Judges: D. R. ALEXANDER
Agency: Department of Children and Family Services
Latest Update: Sep. 20, 1982
Summary: Claim for recaptured depreciaiton denied.
82-0278.PDFSTATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
JOHNSON PROFESSIONAL NURSING ) HOME, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 82-278
)
DEPARTMENT OF HEALTH AND )
REHABILITATIVE SERVICES, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice, a formal hearing was held in the above case before the Division of Administrative Hearings, by its duly designated Hearing Officer, DONALD R. ALEXANDER, on June 24, 1982, in Orlando, Florida.
APPEARANCES
For Petitioner: Karen L. Goldsmith, Esquire
Post Office Box 1980 Orlando, Florida 32802
For Respondent: Robert A. Weiss, Esquire
Building 6, Suite 233
1317 Winewood Boulevard
Tallahassee, Florida 32301 BACKGROUND
Petitioner, Johnson Professional Nursing Home, Inc., a licensed nursing home facility, initiated this action as a result of a letter dated December 30, 1981, from Respondent, Department of Health and Rehabilitative Services, indicating that a gain was received by Petitioner when it sold its facility.
Therefore, Respondent alleged that such gain was subject to the recapture of depreciation for the period of time that Petitioner was a participant in the Medicaid Program. The total amount of liability was alleged to be $60,911. This amount was subsequently reduced to $29,958, by letter dated February 10, 1982.
Petitioner contested the decision of Respondent and requested a formal hearing pursuant to Subsection 120.57(1), Florida Statutes. The matter was forwarded by Respondent to the Division of Administrative Hearings on February 2, 1982, with a request that a Hearing Officer be assigned to conduct a hearing. By notice of hearing dated February 25, 1982, the final hearing was scheduled on May 11, 1982, in Orlando, Florida. At the request of Petitioner, the matter was rescheduled to June 24, 1982, at the same location.
At the final hearing, Petitioner presented the testimony of Linda Rowe, former administrator of the home, Charles Stophel, director of Respondent's Office of Audit and Quality Control Services, and Kenneth Conners, Jr., a health care consultant. It also offered Petitioner's Exhibits 1-3; all were received in evidence. Respondent presented the testimony of Eugene A. Branagan, an internal auditor of Respondent, and offered Respondent's Exhibits 1-4; all were received in evidence. Additionally, a prehearing stipulation was received as Hearing Officer Exhibit 1.
The transcript of hearing was filed on July 6, 1982. At the request of the parties, an extension of time in which to file proposed findings of fact and conclusions of law was given to and including August 2, 1982. Such were timely filed and have been considered by the undersigned in the preparation of this order. Findings of fact not included in this order were considered irrelevant to the issues, immaterial to the results reached, or not supported by competent and substantial evidence.
The issue herein is whether Petitioner must repay Respondent $29,958 for monies paid to Petitioner for depreciation expense which was not ultimately realized.
Based upon all the evidence, the following findings of fact are determined: FINDINGS OF FACT
At all times relevant thereto, Petitioner, Johnson's Professional Nursing Home, Inc., was a licensed nursing home facility located at 411 West Woodward Avenue, Eustis, Florida. It was subject to the regulatory jurisdiction of Respondent, Department of Health and Rehabilitative Services. During the period of January 1, 1972, through January 31, 1982, Petitioner participated in the Title XIX (Medicaid) nursing home program.
On October 13, 1981, Linda Rowe, personal representative of the Johnson estate, which owned the facility, signed an enforceable contract to sell the facility to Charles F. Cantrell, Jr. for $275,000. The contract contained a clause stating that the buyer would not be responsible for any monies owed the State of Florida. A closing was scheduled for December 29, 1981. Prior to the closing, an application was submitted to Respondent seeking approval to transfer the license to Cantrell. Approximately two weeks before the closing, a representative of Respondent contacted Rowe to advise her that the transfer of license would be approved, but that Petitioner must first repay the State for depreciation recapture. Prior to that time, Rowe had received no notice or other advice that the Department's long-standing policy of not claiming recaptured depreciation had been changed. The telephone advice was followed by two letters from Respondent on December 30, 1981, and February 10, 1982, indicating that a claim of $29,958 must be paid. Those letters prompted the instant proceeding. Until the dispute is resolved, Petitioner has placed sufficient monies in an escrow account to secure the claim.
Under the concept of depreciation recapture, a nursing home is allowed to claim depreciation on the facility as an allowable cost as long as it remains a participant in the Medicaid Program. However, if the facility is sold to another provider, the Department reviews the sale, determines whether it was sold at a gain and, if it was, the Department construes the sale as a reimbursement of depreciation to the seller, and that an appreciation vis a vis depreciation in the value of the facility has occurred. Accordingly, Respondent requires that either the depreciation recapture or the amount of gain, whichever
is lesser, be paid by the seller before operational approval is given to the new licensee.
HIM-15 is a group of federal regulations promulgated for the Medicare Program, which is administered by the federal government. The State of Florida has adopted the principles contained in HIM-15 for use in administering the Medicaid Program. However, the State is free to deviate from or modify these principles whenever it deems it appropriate to meet the needs of the Program. Such modifications are contained in the Florida Title XIX Long Term Care Reimbursement Plan (Plan) and supersede contrary HIM-15 principles. The Plan became effective on October 1, 1977, and made the concept of depreciation recapture retroactive to January 1, 1972. However, the Department did not decide to collect depreciation recapture until an "in-house" decision to do so was made in early 1981. This decision was not conveyed to the nursing home industry.
The principle of depreciation recapture is referred to in the Plan and sets forth general guidelines by which a calculation of depreciation recapture may be made. However, no rules on the subject have been codified in the Florida Administrative Code. Further, the Florida Statutes do not refer specifically to the subject.
Nursing homes are required to annually file cost reports for their cost reporting year reflecting in detail the allowable costs incurred while participating in the Medicaid Program. Allowable costs are generally those reasonable and necessary costs which may be reimbursed pursuant to HIM-15 and the Plan. Depreciation is an allowable cost so long as the basis and useful life of the asset meet the Medicaid requirements.
Cost reports were filed by Petitioner for each of the years that it participated in the Program. These reports were audited by the Department to insure that only allowable costs were reimbursed, that such amounts were reasonable and necessary, and that the provider's reimbursement did not exceed the ceiling rate, which is the maximum amount a provider can be reimbursed regardless of the amount of cost incurred in caring for the patients.
The methodology for calculating depreciation recapture is set forth in Part III.G.3.d.(1)(a)-(c) of the Plan. That section provides that the amount shall be determined as follows:
The gross recapture amount will be lesser of the actual gain on the sale or the depreciation after effective date of January 1, 1972, whichever is later.
The gross recapture amount as determined in (a) above shall be allocated to fiscal periods from January 1, 1972, through the date of sale. The gross recapture amount shall be allocated to each fiscal period in the same ratio as depreciation amounts claimed. Allowable costs will be recomputed for each period after depreciation recapture. The recomputed allowable costs will be used to determine if there was an overpayment for each period.
The net recapture amount so determined in
above will be paid by the former owner(s)
to the State. If the net recapture amount is not paid by the former owner, in total or part, the amount not paid will be deducted from the future payments by HRS to the buyer until net recapture amount has been recovered; provided that there is a State law in the form of a State Statute or regulation which at the time of the sales transaction would give the buyer notice of the possibility of this will be paid to HRS in full at time of subsequent sale.
HRS reserves the right to grant exceptions or terms of extended payment based upon the facts and circumstances of the unrecovered recapture from the seller.
The Department views the above provisions as "ambiguous", and is currently formulating a rule to more adequately define the guidelines to be used in calculating recaptured depreciation. It considers paragraphs (a) and (c) to be controlling in making the calculation, and takes the position that paragraph
should be ignored since paragraph (c) makes reference only to paragraph (a).
Respondent presented the author of the Plan, now a health care consultant, who construed paragraph (a) as the basic test to determine whether any depreciation recapture is due. If it is, paragraph (b) then requires the Department to make a computation to determine allowable costs, including a provision for return on equity, and if such costs exceed the rate ceiling, the provider is not liable for depreciation recapture. Finally, he interpreted paragraph (c) as merely prescribing the methodology for "collecting the depreciation recapture determined by the methodology set out in paragraph (b)", and not as the methodology to determine the actual amount. He also contended that the reference to paragraph (a) in paragraph (c) was a typographical error, and should have been a reference to paragraph (b).
In determining that Petitioner owed $29,958, Respondent first reviewed the costs reports submitted by Petitioner from January 1, 1972, through the date of the sale of the facility. 1/ From this, it ascertained the amount of depreciation claimed by Petitioner. That amount was then adjusted to obtain program depreciation by dividing the Medicaid patient days by total patient days, and multiplying the derivative thereof times the depreciation claimed on the costs reports. This amount represented that portion of claimed depreciation relating to the Medicaid Program. This figure was then multiplied by a rate/ceiling adjustment, which is a percentage factor derived from comparing the provider's cost for level of care to the rate/ceiling for level of care. In all years, the application of the rate/ceiling factor resulted in lowering the claimed program depreciation. This computation produced the net depreciation subject to recapture, and collectively totaled $29,958. This methodology ignored paragraph (b) of the Department guidelines, and relied instead upon paragraph (c) as the basis for making the calculation.
Some providers operate at a cost level in excess of the ceiling rates, or the maximum reimbursement level. Others do not reach the ceiling but instead incur total costs below that level. For this reason, the Department does not count depreciation expense as either the first or last element of cost in the cost report but rather as a cost which "permeates" the entire rate. Were it to treat depreciation as the last element of cost when a facility operated in excess of the ceiling, depreciation would be in excess of the ceiling and therefore non-recapturable. This treatment is suggested in paragraph (b) of the
Plan. Although Respondent did not strictly oppose treating depreciation as the first element of cost, it did not do so since this would result in recapturing all depreciation subject to the gain even if the provider had not been reimbursed for all of its costs. The methodology selected by the Department is a compromise of the two, and avoids the unfairness created by the other methodologies.
Petitioner's expert witness analyzed the cost reports submitted by the provider. He concluded that because the provider was at or above the ceiling rate for most of the reporting periods, it was liable for an estimated $11,528 in recaptured depreciation after making a provision for return on equity. 2/ The details of this calculation are set forth in Petitioner's Composite Exhibit
3 received in evidence.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the subject matter and the parties thereto pursuant to Subsection 120.57(1), Florida Statutes.
Petitioner has raised four separate arguments in support of its position that depreciation recapture need not be paid. 3/ However, resolution of only one of these contentions is necessary to resolve this dispute. 4/
Petitioner urges, and properly so, that the doctrine of equitable estoppel should be invoked against the agency to bar it from asserting its claim. This doctrine rests upon three basic premises: (a) that one party by words or conduct has caused another to believe that a material fact or a material state of the law exists, (b) the party misled must have relied on this representation, and (c) the position of that party must have been changed as a result of reliance upon that state of affairs. Davis and Sons v. Askew, 343 So.2d 1329 (Fla. 1st DCA 1979); Greenhut Construction Co. v. Knott, 242 So.2d
517 (Fla. 1st DCA 1971). Although equitable estoppel may be invoked against the State only under exceptional circumstances, North American Company v. Green, 120 So.2d 603 (Fla. 1960), the courts have not been reluctant to apply it when the facts justify it. Florida Livestock Board v. Gladden, 76 So.2d 291 (Fla. 1954).
The evidence of record discloses that for many years the Department's policy was that upon a sale of a facility, no depreciation recapture would be claimed. Although an "in-house" decision to abruptly change that policy was made in early 1981, such advice was not disseminated by the agency to the nursing home industry. Relying upon the knowledge that depreciation recapture had not been paid by other nursing homes, and in the absence of notice from the agency to the contrary, Petitioner's representative entered into an enforceable contract to sell the home on October 13, 1981. After the enforceable contract had been executed, and it was too late for Petitioner to avoid or alter the terms of sale, the Department advised the provider that it was reversing its policy and that depreciation recapture must now be paid. Under these circumstances, the doctrine of equitable estoppel effectively bars Respondent from belatedly asserting such a claim. Cf. Re: University Home Foundation, Inc. d/b/a Convalescent Center of Gainesville v. Department of HRS, Case No. 81- 3116, Final Order dated August 11, 1982. This being so, it is unnecessary to reach the other points raised by Petitioner. 5/
RECOMMENDATION
Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered by Respondent dismissing its
claim against Petitioner for recaptured depreciation.
DONE and ENTERED this 19th day of August, 1982, in Tallahassee, Florida.
DONALD R. ALEXANDER
Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32301
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 19th day of August, 1982.
ENDNOTES
1/ The twelve-month period of July 1, 1973, through June 30, 1974, was excluded from consideration since nursing homes were not reimbursed on the basis of cost during that period of time.
2/ Petitioner's witness qualified his answer by saying the estimated figure of
$11,528 was reliable within a plus or minus $1,500.
3/ These include assertions that (a) Respondent has no legal authority to collect recaptured depreciation until a formal rule is adopted, (b) the application of the concept by Respondent only upon providers who sold their facilities after early 1981 is unconstitutional, (c) the doctrine of equitable estoppel is applicable under the factual situation herein, and (d) the methodology used by Respondent is illegal and has no basis in law.
4/ Although it is unnecessary to resolve Petitioner's other points, the nature of these claims would render it advisable for Respondent to adopt a rule governing recaptured depreciation so as to avoid the legal challenges which seem to arise so often when nursing home facilities are sold.
5/ In view of the result reached herein, Petitioner's motion to reopen hearing filed on August 9, 1982, is rendered moot.
COPIES FURNISHED:
Karen L. Goldsmith, Esquire Post Office Box 1980 Orlando, Florida 32802
Robert A. Weiss, Esquire Building 6, Suite 233
1317 Winewood Boulevard
Tallahassee, Florida 32301
David Pingree, Secretary Department of HRS
1317 Winewood Boulevard
Tallahassee, Florida 32301
================================================================= AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA
DEPARTMENT OF REHABILITATIVE SERVICES
JOHNSON PROFESSIONAL NURSING HOMES, INC.,
Petitioner,
vs. CASE NO. 82-278
DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES,
Respondent.
/
FINAL ORDER
The Department of Health and Rehabilitative Services, having reviewed the Recommended Order and Exceptions to Recommended Order, hereby adopts the Findings of Fact and Conclusions of Law of the attached Recommended Order entered in this cause by Hearing Officer Donald R. Alexander, dated August 19, 1982, with the following exceptions to the Conclusions of Law:
Paragraph Three of the Recommended Order's Conclusion of Law is erroneous and is rejected. The doctrine of equitable estoppel should not be invoked against the Department to bar it from asserting its claim. The doctrine rests upon three premises: (a) That one party by words or conduct has caused another to believe that a material fact or a material state of the law exists. While the Department recognizes that it had not previously sought reimbursement for depreciation recapture on an industry-wide basis, neither the record nor the Findings of Fact reflect that Ms. Rowe, Petitioner's representative, was aware of that fact. Therefore, the Hearing Officer's statement that Petitioner's representative relied upon the knowledge that depreciation recapture had not been paid by other nursing homes in determining to sell its nursing facility is erroneous, and serves to negate premise (a) as stated above. If Ms. Rowe was not aware of the Respondent's previous policy, Respondent is not barred by the doctrine of equitable estoppel.
Further, assuming for the sake of argument that the record supports the Hearing Officer's conclusion relating to Petitioner's reliance on Respondent's previous policy, extraordinary circumstances do not exist in the present matter to justify the application of the doctrine of equitable estoppel against the State.
The case of University Home Foundation, Inc., d/b/a Convalescent Center of Gainesville v. Department of Health and Rehabilitative Services, Case No. 81- 3116, Final Order dated August 11, 1982, is clearly distinguishable from the present case. In University Home, Respondent had failed to advise the nursing facility, prior to the sale of the facility, of its liability to the State related to depreciation recapture. In that case, the facility was sold, arrangements were made to secure other debts owed by the facility to Respondent, and, some months later, the facility was advised of the Respondent's claim for recaptured depreciation.
In the present matter, however, the facility was advised by Respondent, prior to the consummation of the sale of the facility, of Respondent's claim for recaptured depreciation. Accordingly, the facility made arrangements to secure the liability, and subsequently sold and transferred license to the facility.
In University Home, the Hearing Officer found that Respondent should be barred from the recovery of recaptured depreciation by the doctrine of equitable estoppel. Under the facts of that case, equitable estoppel was properly invoked; however, the key fact relied upon by the Hearing Officer in reaching his recommendation was the failure of Respondent to advise the nursing facility of its liability prior to the sale of the facility. In this matter, Respondent advised Petitioner of its liability prior to the sale of the facility; accordingly, the facility had adequate notice of the Respondent's non-rule policy, and the doctrine of equitable estoppel does not apply. Equitable estoppel may be invoked against the state only under exceptional circumstances North American Company v. Green, 120 So.2d 603 (Fla. 1960). Such exceptional circumstances do not exist here, particularly in light of the sound policy basis upon which the theory of depreciation recapture is based.
The other case relied upon by the Hearing Officer, Florida Livestock Board
v. Gladden, 76 So.2d 291 (1954), is also distinguishable from the present case. In Florida Livestock Board, the Board had directly advised hog farmers, through its own regulations, that they could feed uncooked garbage to hogs until August 15, 1953, after which time only cooked garbage could be used as feed. A subsequent act of the Legislature, effective August 4, 1953, prohibited the feeding of uncooked garbage to hogs. The Board, taking the position that it could not extend the effective date of the act, refused compensation to a hog farmer whose hogs were seized because they had been fed uncooked garbage after August 4, but before August 15, the effective date of the rules.
In that case, the Supreme Court held that the hog farmer was entitled to compensation for the seized animals, due to the fact that the farmer had been specifically advised that the prohibition against feeding uncooked garbage to hogs would not be effective until August 15. The Court stated that to rule otherwise, would be tantamount to the perpetration of a fraud by an administrative agency of the state against one of its citizens. Under those exceptional circumstances, the doctrine of equitable estoppel was applied.
In the present case, Respondent never affirmatively or specifically advised Petitioner that it would not be liable to Respondent for recaptured
depreciation. Respondent advised Petitioner of its liability relative to depreciation recapture prior to the sale of the nursing facility, as it is required to do pursuant to Section 400.179, F.S. (1981). Clearly, Respondent has not endeavored to perpetrate a fraud on Petitioner, as was the case in Florida Livestock Board. Respondent is only attempting to prevent the State of Florida from inappropriately having paid a Medicaid provider for depreciation expenses which were never incurred.
The doctrine of equitable estoppel should not be applied against Respondent, as exceptional circumstances do not exist which would justify its application against the State. The amount of depreciation recapture sought by the Department, $29,958, was properly calculated and it is therefore
ORDERED that Petitioner remit to the Department, $29,958 for the recapture of depreciation resulting from the sale of the nursing home facility.
DONE and ORDERED this 17th day of September, 1982, in Tallahassee, Florida.
DAVID H. PINGREE
Secretary
COPIES FURNISHED:
Karen L. Goldsmith, Esq. Post Office Box 1980 Orlando, Florida 32802
Robert A. Weiss, Esq. Medicaid Staff Attorney Department of Health and Rehabilitative Services 1317 Winewood Boulevard
Tallahassee, FL 32301
Donald R. Alexander Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, FL 32301
Docket for Case No: 82-000278
Orders for Case No: 82-000278
