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DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES vs. B & K INVESTMENTS, INC., D/B/A KRESTVIEW NURSING, 79-000720 (1979)

Court: Division of Administrative Hearings, Florida Number: 79-000720 Visitors: 4
Judges: K. N. AYERS
Agency: Department of Children and Family Services
Latest Update: Dec. 17, 1979
Summary: Audit denying reimbursement for rent/rent to parent company upheld in Medicaid overcharge hearing.
79-0720.PDF

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS


DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Petitioner, )

)

vs. ) CASE NO. 79-720

)

B & K INVESTMENTS, INC., )

d/b/a KRESTVIEW NURSING )

HOME, and )

G & J INVESTMENTS CORP., )

)

Respondent. )

)


ORDER


Pursuant to notice the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above styled case on 1 August 1979 at Miami, Florida.


APPEARANCES


For Petitioner: Leonard J. Helfand, Esquire

DHRS District XI Counsel

Room 1040, 401 Northwest 2nd Avenue

Miami, Florida 33128


For Respondent: R. Stuart Huff, Esquire

1200 First Federal Building One Southeast 3rd Avenue Miami, Florida 33131


As a result of a desk audit, the Department of Health and Rehabilitative Services (HRS, or Petitioner) advised B & K Investments, Inc. d/b/a Krestview Nursing Home, Respondent, that certain expenses claimed by Respondent during the period 5 May 1977 to 31 May 1978 would not be allowed. This resulted in an alleged over-payment to Respondent for Medicaid reimbursements. Respondent disputed certain items on the audit and this hearing ensued. G & J Investments Corp. owns the property comprising the provider facilities and joined in these proceedings.


At a prehearing conference held 14 June 1979, the parties stipulated that only three issues remained for consideration. At the hearing the parties further stipulated that the only issues remaining were the treatment of real property taxes for the years 1976 and 1977 and whether rent paid to a related party, under the circumstances, is an allowable expense.


At the hearing three witnesses were called by Petitioner, two witnesses (including one of the three called by Petitioner) were called by Respondent and three exhibits were admitted into evidence.

FINDINGS OF FACT


  1. The facts here involved are not in dispute. Prior to May 1977 Krestview Nursing Home was operated by the Wilson management group (Wilson) and provided nursing home care to Medicaid patient's.


  2. The property comprising Krestview Nursing Home is owned by G & J Investments Corp. (G & J), a wholly owned subsidiary of Suburban Nursing Home Consultants (Suburban). Suburban also owns all of the stock of B & K Investments, Inc.


  3. Gerald D. Keller at all times here relevant was President of Suburban and G & J Investments. He and his family apparently own most, if not all, of the stock of Suburban.


  4. Prior to May 1977, the facility comprising Krestview Nursing Home was leased to Wilson. In early May 1977 Wilson was in dire financial straits, criminal charges were pending against Wilson, and the closure of Krestview and two other homes managed by Wilson was imminent.


  5. In hopes of avoiding the problems likely to result from closing these homes, the Department of HRS contacted Mr. Keller to ask if he could locate a qualified operator to take over the operation of the nursing homes.


  6. When a qualified operator could not be found on such short notice, Keller was asked by HRS if he would operate these homes until a qualified operator could be located. One primary consideration in this request is the high mortality rate expected when large numbers of elderly patients have to be relocated.


  7. Keller, through his corporate organizations, had a corporation, B & K Investments, Inc., which had a current state registration, federal tax number, and could from a corporate standpoint. Qualified personnel to operate this home was available and employed.


  8. An agreement between HRS and B & K, admitted into evidence as Exhibit 1, provided that B & K would have no liabilities for the debts or obligations which arose during the time its predecessor provider operated the facility.


  9. Wilson's lease was terminated and a new lease was entered into between G & J and B & K whereby B & K agreed to pay rent upon the same terms previously existing with Wilson, Wilson's lease (Exhibit 2) was a net, net lease whereby the lessee paid all taxes and insurance premiums on the real and personal property involved.


  10. Krestview was operated by B & K for approximately four months, from May 5, 1977 until August 31, 1977, before Keller was successful in finding a new provider to take over the operation of the nursing home. A lease upon the same terms as Exhibits 2 and 3 was executed with the new provider.


  11. B & K's fiscal year ended May 31, 1977, just 26 days after B & K, took over operations. Because of this, HRS allowed B & K to submit its annual report for the 13-month period from May 5, 1977 until May 31, 1978.


  12. Upon taking over operation of the nursing home B & K found the taxes unpaid and overdue for 1976. These taxes were paid by B & K, and in November

    1977 the taxes for 1977 were paid. At this time B & K was no longer the provider. Both of these payments were included in the costs for the nursing home during the 13-month period ending May 31, 1978 and this constituted one of the issues in dispute. The other disputed issue is the rent paid by B & K to a related corporation, G & J, during the four months that B & K operated Krestview.


    CONCLUSIONS OF LAW I.

  13. The Division of Administrative Hearings has jurisdiction over the parties and subject matter of these proceedings.


  14. With respect to the taxes for 1976 which B & K paid during the period B & K was operating the premises as provider, it is to be noted that these taxes accrued during the occupancy of the premises by B & K's predecessor provider, Wilson. Under the terms of the agreement (Exhibit 1), B & K, as a provider, had no liability for this obligation. That obligation, like any other debt which accrued during the Wilson administration, was the sole obligation of Wilson.


  15. Pursuant to the lease agreement the lessee agrees to pay property taxes while lessee is in possession of the premises. Although the lease agreement does not specify that the taxes be prorated for the first year of the lease (Exhibit 2), there is nothing in the lease to indicate a departure from the normal rule of proration of taxes when the payment of taxes is the obligation of the party in possession.


  16. Although B & K paid these taxes for 1976 while in possession of the premises, there was no requirement that it do so. Had B & K not paid the taxes, that burden would have fallen on the owner, G & J. Had no tenant taken over the facility, G & J would have been required to pay the 1976 taxes or have the problem of redeeming the tax certificate after the tax sale. Here B & K, with respect to the 1976 property taxes, is in exactly the same position as would be a provider unrelated to G & J--it has no liability for the payment of these taxes. Had B & K been independent of G & J it is unlikely that these taxes would have appeared on the cost report.


  17. The payment of taxes would be appropriate only for the fiscal year 1977, as this obligation for 1976 accrued before B & K became the provider. Although there is a question of when the taxes for 1977 accrued, these taxes became due and payable 1 November 1977. Florida Statutes Section 197.012 (1977). At this time B & K was no longer the provider. However, the lease provided for the tenant to pay taxes and this then became an obligation of the provider. It would be equitable to allow all of the taxes for 1977 be charged to the provider.


    II.


  18. With respect to the payment of rent to a related party, Respondent, in its brief, and at the hearing, agreed there is a prohibition against such rental payments in HIM 15. While the rationale of the rule against such payments is to prevent "sweetheart" agreements which could greatly increase the costs of service, the rule does not disappear simply because that rationale is not present in a particular case. Here it is clear that the lease and rental payments for the premises occupied by the provider was the same for the related

    provider, B & K, as it was for the unrelated providers which preceded and followed B & K.


  19. The rule proscribes the payment of rent to a related corporation and this rule was not abrogated when HRS requested Keller to temporarily take over the role as provider until another provider could be found. While, under the circumstances of this case, the equities are with allowing the provider to charge the rent paid to a related company as a legitimate cost for reimbursement purposes, the rule says this cannot be done.


  20. HIM 15 requires the provider, when related to the lessor, to charge off only the actual costs of the facility. These costs are comprised of taxes, depreciation, repairs, insurance, etc. While here the owner (B & J) may not receive the same return on the property it received from those providers not related to it because of low depreciation allowable or for other reason, this too does not provide a basis for ignoring the rule. The validity of the rule has not been questioned, nor has a legal basis been offered for not following this rule. Such a rule is a valid exercise of delegated legislative authority. Fairfax Hospital Association, Inc. v. Califano, 558 F2d 602 (CA 4, 1978).


  21. Even when, as here, the equities are with the related owner of the property to allow him to collect and have the rent collected charged by the provider as a reimbursable expense, the rule does not provide for this flexibility and the rule is binding upon HRS.


  22. From the foregoing it is concluded that the property taxes for the year 1976 were not a proper expense for B & K Investments, Inc. while it was serving as provider in 1977.


  23. It is further concluded that HIM 15 precludes allowing rental payments to a related company as an expense chargeable to the provider despite the equities here existing. It is therefore


RECOMMENDED that the desk audit denying the charges for rent in 1976 be upheld. It is further


RECOMMENDED that the desk audit denying the payment of rent to a related company be upheld.


Entered this 27th day of November, 1979.


K. N. AYERS Hearing Officer

Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301

(904) 488-9675


COPIES FURNISHED:


Leonard J. Helfand, Esquire DHRS District XI Counsel

Room 1040, 401 N. W. 2nd Avenue Miami, Florida 33128

R. Stuart Huff, Esquire 1200 First Federal Building One Southeast 3rd Avenue Miami, Florida 33131


Docket for Case No: 79-000720
Issue Date Proceedings
Dec. 17, 1979 Final Order filed.
Nov. 27, 1979 Recommended Order sent out. CASE CLOSED.

Orders for Case No: 79-000720
Issue Date Document Summary
Dec. 13, 1979 Agency Final Order
Nov. 27, 1979 Recommended Order Audit denying reimbursement for rent/rent to parent company upheld in Medicaid overcharge hearing.
Source:  Florida - Division of Administrative Hearings

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