure if the person had purchased it--
    1. In determining payments for services furnished
      in that facility, an amount must be deducted from rental expense which is a reasonable equivalent of the amount that would have been excluded if the person had purchased the facility or equipment; and
    2. In computing the person's return on equity capital, any amount deposited under the terms of the lease or comparable arrangement must be deducted from that return.
  42 C.F.R. Section 447.35(g) (1977) (emphasis added).
  
  Likewise, the Medicare regulations explain the necessity of including leases in the capital expenditure review process:
  1. ny costs related to capital expenditures ... are not allowable where [HEW] has determined that the capital expenditures have not been submitted to the [DPA] as required or that they have been determined to be incon- sistent with the standards, plans, or criteria developed by the [DPA] or other health planning agency in the State to meet the need for adequate health care facilities in the area covered by the plan or plans so developed (see
  42 C.F.R. 100.101-100.110). Costs claimed by a provider in connection with capital assets which are donated or transferred to a provider are also subject to the application of such principle. Such principle also
  applies to the reasonable equivalent of that portion of any rental expense incurred pursuant to a lease or a comparable arrangement (and to any amounts deposited under the terms of such a lease or comparable arrangement in computing the return on equity capital) that would have been excluded had the provider acquired such a facility or equipment by purchase. The amounts excluded are not subject to reimbursement under any other provisions of [Medicare].
  
  42 C.F.R. Section 405.435(b) (1977) (emphasis added).
  
  Therefore, pursuant to section 1122(e), 42 U.S.C. Section 1320a-1(e) (1976), and the accompanying regulations, HRS promulgated the following regulation: "Where a person obtains under lease or comparable arrangement, or through donation, any facility or equipment for a facility, the expenditure for
  which would have been considered a capital expenditure had the person acquired it by purchase, such acquisition shall be deemed a capital expenditure and reviewable." Fla. Admin. Code Rule 10-5.06(2) (1/1/1977 & 11/1/1977) (emphasis added).
3. Section 1122 Procedure for Submission and Review of a Proposed Capital Expenditure, and Recommendation and Determination of Necessity of Expending Federal Funds
At all times material to this proceeding, section 1122(d), 42 U.S.C. Section 1320a-1(d) (1976), provided in its relevant part,
1. [I]f [HEW] determines that--
  1. neither the planning agency designated in the agreement described in subsection (b) of this section nor an agency described in clause (ii) of subparagraph (B) of this paragraph had been given notice of any proposed capital expenditure (in
accordance with such procedure or in such detail as may be reacquired by such acency) at least 60 days prior to obligation for such expenditure; or

(B)(i) the planning agency so designated or an agency so described had received such timely notice of the intention to make such capital expenditure and had, within a reasonable period after receiving such notice and prior to obligation for such expen- diture, notified the person proposing such expendi- ture that the expenditure would not be in conformity with the standards, criteria, or plans developed by such agency or any other agency described in clause
(ii) the planning agency so designated had, prior to submitting to [HEW] the findings referred to in subsection (b) of this section--

(II) granted to the person proposing such capital expenditure an opportunity for a fair hearing with respect to such findings;

then, for such period as [HEW] finds necessary in any case to effectuate the purpose of this section, [HEW] shall, in determining the Federal payments to be made under [Medicare and Medicaid] with respect to services furnished in the health care facility for which such capital expenditure is made, not include any amount which is attributable to ... expenses related to such
capital expenditure.
42 U.S.C. Section 1320a-1(d)(1) (1976) (emphasis added).

Section 1122(d), 42 U.S.C. Section 1320a-1(d) (1976), therfore, provides two paths by which a proposed capital expenditure will arrive at HEW for a determination of its necessity. The first path, that of submission, review and appeal at the state level, is provided by section 1122(b), 42 U.S.C. Section 1320a-1(b) (1976), and section 1122(d)(1)(B), 42 U.S.C. Section 1320a-1(d)(1)(B)
(1976). The second path, when there is no submission of a proposed capital expenditure for review at the state level, in which case there is minimal agency involvement at the state level, is provided by section 1122(d)(1)(A), 42 U.S.C. Section 1320a-1(d)(1)(A) (1976).
1. Section 1122 Procedure: The State Level
At all times material to this proceeding, section 1122(b), 42 U.S.C. Section 1320a-1(b) (1976), Section 1122(d)(1)(B), 42 U.S.C. Section 1320a-1(d)
1. (B) (1976), and accompanying regulations, provided the procedure for submission and review of a proposed capital expenditure, and involved several state agencies. Section 1122(b), 42 U.S.C. Section 1320a-1(b) (1976), provides that the DPA will make and submit to HEW findings and recommendations with respect to the DPA's review of a proposed capital expenditure.
  
  Accompanying regulations provide the procedure by which a health care facility or health maintenance organization must submit a proposed capital expenditure both to the DPA and to those other agencies fitting the description in section 1122(d)(1) (B)(ii), 42 U.S.C. Section 1320a-1(d)(1)(B)(ii) (1976), in order to trigger a review at the state level. The regulations provide:
  1. The [DPA] shall establish, maintain, and dissemi- nate to all health care facilities and health maintenance organizations within the State procedures under which timely written notice of the intention to make a capital expenditure subject to this subpart is required to be given ... simultaneously to the [DPA] and to those
    other agencies described in [42 C.F.R.] Section 100.105 [(1977)] whose respective fields of responsibility cover the proposed expenditure. Such notice shall set forth the date on which the obligation is expected to be incurred, and must be received by the [DPA] not less than
    60 days prior to such date.
  2. Such notice shall be submitted in such form and manner and shall contain such information as may be required by the [DPA] to meet the needs of all the agencies whose respective fields of responsibility cover the proposed expenditure.
    
    42 C.F.R. Section 100.106(a)(1), (2) (1977) (emphasis added).
    
    Pursuant to these federal regulations, HRS promulgated the following regulations:
    1. At least 30 5/ days prior to filing ... a capital expenditure proposal, a letter of intent shall be submitted by the applicant to the HSA and DPA[-OCMF] respecting the develop- ment of a proposal subject to review to provide
      the HSA and DPA[-OCMF] an opportunity to assist the applicant in proper preparation of the proposal. [A] ... proposal shall not be accepted in lieu of a letter of intent...
      
      Fla. Admin. Code Rule 10-5.08(1) (11/1/1977).
    2. An applicant shall submit, at least 60 days prior to the date on which a capital expendi-
      ture is to be incurred, ... a capital expenditure proposal, prepared in compliance with rule 10-5.09 herein, simultaneously to the DPA[-OCMF] and appropriate HSA.
      
      Fla. Admin. Code Rule 10-5.08(2) (1/1/1977 & 11/1/197)
      
      An application for a ... capital expenditure proposal shall be submitted on a form provided by the DPA[-OCMF] or appropriate HSA containing the following data:
      1. A narrative description of the project to include specific purpose and need, the type and number of beds and ancillary services proposed, opinions as to how project will contribute to the orderly development of adequate and effective health services in the area to be served, and specific location if the project
        is for a new facility. Such narrative descrip- tion should completely document the feasibility of the proposed project.
      2. A current statement of financial resources of the applicant facility or health service
        provider to include an audited balance sheet and profit and loss statement of the previous fiscal year's operation, applicable.
      3. A statement of future funding sources to include at least a tentative commitment for the funds necessary to accomplish the project.
      4. A statement of the total cost of the project to include the costs of studies, surveys, designs, plans, specifications, fees, construc- tion, equipment, and land. Such statement of cost should be as accurate and complete as possible and should take into consideration
        such factors as inflation and actual costs of other like projects within the area.
      5. Documentation showing that the project is financially feasible and can be accommodated without unreasonable charges for services rendered to include a projection of income and
        expense on a pro forma basis for the first two years of operation after completion of the project.
      6. Documentation showing the project will foster cost containment through improved efficiency
        and productivity, including promotion of cost- effective factors such as ambulatory care, preventive health care services, home health care, and design/construction economics.
      7. Documentation showing that the proposed project can be adequately staffed and operated to
        include specific manpower requirements by number of positions, proposed salary, and availability of personnel.
      8. A statement of facility ownership to include a list of principal owners and Board of Directors.
      9. A projected timetable to include the dates that construction plans and specifications will be completed, firm construction financing will be arranged, actual construction will commence,
and project will be completed and operational. Fla. Admin. Code Rule 10-5.09 (1/1/1977 & 11/1/1977). 6/
Therefore, in order to trigger a review by the DPA-OCMF of a proposed capital expenditure, the health care facility or health maintenance organization must give timely written notice of the proposed capital expenditure to the DPA- OCMF, in the form and manner and including the information required by the DPA- OCMF. Regulations accompanying section 1122, and regulations promulgated by HRS, provide the criteria by which the DPA-OCMF is to review a proposed capital expenditure once a health care facility or health maintenance organization has triggered the review process. See 42 C.F.R. Sections 100.104(a)(2), .107 (1977); Fla. Admin. Code Rule 10-5.11 (1/1/1977 & 11/1/1977).

Following its review of a proposed capital expenditure, the DPA shall make and submit to HEW findings and recommendations with respect to the review. 42
U.S.C. Section 1320a-1(b) (1976). However, if the DPA recommends that the proposed capital expenditure is not consistent with the standards, criteria or plans developed pursuant to the Public Health Service Act, the health care facility or health maintenance organization must be granted an opportunity by the DPA to administratively appeal, at the state level, the recommendation of the DPA. 42 U.S.C. Section 1320a-1(b), d(1)(B) (1976).

As provided by the accompanying regulations, the DPA shall provide written notification to the person proposing such capital expenditure (i) that such capital expenditure has been determined by such agency to be in conformity with the standards, criteria and plans
described in [42 C.F.R.] Section 100.104(a)(2) [(1977)]; or
(ii) that such agency has elected not to review the proposed capital expenditure (which election shall be equivalent to a determination by such agency that such
expenditure is in conformity with such standards, criteria and plans), in which event the [DPA] shall notify [HEW] of its reasons for electing not to review the proposed capital expenditure; or (iii) that such agency after having consulted with, and taken into consideration the findings and recommendations of, the other agencies described in [42 C.F.R.] Section 100.105 [(1977)] (to the extent that such proposed capital expenditure is within the respective fields of responsi- bility of such other agencies), has determined that the proposed capital expenditure would not be in conformity with the standards, criteria, or plans described ire [42
C.F.R.] Section 100.104(a)(2) [(1977)]... The notification described in paragraph [sic] (a)(4)(iii) of this section shall be accompanied by a statement of the [DPA's] proposed recommendation to [HEW] and the reasons there- for, [and] a summary of the findings and recommendations of the other agencies with which such agency has consult- ed pursuant to paragraph [sic] (a)(4)(iii) of this section[,] and shall provide an opportunity for a fair hearing with respect to the findings and recommendations of to the [DPA] at the request of the person proposing such capital expenditure.

(c) the [DPA] will grant to a person proposing
a capital expenditure an opportunity for a fair hearing with respect to the findings and recommendations of the [DPA], and will establish and maintain procedures for such appeal. Such procedures shall include the follow- ing:
1. The request for a hearing must be made in writing, to the [DPA], within 30 days after the date on which the person proposing the capital expenditure receives notice of an adverse finding or recommendation of the [DPA].
2. The hearing shall be commenced within 30 days after receipt of the request described in paragraph (c)(1) of this section ...
(4) Any decision of a hearing officer, arrived at in accordance with this paragraph, shall, to the extent that it reverses or revises the findings or recommendations
of the [DPA], supersede the findings and recommendations of the [DPA].
42 C.F.R. Section 100.106(a) (4), (c) (1977).

Pursuant to section 1122(b), 42 U.S.C. Section 1320a-1(i) (1976), Section 1122(d)(1)(b) (1976), 42 U.S.C. Section 1320a-1(d)(1)(B) (1976), and the
accompanying regulations, HRS promulgated the following regulations: 10-5.10 Review Process on ... Proposals.
When [a] ... proposal is deemed complete and accepted for review by the DPAF-[OCMF], such ....
proposal shall be reviewed in the following manner:
1. The HSA shall make such investigations and reviews as necessary to enable it to make a recommendation to the DPA[-OCMF]. Such investigation and review shall include, but not be limited to:
  1. A public hearing that allows applicants and other interested parties to present their positions.
  2. Reasonable and public notice of 14 days prior to the public hearing.
  3. The right of applicants and, other interested parties to present oral and written evidence.
2. The HSA, not later than the due date established by the DPA[-OCMF] for receipt of recommendations from the HSA, after considera- tion of the ... proposal against criteria contained in rule 10-5.11 herein, shall make a recommendations to the DPA[-OCMF] that:
  1. The ... proposal be approved in its entirety with respect to Section 1122; or
  2. The ... proposal be disapproved in its entirety with respect to Section 1122.
3. The HSA shall justify its recommendation on [a] proposal by written findings of fact in
context with criteria prescribed in rule 10-
5.11 herein...

(5) Upon receipt of written findings of fact and recommendations from the HSA, the DPA[-OCMF] shall review the ... proposal, written
findings of fact and recommendations of the HSA, and any other pertinent data in relation- ship to criteria contained in rule 10-5.11 herein and:

(b) With respect to [a] proposed capital expenditure filed under the provisions of
Section 1122, PL 92-603, the DPA[-OCMF]
shall recommend, to [HEW], approval or disapproval of the proposed capital ex- penditure in its entirety.
1. .... [R]ecommended disapproval of a proposed capital expenditure by the DPA[-OCMF] shall be in writing and set forth the specific reasons for such negative action. If such denial is counter to the recommendation of the HSA, the DPA[-OCMF] shall outline its reasons to the
  HSA, item by item and in writing, for rejecting the HSA recommendation.
2. An applicant aggrieved by a DPA[-OCMF] decision to ... recommend disapproval of a proposed
capital expenditure; or an HSA aggrieved by a DPA[-OCMF] decision contrary to HSA recommen- dations relative to ... recommended approval or disapproval of a proposed capital expendi- ture, shall have the right of appeal and to demand a fair hearing under the provisions of
the Administrative Procedures Act (Chapter 120,
Florida Statutes). Any such appeals must be in writing and be received by the DPA[-OCMF] within 30 days of the date the applicant and HSA receive written notice of the DPA action.
Fla. Admin. Code Rule 10-5.11 (1/1/1977 & 11/1/1977) (emphasis added). 7/ However, the foregoing procedures for review by the DPA-OCMF of a proposed
capital expenditure, and the foregoing procedures for appeal of a negative recommendation by the DPA-OCMF, notwithstanding, there can be no review or appeal on the state level if a health care facility or health maintenance organization does not trier the review and appeal process by timely submitting a proposal for review in the form required by DPA-OCMF.

As provided by section 1122(d)(1)(A), 42 U.S.C. Section 1320a-1(d) (1) (A) (1976):

(1) ... [I]f HEW determines that--

(A) neither the [DPA] nor an [HSA] had been given notice of any such proposed capital expenditure (in accordance with such procedure or in such detail as may

be required by such agency) at least 60 days prior to obligation for such expenditure; ...

then for such period as [HEW] finds necessary in any case to effectuate the purpose of this section, [HEW] shall, in determining the Federal payments to be made under [Medicare and Medicaid] with respect to services furnished in the health care facility for which such capital expenditure is made, not include any amount which is attributable to ... expenses related to such capital expenditure...
42 U.S.C. Section 1320a-1(d)(1) (1976) (emphasis added).
1. Section 1122 procedure: The Federal Level
  
  Section 1122(d), 42 U.S.C. Section 1320a-1(d) (1976), directs HEW to withhold Medicare and Medicaid payments for expenses related to a capital expenditure whenever HEW finds it necessary to do so in order to effectuate the purpose of section 1122. Therefore, in order to assure that federal funds are not used to support unnecessary capital expenditures, 42 U.S.C. Section 1320a- 1(a) (1976), HEW may withhold Medicare and Medicaid payments whenever the DPA for a state notifies the health care facility or health maintenance organization proposing such expenditure that the expenditure would not be in conformity with the standards, criteria or plans developed pursuant to the public Health Service Act, and provides an opportunity for an administrative appeal regarding such findings. 42 U.S.C. Section 1320a-1(b), (d)(1)(B) (1976). However, in order to assure that federal funds are not used to support unnecessary capital expenditures, 42 U.S.C Section 1320a-1(d)(1)(A) (1976), HEW may also withhold Medicare and Medicaid payments whenever HEW determines that a proposed capital expenditure was not timely submitted to a state's DPA for review. 42 U.S.C. Section 1320a-1(d)(1)(A) (1976); 42 C.F.R. Section 100.106(a)(1), (2) (1977).
  
  The regulations accompanying section 1122, 42 U.S.C. Section 1320a-1 (1976), provide:
  1. ... [I]f [HEW] determines that (1) the [DPA]
has not been given timely notice of intention to make a capital expenditure in accordance with 100.106, or (2) that the [DPA] has, in accordance with the requirements of section 1122 of the Act and this subpart, submitted to [HEW] its finding that such expenditure is not consistent with the standards, criteria, or plans described in 100.104(a) (2) then, for such period as [HEW] deems necessary to effectuate the purpose of section 1122 of the Act, [HEW] shall, in determining the
Federal payments to be made under [Medicare and Medicaid] to such health care facility or health maintenance organization, exclude expenses related to such capital expenditure.
1. Upon making a determination under this section [HEW] will promptly notify the person proposing such capital expenditure, the [DPA] and the other agencies described in Section 100.105 with which the [DPA] has consulted, of such determination and the basis for such determination.
2. Any person dissatisfied with a determination by [HEW] under section 1122 of the Act or this subpart with respect to a particular capital expenditure may, within six months following the date of such determination, request [HEW] to reconsider such determination.
  1. Such request for reconsideration shall be in writing, addressed to [HEW] or to any officer or employee of [HEW] to whom [HEW] has delegated responsibility to receive such requests, and shall set forth the grounds
    based upon the record of the proceedings and any issues of law, upon which such reconsideration is requested.
  2. Reconsideration will be based upon the record of the proceedings, which shall consist of the findings, recommendations and supporting materials submitted to [HEW] by the [DPA] (including the findings and recommen- dations of other agencies) which relate to the findings and recommendations involved, the record of the hearing provided by the [DPA], if any, and of any judicial proceedings, the materials submitted in connection win such request, and such comments as [HEW] may request from the [DPA].
3. A determination by [HEW] is, under section 1122 of the Act, not subject to administrative or judicial review.
Note: Where [HEW] makes the determination described
in 42 CFR 100.108(a)(1), [HEW] will follow the following policy in establishing the time period during which reimbursement will be withheld:

(1) Where the health care facility or health main- tenance organization by or on behalf of which the expenditure was made demonstrates to the satisfaction of (HEW] that a reasonable effort had been made to determine from the [DPA] whether the expenditure was subject to review, and the [DPA] had not informed the facility or organization within a reasonable period of time that the proposed expenditure was subject to review, [HEW] will not withhold reimbursement related to the capital expenditure.

42 C.F.R. Section 100.108 (1977) (emphasis added).

In sum, if a state DPA has determined that a proposed capital expenditure would not be in conformity with the standards, criteria or plans developed pursuant to the public Health Service Act, and has provided an opportunity for an appeal regarding such finding, HEW may withhold federal funds. 42 U.S.C. Section 1320a-1(b), (d)(1)(B) (1976); 42 C.F.R. Section 100.108(1) (1977). HEW
may also withhold federal funds if HEW determines that the state DPA has not been given a timely opportunity to review a capital expenditure. 42 U.S.C. Section 1320a1(d)(1)(A); 42 C.F.R. Sections l00.106(a)(1), (2), .108(a) 1977).

Upon making a determination to withhold federal funds, HEW shall so notify the health care facility or health maintenance organization proposing the capital expenditure. 42 C.F.R. Section 100.108(c) (1977). HEW shall provide a six-month period in which the health care facility or health maintenance organization may request a review of the determination by writing to the officer or employee of HEW to whom HEW has delegated responsibility to receive such requests. 42 U.S.C. Section 1320a-1(f) (1976); 42 C.F.R. Section 100.108(d) (1977). One way in which a dissatisfied health care facility or health maintenance organization may prevail in reinstating federal funds is to demonstrate to HEW that a reasonable effort had been made to determine from the DPA whether the expenditure was subject to section 1122 review. 42 C.F.R. Section 100.108 Note (1) (1977).
1. The Rental payments Were Properly Disallowed As a Result of B&K's Failure to Submit Proposals for Review of Capital Expenditures
  
  It is undisputed that B&K leased the plants used in the operation of Krestview and Towne House from G&J. It is also undisputed that the plants were leased pursuant to lease agreements providing for rental payments in the aggregate amounts of $6,000,000 and $2,300,000, respectively. At the time B&K entered into the leases, health care facilities and health maintenance organizations in Florida were required by law to comply with the provisions of section 1122 and the regulations promulgated thereunder. The acquisitions of the Krestview and Towne House plants by lease were capital expenditures reviewable pursuant to section 1122, as a matter of law. 42 U.S.C. Section 1320a-1(e), (g) (1976); Fla. Admin. Code Rule 10-5.06(2) (1/1/1977 & 11/1/1977);
  Annie M. Warner Hosp., 639 F.2d at 965.
  
  B&K failed to comply with the provisions of section 1122, and the regulations promulgated thereunder, regarding the submission of a capital expenditure for review. The fact that the DPA-OCMF or an HSA may have had copies of the lease agreements and the fact that the DPA-OCMF or an HSA had previously decided no review was needed of another transaction, the transfer of B&K's stock from B&K and G&J's common owner to an unrelated entity, are immaterial. Timely written notice of a capital expenditure must be submitted in the form and manner, and containing the information, required by the DPA. 42
  C.F.R. Section 100.106(a)(1977). The DPA-OCMF requires that a capital expenditure be prepared in compliance with Florida Administrative Code Rule 10- 5.09 (1/1/1977 & 11/1/1977).
  
  Rule 10-5.09 requires that the proposal be submitted on a form provided by the DPA-OCMF and that nine extensive areas of data be supplied. Fla. Admin.
  Code Rule 10-5.09 (1/1/1977 & 11/1/1977). B&K failed to comply with these requirements even after B&K was specifically asked to comply, was supplied with copies of all applicable federal and state laws and regulations, and was given a thirty-day grace period within which to comply. B&K's response was to turn the matter over to G&J's lawyer, who expressly declined section 1122 review. As a matter of law, B&K failed to give timely written notices of its intent to make capital expenditures, as defined by section 1122 and the regulations promulgated thereunder.
  
  B&K having failed to give notice in accordance with the procedure and detail required by the DPA-OCMF, HEW was required to withhold the rental payments for such period as HEW felt necessary to assure that federal funds were not used to support unnecessary capital expenditures. 42 U.S.C. Section 1320a- 1(a), (d)(1)(A) (1976). No determination was made by the DPA-OCMF that B&K's capital expenditures were or were not consistent with the standards, criteria, or plans developed pursuant to the Public Health Service Act. If the DPA-OCMF had been requested by B&K to make, and had made, such a determination, the request and determination would have triggered the right to appeal that finding on the state level. 42 U.S.C. Section 1320a-1(b), (d)(1)(B)(1976). However, it is undisputed that no such request was ever made, and that no such finding was ever made.
  
  B&K had a right to appeal HEW's determination to withhold payments. 42 U.S.C. Section 1320a-1(f)(1976); 42 C.F.R. Section 100.108(d) (1977). Indeed,
  if B&K were able to demonstrate to HEW that a reasonable effort had been made to determine from the DPA-OCMF whether the expenditure was subject to review under
  section 1122, the rental payments would have been reinstated. 42 C.F.R. Section
  100.108 Note (1)(1977). It is undisputed, however, that B&K never sought review from HEW. Therefore, as a matter of law, the costs disallowed as a result of the section 1122 process were properly disallowed pursuant to Section 2422.2 of HIM-15.
2. Even Were the DPA-OCMF Required to Provide to B&K a Hearing Before Informing HEW that B&K Had Failed to Give Timely Notice of B&K's Capital Expenditures, B&K Waived Its Right to Any Such Hearing
The hearing officer's findings of fact that the DPA-OCMF failed to give B&K an opportunity for a hearing were based entirely on documentary evidence.
Assuming, for the sake of argument, that B&K was entitled to a hearing on the state level, a review of the documentary evidence reveals that B&K had ample opportunity to request a hearing, but waived its right to any such hearing.

Joint Exhibit 20 consists of two letters dated March 2, 1979, from Art Forehand of the DPA-OCMF to Edward Lenick ("Lenick"), president of B&K. One letter addresses the $6,000,000 Krestview lease. The other letter addresses the
$2,300,000 Towne House lease. Each letter states essentially as follows:

Records in this office reflect that this lease agreement was not reviewed as required by Section 1122,. P.L. 92- 603.

Acting as the designated planning Agency (DPA) in the Section 1122 review program, we hereby offer to review the above mentioned capital expenditure under the
Section 1122 program for conformity with standards, plans and criteria.

Please be advised that you have 30 days from receipt of this letter to initiate a request for review in compliance with DHRS Rule 10-5. Failure on your part to initiate such request for review leaves no basis for a finding of conformity and may be grounds for indefinite withholding of Medicare/Medicaid reimbursements by DHEW.

Attached for your review is a copy of Section 1122
of P.L.. 92-603, HEW Regulations on 1122 and DHRS Rule 10- 5.

We suggest you contact Mr. Robert Jones, Executive Director, Health Systems Agency of South Florida, 3050 Biscayne Boulevard, Suite 601, Miami, Florida 33137, for assistance and guidance in this matter.

[Joint Exhibit 20, at 1.] The hearing officer found that these letters were received by B&K on March 21, 1979.

Joint Exhibit 30 consists of a letter in response from Lenick to the DPA- OCMF. The letter states as follows:

Last week I personally contacted the H.S.A. Office at 3050 Biscayne Blvd., Miami, Florida, as you requested.
I asked the gentlemen what we needed to do and exactly what was necessary to correct this problem if there was any.

Since I still wasn't satisfied and in as much as G&J Investments is involved, I contacted them and Mr. Stewart [sic] Huff, their attorney and he responded to your letters.

We would appreciate it that you contact Mr. Stewart [sic] Huff so that we can mutually resolve this situation as quickly as possible.

I hope this approach to resolve this problem is appreci- able [sic] to you. If there are any other questions in this matter, please do not hesitate to contact us by return mail.

[Joint Exhibit 30.]

Joint Exhibit 21 consists of a letter dated April 6, 1979, from Stuart Huff ("Huff") to the DPA-OCMF. The letter states as follows:

Please be advised the undersigned represents G & J Investments Corporation, Inc., the lessor at the above referenced facilities.

We have been forwarded your letters under date of March 2, 1979 addressed to B & K Investments, Inc., the lessee/provider at those facilities. We have been asked to reply to same on behalf of the landlord.

I have had an opportunity to briefly review Section 1122, P.L. 92603, referred to in your correspondence
I would respectfully point out that the referenced section appears to apply only to "capital expenditures" and defines capital expenditures, in part, as those which a)exceed one hundred thousand ($100,000.00) dollars, b) change the capacity at the facility, and c) change the services offered at the facility. The two leases referred to in your correspondence do not reflect "capital expenditures" as defined in the section.
Neither of the facilities has increased its capacity nor changed the services that were offered at the facility.

I further refer you to Rules of the Department of HRS, as set forth in Chapter 10-5.05(2) which sets forth those projects which are not subject to review. It is therein set forth that facilities which "had been acquired and preliminary construction plans filed" with the Department prior to July 1, 1973 are among those facilities not subject to review. Both of the above referenced facilities were in fact constructed prior to July 1, 1973.

For the foregoing reasons, we feel it is unnecessary to request the review referred to in your letter. If the
Department should determine that our opinion as to the non capital expenditure nature of the leases is in error, please notify me at your earliest convenience, and a formal request for review will be made.

[Joint Exhibit 21 (emphasis in original).]

Joint Exhibit 22 consists of a letter in response dated April 10, 1979, from the DPA-OCMF to Huff. The letter states as follows:

Receipt is acknowledged effective April 9, 1979 of your letter where you briefly reviewed Section 1122, of
P.L. 92-603 and Chapter 10-5.05(2) of the Department's Administrative Rules.

It is suggested that you carefully review 42 CFR 100.103(b) and Rules 10-5.06 and 10-5.07. Section 10-
5.05 refers to projects not subject to review under the state Certificate of Need law. Therefore, it is the determination of the Department and this office that the lease transactions were a capital expenditure and subject to review under Section 1122 of P.L. 92-603.

[Joint Exhibit 22.] A copy of this letter was received by the area HSA on April 13, 1979. [Joint Exhibit 22.]

Joint Exhibit 23 consists of two letters from the DPA-OCMF to HEW's Atlanta office. One letter, dated May 15, 1979, concerns Towne House. The other letter, dated May 16, 1979, concerns Krestview. Each letter states that no application was submitted for review of the lease transaction for which no timely notice was provided.

Respondent's Exhibit 6 consists of two notices dated May 25, 1979, from HEW's Regional Health Administrator in Atlanta to B&K. Each notice is a form entitled "Notice of Determination Under Section 1122 Capital Reimbursement to Be Excluded" [Respondent's Exhibit 6, at 1, 3.] Each notice contains the form language and typewritten "X" reproduced below:

[Respondent's Exhibit 6, at 1, 3.] Each notice further states as follows: "Obligation incurred during period Section 1122 agreement between [HEW] and the State of Florida was in effect. Reimbursement to be withheld indefinitely." [Respondent's Exhibit 6, at 1, 3.] Each notice also states as follows:

By law, any person dissatisfied with any of the deter- minations made by the Regional Health Administrator under Section 1122 has a right to ask the Secretary of HEW to reconsider. The procedure is for the person to write requesting reconsideration of the specific determina- tion(s) and citing the reasons why the reconsideration should be made. Because the reconsideration will be based only upon the written request and the earlier record of the case, the request should state clearly why the initial determination(s) is felt to be inappropriate; documentation should be included as appropriate.
A request for reconsideration must reach the Department within six months of the date of this notice. It should be addressed to:

Administrator
Health Resources Administration 3700 East-West Highway
Hyattsville, Maryland 20782

[Respondent's Exhibit 6, at 2, 4 (emphasis in original).]

Joint Exhibit 25 consists of a letter dated May 29, 1979, from Huff to HEW's Atlanta office and to the DPA-OCMF. The letter states as follows:

On March 2, 1979 Mr. Forehand wrote to Mr. Edward Lenick RE: the Leases at the Townehouse [sic] and Krestview Nursing Home Facilities in Miami, Florida. In those letters, Mr. Forehand stated that the leases, and the rental payments generated thereby, on those facili- ties constituted "capital expenditures" reviewable under section 1122, PL 92-603.

I responded to those letters on April 6, 1979. I pointed out to Mr. Forehand that the review under section 1122, of course, applied only to "capital expenditures". I respectfully suggested that these leases in no fashion resembled the capital expenditures contemplated in section 1122. For your reference, I attach copies of my letter of April 6, 1979.

Mr. Forehand's letters of March 2, 1979 advised Mr. Lenick that he had "30 days from receipt of this letter to initiate a request for review" of the capital expendi- tures. In fact, there was nothing to review as no capital expenditures had occurred. I had hoped that Mr. Forehand would review the definition of "capital expendi- ture" as set forth in section 1122.

I am now in receipt of Mr. Forehand's letter of May 15, 1979 addressed to Mr. Forrest. That letter states that there was no filing of "an application for the review of the lease transaction." Naturally there was no application for review. As I have pointed out, there was no capital expenditure to review.

I regret that I now must be blunt. Mr. Forehand has not read or has not understood the definition of "capital expenditure" set forth in Section 1122. The payment of rent, to an unrelated corporation, for the lease of a facility is "under generally accepted accounting prin- ciples" a normal "expense of operation and maintenance." Therefore the payment of rent is not a "capital expenditure". The payment of rental amount at these facilities has always been allowed as an expense of operation in cost reports filed with HRS and/or HEW.
If Mr. Forehand, or someone else, would be kind enough to explain how the payment of rent became a capital expenditure, then I may advise my clients to apply for a review of the alleged capital expenditure. The threshold question is whether or not there is a "capital expenditure" to review. These facilities are not being acquired through the leases, and the lessee is receiving no ownership benefits by virtue of the rental payments.

Incidentally, I must correct a statement made on page
2 of my letter to Mr. Forehand. I thoughtlessly stated that "a formal request for review" would be forthcoming if my view of the nature of the leases was erroneous.
No request for a review of these non-capital expenditures will be made. I am requesting a hearing before any attempt to withhold Medicaid/Medicare funds be made.

[Joint Exhibit 25 (emphasis in original).]

Joint Exhibit 26 consists of a letter dated June 12, 1979, from a Philadelphia law firm to HEW's Atlanta office. The letter states that the Krestview and Towne House leases are not capital expenditures. [Joint Exhibit 26, at 1.] Respondent's Exhibit 17 consists of a letter in response dated July 11, 1979, to the Philadelphia law firm from HEW's Atlanta office. The letter states as follows:

As the Notices issued on May 25, 1979, indicated, the Regional Health Administrator determined that they [the lease transactions] were subject to review. Should you wish to make a request for reconsideration of those determinations, you may do so by writing within six months of May 25, 1979, to Dr. Henry A. Foley, Adminis- trator, Health Resources Administration, 3700 East-West Highway, Hyattsville, Maryland, 20782.

[Respondent's Exhibit 17.]

There is no evidence in the record of any further inquiry by B&K or of any request for review addressed to the Administrator of the Health Resources Administration.

To summarize the foregoing, on March 21, 1979, B&K received a gratuitous notice from the DPA-OCMF that the lease transactions were capital expenditures subject to section 1122 review. The DPA-OCMF offered to review the capital expenditures if a request for review was initiated within thirty days. The DPA- OCMF supplied B&K with a copy of section 1122, and the HEW regulations and the HRS regulations promulgated thereunder. The DPA-OCMF also supplied to B&K the name of the area HSA, and suggested that B&K contact the area HSA for assistance and guidance. The DPA-OCMF informed B&K that failure to initiate a request for review would leave no basis for a finding of conformity and could lead to indefinite withholding of Medicaid payments.

B&K contacted the area HSA but did not initiate a request for section 1122 review. Instead, B&K turned the matter over to Huff, G&J's lawyer, and asked the DPA-OCMF to contact Huff "so that we can mutually resolve this situation." On April 6, 1979, Huff wrote to the DPA-OCMF, gave his view that the leases were
not capital expenditures for purposes of section 1122, and expressly declined section 1122 review. Huff added, however, that if the DPA-OCMF concluded that he was in error, a request for section 1122 review would be made.

On April 10, 1979, the DPA-OCMF informed Huff that he was in error and stated: "[I]t is the determination of the Department and this office that the lease transactions were a capital expenditure and subject to review under Section 1122 of P.L. 92-603." Assuming, as did the hearing officer, that this purely legal determination was reviewable on the state level, the HRS regulations which had been supplied to B&K and Huff informed B&K and Huff of B&K's right to seek review within thirty days of a decision to "recommend disapproval of a proposed capital expenditure." Fla. Admin. Code Rule 10- 5.11(8) (1/1/1977 & 11/1/1977). The thirty-day period began to run either on March 21, 1979, when B&K first received notice, or on or around April 13, 1979, when Huff received the reply to his April 6, 1979, letter to the DPA-OCMF. Huff first requested a hearing on May 29, 1979, over thirty days after both March 21, 1979, and April 13, 1979. Assuming, for the sake of argument, that B&K was entitled to a hearing, either Huff represented B&K after the matter was turned over to him by B&K and, therefore, B&K did not request a hearing until after the thirty-day period had run, or Huff did not represent B&K and no hearing was ever requested by B&K. Under either view of the facts, if such a right had existed, B&K waived its right to a hearing on the state level. Although B&K unquestionably had the right to a review on the federal level, B&K failed to seek any such review.
Disallowances for Nonliquidated Costs

G&J claims an underpayment for costs which were disallowed for having never been liquidated. Even were G&J entitled to retroactive payments, these amounts may not be paid to G&J because the costs were properly disallowed.
1. The Recommended Order
  
  Paragraphs 124 through 131 of the findings of fact and paragraphs 86 through 90 of the conclusions of law are the paragraphs of the recommended order which are relevant to this issue.
  1. Rejected Findings of Fact
    
    After a review of the complete record, HRS rejects the following findings of fact, none of which are based upon competent substantial evidence: paragraph 125; and the first sentence of paragraph 126.
    
    After a review of the complete record, HRS rejects the following findings of fact, to the extent that they are findings of fact and not conclusions of law mislabeled as "findings of fact," because they are not based upon competent substantial evidence: paragraph 124; the first sentence of paragraph 127; and the second through fifth sentences of paragraph 131.
  2. Rejected Conclusions of Law Mislabeled as "Findings of Fact"
    
    The following conclusions of law are mislabeled as "findings of fact" and are rejected: paragraph 124; the first sentence of paragraph 127; the second and third sentences of paragraph 130; and paragraph 131.
  3. Rejected Conclusions of Law
    
    The following conclusions of law, which are labeled as such, are rejected: paragraph 86; the first sentence of paragraph 87; the third sentence of paragraph 88; and the first and fourth sentences of paragraph 89.
2. Nonliquidated Costs
At all times material to this proceeding, HIM-15 provided in its relevant part as follows:

A short term liability must be liquidated within 1 year after the end of the cost reporting period in which the liability is incurred, subject to the exceptions specified in [section 2305.1 of HIM-15]. Liquidation must be made by check or other negotiable instrument, cash or legal transfer of assets such as stocks, bonds, real property, etc. Where liquidation is made by check or other negotiable instrument, these forms of payment must be redeemed through an actual transfer of the provider's assets within the time limits specified in this section. Where the liability (1) is not liquidated within the 1-year time limit, or (2) does not qualify under the exceptions specified in [section 2305.1 of HIM- 15] the cost incurred for the related foods and services is not allowable in the cost reporting period when the liability is incurred, but is allowable in the cost reporting period when the liquidation of the liability occurs.

HIM-15 Section 2305 (emphasis added).

If the provider presents to the intermediary sufficient written justification based upon documented evidence for the nonpayment of a short term liability within the 1- year time limit, the cost associated with the liability may continue to be allowed. This exception must not extend beyond 3 years after the end of the cost reporting period in which the liability was incurred. Examples of valid justification would include, but are not limited to, insufficient cash flow, or accounting error in the receipt and processing of bills for the cost of goods and services.

HIM-15 Section 2305.1 (emphasis added).

Under these provisions, an allowable cost must be liquidated, at the latest, within three years after the end of the cost-reporting year in which the cost was incurred. If the cost is not liquidated within three years, the cost is not allowable in the cost-reporting year in which it was incurred. However, if the cost is later liquidated, it is allowable in the cost-reporting year in which it is liquidated.
The hearing officer concluded that the three-year period during which an allowable cost must be liquidated is tolled by the automatic stay provision of the Bankruptcy Code. The hearing officer is in error. The automatic stay provided by section 362(a) of the Bankruptcy Code acts as a stay of the following acts:
1. the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
2. the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
3. any act to obtain possession of property of the estate or of property from the estate;
4. any act to create, perfect, or enforce any lien against property of the estate;
5. any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;
6. any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
7. the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor; and
8. the commencement or continuation of a proceed- ing before the United States Tax Court concerning the debtor.
11 U.S.C. Section 362(a) (1982).

As explained in re Striner, 847 F.2d 549 (9th Cir. 1988), a case upon which the hearing officer relies, "The stay of section 362 is extremely broad in scope and, aside from the limited exception of subsection (b), should apply to almost any type of formal or informal action against the debtor or property of the estate." In re Striner, 847 F.2d at 552 n.4 (quoting 2 L. King, Collier on Bankruptcy, Section 362.04, at 362-31 (15th ed. 1988)) (emphasis added). As further explained in In re Striner, the automatic stay "gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy." In re Striner, 847 F.2d at 551-52 (quoting H.R. Rep. No. 95-595 95th Cong., 1st Sess. 340 (1977), reprinted in 1978 U.S. Code Cong. & Admin. News 5963, 6296-97) (emphasis added).
The automatic stay applies only to actions against the debtor by his creditors. It does not stay the debtor from making payments. The three-year period provided by HIM-15 within which a cost must be liquidated is not tolled by the filing of a petition in bankruptcy.

Furthermore, were the three-year period tolled, it began running again in 1987 when the bankruptcy file was closed, and has expired. There is no evidence that the costs have been paid. Therefore, the nonliquidated costs were properly disallowed pursuant to sections 2305 and 2305.1 of HIM-15.
Other Disallowances

G&J claims underpayments for costs which were disallowed for various other reasons: costs improperly allocated from the home office; costs improperly allocated between facilities; arid costs already paid or covered by another program. Even were G&J entitled to retroactive payments, these amounts may not be paid to G&J because the costs were properly disallowed.
1. The Recommended Order
  
  Paragraphs 84 through 87 of the findings of fact are the paragraphs of the recommended order which are relevant to this issue.
  1. Rejected Findings of Fact
    
    After a review of the complete record, HRS rejects the following findings of fact, to the extent that they are findings of fact and not conclusions of law mislabeled as "findings of fact," because they are not based upon competent substantial evidence: paragraphs 84 through 87.
  2. Rejected Conclusions of Law Mislabeled as "Findings of Fact"
    
    The following conclusions of law are mislabeled as "findings of fact" and are rejected: paragraphs 84 through 87.
2. Various HIM-15 Disallowances
  
  At all times material to this proceeding, HIM-15 provided in its relevant part as follows:
  
  Costs applicable to services, facilities, and supplies furnished to the provider by organizations related to the provider by common ownership or control are includable
  in the allowable cost of the provider at the cost to the related organization. However, such cost must not exceed the price of comparable services, facilities, or supplies that could be purchased elsewhere. The purpose of this principle is two-fold: (1) to avoid the payment of a profit factor to the provider through the related organization (whether related by common ownership or control), and (2) to avoid payment of artificially inflated costs which may be generated from less than arm's-length bargaining. (Cross-refer to section 2150ff.)
  HIM-15 Section 1000.
  
  The related organization's costs include all reasonable costs, direct and indirect, incurred in the furnishing of services, facilities, and supplies to the provider.
  The intent is to treat the costs incurred by the supplier as if they were incurred by the provider itself.
  Therefore, if a cost would be unallowable if incurred by the provider itself, it would be similarly unallowable to the related organization. The principles of reimbur- sement of provider costs described elsewhere in this manual will generally be followed in determining the reasonableness and allowability of the related organiza- tion's costs, except where application of a principle in
  [sic] a nonprovider entity would be clearly inappropriate (e.g., Chapter 13, Inpatient Routine Nursing Salary Cost Differential; Chapter 22, Determination of Cost of Services to Beneficiaries; Chapter 23, those portions pertaining to cost finding; Chapter 24, Payments to providers; Chapter 25, Limitations on Coverage of Costs; and Chapter 26, Lower of Cost or Charges).
  
  HIM-15 Section 1005.
  
  Reasonable Costs.-- Reasonable costs of any services are determined in accordance with regulations establishing the method or methods to be used, and the items to be included. Reasonable cost takes into account both direct and indirect costs of providers of services, including normal standby costs. The objective is that under the methods of determining costs, the costs with respect to individuals covered by the program will not be borne by others not so covered, and the costs with respect to individuals not so covered will not be borne by the program.
  
  Implicit in the intention that actual costs be paid to the extent they are reasonable is the expectation that the provider seeks to minimize its costs and that its actual costs do not exceed what a prudent and cost- conscious buyer pays for a given item or service. (See
  Section 2103.) If costs are determined to exceed the level that such buyers incur, in the absence of clear evidence that the higher costs were unavoidable, the excess costs are not reimbursable under the program.
  
  HIM-15 Section 2102.1.
  
  Costs Not Related to Patient Care. -- Costs not related to patient care are costs which are not appropriate or necessary and proper in developing and maintaining the operation of patient care facilties [sic] and activities. Such costs are not allowable in computing reimbursable costs. They include, for example, cost of meals sold to visitors; cost of drugs sold to other than patients; cost of operation of a gift shop; and similar items.
  HIM-15 Section 2102.3
  
  A chain organization consists of a group of two or more health care facilities which are owned, leased, or through any other device, controlled by one organization
  
  ... The home off ice of a chain is not a provider in itself; therefore, its costs may not be directly reimbursed by the program. The relationship of the home office to the Medicare program is that of a related organization to participating providers. Home offices usually furnish central management and administrative services such as centralized accounting, purchasing, personnel services, management direction and control, and other services. To the extent the home office furnishes services related to patient care to a provider, the reasonable costs of such services are includable in the provider's cost report and are reimbursable as part of the provider's costs. Where the home office of the chain provides no services related to patient care, neither
  the costs nor the equity capital of the home office may be recognized in determining the allowable costs of the providers in the chain.
  
  HIM-15 Section 2150.
  
  Where a provider is furnished services, facilities, or supplies from an organization related to it by common ownership or control, the costs allowed are subject to the provisions of chapter 10. Thus, allowable cost is limited to the lower of (1) allowable costs properly
  allocated to the provider, except as indicated in Sec. 1010, or (2) the price for comparable services, facilities, or supplies that could be purchased elsewhere, taking
  account of the benefits of effective purchasing that would accrue to each member provider because of aggregate purchasing on a chainwide basis.
  
  HIM-15 Section 2150.1.
  
  Home office costs directly related to those services performed for individual providers which relate to patient care, plus an appropriate share of indirect costs (overhead, rent, administrative salaries, etc.) are allowable to the extent they are reasonable (see Section 2102.1). Home office costs that are not otherwise allowable costs when incurred directly by the provider cannot be allowable as home office costs to be allocated to providers. For example, certain advertising costs (see Sec. 2136.2), some franchise taxes and other similar
  taxes (see Sec. 2122.4), costs of noncompetition agreements (see Sec. 2105.1), certain life insurance premiums (see Sec. 2130), certain membership costs (see Secs. 2138.3 and 2138.4) or those costs related to nonmedical enterprises
  are not considered allowable home office costs. In addition, where an owner of the provider, as defined in chapter 9, received compensation for services provided
  by the home office, the compensation is allowable only to the extent that it is related to patient care (see 902.2) and to the extent that it is reasonable (see 902.3).
  
  HIM-15 Section 2150.2.
  
  Providers receiving payment on the basis of reimbursable cost must provide adequate cost data based on financial and statistical records which can be verified by quali- fied auditors. The cost data must be based on an approved method of cost finding and on the accrual basis of accounting.
  
  HIM-15 Section 2300.
  
  Allowable Costs.-- An item or group of items of cost chargeable to the one or more objects, processes, or operations in accordance with cost responsibilities, benefits received, or other identifiable measure of application or consumption (also known as general service costs).
  
  HIM-15 Section 2302.4.
3. The Hearing Officer Failed to Make Findings of Fact upon Which Can Be Based a Conclusion that the provisions of HIM-15 Have Been Satisfied
The hearing officer's "findings of fact" are nothing more than cursory conclusions that the various items of cost at issue are allowable. The hearing officer's conclusions do not address the relevant provisions of HIM-15 and it is, therefore, impossible as a matter of law to determine whether the requirements of HIM-15 have been met. Even were G&J entitled to retroactive payments, these amounts may not be paid to G&J because the costs were properly disallowed pursuant to the provisions of HIM-15 quoted above.
G&J's Claim Against B&K for Rents

G&K claims an underpayment for costs consisting of rents B&K owed to its landlord, G&J. Even were G&J entitled to retroactive payment, these costs may not be paid to G&J because the underlying obligations for which these costs would have been paid no longer exist.
1. The Recommended Order
  
  Paragraphs 50 through 69 of the findings of fact and paragraphs 35 through
  46 of the conclusions of law are those paragraphs of the recommended order which are relevant to this issue.
  1. Rejected Findings of Fact
    
    After a review of the complete record, HRS rejects the following findings of fact, to the extent that they are findings of fact and not conclusions of law mislabeled as "findings of fact," because they are not based upon competent substantial evidence: the second and third sentences of paragraph 61.
  2. Rejected Conclusions of Law Mislabeled as "Findings of Fact"
    
    The following conclusions of law are mislabeled as "findings of fact" and are rejected: the second and third sentences of paragraph 61.
  3. Rejected Conclusions of Law
  The following conclusions of law, which are labeled as such, are rejected: paragraph 35; paragraph 36; the fourth clause of the first sentence of paragraph 38; paragraphs 39 through 42; the first, second and fifth sentences of paragraph 45; and the first through sixth sentences of paragraph 46.
2. The Contract
  
  Joint Exhibit 16 consists of a letter dated August 6, 1982, from G&J's lawyer, Huff, to B&K's bankruptcy trustee. The letter states as follows:
  
  This is to advise you that Medicare/Medicaid cost reports have now been completed for the Krestview Nursing Home and Townehouse [sic] Convalescent Center, for the periods May 5, 1977 through May 31, 1978 (KV only), June
  1, 1978 through May 31, 1979 and June 1, 1979 through August 31, 1979. As you know, these cost reports were prepared, through the offices of Nursing Home Consul- tants, Inc., pursuant to the Order of the Bankruptcy Court, dated January 11, 1980. You will also recall that the purpose of preparing the cost reports was to deter- mine if the bankrupt corporation, B&K Investments, Inc., might not be entitled to payments from the State of Florida.
  
  It is our determination that the estate is entitled to some compensation from the State of Florida, as more fully detailed in the letter enclosed herewith. As is also detailed in that letter, it is anticipated that collection of any sums due and owing the bankrupt will most likely entail extensive and lengthy administrative review and litigation.
  
  I have, consequently, been authorized by my client to offer to purchase the Trustee's right, title and interest, and claims if any, in and to the Medicare/Medicaid cost reports of the bankrupt. In consideration therefor, G&J Investments Corporation, Inc., offers the sum of $5,000.00 together with the waiver of its claim for rents due and owing from B&K, and any and all claims against the estate for the costs and expenses incurred in the preparation of the cost reports.
  
  Thank you for your consideration in this matter.
  I look forward to the favor of your response.
  
  [Joint Exhibit 16 (emphasis added).] As the hearing officer found, this offer was accepted by the trustee and approved by the bankruptcy court.
3. Because G&J Waived Its Claim to Rents Owed by Its Tenant, B&K, B&K No Longer Owed the Rents. Therefore, No Medicaid Payments Were Owed to B&K for the Rents, Nor Are Such Medicaid Payments Owed to B&K's Assignee, G&J.
The issue here is not whether a corporate bankrupt may receive a discharge of its debts. Here, the creditor has voluntarily waived its claim by entering into a contract to do so in exchange for the assignment of a claim for other funds allegedly due to the debtor.

The construction of a written contract is a conclusion of law. As stated by the Florida Supreme Court, "[T]he rule is too well established to require the citation of authorities, that ordinarily the construction of a written contract is a matter of law which must be determined by the court ..." City of Leesburg
v. Hall, 96 Fla. 186, 191, 117 So. 840, 841 (1928). Where the language is clear and unambiguous, the construction of a contract presents a question of law. Rothstein v. Honeywell, Inc., 519 So.2d 1020, 1021 (Fla. 3rd DCA 1987). The existence of a clear and unambiguous contract is the best evidence of the intent of the parties, and its meaning and legal effect are questions of law for determination by the court. Jaar v. Univ. of Miami, 474 So.2d 239, 242 (Fla. 3rd DCA 1985) (en banc), review denied mem., 484 So.2d 10 (Fla. 1986).

The hearing officer's interpretation of the contract entered into between G&J and B&K's trustee ignores the contract's clear and unambiguous language: G&J offered, along with other consideration, "the waiver of its claim for rents due and owing from B&K." In exchange, G&J was assigned B&K's claim for any Medicaid and Medicare payments due to B&K.

This result would not preclude G&J from pressing B&K's claim for other Medicaid and Medicare payments. Indeed, at the time this offer was made by G&J, G&J surely knew not only that B&K was insolvent and could not pay the rents; G&J also knew that B&K had long since waived its right to collect Medicaid payments for rents, by failing to appeal HEW's section 1122 determination. In light of this, it was entirely reasonable for G&J to waive its claim for the rents, for which no Medicaid funds were allowed, in exchange for the assignment of other Medicaid and Medicare payments which, at least under G&J's view of the law, stood a far better chance of being collected.

As B&K's assignee of the claim for any Medicaid and Medicare payments due to B&K, G&J is now claiming Medicaid payments for the very "rents due and owing from B&K" to which G&J waived its claim. Once B&K waived its claim for the rents, B&K no longer owed the rents and could no longer look to Medicaid payments to reimburse B&K as the payor of the rents. G&J now stands in the shoes of B&K. The situation is no different than if B&K were seeking Medicaid payments for rents B&K did not owe. Because no rents are owed by the tenant and will never be paid, there can be no Medicaid payments to reimburse the "payor" of the rents, or the assignee of the "payor."
The Claim of HRS Against G&J

It is undisputed that HRS filed a claim against B&K in the bankruptcy court in the amount of $1,179,278 for Medicaid overpayments made by HRS to B&K, and that no objection was made to this claim. Furthermore, HRS's audit of the cost reports shows an overpayment to B&K of $1,125,910. Whether HRS's claim for overpayments is treated as a recoupment or a setoff, it extinguishes the claim of G&J against HRS.
1. The Recommended Order
  
  Paragraphs 16, 24, 51, 78 through 83, 100, 128, 157 and 158 of the findings of fact and paragraphs 3 and 47 through 69 of the conclusions of law are those paragraphs of the recommended order that are relevant to this issue.
  1. Rejected Findings of Fact
    
    After a review of the complete record, HRS rejects the following findings of fact, none of which are based upon competent substantial evidence: paragraph 16; paragraph 79; the second clause of the third sentence of paragraph 83; paragraphs 100; the second and third sentences of paragraph 128; and the first sentence of paragraph 157.
  2. Rejected Conclusions of Law
    
    The following conclusions of law, which are labeled as such, are rejected: the second clause of the third sentence of paragraph 3; paragraphs 47 through 54; the third sentence of paragraph 58; paragraphs 60 through 62; and paragraphs
    65 through 69.
2. The Claim of HRS Extinguishes the Claim of G&J
  
  As noted by the hearing officer, the claim of HRS exceeds the claim of G&J. Therefore, if HRS were entitled to recoupment or setoff, the claim of G&J would be extinguished and it would be unnecessary to reach the merits of G&J's claim.
  1. Setoff or Recoupment
    
    A setoff is based upon mutual debts arising out of different transactions.
    Where a debtor and a creditor in a bankruptcy proceeding owe debts to one another, and both debts arose prior to the filing of the bankruptcy petition, the debts are mutual for purposes of section 553 of the Bankruptcy Code, 11
    U.S.C. Section 553 (1982), and may be set off. In re Nat'l Structures, Inc., 74 Bankr. 86, 989 (Bankr. E.D. Wis. 1987); In re Buckley & Assocs. Ins., 67 Bankr. 331, 334-35 (Bankr. E.D. Tenn. 1986), vacated on other rounds, 78 Bankr. 155 (E.D. Tenn. 1987); Westinghouse Elec. Corp. v. Fidelity & Deposit Co., 63 Bankr. 18, 20-21 (E.D. Penn. 1986). A recoupment, on the other hand, is based upon debts which arise from the same transaction. Recoupment is not affected by bankruptcy. In re Buckley & Assocs. Ins., 67 Bankr. at 334-35; Westinghouse Elec. Corp., 63 Bankr. at 20-21.
    
    In the bankruptcy proceeding, the bankruptcy creditor was HRS and the bankruptcy debtor was B&K. HRS claimed Medicaid overpayments and B&K claimed Medicaid underpayments. Both claims arose prior to the filing of the bankruptcy petition. It is unclear whether the debt should be classified as arising from a single transaction or from different transactions. The debts could be characterized as having all arisen from the Standard Provider Agreements. The debts could also be characterized as mutual debts which arose from several underpayments and several overpayments on several occasions. HRS has raised both setoff and recoupment in this proceeding. Regardless of how one views the facts, the result is the same in either case.
  2. B&K's Claim Is Extinguished
    
    HRS preserved its overpayment claim in the bankruptcy proceeding by filing a proof of claim in the amount of $1,179,278. A properly filed proof of claim constitutes prima facie evidence of both the validity and the amount of the claim. In re St. Augustine Gun Works, Inc., 75 Bankr. 495, 499 (Bankr. M.D. Fla. 1987); In re Ward, 23 Bankr. 45, 47 (Bankr. M.D. Fla. 1982). The burden is on the debtor to rebut, by affirmative proof, the presumption of validity. In re St. Augustine Gun Works, Inc., 75 Bankr. at 499. Where a proof of claim filed in the bankruptcy proceeding is not objected to by the trustee prior to final decree and discharge, the claim and the amount of the claim must be presumed valid. Furthermore, HRS's audit of the cost reports shows an overpayment to B&K of $1,125,910. Where, as here, the amount of the recoupment or setoff exceeds the amount of B&K's claim, B&K would be properly precluded from any recovery whatsoever.
  3. G&J Stands in the Shoes of B&K: G&J's Claim Is Extinguished
    
    An assignee of a debtor's claim against a creditor is subject to any rights of the creditor to recoupment or setoff. Because the assignee stands in the shoes of the debtor, the assignee's recovery from the creditor is limited by the principles of recoupment and setoff. In re Buttes Gas & Oil, 72 Bankr. 236, 239 (Bankr. S.D. Tex. 1987). In the present proceeding, G&J is the assignee of B&K's claim against HRS for underpayments. HRS's claim against B&K was preserved in the bankruptcy proceeding. Therefore, HRS's claim against B&K, G&J's assignor, entitles HRS to assert setoff and recoupment against G&J. HRS's claim is presumed valid. Furthermore, HRS's audit of the cost reports shows an overpayment to B&K, G&J's assignor, of $1,125,910. G&J's claim is extinguished.
  4. The Hearing Officer's Finding That HRS Made No Medicaid Payments to B&K After June 30, 1979, Is Not Based Upon Competent Substantial Evidence
Totally aside from the presumed validity of HRS's claim against G&J, as confirmed by the $1,125,910 in overpayments, the hearing officer found that a part of that claim, overpayments made between July 1, 1979, and August 31, 1979, was invalid. The hearing officer based this finding upon Petitioner's Exhibits
204 and 205. These exhibits are computer printouts generated by SDC, an agent of HRS. The computer printouts show the dates of Medicaid payments to B&K on behalf of Medicaid recipients at Krestview and Towne House.

The hearing officer found that, although B&K's per diem rates were adjusted downward following HEW's section 1122 determination, the downward adjustment was never implemented. The hearing officer further found, however, that the computer printouts showed that no Medicaid payments were made to B&K after June 30, 1979. The hearing officer's finding that the downward adjustment of the per diem rates was never implemented is based upon competent substantial evidence.
This finding is supported by the testimony of Emmelina Pronto, an audit evaluation and review analyst with HRS. [December 4, 1989, Transcript, Part II, at 74-75.]

The hearing officer's finding that no payments were made to B&K after June 30, 1979, however, is not based upon competent substantial evidence. The computer printouts upon which the hearing officer based this finding show payments were made at least as late as July 15, 1979. Furthermore, the
printouts were generated on July 23, 1979. There is absolutely no way to determine from these printouts that no Medicaid payments were made to B&K after that date. [Petitioner's Exhibits 204 and 205.]
HRS's Attorney's Fees and Costs

In his Preliminary Statement, the hearing officer states that Petitioner's Motion to Compel Answers to Interrogatories and for Attorney's Fees, served August 7, 1989, was granted by the Order on Pending Motions, signed August 24, 1989. [Recommended Order at 3.] In fact, G&J's request for attorney's fees was denied. [Order on Pending Motions para. 3.]

However, Respondent's Renewed Motion for Continuance and Renewed Motion to Compel Discovery, served June 1, 1989, was granted by the Order Granting Continuance and Granting' Motions to Compel Discovery, signed June 13, 1989. In granting HRS's motion, the hearing officer ordered as follows:

The request for attorney's fees and costs associated with the Renewed Motion to Compel Discovery is granted.
Ruling as to the amount of fees and costs is reserved to allow the parties an opportunity to agree on an appropriate amount. If the parties are unable to so agree, an evidentiary hearing will be scheduled and a reasonable amount will be determined by the undersigned.

[Order Granting Continuance and Granting Motion to Compel Discovery para. 2.] Therefore, the hearing officer has reserved jurisdiction to determine the amount of attorney's fees and costs G&J owes to HRS.
Ruling

Any claim G&J may have had against HRS for Medicaid underpayments is extinguished, under the principle of either setoff or recoupment, by HRS's claim for Medicaid overpayments. Moreover, under the controlling laws and regulations, HRS may not make retroactive Medicaid payments to G&J. Finally, were G&J's claim not extinguished and were HRS able to make retroactive Medicaid payments, no funds would be due to G&J. This is because the costs which were disallowed were properly disallowed pursuant to the controlling laws and regulations.

Based upon the foregoing and a review of the complete record, it is ADJUDGED THAT the hearing officer's first and second recommendations,

regarding G&J's petition, are rejected; the hearing officer's third

recommendation, regarding the award of attorney's fees and costs to HRS, is adopted; and G&J's petition for retroactive Medicaid payments is DENIED.

DONE and ORDERED this 30th day of September 1991 in Tallahassee, Florida.

ROBERT B. WILLIAMS

Secretary

Department of Health and Rehabilitative Services

By: Deputy Secretary for

Administration

ENDNOTES

1/ A copy of the Plan was admitted into evidence as a part of Joint Exhibit 3. The first page of Joint Exhibit 3 is a transmittal form from HRS to HEW. The transmittal form purports to be a submittal to HEW, for approval, of an amendment to the Plan, effective October 1, 1977. Most of the hearing officer's conclusions of law (including those mislabeled as "findings of fact") concerning the Plan were premised upon an apparent assumption that the amendment of October 1, 1977, was extensive. However, the transmittal form states that the amendment involves only page 20 of the Plan and an attachment. Page 20 of the Plan, at paragraph IV(B)(2)(d), references an attachment. This attachment, "Schedule B of the cost report," is not included in Joint Exhibit 3. Nevertheless, a review of those cost reports which are in evidence and of the amended page 20 of the Plan leads to the conclusion that the hearing officer's assumptions greatly exaggerate the extent and relevancy of the amendment and are erroneous. At all times material to this proceeding, the relevant provisions of the Plan were substantially as quoted in the text.

2/ The quoted regulations became effective on January 1, 1977. Subsection 6(c) was amended effective October 1, 1977, to eliminate the requirement that a cost report be filed every six months rather than once a year. The subsections were renumbered effective December 29, 1977, but were not otherwise changed. At all times material to this proceeding, the relevant HRS regulations regarding nursing home participation in the Medicaid program were substantially as quoted in the text.

3/ The Standard Provider Agreement became effective on January 1, 1977. It was amended effective October 1, 1977, to eliminate the requirement that a cost report be filed every six months rather than once a year. At all times material to this proceeding, the Standard Provider Agreement was substantially as quoted in the text.

4/ Formerly the "State" Health Coordinating Council. Fla. Admin. Code Rule 10- 5.02(5) (1/1/1977).

5/ Previously "60" days. Fla. Admin. Code Rule 10-5.08(1) (1/1/1977)

6/ Although these regulations were amended effective November 1, 1977, the amendments insofar as these proceedings are concerned were minor and do not change the meaning of any relevant provisions.

7/ Although these regulations were amended effective November 1, 1977, the amendments insofar as these proceedings are concerned were minor and do not change the meaning of any relevant provisions.

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing has been sent by U. S. Mail this 1st day of October 1991 to the following:

R. Stuart Huff Mark L. Mallios

330 Alhabra Circle Coral Gables, FL 33134

Mellisa Fletcher Allaman, Esquire Robert M. Ervin, Jr., Esquire ERVIN, VARN, JACOBS, ODOM & ERVIN

Post Office Drawer 1170 Tallahassee, FL 32302

Daniel Manry Hearing Officer

Division of Administrative Hearings 1230 Apalachee Parkway

The DeSoto Building Tallahassee, FL 32399-1550

W. Warren Mulherin (ASASA) Chief Internal Auditor Office of Audit and Quality Control Services

1317 Winewood Boulevard

Building 3, Room 219

Tallahassee, FL 32399-0700

R. S. Power, Agency Clerk Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, FL 32399-0700 (904)488-2381

================================================================= DISTRICT COURT OPINION

=================================================================

IN THE DISTRICT COURT OF APPEAL FIRST DISTRICT, STATE OF FLORIDA

G. & J. INVESTMENTS CORP., INC. NOT FINAL UNTIL TIME EXPIRES TO

FILE MOTION FOR REHEARING AND

Appellant, DISPOSITION THEREOF IF FILED.

vs. CASE NO. 91-3428

DOAH CASE NO. 87-2888

DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES,

Appellee.

/ Opinion filed December 29, 1992.

An Appeal from an Order of the Department of Health and Rehabilitative Services.

Ben H. Wilkinson and Cathi C. Wilkinson, of Pennington, Wilkinson, Dunlap, Bateman and Camp, P.A., Tallahassee; and R. Stuart Huff and Mark L. Maltios, Coral Gables, for Appellant.

Melissa Fletcher Allaman and Robert M. Ervin, Jr., of Ervin, Varn, Jacobs, Odom & Ervin, Tallahassee, for Appellee.

SHIVERS, Judge.

This appeal is from a final order of the Department of Health and Rehabilitative Services (HRS) rejecting the recommendations of the hearing officer and denying G. & J. Investment Corporation, Inc.'s (G & J's) petition for retroactive Medicaid payments. We affirm the final order and find that one issue merits discussion. The issue is whether HRS properly determined that its rules prohibit retroactive payments of Medicaid reimbursements to an out-of- business nursing home.

G & J is the assignee of the rights of two bankrupt nursing homes. The assignor is B & K Investments, Inc. (B & K). B & K began managing the two nursing homes in 1977. HRS and B & K entered into a written `provider' agreement for the operation of nursing homes. The written agreement between HRS and B & K provided, "In instances of non-payment or underpayment conditions due to error(s) not attributable to provider who has furnished nursing home services and care to persons properly certified and eligible, [HRS] shall make payment to the provider upon receipt of properly completed claims documents.

In August 1979 B & K filed for bankruptcy under Chapter 7. The bankrupt estate abandoned its interest in the two nursing homes, and its only remaining asset was a claim for money due and owing from HRS for underpayment of Medicaid reimbursements. HRS required that cost reports be submitted in order to claim the Medicaid reimbursements.

The cost reports remained incomplete three years after the filing of the bankruptcy. In September 1982 G & J purchased the bankrupt estate's interest in the Medicaid reimbursements.

In February 1983 G & J filed five cost reports with HRS for the period from May 5, 1977, through August 31, 1979. HRS refused to accept the reports. One of the grounds for the refusal was that retroactive payments cannot be made.

The 1977 version of Florida Administrative Code Rule 10C-7.48(7)(i) states, "Retroactive payment shall not be made to nursing homes whose costs exceeds (sic) annual payment, an allowance of nine (9%) percent is provided in lieu of this."

In 1984 G & J initiated an administrative hearing to determine whether HRS is required to accept the cost reports. The hearing officer found that the written agreement between B & K and HRS specifically provided for retroactive reimbursements. HRS rejected the hearing officer's conclusions of law, but it accepted the cost reports on the basis that it had previously granted extensions of time for filing the reports.

The ensuing litigation culminated in a recommended order filed by another hearing officer in July 1991. The hearing officer concluded that HRS should be required to make a lump sum payment of $447,473.34 in disallowed, unreimbursed Medicaid expenses.

HRS rejected the recommendation and entered a final order ruling that it owes G & J nothing. HRS reasoned that pursuant to Rule 10C-7.48(7)(i), the only way to recoup an underpayment was through an allowance added to payments in subsequent months, and thus an out-of-business nursing home cannot recover an underpayment. We find that HRS's interpretation of Rule 10C-7.48 and the statutes implemented by the rule is reasonable. "The rule is clear that an agency's interpretation of a statute, with which it is legislatively charged with administering, shall be accorded great weight and should not be overturned

`unless clearly erroneous.'" Cargill, Inc. v. Hill, 503 So.2d 1340, 1342 (Fla. 1st DCA 1987)(quoting Department of Insurance v. Southeast Volusia Hospital District, 438 So.2d 815, 820 (Fla. 1983)).

The specific statutory authority for Rule 10C-7.48 is section 409.026(1) and (6), Florida Statutes (1977)(HRS "shall conduct, supervise, and administer all family services work within the state. Section 409.055 states, "[HRS] is a body corporate and shall adopt and have a corporate seal. It shall have the power to contract and be contracted with, to sue and be sued in action in ex contractu but not in torts, and to have and to possess corporate powers for all purposes necessary to administer this chapter." Rule 10C-7.48 interprets or implements section 409.266, Florida Statutes (1977). Subsection 409.266(2)(b) states, "[HRS] is hereby authorized to [c]ontract with health maintenance organizations ... for the provision of medical services to eligible persons."

Rule 10C-7.48(5) states, "Requirement for participation in the Medicaid nursing home care program effective January 1, 1978, are as follows ... b) Execution of a provider agreement ... attached hereto as Appendix II and made a

part hereof by reference." Therefore, the provider agreement is not a document isolated from the rule prohibiting retroactive payments; it is a part of the rule itself.

Rule 10C-7.48(7)(i) and the agreement provision can be harmonized. The agreement allows retroactive payments to Providers in instances of nonpayment or underpayment "due to errors" not attributable to the Provider. The language preceding this provision in the provider agreement indicates that an `error' does not include a situation merely where `costs exceed annual payments':

The payment of any monies on behalf of a Medicaid recipient for a specified period of service which results in an amount received by the Provider in excess of that amount to which the Provider is entitled, shall be reported and refunded to [HRS]. In those instances where an overpayment circumstance is due to recipient error, there shall be no repayment demand imposed upon the Provider. In those instances of overpayment due to [HRS] errors in eligibility investigation and determination, there likewise shall be no imposition of responsibility upon the Provider. Overpayment attributable to manual or mechanical miscalculation or miscue resulting in a payment amount to which the Provider is not entitled, shall be refunded when identified and requested.

(emphasis added). The agreement continues on to provide for "instances of non- payment or under-payment conditions due to error(s) not attributable to Provider

..." This provision, taken in context with the entire agreement, appears to have little to do with retroactive payments claimed as a result of reimbursements intentionally disallowed by HRS--the sort of payments squarely addressed by Rule 10C-7.48(7)(i).

Therefore, Rule 10C-7.48(7)(i) is not in conflict with the provider agreement, and it is not clearly erroneous to interpret the rule as prohibiting retroactive payments to an out-of-business nursing home. Accordingly, we affirm.

AFFIRMED.

ZEHMER and KAHN, JJ., CONCUR.

Docket for Case No: 87-002888

Issue Date	Proceedings
Dec. 30, 1992	First DCA Opinion filed.
Dec. 17, 1991	AGENCY APPEAL, ONCE THE RETENTION SCHEDULE OF -KEEP ONE YEAR AFTER CLOSURE- IS MET, CASE FILE IS RETURNED TO AGENCY GENERAL COUNSEL. -ac
Oct. 03, 1991	Order to Correct Final Order filed.
Oct. 02, 1991	Final Order filed.
Jul. 02, 1991	Recommended Order sent out. CASE CLOSED. Hearing held 10/23/89 & 11/28/89 - 12/4/89.
Oct. 23, 1990	Petitioner's Pre-hearing Statement & attachments filed.
May 10, 1990	(Respondent) Notice of Reliance of Supplemental Authority In Support of Respondent's Memorandum of Law on Issues Reserved For Post-Hearing Ruling By The Hearing Officer filed. (from Melissa Fletcher Allaman)
Apr. 30, 1990	Respondent's Notice of Filing Attachment to Post-Hearing Memorandum of Law & attachment filed.
Apr. 30, 1990	Petitioner's Proposed Recommended Order & Appendix filed.
Apr. 27, 1990	Respondent's Notice of Filing Proposed Recommended Order filed.l
Mar. 30, 1990	(Petitioner) Motion For Extension of Time to Serve Proposed Recommended Order filed.
Feb. 26, 1990	Order For Enlargement of Time sent out. (Pet.'s Motion for Enlargement of Time in which to File Proposed Recommended Order is granted)
Feb. 19, 1990	Agreed Motion For Extension of Time to Serve Proposed Recommended Orders filed.
Feb. 12, 1990	(Respondent) Notice of Filing of Original Transcript & cover ltr filed.
Feb. 12, 1990	Transcript (13 Vols) filed.
Nov. 27, 1989	Supplementary Brief in Support of Respondent's Motion for Summary Disposition and Alternative Motion for Partial Summary Disposition & attachment filed.
Nov. 22, 1989	Subpoena Ad Testificandum filed.
Nov. 20, 1989	Joint Exhibit 18 filed.
Nov. 17, 1989	Bankruptcy Documents & cover ltr filed.
Nov. 15, 1989	Petitioner's Response to Respondent's Motion for Summary Disposition and Partial Summary Disposition w/exhibits A-C filed.
Nov. 08, 1989	Notice of Filing Affidavit of Louis Phillips filed.
Nov. 07, 1989	Notice of Filing Answer to Interrotatory & attachment filed.
Nov. 06, 1989	Motion for Summary Disposition and Alernative Motion for Partial Summary Disposition & attachments filed.
Nov. 03, 1989	Petitioner's Response to Respondent's Motion in Limine W/Composite Exhibit-A filed.
Oct. 23, 1989	HRS' Motion in Limine filed.
Oct. 20, 1989	HRS' Motion in Limine w/Exhibit-A filed.
Oct. 20, 1989	CC of Letter to M. Allaman from R. Huff (re: pre-hearing stipulation)rec'd
Oct. 16, 1989	Notice of Serving Answers to Interrogatories filed.
Oct. 12, 1989	Notice of Service of Second Supplemental Answers to Petitioner's First Interrogatories to Respondent filed.
Oct. 11, 1989	Defendant's Notice of Taking Deposition Duces Tecum filed.
Oct. 05, 1989	Order on Petitioner's renewed motion to compel sent out.
Oct. 05, 1989	Prehearing Order(prehearing filing extended until the morning of the first day of hearing) sent out.
Oct. 05, 1989	Order on Respondent's Motion for Clarification sent out.
Oct. 03, 1989	Petitioner's Additional Response to Interrogatories filed.
Oct. 03, 1989	Notice of Serving Answers to Interrogatories filed.
Oct. 03, 1989	Petitioner's Second Additional Response to Interrogatories & attachments filed.
Oct. 02, 1989	Petitioenr's Second Additional Response to Interrogatories & attachments filed.
Sep. 29, 1989	Petitioner's Second Request for Production filed.
Sep. 29, 1989	Ltr. to W. Garvin from M. Mallios filed. w/cc: DDK
Sep. 27, 1989	CC Letter to DKK from M. L. Mallios (re: Order dated 8/24/89) filed.
Sep. 20, 1989	Defendants' Notice of Taking Deposition Duces Tecum w/attached Subpoena (4) filed.
Sep. 20, 1989	Department of Health and Rehabilitative Services' Notice of Propounding Second SEt of Interrogatories filed.
Sep. 18, 1989	Notice of Service of Supplemental Answers to Petitioner's First Interrogatories to Respondent filed.
Sep. 11, 1989	CC Letter to M. Allaman from R. S. Huff filed.
Sep. 08, 1989	Department of Health and Rehabilitative Services' Motion for Extension of Time filed.
Aug. 24, 1989	Order on pending motions sent out.
Aug. 21, 1989	Department of Health and Rehabilitative Services' Request for Oral Argument on All Pending Motions filed.
Aug. 21, 1989	Department of Health and Rehabilitative Services' Response to Petitioner's Motion for Extension of Time to Serve Answers to Interrogatoaries and to Compel Answers to Interrogatories and for Attorneys' Fees filed.
Aug. 14, 1989	CC Letter to M. F. Allaman from R. S. Huff filed.
Aug. 11, 1989	Petitioner's Additional Response to Interrogs. filed.
Aug. 10, 1989	Respondent's Motion to Dismiss, or for other Appropriate Sanctions Against Petitioner filed.
Aug. 08, 1989	Petitioner's Motion to Compel Answers to Interrogs. and for Attorney Fees; Petitioner's Motion for Extension of Time to Serve Ansers to Interrogs filed.
Aug. 01, 1989	Department of Health and Rehabilitative Services' Response to Petitioner's First Request for Production and Motion to Shorten Time for Response filed.
Jul. 28, 1989	Notice of Service of Answers to Petitioner's First Interrogatories toRespondent filed.
Jul. 28, 1989	Petitioner's Motion to Shorten Time for Response filed.
Jun. 26, 1989	Petitioner's Notice of ServingFirst Set of Interrogatories to Respondent filed.
Jun. 13, 1989	Notice of Hearing sent out. (hearing set for 10/23-27/89;9:30AM;Miami)
Jun. 13, 1989	Order Granting Continuance and Granting Motion to Compel Discovery sent out.
Jun. 05, 1989	Notice of Hearing filed.
Jun. 02, 1989	Respondent's Renewed Motion for Continuance & attachments filed.
Jun. 01, 1989	Respondent's Renewed Motion to Compel Discovery filed.
Jun. 01, 1989	Notice of Serving Answers to Interrogatories filed.
May 30, 1989	Order granting respondent's motion to compel discovery sent out.
May 23, 1989	Order(otion for Continuance is Denied) sent out.
May 23, 1989	Respondent's Motion to Compel Discovery filed.
May 22, 1989	Respondent's Motion for Continuance filed.
May 10, 1989	Motion for Clarification filed.
May 10, 1989	CC Letter to CCA from R. S. Huff & attached Petition filed.
Apr. 11, 1989	Order sent out.
Apr. 11, 1989	Order Granting Continuance and Rescheduling Hearing sent out. (hearing rescheduled forJuly 10-12, 1989; 9:30a; Miami)
Apr. 11, 1989	Department of Health and Rehabilitative Services First Request to Produce Documents to Petitioners filed.
Apr. 10, 1989	Proposed Pre-hearing Stipulation & cover ltr filed.
Apr. 07, 1989	Department of Health and Rehabilitative Services' Motion for Continunace filed.
Mar. 31, 1989	Appearance of Counsel filed.
Jan. 05, 1989	Order Granting Continuance and Rescheduling Hearing sent out. (hearing rescheduled for 4/17-19/89, 10:00a, Miami)
Dec. 21, 1988	Motion for Continuance filed.
Dec. 02, 1988	Amended Notice of Hearing sent out. (hearing set for 1-11/12/13-89, 10:00a, Miami)
Nov. 18, 1988	CC Letter to DKK from R. S. Huff filed.
Nov. 09, 1988	Order sent out.
Nov. 09, 1988	Notice of Hearing sent out. (hearing set for 1-11/12/13-89, 10:00a, Miami)
Sep. 15, 1988	Petitioner's Compliance with Order & cover ltr filed.
Jun. 13, 1988	Letter to DKK from R. Stuart Huff & attachment filed.
May 11, 1988	CC of letter to S. Huff from R. McCaslin; & cover letter to DKK from A. Honey filed.
Mar. 11, 1988	Letter to DKK from S. Huff filed.
Mar. 08, 1988	Letter to S. Huff from R. McCaslin filed.
Feb. 29, 1988	Letter to R. McCaslin from S. Huff filed.
Dec. 14, 1987	ltr to DKK from S. Huff filed. (re: Update of Audits)
Nov. 23, 1987	Respondent filed.
Nov. 23, 1987	Notice of Appearance and Substitution of Counsel for
Oct. 26, 1987	cc ltr to R. McCaslin from S. Ruff filed.
Sep. 28, 1987	dent filed. (from F. Mikell).
Sep. 28, 1987	Notice of Appearance and Substitution of Counsel for Respon-
Sep. 14, 1987	cancelled; parties to give status in 90 days) sent out.
Sep. 14, 1987	Order of Abeyance (joint motion to abate granted; hearing
Sep. 14, 1987	Letter from E. Early to JDA dated 3/3/88 (re: Notice of Hearing) and Enclosures filed.
Sep. 09, 1987	Joint Motion to Abate filed.
Sep. 08, 1987	Abate).
Sep. 08, 1987	cc ltr to T. Mack from S. Huff rec'd (re: Joint Motion to
Aug. 25, 1987	Respondent's Withdrawal of Motion to Dismiss filed.
Aug. 24, 1987	Order sent out (Motion to Dismiss Denied).
Aug. 19, 1987	filed.
Aug. 19, 1987	Petitioner's Supplement to Response to Motion to Dismiss
Aug. 18, 1987	Petitioner's Response to Motion to Dismiss filed.
Aug. 10, 1987	Motion to Dismiss (+ appendix A-C) filed. (from DHRS).
Aug. 05, 1987	Order sent out.
Aug. 05, 1987	Tallahassee).
Aug. 05, 1987	Notice of Hearing sent out (set for 9-17-87; 9:00 AM;
Aug. 05, 1987	Petitioner's Compliance With Order (+ 1 attatchment) filed.
Jul. 20, 1987	Order sent out.
Jul. 17, 1987	PPF Card Sent.
Jul. 09, 1987	5-14-87 (& attatched statement of operating expenses) filed.
Jul. 09, 1987	dated 5-14-87; & Letter to G. Coler from C. Stophel dated
Jul. 09, 1987	(re:audit report); Letter to R. Eldridge from C. Stophel
Jul. 09, 1987	Notice; Letter to C. Stophel from R. Eldridge dated 6-18-87

Orders for Case No: 87-002888

Issue Date	Document	Summary
Sep. 30, 1991	Agency Final Order
Jul. 02, 1991	Recommended Order	Assignee of Broker trustee, who was assigned claim by bankrupt medicaid pro- vider agnst DHRS for unreimbursed expenses, should be paid amount of claim.

Source: Florida - Division of Administrative Hearings

KRESTVIEW G AND J INVESTMENTS vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 87-002888 (1987)

Docket for Case No: 87-002888

Orders for Case No: 87-002888

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KRESTVIEW G AND J INVESTMENTS vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 87-002888 (1987)

Docket for Case No: 87-002888

Orders for Case No: 87-002888

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