on July 6, 1977, at the Department of Health and Rehabilitative Services Conference Center, Building 4, Tallahassee, Florida. This case was, consolidated for hearing purposes with Case No. 77-1087 involving J.A.D.'s application to lease the Cambridge Convalescent Center of Tampa.
For Petitioner: Frank M. Gafford, Esquire
Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found:
The Cambridge Nursing Home is a 56-bed skilled nursing care facility located in New Port Richey, Florida. It has been in existence for approximately eleven years and is owned by Consolidated Medical Corporation of America, Inc. The home accepts both skilled and intermediate care residents and is approximately 75 percent Medicaid funded.
Medicaid has a schedule of maximum or ceiling reimbursement rates which are set each year by the state legislature. Based upon the facility's cost report for the year ending December 31, 1976, the Cambridge Nursing Home was receiving medicaid reimbursement at the maximum or ceiling rate as of April 1,
1977. (Exhibit 3) The rate of reimbursement is based upon the costs of operating the facility, and a lease expenditure is considered an operating cost.
Petitioner's president, Mrs. Jerri A. Disbrow, is a licensed nursing home administrator, a registered nurse and a certified coordinator/director of resident activities in health care facilities. She has worked for Consolidated Medical Corporation for about twelve years. Petitioner desires to lease and operate the existing Cambridge Nursing Home for a lease amount of $54,000.00 per year for a twenty-four month period, with no change in services proposed. Respondent received petitioner's letter of intent in September of 1976, and after correspondence with the applicant regarding financial data, petitioner's capital expenditure proposal to lease this facility was acknowledged by respondent effective December 1, 1976. Respondent referred the proposal to the Florida Gulf Health Systems Agency (FGHSA) for initial review, comments and recommendations.
The FGHSA serves Hillsborough, Manatee, Pasco and Pinellas Counties, and has an Advisory Council for each county. A project submitted for review goes first through a staff analysis which results in findings of fact and a recommendation. The applicant is to be provided with such findings and recommendation, and an open public hearing before the project review committee is then conducted. This committee then votes as to the recommendation to go to the next review body. The County Advisory Council next considers the proposal and makes its recommendation to the Board of Directors.
The staff of the FGHSA reviewed petitioner's proposal and found that the proposal complied with the factors of community need and accessibility, but that the proposal did not meet the criteria of financial responsibility or cost- containment. More specifically, the staff concluded that the lease arrangement would result in excessive return for the owner as contrasted with past levels of return and that the financial projections of the petitioner lessee were unrealistic. It was pointed out that the petitioner's financial projections for 1977 and 1978 represented a reduction from the actual 1976 costs in the following expense items: telephone, food and dietary supplies, utilities, maintenance supplies and bad debt. The staff felt that these projected expenses were not realistic and that they may have been balanced to allow for the lease expense of $54,000.00 per year. It was concluded that the unrealistic financial projections and the excessive return to the lessor could ultimately increase Medicaid reimbursement rates, thus raising costs to taxpayers, and could also lead to a reduction in the level of patient care. The staff recommended disapproval of the petitioner's capital expenditure proposal.
The Pasco County Project Review Committee considered petitioner's application on March 10, 1977. Petitioner's attorney, Mr. Gafford, presented the application to the Committee and presented information intended to rebut the staff report. The Committee also heard comments from petitioner's accountant. After discussing the projected expenses, the staff's findings of fact were unanimously adopted and the Committee voted 8 to 1 for disapproval of the proposal.
The Pasco Advisory Council met on March 17, 1977, and voted 16 to 4 to reject the petitioner's application. The Council minutes reflect that:
". . .Cambridge's previous record of providing good service to Medicaid patients was not the issue. Rather, it was felt that the proposed lease arrangement afforded too great a margin
of profit for the owners, which could result in the operator's having to decrease patient services."
At the FGHSA's Board of Directors meeting on March 28, 1977, the motion to recommend disapproval of the petitioner's application carried with a vote of
17 to 0.
By letter dated May 12, 1977, respondent advised petitioner that its capital expenditure proposal to lease Cambridge Nursing Home was not favorably considered
"based upon undemonstrated cost containment in the need for the proposed lease. Review of your proposal indicates that current Medicaid reimbursement will be increased should the lease proposal be approved."
The petitioner requested a hearing on the respondent's unfavorable recommendation, and the undersigned Hearing Officer was duly designated to conduct the hearing.
At the hearing, petitioner presented documentary evidence that the nursing home facility in question was now receiving Medicaid reimbursement rates at the maximum amount allowable. (Exhibit 3) The undersigned is unable to determine for what period of time Cambridge has been at the maximum rate. It appears from the testimony that the staff of the FGHSA did not make inquiry as to the amount of Medicaid reimbursement received by this facility at the time it prepared its report and recommendation.
Petitioner also presented at the hearing a listing of actual Medicaid allowable expenses for the first six months of 1977 as contrasted to the 1977 figures projected in its applications. The actual figures on this list came within approximately $12,000.00 of the projected figures in that list. (Exhibit
6) However, some of the categories of actual expenses for 1976 as reflected in the application, such as bad debts, are not reflected in the latter listing.
For the purposes of this hearing, the figures on this list were not certified by an accountant. Representatives from respondent and the FGHSA had not seen Exhibit 6 prior to this hearing.
CONCLUSIONS OF LAW
The parties in this cause stipulated that inasmuch as the Cambridge Nursing Home in New Port Richey has been in operation with an adequate utilization and service rate, there was no question as to the need for the existence of this nursing care facility. The issue in this proceeding is whether petitioner's proposal to lease this facility should be approved by respondent under the provisions of Public Laws 92-603 and 93-641 and F.S. Ch. 381.493 - 381.497.
The subject application was reviewed by four different levels of the Florida Gulf Health Systems Agency. At each level, disapproval was recommended for the reasons that the application contained unrealistic financial projections and did not foster principles of cost containment. These bodies were also concerned with the lease arrangement's excessive return for the facility's owner, as compared with the past years' returns. This concern, standing alone, would not be a sufficient basis for denial of the application.
In this proceeding, it was the petitioner's burden to illustrate that the denial of its application was not supported by the evidence or was a result of arbitrary and capricious action on the part of the respondent. A careful review of the evidence adduced at the hearing leads the undersigned to conclude that the petitioner failed in its burden of proof and that the respondent's action was not erroneous.
It appears to the undersigned, as it did to those reviewing this application, that the petitioner's financial projections for 1977 and 1978, when contrasted with its actual expenses for 1975 and 1976, are unrealistic. Petitioner intends to effect no change in the services offered to the facility's patients. Yet, it is projected that in 1977 expenses for food and dietary supplies will decrease by some $1,300.00 from the actual 1976 expenses, even though that same expense item actually rose by about $3,500.00 between 1975 and 1976. Petitioner also projects a decrease between 1977 and 1976 in telephone expenses by some $429.00 and in expenses for utilities by $427.00, even though said expenses rose respectively by about $750.00 and $340.00 between 1975 and 1976. A similar reduction is projected for the expense items of maintenance supplies and bad debts. With inflationary trends and constant increases in utility and telephone rates, the undersigned finds such financial projections to be unrealistic. Such unrealistic projections could certainly lead to a reduction in the level of patient care and/or the financial failure of this project. The listing of actual expenses incurred for the first six months of 1977, as contrasted with petitioner's projections for 1977, is somewhat impressive standing by itself. However, it does not contain all the expense items actually incurred by the facility in 1975 and 1976, it does not conform with the items set forth in petitioner's application, and the figures contained therein were not certified by an accountant. Therefore, by itself, it is not sufficient to rebut the conclusions of the FGHSA, the respondent or the figures presented in the application.
Even though the Cambridge Nursing Home is apparently receiving the maximum allowable Medicaid rate of reimbursement at this time, this rate is subject to increase yearly by legislative mandate. The increased costs resulting from the lease expenses could always make petitioner eligible for the maximum capital reimbursement, thus increasing costs to taxpayers and, of course, to patients not covered by Medicaid.
It appears from the record as a whole that petitioner's application was fairly and fully considered by the reviewing agencies, that petitioner was afforded due process of law in the review procedure and that respondent timely complied with the review requirements. In summary, it is concluded that petitioner has not met its burden of proof to demonstrate that respondent wrongfully denied its application to lease the facility in question.
