STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

UNIVERSITY HOME FOUNDATION, INC. ) D/B/A CONVALESCENT CENTER OF ) GAINESVILLE, )

)

Petitioner, )

)

vs. ) CASE NO. 82-491

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, R. L. Caleen, Jr., Hearing Officer with the Division of Administrative Hearings, conducted a formal hearing in this case on April 12, 1953, in Gainesville, Florida, and on May 9, 1983, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Mitzi Austin, Esquire

Post Office Drawer C Gainesville, Florida 32602

For Respondent: Joseph L. Shields, Esquire

Department of Health and Rehabilitative Services

1323 Winewood Boulevard, Suite 406

Tallahassee, Florida 32301 ISSUES

1. Whether petitioner, a nursing home participating in the Medicaid Program, should be required to repay respondent Department of Health and Rehabilitative Services an alleged overpayment of $264,970;

   
   

2. Whether petitioner is entitled to additional Medicaid payments based on an increased facility payment rate.

BACKGROUND

On February 3, 1982, petitioner University Home Foundation, Inc., d/b/a Convalescent Center of Gainesville ("the Convalescent Center, or "the Nursing Home") filed a Petition for Formal Administrative Hearing: (1) challenging the respondent Department of Health and Rehabilitative Services' ("DHRS") January 6, 1981 demand for repayment of an alleged overpayment of Medicaid funds in the amount of $264,970; and (2) claiming entitlement to additional Medicaid payments from DHRS based on an increased facility payment rate from November 1, 1980 to February 28, 1981.

On February 19, 1982, DHRS forwarded this case to the Division of Administrative Hearings for assignment of a hearing officer. Hearing was thereafter set for August 18, 1982; then continued and reset for April 12, 1983. At hearing, the Convalescent Center presented the testimony of Paul Allen, Dan Kurran, William McDavid, and Hugo Jordan. DHRS presented the testimony of Dan Rurran, David Bussey, and John Donaldson. The parties filed a joint prehearing stipulation. Petitioner's Exhibit Nos. 1, 2, 2a-b, 3a-b, and 4, and respondent's Exhibit Nos. 1-5, 5a, and 6-14 were received into evidence. 1/

The parties filed proposed findings of fact by June 9, 1983. No transcript of the hearing has been filed.

Based on the evidence presented, the following facts are determined: FINDINGS OF FACT

1. At all times material, petitioner University Home Foundation, Inc., owned and operated a 119-bed nursing home, known as the Convalescent Center of Gainesville, at 3240 S.W. 41st Place, Gainesville, Florida. From at least January 1, 1980 through September 30, 1980, the audit period in question, this nursing home participated in the Florida Medicaid Program and provided nursing services to Medicaid recipients. Approximately 80 percent of the nursing home's patients were eligible for Medicaid assistance.

   
   

2. Nursing homes participating in Florida's Medicaid Program receive Medicaid reimbursement, and have their facility rates set for the next reporting period, based on Cost Reports which they file annually with DHRS. These Cost Reports cover the nursing homes' prior fiscal year and must be prepared in accordance with acceptable accounting standards and methods of reimbursement set forth in the U.S. Department of Health, Education and Welfare publication, Provider Reimbursement Manual (HIM-15). Failure to submit a Cost Report will result in a ten percent reduction in Medicaid reimbursements and could result in cancellation of the provider's Medicaid contract and termination of its participation in the Medicaid Program. 10C-7.48(6)(g), Fla.Admin.Code. Cost Reports are subject to audit and adjustment by DHRS. Cost Reports play a key role in the Medicaid Program, so their accuracy and integrity must be assured. To this end, nursing home providers are required to maintain complete and accurate financial records, including books of original entry and supporting documentation from which Cost Reports are derived and Medicaid payments received. This record-keeping requirement is made explicit by Provider Agreements, which must be signed prior to a nursing home's participating in the Medicaid Program, and by DHRS rule 10C-7.48(5), and HIM-15, Part 1, Section 2304.

   
   

3. As required, the Convalescent Center timely filed with DHRS a Cost Report covering the period January 1, 1980 through September 30, 1980.

   
   

4. In early January, 1981, DHRS, through its contractor auditing firm, Peat, Marwick, Mitchell and Co., began an audit of the Convalescent Center's Cost Report, including the underlying financial records. This audit was conducted by a field auditor, together with an intern supervised by a certified public accountant.

   
   

5. During this audit, the auditors discovered numerous discrepancies in the Convalescent Center's financial records, some of which were missing. Among the problems encountered were unreconciled bank accounts; missing and

   unaccounted for checks; missing purchase and cash disbursement journals covering January through March, 1980; a $40,000 "plug" inserted to balance the books at the end of the audit period; several personal expenses improperly included as reimbursable Medicaid expenses; several misclassified expenses; and lack of internal accounting controls. The auditors became concerned about the accuracy of the Cost Report figures and asked the nursing home's administrator to sign a representation letter verifying its accuracy; he refused.

   
   

6. On January 23, 1981, the auditors notified the nursing home's administrator that completion of the audit had been postponed "due to the absence of some accounting records and supporting documentation for the accounting records." (R-2) Attached to the Notice was a list of items which the nursing home had to locate and assemble before the audit could be completed.

   
   

7. The information and records requested by the auditors were never furnished. On April 30, 1981, the auditors submitted an adverse report to DHRS, a report not provided to the Convalescent Center until August 21, 1981.

   Contrary to DHRS rules, no opportunity for an exit conference had been afforded the nursing home prior to release of this auditors' report. For this reason, on September 24, 1981, DHRS rescinded the audit report pending an exit conference, subsequently held on November 30, 1981. Prior to the conference, DHRS notified the Convalescent Center that because of the condition of the nursing home's fiscal records, the lack of a representation letter, and the inability of the auditors to render an unqualified opinion on the Cost Report, it required repayment of all Medicaid payments made during the nine month Cost Report period, ending September 30, 1980.

   
   

8. On January 6, 1982, subsequent to the exit conference, DHRS restated its demand for repayment, citing the earlier Auditors Report, which indicated the nursing home's failure to furnish a representation letter, the auditors inability to determine the propriety of certain operating expenses due to the poor condition of the nursing home's fiscal records; and the auditors' inability to give an opinion on the operating expenses and costs contained in the Cost Report. (P-2) Because of the Convalescent Center's alleged failure to maintain adequate financial records defined as records capable of audit--DHRS disallowed all costs reported during the nine-month period and demanded repayment of

   $264,970.

   
   

9. The Convalescent Center's fiscal records and financial documentation covering the nine-month period of January 1, 1980, through September 30, 1980 are, in fact, incapable of audit verification performed in accordance with generally accepted accounting principles. Because of their poor condition, a qualified auditor applying acceptable accounting standards cannot render a meaningful and unqualified opinion as to the propriety of the Cost Report covering that time period. This conclusion, based on the uncontroverted testimony of Dan Kurran and David Bussey, is further supported by the testimony of William McDavid, the certified public accountant who submitted the Cost Report and testified on behalf of the Convalescent Center. He stated that he had not examined the records underlying the Cost Report and had not audited the nursing home's records. He conceded that, given the condition of the nursing home's records, an audit would be difficult; he was not certain that one would even be performed. He theorized that, assuming the records to be auditable, it is possible that he could give a "clean," unqualified opinion on the Cost Report.

   
   

10. DHRS made Medicaid payments to the Convalescent Center covering January 1, 1980 through September 30, 1980 in the amount of $264,970.

11. The auditors, under contract with DHRS, made a reasonable and diligent effort to audit the Convalescent Center's Cost Report, including the underlying fiscal records. They spent more than 340 hours in this effort, considerably more time than they usually spend in auditing Cost Reports of nursing homes of this size.

    
    

    CONCLUSIONS OF LAW

    
    

12. The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this proceeding:. 120.57(1), Fla.Stat. (1981).

    
    

13. Nursing homes participating in Florida's Medicaid Program are entitled to reimbursement only for costs reasonably and prudently incurred in providing nursing services to Medicaid eligible patients. HIM-15, Sections 2I02-2I03; Rules 100-7.48, 10C-7.481,. Fla.Admin.Code. Claims for reimbursement are made by filing annual Cost Reports. As a condition to payment, DHRS insists that providers maintain adequate records, capable of audit, which support and substantiate the Medicaid claims.

14. This record-keeping requirement is made explicit by DHRS rule: 10C-7.48. Nursing Rome Care.

    (6)(c) . . . The [nursing home] facility

    agrees to maintain complete and accurate fiscal records, including books of

    original entry and supporting documentation from which costs of operation are determined, that are applicable to Medicaid recipients for whom the facility has claimed and received-payment. These records, including those of any organization related to the facility by common ownership or control

    which has furnished services, facilities, or supplies to the facility, will be made available for audit upon request from authorized representatives of the Department. (e. s.)

15. Section 2304, HIM-IS, incorporated by DHRS rule, also provides: ADEQUACY OF COST INFORMATION

    Cost information as developed by the provider 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 deter- mination of reasonable cost, capable of being audited. (e.s.)

16. Without adequate cost records and substantiating documentation, DHRS cannot determine the correctness of Cost Reports; entitlement to Medicaid payments made during the previous reporting period cannot be established; and new payment rates for the next period cannot be calculated.

    
    

17. Under Rule 10C-7.481(6), Medicaid providers have the burden of demonstrating their entitlement to claimed Medicaid reimbursements. Although DHRS rules do not expressly require the return of reimbursements for an entire period when nursing homes' records are later shown to be incapable of audit, DHRS is not foreclosed from making such a demand. Such action is consistent with the agency's power and duty to ensure that Medicaid dollars are spent only for authorized purposes. Figures inserted in Cost Reports are, after all, not self-validating; their accuracy depends on the quality of supporting documentation and proof. Despite the Convalescent Center characterization, DHRS' proposed action is not punitive. It is the logical result of its requirement that providers maintain adequate records to support Medicaid reimbursements, prospectively received.

    
    

18. In the instant case, the Convalescent Center failed to sustain its burden of proof. It also breached its explicit duty to maintain adequate fiscal records. The correctness of the Cost Report, which it filed covering January 1, 1980 through September 30, 1980, has not been established. Having failed to demonstrate its entitlement to the Medicaid reimbursements, the entire amount of

    $264,970 should be repaid to DHRS. Further, since the correctness of the Cost Report has not been shown, it cannot serve as a basis to increase the Convalescent Center's reimbursement rate during the next reporting period.

    
    

19. The parties filed proposed findings of fact and conclusions of law. To the extent they are incorporated herein, they are adopted. Further, the Convalescent Center's proposed finding no. 7 is adopted. All other proposed findings are rejected as unsupported by the evidence or unnecessary to

resolution of the issues presented. Further, the Convalescent Center's proposed finding no. 5 is rejected as incomplete, since some ledger items were improperly stated.

RECOMMENDATION

Based on the foregoing, it is RECOMMENDED that:

DHRS enter an order (1) requiring the Convalescent Center of Gainesville to repay $264,970 in Medicaid payments previously made and now disallowed; and (2) determining that the Cost Report filed for the period January 1, 1980 - September 30, 1980 cannot serve as a basis to increase the Convalescent Center's facility payment rate for the next reporting period.

DONE and ENTERED this 2nd day of August, 1983, in Tallahassee, Florida.

R. L. CALEEN, JR. 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 2nd day of August, 1983.

ENDNOTE

1/ Petitioner's Exhibits will be referred to as "P- "; respondent's Exhibits will be referred to as "R- .

COPIES FURNISHED:

Mitzi Austin, Esquire Post Office Drawer C

Gainesville, Florida 32602

Joseph L. Shields, Esquire Department of Health and Rehabilitative Services

1323 Winewood Blvd., Ste. 406

Tallahassee, Florida 32301

David R. Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32301

Docket for Case No: 82-000491

Orders for Case No: 82-000491