STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BEVERLY ENTERPRISES-FLORIDA, ) INC., )

Petitioner,

vs.

AGENCY FOR HEALTH CARE ADMINISTRATION,

Respondent. )

)

RECOMMENDED ORDER

Robert E. Meale, Administrative Law Judge of the Division of Administrative Hearings, conducted the final hearing in Tallahassee, Florida, on January 27-29, 1997.

APPEARANCES

For Petitioner: M. Stephen Turner, P.A.

Broad and Cassel

Post Office Drawer 11300 Tallahassee, Florida 32302

For Respondent: Karel Baarslag, Senior Attorney

Agency for Health Care Administration 2727 Mahan Drive

Fort Knox Building No. 3 Tallahassee, Florida 32308-5403

STATEMENT OF THE ISSUE

The issue is whether Respondent properly recalculated Medicaid reimbursement rates for the property costs of several nursing homes operated by Petitioner.

PRELIMINARY STATEMENT

By petition filed in each of the nonrule cases, Petitioner alleged that it was the licensee of various nursing homes (DOAH Case No. 96-2921: Manhattan Convalescent Center; DOAH Case NO. 96-3588: Heritage Health Care--Naples; DOAH Case No. 96-4589: Heritage Health Care--Venice; DOAH Case No. 96- 3590: Pensacola Health Care, Manhattan Convalescent Center, Coral Trace Manor, Countryside Health Care Center, and Savana Cay Manor; DOAH Case No. 96-3591: Tarpon Health Care Center and Wellington Manor; DOAH Case No. 96-3592: Savana Cay Manor; and DOAH Case No. 96-4354: Crown Nursing Center).

In these seven cases, Petitioner alleged that Respondent had incorrectly recalculated Petitioner’s Medicaid reimbursement rate for property costs under the fair rental value system. The petitions allege that Respondent used excessively low interest rates in reducing Petitioner’s reimbursements. The petitions also allege that estoppel and the statute of limitations bar Respondent from making these retroactive reductions.

By petition filed in the rule-challenge case, DOAH Case No. 96-553-RU, Petitioner alleged that it leased, as a Medicaid provider, Heritage Health Care Center--Venice, Heritage Health Care Center--Naples, Wellington Manor, Manhattan Convalescent Center, and Pensacola Health Care.

Petitioner alleged that Respondent applied an unwritten policy

in determining the amount of reimbursement for a Medicaid provider of nursing-home services. Petitioner alleged that the policy was an invalid rule because Respondent did not properly adopt the policy as a rule and the policy violates federal law.

The rule-challenge petition alleges that the Florida Medicaid reimbursement plan uses a fair rental value system to determine how much Respondent will reimburse a Medicaid provider for its property costs. The petition alleges that, relying on unwritten policy, Respondent recalculates a provider’s property-cost reimbursement if the ownership of the nursing home changes, even though the provider remains the same.

At the hearing, Petitioner called three witnesses and offered into evidence ten exhibits. Respondent called one witness and offered into evidence seven exhibits. All exhibits were admitted.

The court reporter filed the transcript on February 25, 1997.

FINDINGS OF FACT

1. Background

   
   

   1. These cases involve eight nursing homes operated by Petitioner. The nursing homes are Heritage Health Care-- Naples (Naples), Heritage Health Care--Venice (Venice), Countryside Health Care Center (Countryside), Savana Cay Manor

      (Savana), Crown Nursing Center (Crown), Manhattan Convalescent Center (Manhattan), Pensacola Health Care (Pensacola), and Wellington Manor (Wellington). The parties settled their dispute concerning Tarpon Health Care Center and Coral Trace Manor.

   2. Petitioner participates in the Florida Medicaid program. Petitioner enrolled each of its eight nursing homes in the Medicaid program.

   3. Under this program, Respondent reimburses Petitioner, as a Medicaid provider, for its covered nursing-home services. Medicaid reimbursements represent 75-90 percent of the revenue earned by these eight nursing homes.

2. The Plan

1. Overview

   
   

   1. Respondent reimburses Petitioner for its covered nursing-home services under the provisions of the Florida Title XIX Long-Term Care Reimbursement Plan (Plan).

   2. The Plan cited in this recommended order is Version XI, effective September 22, 1994. There are no material differences between this version of the Plan and other versions in the record.

   3. The Plan sets a per diem reimbursement rate for nursing-home services. The parties do not dispute the conversion of the reimbursement rate to a per diem rate, so

      this recommended order shall refer simply to the reimbursement rate, not the per diem reimbursement rate.

   4. The reimbursement rate comprises property costs, operating costs, patient care costs, and return on equity or use allowance. These cases involve property costs only.

   5. Property costs account for about 15 percent of the reimbursement rate. The property-cost component reimburses the Medicaid provider for its investment in the nursing home. Historically, for a provider that owns the nursing home (owner-operator), the Plan calculated the reimbursement primarily in terms of depreciation and interest. For a provider that leases the nursing home (lessee-operator), the Plan historically calculated the reimbursement primarily in terms of rent.

   6. These cases arise due to changes to the historical methods of reimbursement, under which Respondent reimbursed providers for actual property costs under a cost-recovery system. Effective October 1, 1985, Respondent amended the Plan to introduce the fair rental value system (FRVS) of reimbursement, which applies to owner- and lessee-operators. The recommended order refers to the former property-cost reimbursement method as the pre-FRVS.

   7. The Plan sets the FRVS property-cost reimbursement rate by multiplying the allowable costs by the applicable interest rate.

   8. Property taxes and insurance also make up a relatively small part of the FRVS property-cost reimbursement rate. The Plan calculates these items in a different manner, but the recommended order ignores these items because they are irrelevant to the present cases.

   9. The parties’ dispute involves the FRVS reimbursement rate for each of the eight nursing homes. Petitioner does not challenge Respondent’s calculations of allowable costs. The parties disagree only as to the applicable interest rate.

   10. The real issue is whether Petitioner is entitled to the use of the higher interest rates in effect when Respondent initiated the FRVS rates or whether Petitioner must use the lower interest rates in effect later when these eight nursing homes underwent changes in ownership. More specifically, these cases require the identification of the applicable interest rate for a Medicaid provider that is a lessee- operator following a conveyance of the leased nursing home without any change in the provider.

   11. The parties and their respective expert witnesses rely on different provisions, even different sections, of the Plan to support their respective positions. An informed application of the Plan’s provisions concerning the applicable interest rate requires an understanding of the FRVS reimbursement methodology, and this understanding is

       facilitated by knowledge of the Plan’s provisions concerning allowable costs.

   12. The identification of allowable costs requires the determination of the acquisition or construction costs or values of the depreciable property, such as buildings and equipment. The Plan then applies the applicable interest rate to the resulting asset valuation to yield the FRVS property- cost reimbursement rate.

   13. The Plan requires Respondent to determine the initial FRVS reimbursement rate for all providers whose nursing homes were enrolled in the Medicaid program on October 1, 1985. Respondent sets initial FRVS rates even for providers that, under transition rules discussed below, are not yet required to switch from pre-FRVS reimbursement rates.

   14. The Plan requires Respondent to make inflationary adjustments to the FRVS rates themselves, as well as to the asset valuations, but not to the interest rates. The Plan does not provide for any change in asset valuation as a result of a change in ownership of a nursing home. These cases raise the question whether the Plan provides for a change in interest rate as a result of a change in ownership of a leases nursing home, where the Medicaid provider (i.e., lessee- operator) remains unchanged.

2. Plan Provisions

1. The Plan consists of nine sections. Section I is “Cost Finding and Cost Reporting.” Section II is “Audits.” Section III is “Allowable Costs.” Section IV is “Standards.” Section V is “Method.” Section VI is “Payment Assurance.” Section VII is “Provider Participation.” Section VIII is “Payment in Full.” And Section IX is “Definitions.” There are two appendices of no direct relevance to these cases.

2. Sections III and V are the potentially most relevant sections in these cases. Provisions within each of these sections pertain to the calculation of property-cost reimbursements. Among other things, these provisions describe the extent to which Respondent calculates pre-FRVS and FRVS property-cost reimbursements for lessee-operators based on ownership information and the effect of changes in ownership of nursing homes on pre-FRVS and FRVS property-cost reimbursements.

3. An informed application of the Plan to the present dispute must deal with certain features of the Plan. First, the Plan fails to use terminology consistently. The Plan routinely fails to clarify when references to “providers” include owner-operators and lessee-operators or only owner- operators. Some references to “owners” include all providers; several of these references are to the source of information

   needed to calculate the FRVS rate, not to the type of provider intended to receive the reimbursement.

4. The Plan’s meaning is sometimes obscured by misreferences to facilities instead of providers or type of provider. Although FRVS reimbursement is facility-specific, the Plan directs Respondent to reimburse providers, not nursing homes, and specific Plan references to providers and, where applicable, owner-operators or lessee-operators would have precluded the present dispute.

5. Second, the Plan suffers from poor word selection and inadequate organization. The Plan sometimes cloaks important concepts in awkward verbiage and often expresses crucial points indirectly, requiring careful comparisons of the treatment of owner-operators with lessee-operators. The Plan occasionally does not clearly coordinate various provisions, especially certain provisions in Sections III and

   1. The Plan routinely fails to answer obvious questions with simple declarations of policy.

6. In lowering the applicable interest rates following the conveyances of the nursing homes, Respondent relies in part on provisions in Section III.G. To a large extent, though, unless transition rules are involved, these provisions are of historical interest only.

7. As provided in Section V.E.2.a, Respondent reimburses providers under the FRVS or Sections III.G.2-5.

   Sections III.G.2-5 generally describe the pre-FRVS reimbursement method. However, the pre-FRVS reimbursement methodology provides a good background for understanding the FRVS reimbursement methodology.

8. Section III.G is divided into six subsections. The relevant subsections are Sections III.G.2, which addresses the lease costs of a lessee-operator; III.G.3, which addresses the depreciation allowance for an owner-operator; III.G.4, which addresses the interest costs of an owner-operator; and III.G.5, which addresses the sale costs of an owner-operator.

9. Section III.G.2, which deals with rents, addresses property-reimbursement costs, but is limited to pre-FRVS reimbursements.

10. Section III.G.2.a defines “allowable ownership costs of leased property” as three items. These are: (1) the cost of depreciable assets, real and personal property taxes, and property insurance; (2) sales tax on rent except where the lessor and lessee are related; and (3) return on equity “that would be paid to the owner if he were the provider ”

11. The reference to ownership information in Section III.G.2.a(3) authorizes Respondent to use ownership information to calculate the return-on-equity reimbursement due a lessee-operator. Although authorized by different provisions of the Plan, use of ownership information to

    calculate property-cost reimbursements for lessee-operators is also a key feature of FRVS reimbursement.

12. The remaining provisions of Section III.G.2 leave no doubt that the provisions of Section III.G.2 governing property-cost reimbursements are superseded by the FVRS provisions of Section V after October 1, 1985, or, if later, the termination of any extended periods authorized by the transition rules.

13. Section III.G.2.b provides that Respondent shall reimburse a provider’s “lease costs and other property costs” under FRVS, pursuant to Section V.E.1.a-g, after the expiration of a lease in effect on September 30, 1985. For nursing homes leased on or after October 1, 1985, Section III.G.2.d(1) directs Respondent to reimburse lease costs and other property costs based on the FRVS, as provided in Section V.E.1.a-g.

14. Acknowledging that the calculation of property-cost reimbursement due a lessee-operator may rely upon ownership information from the records of a party other than the lessee- provider, Section III.G.2.d(2) predicates the receipt of pre- FRVS and FRVS property-cost reimbursement upon the proper documentation of “ownership costs.” This requirement is imposed on “a provider who is subject to [III.G.2.]b., c., and d.(1) above and e. below.”

15. Section III.G.2.d(3) also recognizes that a lessee- operator must obtain certain ownership information in order to provide proof of a provider’s financial ability, which is part of a process not directly relevant to these cases.

16. Section III.G.2.e allows a lessee to assign a lease “for Medicaid reimbursement purposes” if the lease was signed prior to September 1, 1984, the lease cost is allowable, the lease allows assignment, and all lease provisions (except the lessee) remain unchanged. Consistent with several other provisions in the Plan, Section III.G.2.e states that, upon the expiration of the term, including renewals, of a lease existing on September 30, 1985, Respondent will reimburse lease costs and other property costs on the FRVS, as provided in Section V.E.1.a-g.

17. In summary, Section III.G.2 generally applies to pre-FRVS reimbursements; Section III.G.2.b and c refer repeatedly to provisions that are effective for leases in effect prior to October 1, 1985. Section III.G.2.d(1) obviously applies to FRVS reimbursements, but, except for provisions covering the documentation of allowable ownership costs and transactions between related parties, this section restates provisions contained in Section V.E. Section III.G.2.d(2), which also applies to the documentation of

    ownership costs, pertains to pre-FRVS and FRVS reimbursements.

    Section III.G.2.e, which addresses the assignability of leases, may also apply to pre-FRVS and FRVS reimbursements.

18. As noted above, several provisions in Section

    
    

    III.G.2 refer to “allowable ownership costs.” Section

    
    

    III.G.2.a defines “allowable ownership costs” for lease property. Section III.G.2.c limits certain pre-FRVS property- cost reimbursements to the lesser of actual rent paid or the “allowable ownership costs per Section III.G.3-5.” Section III.G.2.d(1), which applies to the FRVS, requires a provider to document “allowable ownership costs” to allow Respondent to calculate “fair rental value.”

19. Section III.G.3 is the first of the three “ownership-cost” sections mentioned in the pre-FRVS Section III.G.2.c(1). These three sections explain how Respondent calculates the “allowable ownership costs” of leased property in terms of, respectively, the basis for depreciation; the limitation on interest expense for property-related debt, division of the depreciation basis between equity and debt, and identification of the interest rate; and the negotiation and closing costs on the sale and purchase of a facility.

20. Section III.G.3.a states that the historical cost of a facility is the basis for calculating allowable depreciation, subject to two exceptions.

21. One of the exceptions is contained in Section III.G.3.b, which provides for a recalculation of the

    depreciable asset basis if ownership of the depreciable assets changes. This section states:

    For purposes of this plan, a change in ownership of assets occurs when unrelated parties: purchase the depreciable assets of the facility; or purchase 100 percent of the stock of the facility and within 1 year merge the purchased facility into an existing corporate structure or liquidate the purchased corporation and create a new corporation to operate as the provider.

22. Section III.G.3.b adds that, upon a change in ownership of a “provider’s or . . . lessor’s” depreciable assets, the depreciation basis is the lower of the fair market value of the depreciable facility or the allowable acquisition cost of the assets to the owner as of July 18, 1984.

23. Section III.G.4 is the second of the three “ownership cost” sections referenced in Section III.G.2.c(1). Section III.G.4 generally provides that, upon a change in ownership on or after July 18, 1984, the interest cost and return on equity or use allowance “to the new owner” shall be limited by the allowable basis for depreciation calculated in Section III.G.3.b. The section limits the “new owner” to the lesser of “actual costs” or the interest cost and return on equity cost or use allowance based on the allowable depreciation basis.

24. Sections III.G.4.a and b calculate the limitation on the new owner’s interest cost and return on equity. Sections III.G.4.a and b divide the depreciation basis into

    two amounts. One portion of the depreciation basis is used for calculating the “owner’s” investment in capital assets and, thus, the owner’s return on equity or use allowance. The remaining portion of the depreciation basis is used for calculating the interest cost of financing. Section III.G.4.b adds that the “new owner’s” “current terms of financing” provide the terms for use in this calculation, and an illustration reveals that “terms” means the term of financing and the interest rate.

25. Section III.G.5 is the third of the three “ownership cost” sections referenced in Section III.G.2.c(1). This section limits the inclusion among allowable costs of certain costs arising in the sale or purchase of a nursing home.

26. In general, as noted above, several Plan provisions explicitly identify Sections III.G.3-5 as an alternative reimbursement methodology to the FRVS reimbursement methodology. Sections III.G.3-5 and V.E. do not work in tandem, with respect to the effect of changes in ownership on reimbursement rates. Certain pre-FRVS property-cost reimbursement provisions in Section III.G.3-5 are inconsistent with the FRVS property-cost reimbursement provisions in Section V.E.

27. However, some provisions in Section III.G.3-5 are applicable to FRVS, if the FRVS provisions of the Plan expressly so apply them. Section V.E.4.e incorporates the

    depreciable-basis provisions of Section III.G.3 for calculating the “cost basis” of a “new provider” under FRVS and the recapture provisions of Section III.H, which are described below, for a new provider under FRVS.

28. Section III.H.1 provides for recapture, at the time of the sale of the depreciable assets, of the excess of allowable depreciation over actual economic depreciation.

29. Although Section V.E.4.e provides that Section III.H is applicable to the FRVS, it does not state whether Section

    III.H applies to all providers, including lessee-operators, or only owner-operators.

30. Section III.H probably does not apply to lessee- operators. Section III.H.1(c) imposes the duty to pay the recapture amount upon the “former owners” and makes the “buyer” secondarily liable. Section III.H.1(c) does not refer to “providers,” nor does it explicitly impose the liability on lessee-operators. Section III.H.2 contains numerous references to the “owner-operator,” “owner-provider,” and “owner,” with only an occasional reference to a mere “provider” and none to a “lessee” or “lessee-operator.” Section III.H.2 is thus likely limited to owner-operators, and all references to “providers” are to owner-operators.

31. Section III.I is another recapture provision. In this instance, on the “sale of assets,” Respondent recaptures the reimbursement based on indexing the FRVS reimbursement

    rate after October 1, 1985--a process that is described below in the discussion of the last two sentences of Section V.E.1.a.

32. Again, though the Plan provides that Section III.I applies to the FRVS, the Plan does not state whether these recapture provisions apply to all providers or only owner- operators.

33. In contrast to Section III.H, Section III.I refers only once to any provider, and this reference is to the reduction of recapture for certain equipment purchases by the “provider.” At least as to the nursing home itself (as distinguished from equipment owned by the lessee-operator), Section III.I probably does not apply to lessee-operators.

    The coverage of Section III.I is driven in part by the finding that the sale of depreciable assets by an owner, without any change in provider, does not trigger recapture by the lessee- operator.

34. Not directly relevant to these cases, Section III.J involves return on equity, Section III.K involves use allowance, and Section III.L involves legal fees and costs. Section V.B.4 incorporates Sections III.J and K into the FRVS as the means for calculating FRVS return on equity.

35. Although not of the relevance of Sections III and V in these cases, Section IV contains two pertinent provisions. Section IV.D restates that Respondent shall reimburse

    “facilities” for property under FRVS, effective October 1, 1985. Section IV.D also refers to a “hold harmless clause per Section V.E.1.h” for “facilities” entering the program after October 1, 1985, that entered into an “armslength (not between related parties) legally enforceable agreement for construction or purchase loans” prior to that date.

36. The most relevant portion of the Plan to these cases is Section V--specifically, Section V.E. Section V explains how to set FRVS reimbursement rates. Section V.B.5 states that Respondent shall calculate the FRVS property-cost reimbursement rate for “providers” on the basis of Section V.E.

37. Section V.E.1 assigns to each provider an FRVS property-cost reimbursement rate for each facility existing on October 1, 1985. Section V.E.1.a bases the “FRVS rate” for “capitalized tangible” (i.e., depreciable) assets on their acquisition costs at the last dates of acquisition prior to July 18, 1984.

38. The remainder of Section V.E.1.a directs Respondent to index “[t]hese acquisition costs” for inflation from the time of acquisition to October 1, 1985. The first sentence of Section V.E.1.e refers to the inflation-adjusted acquisition costs as the “indexed asset valuation.”

39. The second-to-last sentence of Section V.E.1.a directs Respondent to adjust the “FRVS rate” itself for

    inflation. The last sentence of Section V.E.1.a directs Respondent to adjust the “FRVS rate” for changes in interest rates on variable-rate mortgage notes, as authorized by Section V.E.1.f, and for certain capital additions, as authorized by Section V.E.1.j.

40. Section V.E.1.e generates the “FRVS rate” by multiplying the indexed asset valuation by the applicable interest rate. Section V.E.1.e states that this process requires the division of the indexed asset valuation into two parts.

41. Section V.E.1.e authorizes providers with qualifying financing to amortize 80 percent of the indexed asset valuation over 20 years at the interest rate provided in Section V.E.1.f. (The second part of the indexed asset valuation involves the remaining 20 percent of the indexed asset valuation, which, involving return on equity, is irrelevant to these cases.)

42. Section V.E.1.e explains that the purpose of applying the applicable interest rate to 80 percent of the indexed asset valuation is to approximate the amount equal to the principal and interest on a mortgage debt equal to 80 percent of the value of the asset.

43. The Plan reduces the FRVS property-cost reimbursement for providers with relatively low ratios of secured debt to equity. For “facilities” beginning FRVS with

    total initial mortgage debt of less than 60 percent of indexed asset value, Section V.E.1.e provides that “only the interest portion will be used in calculating the FRVS rate.” For such relatively unencumbered facilities, the property-cost component thus reflects only interest costs (not interest and principal) for 80 percent of the indexed asset valuation.

    Section V.E.1.f(4) limits reimbursement for these interest- only payments to 20 years.

44. Section V.E.1.f(1) states that the interest rate used to amortize the 80 percent of indexed asset valuation is the lowest of the “owner’s” actual mortgage rate, 15 percent, or the Chase prime rate as of the “provider’s” loan commitment plus three percentage points for a fixed-rate mortgage note. The final sentence of Section V.E.1.f(1) addresses the situation where the “owner” has more than one mortgage note.

45. Section V.E.1.f(3) directs Respondent to use the July 1, 1984, Chase prime rate, when setting initial FRVS rates as of October 1, 1985, instead of the “provider’s actual rate.” This section requires “providers” to notify Respondent of any changes in “their” mortgage rates.

46. For less encumbered nursing homes, Section V.E.1.f(4) assigns the applicable Chase prime rate (but not over 15 percent) to “facilities beginning the FRVS” with a total initial principal mortgage balance of less than 60 percent of their indexed asset valuation.

47. Section V.E.1.f.4 restricts alterations to the interest rate for purposes of FRVS property-cost reimbursement. Section V.E.1.f.4 declares that “the prime rate used to initiate FRVS for providers [qualifying only for the Chase prime rate, but not over 15 percent] shall remain fixed for that provider in calculating future FRVS payments.” The sole exception is that Respondent must calculate the applicable interest rate based on Section V.E.1.f(1) (i.e., the lowest of Chase prime plus two, 15 percent, or actual interest rate) if the “provider” later finances sufficient additional capital assets so that the total original principal indebtedness equals or exceeds 60 percent of the indexed asset valuation.

48. Section V.E.1.f(2) limits the extent to which changing interest rates affect the “FRVS rate.” Section V.E.1.f(2) prohibits any change, after “establishment of the initial FRVS rate,” in the interest rate for “providers” with fixed-rate mortgage notes, except as allowed in Section V.E.1.f(5). The last sentence of Section V.E.1.f(2) prohibits, in the case of variable-rate mortgage notes, changes in the applicable interest rate unless the “owner’s” interest rate changes pursuant to Section V.E.1.f(3).

49. Section V.E.1.f(5) authorizes Respondent to “increase” the interest rate only if the entity (Section V.E.1.f(5) does not refer to a “provider” or “owner”)

    refinances to pay for new beds, raise the money to pay the final payments of the former debt instrument, or consolidate existing debt--“excluding debt to owners[.]”

50. In summary, Sections V.E.1.a-f require Respondent to establish, as of October 1, 1985, an “FRVS rate”--consisting of an indexed asset valuation and applicable interest rate-- for all providers with nursing homes in existence on that date. Respondent must set an initial property-cost FRVS reimbursement rate even for providers that, after October 1, 1985, remain on pre-FRVS reimbursement due to a transition rule.

51. Sections V.E.1.a and e generally require Respondent to calculate the indexed asset valuation, determine the applicable interest rate, calculate the resulting FRVS rate, and adjust the FRVS rate for inflation and as otherwise required. By doing so, Respondent maintains an FRVS rate for use by each provider, with respect to each nursing home operated by the provider, as soon as the Plan requires the provider to switch to FRVS reimbursement for a particular nursing home.

52. The parties agree that the indexed asset valuation is unaffected by subsequent conveyances of the nursing home, except in situations generally irrelevant to these cases. Respondent’s expert witness testified that the applicable interest rate changes on such conveyances, even though the

    indexed asset valuation remains unchanged. Petitioner’s expert witnesses testified that the applicable interest rate, like the indexed asset valuation, remains fixed, again except for situations not generally relevant to these cases.

53. The meaning of “provider,” as used in Sections

    
    

    1. and following, is crucial to the resolution of these cases. The use of “provider” in Sections V.E.1.a-f assists in understanding the use of this term in the following sections.

54. Theoretically, a “provider” may be an owner-operator or lessee-operator. Plan references to “providers” typically include both owner-operators and lessee-operators. As evidenced in Section III.H.1(c), the Plan sometimes refers to “owners” when necessary to distinguish owner-operators from lessee-operators. But sometimes the variable language is inadvertent.

55. A key provision is Section V.E.1.f, which, as described above, identifies the applicable interest rate. Section V.E.1.f(1) refers to the “owner,” but only to signify the source of information for determining the applicable interest rate for all providers. Regardless whether the provider is an owner or lessee, the relevant information concerning mortgage interest rates must come from the owner, which alone may mortgage the nursing home. Given various other provisions in Section V.E, Section V.E.1.f(1) clearly applies this ownership information to owner- and lessee-

    operators, so the exclusive use of “owner” in Section V.E.1.f(1) does not restrict the provision to owner-operators.

56. The meaning of “providers” and “owner” in two- sentence Section V.E.1.f(2) is initially less clear because this is an example of an inadvertent variation in word use in the Plan. The first sentence refers to “providers with fixed- rate mortgages,” and the other sentence refers to changes in the “owner’s” interest rate.

57. The first sentence of Section V.E.1.f(2) carves out an exception for “providers” subject to Section V.E.1.f(5). But Section V.E.1.f(5) never refers to “providers” or “owners,” except with respect to refinancing “debt to owners.” This reference to “debt to owners” conceivably could mean the debt of an owner-operator to its owners, which would allow the interpretation that Section V.E.1.f(5) is limited to owner- operators. However, the Plan rarely, if ever, addresses such unlikely contingencies, and the more natural reading is that the language refers to the debt of a lessee-operator to its lessor. Thus, Section V.E.1.f(5) probably refers to all providers, not just owner-operators.

58. Returning to Section V.E.1.f(2), the likelihood that Section V.E.1.f(5) extends to all providers, not just owner- operators, means that the first sentence of Section V.E.1.f(2) probably refers to all providers too. If so, there is no reason for the second sentence of Section V.E.1.f(2) to be

    limited to owner-operators. There is no reason to treat owner-operators and lessee-operators the same for fixed-rate notes and differently for variable-rate notes.

59. If nothing else, the use in Section V.E.1.f(2) of “providers” in the first sentence and “owner’s” in the second sentence suggests that the clear prohibition of the first sentence applies to the interest rates of all providers, not just owner-operators. And more likely than note, the second sentence also applies to all providers because the reference to “owner’s” merely signifies the source of information used to make this calculation.

60. Section V.E.1.f(3) refers to “providers.” For instance, “providers” must notify Respondent of changes in “their” mortgage rate.

61. Although Section V.E.1.f(3) marks a departure from the Plan’s custom of referring to “owner” when signifying the source of information for calculating reimbursement rates, Section V.E.1.f(3) clearly means that the applicable interest rate of all providers is derived from certain ownership information.

62. Section V.E.1.f(4) likewise applies ownership information to all providers, despite references only to “providers.” For example, in its use of “provider,” the last sentence of Section V.E.1.f(4) authorizes an interest-rate adjustment that is available to all providers, not just owner-

    operators. This provision in Section V.E.1.f(4) permits a recalculation of the applicable interest rate if a “provider” finances additional depreciable assets so that the cumulative original debt-to-equity ratio reaches 60 percent of the indexed asset valuation.

63. The transition rules to which this recommended order has referred are in Section V.E.1.h, which applies to providers as of October 1, 1985. Although not expressly so stated, the first three sentences of Section V.E.1.h apply only to owner-operators, and the last three sentences of Section V.E.1.h apply only to lessee-operators.

64. The first three sentences of Section V.E.1.h contain a “hold harmless” provision for existing nursing homes that were enrolled in the Medicaid program on October 1, 1985. The Plan implicitly limits this “hold harmless” provision to

    owner-operators. The second sentence of Section V.E.1.h allows providers to continue to receive pre-FRVS reimbursement in the form of depreciation and interest under Section

    III.G.3-5, if such payments would exceed FRVS reimbursement. As noted above, pre-FRVS reimbursement to lessee-operators was for lease costs, not depreciation and interest. The Plan reserves to owner-operators pre-FRVS reimbursement in the form of depreciation and interest.

65. The remainder of the first part of Section V.E.1.h provides that Respondent shall continue to reimburse “a

    facility” for “depreciation and interest according to [Section] III.G.3-5” until there is no net difference in total payments between the pre-FRVS and FRVS methods for reimbursement. This means that Respondent continues to reimburse an owner-operator on a pre-FRVS basis past the point at which the FRVS reimbursement payments would exceed the pre- FRVS payments. The owner-operator switches to FRVS only after the excess reimbursements that it received while remaining on pre-FRVS payments are later offset by the excess of what would have been FRVS payments over the pre-FRVS payments that the owner-operator has been receiving.

66. There is no dispute as to the “no-net-difference” feature of the hold harmless provision. However, Section IV.D illustrates a tendency of the Plan to mention FRVS provisions in sections other than Section V, such as in the above- described provisions of Section III. Section IV.D reveals that these duplicative references are not always accurate and thus must yield to contrary FRVS provisions of Section V.

67. In this case, Section IV.D states that the provider (or, as Section IV.D states, the “facility”) receiving pre- FRVS reimbursement under the hold harmless provision switches over to FRVS reimbursement as soon as the FRVS payments would exceed the pre-FRVS payments of depreciation and interest. This is inaccurate. Section V.E.1.h provides that the switch does not take place until pre-FRVS reimbursements equal what

    would have been paid in FRVS reimbursements but for the hold harmless provision.

68. The last of the first three sentences of Section

    
    

    1. allows “providers” wishing to go immediately to the lower FRVS reimbursement to do so by notifying Respondent by December 2, 1985.

69. The Plan explicitly limits the last three sentences of Section V.E.1.h to lessee-operators or, in the language of this section of the Plan, “facilities with existing leases.” The first of these sentences requires Respondent to pay “facilities” with leases on October 1, 1985, at the pre-FRVS reimbursement rate until the lease expires. At that time, Respondent shall begin reimbursement under FRVS “based on the owner’s acquisition costs.”

70. The second of the last three sentences of Section

    
    

    V.E.1.h reinforces the distinction in this provision between providers and owners. This sentence requires “providers” to supply Respondent with the “lessor’s ownership costs” so that the lessee-operator may receive property-cost reimbursement based on ownership information after the lease expires and the provider is on FRVS. The last sentence warns that the provider shall receive no FRVS property-cost reimbursements after the lease expires if the “lessor’s ownership costs are not adequately documented as per Section III.G.4 ”

71. Section V.E.1.i phases in the “FRVS rate” over as much as ten years for “facilities existing and enrolled” in the Medicaid program on October 1, 1985. Section V.E.1.j allows an adjustment in FRVS rates for certain capital improvements. Neither of these sections mentions “providers,” “owners,” or “lessees.” These sections refer exclusively to “facilities” receiving reimbursement payments.

72. Section V.E.2. deals with “facilities” entering the Medicaid program after October 1, 1985.

73. Section V.E.2.a applies to facilities constructed after October 1, 1985, or existing facilities entering the Medicaid program after that date. This section states that their FRVS rates shall be calculated as provided in Sections V.E.1.a-h and j. This section adds that such facilities do not qualify for phase-in FRVS rates and may not elect “reimbursement under Section III.G.2-5.” This section also does not mention “providers,” “owners,” or “lessees.”

74. Section V.E.3 applies to “facilities . . . [that] withdraw” from the Medicaid program. This section, which does not mention “providers,” “owners,” or “lessees,” is irrelevant to the present cases.

75. Much of the foregoing analysis has laid the groundwork for analysis of Section V.E.4, which covers property reimbursement for “facilities upon change of ownership.” Close analysis of Section V.E.4 discloses that

    the entire section is limited to owner-operators. The change- in-ownership provisions of Section V.E.4 apply only to conveyances by owner-operators where the provider changes following the conveyance.

76. The first sentence of Section V.E.4.a provides that this section governs property-cost reimbursements for “[f]acilities that undergo a change of ownership on or after October 1, 1985 . . ..” Unfortunately, this sentence, failing to mention “owners,” “lessees,” or even “providers,” refers only to property-cost reimbursements paid to “facilities.”

77. The second sentence of Section V.E.4.a adds: “It is [Respondent’s] intent that, to the extent possible, the new provider shall receive essentially the same reimbursement for property costs as the previous provider.” The third and last sentence of Section V.E.4.a concludes, “Therefore, unless stated otherwise in b. thru [sic] f. below, the new provider’s reimbursement shall be based on 1.-3. above.”

78. Petitioner cites the second sentence of Section

    
    

    1. as additional support of its position. But Petitioner’s reliance on this provision in misplaced. The key to interpreting the meaning of Section V.E.4 is to understand that the provider does not necessarily change on the conveyance of a leased nursing home. Although there are other indicators that Section V.E.4 is limited to owner-operators, the most important such indicator is that a Plan provision

       that assumes that the providers change on a conveyance necessarily assumes that: 1) all providers are owner-operators and 2) the owner-operator conveying the nursing home does not remain the provider following the conveyance. Respondent must therefore apply Section V.E.4 only where both conditions are met.

79. Although Petitioner erroneously relies in part on the second sentence of Section V.E.4.a, Respondent relies more heavily than Petitioner on Section V.E.4. And Respondent’s reliance is also misplaced.

80. It appears that Respondent recognized that, because lessee-operators do not necessarily change on a conveyance of a leased nursing home, a “provider,” in Plan provisions assuming such a change, means only “owner.” As noted in the remaining change-of-ownership provisions of Section V.E.4, this presents a serious problem for Respondent.

81. To overcome this problem, Respondent’s expert witness testified that Respondent treats all leases as terminated upon a conveyance, even though they actually might continue, undisturbed by the conveyance. This testimony is discredited as unsupported by the facts because nothing in the Plan so provides. This testimony is also discredited as a legal conclusion. (This is also an incorrect legal conclusion because nothing in the law provides that a conveyance of a leased property extinguishes the lease, at least where the

    purchaser is on notice of the lease (i.e., the lessee is in possession of the premises or the lease is recorded) or the purchaser is not the lessee.)

82. In contrast to the exclusive references to “providers” in Section V.E.4.a, Section V.E.4.b refers only to “owners.”

83. Although a change in nomenclature normally signifies a change in meaning, suggesting here that “providers” in Section V.E.4.b might be given a broader meaning, the Plan switches nomenclature without signifying any difference in meaning, as appeared to be the case in the two sentences of Section V.E.1.f(2). This change in nomenclature between Sections V.E.4.a and V.E.4.b is another example of the Plan’s use of different terms to mean the same thing--in these examples, only owner-operators.

84. The first sentence of Section V.E.4.b states that, if Respondent paid the “previous owner” depreciation plus interest under the hold harmless provision of Section V.E.1.h, Respondent shall pay the “new owner” depreciation plus interest “per Section III.G,” unless the new owner requests “FRVS payments” instead. The language in this section refers to owners, not as sources of ownership information, but as recipients of reimbursements. Also, as already noted, the hold harmless provision cited in the first sentence of Section

    1. applies only to owner-operators, and pre-FRVS owner-

    operators, not lessee-operators, received depreciation plus interest. Thus, the first sentence of Section V.E.4.b applies to owner-operators, but not lessee-operators, where there has been a change in ownership accompanied by a change of provider.

85. The second and only other sentence of Section

    
    

    V.E.4.b differentiates between the effect of a conveyance on the indexed asset valuation and applicable interest rate. The second sentence provides that, after such a conveyance, “The FRVS depreciable basis [i.e., the indexed asset valuation] shall remain the same as that of the previous owner; however, the new owner’s mortgage interest rate shall be used to calculate interest expense allowed, subject to the limitations of [Section V.E.]1.f above.”

86. This is an important provision. If “owner” in this sentence applied to lessee-operators, such as merely referring to the source of ownership information for a lessee-operator’s FRVS rate, then Respondent might be able to rely on this provision to reduce Petitioner’s applicable interest rate following conveyances of nursing homes leased by Petitioner.

87. But the second sentence of Section V.E.4.b is limited to owner-operators following a change of provider, just like the first sentence. The second sentence begins with “The FRVS depreciable basis . . ..” The use of the definite article, “the” limits the sentence to the FRVS basis described

    in the preceding sentence, and this basis is limited to owner- operators where there has been a change in ownership accompanied by a change of provider.

88. Referring twice to the “new provider” and once to the “new owner,” the first sentence of Section V.E.4.c states that, upon a change in ownership, if the “previous owner” had been receiving FRVS reimbursement, Respondent shall pay the “new provider” FRVS reimbursement at the same phase-in point and indexed asset valuation that the “previous owner” had reached.

89. The second sentence of Section V.E.4.c requires that Respondent use the “new provider’s” interest rate-- subject to the interest-rate caps imposed in Section V.E.1.f-- to amortize the 80 percent of the indexed asset valuation.

    The third and last sentence of Section V.E.4.c requires Respondent to extend to the “new owner” certain credits for indexing due the “previous owner.”

90. Section V.E.4.c refers to “owners” and “providers,” generally reserving “previous” for “owner” and “new” for “provider.” Section V.E.4.c is limited to owner-operators where there has been a change in ownership accompanied by a change of provider. Again, linking “provider” with “new” suggests that “provider” is restricted to “owner” because there is not necessarily a new provider, as a result of a

    change in ownership, unless the provider was an owner- operator.

91. The first sentence of Section V.E.4.c equates “owner” with “provider” in this section, which is not using “owner” to describe the source of ownership information for lessee-operators. The first sentence states that the “new provider” assumes the phase-in and asset valuation of the “previous owner.” The second sentence merely continues the use of “new provider,” from the first sentence, without signifying a broadening of meaning to include a lessee- operator. The third sentence, alone among the three sentences, is consistent in its use of nomenclature by referring to the “new owner” and “previous owner,” without regard to the owner as a source of ownership information for a lessee-operator.

92. Section V.E.4.d is irrelevant to these cases and does not refer to a “provider,” “owner,” or “lessee.”

93. The first sentence of Section V.E.4.e subjects the “new provider” to the recapture provisions of Section III.H. The second sentence of Section V.E.4.e provides that the ”new provider’s” cost basis is calculated under Section III.G.3.

94. For the reasons already discussed, the references to “new providers” in this change-of-ownership section limit Section V.E.4.e to owner-operators where there has been a change in ownership accompanied by a change of provider.

    Also, as found above, the recapture provisions of Section

    
    

    III.H do not apply to lessee-operators.

    
    

95. The last part of Section V.E.4 is Section V.E.4.f, which states that reimbursement to a “new provider” for the cost of replacement equipment is governed by the same provisions applicable to the “previous provider,” whose phase- in schedule becomes the schedule of the “new provider.”

96. For the reasons already discussed, the references to “new providers” in this change-of-ownership section limit Section V.E.4.f to owner-operators where there has been a change in ownership accompanied by a change of provider.

    1. Subject Transactions

       
       

       1. Common Elements

          
          

97. A variety of factual situations gave rise to the present disputes. However, there are common elements in all eight transactions.

98. First, and most importantly, none of the transactions resulted in a change of Medicaid provider at the subject nursing home. In each transaction, Petitioner was the operator and, thus, Medicaid provider at the nursing home prior to the transaction and remained so following the transaction.

99. Second, except for Crown, all of the nursing homes were encumbered with less than 60 percent financing when entering the Medicaid program. Crown’s financing rate was 12

    percent. These facts are necessary for the calculation of the applicable interest rates. The recommended order leaves this task to the parties as the record was not sufficiently developed to permit the identification of the applicable interest rates, which should prove simple with the resolution of the issues in these cases.

100. Third, parties to certain transactions are referred to as “REITs.” A REIT is a real estate investment trust designed for the ownership of real property.

101. There were two REITs involved in transactions. One was entirely unrelated to Petitioner or its corporate family. The other REIT was related to Petitioner or its corporate family for a period of time during the transactions in question. However, the relationship of the REITs to Petitioner does not affect the outcome of these cases.

102. Last, the recommended order treats the mortgages involved in these cases as fixed-rate mortgages. The Plan treats fixed- and variable-rate mortgages similarly for the purpose of resolving the issues raised in these cases. The few differences have a bearing only on the calculation of the specific rate following the issuance of this recommended order and should pose no difficulty for the parties.

     1. Venice and Naples

        
        

103. On October 1, 1985, Petitioner owned and operated Venice and Naples. On September 29, 1988, Petitioner sold

     both nursing homes to the unrelated REIT, which leased the nursing homes back to Petitioner. On March 31, 1995, Petitioner’s corporate parent purchased the nursing homes from the REIT, subject to the 1988 leases. At some point, Petitioner requested that Respondent begin FRVS reimbursement for the two nursing homes.

104. As the parties agree, Petitioner was entitled to pre-FRVS property-cost reimbursement on and after October 1, 1985, due to the hold harmless provision extended owner- operators. The parties disagree as to the effect of the two subsequent transactions.

105. The ownership changed in September 1988, at which time the parties entered into leases. The ownership changed again in March 1995, although the leases remained unaffected. However, neither conveyance changed the provider.

106. Immediately prior to the change in ownership in September 1988, Petitioner, as an owner-operator, was eligible for pre-FRVS reimbursement under the hold harmless provision of the first three sentences of Section V.E.1.h. When Petitioner’s status changed in September 1988, from an owner- operator to a lessee-operator, Petitioner was no longer eligible for reimbursement under the hold harmless provision, which is limited to owner-operators.

107. Nor would the grandfathering provision set forth in the last three sentences of Section V.E.1.h allow Petitioner

     to remain on pre-FRVS reimbursement for Venice and Naples. These leases were not in existence on October 1, 1985, and thus could not be grandfathered in.

108. Therefore, the sale on September 29, 1988, caused Petitioner’s reimbursement for Venice and Naples to revert to FRVS, assuming that Petitioner’s request to go on FRVS was not made earlier. The dispute, though, concerns the identification of the applicable interest rate.

109. As discussed above, FRVS reimbursement requires all providers, including lessee-operators, to use ownership information to determine their property-cost reimbursement rates. Using this information, as of October 1, 1985, Respondent sets initial FRVS rates for the providers of all nursing homes in existence on October 1, 1985, even though the providers may be under the hold harmless or grandfathering transition rules for several years after October 1, 1985.

110. Under the Plan, Respondent sets the initial FRVS rates based on indexed asset valuations, adjusts the initial FRVS rate for inflation, and applies the interest rate to the appropriate portion of the indexed asset valuation. Respondent does all this even though the provider remains on pre-FRVS reimbursement under a transition rule.

111. The changes of ownership of Venice and Naples, without an accompanying change of provider, do not affect the identification of either the indexed asset valuation or the

     applicable interest rate. Respondent must derive these values from ownership information in effect on October 1, 1985, for these nursing homes, which were in existence on that date.

112. The first sentence Section V.E.1.f(2) generally prohibits changes in the applicable interest rate, and Section

     V.E.4 supplies no exception on a change in ownership without a change in provider. None of the provisions of Section III override Section V.E.1.f(2) on this point.

113. Thus, the Plan requires that, when Venice and Naples reverted to FRVS reimbursement, Respondent calculate the FVRS rate based on the interest rate in effect on October 1, 1985, without regard to any changes in ownership, and thereafter use this applicable interest rate for calculating Petitioner’s FRVS property cost reimbursements for these nursing homes.

     1. Manhattan, Pensacola, and Wellington

        
        

114. On October 1, 1985, Petitioner was leasing Manhattan from an unrelated partnership. On December 1, 1986, the partnership sold the nursing home to the related REIT. A new lease between the REIT and Petitioner replaced the old lease between the partnership and Petitioner.

115. The same facts apply to Pensacola and Wellington, except that the partnerships sold Pensacola on June 30, 1987,

     and Wellington on December 1, 1986. Also, Petitioner’s corporate parent purchased Wellington from the REIT on July 15, 1993.

116. Petitioner and Respondent agree that Petitioner is entitled to reimbursement of its lease costs for the three nursing homes as of October 1, 1985. In other words, the Plan grandfathered the three nursing homes so that Petitioner was entitled to pre-FRVS reimbursements of property costs until the three leases terminated.

117. The grandfathered leases terminated in December 1986 when the REIT, having purchased the nursing homes from the original owner, entered into new leases with Petitioner. Petitioner and Respondent agree that Petitioner went on FRVS reimbursement for these three nursing homes when the parties terminated the original leases.

118. The parties dispute the identification of the applicable interest rate. Again, Petitioner contends that the applicable interest rate is unaffected by the conveyances, and Respondent disagrees.

119. For the reasons previously stated, Respondent should not have changed the interest rates for these three nursing homes due to the changes in ownership in 1986 for Manhattan and Wellington, 1987 for Pensacola, and 1993 for Wellington.

120. Thus, the Plan requires that, when Manhattan, Pensacola, and Wellington reverted to FRVS reimbursement, Respondent calculate the FVRS rate based on the interest rate in effect on October 1, 1985, without regard to any changes in ownership, and thereafter use this applicable interest rate for calculating Petitioner’s FRVS property cost reimbursements for these nursing homes.

     1. Countryside and Savana

        
        

121. Neither Countryside or Savana existed on October 1, 1985. Petitioner built both nursing homes and owned them when enrolling Countryside on October 19, 1987, and Savana on November 1, 1987. On September 28, 1988, Petitioner sold both nursing homes to the unrelated REIT, which leased them back to Petitioner. On April 17, 1995, Petitioner’s corporate parent purchased Countryside from the REIT, subject to the outstanding lease.

122. There are two general issues as to Countryside and Savana. The first issue is whether Petitioner is entitled to grandfathering treatment for these nursing homes, so as to allow them to start reimbursement under the pre-FRVS. The second issue is the recurring issue in these cases--namely, whether the applicable interest rate is changed due to changes in ownership unaccompanied by a change of provider.

123. The first issue requires consideration of Section IV.D, which extends the hold harmless provision to owner-

     operators that have entered into “armslength (not between related parties) legally enforceable agreement for construction or purchase loans” prior to October 1, 1985.

124. The record contains insubstantial evidence of construction loans or other similar financing commitments by Petitioner prior to October 1, 1985, for these two nursing homes.

125. The evidence suggests that, prior to October 1, 1985, Petitioner earmarked portions of lines of credit to these two projects and may possibly have incurred financial penalties had it not followed through with the construction. But the evidence does not establish a legally enforceable agreement for a construction loan.

126. Thus, Petitioner is not entitled to any pre-FRVS reimbursement for Countryside and Savana under the hold harmless provision extended by Section IV.D.

127. However, for the reasons previously stated, Respondent should not have changed the interest rates for these two nursing homes due to the changes in ownership in 1988 and, for Countryside, 1995, unaccompanied by a change of provider.

128. Thus, the Plan requires that Respondent calculate the FVRS rate for Countryside and Savana without regard to any

     changes in ownership, and use this applicable interest rate for calculating Petitioner’s FRVS property cost reimbursements for these nursing homes.

     1. Crown

     
     

129. On October 1, 1985, an apparently unrelated owner of Crown was leasing the nursing home to Petitioner. On January 1, 1987, the owner refinanced the nursing home. On May 19, 1993, the owner sold Crown to Petitioner, which terminated the lease.

130. The parties agree that the Petitioner was entitled to pre-FRVS reimbursement for Crown after October 1, 1985, because the lease was grandfathered. The parties also agree that Petitioner reverted to FRVS reimbursement for Crown in May 1993 when the owner conveyed Crown to Petitioner and the parties terminated the lease. The issue is again whether, when Petitioner went on FRVS for Crown, Respondent should have used the interest rate in effect on October 1, 1985, without regard to the owner’s refinancing in January 1987 or the change in ownership in May 1993.

131. For the reasons previously stated, Respondent should not have changed the interest rate for Crown due to the refinancing or change in ownership unaccompanied by a change of provider.

132. Thus, the Plan requires that Respondent calculate the FVRS rate for Crown based on the interest rate in effect

     on October 1, 1985, without regard to any changes in ownership, and use this applicable interest rate for calculating Petitioner’s FRVS property cost reimbursements for this nursing home.

     CONCLUSIONS OF LAW

     
     

133. The Division of Administrative Hearings has jurisdiction over the subject matter. Section 120.57(1), Florida Statutes. (All references to Sections are to Florida Statutes.)

134. Petitioner has the burden of proving the extent of its entitlement to reimbursement under Medicaid. Given the outcome of these cases, it is unnecessary to determine whether, where Respondent seeks retroactive adjustments after a period of several years, the burden of proof should be placed on Respondent. The resolution of these cases is the same regardless which party bears the burden of proof.

135. The only issue on which Petitioner did not prevail is whether Countryside and Savana were entitled to pre-FRVS reimbursements, even though the nursing homes were not enrolled in the Medicaid program until after October 1, 1985.

136. Even if the burden of proof were generally on Respondent, Petitioner would not have prevailed on this issue. In such a case, because the two nursing homes were not in existence on October 1, 1985, Petitioner would have had the burden of going forward with the evidence to show that the

     financing was sufficiently committed to justify the extension of this hold harmless provision. Petitioner failed to produce sufficient evidence on this point.

137. Based on the Plan, Petitioner is entitled, for each of the subject nursing homes, to the application of the initial FRVS rate, adjusted in the usual manner, but without alterations to the interest rate due to changes in ownership.

138. Petitioner’s rule challenge was auxiliary to the main cases. Petitioner filed the rule challenge to preclude reliance on nonrule policy in support of reductions in the FRVS property-cost reimbursement rates paid Petitioner. The evidence establishes that these reductions (except for declining to place Petitioner on pre-FRVS at anytime for Countryside and Savana) were the result of Respondent’s misinterpretation and misapplication of the Plan. The evidence does not establish that, in reducing Petitioner’s reimbursement, Respondent applied nonrule policy. A final order will therefore dismiss Petitioner’s rule challenge.

RECOMMENDATION

It is

RECOMMENDED that the Agency for Health Care Administration enter a final order recalculating Petitioner’s FRVS reimbursement rates for each of the eight nursing homes, using the initial FRVS rate, adjusted in the usual manner, but without adjustment of the applicable interest rates for any changes in ownership.

DONE AND ORDERED in Tallahassee, Florida, this 28th day of April, 1997.

ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 28th day of April 1997.

COPIES FURNISHED:

M. Stephen Turner, P.A. Broad and Cassel

Post Office Drawer 11300 Tallahassee, Florida 32302

Karel Baarslag, Senior Attorney Agency for Health Care Administration 2727 Mahan Drive

Fort Knox Building No. 3 Tallahassee, Florida 32308-5403

Sam Power, Agency Clerk

Agency for Health Care Administration Fort Knox Building 3, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308-5403

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this recommended order. Any exceptions to this recommended order must be filed with the agency that will issue the final order in this case.

Docket for Case No: 96-002921

Orders for Case No: 96-002921