Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Petitioner he reimbursed for vehicle costs and utilization review costs for fiscal years 1980 and 1981 in accordance with the conclusions of law portion of this order. DONE and ENTERED this 4th day of February, 1983, in Tallahassee, Florida, DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of February, 1983.
The Issue Whether respondent Department of Health and Rehabilitative Services is entitled to recapture depreciation from petitioner Medicaid provider, pursuant to its demand letter dated April 27, 1981.
Findings Of Fact In 1968, University Home opened a skilled-care nursing home known as the Convalescent Center of Gainesville ("nursing home") at 3240 Southwest 41st Place, Gainesville, Florida. On March 10, 1981, it sold the nursing home. From January 1, 1972, through March 1, 1981--the' ate of sale--the nursing home provided care to Medicaid-eligible patients and was reimbursed by the Department. In particular, the Department reimbursed the nursing home $224,889 in depreciation expenses relating to the fixed assets. (Testimony of Allen, Donaldson; R-4.) On October 30, 1980, University Home executed a contract to sell the nursing home to Unicare Health Facilities, Inc., of Milwaukee. Although the contract specified a closing date of March 1, 1981, actual closing took place on March 10, 1981, with closing costs prorated back to March 1, 1981. (Testimony of Allen, Donaldson; R-5.) University Home realized a gain on the sale. The purchase price was $1,666,000, a price which exceeded the original cost of the nursing home as reduced by accumulated depreciation. (Testimony of Allen, Donaldson.) More than 60 days prior to the sale, University Home notified the Department by letter of the impending sale. One of the purposes of the notification was to allow the Department to assert any claims it may have against the nursing home so that the nursing home could make arrangements for repayment. In addition to written notification, University Home gave verbal notification to the Department. Paul Allen, the nursing home administrator, discussed the impending sale with Merrill Moody, a Department employee in Tallahassee responsible for Medicaid provider reimbursement and auditing of cost reports. (Testimony of Allen.) The Department was also notified of the impending sale by the buyer, Unicare Health Facilities, Inc. On December 10, 1980, the buyer sent a copy of the purchase agreement, including calculations showing the allocation of the purchase price to the fixed assets, to Mrs. Emmelina C. Pronto, Supervisor, Medicaid Desk Review, in the Department's Office of Audit and Quality Control Services. (R-5.) During the pendency of the sale, the Department asserted two outstanding claims against the nursing home. One was a $56,000 claim arising out of a 1975 Medicaid cost report filed by the nursing home, the other was a $5,700 claim resulting from adjustments by an earlier Department audit. At closing, University Home placed sufficient funds in escrow to pay both Department claims. (Testimony of Allen.) On April 27, 1981--almost two months after the sale was closed--the Department notified University Home that, based on a review of the reporting periods from January 1, 1972, to March 31, 1981, it had determined that $192,271 was due the Medicaid Program as a result of recaptured depreciation. This was the first time University Home was notified that the Department would seek to recapture depreciation--to recover prior Medicaid reimbursements for depreciation of assets used to provide Medicaid care. The rationale for recapture is that when a nursing home is sold at a price which exceeds its cost, minus accumulated depreciation, depreciation previously used in computing allowable costs was greater than the actual economic depreciation. (Testimony of Stophel, Donaldson, Allen, Conners; R-1, R-2.) The principle of depreciation recapture is discussed in the Medicare Reimbursement Manual (HIM-15) issued by the Federal Government. However, in administering state Medicaid Programs, states are free to augment, modify, or deviate from the HIM-15 provisions on depreciation recapture. (Testimony of Stophel.) The principle of depreciation recapture is also included in the "Florida Title XIX Long Term Care Reimbursement Plan" ("Plan"), a plan developed by the Department in 1977 and approved by the Federal Department of Health, Education, and Welfare in April, 1978. The Department represented to the Federal Government that it would operate the state's Medicaid Program in accordance with that Plan, which requires recapture of depreciation. If a former owner does not pay recaptured depreciation, the Plan specifies that the unpaid amount will be deducted from future state payments to the buyer, but only if "there is a State law in the form of a State statute or regulation which at the time of the sales transaction would give the buyer notice of the possibility of this obligation." (R-1, p. 12.) (Testimony of Stophel; R-1.) The Department has not adopted a rule which specifically authorizes the recapture of depreciation. Neither has the Department cited any Florida statute which explicitly authorizes the Department to recapture depreciation upon the sale of a nursing home. (Testimony of Stophel.) Although the 1977 Plan represented to the Federal Government that the Department would recapture depreciation as part of the state Medicaid Program, the Department has practiced a contrary policy. The instant case is the first time the Department has ever sought to recapture depreciation. Prior to this case, depreciation was not recaptured, even though such action would have been indicated. Since this case arose, however, the Department has sought to recapture depreciation in every case where it has been indicated. 2/ The Department's attempt to recapture depreciation in this case marks a sudden and significant departure from its long-standing practice and policy not to recapture depreciation. (Testimony of Allen; Joint Exhibit No. 1.) The decision by the Department to depart from its past policy was made in mid-April, 1981, when it decided to mail the April 27, 1981, demand letter to University Home. (Testimony of Stophel.) In 1980, the Florida Legislature enacted Section 400.179, Florida Statutes (Supp. 1980), which requires nursing home owners to notify the Department at least 60 days prior to sale. Any amounts owed the Department must be paid prior to transfer of ownership; failure to comply required a delay in issuance of the required nursing home license to the new owner. The Department explains that, prior to passage of Section 400.179, it would have been difficult to recapture depreciation since it had no leverage to compel payment. After Section 400.179 was passed, the Department, internally, began to develop a methodology to calculate amounts of depreciation recapture. Before adopting that methodology by rule, it seeks to apply and refine it on an ad hoc basis, through individual adjudicatory proceedings. 400.179, Fla. Stat. (Supp. 1980). (Testimony of Stophel.) University Home relied, to its detriment, on the Department's long- standing practice and policy not to seek recapture of depreciation; it did not know, and cannot be reasonably expected to have known, that the Department would abruptly reverse its policy. If University Home had known in advance that the Department would, for the first time, seek to recapture depreciation, it is likely that it would have: (1) not, sold the nursing home; (2) revised the sales documents so that a gain would not have been allocated to movable fixed assets; or (3) increased the sales price. (Testimony of Stophel.) Assuming recapture of depreciation is authorized, the parties dispute the methodology which should be used. The Department computes recapture as a direct repayment of the amounts previously allowed during years when Medicaid provider rates were based on costs; University Home computes recapture by recalculating the allowable Medicaid rate for each reimbursement period as if depreciation were removed as an allowable cost. Using the Department's method, the recaptured amount would be $169,224; using University Home's method, the amount would be $153,374. (Testimony of Donaldson, Conners.)
Recommendation Based on the foregoing, it is RECOMMENDED: That the Department dismiss and withdraw its claim against University Home for recaptured depreciation. DONE AND RECOMMENDED this 9th day of July, 1982, 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 9th day of July, 1982.
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
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.
Findings Of Fact Suburban Nursing and Mobile Homes, Inc., of Ohio, at all material times, wholly owned the stock of G & J, an owner of land, buildings and equipment of two nursing homes, Krestview Nursing Home and Towne House Convalescent Center located in Miami, Florida. Suburban was a holding company which owned the stock of numerous subsidiary corporations engaged in the nursing home or mobile home park business. Among its subsidiaries was B & K Investments, Inc. (hereafter "B & K") a Florida corporation. All of the stock of Suburban was controlled by Gerald D. Keller. On May 5, 1977, at the request of the Department, B & K became the licensed provider for Krestview and Towne House and G & J became the landlord. Both landlord and tenant were wholly owned by the same parent corporation. Since Medicaid rules and regulations prohibited the payment of rent by a provider to a related-party landlord, Keller arranged in May of 1977, for the sale of the stock of B & K to unrelated parties in an arm's-length transaction. Petitioner's assignor, B & K, entered into written provider agreements with the Department for the operation of the two nursing homes. That provider agreement states, in pertinent part, that: In instances of non-payment or underpayment conditions due to error(s) not attributable to provider who has furnished nursing home services and care to persons properly certified and eligible, the single state agency (HRS) shall make payment to the provider upon receipt of properly completed claims documents. (Petitioner's Exhibit 13, 13a.) (Emphasis added.) During 1978 and 1979, the Department set reimbursement rates for B & K inconsistently. During this period of time, B & K experienced at least eight different retroactive increases or decreases in a period of less than twelve months. Additionally, the relationship between the parties was increasingly strained during 1978, as evidenced by Petitioners Exhibit 18, in which a medicaid audit evaluation and review analyst, in considering cost factors at Krestview, speculated that the "Ohio group would get out of the business in Florida." In August, 1979, the independently owned B & K d/b/a Krestview Nursing Home and Towne House Convalescent Center, filed a petition in bankruptcy. Among its creditors were G & J, the landlord, which filed a secured claim in excess of $300,000 for unpaid rents. At that time B & K had not yet filed cost reports for its fiscal year ending May 31, 1979, and had filed no cost reports for the period May 31 through August 31, 1979. The trustee made a determination to file those cost reports on behalf of the bankrupt if the cost reports could be prepared. The trustee requested B & K's former accountant to prepare the cost reports. When it became apparent that the accountant was unwilling to prepare the reports without a substantial advance payment and that no funds were available to pay for such services, the trustee looked elsewhere. Keller's holding company, Suburban, owned the stock of Nursing Home Consultants, Inc., an Ohio corporation engaged in the business of providing accounting services to health care organizations. Keller had an obvious interest in offering the services of his corporation on a contingent basis since he had a $300,000 secured claim against the bankrupt whose only visible asset was the monies it asserted were due from the Department as a result of reimbursable expenses. The proposal advanced by Keller was accepted by the trustee in bankruptcy, Jennette E. Tavormina, and Judge, Thomas C. Brutton, bankruptcy judge. The court entered an order appointing Nursing Home Consultants to prepare the cost reports. Nursing Home Consultants attempted to obtain the accountant's work papers to begin preparing the cost reports, however, it was not until December, 1980, when faced with possible action from the court, that the accountant made his papers available and the time-consuming tasks of matching checks to invoices, verifying patient records and documenting expenses began. In July of 1981, Nursing Home Consultants completed the first of the cost reports and forwarded it to the trustee. The trustee in turn filed the cost report with the Department. It was returned to Nursing Home Consultants because the person who had certified the reports was not a certified public accountant in Ohio. Nursing Home Consultants had the returned cost report recertified by an independent firm of certified public accountants in Ohio. Considerable time elapsed and as of July, 1982, the cost reports for the second facility had not been completed. Both the trustee and the bankruptcy judge desired to close the estate and ascertain what, if any, assets were present. G & J made a written offer to the trustee to purchase the trustee's right, title and interest and claims, if any, in and to the Medicare/Medicaid cost reports of the bankrupt. In consideration, G & J offered the sum of $5,000 together with the waiver of its claim for rents due and owing from B & K and any and all claims against the estate for the costs and expenses incurred in the preparation of the cost reports. A hearing was held on September 23, 1982, after notice to all creditors, concerning whether G & J's offer should be accepted. The Department appeared at the hearing and opposed the sale. The offer was accepted by the trustee and ratified and approved by the court on September 24, 1982. The objection entered by the Department to the sale was specifically denied. No appeal of the court's order was taken by the Department. On February 7, 1983, G & J, as assignee, under the bankruptcy court's order, filed the cost reports with the Department for review and audit. The Department returned the cost reports outlining its reasons by letter dated March 25, 1983, and set forth above. The cost reports for the period May 5, 1977 through May 31, 1978, were initially submitted by B & K and accepted by the Department on November 1, 1978. The final audit of those reports was not completed until December 26, 1979, for Krestview, and February 15, 1980, for Towne House, after B & K had filed for bankruptcy. While the audit was being conducted, B & K was granted extensions of time for the filing of the 1978-1979 cost reports. After the trustee in bankruptcy was appointed and began the process of attempting to prepare the cost reports, the Department conducted a final audit of the 1977-1978 cost reports. The Department failed to provide either B & K or the trustee with a copy of any proposed audit adjustments. No evidence was presented that B & K or the trustee was given an exit conference where the audit findings were discussed and explained. Instead, the Department distributed the final audit but failed at that time to advise B & K, the trustee or the Bankruptcy Court of any right to challenge the audit pursuant to Section 120.57, Florida Statutes.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the Department enter a Final Order accepting for audit the cost reports submitted by the Petitioner G & J Investments Corporation, Inc., for B & K Investments, Inc., for the periods May, 1977 through August 1979. DONE and ENTERED this 6th day of February, 1984, in Tallahassee, Florida. SHARYN L. SMITH 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 6 day of February, 1984. COPIES FURNISHED: Patricia A. Peoples, Esquire R. Stuart Huff, Esquire 330 Alhambra Circle Coral Gables, Florida 33134 Joseph L. Shields, Esquire Department of Health and Rehabilitative Services 1317 Winewood Boulevard Tallahassee, Florida 32301 David H. Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 Alicia Jacobs, Esquire General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301