vs. ) CASE NO. 78-281
Respondent. )
This matter came on for hearing in Tampa, Florida, before the Division of Administrative Hearings by its duly designated Hearing Officer, Robert T. Benton, II, on July 11, 1978. The hearing officer was furnished a copy of the transcript of proceedings on October 5, 1978. The parties were represented by counsel:
For Respondent: Allan M. Dabrow, Esquire
By letter dated February 5, 1978, petitioner demanded $33,391.00 from respondent, the amount petitioner allegedly overpaid respondent for the year ending December 31, 1976. By letter dated February 13, 1978, respondent requested "a hearing . . . to determine the propriety of each item the Department of Health and Rehabilitative Services disallowed in whole or in part when reaching its conclusion that the Home was overpaid $33,391.00 for the period in question."
Respondent corporation owns and operates The Ambrosia Home (the Home), a nursing home in Tampa, Florida. Ella Mae Smith, the sole stockholder and the chief executive officer of the corporation, worked as nursing home administrator for the Home from January 1, 1976, through April 21, 1976. Ms. Smith, who is a registered nurse, has been associated with the Home since 1962. On April 22, 1976, Willard Roth began as the Home's administrator, a job he kept through December 31, 1976.
In January of 1976, respondent opened a 23 bed addition. Until Mr. Roth's arrival, Ms. Smith worked every day from seven in the morning till seven in the evening, except Saturdays and Sundays when she worked from seven in the morning till three in the afternoon. After Mr. Roth took over as nursing home administrator, Ms. Smith only worked eight hour days although she came back nights occasionally to look in on patients; she stopped going to get supplies for the Home herself and began sharing with Mr. Roth responsibilities for hiring and firing and for finances.
For the first three quarters of 1976, respondent employed Judith Irene Roberson as a bookkeeper and secretary at the rate of three dollars an hour. Ms. Roberson is Ella Mae Smith's daughter. For the final thirteen weeks of 1976, Ms. Roberson worked as activities' director for respondent at the rate of three and a half dollars an hour. In both positions, Ms. Roberson worked
overtime without pay. Because of this and because of her work for respondent in various capacities in 1970, 197, 1972, 1973, 1974 and 1975, she received a nine thousand dollar ($9,000.00) bonus in 1976. Ms. Roberson began working for respondent in July of 1970.
In January of 1976, respondent received payments from petitioner for November and December of the preceding year. This money was used, in March of 1976, to open a savings account at First Federal of Tarpon Springs. In October of 1976, part of the money in the First Federal account was used to open a savings account at the Barnett Bank of Tampa. At no time during 1976, did the balance in the First Federal account fall below thirty-nine thousand, three hundred ninety-four dollars and seventy-six cents ($39,394.76). At no time during 1976, did the balance in the Barnett account fall below twelve thousand nine hundred sixty-four dollars and fifty-one cents ($12,964.51). The following year respondent used the money to pay back taxes, to pay bonuses and for other business purposes.
On April 1, 1975, Ms. Smith acquired from respondent corporation the property on which the Home is located. During the year 1976, Ms. Smith leased the property back to the corporation at an annual rent of sixty-thousand dollars ($60,000.00). Rental payments under this agreement were subject to a four percent sales tax. At the close of 1976, there remained owing to Ms. Smith accrued bit unpaid rent. The corporations held a note from Ms. Smith during the year 1976, which she had given as partial payment for the property. In addition, Ms. Smith was indebted to the corporation for mortgage payments it had made on her behalf, aggregating thirty-five thousand six hundred ninety-seven dollars ($35,697.00).
During the year 1976, Ms. Smith drove a 1975 Buick to and from work and used the car for other personal purposes. In addition to the personal use she made of the car, she used it to take resident of the Home on picnics, to entertain them in other ways, to transport them to a doctor's office and sometimes to take them to buy clothes. In operating the Home, she used the car for other errands: taking curtains to be cleaned and retrieving them; going shopping for fabric; and weekly trips to a Kwik-Chek store for housekeeping and other supplies. Fuel and maintenance expenses in the approximate amount of eleven hundred dollars ($1,100.00) were incurred in the operation of the automobile during 1976. No records were kept to reflect what fraction of the car's use was personal to Ms. Smith, however.
Whenever Ms. Smith purchased supplies for the Home at the Kwik-Chek store, she paid with a check drawn on a Home account. In addition to housekeeping supplies, she sometimes bought Band-Aids and food on these trips.
No records were kept to reflect just what was acquired on each trip. According to respondent's records, housekeeping supply expenses aggregated four thousand five hundred sixty-four dollars ($4,564.00) for 1976, and approximately forty- five hundred dollars ($4,500.00) for 1975.
During 1976, six hundred dollars ($600.00) were reported stolen from petty cash in two accounts of which respondent had control. Respondent incurred certain legal and advertising expenses aggregating nine hundred fifty dollars ($950.00) in i976.
Petitioner reimburses medicaid providers like respondent for a portion of certain expenses they incur in caring for eligible patients. In addition, petitioner's payments to medicaid providers include a return of approximately ten percent to medicaid providers on net assets devoted to the care of eligible patients.
Respondent was slated to be audited by petitioner during 1977, in accordance with federal regulations prescribing such audits for each medicaid provider at lease once every three years. Petitioner performed its audit of respondent for the year 1976 earlier in 1977 than it would have otherwise, at the request "of HRS counsel because of a lawsuit that Ambrosia Home" (T48) brought against petitioner.
Jesus A. Martinez, an auditor II in petitioner's employ, performed the audit of respondent, which was subsequently reviewed by Messrs. Roark and Conners, and possibly by Mr. Powell, all of whom are also employees of petitioner. As a result of the audit, petitioner proposes to disallow certain expenses claimed by respondent. These include sales tax on rent paid by respondent to Ms. Smith; portions of salaries respondent paid Ms. Smith and Ms. Roberson; petty cash reported stolen; checks to Kwik-Chek in excess of fifty dollars ($50.00), aggregating two thousand five hundred sixty-seven dollars and seventy-eight cents ($2567.78); and expenses related to the 1975 Buick, viz., interest on money borrowed to acquire it, an allowance for depreciation, insurance, taxes, licenses and operating expenses. Petitioner originally proposed to disallow certain professional fees, but indicated after the hearing that it would allow them. On advice that has since been rejected, respondent did not originally claim depreciation and operating expenses for the automobile.
Similarly, respondent did not originally include the value of the automobile in computing the equity on which its return should be calculated, but took the contrary position in these proceedings. Petitioner proposes to disallow the value of the automobile and, as a result of the audit, to disallow certain other items respondent included in computing its equity capital. These include funds drawing interest in saving accounts far more than six months and Ms. Smith's obligations to respondent. On the other hand, petitioner included in equity capital the unpaid rent respondent owed Ms. Smith, even though respondent failed to include this item in its equity calculations.
The foregoing findings of fact should be read in conjunction with the statement required by Stuckey's of Eastman, Georgia v. Department of Transportation, 340 So.2d 119 (Fla. 1st DCA 1976), which is attached as an appendix to the recommended order.
CONCLUSIONS OF LAW
Regulations applicable to reimbursement of medicaid providers for nursing home care are contained in Rule 10C-7.48(6), Florida Administrative
Code. Subsection (c) of Rule 10C-7.48(6), Florida Administrative Code, provides, in part:
To determine the cost settlement and the facility's rate for the following period, the facility shall submit a cost report prepared . . . in conformity with accepted accounting principles . . . and the methods of reimbursement outlined in the Department
of Health, Education and Welfare publication, Provider Reimbursement Manual (HIM 15).
The facility is required to maintain complete and accurate fiscal records, including books of original entry and supporting documentation . . . [and] [t]he books must be prepared following the accrual systems of accounting." Rule 10C- 7.48(6)(c), Florida Administrative Code. Without objection, the text of HIM 15 was deemed to be in evidence at the hearing, although it was not physically presented.
Since respondent maintained no records whatsoever on which to base an apportionment of costs as among Ms. Smith's personal use of the 1975 Buick, her use of the car for allowable nursing home purposes and her use of the car for other nursing home purposes, the cost information is inadequate to support allowance of the interest, depreciation, insurance, tax, license and operating expenses associated with the car. Section 2304 of HIM 15 is entitled "Adequacy of Cost Information," and provides:
Cost information as developed by the pro- vider 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 supplied)
For the same reason, the car should not be reflected in the equity computations.
There has been no suggestion that Ms. Smith acquired money or anything else for her personal use in exchange for the checks drawn in favor of Kwik-Chek on a Home account but here, too, supporting documentation required by Section 2304 is lacking. No purchase requisitions, purchase orders, vouchers, requisitions for materials or inventory records attest to the purchases effected with these checks. Petitioner met its burden by establishing this lack of documentation.
With respect to the missing petty cash, the question is whether such a cost is related to patient care, as defined by Section 2102 of HIM 15. Section 2102.3 provides, in part:
Costs not related to patient care are costs which are not appropriate or necessary and proper in developing and
maintaining the operation of patient care facilities and activities.
A single, isolated theft or loss of this magnitude is not "appropriate" or "proper" within the meaning of Section 2102 of HIM.
The evidence established that nine thousand dollars ($9,000.00) of what respondent paid Ms. Roberson in 1976 was compensation not only for work she did in 1976, but also for work she did from the time she began with respondent, in July of 1970, until December 31, 1975. Only a fraction of the nine thousand dollar ($9,000.00) bonus, therefore, is properly attributable to 1976, and, except for that fraction, the bonus should be disallowed. Otherwise, petitioner failed to demonstrate that Ms. Roberson's salary was unreasonable.
Petitioner failed to establish the unreasonableness of the salary respondent paid Ms. Smith in 1976. As far as the evidence at the hearing disclosed, petitioner has never performed the surveys required by action 905 of HIM.
If respondent leased its facilities from a stranger, lease payments and attendant sales tax would qualify as reimbursable costs. Because Ms. Smith, owner of all of respondent's stock, is the lessor, however, other rules apply. Section 1006 of HIM provides, in part:
A provider may lease a facility from a related organization within the meaning of the principles of reimbursement. In such case, the rent paid to the lessor by the provider is not allowable as cost.
The provider, however, would include in its costs the costs of ownership of the facility. Generally, these would be costs such as depreciation, interest on the mortgage, real estate taxes The
effect is to treat the facility as though it were owned by the provider.
Sales tax on rental payments are not allowable as costs for the same reasons the rental payments themselves are not allowable.
Also because of Ms. Smith's relationship to respondent, her obligations to the corporation are not properly included in computing equity capital. The indebtedness represented by her promissory note was created by the transfer to her of the property on which the Home is located. Her other indebtedness to respondent was the result of respondent's making mortgage payments which she, not the corporation, was personally obligated to make. By making these payments, the corporation was, in effect, lending money to Ms. Smith. Section 1210(c) of HIM, entitled "Receivables Created by Loans, Between Related Organizations," provides:
Receivables created by loans or other transfers of assets between related organizations are subtracted from assets in computing the owners' equity capital. As the loans or transfers of assets is the same as new or additional capital investment in the receiving organization,
the removal of such receivables results in the transfer of equity capital from the lender to the borrower.
Petitioner should, therefore, exclude Ms. Smith's debts to respondent from equity capital for purposes of calculating the return or capital due respondent.
Respondent argues that the money respondent left in savings accounts for more than six months should be included in equity capital because the money was "necessary in order to satisfy the Respondent's federal income tax liability." Respondent's Brief, p. 15. But the uses to which the money was eventually put are irrelevant under the standard laid down in Section 1218.2 of HIM, entitled "Invested Funds." Section 1218.2 provides:
Invested funds are funds diverted to income producing activities which are not related to patient care. Any portion of the pro- vider's general funds or operating funds invested in such activities for more than
6 consecutive months is not includable in the providers equity capital. For example, funds deposited in a savings account or
invested in securities or loans are considered "invested funds." Further, if the time
period covered by such fund investment is interrupted by a number of withdrawals and redeposits so that the effect of such transactions is that funds are invested for more than 6 consecutive months, these invested funds are not included in equity capital.
This language is clearly applicable in the present case. Petitioner should, therefore, exclude the funds which were diverted to savings accounts for more than six consecutive months, which aggregate fifty-two thousand, three hundred fifty-nine dollars and twenty-seven cents ($52,359.27), from equity capital for purposes of calculating the return on capital due respondent.
Respondent attacked the validity of any federal regulations applicable in these proceedings and raised various federal constitutional questions, including the question of "due process in equal protection," in order to preserve these issues for judicial resolution, if that should prove necessary.
DONE and ENTERED this 16th day of October, 1978, in Tallahassee, Florida.
ROBERT T. BENTON, II
Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304
Paragraph one of petitioner's proposed findings of fact has been adopted, in substance, insofar as relevant.
Paragraph two of petitioner's proposed findings of fact has been adopted, in substance, insofar as relevant.
Paragraphs three and four of petitioner's proposed findings of fact are consistent with the evidence adduced at the hearing but are not strictly relevant.
Paragraph five of petitioner's proposed findings of fact has been adopted, in substance, insofar as relevant.
Paragraphs six and seven of petitioner's proposed findings of fact are actually proposed conclusions of law.
Paragraph one of respondent's proposed findings of fact has been adopted, in substance, insofar as relevant, except that the evidence did not establish when cost reports for the year 1976 were submitted.
Paragraph two of respondent's proposed findings of fact has been adopted, in substance, insofar as relevant, except for the last clause thereof which was not established by the evidence.
Paragraph three of respondent's proposed findings of fact has been adopted, in substance, insofar as relevant.
Paragraphs four and five of respondent's proposed findings of fact are consistent with the evidence adduced at the hearing but are not strictly relevant.
Paragraph six of respondent's proposed findings of fact has been adopted, in substance, insofar as relevant, except for the final sentence thereof, which is not supported by the evidence.
Paragraphs seven and eight of respondent's proposed findings of fact have been adopted, in substance, insofar as relevant.
Paragraphs nine and ten of respondent's proposed findings of fact are actually proposed conclusions of law.
Allan M. Dabrow, Esquire Suite 1300
Mr. David Ganley Supervisor of Nursing Home Receivables
Mr. Carl McBride Department of Accounting Department of HRS
W. Kirk Brown, Esquire
