STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THE CENTER FOR LIVING, )

)

Petitioner, )

)

vs. ) CASE NO. 78-1926

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by it's duly designated Hearing Officer, James E. Bradwell, held a public hearing in this case on November 8, 1978, in room 106, Collins Building, Tallahassee, Florida. As stipulated by the parties, the hearing officially closed on December 20, 1978, the date of receipt of the official transcript.

APPEARANCES

For Petitioner: Mr. Monroe Mitchell

Executive Director The Center for Living

2000 East Commercial Boulevard Ft. Lauderdale, Florida 33308

For Respondent: Eric Haugdahl, Esquire and

David Sjoberg, Esquire Assistant General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32301 FINDINGS OF FACT

Based upon my observation of the witnesses and their demeanor while testifying, the, arguments of counsel, and the memoranda submitted in support of the parties respective positions, the following relevant facts are found:

1. During late October or early November, 1975, Mr. Monroe Mitchell, President of The Center for Living, Inc. began negotiations for the purchase of Coral Hills Nursing Home from the owners of that facility. Prior thereto, in August, 1975 Mitchell, as President of The Center for Living (herein sometimes called the Petitioner or The Center) met with Mr. Allen Pristine, Executive Director of the Broward County Community Health Planning Council which, during 1976, became the Health Planning and Development Council for Broward County, Inc., a conditionally designated health systems agency, to discuss the county's need for nursing home beds, the regulations and requirements governing transfer

   of licenses and ownership from one proprietor to another for an existing nursing home in Broward County.

   
   

2. According to Messr. Mitchell, Perlstein advised that certificate of need applications were not required in Broward County at that time although he anticipated new regulations and requirements would be developed in 1976. Mitchell was referred to check with the State Department of Health and Rehabilitative Services in Jacksonville for further information concerning licensure in the State. In November, 1975, Messr. Mitchell visited the Bureau of Health Facilities in Jacksonville to identify the regulations and other relevant forms which were necessary to be filed and executed by The Center for Living, Inc., concerning its intention to acquire the leasehold interest of the Coral Hills Nursing Home. According to Mitchell, he sought complete instructions regarding the correct procedures for transferring the provider license for the Coral Hills Nursing Home to The Center for Living, Inc. Mitchell met with Messrs. Charles Carter, Ivan Owens, and other representatives of the Bureau of Health Facilities of HRS.

   
   

3. During that same visit in November, 1975, Messr. Mitchell met with Messr. Dexter Walters of the Reimbursement Division of HRS to further discuss the appropriate approach to transfer the respective license and for establishment of Medicaid and Medicare provider status in the State. None of the above representatives advised Messr. Mitchell that it was necessary for him to request and obtain approval to function as a Medicare or Medicaid provider under Section 1122 of Public Law 92-603.

   
   

4. On November 19, 1975, Messr. Mitchell received a letter from Messr. E.

   R. Mason, acting chief of the Bureau of Health Facilities, HRS, which outlined the necessary forms which had to be executed in order to comply with the necessary requirements to obtain licensure. Thereafter on December 10, 1975, Marie A. Chertin, Chief, Health and Social Services Branch, Office of Civil Rights, Department of HEW forwarded a letter to the Administrator of the Coral Hills Nursing Home which outlined additional conditions of participation in the Medicare Program. Ms. Chertin's letter also did not advise the representatives of The Center for Living that it was necessary to file a specific form or request approval under Section 1122 of Public Law 92-603.

   
   

5. On November 19, 1975, The Center for Living, Inc. forwarded letters of intent to the Department of HRS confirming that it had entered into an agreement to acquire the leasehold interest of the Coral Hill Nursing Home from the operator and lessor of record, Heritage of Ft. Lauderdale. On that same date, The Center for Living, Inc. filed an application for licensure with the State Department of Health and Rehabilitative Services as they were advised by the Broward County Health Department. It suffices to say that when the representatives of Petitioner contacted the Regional Planning Council, the county office of the State Department of HRS the Bureau of Health Facilities of HRS in Jacksonville, the reimbursement branch of the Department of HRS in Jacksonville, and the Federal Department of H. E. W. in Atlanta, none of these agencies or their designated representatives advised the Petitioner that approval was necessary under Section 1122 of Public Law 92-603 for establishment as a provider in the Medicaid or Medicare Programs in order to include depreciation, interest on mortgage money, or fair return on capital investment in the Medicare/Medicaid reimbursement formula.

   
   

6. On December 31, 1975, the Petitioner obtained the leasehold interest and assumed operation of the facility maintaining continuity for patients on January 1, 1976.

7. Coral Hills Nursing Home did not participate as a Medicare provider in 1975. The Center for Living entered the Medicare Program officially on October 1, 1976 and was certified by Medicare and issued a provider number in December, 1976, retroactive to October 1, 1976.

   
   

8. Following a 1978 Social Security Administration audit of The Center for Living's first year of participation in the Medicare Program (1976), the Social Security Administration notified the center that the Secretary of HEW was seeking to deny and recover $264,000 in Medicare reimbursement paid to the center during the first year on the grounds that the center failed to give timely notice to the designated planning agency (the office of Community Medical Facilities) of its acquisition of the Coral Hills Nursing Home. Since no Section 1122 review was conducted, this failure was construed by Medicare officials as lack of timely notice". Based thereon, the Petitioner appealed to this Division pursuant to Chapter 120.57(1) , Florida Statutes.

   
   

9. The Center for Living acquired an established 250-bed nursing home with a utilization rate of approximately 95 percent, of which 87.7 percent were Medicaid reimbursed patients. The other facilities in Broward County were averaging 87 percent utilization, but only 45 percent of those patients were Medicaid-reimbursed. Thus, The Center for Living was the major provider for Medicaid long-term care services. According to the health systems plan or the annual implementation plan extant in 1975, the State health plan in use at the time indicated a need for approximately 3,156 long-term care beds by 1980 in Broward County. At that time, there were 2,384 such licensed beds in use in the county operating at a utilization rate of approximately 87.3 percent. This represented a deficit of approximately 772 beds, and the failure to relicense the Coral Hills facility would have increased this deficit to approximately 1,022 beds.

   
   

10. In purchasing the existing nursing home facility, it was the intention of the owners of The Center for Living, Inc., to treat Medicaid/Medicare patients and to be classified as a provider. The purchasers did not feel that acquisition of the facility would be financially feasible without Medicaid/Medicare patients. This is evident from an examination of the financial statement for the year ending September 30, 1975, prepared by Coopers and Lybrand, Certified Public Accountants. (See Exhibit P-11).

    
    

11. Based on an examination of the financial statement, it becomes apparent that the purchasers would have either not consummated the agreement to purchase the existing nursing home from Heritage of Ft. Lauderdale, Inc. or they would have postponed the closing date for sale until Section 1122 approval was in fact granted.

    
    

    CONCLUSIONS OF LAW

    
    

12. In an effort to provide for the orderly and planned development of the health care delivery system, Section 1122 of the Social Security Act authorizes the Secretary of Health, Education and Welfare (HEW) pursuant to 42 USC Section 1320(a)-I to reduce reimbursements to providers of services for failure to comply with certain procedural and substantive requirements. These requirements are set forth in 42 CFR Section 100.101, et seq. Pursuant to an agreement between the Secretary of HEW and the State of Florida to carry out the provisions of Section 1122, these requirements are set forth by Florida in the "Health Facilities and Health Services Planning Act," F.S. Secs. 381.493-381.497 and in the Florida Administrative Code, Chapter 10-5.

13. The very first procedural requirement prescribed for those facilities are transactions falling under the review requirements of federal and state law is that the provider give written notice of its intention to make a capital expenditure at least sixty (60) days prior to the date on which the obligation is expected to be incurred. 42 CFR Sec. 100.106(a)(1); F.A.C. 10-5.08 and 10- 5.03.

    
    

14. In this case, the facts are clear that Petitioner failed to give Respondent the requisite sixty (60) days notice of intent to acquire the nursing home. However, Petitioner contends that it is nevertheless entitled to full reimbursement for the following reasons. First, Petitioner argues that Respondent, in violation of the agreement between HEW and Respondent and in violation of the federal regulations (42 CFR Sec. 100.106) , did not promptly disseminate procedures for giving timely notice, and finally that the Respondent is estopped from raising the timely notice issue inasmuch as Petitioner made reasonable inquiry of the Department of HRS as to all requirements of law and had the right to rely upon the instructions given by representatives of the Department of HRS.

    
    

15. As to the first ground, the rules relating to capital expenditure proposals and the procedures for timely written notice are set forth in the Florida Administrative Code. A presumption that such rules were properly promulgated with prior notice of rule-making having been given absent some evidence to the contrary. Finally, the publication of such rules in the Florida Administrative Code complies with the federal requirements for dissemination of procedures under which timely written notice is required to be given to Respondent. Based thereon, it is concluded that the first ground is without merit.

    
    

16. Secondly, the facts adduced from this hearing do not justify the application of an estoppel theory against Respondent. Inasmuch as the Petitioner's representative, Messr. Mitchell, expressed familiarity with Section 1122 approval and in the absence of any evidence which tends to establish that he had any right to rely upon the advice of other officials of the Department of HRS for information regarding Section 1122 approval when the requested information related solely to licensure and participation in the Medicare Program without any mention for reimbursement under the Medicaid Program or to review under Section 1122, this ground is also regarded as being without merit by the undersigned.

    
    

17. The federal regulations, the agreement between the federal and state government and tie State's own regulations all clearly provide that notice is to be given to the designated planning agency. This agency is identified as the Respondent Office of Community Medical Facilities in the State regulations. The Petitioner's acquisition is governed by the law set forth in the 1975 statutes and the regulations implementing the 1977 statutes which state that the designated planning agency is again the Office of Community Medical Facilities.

    
    

18. In order to receive approval at the state level for federal funds and reimbursements, the provider is obliged to acquaint himself with the applicable federal and state regulations. An inquiry into facility licensure and participation in the Medicaid Program simply does not satisfy this requirement. Petitioner has failed to demonstrate compliance with the applicable federal and state law and has failed to show that the office of Community Medical Facilities is estopped from reporting this fact to the Secretary of the Department of HEW.

19. However, even where there has been a failure to provide timely notice of intent to make a capital expenditure, the agreement between the federal and state governments and the federal regulations (42 CFR Section 100.108) provide for an exception to the penalty of exclusion of expenses in the reimbursement base. (See memo dated February 15, 1977 from the Manager, Health Planning and Facilities Branch of the Department of HEW addressed to directors and designated planning agencies respecting Section 1122 review for which there is lack of timely notice.) Additionally, that policy is set forth in the January 26, 1977 issue of the Federal Register, Volume 42, Number 17. This policy permits the Secretary of HEW to not withhold reimbursement despite a lack of timely notice when it has been determined that a reasonable effort has been made to determine from the designated planning agency whether a particular capital expenditure was covered. The office of Community Medical Facilities has found that Petitioner's expenditure was in conformity with the medical facility's plans. Further, testimony from the center's director illustrate that it was always the intention of the purchasers that Medicaid patients would be the backbone of the nursing home and further that acquisition would not be financially feasible without full reimbursement under Medicaid. Finally, in view of the large number of the Petitioner's patients who are Medicaid-reimbursed, and the fact that the facility offers intermediate level care to the patients, it is concluded that inclusion of capital expenses should he recommended and considered by the Secretary of HEW.

RECOMMENDATION

Based on the Findings of Fact and Conclusions of Law set forth above, it is recommended that the office of Community Medical Facilities report to the Secretary of HEW that Petitioner failed to provide proper notice of its intent to make a capital expenditure. It is further recommended that the penalty of exclusion of expenses in the reimbursement base not be imposed inasmuch as the imposition of such penalty would discourage the operation of Petitioner's facilities and thereby would be inconsistent with the delivery of health services in the area.

ENTERED this 26th day of January, 1979, in Tallahassee, Florida.

JAMES E. BRADWELL

Hearing Officer

Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304

(904) 488-9675

COPIES FURNISHED:

Art Forehand, Administrator

Office of Community Medical Facilities Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32301

Eric Haugdahl, Esquire and David Sjoberg, Esquire Assistant General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32301

Mr. Monroe Mitchell Executive Director The Center for Living

2000 East Commercial Blvd.

Ft. Lauderdale, Florida 33308

William J. Page, Jr.

Secretary

Department of Health and Rehabilitative Services

1323 Winewood Blvd.

Tallahassee, Florida 32301

Docket for Case No: 78-001926

Orders for Case No: 78-001926