STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RICHMOND HEALTHCARE, INC., ) d/b/a SUNRISE HEALTH CENTER, )

)

Petitioner, )

)

vs. ) CASE NO. 88-0826

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent, )

and, )

)

THELMA R. ALLGOOD, )

)

Intervenor. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William J. Kendrick, held a formal hearing in the above-styled case on November 18, 1988, in Tallahassee, Florida.

APPEARANCES

For Petitioner: R. Bruce McKibben, Jr., Esquire

DEMPSEY AND GOLDSMITH, P.A.

307 West Park Avenue Tallahassee, Florida 32301

For Respondent: Carl B. Mordstadt, Esquire

Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

For Intervenor: Jeffrey Barker, Esquire

F. PHILLIP BLANK, P.A. 204-B South Monroe Street

Tallahassee, Florida 32301 PRELIMINARY STATEMENT

At issue in this proceeding is whether certain airplane expenses should be allowed as Medicaid resident costs.

At final hearing, intervenor called as witnesses: Thomas F. Allgood and Joseph D. Mitchell, accepted as an expert in health care accounting.

Intervenor's exhibits 1 and 2 were received into evidence. Respondent called

John T. Donaldson as a witness, and its exhibits 1-6 were received into evidence. Petitioner called no witnesses and offered no exhibits.

The transcript of hearing was filed December 27, 1988, and the parties were granted leave until January 6, 1989, to file proposed findings of fact.

Intervenor elected to file proposed findings, and they have been addressed in the appendix to this recommended order.

FINDINGS OF FACT

Background

1. Respondent, Department of Health and Rehabilitative Services (Department), is the designated state agency responsible for the administration of Medicaid funds under Title XIX of the Social Security Act. Rule 10C- 7.048(2)(a), Florida Administrative Code.

   
   

2. Petitioner, Richmond Healthcare, Inc., d/b/a Sunrise Health Center, owns and operates a 240-bed nursing home in Broward County, Florida, and is a participant in the Florida Medicaid Program.

   
   

3. As a participant, petitioner is required to submit annual cost reports to the Department. Based on these cost reports, the Department establishes a participant's reimbursement rate. Rules 10C-7.048(4)(a)5 and 10C-7.048, Florida Administrative Code.

   
   

4. The annual cost reports are subject to audit at the discretion of the Department. If audited, a direct examination of the participant's books, records and accounts that support the amounts reported in the annual cost report is made to determine the correctness and propriety of the amounts claimed in the cost report. Rule 10C-7.0481, Florida Administrative Code.

   
   

5. Pertinent to this case, the Department elected to audit petitioner's cost reports for the period of October 5, 1983, through December 31, 1984. Based on such audit, the Department issued an audit report that disallowed certain costs claimed by petitioner, and proposed to recoup the excess Medicaid payments made to petitioner as a consequence of such disallowance. Petitioner filed a timely protest to contest the Department's decision.

   
   

   The parties' joint stipulation

   
   

6. At hearing, the parties stipulated as follows:

   
   

   1. The parties have recalculated the usual and customary charges at $65.72 per day.

   2. The Department of Health and Rehabilitative Services will reclassify costs of $8,282.00 from the capitalized minor equipment to the operating and patient care component.

   3. The Department of Health and Rehabilitative Services will reclassify construction period interest to start-up costs from the date of certificate of occupancy to the date of the admission of the first resident to the nursing home. Amortization of this amount for the 15 months ended December 31, 1984, cost reporting period totaled $27,677.00.

   4. The adjustment to indirect home office costs will remain as in the audit report.

   5. The parties agree that the property ceiling issue will be remanded to the Department of Health and Rehabilitative Services for an informal hearing. All arguments will be presented in writing to the informal hearing officer. Oral argument will be permitted at the request of either party. The parties further agree that the written arguments will be due on the same date that the Proposed Recommended Order is due in the companion

      rule challenge case. If the rule challenge is dismissed, the parties will file briefs and hold oral argument, if requested, within fifteen (15) days of its dismissal.

   6. The parties agree that the only remaining disputed issue in the Petition filed in this matter is the allowable expense for private airplane usage. The expenses for private airplane usage.

      
      

   7. In rendering its annual cost report, a participant, such as petitioner, is bound by the following provisions of law or contract:

      
      

      1. Rule 10C-7.48(4), Florida Administrative Code, which provides:

         
         

         (4) Provider Eligibility.

         (a) Nursing home providers participating in the Medicaid Nursing Home Program shall:

         * * *

         1. Have a Medicaid reimbursement rate established.

            1. The provider shall submit a cost report in compliance with the provisions

               of the Florida Title XIX Long Term Care Reimbursement Plan, as revised April 1, 1983, and subsequently amended January 1, 1984, adopted by reference. The cost report shall be analyzed and a reimbursement rate established in accordance with the Florida Title XIX Long Term Care Reimbursement Plan, as revised April 1, 1983, and subsequently amended effective January 1, 1984.

               
               

      2. The Florida Title XIX Long Term Care Reimbursement Plan, which provides:

         
         

         * * *

         1. Cost Finding and Cost Reporting

      3. All providers are required to detail all of their costs for their entire reporting period, making appropriate adjustments as required by this plan for determination of allowable costs. . . .

      4. The cost report must be prepared by the facility's independent Certified Public Account, on the forms prescribed by the Department,

      and on the accrual basis of accounting in accordance with generally accepted accounting principles as established by the American Institute of Certified Public Accountants (AICPA), the methods of reimbursement in accordance with Medicare (Title XVIII) Principles of Reimbursement, the Provider Reimbursement Manual (HIM-IS) except as modified by the Florida Title XIX Long Term Care Reimbursement Plan, and State of Florida Administrative Rules.

      * * *

      G. All providers are required to maintain financial and statistical records in accordance with 42 CFR 405.453(a), (b, (c), (e).

      The cost report is to be based on financial and statistical records maintained by the facility. Cost information must be current, accurate, and in sufficient detail to support costs set forth in the report. This

      includes all ledgers, books, records, original evidence of cost and other records in accordance with HIM-IS which pertain to the determination of reasonable costs, and must

      be capable of and available for auditing by State and Federal authorities. . . .

      (Emphasis added)

      * * *

      III. Allowable Costs

      * * *

      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. . . .

      1. HIM-IS, which provides: 2100. PRINCIPLE

         All payments to providers of services must be

         based on the "reasonable cost" of services covered . . . and related to the care of beneficiaries. . . .

         * * *

         2102.1 Reasonable Costs... It is the intent of the program that providers will be reimbursed the actual cost of providing high quality care. Implicit in the intention that actual costs be paid to the extent they are reasonable is the expectation that the

         buyer 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. . . .

         2102.2 Costs Related to Patient Care.--

         These include all necessary and proper costs which are appropriate and helpful in developing and maintaining the operation of patient

         care facilities and activities. Necessary and proper costs related to patient care are usually costs which are common and accepted occurrences in the field of the provider's activity. . . .

         * * * 2103. PRUDENT BUYER

         1. General.--The prudent and cost-conscious buyer not only refuses to pay more than the going price for an item or service, he also seeks to economize by minimizing cost. . . .

      * * *

      2304. ADEQUACY OF COST INFORMATION

      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 and original evidences of cost (purchase requisitions, purchase orders, vouchers, requisitions for materials, inventories, labor time cards, payrolls,

      bases for apportioning costs, etc.), which pertain to the determination of reasonable cost, capable of being audited.

      (Emphasis added)

      
      

   8. On audit, petitioner provided no books, records or accounts to support the amounts reported in its annual cost report for expenses associated with private airplane usage. Under the circumstances, the Department properly disallowed such costs since their propriety and correctness was not substantiated by petitioner.

      
      

   9. At hearing, petitioner offered no proof regarding the correctness or propriety of the subject costs, but relied upon the proof offered on behalf of intervenor, Thelma R. Allgood. Ms. Allgood was, at all times material hereto, an owner of 50% of petitioner's stock, and was, after its sale to third parties, contractually obligated to assist and cooperate with petitioner to document the subject claim.

      
      

   10. At hearing, the proof offered on behalf of intervenor demonstrated that during the period of October 5, 1983, through December 31, 1984, petitioner had contracted with Allgood Healthcare, Inc., which was located in Augusta, Georgia, to provide all of the customary and necessary management services for petitioner. During this period, Ms. Allgood, in addition to owning 50% of petitioner's stock, was, along with her husband, Thomas Allgood, the sole owner of Allgood Healthcare. In view of this community of interest, Allgood Healthcare was considered a home office of petitioner for cost reporting purposes.

       
       

   11. Between October 5, 1983, and December 31, 1984, Allgood Healthcare used its private plane on 42 occasions to fly Mr. and Mrs. Allgood, as well as other personnel of Allgood Healthcare, to or from petitioner's facility in Broward County, Florida, and the home office in Augusta, Georgia, as well as the cities of Savannah and Atlanta, Georgia. The expenses for these trips totaled

       $41,228.26, and included aircraft operation costs, pilot charges, pilot's expenses, and fuel. On average, the cost of each trip was approximately $940. 1/ During the same time-frame, the cost for a round trip economy fare ticket

       between Augusta and Fort Lauderdale by commercial airline was approximately

       $430.

       
       

   12. To demonstrate its entitlement to claim the expenses for private airplane usage on its costs report, it was incumbent upon petitioner to demonstrate that such costs were reasonable and related to patient care. Petitioner has failed to demonstrate either prerequisite.

       
       

   13. The only proof offered to demonstrate that the subject costs were related to patient care was through the testimony of Mr. Allgood. Mr. Allgood, admittedly a person with no knowledge of patient care or cost reporting, accompanied his wife on approximately one-half of the subject trips and opined that the purpose of those trips, as well as those on which he had no personal involvement, were related to patient care. Mr. Allgood was, however, unable to recall any specific trips he made; any dates he, his wife, or any other specific person were on the premises; or what precisely was done at any particular time that would demonstrate that the trip was related to patient care. Under the circumstances, Mr. Allgood's testimony is not persuasive, and his conclusion that the subject costs for private airplane usage were related to patient care is not credited. 2/

       
       

   14. Regarding the reasonableness of the expenses incurred, the proof demonstrated that the cost per trip for use of the private plane was $940, while the cost for a round trip ticket by commercial airline was $430. To support the reasonableness of this expense, intervenor again offered the testimony of Mr. Allgood, who opined that where two passengers were on a trip, the cost was comparable to commercial travel. Mr. Allgood's testimony was, however, unpersuasive to demonstrate the reasonableness of the cost to patient care. Notably, Mr. Allgood, who admitted performing no services related to patient care, accompanied his wife on approximately one-half of the trips. Under such circumstances, his presence was unnecessary, and the costs for transporting Ms. Allgood by private plane, even assuming she performed services related to patient care, were unreasonable. With respect to the remaining trips, Mr. Allgood was shown to have no personal knowledge regarding those trips, and his testimony that at least two passengers were present on each of those trips is not credited. In fact, to the extent proof is available, it indicates that a number of trips were made with only one passenger, and that on several occasions the expense of a trip, ostensibly a round trip (Augusta-Fort Lauderdale- Augusta), were incurred to transport one or two passengers in one direction only.

       
       

       CONCLUSIONS OF LAW

       
       

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

       
       

   16. Pertinent to this case are the following provisions of Rule 10C- 7.0481, Florida Administrative Code:

       
       

       1. Upon receipt of a cost report from the provider prepared in accordance with instructions furnished by the Department, the Department will determine whether an

          audit is to be performed. Providers selected for audit will be notified in writing of the HRS audit office or CPA firm assigned to perform the audit.

       2. Upon completion of an audit and before publication of the audit report, the provider shall be given an exit conference at which all audit findings will be discussed and explained. A copy of the proposed audit adjustments will be given to the provider

          at least ten (10) days before the exit conference.

       3. Following the exit conference, the provider has thirty (30) calendar days to submit documentation or other evidence to contest

          any disallowed expenditures or other adjustments. The time for submission may be extended by the Department upon request and for good cause shown. However, no

          additional documentation or evidence will be accepted by the Department after expiration

          of the thirty (30) day period or extension thereof.

       4. All audit reports shall be issued by certified mail, return receipt requested. The provider shall have thirty (30) calendar days from the date of receipt of the audit report to contest the contents of the report by requesting an administrative hearing in

       accordance with Section 120.57, Florida Statutes, and Chapter 28-5, Florida Administrative Code.

       The audit report shall constitute prima facie evidence of the propriety of the adjustments contained therein. The burden of proof is upon the provider to affirmatively demonstrate its entitlement to the Medicaid reimbursement. . . .

       
       

   17. While petitioner did not submit any documentation or other evidence to contest the disallowance of the subject airplane expenses within thirty days of the exit conference, such inaction does not preclude it from attempting to establish its claim in a timely requested de novo hearing. H.B.A. Corp. v. Department of Health and Rehabilitative Services, 482 So.2d 461 (Fla. 1st DCA 1986). Petitioner failed, however, to affirmatively demonstrate in this de novo hearing the propriety of the costs predicated on the expenses associated with private plane usage and its entitlement to Medicaid reimbursement predicated thereon.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law it is RECOMMENDED that:

1. Petitioner's protest of the Department's disallowance of the expenses associated with private airplane usage as Medicaid resident costs be dismissed, and

   
   

2. Upon review of the property ceiling issue which is hereby remanded to the Department, that it enter a final order consistent with its findings on that issue, the parties' stipulation, and the recommendation contained in this order.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 19th day of January, 1989.

WILLIAM J. KENDRICK

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1050

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this day of January, 1989.

ENDNOTES

1/ Mr. Allgood's testimony that the cost per trip for use of the private airplane was between $800-$900 is rejected as not supported by the proof. Rather, the proof demonstrates the following average cost for a trip from Augusta to Fort Lauderdale: (6.3--hours airplane time x $110--cost for use of airplane per hour) + (6.3--hours of airplane time x $25--pilot's hourly rate) + ($90--cost of fuel) $940. On those rare occasions where the pilot remained overnight, the costs were increased by the pilot's overnight charge of $60 and his hotel and meal expenses. Overall, if the total expenses claimed are divided by the number of trips, the cost per trip by private plane equates to $981.62.

2/ Mr. Allgood also testified that the airplane log that was with the private plane they used on these occasions might have been of value in reconstructing these events but that it was lost when the plane crashed some time after December 31, 1984. While such log may have been helpful in reconstructing what occurred, it is worthy of note that the law and agreement under which petitioner operated required that:

The cost report is to be based on financial and statistical records maintained by the facility. Cost information must be current, accurate, and in sufficient detail to support costs set forth in the report.

In this case, no such documents were produced or shown to have ever existed. Therefore, not only is Mr. Allgood's testimony unpersuasive to demonstrate that the subject expenses were related to patient care, but there exists no documentation as required by law and contract to support such costs.

APPENDIX

Intervenor's proposed findings of fact are addressed as follows: 1-3. Addressed in paragraph 5.

4. Addressed in paragraph 9. 5-6. Addressed in paragraph 6.

1. Addressed in paragraph 10.

2. Addressed in paragraph 11.

3. Addressed in paragraph 13.

4. Rejected as not a finding of fact. Substance addressed in paragraph 11. 11-12. Addressed in footnote 2. Further, paragraph 12 is rejected as a mischaracterization of the testimony. Pertinent is the fact that no showing was made that any such documents ever existed.

13-15. To the extent pertinent, addressed in paragraphs 11-14.

1. Rejected as not a finding of fact.

2. Rejected as a mischaracterization of the testimony. Mr. Mitchell testified that if shown to be reasonable and related to patient care, the expenses were reimbursable. Such expenses were not, however, shown to be reasonable or related to patient care.

3. Addressed in paragraph 14.

4. Addressed in paragraph 13 and footnote 2.

5. Addressed in paragraph 6.

6. Rejected as not an issue presented for resolution per the parties' stipulation. See paragraph 6.

COPIES FURNISHED:

R. Bruce McKibben, Jr., Esquire DEMPSEY AND GOLDSMITH, P.A.

307 West Park Avenue Tallahassee, Florida 32301

Carl B. Mordstadt, Esquire Department of Health and

Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

Jeffrey Barker, Esquire

F. PHILLIP BLANK, P.A. 204-B South Monroe Street

Tallahassee, Florida 32301

Sam Power, Clerk Department of Health and

Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

Gregory L. Coler, Secretary Department of Health and

Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

John Miller, Esquire General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700

Docket for Case No: 88-000826

Orders for Case No: 88-000826