STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
AMERICARE CORPORATION d/b/a ) CEDAR HILLS NURSING CENTER, )
)
Petitioner, )
)
vs. ) CASE NO. 93-4262
)
)
AGENCY FOR HEALTH CARE )
ADMINISTRATION, )
)
Respondent. )
)
RECOMMENDED ORDER
Upon due notice, this cause came on for formal hearing on December 20, 1993 in Tallahassee, Florida, before Ella Jane P. Davis, a duly assigned hearing officer of the Division of Administrative Hearings.
APPEARANCES
For Petitioner: Alfred W. Clark, Esquire
Post Office Box 623 Tallahassee, Florida 32302
For Respondent: Harold M. Knowles, Esquire
Knowles & Randolph
528 East Park Avenue Tallahassee, Florida 32301
STATEMENT OF THE ISSUE
Whether or not Petitioner's lease acquisition costs should be included in its asset cost basis for establishment of a Fair Rental Value reimbursement rate in accordance with the Florida Title XIX Long Term Care Reimbursement Plan (the Medicaid Plan).
PRELIMINARY STATEMENT
The style of this cause has been amended as set out above to reflect the new agency nomenclature and statutory responsibilities.
By letter dated May 17, 1993, the Department of Health and Rehabilitative Services (HRS), now the Agency for Health Care Administration (AHCA), notified Cedar Hills that it had reviewed the asset cost basis used to calculate Cedar Hills' initial Fair Rental Value (FRV) rate as of October 1, 1985, and determined that the $448,659.00 paid by Americare d/b/a Cedar Hills to lease the Cedar Hills facility under a 1980 lease-purchase agreement was not includable in its FRV cost basis, and that the agency intended to establish a specific dollar cost basis (asset cost) for its calculations.
Upon appropriate petition and agency referral, this cause appeared before the Division of Administrative Hearings.
At formal hearing, Petitioner presented the oral testimony of David Trimble and Douglas Palmer, each of whom was accepted as an expert in health care accounting and reimbursement. Petitioner's Exhibits 1 through 9 were received into evidence. Respondent presented the oral testimony of Charles Patrick Patterson, who also was accepted as an expert in the field of health care accounting and reimbursement. Respondent's Exhibit 1 was received in evidence.
Six items representing federal and state statutes, rules, and publications were officially recognized.
A transcript was filed in due course as were the parties' respective proposed recommended orders. In response to Petitioner's motion to strike Respondent's late-filed proposed recommended order, an order was entered denying the motion to strike but permitting Petitioner to elect one of several ways of curing any potential prejudice occasioned by Respondent's late-filed proposal.
Petitioner elected to file a responsive and clarifying supplemental memorandum of law. Accordingly, any prejudice to Petitioner's position occasioned by Respondent's delayed filing of its proposals is deemed cured, and all proposed findings of fact of both parties have been ruled upon in the appendix to this recommended order, pursuant to Section 120.59(2) F.S.
FINDINGS OF FACT
Respondent Agency for Health Care Administration (AHCA) is the state agency responsible for implementation and administration of the Florida Medicaid Program. Its predecessor agency was the Department of Health and Rehabilitative Services (HRS), and HRS' acts with regard to Petitioner and Medicaid reimbursement may be attributed to AHCA for purposes of this proceeding.
Cedar Hills Nursing Center, owned by Americare Corporation, is a licensed 180-bed nursing home located in Jacksonville, Florida.
Cedar Hills participates in the Florida Medicaid Program and provides inpatient nursing home services to Medicaid eligible persons.
Cedar Hills is entitled to reimbursement for certain approved property related costs in accordance with the Florida Title XIX Long Term Care Reimbursement Plan (Medicaid Plan), which was adopted and incorporated by reference in Rule 10C-7.0482 F.A.C.
One of the methods of property cost reimbursement under the Medicaid Plan is the Fair Rental Value System (FRVS). FRVS reimbursement requires the establishment of a basis for computation and indexing of the FRV rate. Cedar Hills, as an existing facility at October 1, 1985, is entitled to have an FRVS rate established for capitalized tangible assets based upon the assets' acquisition costs at the last dates of acquisition prior to July 18, 1984. (See Conclusions of Law 36, 39)
Essentially, FRVS determines the historic allowable costs for assets related to a facility (nursing home) as of the last acquisition cost prior to July 18, 1984, and establishes a base cost or value. This base cost, or value, is indexed (inflated) forward and becomes the basis for computing FRVS reimbursement.
The computation is "facility-specific," since a particular provider- chain may own multiple facilities. Thus, no rate is assigned a chain (Americare herein), but rather, the rate is assigned to the facility, in this instance, Cedar Hills Nursing Center.
AHCA refused to include in Cedar Hills' asset cost for FRVS the lease and option acquisition costs relating to Cedar Hills which were paid by Americare Corporation in 1980 as a part of a purchase of a group of Florida nursing homes, including Cedar Hills.
Effective March 1, 1980, Americare Corporation purchased from Chelsea Park Corporation and Hyde Park Nursing Home Partnership (HPNH, Inc.), a subsidiary of Chelsea Park Corporation, all business assets of the sellers relating to six Florida nursing homes. Cedar Hills was one of the six nursing homes. The total purchase price was $5.7 million. This asset acquisition included the sellers' interest in a lease of the Cedar Hills facility. Americare did not purchase the Cedar Hills facility outright, and title did not pass to Americare d/b/a Cedar Hills in 1980.
At the time of the 1980 asset acquisition, title to the land and building at Cedar Hills was held by HPNH, Inc..
Prior to March 1, 1980, HPNH, Inc. was the licensed operator and Medicaid provider at Cedar Hills pursuant to an assignment of lease rights from its parent, Chelsea Park Corporation. After March 1, 1980, Americare Corporation became the licensed operator and Medicaid provider at Cedar Hills.
The license issued by the Department of Health and Rehabilitative Services, Office of Licensure and Certification, to HPNH, Inc., prior to March 1, 1980, shows "HPNH, Inc., owner", as the licensed operator.
The official license issued by the Department of Health and Rehabilitative Services, Office of Licensure and Certification, effective March 1, 1980, shows "Americare Corporation, Owner" as the licensed operator.
The 1980 asset acquisition included the acquisition by Americare of tangible assets at Cedar Hills.
The Chelsea Park Corporation accounting records prior to the Americare asset acquisition reveal tangible assets relating to Cedar Hills which were being depreciated.
Americare's Medicaid Cost Reports for Cedar Hills for the period immediately following the 1980 transaction show tangible assets relating to Cedar Hills which were being depreciated by Americare.
The transaction Agreement between Americare and Chelsea Park expressly provided for Americare to acquire "business assets" of Chelsea Park, which assets included not only the lease agreement for Cedar Hills but also operating assets specified as "all fixtures attached to either real estate or leasehold property, all machinery, linen, personal property, equipment, handling equipment, furniture, furnishings and accessories thereto, . . ." These "operating assets" are listed on Exhibit 4 to the Agreement (Petitioner's Exhibit 3) and clearly include tangible assets relating to Cedar Hills. The
expert witness testimony is consistent that the lease-option (Lease is Respondent's Exhibit R-1) constituted "the moral equivalent of a virtual purchase" of the facility.
Acquisition costs are determined from the most current depreciation schedules for the facility. In this case, the facility is Cedar Hills. Cedar Hills properly capitalized the aforesaid lease and option acquisition costs and reflected them on its depreciation tables.
The parties' dispute herein hinges upon interpretation of Section V.
E. (1) (a) of the Medicaid Plan, and whether or not the lease rights purchased in 1980 by Americare constituted a tangible or an intangible asset, and whether or not the lease and option constituted an "acquisition," as Petitioner contends, or whether, as Respondent contends, only passage of title by purchase can constitute an "acquisition," as that term is contemplated by that section of the Medicaid Plan. That section of the Medicaid Plan incorporates by reference HCFA-PUB.15-1 (the Medicaid Provider Reimbursement Manual), and all testifying experts agreed that if there is a conflict, the Medicaid Provider Reimbursement Manual takes precedence over generally accepted accounting principles and standards (GAAP and GAAS) for purposes of Medicaid accounting.
The parties stipulated that, "The costs of land, buildings, equipment, and other capital items allowable for Medicaid reimbursement by HCFA-PUB.15-1 such as construction loan interest expense capitalized, financing points paid, attorneys fees, and other amortized "soft" costs associated with financing or acquisition are included in determining allowable acquisition costs in establishing the FRVS rate. (See, Conclusions of Law 39, 46-47)
Cedar Hills contended that lease and option acquisition costs are "soft costs." AHCA's expert agreed that lease and option acquisition costs may be considered "soft" costs in certain instances and that financing and refinancing costs are "soft costs".
Respondent AHCA contended that the lease rights purchased by Americare constituted an intangible asset and could not be included as part of the FRVS base unless those rights related to the acquisition of a capitalized tangible asset. The Medicaid reimbursement for Cedar Hills will be lower if the lease acquisition costs are not included in the asset cost basis.
As a part of a Medicaid audit report in 1981 after the 1980 asset acquisition, HRS allocated $619,224.88 to that portion of the transaction relating to Cedar Hills. The cost allocated by HRS to Cedar Hills included an allocation for tangible assets and soft costs. The soft costs allocated to Cedar Hills are $448,659.00, which are the costs allocated to the acquisition of the lease and option rights relating to Cedar Hills.
Over the 1980-1993 period, Cedar Hills amortized the $448,659.00 of lease rights costs on its books and on its cost reports. (See J-3 of Petitioner's Exhibit 7). This treatment was permissible under pre-FRVS cost reimbursement principles which allowed costs of a lease to be covered in property costs. HRS (Medicaid) reimbursed Cedar Hills for its amortization of lease rights costs and, in addition, reimbursed a return on equity payment on the unamortized portion of these costs. HRS never indicated any disagreement with Americare's treatment of the lease acquisition costs as capital items.
Americare possessed only a lease with an option to purchase from 1980 to 1993. Legal title to the Cedar Hills facility was not conveyed by its owner, HPNC, Inc., to Americare Corporation until April, 1993.
After amortizing the lease costs of $448,659.00 over the 13-year period that Cedar Hills leased the Cedar Hills facility, Cedar Hills requested that such costs be included in its FRVS basis. Cedar Hills is not seeking any costs in excess of the actual costs it paid to acquire the lease and option. It is seeking to include those costs as part of its base upon which future Medicaid reimbursement calculations for the Cedar Hills facility shall be made.
At the time Cedar Hills was first leased in 1980, there was no requirement that Americare exercise its option to purchase the facility. The lease of Cedar Hills by Americare was not a condition precedent to the purchase of the group of other facilities which were purchased by Americare simultaneously with the leasing of Cedar Hills.
However, it would not have been possible for Americare to become the operator of Cedar Hills Nursing Center without acquiring both the tangible assets and the lease agreement relating to Cedar Hills' physical plant. Acquisition by Americare of the lease rights was necessary in order for Americare to be able to use the Cedar Hills assets for nursing home purposes.
The lease acquisition costs relating to Cedar Hills were associated with the acquisition of approximately $90,000 worth of capital assets, some of which, such as furniture, were clearly personalty, but some of which were "fixtures," specifically, kitchen dietary equipment, laundry machines, and plumbing which had been integrated into the leased building.
FRVS determines the basis for allowable capitalized tangible assets and for certain intangible costs which in and of themselves are not tangible assets but which are allowed in the FRVS basis so long as they pertain to the acquisition of tangible assets. Examples are attorneys' fees and accountants' work associated with purchase of a facility which are normally capitalized along with the facility when purchased.
Soft costs are intangible costs, in that they are capital costs for something that cannot be physically touched. Basically, they are costs associated with an acquisition which are paid in the normal course of an acquisition. Stated differently, soft costs are intangible type costs that are related to tangible assets. GAAP and GAAS would characterize Petitioner's lease in this situation as a "capitalized lease" and permit all its "soft costs" to be handled as they have been.
AHCA's audit to determine a FRVS base used documentation submitted by Petitioner, including depreciation schedules. AHCA considered the lease- purchase to be an "intangible." AHCA agrees that lease and option acquisition costs may be considered "soft" costs in certain instances, but not this one. Petitioner contended that lease and option acquisition costs are "soft" costs and should be included in this instance. All costs incurred by the legal owner in acquiring tangible fixed assets, including related soft costs, have been included in the FRVS base established by AHCA. The FRVS audit report allowed only $1,138.00 as acceptable additions to the FRVS base in the rate semester that the lease was acquired by Americare based on costs incurred by the legal title holder or by Americare in purchasing tangible fixed assets, including soft costs, but Americare's soft costs associated with the lease acquisition were not included.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this cause, pursuant to Section 120.57(1), F.S.
The parties' respective positions are as follows:
Petitioner contended that the lease and option acquisition costs relating to Cedar Hills incurred in March 1980 by Americare Corporation when it purchased a group of Florida nursing homes (J-3 of Petitioner's Exhibit 7) should be included in the Cedar Hills asset cost for purposes of establishing a Fair Rental Value (FRV) reimbursement rate; that the lease and option acquisition costs are amortized soft costs which have been consistently included by Petitioner and approved by HRS in the depreciation schedules relating to Cedar Hills; and that the lease and option acquisition costs are includable in capital related costs pursuant to Medicaid reimbursement guidelines if the costs relate to the acquisition and use of tangible assets (Exhibit 4 to Petitioner's Exhibit 3) that would be depreciable if owned outright.
Respondent's audit considered the lease of 1980 through 1993 and the option to purchase which Americare exercised in 1993, both lease and purchase option having been acquired in 1980, to be a "virtual purchase." Respondent argued that a "virtual purchase" is a term of art or other recognized concept under Medicare funding and reimbursement) which does not transfer legal title to property and for which Medicare does not permit lessees to claim ownership costs. Respondent has interpreted the organic law so that "acquisition" for FRVS purposes can only mean "acquisition of legal title." Respondent further contended that Petitioner's lease acquisition costs should not be included in the FRVS base because Cedar Hills already has been reimbursed for these costs and inclusion of these costs would constitute "double dipping" by Americare.
As a threshold matter, this case involves not Medicare reimbursement, but Medicaid reimbursement, and simply because a licensing arm of HRS put the word "owner" on Cedar Hills' license, that fact is not controlling as to what entity holds, or held, legal title.
Why Medicaid converted from the step-up plan of reimbursing ownership interests to the FRVS plan is important. Before FRVS, no matter what a purchaser paid for a facility, as long as there was an appraisal, the purchaser was reimbursed based on the total new cost paid by the new purchaser for the facility. The change to FRVS was part of Florida's compliance with the federal Deficit Reduction Act and was designed to prevent providers from continually buying and selling their facilities to "step up" their costs. The change to FRVS is summed up as, "Each existing facility, at October 1, 1985 shall have an FRVS rate established for capitalized tangible assets based upon the assets' acquisition prior to July 18, 1984." (See Conclusions of Law 39) FRVS took the historic cost of assets instead of the most recent cost of assets as a reimbursable factor.
Nothing in the instant case is "disguised." The disputed $448,659.00 in soft costs consistently have been capitalized and reflected on Petitioner's depreciation schedules, as have been tangible assets acquired by Petitioner in the 1980 transaction. HRS/AHCA has consistently approved the method. The disputed costs are reflected on, and can be easily determined from, Petitioner's depreciation schedules. Here, all of Cedar Hills' papers and costs existed in 1980, and Cedar Hills only contends that its 1980 lease-purchase acquisition of
use rights was the last date of a legal "acquisition" prior to July 18, 1984, and that its 1980 lease-purchase was an "acquisition" as recognized by the applicable organic law, even though it was not an acquisition of legal title (ownership) by purchase.
AHCA has not suggested that to hold for Petitioner in this case would be to undermine the intent of the drafters of FRVS to avoid "step up" escalation of reimbursement costs or would permit a flood of similar claims. Indeed, except for a vague reference to one other occasion when a similar, but not necessarily identical, situation arose and was denied for FRV purposes, AHCA's expert could not illustrate the agency's blanket assertion that HRS/AHCA has "consistently" disallowed situations similar to Petitioner's for FRV-Medicaid purposes.
The parties are agreed that the Medicaid Plan is not just instructive, but controlling. Rule 10C-7.0482 F.A.C. adopts by reference the Florida Title XIX Long Term Care Reimbursement Plan (Medicaid Plan) as the basis for nursing home Medicaid reimbursement. The provision of the Medicaid Plan which is most relevant is found at Section V. E. (1)(a):
Each existing facility, at October 1, 1985, shall have an FRVS rate established for capitalized tangible assets based upon the assets' acquisition costs at the last dates of acquisition prior to July 18, 1984.
Facilities purchased after July 18, 1984, and not enrolled in the Medicaid program prior to the purchase or facilities constructed after July 18, 1984, and enrolled in the program shall have an FRVS rate established on the basis of the last acquisition costs prior to enrolling in the Medicaid program. The acquisition costs shall be determined from the most current depreciation schedule which shall be submitted by each provider. These acquisition costs, including the cost of capital improvements and additions subsequent to acquisition, shall be indexed forward to October 1, 1985, by a portion of the rate of increase in the Florida Construction Cost Inflation (FCFI) Index based on the Dodge Construction Index. The change in the FCCI Index from September, 1984 to March 1985, shall
be used to project the FCCI Index for October 1, 1985, with no subsequent retroactive adjustment. The costs of land, buildings, equipment, and other capital items allowable for Medicaid reimbursement per HCFA-PUB.15-1, such as construction loan interest expense capitalized, financing points paid, attorneys fees, and
other amortized "soft" costs associated with financing or acquisition shall be included in determining allowable acquisition costs subject to indexing. Property taxes (which excludes sales tax on lease payments) and property insurance expenses shall not be included in the calculation of the FRVS rates,
but shall be reimbursed prospectively, based on actual costs incurred and included in the total property rate. . . [emphasis supplied]
Petitioner was an existing facility at October 1, 1985 and entitled to have an FRVS rate established.
Other categories in which Petitioner may fall are not so clear. Petitioner is NOT a facility purchased after July 18, 1984 and not enrolled in the Medicaid program prior to the purchase. It also is NOT a facility constructed after July 18, 1984 and enrolled in the program after that date and its construction. Rather, Petitioner is, in effect, a "hybrid," a facility purchased after July 18, 1984, whose purchaser was the same licensed provider/lessee enrolled in the Medicaid program prior to the 1993 purchase and prior to the FRV 1984 time frame. The disputed costs arose four years prior to the first FRV time frame.
Despite oblique phraseology that reads as a complex exception to an exception, the last sentence of Section V. E. (1) (a) suggests that sales taxes on lease payments may be included in the FRVS. If sales taxes on lease payments may be included, why not other costs of the lease?
42 Code of Federal Regulations Section 413.130 (1) (b), admittedly a Medicare regulation, but one which was officially recognized, treats leases and rentals as includable in capital-related costs if they relate to the use of assets that would be depreciable if the provider owned them outright or they relate to land, which is neither depreciable nor amortizable if owned outright, saying, "the terms 'leases' and 'rentals of asset' signify that a provider has possession, use, and enjoyment of the assets."
With regard to this Petitioner's situation, HRS/AHCA seems to have consistently treated Petitioner's depreciation tables and related lease expenses as capital costs permitted under Medicaid guidelines and under 42 CFR Section
413.130 (1) (b), and has now elected to do otherwise.
HCFA-PUB.15-1 is adopted by reference in Section V. E. (1)(a), the applicable Medicaid rule supra.
The parties' joint prehearing stipulation included the V. E. (1)(a) reference to HCFA-PUB.15-1, the Medicaid Provider Reimbursement Manual, which has been found as fact above at Finding of Fact 20. That Finding of Fact is also adopted and incorporated herein as a Conclusion of Law.
20. The parties stipulated that, "The costs of land, buildings, equipment, and other capital items allowable for Medicaid reimbursement by HCFA-PUB.15-1 such as construction loan interest expense capitalized, financing points paid, attorneys fees, and other amortized "soft" costs associated with financing or acquisition are included in determining allowable acquisition costs in establishing the FRVS rate. (See, Conclusions of Law 39, 46-47)
HCFA-PUB.15-1 a/k/a H-I-M 15 a/k/a Paragraph 4728 (Prov. Reimb. Man., Part 1, Section 111) Medicare and Medicaid Guide , is the only portion of HCFA- PUB.15-1 referenced in the parties' stipulation, the only portion officially recognized, and the only portion before the undersigned for analysis. It describes by way of "example" a situation remarkably similar to the one at bar.
Under this example, if an arm's-length transaction/purchase of tangible capital assets occurs and a favorable lease of incidental structures occurs simultaneously, all the soft costs associated with the lease are includable in the FRVS. Under this example, if the Cedar Hills lease and Americare's simultaneous purchase of the other five nursing home facilities had been interdependent, the soft costs of the Cedar Hills lease clearly would have been includable for FRV purposes. The facts herein do not support a finding of such interdependence of the 1980 transaction as regards the several nursing homes. (See Findings of Fact 27-28). However, herein, Petitioner has demonstrated that the lease was interdependent with Petitioner's capital asset purchase of numerous tangible items, including but not limited to fixtures such as plumbing, kitchen dietary equipment, and laundry equipment totalling approximately $90,000, which equipment could not have been utilized without leasing the building of which they are integral parts. Such "fixtures" are often treated for purposes of normal real estate transactions as real property. Two experts in health care accounting and reimbursement, who were also certified public accountants, testified that as they interpreted Medicaid provision V. E.
(1) (a), codified as Rule 10C-7.0482 F.A.C. and the example explicating it, the
$448,659.00 in costs would be includable in FRVS and that for purposes of pre- FRV Medicaid and for purposes of GAAP and GAAS, the tangible assets and the lease soft costs would have been treated just as Petitioner has treated them.
Part of AHCA's expert's reasoning as to why the lease may not be integral to the purchase of the capitalized tangible fixtures in the instant case is that the materiality of the overall value of the facility being leased is greater than the amount being simultaneously purchased outright. The disparity between the cost of purchased tangible assets and the lease price, or ultimately the soft costs associated with the lease, factors into HRS' refusal to include Americare's past soft costs in its future FRVS basis. However, it has not been shown that anything in the Medicaid Plan restricts the allowability of soft costs to only certain soft costs over or under a particular dollar amount. Accordingly, AHCA's unwritten policy of adding this type of factor to the methodology has not been properly explicated or justified and should not be applied. See, Section 120.57 (1)(b)15 F.S.
The remainder of AHCA's position depends on what constitutes an "acquisition" associated with tangible assets.
The Medicaid guidelines do not define "acquisition."
Standard legal and lay language usage does not support AHCA's position that "acquisition" applies exclusively to a transfer of legal title. For instance, Black's Law Dictionary, Fifth Edition, copyright 1979, contains the following alternative legalistic definitions:
Acquire. To gain by any means, usually by one's own exertions; to get as one's own; to obtain by search, endeavor, investment, practice, or purchase; receive or gain in whatever manner; come to have. In law of contracts and of descents, to become owner of
property; to make property one's own. To gain ownership of. ... The act of getting or obtaining something which may be already in existence, or may be brought into existence through means employed to acquire it. ...
Sometimes used in the sense of "procure." It does not necessarily mean that title has passed. Includes taking by devise. See also Accession; Acquisition; Purchase.
Acquisition. The act of becoming the owner of certain property; the act by which one acquires or procures the property in anything.
... Used also of the thing acquired. Taking with, or against consent. ... Term refers especially to a material possession obtained by any means. ...(emphasis supplied)
The American Heritage Dictionary of the English Language, copyright 1981, contains the following vernacular definitions:
acquire 1. To gain possession of. 2. To get by one's own efforts. ... in addition to ...
obtain.
acquisition 1. The act of acquiring.
2. Something acquired, especially as an addition to an established category or group.
Although actions of licensing arms of HRS and AHCA are not controlling of the issue of who holds legal title to a nursing home, it is instructive to note that various Florida statutes and rules relating to health care facilities regulated by AHCA also regard leasing of nursing homes as synonymous with a transfer of ownership or "acquisition" of nursing homes for regulatory purposes.
For instance, Section 400.179 F.S., governing sale or transfer of ownership of a nursing home facility, provides:
Whenever a nursing facility is sold or the ownership is transferred, including leasing, the transferee shall make application to the department for a new license at least 60 days prior to the date of transfer of ownership. (emphasis supplied)
Rule 59B-6.009 F.A.C., concerning reports required, defines "change in health care entity ownership," to include "leasing of the health care entity" when the lessee assumes the liability for operation of the health care entity.
Rule 59C-1.002 (1) F.A.C., concerning certificates of need, defines "acquisition" as:
...the act of possessing or controlling, in any manner or by any means, a health care facility...
Rule 59E-4.009 F.A.C., concerning health care cost containment, describes "change of ownership" as:
A change in ownership means that a majority of the ownership or the controlling interest
of the nursing home is transferred or assigned. A change in ownership includes but is not limited to the acquisition of the nursing home by any person or any legal entity by any means, the leasing of the nursing home when the
lessee agrees to undertake or provide services at the nursing home to the extent that legal liability for operation of the nursing home rests with the lessee ... (emphasis supplied)
Upon the foregoing, AHCA's position that "acquisition" means only an acquisition by purchase of ownership/title is not reasonable.
From a public policy standpoint, AHCA's expert in health care accounting and reimbursement testified, and its counsel argued, that to allow Petitioner's lease's soft costs to become a factor in the FRV would constitute "double dipping," because under the pre-FRVS reimbursement methodology, lease acquisition costs were considered capital items allowable for reimbursement. Pre-FRVS, the costs of the user were submitted for reimbursement, which Americare has already done. Under FRVS, it is the costs of the owner of record (under AHCA's limited definition theory) which should be submitted as part of the new basis for future reimbursement. AHCA therefore wants to include some costs of Americare, the lessee, and some costs of the last owner/lessor in the
FRVS basis for prospective Medicaid reimbursement. AHCA's approach puts all the emphasis upon construing the word, "acquisition" as used in the new FRV rule as being synonymous with "owned-purchased," and apparently has not assessed the fact that in the instant situation, under the pre-FRVS system, the prior owner was not the Medicaid provider at the Cedar Hills facility. At any point in time, only a Medicaid provider is ever reimbursed on any basis. The title holder herein was not the provider/license holder, did not incur the disputed lease costs, and was not reimbursed for them by Medicaid.
When FRVS went into effect in 1985, Americare's lease and option acquisition costs were capital items allowable under Medicaid. Cedar Hills is not seeking any costs in excess of the actual costs it paid to acquire the lease and option. It is only seeking to include those costs as part of its base upon which future reimbursement calculations shall be made.
Under this analysis, AHCA's contention that Petitioner is attempting to "double dip" does not hold up. For instance, a piece of equipment with a ten year life could be fully depreciated over a ten year period prior to the beginning of FRVS reimbursement, yet the full cost of that equipment would be included in the FRVS cost base, in spite of the fact that the provider had been "reimbursed" for the full value of the equipment. Likewise, all soft costs for which a provider has been reimbursed based upon amortization of those costs will be included in the FRVS asset cost base in spite of the fact that the provider has, in effect, been paid for those soft costs.
AHCA's expert conceded that there is no "double dipping" on this Petitioner's depreciation because eventually any amount that is recouped again on the basis of tangible asset depreciation already taken by Petitioner will be recaptured by the State at a future point under FRVS.
Overall, the HRS expert's opinion of how Rule 10C-7.0482 F.A.C. (the Medicaid FRV provision) should be interpreted is less persuasive than that of the other experts because in response to most questions about Medicaid reimbursement, the AHCA expert answered in terms of Medicare guidelines, policies, and procedures. He also relied on a Medicare section he "believed" was Section 110, concerning "virtual purchases." The undersigned could speculate that Section 110 is the paragraph preceding Paragraph 4728 (Prov. Reimb. Man., Part 1, Section 111) in the Medicare and Medicaid Guide in HCFA- PUB. 15-1 (see Conclusions of Law 47), but it would only be speculation. A copy of Section 110 was not offered in evidence or for official recognition, and if it constitutes a policy of AHCA, it was not fully explicated in accord with Section 120.57 (1) (b) 15. F.S., specifically because there is nothing in this record that shows that Medicare includes the FRVS element found in Medicaid. Also, it is noted that the parties seem to be in agreement that even under Medicare principles, this Petitioner-provider's lease rights costs are reimbursable as a "capital asset" because this Petitioner-provider actually incurred the costs, and that Medicaid expressly includes valid soft costs in the FRVS basis. It is also undisputed that the soft costs incurred here were associated with acquisition of the listed capital tangible assets.
Upon the greater weight of the credible competent opinion evidence, Medicaid, parts of Medicare, and GAAP and GAAS support Petitioner's position. AHCA's other analogies to Medicare sections not properly explicated in this proceeding were not convincing. Upon the limited facts and legal arguments of this proceeding, the disputed lease acquisition costs should be included in Cedar Hills' FRVS asset base, because the costs have been included on its depreciation schedules as capital items allowable for Medicaid reimbursement and/or amortized soft costs directly associated with acquisition.
Upon the foregoing findings of fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration include the
lease acquisition costs of $448,659.00 in Petitioner's asset cost basis for establishment of its Fair Rental Value System reimbursement rate.
RECOMMENDED this 3rd day of April, 1994, at Tallahassee, Florida.
ELLA JANE P. DAVIS, Hearing Officer Division of Administrative Hearings The De Soto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-1550
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 3rd day of April, 1994.
APPENDIX TO RECOMMENDED ORDER 93-4262
The following constitute specific rulings, pursuant to S120.59(2), F.S., upon the parties' respective proposed findings of fact (PFOF).
Petitioner's PFOF:
1-6 Accepted, but often rephrased
7 Rejected as legal argument or a conclusion of law. Covered under Conclusions of Law
8-20 Accepted, but often rephrased
21 Accepted as modified in Findings of Fact 31-32. Otherwise rejected as a conclusion of law. See Conclusions of Law.
22-28 Accepted except often rephrased. Also cumulative material was eliminated.
Rejected as legal argument or as a conclusion of law. See Conclusions of Law
Accepted
31-32 Rejected as legal argument or as a conclusion of law. See Conclusions of Law
Respondent's PFOF:
1-7 Accepted, but often rephrased. Also, cumulative material was eliminated.
8 Rejected as legal argument or as a conclusion of law. See Conclusions of Law.
9-15 Accepted, but often rephrased. Also cumulative material was eliminated.
Rejected as inaccurate or as a mischaracterization of the record evidence as a whole.
Accepted, but rephrased.
Accepted that only one audit was done for FRVS purposes, however prior yearly cost report approvals were, in essence, HRS mini-audits of the provider's claimed reimbursements. Therefore, the proposal as worded is rejected as a whole.
19-21 Accepted, but rephrased.
Rejected as not supported by the greater weight of the credible evidence.
Rejected as cumulative
COPIES FURNISHED:
Harold Knowles, Esquire Knowles & Randolph
528 E. Park Avenue Tallahassee, FL 32301
Alfred W. Clark, Esquire Post Office Box 623 Tallahassee, FL 32302
Sam Power, Agency Clerk Agency for Health
Care Administration The Atrium, Ste. 301
325 John Knox Road Tallahassee, FL 32303
Douglas M. Cook, Director Agency for Health
Care Administration 2727 Mahan Drive
Tallahassee, FL 32308
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.
| Issue Date | Proceedings |
|---|---|
| Jun. 16, 1994 | Final Order filed. |
| May 25, 1994 | Notice of Change of Street Address And Telephone Numbers (from A. Clark) filed. |
| May 03, 1994 | Recommended Order sent out. CASE CLOSED. Hearing held 12-20-93. |
| Feb. 23, 1994 | Supplemental Memorandum of Law filed. (From Alfred Clark) |
| Feb. 08, 1994 | Order With Regard to Late-Filing sent out. |
| Feb. 02, 1994 | (Respondent) Response to Petitioner's Motion to Strike Respondent's Proposed Recommended Order filed. |
| Jan. 31, 1994 | (Petitioner) Motion to Strike Respondent`s Proposed Recommended Order filed. |
| Jan. 28, 1994 | Respondent's Proposed Recommended Order filed. |
| Jan. 21, 1994 | (Petitioner's) Proposed Recommended Order filed. |
| Jan. 10, 1994 | Post-Hearing Order sent out. |
| Jan. 07, 1994 | Transcript filed. |
| Dec. 20, 1993 | CASE STATUS: Hearing Held. |
| Dec. 03, 1993 | (joint) Prehearing Stipulation filed. |
| Dec. 01, 1993 | Notice of Taking Deposition Duces Tecum filed. (From Alfred Clark) |
| Dec. 01, 1993 | Notice of Taking Deposition Duces Tecum filed. (From Alfred Clark) |
| Nov. 18, 1993 | Notice of Partial Compliance With Order of Prehearing Instructions and Motion for Extension of time to File Prehearing Stipulation filed. (From Alfred Clark) |
| Oct. 19, 1993 | Amended Notice of Taking Deposition Duces Tecum (Date Correction Only) filed. (From Al Clark) |
| Aug. 18, 1993 | Notice of Hearing sent out. (hearing set for 12/20/93; 9:30am; Tallahassee) |
| Aug. 18, 1993 | Order of Prehearing Instructions sent out. |
| Aug. 16, 1993 | Petitioner's Response to Initial Order filed. |
| Aug. 06, 1993 | Initial Order issued. |
| Aug. 02, 1993 | Notice; Petition for Formal Administrative Proceeding; Agency Action Letter. filed. |
| Issue Date | Document | Summary |
|---|---|---|
| Jun. 15, 1994 | Agency Final Order | |
| May 03, 1994 | Recommended Order | Fair Rental Value System under post-1985 medicaid reimbursement provisions for nursing homes is construed in lessee-provider's favor upon limited law and facts presented |
