Findings Of Fact Veazey's Restorium was operated in Tampa for many years as a skilled- care 72-bed nursing home by George Veazey, Jr. and his wife, Fairolene Veazey, as owners. During the years here involved, Respondents contracted with the Social and Economic Services program office to provide services as a skilled nursing home. The Florida Medicaid Program permits payment for services performed based upon a recognized maximum or reasonable costs plus 6 percent, whichever is lower. The charges here disputed are directly related to the computation of patient costs authorized to be paid to Respondent for Medicaid patients. In 1972, Raymond Kernon and his wife, Jacqueline, bought into the business and Mrs. Kernon, a professional registered nurse, took over as Director of Nursing at the facility. A new nursing home was constructed containing 120 beds and the patients were moved to the new facility in August, 1973. In 1976 the Kernons purchased the Veazeys' interest in the nursing home and changed the name to Kernon's Su Casa. The land on which the new facility is built is owned by Ve-Ker, a corporation whose stock is owned by the owners of the nursing home. No specific testimony was submitted regarding the land ownership except that of Mrs. Kernon, who testified she and her husband owned the Ve-Ker corporation. It appears from the corporate name that the Veazeys originally were shareholders of the corporation, but no evidence on this was presented. It was not contested that common ownership of the land and the nursing home existed. During 1972 Raymond Veazey, the brother of George L. Veazey, Jr., was the administrator of the nursing home. In 1973 George Louis Veazey, III, the son of the owners, was administrator. George L. Veazey, Jr. was in charge of the kitchen prior to the hiring of a dietician subsequent to fiscal year 1973. During this period he made up menus and bought groceries, laundry and medical supplies. He ran errands for patients, carried them for doctor's visits, shopping, and acted as general handyman while not occupied in the kitchen. He had no job title in 1972 but in 1973 his title was Kitchen Supervisor. Prior to his departure in 1976, he acted as a general handyman and performed numerous tasks, the principal one being purchasing agent. Upon his departure no one was hired to replace him. No testimony was presented regarding the duties performed by Raymond Veazey or George Louis Veazey, III, while they were assigned as administrator. This is significant only to show that if they performed as full-time administrators and did not have time to perform the duties for which George L. Veazey, Jr. was paid, the latter's work was necessary and beneficial. In 1972 George L. Veazey, Jr. was in charge of the kitchen and purchased supplies for the home, George L. Veazey, III, was assistant administrator and Raymond Veazey was the administrator. By allowing only the salary for one administrator to perform all of these functions in a 72-bed nursing home, Petitioner disallowed $10,954 of the total salary expense for these three people. In addition, Petitioner disallowed $5,300 of the salary paid to Fairolene Veazey. Mrs. Veazey's testimony respecting her duties, which was submitted by affidavit after the hearing concluded, shows that many of the functions she performed were necessary and proper and that the disallowance of more than $3,000 of her total salary was not appropriate. Other items disallowed by Petitioner in the audit included: $1,525 in telephone directory advertisement. No evidence was presented to rebut Petitioner's testimony that the purpose of this advertising was to entice patrons to the nursing home; Cost of officers' life insurance policy where the provider was the beneficiary. No evidence was presented to rebut the testimony that the provider was a direct beneficiary of this policy or policies. Cost of an administrator's license in the amount of $87. No evidence was presented to show a need for more than one administrator at a 72- bed facility. Rent in the amount of $86,640 apparently allocated but never paid to the Ve-Ker corporation. No evidence was submitted that this rent was actually paid, or that the Ve-Ker corporation was not owned by the same shareholders that owned the nursing home. Similarly, with respect to the 1973 audit, the $1,644 for directory advertising and rent expense in the amount of $87,360 were disallowed for the same reasons as these items were disallowed in 1972 and no evidence was presented to show this disallowance to be in error. Salaries in 1973 for owners was again reduced to the maximum salary for one full-time administrator and the maximum salary for a full-time director of nursing. This reduced the salaries to $21,004 in administration from more than $50,000 paid to owners, George Veazey, Jr., George Veazey, III, Jacqueline Kernon, Fairolene Veazey, Ramond Kernon and Ray Estes, son-in-law of Kernon. No evidence was presented indicating that George L. Veazey, III, was fully occupied as administrator and could not have performed some of those services which his father actually performed and for which compensation was disallowed. Similarly no evidence was presented that Kernon or his son-in-law provided services beneficial to the patients. Evidence presented would indicate that no salary was approved for anyone other than the Administrator and Director of Nursing. Fifty percent of the salaries claimed for those other owners should be allowed. Fairolene Veazey obviously performed some beneficial function other than as housekeeper for which compensation could and should be authorized. George Veazey, Jr. was performing an essential function in 1973 for which he is entitled to compensation. Although his position as Kitchen Supervisor was not filled when his services were terminated in 1976, George Veazey, Jr. obviously performed many functions related to patient care. The fact that his specific position was not filled after his departure is not sufficient, standing alone, to say he did not perform essential services related to patient care. Many businesses learn they can do without the services of a particular employee after he leaves, whereas that was not believed true before his departure. The fact this employee was an owner does not change the concept. Fifty percent of Veazey's disallowed salary should be restored. With respect to those items disallowed on the 1976 audit, all of Respondents' evidence was directed at owners' compensation and no evidence was presented by Respondents to rebut Petitioner`s witnesses who stated the following expenses are not allowed because not patient-related: Forgiveness of a note receivable from George Veazey, Jr. in the amount of $28,774 in connection with Provider's purchase of Treasury stock. Professional fees incurred by Provider in connection with buy-out agreement with George L. Veazey, Jr. in the amount of $2,150. Interest paid to Randolph Kernon of $1,475. Offset of undocumented miscellaneous revenue against general and administrative expenses in amount of $1,215. Legal expenses in the amount of $330. Interest expense on loan from former shareholder in the sum of $4,414. Provider. Sales tax totaling $2,747 by Ve-Ker on rents collected by Employee benefits on disallowed salary. This item covers several owners' salaries which were disallowed. No evidence was presented to show any basis for benefits if the salary to which the benefit is pertinent is removed. Mrs. Jacqueline Kernon during the periods in question performed her duties as Director of Nursing, but also exercised additional supervisory duties in her role as owner. These duties consisted of being on call every weekend, remaining at the nursing home late every evening, visiting the nursing home on weekends, paying extra attention to the personal needs of the patients, spending 70 to 80 hours per week at the nursing home, and generally operating the nursing home efficiently and effectively. The work over and above that normally expected of a Director of Nursing should be compensated at 25 percent of the salary allowed her for Director of Nursing. This finding is based partially on the fact that the patient per-day cost at this nursing home is substantially lower than the costs in other comparable nursing homes in Florida.
The Issue Should Petitioner be assessed a late fee for failure to timely file its renewal application for its Home Health license?
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant findings of fact are made: At times pertinent to this proceeding, Petitioner was licensed as a Non-Certified Home Health Agency, license no. HHA203220961, with an effective date of October 1, 1997, and an expiration date of September 30, 1998. The Agency furnished Petitioner an application for renewal of its license in June 1998. The renewal application was due to be filed with the Agency 60 days before the expiration of Petitioner's then current license. Petitioner's application for renewal of its then current license was received by the Agency on August 28, 1998. To avoid any late fees, Petitioner's renewal application should have been filed with the Agency no later than August 2, 1998. Petitioner's renewal application was filed 26 days late. Petitioner did not deny that its renewal application was filed late. By letter dated November 2, 1998, the Agency notified Petitioner that its renewal application had been received on August 29, 1998, when in fact the renewal application was received on August 28, 1998. The letter further advised Petitioner that it was being assessed a late fee of $2,700.00. This late fee was calculated by multiplying the number of days late (27) times $100.00 per day. The date received set out in the letter of November 2, 1999, was incorrect and the number of days should have been 26. Therefore, the correct amount of the late fee should have been $2,600.00. The lateness of the renewal application was due to a financial hardship that Petitioner was suffering at that time because Petitioner had to purchase a Medicaid surety bond. There were not enough funds for both the surety bond and application renewal fee. Petitioner has a waiver (Medicaid) for care of certain handicapped persons contracted with the Human Services Foundation which requires a surety bond. Petitioner provides respite home health aid nurses and homemaker's services. There was no evidence that Petitioner had ever been late before in filing its license renewal application.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law and the mitigating circumstances, it is recommended that the Agency enter a final order imposing a late fee of $500.00 to be paid by Petitioner within 60 days of the date of the final order, subject to any other condition the Agency may deem appropriate. DONE AND ENTERED this 15th day of June, 1999, in Tallahassee, Leon County, Florida. WILLIAM R. CAVE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6947 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 15th day of June, 1999. COPIES FURNISHED: Edmund N. Jackson, Administrator Elite Health Care Services, Inc. Post Office Box 2444 Arcadia, Florida 34265 Karel Baarslag, Esquire Agency for Health Care Administration State Regional Service Center 2295 Victoria Avenue Fort Myers, Florida 33901 Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308
The Issue Whether respondent should pay a late fee of $5,000.00 for filing an application for renewal of its nursing home license 81 days late.
Recommendation Based on the foregoing, it is RECOMMENDED: That DHRS enter a final order requiring Y & S Partnership to pay a late fee of $5,000.00, which should be deposited and disbursed through the Patient Protection Trust Fund established by Section 400.063, Florida Statutes. DONE and ENTERED this 25th 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 25th day of August, 1983.
Findings Of Fact The Petitioner owns property in Dade County, Florida, located at 47 Northwest 32nd Place, Miami, Florida. Improvements have been erected on the property. The Petitioner leases the property and improvements to Flordean Nursing Home, Inc., a Florida corporation. The corporation operates a skilled nursing home on the premises, and pays a monthly rent of five hundred dollars to the Petitioner for the exclusive occupation of the property and improvements. The Petitioner is the president and majority stockholder of the corporation, and the administrator of the nursing home. The nursing home is licensed by the Florida Department of Health and Rehabilitative Services. The corporation provides extended care treatment and skilled nursing home services to its clients or patients. The clients pay a single charge for the services which include a room, nursing care, laundry, meals, activities, and medical attentions. Activities include movies, religious services, birthday and other holiday celebrations, and similar functions. The corporation does not and has never simply rented a room to any client. The nursing home is a commercial venture for profit, and it in fact makes a profit. The average age of the nursing home guests is 84. Typically they are admitted through physicians. They become permanent residents. They receive their mail at the home and typically do not leave until they die. The average stay is three years, five months. At the time of hearing the nursing home housed 52 guests in 19 rooms. The rooms are private, semiprivate and three in a room. The petitioner applied for a certificate of registration from the Florida Department of Revenue in June, 1968. The certificate was issued under sales tax number 23-08-102316-82. The Petitioner has paid sales taxes on the monthly rental payments that she has received from the corporation. She is seeking a refund of these taxes for the period from March 1, 1972 through and including May 30, 1978. The corporation does not collect sales taxes from the nursing home guests.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby, RECOMMENDED: That the Respondent enter a final order denying the petitioner's refund application. DONE and ORDERED this 9th day of January, 1979, in Tallahassee, Florida. G. STEVEN PFEIFFER, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Joseph C. Mellichamp, III, Assistant Attorney General The Capitol, Rm. LL04 Tallahassee, Florida 32304 Jack R. Rice, Jr., Esquire P. O. Box 350838 2424 N. W. First Street Miami, Florida 33135
Findings Of Fact Respondent Edward Grant Markley is and at all material times has been licensed as a real estate broker, Florida license numbers 0268896 and 0530864. The Respondent's most recent licensure was as a broker for Harris Real Estate and Associates, Inc., t/a C-21 Harris Real Estate and Associates, Inc., 6945 103rd Street, Jacksonville, Florida 32210 and Harris Real Estate and Associates, Inc. of Orange Park, 2346 Kingsley Avenue, Orange Park, Florida 32073. From a date uncertain in 1987 to July of 1988, Respondent was the licensed nursing home administrator at Holly Point Manor in Orange Park, Florida. By letter dated August 22, 1988, Respondent was advised that, based upon a complaint, an investigation was being undertaken related to his licensure as administrator of the Holly Point Manor nursing home. The Respondent applied for licensure as a real estate salesman on October 5, 1988. Question 14(a) of the application reads "[h]as any license, registration, or permit to practice any regulated profession, occupation, or vocation been revoked, annulled or suspended in this or any other state...upon grounds of fraudulent or dishonest dealing or violations of law, or is any proceeding now pending?" In response to the question, Respondent wrote "see attached". Petitioner's files contain the application but do not contain the attachment. Respondent did not retain a copy of the attachment. Respondent testified that in the attachment he disclosed the investigation related to his licensure as a nursing home administrator. There is no evidence contradicting his testimony. The Respondent's real estate salesman's license was issued effective December 30, 1988. On July 2, 1991, an Administrative Complaint was filed by the Department of Professional Regulation against the Respondent alleging failure to assure competent nursing management, staffing, and care in the referenced nursing home. Following an informal hearing, which left the matter unresolved, the Department of Professional Regulation, on December 18, 1990, filed an Amended Administrative Complaint specifically alleging that an investigation in July of 1988 revealed medical neglect and inadequate supervision and care of patients in the facility. On January 23, 1991, the Respondent executed a voluntary relinquishment of license. The executed document states that the Respondent entered into the agreement "[t]o avoid the necessity of further administrative proceedings in this case" and that the licensure was relinquished "with the provision that Respondent agrees never again to apply for licensure as a nursing home administrator in the State of Florida." At the time the license was relinquished, Respondent was no longer associated with or employed in the nursing home industry. He does not intend to re-enter the industry, and was therefore amenable to relinquishing his license. On February 18, 1991, the Florida Board of Nursing Home Administrators, Florida Department of Professional Regulation, issued a Final Order in which tie Board found "that all the allegations in the Administrative Complaint are accepted and Respondent may voluntary (sic) relinquish his license. " There is no evidence which indicates that the Respondent failed to cooperate in the nursing home investigation or in the instant matter. There is no evidence that Respondent has been unable or unwilling to appropriately discharge his responsibilities as a real estate salesman or broker.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department of Professional Regulation, Division of Real Estate, enter a Final Order taking no action against the licensure of Edward Grant Markley as a real estate broker. DONE and ENTERED this 28th day of August, 1991, in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of August, 1991.
Findings Of Fact Respondent corporation owns and operates The Ambrosia Home (the Home), a nursing home in Tampa, Florida. Ella Mae Smith, the sole stockholder and the chief executive officer of the corporation, worked as nursing home administrator for the Home from January 1, 1976, through April 21, 1976. Ms. Smith, who is a registered nurse, has been associated with the Home since 1962. On April 22, 1976, Willard Roth began as the Home's administrator, a job he kept through December 31, 1976. In January of 1976, respondent opened a 23 bed addition. Until Mr. Roth's arrival, Ms. Smith worked every day from seven in the morning till seven in the evening, except Saturdays and Sundays when she worked from seven in the morning till three in the afternoon. After Mr. Roth took over as nursing home administrator, Ms. Smith only worked eight hour days although she came back nights occasionally to look in on patients; she stopped going to get supplies for the Home herself and began sharing with Mr. Roth responsibilities for hiring and firing and for finances. For the first three quarters of 1976, respondent employed Judith Irene Roberson as a bookkeeper and secretary at the rate of three dollars an hour. Ms. Roberson is Ella Mae Smith's daughter. For the final thirteen weeks of 1976, Ms. Roberson worked as activities' director for respondent at the rate of three and a half dollars an hour. In both positions, Ms. Roberson worked overtime without pay. Because of this and because of her work for respondent in various capacities in 1970, 197, 1972, 1973, 1974 and 1975, she received a nine thousand dollar ($9,000.00) bonus in 1976. Ms. Roberson began working for respondent in July of 1970. In January of 1976, respondent received payments from petitioner for November and December of the preceding year. This money was used, in March of 1976, to open a savings account at First Federal of Tarpon Springs. In October of 1976, part of the money in the First Federal account was used to open a savings account at the Barnett Bank of Tampa. At no time during 1976, did the balance in the First Federal account fall below thirty-nine thousand, three hundred ninety-four dollars and seventy-six cents ($39,394.76). At no time during 1976, did the balance in the Barnett account fall below twelve thousand nine hundred sixty-four dollars and fifty-one cents ($12,964.51). The following year respondent used the money to pay back taxes, to pay bonuses and for other business purposes. On April 1, 1975, Ms. Smith acquired from respondent corporation the property on which the Home is located. During the year 1976, Ms. Smith leased the property back to the corporation at an annual rent of sixty-thousand dollars ($60,000.00). Rental payments under this agreement were subject to a four percent sales tax. At the close of 1976, there remained owing to Ms. Smith accrued bit unpaid rent. The corporations held a note from Ms. Smith during the year 1976, which she had given as partial payment for the property. In addition, Ms. Smith was indebted to the corporation for mortgage payments it had made on her behalf, aggregating thirty-five thousand six hundred ninety-seven dollars ($35,697.00). During the year 1976, Ms. Smith drove a 1975 Buick to and from work and used the car for other personal purposes. In addition to the personal use she made of the car, she used it to take resident of the Home on picnics, to entertain them in other ways, to transport them to a doctor's office and sometimes to take them to buy clothes. In operating the Home, she used the car for other errands: taking curtains to be cleaned and retrieving them; going shopping for fabric; and weekly trips to a Kwik-Chek store for housekeeping and other supplies. Fuel and maintenance expenses in the approximate amount of eleven hundred dollars ($1,100.00) were incurred in the operation of the automobile during 1976. No records were kept to reflect what fraction of the car's use was personal to Ms. Smith, however. Whenever Ms. Smith purchased supplies for the Home at the Kwik-Chek store, she paid with a check drawn on a Home account. In addition to housekeeping supplies, she sometimes bought Band-Aids and food on these trips. No records were kept to reflect just what was acquired on each trip. According to respondent's records, housekeeping supply expenses aggregated four thousand five hundred sixty-four dollars ($4,564.00) for 1976, and approximately forty- five hundred dollars ($4,500.00) for 1975. During 1976, six hundred dollars ($600.00) were reported stolen from petty cash in two accounts of which respondent had control. Respondent incurred certain legal and advertising expenses aggregating nine hundred fifty dollars ($950.00) in i976. Petitioner reimburses medicaid providers like respondent for a portion of certain expenses they incur in caring for eligible patients. In addition, petitioner's payments to medicaid providers include a return of approximately ten percent to medicaid providers on net assets devoted to the care of eligible patients. Respondent was slated to be audited by petitioner during 1977, in accordance with federal regulations prescribing such audits for each medicaid provider at lease once every three years. Petitioner performed its audit of respondent for the year 1976 earlier in 1977 than it would have otherwise, at the request "of HRS counsel because of a lawsuit that Ambrosia Home" (T48) brought against petitioner. Jesus A. Martinez, an auditor II in petitioner's employ, performed the audit of respondent, which was subsequently reviewed by Messrs. Roark and Conners, and possibly by Mr. Powell, all of whom are also employees of petitioner. As a result of the audit, petitioner proposes to disallow certain expenses claimed by respondent. These include sales tax on rent paid by respondent to Ms. Smith; portions of salaries respondent paid Ms. Smith and Ms. Roberson; petty cash reported stolen; checks to Kwik-Chek in excess of fifty dollars ($50.00), aggregating two thousand five hundred sixty-seven dollars and seventy-eight cents ($2567.78); and expenses related to the 1975 Buick, viz., interest on money borrowed to acquire it, an allowance for depreciation, insurance, taxes, licenses and operating expenses. Petitioner originally proposed to disallow certain professional fees, but indicated after the hearing that it would allow them. On advice that has since been rejected, respondent did not originally claim depreciation and operating expenses for the automobile. Similarly, respondent did not originally include the value of the automobile in computing the equity on which its return should be calculated, but took the contrary position in these proceedings. Petitioner proposes to disallow the value of the automobile and, as a result of the audit, to disallow certain other items respondent included in computing its equity capital. These include funds drawing interest in saving accounts far more than six months and Ms. Smith's obligations to respondent. On the other hand, petitioner included in equity capital the unpaid rent respondent owed Ms. Smith, even though respondent failed to include this item in its equity calculations. The foregoing findings of fact should be read in conjunction with the statement required by Stuckey's of Eastman, Georgia v. Department of Transportation, 340 So.2d 119 (Fla. 1st DCA 1976), which is attached as an appendix to the recommended order.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That petitioner allow the entire salary respondent paid Ms. Smith in 1976, as a reasonable cost. That petitioner allow the salary respondent paid Ms. Roberson in 1976, as a reasonable cost, less and except seven thousand three hundred seventy dollars ($7,370.00). That petitioner disallow and exclude all other disputed items. DONE and ENTERED this 16th day of October, 1978, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 APPENDIX Paragraph one of petitioner's proposed findings of fact has been adopted, in substance, insofar as relevant. Paragraph two of petitioner's proposed findings of fact has been adopted, in substance, insofar as relevant. Paragraphs three and four of petitioner's proposed findings of fact are consistent with the evidence adduced at the hearing but are not strictly relevant. Paragraph five of petitioner's proposed findings of fact has been adopted, in substance, insofar as relevant. Paragraphs six and seven of petitioner's proposed findings of fact are actually proposed conclusions of law. Paragraph one of respondent's proposed findings of fact has been adopted, in substance, insofar as relevant, except that the evidence did not establish when cost reports for the year 1976 were submitted. Paragraph two of respondent's proposed findings of fact has been adopted, in substance, insofar as relevant, except for the last clause thereof which was not established by the evidence. Paragraph three of respondent's proposed findings of fact has been adopted, in substance, insofar as relevant. Paragraphs four and five of respondent's proposed findings of fact are consistent with the evidence adduced at the hearing but are not strictly relevant. Paragraph six of respondent's proposed findings of fact has been adopted, in substance, insofar as relevant, except for the final sentence thereof, which is not supported by the evidence. Paragraphs seven and eight of respondent's proposed findings of fact have been adopted, in substance, insofar as relevant. Paragraphs nine and ten of respondent's proposed findings of fact are actually proposed conclusions of law. COPIES FURNISHED: Ellen Ostman, Esquire Department of HRS 4000 West Buffalo Avenue Tampa, Florida 33614 Allan M. Dabrow, Esquire Suite 1300 1845 Walnut Street Philadelphia, Pennsylvania 19103 Mr. David Ganley Supervisor of Nursing Home Receivables Department of HRS 1317 Winewood Boulevard Tallahassee, Florida 32301 Mr. Carl McBride Department of Accounting Department of HRS 1317 Winewood Boulevard Tallahassee, Florida 32301 The Ambrosia Home 1709 Tallaferro Road Tampa, Florida 33609 W. Kirk Brown, Esquire 313 Williams Street Suite 10 Post Office Box 4075 Tallahassee, Florida 32303
The Issue In an attachment to the joint prehearing stipulation filed on February 18, 1996, the parties describe their resolution of all issues in these consolidated cases with the exception of this issue: Whether the Agency for Health Care Administration, through audit adjustments, properly removed working capital interest from the patient care cost centers and reallocated those costs to the operating cost centers of the individual providers.
Findings Of Fact Petitioners are individual nursing homes participating in the Florida Medicaid program. They are separate providers in the program but are all owned by Florida Convalescent Centers, Inc. (FCC). Respondent, State of Florida Agency for Health Care Administration (AHCA) is the agency responsible for administration and implementation of the Medicaid program in Florida. Title XIX of the Social Security Act (Title XIX) is the matching entitlement program, now known as Medicaid, which provides medical assistance for eligible low-income persons. Within broad federal guidelines, states are given the authority to establish eligibility standards, define the scope of services, establish reimbursement rates and generally administer their own program. One requirement of Title XIX is that a state plan for medical assistance must provide for payment of nursing facility services through rates that "are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities..." (42 USC 1396(a)). Florida's reimbursement methodology has been approved by the Health Care Financing Administration of the U.S. Department of Health and Human Services. Florida's Medicaid reimbursement methodology requires that a provider file an annual cost report which summarizes all costs by cost centers for a given reporting period. The three Medicaid cost centers are: operating costs, patient care costs and property costs, which are defined, respectively, in the Florida Title XIX Long Term Care Reimbursement Plan: Medicaid Nursing Home Operating Costs: [Those costs not directly related to patient care or property costs], such as administrative, plant operation, laundry and housekeeping costs. Return on equity or use allowance costs are not included in operating costs. Medicaid Nursing Home Patient Care Costs: Those costs [directly] attributed to nursing services, dietary costs, and other costs [directly] related to patient care, such as activity costs, social services, and all medically-ordered therapies. Medicaid Nursing Home Property Costs: Those costs related to the ownership or leasing of a nursing home. Such costs may include property taxes, insurance, interest and depreciation, or rent. [Petitioners' exhibit no. 5, page 85, emphasis added] The historical costs reported by the provider are used to compute a separate per-patient day cost for each of the three cost centers. The per diem rates are then added to create a comprehensive per diem rate which is used to prospectively compensate the provider. For example, a provider's costs for 1992, reported in its 1992 cost report, are used to set the 1993 per diem rate. Among the regulatory objectives of the reimbursement plan is cost containment. To further this objective, the plan provides for cost ceilings and targets in each of the cost centers. The ceilings and targets are derived from data collected from all providers in Florida's Medicaid program. The ceiling rates are the maximum amount any provider can be reimbursed, based on its geographical location and size. Provider reimbursement is also limited by facility-specific target rates based on historical data and rates for the individual facility. Year to year increases in the per diems for the three cost centers are permitted to reflect the inflation rate above an established base rate. In compliance with the reporting requirements of the reimbursement plan, FCC's in-house controller, Charles Wysocki, prepared Petitioners' 1992 cost reports. They were then reviewed and signed by a Florida CPA, Joseph Mitchell. In the cost reports, on Schedule C, Mr. Wysocki with the concurrence of Mr. Mitchell, reclassified working capital interest from the property cost center to the patient care and operating cost centers based on the ratio of the total salaries in each to the total salaries for the provider facility. This salary-based allocation method was selected because salaries account for the single largest expenditure in a nursing home, generally 65 - 70 percent, and as high as 86 percent of the total costs for some FCC providers. As part of AHCA's routine review, the agency engaged a nationally- recognized accounting firm, DeLoitte and Touche, to audit the Medicaid cost reports submitted by FCC. The purpose of the review and audits is to assure that only allowable costs are included, that the costs have been properly classified and that the data used to calculate future reimbursement is correct in all material respects. The treatment of working capital interest was one of several issues identified in the audit of FCC's 1992 cost report, but it is the only issue remaining now for resolution. At the time of the audit DeLoitte and Touche was under the impression that the working capital loans were "related party" loans which are treated differently for reimbursement purposes than loans that are "arms-length" between non-related parties. The working capital interest cost was disallowed altogether. After review by the agency an audit report was issued with citations to the authorities supporting the adjustment in the audit. Later in the audit review process the agency conceded that the problem was not "related party" loans and that the working capital interest was a reimbursable cost. However, the agency disputed the allocation of the interest and adjusted Petitioners' cost reports to allocate the interest to the operating cost center. There are three authorities for treatment of Florida Medicaid nursing home costs. The parties concur that the first and primary authority is the Florida Title XIX Long Term Care Reimbursement Plan (Plan). If an issue is not addressed in the Plan, then the next resort is to the Provider Reimbursement manual (HIM-15). Finally, if the issue remains unresolved, providers and the Agency rely on Generally Accepted Accounting Principles (GAAP). The Plan does not specifically address allocation of working capital interest, although it does provide some guidance in the definitions described in paragraph 4, above, and in this language: B. Setting prospective reimbursement per diems and ceilings. The department shall: * * * 4. Determine allowable Medicaid property costs, patient care costs, and return on equity or use allowance. Patient care costs include those costs directly attributable to nursing services, dietary costs, activity costs, social services costs, and all medically- ordered therapies. All other costs, exclusive of property cost and return on equity or use allowance costs, are considered operating costs. . . . (Petitioners' exhibit no. 5, page 45) The guidance found in HIM-15 is much more specific. For example, Section 2806.2 provides: Costs Excluded from Capital-Related Costs. This section sets forth some of the costs that are excluded from capital-related costs. To the extent that these costs are allowable they may be included in determining each provider's operating costs. Exclusions from capital-related costs include: * * * c. interest expense incurred to borrow working capital [for working expenses]; * * * [emphasis added] HIM-15, Section 2338, cited in the agency's audit report, provides: C. Interest expense incurred on funds borrowed for operating expenses must be allocated with administrative and general expenses. . . . Definitions found in Section 2102 of HIM-15 establish that reasonable costs take into account both direct and indirect costs of providers of services and that costs related to patient care include administrative costs. Costs that are neither directly nor indirectly related to patient care are not allowable in computing reimbursable costs. (Petitioners' exhibit number 2, Sections 2102.1, 2102.2 and 2102.3). The loans which generated the interest costs at issue here were obtained by the provider facilities to meet operating shortfalls. When a new facility opens there are almost all the expenses of a fully-staffed nursing home, but until the patient beds are filled, there is insufficient revenue to cover the expenses. FCC's methodology of allocating working capital interest based on salaries resulted in allocating those interest costs to both the patient care cost center and operating cost center, with most going to the patient care cost center. For example, 86 percent of salaries on the cost report for Palm Garden of Ocala for the year ending 12/31/92 were in the patient care cost center, so 86 percent of the working capital interest was allocated to patient care rather than the operating cost center. There is a substantial incentive for providers to shift costs from one center to another to avoid the ceilings. If the provider's reimbursement for operating cost is capped, but its patient care cost is not yet at the ceiling, then shifting costs from operating to patient care increases the total reimbursement to the provider. From the record it is impossible to determine exactly how the loan funds were expended by each provider. The monies were deposited into the general operating accounts of the providers and were used to cover operating shortfalls. In 1989, 1990 and 1991, the three years preceding the year at issue, the agency permitted FCC to allocate working capital interest in the same manner that FCC allocated that cost in its 1992 cost reports. However, the three preceding years' treatment was the outcome of a settlement agreement between the parties wherein each gave up some issues. Except in the context of settlement, the agency has steadfastly maintained its position that working capital interest must be allocated in the operating cost center. Prior cases with other providers have involved adjustments to move the working capital interest costs from the property cost center rather than from the patient care cost center.
Recommendation Based on the foregoing it is hereby: RECOMMENDED: That the Agency for Health Care Administration enter its Final Order adopting the parties' settlement agreement and approving the agency's audit adjustments related to allocation of working capital interest. DONE and RECOMMENDED this 26th day of April, 1996, in Tallahassee, Florida. MARY CLARK, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of April, 1996. APPENDIX TO RECOMMENDED ORDER, CASES NOS. 94-6893 - 94-6906 To comply with the requirements of Section 120.59(2), Florida Statutes (1993), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. Adopted in paragraph 8. Rejected as unnecessary. 3.-4. Adopted in part in paragraph 11, otherwise rejected as irrelevant or immaterial. 5.-7. Adopted in part in paragraph 9, otherwise rejected as irrelevant or immaterial. 8. Rejected as irrelevant or immaterial. 9.-10. Adopted in substance in paragraph 18. Rejected as unnecessary. Rejected as unnecessary and argument. Rejected as contrary to the weight of evidence. Rejected as contrary to the weight of evidence. Moreover, it is immaterial since HIM-15 and the Plan are applied, not general principles in this case. Adopted in paragraph 13. Adopted in paragraph 4. Adopted in paragraph 5. Adopted in paragraph 6. Adopted in paragraph 7. 20.-23. Adopted in part in paragraph 14, otherwise rejected as immaterial. Rejected as unnecessary. Adopted in part in paragraph 17, otherwise rejected as unnecessary. 26.-31. Rejected as immaterial. 32. Adopted in part in paragraph 16, otherwise rejected as unnecessary. 33.-34. Rejected as unnecessary or immaterial. The interest addressed in paragraphs A and B is distinguished from working capital interest. Rejected as an interpretation not supported by the greater weight of evidence. Rejected as immaterial. Addressed in conclusion of law, paragraph 29. 38.-39. Rejected as argument and contrary to the greater weight of evidence. Rejected as argument or unnecessary. Rejected as argument. 42.-45. Rejected as immaterial. It is unnecessary to apply GAAP here. Rejected as unnecessary. Adopted in paragraph 22. 48.-51. Rejected as argument that is unsupported by the weight of evidence. 52. Adopted in summary in paragraph 20. 53.-54. Rejected as immaterial. Respondent's Proposed Findings of Fact. Adopted in paragraphs 1 and 2. Adopted in paragraph 4. Adopted in paragraph 9. Adopted in paragraph 10. 5.-6. Adopted in substance in paragraph 11. Adopted in paragraph 13. Adopted in substance in paragraphs 14 and 15. Adopted in paragraph 16. Addressed in conclusion of law, paragraph 29. Adopted in paragraph 15. Adopted in part in paragraph 6, otherwise rejected as unnecessary. Adopted in part in paragraph 4. Rejected as unnecessary. 15.-18. Adopted in paragraph 4. Adopted in substance in paragraph 6. Rejected as unnecessary. COPIES FURNISHED: Gerald B. Sternstein, Esquire RUDEN, BARNETT, MCCLOSKY, SMITH SHUSTER & RUSSELL, P.A. 215 South Monroe Street, Suite 815 Tallahassee, Florida 32301 Harold M. Knowles, Esquire KNOWLES & RANDOLPH 528 East Park Avenue Tallahassee, Florida 32301 Jerome Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308-5403 Sam Power, Agency Clerk Agency for Health Care Administration Ft. Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403
Findings Of Fact On or about July 15, 1986, Petitioner filed an application with Respondent to construct a 60 bed community nursing home with a 45 bed adult congregate living facility (ACLF) in Highlands County, Florida. This application was identified as CON 4700. After preliminary review, Respondent denied this application on or about December 23, 1986, and Petitioner timely filed its petition for formal administrative hearing. Highlands County is in Respondent's Service District VI, Subdistrict IV. The parties stipulated that there was a net bed need in the July, 1989 planning horizon for Highlands County of an additional 28 community nursing home beds, based upon the bed need calculation set forth in Rule 10-5.011(1)(k), Florida Administrative Code. It was further stipulated by the parties that Petitioner's original application met all statutory and rule criteria for the issuance of a CON, but for the issue of need. Since the parties did stipulate to a need for 28 community nursing home beds, Petitioner sought, at hearing, to offer evidence in support of only an "identifiable portion" of its original application. Thus, Petitioner offered no evidence in support of the application it filed with Respondent, and which was preliminarily denied on December 23, 1986. Rather, Petitioner sought consideration and approval of either 28 nursing home beds with 32 ACLF beds, or 30 nursing home beds with 30 ACLF beds. Since the stipulation of the parties could not cover the financial feasibility of either alternative because they were presented for the first time at hearing, Petitioner offered evidence to establish the financial feasibility of these alternatives. Based upon the testimony of Herbert E. Straughn, it is found that Respondent does not normally approve nursing home CON applications for less than 60 nursing home beds. However, Respondent has approved a CON application for 30 nursing home beds in association with 30 ACLF beds or some other similar service when the need for 30 nursing home beds was shown to exist. Respondent has also approved a CON for less than 30 nursing home beds in connection with an existing 60 bed facility when the stipulated need did not reach 30. In this case, Petitioner's original application was for 60 community nursing home and 45 ACLF beds, and it was at hearing that Petitioner sought to down-size its application to meet the stipulated need of 28 nursing home beds. There are no accessibility problems with regard to special programs or services, or any other problems of accessibility, in District VI, Subdistrict IV. Petitioner's request for partial consideration and approval of its application, which was presented at hearing, would not introduce any new services or construction not originally contemplated in its application, although the size of the project and number of beds sought would be reduced. In its original application, Petitioner proposed a nursing home with two 30-bed units, and now seeks approval for only one 28 or 30-bed unit. From a health planning standpoint, nursing home bed units usually occur in multiples of 60 due to staffing and equipment considerations. No evidence was offered to show why the Respondent should deviate from its usual practice in this case, other than the fact that a need for only 28 beds exists. At hearing, Petitioner introduced revised pro formas for 28 and 30 nursing home beds, associated with 32 and 30 ACLF beds, respectively. These revised pro formas were based on the same ratios of patients by payor class as in the original pro forma. The equity to loan ratios in the revised pro formas to finance the project remained the same as in the original application. The revised pro formas combine revenue and expenses for nursing home and ACLF beds. However, if revenue and expenses for nursing home beds is segregated from ACLF beds, it is found that a 30 bed nursing home facility would not be financially feasible in either 1989 or 1990, and a 28 bed nursing home facility would be even less financially feasible than a 30 bed facility. When revenues and expenses for the ACLF component of the project are considered along with nursing home bed income and expenses, the project shows only a marginal profit in the second year of operation with the 30 nursing home bed-30 ACLF bed alternative. It is barely break-even in the second year under the 28 nursing home bed-32 ACLF bed alternative. Thus, under either alternative, the project is not financially feasible in 1989, and the nursing home component of this project, standing alone under either alternative presented at hearing, is not financially feasible in either 1989 or 1990. The 30 nursing home bed-30 ACLF bed alternative is more financially feasible than the 28-32 alternative since the 28-32 alternative is barely break even in the second year of operation. Specifically, under the 28-32 alternative, pretax income of less than $9000 is projected in the second year of operation with total revenues of approximately $1.321 million and total expenses of approximately $1.312 million.
Recommendation Based upon the foregoing, it is recommended that Respondent enter a Final Order denying Petitioner's application for CON 4700. DONE AND ENTERED this 7th day of January, 1988, in Tallahassee, Florida. DONALD D. CONN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of January, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-0667 Rulings on Petitioner's Proposed Findings of Fact: Adopted in Findings of Fact 1, 2. Adopted in Finding of Fact 2. Rejected as unnecessary. Adopted in Finding of Fact 4. Adopted in Findings of Fact 5, 6. Adopted in Finding of Fact 8. Adopted in Findings of Fact 5, 6, 9. 8-10 Adopted in Finding of Fact 10. Rejected as simply a statement of position and not a proposed finding of fact. Adopted in Finding of Fact 6. 13-16 Rejected as conclusions of law and not proposed findings of fact; this legal argument has been considered in the preparation of conclusions of law contained in this Recommended Order. Adopted in part in Findings of Fact 8, 9, 10. However the last sentence in the proposed finding of fact is rejected as unclear. Rejected as unnecessary. Rejected as not based on competent substantial evidence, although from a health planning viewpoint a 30 nursing home bed unit is more functional and cost effective than a 28; it is also more financially feasible in this case. Adopted in Finding of Fact 11. Adopted and Rejected in part in Findings of Fact 9, 11, and otherwise rejected as unnecessary and cumulative. Rejected as not based on competent substantial evidence, although adopted in part in Findings of Fact 9, 11. Rulings on Respondent's Proposed Findings of Fact: 1 Adopted in Findings of Fact 1, 2. 2 Adopted in Finding of Fact 2. 3 Adopted in Finding of Fact 3. 4 Adopted in Finding of Fact 4. 5 Adopted in Finding of Fact 6. 6 Adopted in Findings of Fact 5, 6. 7 Adopted in Finding of Fact 11. 8-9 Adopted in Finding of Fact 7. COPIES FURNISHED: Jay Adams, Esquire 215 East Virginia Street Tallahassee, Florida 32301 Richard A. Patterson, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 John Miller, Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Background Petitioners, Community Convalescent Center, Rosedale Manor, Kensington Manor, Jacaranda Manor, Wakulla Manor, Pasadena Manor and Heartland of St. Petersburg (petitioners, providers or nursing homes), are nursing homes operating in the State of Florida and licensed by respondent, Department of Health and Rehabilitative Services (HRS). They are owned and operated by the parent corporation, Health Care and Retirement Corporation of America (HCRC), which is also a petitioner in this cause. As the parent corporation, HCRC is commonly known in regulatory parlance as both a home office and a related party to all nursing homes in the chain organization. The parties have stipulated that HCRC provides various functions for the individual nursing homes and incurs property costs at the home office'. The nursing homes are participants in the Medicaid program administered by HRS. As such, each nursing home annually files with HRS a Medicaid cost report for itself and its home office. For regulatory purposes, the cost reports are identified as HRS Form 1542 and are revised from time to time by the agency. In conjunction with those reports, HRS has prepared a twenty-nine page document entitled "Instructions to Cost Report for Nursing Homes Participating in the Florida Medicaid Program Adopted April 1, 1983" (the instructions). The instructions have been distributed to all nursing homes in the State that participate in the Medicaid program, including petitioners. A copy of the instructions has been received in evidence as respondent's exhibit 3. Use of the instructions in the preparation of a provider's cost report is mandatory, and if not followed by the provider, may result in the rejection of the provider's cost report. This is evidenced by language in the cover letter sent with the instructions to each provider and which reads in pertinent part as follows: Please review these cost reports carefully, including the general instructions and basic classification of accounts, before attempting to complete these forms. Failure to use the current official forms or to abide by the current instructions will result in rejection of your cost report. Even so, in those instances where a provider ignores the instructions and records a cost in a manner different from that prescribed in the instructions, HRS does not summarily reject the report. However, during the audit process, the cost will be reclassified by HRS so that conformity with the instructions is achieved. Thus, at least as to the manner in which costs are treated for reimbursement purposes, the instruction form is the substantive standard for allocating such costs in all instances. In this regard, HRS agrees the instructions are enforced as if they were a rule. This controversy involves an allegation by petitioners that a portion of the instructions which requires nursing homes to classify and allocate certain indirect home office property costs as operating costs is a rule, not duly promulgated by the agency, and is therefore invalid. In the alternative, they contend that the instructions, if properly promulgated, are nonetheless an invalid exercise of delegated legislative authority because they are arbitrary, vague and vest unbridled discretion in the agency. Finally, they contend that HRS has utilized a policy, not adopted as a rule, which has the effect of permanently classifying indirect home office property costs as operating costs for reimbursement purposes. In this case, petitioners filed their cost reports, and after the audit process was concluded, suffered a reduction in their Medicaid reimbursement because of the challenged instructions and use of the policy. Accordingly, they have standing to initiate this action. Have the instructions been adopted as a rule? The parties are in disagreement as to whether the instructions have been adopted as a rule. To resolve this issue, the following facts have been established. To implement the Medicaid program, HRS has adopted a seventy-nine page plan known as the Florida Title XIX long Term Care Reimbursement Plan (the plan), which establishes a reimbursement by for nursing homes. The plan, which has been amended from time to time, has been adopted and incorporated by reference in Rule 10C-7.0482, Florida Administrative Code (1989). The relevant portion of that rule reads as follows: Reimbursement to participating nursing homes for services provided shall be in accord with the Florida Title XIX long-Term Care Reimbursement Plan as revised July 1, 1986 and incorporated herein by reference. (Emphasis supplied) Each time the plan has been revised, the rule has likewise been amended and a copy of the plan filed with the Department of State. The above rule does not make reference to the instructions. Moreover, the plan does not use the words "incorporated by reference" when it refers to the instructions. However, the following advice to its users is found in paragraph A of section I of the plan: Each provider participating in the Florida Medicaid nursing home program shall submit a uniform cost report and related documents required by this Plan using Department of Health and Rehabilitative Serviced (HRS) form HRS 1542, April 1983, as revised and prepared in accordance with the related instructions. (Emphasis supplied) Until June 1986 HRS did not file the instructions with the Department of State nor did it refer to the instructions in the plan. At that time HRS was in the process of amending rule 10C-7.0482 to incorporate by reference the latest version of the plan and was advised by the Joint Administrative Procedures Committee, which reviews all agency rules, to reference the cost report (Form 1542) and related instructions in the plan and to file a copy of both documents with the committee Pursuant to that suggestion, HRS amended its plan by adding the above underscored language and thereafter filed a copy of both documents with the Department of State and the committee when the rule amendment was adopted. Thus, the instructions and the form are an integral part of the plan, and the users of the plan have been placed on notice that the cost report must be "prepared in accordance with the related instructions", a copy of which is on file for public scrutiny with the Department of State. C. A general overview of the reimbursement process Petitioners have alleged that a portion of paragraph E of the instructions which directs providers to record indirect home office costs as operating costs on Form 1542 vests unbridled discretion in the agency and is arbitrary and vague. The paragraph which underlies this controversy is found on page 6 of the instructions and reads in relevant part as follows: Inclusion in Provider Costs. Home office costs not directly allocated to the providers should be included in each account in the provider's trial balance and then through the provider's cost-finding process. . . Home office costs which are not directly allocated to the provider but are allocated on a functional or pooled basis should be included in the provider's cost report as part of the provider's general and administrative costs. (Emphasis supplied) To resolve this technical issue, it is necessary to briefly review the manner in which costs are recorded and allocated in the Medicaid reimbursement process as well as the pertinent guidelines used by HRS in performing that task. In the most basic terms, there are two separate and distinct steps in the Medicaid reimbursement process: (1) the completion and filing of a cost report by the provider, and (2) the audit process to confirm whether the reported expense classifications in the report have been made in accordance with reimbursement principles. As to the first step, a Medicaid provider must annually file a cost report with HRS setting forth both its own and its parent's costs incurred in providing services to Medicaid patients during a specified accounting period. To this end, HRS has prescribed a cost report form, basic classification of accounts and related instructions for use by the provider. The classification of accounts assists providers in classifying costs into the proper cost centers when reporting their expenditures to HRS while the instructions provide directions to the nursing home for completion of the cost report. After the reports are filed, through a series of allocations and other steps the unaudited information in the report is used to calculate prospective reimbursement rates for the provider for each of four cost components used by HRS in the reimbursement process: patient care costs, property costs, operating costs, and return on equity. It is noted here that for the operating component, HRS has established a "cap" on the amount of reimbursement which may not be exceeded even if a provider's costs exceed that limitation. For that reason, a provider might wish to shift a cost from the operating component to the property component in the event the ceiling had already been reached. Finally, in some cases, the cost reports are later subjected to an audit which may result in the rate being revised in a manner consistent with the audit results. Indeed, it was after petitioners' cost reports were audited that this proceeding ensued. As noted earlier, HRS has adopted by reference in rule 10C-7.0482 the Florida Title XIX long Term Care Reimbursement Plan which establishes the methodology for reimbursement of nursing home Medicaid providers. It is fair to say that, whenever a cost issue arises, the plan is controlling except where the plan does not address the issue. In that case, HRS looks to the federal Medicare principles of reimbursement for guidance. These principles are contained in Health Insurance Manual No. 15 (HIM 15), a compendium of federal regulations pertaining to Medicare which have been adopted for use by the plan. If the issue is not addressed in HIM 15, generally accepted accounting principles (GAAP) control the resolution of the problem. Therefore, except where modified by the plan or administrative rule, HRS utilizes the same cost finding principles as Medicare. As noted in finding of fact 8, paragraph E of the instructions directs a provider to record indirect home office costs on its cost report in the following manner: Home office costs which are not directly allocated to the provider but are allocated on a functional or pooled basic should be included in the provider's cost report as part of the provider's general and administrative costs. Although the plan itself makes no distinction between direct and indirect costs, the instructions distinguish between direct, functional and pooled home office costs. Relying on the above language, HRS considers all home office functional and pooled costs to be indirect in nature, and requires that they be recorded and then allocated as G & A (operating) costs irrespective of their original character. 1/ Once the home office property costs are recorded in the cost report pursuant to the instructions, HRS utilizes a policy of treating the classification as permanent, that is the cost item cannot be reclassified to another component or reimbursed other than as an operating cost. This policy has all of the attributes of a rule, is given the force and effect of a rule in the reimbursement process but has never been formally promulgated as a rule under chapter 120. The agency has given a number of reasons to justify its actions, including the use of an asset's function as a means of determining whether the asset is directly or indirectly related to the home office or provider, its view that the home office provides nothing more than general and administrative services to the chain members, and its laudable goal of not allowing providers to abuse the Medicaid process by shifting costs from one cost center to another to avoid a capped component. However, as will be shown hereinafter, and within the context of the issues framed in the petition, the justification for such actions is not pertinent to a resolution of this controversy. D. Differences between the instructions and the plan Petitioners point to a number of provisions in the plan which provide for a different treatment of home office property costs in the reimbursement process and which are at odds with HRS's policy of prohibiting a reclassification of such costs once they are recorded in the cost report. To begin with, home office costs are not referred to by name in the plan. Rather, the plan provides that home office costs be reimbursed in accordance with principles applicable to related organizations. According to paragraph F of section III of the plan: Costs applicable to services, facilities, and supplies furnished to a provider by organizations related to a provider by common ownership or control shall be governed by 42 CFR 405.427, Medicare (Title XVIII) Principles of Reimbursement, and Chapter 10, HIM 15. Thus, the plan requires that home office (related organization) costs be reimbursed in accordance with federal Medicare reimbursement principles and HIM In this vein, it is noted that Chapter 10 of HIM 15, which governs the Medicaid reimbursement principles applicable to home office costs, is facially at variance in several respects with the treatment of home office costs required by the instructions. More specifically, section 1005 provides that: The related organization's costs include all reasonable costs, direct and indirect, incurred in the furnishing of services, facilities and supplies to the provider. The intent is to treat the costs incurred by the supplier as if they were incurred by, the provider itself. (Emphasis supplied) This means that if a home office incurs property costs, they should be treated as if they were incurred by the facility itself. Next, section 2150.3, which pertains to the allocation of home office costs to components in the chain, requires that the following identification and classification of home office costs be made: Starting with its total costs, including those costs on behalf of providers, the home office must delete all costs which are not allowable in accordance with program instructions. The remaining costs (total allowable costs) will then be identified as capital-related costs and noncapital-related costs and allocated as stated below to all the components . . . in the chain which received services from the home office. In other words, inn the reimbursement process, after the elimination of nonallowable costs all remaining costs must be segregated into capital and noncapital classifications and allocated on that basis. It should be noted here that for purposes of both Medicare and Medicaid reimbursement principles, a capital-related cost is a property cost. Finally, section 1310 of HIM 15 establishes the following general prohibition regarding the character of home office costs: Where the provider is including in the cost report costs incurred by related organizations, the nature of the costs (i. e., capital-related or operating costs) do not change. The provider must treat capital- related costs incurred by a related organization as capital-related costs of the provider. (Emphasis supplied) Put another way, the foregoing regulation provides that the character of a cost should not be changed simply because it was incurred by a related party. Accordingly, under the literal language of the regulation, if the home office incurs a capital- related cost, it should be treated in the same fashion by the provider for reimbursement purposes. This principle is further supported by section 1311 of HIM 15 which allows a G & A cost to be reclassified to a property cost in order to satisfy the requirements of section 1310. Therefore, as to the above principles enunciated in the plan, the challenged instructions are facially at variance and leave the user in doubt as to which allocation and reimbursement scheme will be used by the agency. In addition to the foregoing Medicare principles, petitioners rely on two other definitions and an allocation principle within the plan which support their position. First, the plan defines "nursing home property costs" as: Those costs related to the ownership or leasing of a nursing home. Such costs may include property taxes, insurance, interest and depreciation or rent. It also defines "nursing home operating costs" as: Those costs not directly related to patient care or property costs, such as administrative, plant operation, laundry and housekeeping costs. Return on equity or use allowance costs are not included in operating costs. Finally, paragraph B.4. of section V of tee plan provides that, in calculating the reimbursement rates for a provider, HRS must: . . . determine allowable Medicaid property costs, operating costs, patient care costs, and return on equity or use allowance. Patient care costs include those costs directly attributable to nursing services, dietary costs, activity costs, social services costs, and all medically ordered therapies. All other costs, exclusive of property costs and return on equity or use allowance costs, are considered operating costs. These definitions, if taken literally, would lead a user of the plan to believe that if a cost had the characteristics of a property cost, it would be so classified and allocated on that basis. Finally, petitioners cite to provisions within the chart of accounts which define property and operating costs in a manner similar to those in the preceding paragraph. These provisions can also be reasonably construed to mean that a cost will be classified and allocated in a manner consistent with those definitions. Of particular significance is the fact that HRS has failed to include language in either the plan or instructions which advises the user which choice is controlling where facial differences between the plan and instructions exist.
