STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

)

RECOMMENDED ORDER

Pursuant to notice, the above matters were heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Donald R. Alexander, on April 9, 1990, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Alfred W. Clark, Esquire

P. O. Box 623

Tallahassee, Florida 32302

For Respondent: Harold D. Lewis, Esquire

Peter A. Lewis, Legal Intern Building One, Room 407

1323 Winewood Boulevard

Tallahassee, Florida 32399-0700 STATEMENT OF THE ISSUES

The issue is whether petitioner's Medicaid cost reports should be adjusted in accordance with respondent's audit reports and management letters issued on March 30, 1989.

PRELIMINARY STATEMENT

On March 30, 1989 respondent, Department of Health and Rehabilitative Services, issued its audit report and management letter for seven nursing home facilities owned by Health Care and Retirement Corporation of America. The facilities are Community Convalescent Center, Rosedale Manor, Kensington Manor, Jacaranda Manor, Wakulla Manor, Pasadena Manor, and Heartland of St. Petersburg. The audit reports proposed to adjust the Medicaid cost reports filed by the above nursing homes. Each nursing home disputed certain proposed adjustments and requested a formal hearing pursuant to Subsection 120.57(1), Florida Statutes (1989). The requests were referred by respondent to the Division of Administrative Hearings on May 10, 1989 with a request that a hearing officer be assigned to conduct a formal hearing. The matters were docketed as Case Nos.

89-2590 through 89-2596 and were consolidated by order dated June 9, 1989.

Although there are seven nursing homes who have requested a hearing, for the sake of brevity, only Health Care and Retirement Corporation of America has been named as the petitioner in this recommended order.

By notice of hearing dated June 9, 1989, a final hearing was scheduled on August 15, 1989, in Tallahassee, Florida. At the request of the parties, the matters were rescheduled to October 31, 1989, and then again to December 4, 1989. By agreement of the parties, the cases were reset for February 5, 1990, March 5, 1990, and finally April 9, 1990, at the same location.

On February 27, 1990, Health Care and Retirement Corporation of America and the seven nursing homes filed a petition for the administrative determination of the invalidity of rule or nonrule policy. The petition sought to have declared invalid as being an unpromulgated rule portions of a document entitled "Instructions to Cost Report for Nursing Homes Participating in the Florida Medicaid Program Adopted April 1, 1983." In the alternative, petitioners sought to have that portion of the instructions declared invalid as being arbitrary and vague or granting unbridled discretion to the agency. Finally, they sought to have a policy of the agency declared invalid on the theory it was actually an unpromulgated rule. The petition was assigned Case No. 90-1492R. At the request of parties, the rule challenge and audit cases were consolidated by order dated March 15, 1990. However, a separate final order was issued in Case No. 90-1492R on July 24, 1990.

At final hearing, petitioners presented the testimony of John T. Donaldson, an HRS audit review analyst and certified public accountant (CPA), Joseph Mitchell, a CPA and accepted as an expert in Medicaid and Medicare reimbursement, and Robert A. Rowland, petitioner's Medicaid reimbursement manager and a CPA and accepted as an expert in Medicaid reimbursement.

Petitioner also offered petitioner's exhibits 1-12. All exhibits were received in evidence. Respondent presented the testimony of John T. Donaldson, accepted as an expert in the area of Medicaid reimbursement, and Carlton D. Snipes, supervisor of the HRS Medicaid program office and accepted as an expert in Medicaid reimbursement. Also, it offered respondent's exhibits 1-20. All exhibits were received in evidence.

The transcript of hearing was filed on May 31, 1990. By agreement of the parties, the time for filing proposed findings of fact and conclusions of law was extended to June 22, 1990. A ruling on each proposed finding has been made in the Appendix attached to this Recommended Order.

FINDINGS OF FACT

Based upon all of the evidence, the following findings of fact are determined:

1. Introduction

   
   

   1. Petitioner, Health Care and Retirement Corporation of America (HCRC), owns and operates approximately one hundred forty nursing homes in nineteen states including seven in the State of Florida which are licensed by respondent, Department of Health and Rehabilitative Services (HRS). The seven licensees are Rosedale Manor, Wakulla Manor, Jacaranda Manor, Pasadena Manor, Community Convalescent Manor, Heartland of St. Petersburg and Kensington Manor, all of whom are participants in the Florida Medicaid program administered by HRS. As Medicaid participants, each nursing home was required to annually file with HRS cost reports on its own behalf and its parent, HCRC. Those reports set forth,

      among other things, the costs which the providers allege were incurred in providing Medicaid services during specified cost reporting years. This controversy involves the cost reports filed by the seven providers for fiscal years ending during varying times in 1986 and 1987.

      
      

   2. After the cost reports were filed with HRS, an audit was conducted by an independent public accounting firm, Touche & Ross, and an audit report and management letter were issued as to each provider on March 30, 1989. Among other things, the audit reports proposed to disallow various claimed expenditures in the reports. Upon receiving the proposed agency action, each nursing home requested a formal hearing to contest the proposed adjustments. The parties have settled some of the contested items prior to hearing. The disposition of these items is set forth in the parties' prehearing stipulation. This recommended order deals with the remaining contested items.

      
      

2. New Beds at Jacaranda Manor

   
   

   1. Petitioner Jacaranda Manor has challenged HRS's proposed disallowance of part of the costs related to the purchase of new beds at its facility in 1987. The facility was originally constructed in 1970. In 1974 a plant addition was made to the facility which resulted in an increase of one hundred authorized beds. In 1987 Jacaranda Manor replaced both the original beds placed in service in 1970 as well as those added in 1974. The total cost of this expenditure was $74,055. At issue is Jacaranda Manor's request to be reimbursed as a capital expenditure the difference between the estimated cost of the original beds ($38,025) and the cost of the replacement beds ($74,055), or

      $36,030.

      
      

   2. The beds in question are considered capital (property) items under the reimbursement process and are reimbursed in accordance with the fair value rental system (FVRS), a valuation method established by HRS in July 1984 for valuing the property assets of a nursing home. At that time, HRS required each provider to file a FVRS base which contained a listing of relevant nursing home assets and their respective value as of July 1, 1984. The valuation was obtained by taking the original cost of the asset and then indexing (inflating) that cost forward to the current time period by the Dodge Construction Index. The information in the base is used by HRS to calculate a FVRS rate which is then used to determine the amount of reimbursement received by a provider for all of its property costs, except taxes, insurance, home office property costs and replacement costs. As to the latter four categories of costs, which are not included in the base, providers are reimbursed separately for those costs through what is known as the pass-through form of reimbursement.

      
      

   3. Whenever a new item is purchased by a nursing home to replace an existing asset, and it significantly increases or enhances the usefulness of an asset in the FVRS base, the cost of the new asset may be added to the base only after the original cost of the improved (existing or old) asset is removed from the base. By removing the improved asset, HRS ensures that a provider does not receive duplicate reimbursement. To determine the value of the improved asset to be removed from the base, HRS first determines whether the provider has previously identified the asset and its original cost in the FVRS base. If the item is not shown separately in the base, HRS requires that the provider furnish an invoice documenting the original cost of the improved asset. HRS does not accept an estimate of an asset's cost on the grounds it would be inundated with estimates from providers, and an estimate is not susceptible to audit verification. In taking this position, HRS relies upon section 2315 of Health Insurance Manual No. 15 (HIM 15), a compendium of federal Medicare regulations

      adopted by HRS for use in resolving cost disputes such as this. The cited section reads in relevant part as follows:

      
      

      Cost information as developed by the provider must be current, accurate, and in sufficient detail to support payments 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 supplied)

      
      

      In addition to relying on the above regulation, HRS also takes the position that the new beds are a capital replacement and not a capital improvement. Such a distinction is significant since an asset must fall within the definition of a capital improvement in order to qualify as an addition to the FRVS base. The term is defined in the cost report instructions which have been adopted by HRS for use in assisting providers complete their cost reports. There, a capital improvement is defined as a

      
      

      betterment of land, buildings, building equipment and major moveable equipment or leasehold property which either extends the useful life at least two years beyond the original useful life of such an asset or significantly increases the productivity over the original productivity of such asset, a cost of at least $500 and is not a replacement of a previously acquired asset. (Emphasis in original text)

      
      

      The same instructions define a capital replacement as

      
      

      land, buildings, building equipment, major moveable equipment and leasehold improvements which would be classified as a capital addition or improvement under the above definitions, except that such asset is a replacement of a previously acquired asset.

      A replacement is an asset which fills the place, position or purpose once filled by an asset which has been lost, destroyed, discarded or is no longer useable or adequate. (Emphasis in original text)

      
      

   4. When HCRC purchased Jacaranda Manor around 1986, it learned that the prior owners did not have their original accounting records. Indeed, the only invoices now available for the years 1970-1974 simply show the total cost to construct the facility in 1970 and the total cost of the addition in 1974. As a consequence, when Jacaranda Manor's prior owners filed their FVRS base with HRS in 1985, they did not specifically identify the beds installed in 1970 and 1974 nor did they give their original cost. HRS did not reject the filing because it did not require invoices for assets and accepted the amounts shown on the

      schedule. However, HRS is now in the process of auditing the FRVS schedules and, if original invoices are not available, it intends to rely upon the results of prior audits which presumably would have been based upon the original invoices in establishing the cost of the assets. Whether Jacaranda Manor's schedules are the subject of an on-going audit and whether prior audits establish the costs of the beds is not of record.

      
      

   5. In an effort to determine the reasonable cost of the original beds, HCRC contacted both the vendor who sold the beds to the original owners and the facility's administrator in 1970-1974. Neither were able to furnish petitioner with the original invoices. However, based upon information supplied by those persons, petitioner arrived at an estimated cost of $38,025 for the beds installed in 1970 and 1974. That amount, which was obtained from a corporate officer of the bed manufacturer, was derived by taking the current price of the old beds. According to section 2315 of HIM 15, which is relied upon by HRS in rejecting the expenditure, the "cost information" supplied by the provider must be current, accurate, and in sufficient detail to support the claimed cost and must be capable of being audited. In this case, the documentation is current, that is, it is based on information supplied by the manufacturer in February 1990, it contains sufficient detail concerning the make, model and cost of the beds that were used to derive the $38,025 figure, and it is capable of being verified in the audit process. Although the number used by Jacaranda Manor represents the current cost of the old beds and thus is only an estimate of the original cost, that amount, with its supporting data, is sufficient under the circumstances to satisfy the above cited regulation. 1/

      
      

   6. The affidavit of Alma Hirsch, the long-time administrator of Jacaranda Manor, has been stipulated into evidence, and the parties have agreed that her statements can be treated as competent evidence. According to Hirsch, the new beds installed in 1987 were Triflex beds, which are fully adjustable beds with revolving rails, and are much superior to the old beds which were replaced. For example, the old Easy Care beds were basic beds with no modern improvements or conveniences. They were not moveable and had only the most basic bed rails. In contrast, the new beds can be adjusted for the comfort and convenience of the patient to enter or leave the bed and enables the staff to position the patient in the most appropriate position for the form of care being rendered. In short, the new beds are significantly superior to the old beds and thus significantly increase or enhance the usefulness of the old equipment. Therefore, they should be considered a capital improvement rather than a capital replacement. Given the satisfaction of this criterion and section 2315 above, the proposed disallowance of the capital expenditure should not be made.

      
      

3. Subsequent Year Audit Issue

   
   

   1. While these proceedings were pending, HRS conducted audits of the cost reports filed by Jacaranda Manor, Rosedale Manor, and Kensington Manor for the year ending August 31, 1988. As a result of those audits, HRS proposed to disallow certain costs reported by the nursing homes on the ground the costs were incurred during the cost reporting period ending August 31, 1987. In other words, HRS has proposed to disallow certain costs reported on the 1988 cost report because they should have been reported on the 1987 cost report. It is noted that, as to Jacaranda Manor, Rosedale Manor and Kensington Manor, their 1987 cost reports are the subject of these proceedings.

      
      

   2. The nursing homes do not disagree with HRS's audit findings as they pertain to the above adjustments. However, the controversy concerns HRS's refusal to allow the costs to be included on the 1987 reports because those

      reports are in the process of being reviewed in these proceedings. However, through testimony of an HRS representative, it was established that if the audit for the prior year has not been closed or is under appeal such as here, a prior year expense disallowed in a current year audit should be considered in the prior year. Since the 1987 cost year is still open, the costs should be included in the 1987 cost reports and reimbursed in accordance with the plan.

      
      

4. Home Office Property Costs

1. As noted earlier, HCRC is the parent corporation of the seven nursing homes and, in regulatory parlance, is called a home office or related organization. In that role, HCRC provides various support functions for its affiliates from its headquarters located in Toledo, Ohio. At issue is the manner in which certain indirect home office property costs incurred by HCRC on behalf of the chain members are reimbursed. To resolve this issue, a brief overview of the Medicaid reimbursement process is necessary.

   
   

2. There are two separate and distinct steps in the reimbursement process: (1) the completion and filing of a cost report by the provider, and

   (2) the audit process to confirm whether the reported expense classifications in the report have been made in accordance with reimbursement principles. To aid the provider in completing its cost report, HRS has adopted a set of instructions which are contained in a document known as "Instructions to Cost Report for Nursing Homes Participating in the Florida Medicaid Program Adopted April 1, 1983." The agency has also prescribed a basic classification of accounts which assists the provider in classifying costs into the proper cost centers when reporting its expenditures to HRS. Both documents have been received in evidence. After the reports are filed, through a series of allocations and other steps the unaudited information in the report is used to calculate prospective reimbursement rates for the provider for each of the four cost components used by HRS in the reimbursement process: patient care costs, property costs, operating costs, and return on equity. In some cases, the cost reports are later subjected to an audit which may result in the rates being revised in a manner consistent with the audit results. During the audit process, and as an aid in resolving cost disputes, HRS relies upon the following principles in descending order of importance: the reimbursement plan adopted and incorporated by reference in rule 10C-7.0482, federal Medicare reimbursement principles embodied in Health Insurance Manual No. 15 (HIM 15), and generally accepted accounting principles (GAAP). Therefore, whenever a cost dispute arises, the plan is controlling except where it fails to address an issue. In those cases, HRS looks to HIM 15 for guidance, and if the issue is not addressed in that document, the problem is resolved in accordance with GAAP.

   
   

3. As noted in finding of fact 4, nursing homes are reimbursed for their property costs in one of two ways. First, HRS has established an FRVS base containing most of the provider's property assets which is indexed forward to take into account the effects of inflation. However, certain property costs, including home office property costs, property taxes and property insurance, are not included in the indexed portion of the FRVS calculation and are reimbursed instead through what is known as the pass-through form of reimbursement. Under this latter method, the provider receives reimbursement of the actual property cost. If the provider does not receive reimbursement for these costs as a pass- through, it would lose reimbursement for those items as a property component.

   
   

4. The dispute herein arises over HRS's requirement that indirect home office property costs be classified on the cost report as general and administrative (G & A) costs and thereafter reimbursed as an operating

   component. The requirement that costs be recorded in this manner is based on language contained in paragraph E of the instructions which reads as follows:

   
   

   Home office costs which are not directly allocated to the provider but are allocated on a functional or pooled basis should be included in the provider's cost report as part of the provider's general and administrative costs.

   
   

   Relying on the foregoing language, HRS required each provider to record indirect (functional or pooled) home office property costs as G & A costs in the operating component of the cost report. Once the costs were recorded in that manner, HRS applied its long-standing policy of not allowing such costs to be reclassified to their original character for reimbursement purposes. By final order issued on July 24, 1990, in Case No. 90-1492R, the undersigned declared the above language in the instructions to be an invalid exercise of delegated legislative authority and the policy to be an unpromulgated rule. Therefore, the classification of such costs on the cost report is not dispositive of the manner in which they are reimbursed, and HRS is obliged to prove up the legitimacy of its policy in order to sustain its prescribed manner of reimbursement.

   
   

5. Home office and home office costs are not referred to by name in the plan. However, paragraph F of section III of the plan provides that home home costs shall be reimbursed in the following manner:

   
   

   Cost applicable to services, facilities, and supplies furnished to a provider by organizations related to a provider by common ownership or control shall be governed by 42 CFR 405.427, Medicare (Title XVIII) Principles of Reimbursement, and Chapter 10, HIM 15.

   
   

   Thus, the plan requires that home office (related organization) costs be reimbursed in accordance with federal Medicare reimbursement principles and HIM 15.

   
   

6. The record shows that HCRC incurs property costs at its home office. These include depreciation of furniture, fixtures, interest expense, rental expense, and a minor cost related to insurance and taxes. The agency proposes to treat these costs as operating costs for reimbursement purposes under the authority of the instructions, incipient policy and its interpretation of other regulations. Although the plan itself does not distinguish between direct and indirect costs, HRS takes the position that home office property costs necessarily fall into one of two categories: direct costs and indirect costs. If a property cost is a direct cost, that is, a cost that can be specifically identified with an individual facility, HRS reimburses that cost as a property cost for the individual nursing home. If the property cost is deemed to be an indirect cost, that is, a cost that has no specific identification with a particular facility, the item is classified in the operating cost component and reimbursed on that basis. Even though the plan permits the reclassification of costs from one cost center to another for reimbursement purposes, once the costs are classified as G & A costs, HRS will not allow them to be reclassified to another cost center irrespective of their original character. As discussed in subsequent findings, such a position is contrary to a number of plan regulations

   and accepted testimony. In making this finding, it is important to note that the classification and reimbursement of costs are two separate and distinct steps in the Medicaid reimbursement process, and while certain plan provisions may support the classification and allocation of a cost in a particular manner, other provisions may then dictate that the cost be reimbursed differently.

   
   

7. HRS reasons, although not entirely correctly, 2/ that a home office provides nothing more than general and administrative services for the chain members and thus any costs other than direct costs should be classified on the cost report in that manner. Indeed, this classification treatment is consistent with both the Florida plan instructions and the corresponding instructions for Medicare providers (paragraph E, section 9904 of federal instructions).

   However, section 2150.3 of HIM 15 requires that home office costs be "identified as capital related costs and noncapital related costs" and then allocated as provided by the instructions. In this regard, the record supports a finding that property costs are capital related costs within the meaning of the plan.

   After home office costs are classified on one line of the cost report as a G & A entry, other HIM 15 provisions, which are controlling as to the reimbursement of home office costs, call for reclassifying property costs out of the G & A entry into the property cost center. More specifically, section 1310 of HIM 15 provides instructions for "necessary reclassifications and adjustments to certain accounts." The section goes on to identify numerous costs which may be initially entered as G & A costs on the trial balance but do not permanently remain in that cost center. The same section also provides that

   
   

   Where a provider is including on the cost report costs incurred by a related organization, the nature of the costs (i.e., capital related or operating costs) do not change. The provider must treat capital related costs incurred by a related organization as capital related costs of the provider.

   
   

   In other words, the character of a cost should not be changed for reimbursement purposes simply because it was incurred by a related party (home office). This regulation is consistent with petitioner's accepted testimony which supports a finding that a property cost remains a property cost, whether it is allocated directly or indirectly to a specific facility. Put another way, there is nothing in the plan or HIM 15 which suggests that the nature of costs should be changed depending on whether they are allocated directly or indirectly. This is particularly true since the rationale for direct and indirect allocations is to more equitably allocate costs incurred by the home office to the facility or entity which benefitted from those costs. Therefore, after a cost is found to be capital related or noncapital related, its character should not change irrespective of whether it is allocated on a direct, functional or pooled basis.

   
   

8. The agency's policy of reimbursing indirect home office costs as operating costs is grounded in part on the fact that the operating component is capped, that is, there is a ceiling or cap on the amount of operating costs for which a provider may be reimbursed. This cap is based on a somewhat complicated statewide median of operating costs, plus one standard deviation, and it may not be exceeded even if the provider incurs operating costs above that ceiling. HRS reasons that because the property component is not similarly capped, its policy is necessary to prevent a provider from abusing the process by shifting an operating cost to the property cost center in order to avoid the operating component limitation. However, this argument incorrectly assumes that the

   character of a cost can be changed from property to operating if the cost is allocated on an indirect basis, and it is contrary to various provisions of the plan, including section 1310 of HIM 15 which permits the reclassification of G & A costs to other components. HRS also justifies its policy on the theory that the function of an asset is the best way to determine whether the asset is directly or indirectly related to the provider, and that reimbursement should be consistent with this determination. While this methodology may be useful in the classification and allocation of a cost, the more logical and persuasive evidence supports a finding that the nature of a cost is not determined by its method of allocation and that this type of determination is not appropriate for reimbursement purposes.

   
   

   CONCLUSIONS OF LAW

   
   

9. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties hereto pursuant to Subsection 120.57(1), Florida Statutes (1989).

   
   

10. As the party seeking to have its cost reports approved, without adjustment, petitioner bears the burden of proving their legitimacy by the preponderance of the evidence.

    
    

11. Petitioner Jacaranda Manor has shown by the preponderance of the evidence that the new beds installed in 1987 are capital improvements and that the supporting cost data satisfies the requirements of section 2315 of HIM 15. Therefore, the agency's proposed disallowance of the expenditure should not be made. Petitioners Jacaranda Manor, Rosedale Manor and Kensington Manor have also shown entitlement to reimbursement for those 1987 cost items removed from their 1988 cost reports. This conclusion is based upon the agency's own admission that, so long as the prior year's report is still open or on appeal, as is the case here, the provider should be entitled to recoup those costs in the prior year's proceeding. The final disputed adjustment concerns the agency's use of incipient policy that prohibits the reclassification of G & A costs to property costs once those costs are recorded in that manner on the provider's trial balance. To sustain this action, HRS must fully explicate and support the underlying policy. In other words, by an adequate record foundation HRS must show the reasonableness and factual accuracy of its policy. See, e.g. St. Francis Hospital, Inc. v. DHRS, 553 So.2d 1351 (Fla. 1st DCA 1989). The greater weight of evidence supports a conclusion that the agency policy is so at odds with the provisions of the plan, as presently written, that it must be deemed to be illogical and unreasonable and thus lacks the necessary record foundation to support its use. This conclusion is based principally on contrary provisions of the plan which (a) require that the principles embodied in HIM 15 be used in reimbursing home office property costs, (b) definitions of operating and property costs within the plan and classification of accounts which specify the nature of those costs, and (c) sections 2150.3 and 1310 of HIM 15 which pertain to the changing of the character of costs and reclassification of various expenditures. Moreover, since the plan, and the accompanying provisions of HIM 15, have been adopted as a rule, given the variance between the policy and the plan, the policy comes close to constituting an impermissible deviation from the terms of an existing rule. Compare Boca Raton Artificial Kidney Center, Inc. v. DHRS, 493 So.2d 1055 (Fla. 1st DCA 1986). This being so, it is concluded that the agency's proposed reimbursement of petitioner's indirect home office property costs as operating costs should not be made, and that each provider should have such costs reimbursed in the property component.

12. A final point deserves a brief discussion. The agency takes the position that because each provider, except Heartland of St. Petersburg, recorded its indirect home office property costs as G & A costs on the trial balance consistent with the instructions and did not take advantage of Section 2905.2 of HIM 15 which allows providers to take exception to the instructions to the cost report in order to establish a basis for an appeal, they have waived their right to raise this issue. However, this proceeding involves the manner in which such costs are reimbursed, and not initially classified and allocated, and therefore the cited section has no application.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered consistent with this recommended

order and that the agency's proposed disallowance or treatment of the challenged expenditures not be made.

DONE AND ORDERED this 31st day of July, 1990, in Tallahassee, Leon County, Florida.

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 31st day of July, 1990.

ENDNOTES

1/ If this type of documentation was not accepted it would mean that a provider that no longer had original invoices to confirm purchases made fifteen or twenty years ago could never be reimbursed for capital improvements.

2/ For example, the record shows that, as to HCRC, it provides a variety of support functions for the chain members, including some that do not fall within the G & A component.

APPENDIX

Petitioner:

1. Partially adopted in finding of fact 1.

2. Partially adopted in finding of fact 11.

3. Partially adopted in finding of fact 2.

4. Partially adopted in finding of fact 12.

5. Partially adopted in finding of fact 16.

6-16. Partially adopted in findings of fact 3-8.

17-21. Partially adopted in findings of fact 9 and 10. 22-46. Partially adopted in findings of fact 11-18.

Respondent:

1. Partially adopted in finding of fact 3.

2. Partially adopted in finding of fact 4.

3. Partially adopted in finding of fact 5.

4-5. Partially adopted in finding of fact 6.

1. Partially adopted in finding of fact 7.

2. Partially adopted in finding of fact 5.

3. Partially adopted in finding of fact 6.

4. Rejected as being contrary to the more persuasive evidence. 10-11. Partially adopted in finding of fact 9.

1. Partially adopted in finding of fact 16.

2. Partially adopted in finding of fact 14.

3. Discussed in the conclusions of law.

4. Partially adopted in finding of fact 17.

16-19. Partially adopted in finding of fact 18.

20. Partially adopted in finding of fact 20. Note - Where proposed findings of fact have been partially used, the remainder has been rejected as being irrelevant, unnecessary, subordinate, cumulative, or not supported by the evidence.

COPIES FURNISHED:

Harold D. Lewis, Esquire Peter A. Lewis, Legal Intern 1323 Winewood Boulevard Building One, Room 407 Tallahassee, FL 32399-0700

Alfred W. Clark, Jr., Esquire

P. O. Box 623 Tallahassee, FL 32302

R. S. Power, Agency Clerk Building One, Room 406 1323 Winewood Boulevard Tallahassee, FL 32399-0700

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

AGENCY FINAL ORDER

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

STATE OF FLORIDA

DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES

HEALTH CARE AND RETIREMENT

CORPORATION OF AMERICA, CASE No.: 89-2590 89-2591

Petitioner, 89-2592

89-2593

vs. 89-2594

89-2595

DEPARTMENT OF HEALTH AND 89-2596

REHABILITATIVE SERVICES,

Respondent.

/

FINAL ORDER

This cause came on before me for the purpose of issuing a final agency order. The Hearing Officer assigned by the Division of Administrative Hearings (DOAH) in the above- styled case submitted a Recommended Order to the Department of Health and Rehabilitative Services (HRS). A copy of that Recommended Order is attached hereto.

RULING ON EXCEPTIONS FILED BY THE DEPARTMENT

Counsel excepts to the Hearing Officer's legal conclusion that the new beds purchased by petitioner were not capital replacements, but only capital improvements. It is not disputed that factually the old beds, which were purchased in 1970 and 1974, were replaced by the new beds. The Hearing Officer's conclusion is founded on the undisputed fact that the new beds were qualitatively superior to the old beds. Both logic and the applicable rules dictate that the new beds are a capital replacement because they do not enhance the quality of the old beds; they replace the old beds. I conclude that the new beds should be accounted for and reimbursed as a capital replacement. Counsel also excepts to the Hearing Officer's conclusion that the accounting for home office costs is governed by paragraph F of Section III of the Florida Title XIX Long Term Care Reimbursement Plan (see page 14 of the Recommended Order). As noted by the Hearing Officer, the "Plan" does not refer to home office expenses by name; but nevertheless; the Hearing Officer rejected the department's position that home office costs are governed by the "Instructions to Cost Report for Nursing Homes Participating in the Florida Medicaid Program adopted April 1, 1983" (the instructions). The instructions provide precise direction on how to account for home office expenses and have been incorporated by reference in Section 10C-7.0482, Florida Administrative Code. I conclude that the instructions control on this issue; thus, home office expenses should be accounted for as a general and administrative cost pursuant to the instructions.

FINDINGS OF FACT

The department hereby adopts and incorporates by reference the findings of fact set forth in the Recommended Order except where conclusions of law are expressed which are inconsistent with the ruling on the exceptions.

CONCLUSIONS OF LAW

The department hereby adopts and incorporates by reference the conclusions of law set forth in the Recommended Order except where inconsistent with the ruling on the exceptions.

Based upon the foregoing, it is

ADJUDGED, that the disputed cost reports be adjusted consistent with-this Final Order.

DONE and ORDERED this 20th day of September 1990, in Tallahassee, Florida.

Gregory L. Coler Secretary

Department of Health and Rehabilitative Services

by

Deputy Secretary for Administration

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF HRS, AND A SECOND COPY, ALONG WITH FILING FEE AS PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED

Copies furnished to:

Peter A. Lewis, Esquire Assistant General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Blvd.

Building One, Room 407 Tallahassee, FL 32399-0700

Alfred W. Clark, Esquire 1725 Mahan Drive, Suite 300 Post Office Box 623 Tallahassee, FL 32308

Donald R. Alexander Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

Charles C. Stophel, Jr. (ASASA) Director, Office of Audit and Quality Control Services Building 3, Room 219

1313 Winewood Blvd. Building One, Room 407 Tallahassee, FL 32399-0700

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a copy of the foregoing was sent to the above-named people by U.S. Mail this 26 day of Sept 1990.

R. S. Power, Agency Clerk Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407

Tallahassee, Florida 32399-0700 904/488-2381

Docket for Case No: 89-002590

Orders for Case No: 89-002590