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
The Issue The issues are whether the alleged actions of the respondents demonstrate a lack of fitness or trustworthiness to engage in the business of insurance within the meaning of Subsection 626.611(7), Florida Statutes (2004), and, if so, what penalty should be imposed. (All statutory references are to Florida Statutes (2004) unless otherwise stated.)
Findings Of Fact Petitioner is the state agency responsible for regulating insurance agents in Florida. The respondents, Crain and Carll, are licensed as Life and Health insurance agents pursuant to respective license numbers A056967 and A040734. The respondents have known each other for approximately 13 years. During that time, the two engaged in the business of selling health insurance. Mr. Carll was an independent contractor, but Mr. Crain was Mr. Carll's only boss. Mr. Crain wholly owns two Florida corporations that he operates as insurance agencies. The two corporations are identified in the record as International Life and Health Services of Manatee County, Inc. (Manatee), and International Life and Health Services of Sarasota County, Inc. (Sarasota). Mr. Crain owns two other Florida corporations. They are identified in the record as Independent Living Home Care Agency, Inc. (Home Care Agency), and Independent Living Home Care Membership Association, Inc. (Home Care). Home Care promises in a plan written by Mr. Crain to provide plan purchasers with access to discounted in-home care (the plan). Approximately 44 Florida residents purchased the plan in 2005 and 2006 from insurance agents, including Mr. Carll, who, as agents for Mr. Crain, Manatee, or Sarasota, previously sold health insurance to some of the plan purchasers. Mr. Crain is personally and fully liable for the acts of the selling insurance agents within the meaning of Section 626.839. Mr. Crain is a health insurance agent who is the president and sole shareholder of a health insurance agency. Mr. Crain directly supervised and controlled the insurance agents who sold the plan in Florida. Mr. Crain wrote the plan and trained the insurance agents in the content of the plan, sales techniques, how to exclude impaired customers, and how to determine whether a customer was an appropriate candidate to purchase a plan. Mr. Crain did not obtain a legal opinion concerning his final version of the plan. The plan satisfies the statutory definition of insurance. However, the plan is not health insurance that the legislature has expressed its intent to regulate.1 The plan promises Home Care will provide a purchaser of a membership with access to in-home care from a third-party provider, denominated as a "caregiver," at a cost substantially less than the market rate caregivers normally charge for such services (discounted home care services). The plan promises to refund 120 percent of the membership fee if Home Care were unable to provide access to discounted home care services. The plan excludes medical care from the definition of home care services. Home care services include companion and homemaker services; housekeeping and laundry services; transportation services for doctor visits, groceries, and visits with friends; meal preparation; assistance with dressing and undressing; organizing files and bills; not burdening loved ones; protecting assets and heir's inheritance; gaining respect; and preserving one's legacy while gaining respect and dignity. The plan offers memberships for four, six, and eight years. Only four and six-year memberships are pertinent to this proceeding. The respective cost for each four and six-year membership is $2,475 and $3,475. Home Care promises each member will have access to discounted home care services for respective benefit periods of 1.5 and 2.5 years. The cost of membership does not apply toward the cost of discounted home care services. Services are not available at the discounted rate for the first 90 days after the date a purchaser requests services (the elimination period).2 The elimination period is 180 days "for pre-existing conditions".3 An additional payment of $1,395 reduces the normal elimination period from 90 to 60 days, extends the membership period an additional two years, and extends the respective benefit periods by one year. The plan charges an additional 25 percent if a purchaser elects installment payments. The plan promises home care services at substantial discounts below the market rate. The discounted plan rates are $94 for 24 hours of service; $72 for eight hours of service; and $36 for four hours of service. Market rates in the community range from $204 to $480 for 24 hours of service and from $16 to $18 an hour for shorter periods.4 The 44 plans sold in Florida generated approximately $192,000 in membership fees for Home Care. Mr. Crain deposited the fees into a bank account he created for Home Care and for which Mr. Crain is the sole authorized signatory. Home Care paid commissions to insurance agents ranging from 50 and 60 percent of the sale proceeds. The allegations in this proceeding pertain to four of the 44 plan purchasers. Ms. Janet McClurkin purchased the plan in April 2005 in two installments totaling $2,112. Ms. Ruth Frakes purchased the plan in February 2005 in two installments totaling $4,870. Ms. Carin Clareus purchased the plan in February 2005 for one payment of $1,953. Ms. Eva Muller purchased the plan in March 2005 for one payment of $3,475.5 A finding of guilt requires proof of one or more of five essential allegations, the first of which alleges the four plan purchasers are elderly women who, at the time of purchase, were "disabled" and suffered from "diminished mental capacity." The four sales allegedly violated the plan prohibition against sales to anyone "not of sound mind or body." The four plan purchasers are clearly elderly women. At the time of the hearing, Ms. McClurkin was 94 years old.6 Ms. McClurkin is Canadian, has been widowed for approximately 35 years, has no children or nearby family, and lives alone. Her nephew had power of attorney at the time of the hearing. Ms. McClurkin suffered from hearing and memory loss. She had worn two hearing aids for about a year, was recovering from surgery for breast cancer two years earlier, and had functioned for over 15 years with two artificial hips. Ms. Frakes was 90 years old at the time of the hearing.7 Ms. Frakes had been widowed for approximately 26 years and had no children and no surviving relatives. Ms. Frakes wore a Life Alert alarm, had been wearing two hearing aids for approximately seven years, had been reading through a magnifying glass for approximately five years, was taking medication for high blood pressure, and suffered from arthritis. Ms. Clareus was 97 years old at the time of the hearing and resided in a community of about 200 senior citizens.8 She immigrated to the United States in 1928, had been widowed for approximately four years at the time of the hearing, and had no children and no nearby relatives. Ms. Clareus had been legally blind for approximately eight years but was able to read through an assistive device in her residence. Ms. Muller was approximately 85 years old at the time of the hearing. She immigrated from Germany and then became a U.S. citizen, all in a time frame not disclosed in the record. Ms. Muller had been divorced early in her life and lived alone in a mobile home community. She had no nearby relatives and experienced memory problems. Ms. Muller owns an automobile but does not drive. Friends drive for her. After purchasing the plan, Ms. Muller executed a power of attorney naming Ms. Ingrid Eglsaer as her general power of attorney. At the time of the hearing, the four witnesses demonstrated confusion and difficulty in recalling specific facts. However, their confusion and impaired memory at the hearing was not clear and convincing evidence that the witnesses were incompetent when they purchased the plan. The allegation of incompetence at the time of purchase may be supported by inference or surmise, but inference and surmise do not satisfy the requirement for clear and convincing evidence.9 Petitioner submitted no expert testimony concerning the mental capacity of a purchaser at the time of the purchase. Petitioner next alleges the respondents misrepresented that Home Care would provide home care services and home medical care without further charge. Each Administrative Complaint admits the alleged misrepresentation conflicts with the terms of the plan.10 The plan promises access to discounted home care services and states that the membership fee does not apply toward charges for discounted home care services.11 The evidence is less than clear and convincing that the respondents misrepresented the contents of the plan in a manner that led purchasers to believe they would receive home care services or home medical care without additional charge. Testimony of the four purchasers concerning verbal representations by insurance agents during sales transactions is confused, is not precise and explicit, and is less than clear and convincing. Each purchaser may have inferred that she was purchasing insurance for either home care services or home medical care without an additional charge. Some purchasers had previously purchased such insurance from the same insurance agent. Each sale included a consultation in which the insurance agent reviewed other insurance held by the purchaser. The plan included terms that sounded to elderly women like familiar insurance terms. For example, the plan requires the purchaser to apply for coverage and employs terms such as "Eligible Persons," "Effective Date," "Elimination Period," "Limitations and Exclusions," and "Benefit Discount Period." The plan extends the elimination period when "pre- existing conditions" exist, describes home care providers as "caregivers," and discusses "co-payments." The plan includes a disclosure form and a medical release form. The evidence is less than clear and convincing that the respondents made promises or representations, other than those in the plan, to induce a purchaser to infer that the plan entitled her to discounted home care or medical care at no additional charge. Rather, the terms of the plan were purposefully confusing and induced the four elderly women to draw the desired inference. Petitioner also alleges the respondents made false and worthless promises that defrauded the purchasers. However, it is unnecessary to resolve the allegations of fraud in this case.12 This case can be resolved if the evidence supports one of two remaining allegations. First, the respondents allegedly misrepresented the access to discounted caregiver services that a purchaser acquired upon payment of a membership fee. Second, the promises of access to discounted caregiver services that the respondents made to each of the four plan purchasers were false and worthless.13 The plan misrepresented the access to caregivers that a purchaser acquired upon payment of a membership fee. The plan provides, in relevant part: If a member joins the association they are guaranteed the homecare discounts provided for in the contractual agreement. Respondent Crain, Exhibit 1, at 4. The plan does not name or otherwise identify a caregiver responsible for supplying the discounted caregiver services "guaranteed" in the plan. In that regard, the plan is factually distinguishable from a home care plan that passed judicial scrutiny in an unrelated proceeding.14 Neither Mr. Crain nor Home Care possessed a legal right to require a caregiver to provide discounted services in accordance with the terms of the plan. Neither Mr. Crain nor Home Care possessed the practical ability to ensure that a caregiver would provide home care services at any price, much less the discounted prices promised in the plan.15 The absence of either a legally enforceable right or practical ability to ensure that a caregiver would provide the discounted home care services promised in the plan were material facts that Mr. Crain did not disclose to purchasers. The failure to disclose material facts was willful and misrepresented the access to discounted caregiver services that a purchaser acquired upon payment of a membership fee. Testimony from Mr. Crain concerning his practical ability to ensure delivery of discounted caregiver services was neither credible nor persuasive to the fact-finder. Mr. Crain discussed home care services with a number of caregivers. Based on those conversations, Mr. Crain developed a list of caregivers he said he could call in the future to request discounted caregiver services promised in the plan if and when one of the 44 purchasers requested services (the list).16 The list evolved between January 2005 and September 2006. Mr. Crain advertised for caregivers in local newspapers. The collective responses numbered between 100 and 200. Mr. Crain or a staff-member collected the contact information for each responder and questioned each responder concerning, among other things, their qualifications and experience. The final list identified 15 caregivers. Mr. Crain described the list of 15 in answers to questions from the fact-finder: [Q] Well, I want to make sure I understand clearly. So, you ran an ad. People called in, you took down their contact information, and did you run [abuse registry] screens on these people? [A] Yes, I did. [Q] Okay. You mentioned earlier 200 responded. Did all 200 make the list? [A] The list? . . . [Q] . . . The list I'm referring to is the list referred to in testimony of . . . [insurance] agents of yours that said you maintained a list of contract individuals . . . Did you maintain a list? [A] I had a list of potential caregivers from the original ad, yes. * * * [Q] So you ran two ads. You had some responses to the first ad, and overwhelming responses to the second ad, and when you talked to the person, what did [you] do . . . ? [A] They call in -- I briefly qualify them. * * * [Q] And what kind of information do you collect? [A] Name, address, phone number, work history, educational history ethical behavior . . . . [and abuse] screening . . . . [I]f the agency they work for currently or in the past could not fax me a copy of . . . screening . . . by AHCA [Agency for Health Care Administration], then I could then screen them myself. [Q] [H]ow many of these people did you actually either screen or get faxes of their screen? [A] About seven. [Q] Out of how many? [A] Altogether, I had spoken to no less than a hundred people. [Q] From both ads? [A] Correct. . . . [Q] How many of the seven did you screen yourself? [A] Three. . . . [Q] Okay. Now, you talked to a hundred. Did you compile a resource list? [A] Yes, I did. [Q] And how many . . . , of the hundred, made the resource list? [A] I had at least 15 potentially eligible people that could work for me, but I had seven that could go at any moment. Or not at any moment but that were available, already screened with experience and ready to go. Or around seven. Transcript (TR) at 581-585. Mr. Crain did not bond or insure any of the 15 potentially eligible caregivers. Mr. Crain explained the bonding procedure in the following testimony: [Q] [The plan] . . . talks about having people bonded, insured, and fully screened, correct? [A] Yes. [Q] Now, we've already talked about screening. How would you make arrangements to bond and insure someone? [A] If they were employed, to bond a person is a one-page form . . . [y]ou deliver to this insurance agency . . . down the road from my office . . . and putting a hundred dollars for every ten thousand dollars of bonding you want. . . . [Q] So, when in the process would you bond and insure someone? [A] The day or the day before they went out to the actual care. [Q] So actually, prior to having a request for services and actually arranging for somebody to go out, you wouldn't have gone through the trouble or expense of bonding or insuring, correct? [A] Correct. [Q] Who actually bears the expense of bonding and insuring? [A] The provider. [Q] You mean the worker? [A] Yeah. . . . TR at 585-586. The plan promised that access to discounted services included a guaranteed refund equal to 120 percent of membership if Home Care were unable to provide access to the discounted caregiver services promised in the plan. Mr. Crain wrote the refund language to state: 17. 120% money back guarantee. If [Home Care] cannot provide homemaker and companion services at the discounted rate as governed by this contract, the company shall pay the member all the fees paid plus an additional 20%. Due to severe, unprecedented, skyrocketing costs for caregivers, or an unforeseen increase in the demand for personnel, the company will make this refund. [Home Care] has a big responsibility to provide quality home care services to all of it's [sic] members. Even though management owners and outside professionals have thoroughly though [sic] out almost every variable in making this contract both beneficial to the customers and profitable for [Home Care], no one can predict the future. Therefore it is agreed by both parties that by entering into this contract that the legal remedy for [Home Care's] possible inability to provide the service at the discounted rate, is for [Home Care] to refund 120% of the member's fee after reviewing the case with legal counsel as provided for by [Home Care] regarding the unusual circumstances of the said member. Respondent Crain, Exhibit 1, at 7. The promise that access to discounted caregiver services includes a guaranteed refund of 120 percent of the membership fee is a false promise. The promise is not conditioned on any discernable legal standard or any other standard capable of objective measurement. Rather, the applicable standard is a subjective standard to be interpreted at the sole discretion of Mr. Crain. Mr. Crain willfully included the false refund promise in the plan. As Mr. Crain explained: The right to get a refund? After five days, they don't have a right to get a refund. [Q] Do you or have you, on behalf of the company, given refunds to persons beyond the five-day period? [A] Yes. [Q] Is that at your discretion? [A] Yes. [Q] Is there any particular policy or plan regarding when and how to give a refund and how much? [A] No. TR at 614. Mr. Crain is the sole arbiter of the entitlement to a refund and the amount of the refund to be paid. For example, Mr. Crain paid Ms. Muller 120 percent of her membership fee but paid only a prorated amount to Ms. Clareus.17 The promise to refund 120 percent of the membership fee is worthless. Mr. Crain willfully included the worthless promise in the plan. The refund obligation is owed solely by Home Care, and Home Care has not retained sufficient reserves to fund its contractual obligation.18 Mr. Crain withdrew virtually all of the $192,000 in membership fees to pay commissions, operating costs, and similar expenses. On June 19, 2006, Home Care had $946 in its bank account. The last refund obligation Home Care owes to the two unpaid purchasers in this proceeding will not expire until sometime in 2011. The corporate promise to refund 120 percent of the membership fee is worthless because it is an unfunded obligation to pay refunds from non-existent reserves. Mr. Carll did not exercise ordinary diligence, much less the reasonable skill and diligence required of an insurance agent, to examine the plan for misrepresentations and false promises. Mr. Carll willfully failed to independently examine the plan. As Mr. Carll explained during his testimony: Jim was constantly on the phone interviewing people, prospective caregivers, talking to -- even to home health care agencies that provide homemaker services, and it's my understanding that he had compiled a list of people who could be called in the event if someone requested for [sic] service. * * * [Q] When you had meetings with Mr. Crain, did you ask him questions? [A] Yes. [Q] What questions did you ask about the plan? [A] Oh, how does the elimination period work. You know, when do services begin? What do people have to do to get services? Questions of that nature. [Q] Anything else? [A] Just questions about, you know, well how to talk to these people and, you know, what to look for when you walk into a house. [Q] Did you ask Mr. Crain what ability he had to ensure that these third party contractors would provide their services for the fees he guaranteed in the plan? [A] Yes. [Q] Okay. What did you ask him? [A] I said, Well, how can we be sure that these people will get the services that they need when they ask for them? [Q] And? [A] He said that he had interviewed numerous people. He had a list of people that he could call . . . to provide [discounted services]. . . . [Q] Did you ask Mr. Crain what ability he had to . . . enforce that representation from them if, at some future time, he asked them to provide that service, and they said they no longer would? [A] I didn't ask him that question. [Q] So you didn't ask him if he had these people under legal contract for the term of the plan? [A] No. . . . I have a lot of faith in Jim Crain. TR at 358 and 422-424. Mr. Carll knew, or should have known, that the plan he sold included misrepresentations. Mr. Carll knew, or should have known, from the language of the plan that the refund promise is false. Each of the respondents is an insurance agent who enjoyed a fiduciary relationship which arose from previous sales of health insurance. Mr. Carll also enjoyed a fiduciary relationship that arose during the previously discussed consultative role he performed when he reviewed with plan purchasers their existing insurance. As Mr. Carll explained during his testimony: Well, a lot them, some of them were referrals, some of them were people we already knew. [Q] How did you know them? [A] That they had purchased insurance with us before. You know, a lot of them called the office. [Q] For what purpose did they call? [A] Well, they called the office looking for the agent that sold them insurance. TR at 360-361.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order finding the respondents guilty of violating Subsection 626.611(7), for the reasons stated herein, and suspending their licenses for 24 months from the date the proposed agency action becomes final. DONE AND ENTERED this 31st day of January, 2007, in Tallahassee, Leon County, Florida. S DANIEL MANRY 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) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 31st day of January, 2007.
The Issue Whether or not certain cost items disallowed in the Department of Health and Rehabilitative Services' audit report of Fountainhead Nursing and Convalescent Home, Respondent, for fiscal year ending June 30, 1977, were proper and, therefore, should be sustained.
Findings Of Fact During the course of the hearing, there was little dispute regarding the facts here involved. By letter dated March 21, 1979, Saul H. Silverman, C.P.A., requested an administrative hearing for the Fountainhead Nursing and Convalescent Home, Petitioner, provider No. 20043-0, due to certain audit adjustments based on an audit of the provider's Medicaid Cost Report for the fiscal year ending June 30, 1977. The audit in question was performed by Laventhol & Horwath, C.P.A.'s under contact with the Department of Health and Rehabilitative Services, Tallahassee, Florida. Bamberg, Superstein & Co., Certified Public Accountants, represent the Petitioner, Ni-Bud, Inc., T/A fountainhead Nursing and Convalescent Home, 390 Northeast 135th Street, North Miami, Florida, and prepared the Medicaid Cost Report for June 30, 1977. The Petitioner requested a hearing based on a disagreement with the following adjustments made by the auditors: 1. Administrator's compensation disallowed disallowed $37,162.00 2. Medical records expense disallowed 465.00 3. Oxygen income offset of expense 1,078.00 4. Method of computing Medicaid per diem cost by using cost finding methods not reflected in the instructions for preparation of the Cost Reports. During the hearing, Respondent agreed to permit the allowance for oxygen which had been previously disallowed provided Petitioner establish via documentation that the costs reflected for oxygen were, in fact, used only for emergencies. Documentation to that effect has been submitted and the oxygen income offset expense is no longer at issue herein. Additionally, based on an audit update received July 5, 1979, a review of the medical records expense, which expense was previously disallowed, was allowed during the updated audit. Therefore, the medical records expense is no longer at issue. What is remaining at issue herein are the items respecting the Administrator's compensation and the method of computing Medicaid per diem costs by using cost findings methods not reflected in the instructions for preparation of cost reports. The amount disallowed for the Administrator's compensation was an amount of $37,162. The total compensation allowed for the Administrator, Joseph Mossey, was $61,140. In the auditor's determination, a reasonable compensation for the Administrator was $23,978. Petitioner disallowed what it determined to be a "bonus" as such was not related to patient care. Kenneth Conners, Jr., an employee of Petitioner in the auditing section, appeared and testified respecting the manner in which cost adjustments are made. He testified that the cost reports submitted are primarily used for prior years and to determine interim per diem rates for the following year. He testified that cost reports result in no adjustment for Medicare rates and administrator's salary. He testified that with respect to the issues surrounding the disallowance of the Administrator's "bonus," the question centered around whether the money was in fact earned. Additionally, he testified that consideration is given to whether the "bonus" is reasonable; whether it is related to patient care and that in reaching a decision, consideration is given to allowable costs for bonuses in similar facilities in various regions of the country. Conners testified that based on figures contained in a publication issued by Commerce Clearing House, Inc. (CCH), the Administrator's bonus disallowed for this facility was proper. For example, he pointed out that in the Arkansas region the lower figure for comparable administrators is $19,500, with an upper range of $30,000. In Texas, the lower compensation is around $15,000, an upper range is $37,000 and the mean figure is $24,600. In New York, a similar figure results in compensation in the lower range of $8,100, an upper range is $32,500 and a mean compensation figure is 419,600. Conners cited a $9,000 lower range in California, an upper range of $26,00 and a median of $15,000. In Florida, the lower range for a comparable facility was $12,297, an upper range of $67,044 and a mean range of $19,588. He testified that when making its determination, Respondent utilizes a manual, HIM Section 22.01(2) and the guiding standard therein is whether or not the amounts are reasonable and related to patient care. Petitioner disagrees with Respondent's determination and points out that inasmuch as its Administrator, Joseph Mossey, is not a stockholder of the Respondent corporation, Ni-Bud, Inc., and is not related in any manner to any stockholder of the corporation, the amount that should be allowable compensation for him is not governed by the rules for owner's compensation as contained in regulation Section 405.425 and HIM-15-1, Chapter 9. Instead, he pointed out that the general rule of reasonableness, necessity, prudent buyer concept and expenses related to patient care are the pertinent considerations (Regulations 405.451 and HIM-15-1, Chapter 21) and should controlling. It is undisputed that Mr. Mossey's function as an administrator is necessary and related to patient care. The disagreement thus, centers around the reasonableness of the compensation and whether the Respondent's owners were acting as "prudent buyers" as that concept applies to the Medicaid reimbursement. As stated, Mr. Mossey is not an owner of the facility and, therefore, all employment contracts and compensation arrangements must be assumed to have been negotiated at "arms length." Regulation Section 405.451(c)(2) and (3). Subsections (2) and (3) of the above regulation provide in pertinent part that: The cost of provider's services vary from one provider to another and the variations generally reflect differences in scope of services and intensity of care. The provision entitled XVIII of the act for the payment of reasonable cost of services is intended to meet the actual cost, however widely they may vary from one institution to another. This is subject to a limitation where a particular institution's costs are found to be substantially out of line with other institutions in the same area which are similar in size, scope of services, utilization and other relevant factors. The determination of reasonable costs of services must be based on costs related to the care of beneficiaries of Title XVIII of the act. Reasonable cost includes all necessary and proper expenses incurred in rendering services, such as administrative costs, maintenance costs, and premium payments for employee health and pension plans. It includes both direct and indirect costs and normal standby costs. However, where the provider's operating costs include amounts not related to patient care, specifically not reimbursable under the program, or flowing from the provision of luxury items or services, (that is, those items of services substantially in excess of or more expensive than those generally considered necessary for the provision of needed health services), such amount will not be allowable. The reasonable cost basis of reimbursement contemplates that the providers of services will be reimbursed the actual cost for providing quality care, however widely the actual costs may vary from provider to provider and from time to time for the same provider. HIM-15-Part I, Section 2103 entitled, "Prudent Buyer," states that: In those cases where an intemediary notes that a provider pays more than a going price for a supply or service, in the absence of clear justification for the premium, the intermediary will exclude excess cost in determining allowable costs under Medicare. There is no question but that Mr. Mossey's compensation is higher than the average nursing home administrator. Respondent contends that Mr. Mossey's duties, management skills and background justify this higher than normal rate of compensation. Joseph Mossey, Administrator of the subject facility since October 1970, appeared at the hearing and testified respecting his background and duties at the provider. He testified that prior to becoming an administrator for the subject facility, he had been a supervisor in nusing services for Eastman Kodak Company. Prior thereto, he had operated a nursing home in Saudi Arabia and had also served as a private duty nurse. At the outset of his employment relationship with the provider, he initially hired a more competent staff and paid better salaries to recruit, attract and retain competent employees. He testified that since becoming administrator in 1970, the facility has enjoyed an excellent rating from the Respondent, resulting in only one citation during 1977 and two citations in 1978, none of which were related to patient care. Additionally, he testified that he is on call twenty-four hours daily and that he is called upon to answer and respond to all emergency situations and make emergency policy decisions. During the first seven years of his employment as administrator, which of couse covers part of the period in question, Mossey worked seven days a week plus holidays. Mossey attends seminars and workshops on a continuous basis and keeps abreast of changing trends in nursing home care. This aids in enabling him to better provide quality care at a reasonable rate. Evidence reveals that Mr. Mossey's experience and management skills have kept the rise in the cost of providing care of the subject facility at levels far below industry averages. The following is the cost per patient day at the facility, excluding fixed expenses, since 1970. FISCAL YEAR JUNE 30, AMOUNT PERCENT OF CHANGE 1970 $10.53 -0- 1971 9.95 -5.5 1972 9.57 -3.8 1973 9.41 -1.7 1974 9.82 +4.3 1975 11.41 +16.1 1976 12.50 +9.5 1977 13.76 +10.1 1978 15.25 +10.8 Since 1970, the cost per day is up approximately 45 percent or about 5.6 percent per year on average. During the same period, evidence reveals that the coinsurance rate paid by Medicare patients, which is set up annually by the U.S. Department of Health, Education and Welfare and based on the average per diem charge in a hospital, has gone up form $5.50 to $18.00, or 177 percent. This, of course, reflects a higher rate of cost increase in the healthcare industry as a whole, then in the Respondent's case. It appears that the Respondent is thus keeping the cost of operating the nursing home lower than the norm and, of course, a derivative benefit to the State Medicaid/Medicare Program through a lower reimbursement rate. Industry surveys indicate that from 1972 through 1976 nursing home costs increased 45.56 percent. The Respondent's costs for the same period increased by 25.6 percent. Since July 1, 1974, when Medicaid initiated their cost related reimbursement rates, the Respondent has consistently been under the maximum cost reimbursement cap set by the Medicaid program. The following examples are illustrative: YEAR REIMBURSEMENT RATE CAP 1974 $493.00 $550.00 1975 527.00 600.00 1976 575.00 630.00 1977 615.00 680.00 1978 600.00 2/ 778.00 The State cap, which represents the level at which approximately 60 percent of Florida nursing homes being run efficiently would be fully reimbursed for their costs, has risen 41.5 percent. Contrawise, the Respondent's rate has risen only 21.8 percent. Mr. Mossey has thus kept his costs lower than the industry average. This cost savings of approximately $3.18 per patient day more than compensates for the $.71 per day cost of Mr. Mossey's higher than average compensation. Therefore, it appears that the Respondent was justified in paying a higher than normal compensation to its Administrator under the prudent buyer and reasonableness concepts. I shall so recommend. The final item of contention is the cost finding method used by the auditors to determine Medicaid's share of the Respondent's operating costs. The auditors used a two-step method of allocation. First, the auditors determine allowable costs for the entire nursing home. Next, the auditors remove the patient days and costs of services for Medicare patients. It should be noted, that the entire facility is Medicaid certified. Using the remaining patient days and costs, the auditors calculated the per diem amount to be used to allocate operating costs to Medicaid patients. The Medicare costs and patient days removed were determined from the facility's Medicare Cost Report filed with that program. Medicare, however, uses a more sophisticated method of allocating costs than Medicaid. Medicaid is a full coverage program but all services, for example, physical therapy, speech therapy and drugs, are not covered by Medicaid. It is the Medicaid payments that are here involved and which Petitioner contends are computed after deductions and operating costs are made for those costs associated with Medicare. Based on the July 5, 1979, audit update report, a revision adding back a net effect for recomputing the Medicare adjustment based on audited Medicare cost reports resulted in an overpayment figure of $24,887 to the provider. Respondent contends that making the adjustments here involved resulted in removing costs which affect the average cost per patient day. It is also contended that the majority of those deductions come from the full-care patients which have the highest per diem cost and this results in lower payments to the provider. Responder urges that by isolating Medicare costs and removing them from the remaining costs for the nursing home prior to calculating the per diem cost of operation, the auditors have violated the Medicaid principles of reimbursement. Finally, Respondent contends that based on cost report instructions and instructions received from the Medicare program which is based on that program's more sophisticated cost reimbursement formula, the auditors should not enter into the calculation, the nursing home's determination of costs allocated to the Medicaid program. The Social Security Health Insurance Act in 42. U.S. COde 1395(x)(v)(i)(a), is the guiding standard for determining cost payments for the Medicaid/medicare program reimbursement formulas. That section provides in pertinent part that: The reasonable costs of any services shall be the costs actually incurred, excluding therefrom any part of the incurred costs found to be unnecessary in the efficient delivery of needed health services, and shall be determined in accordance with regulations establishing the method or methods to be used, and the items to be included . . . such regulations shall (i) take into account both direct and indirect cost of providers of services (excluding therefrom any such costs, including standby costs, which are determined in accordance with regulations to be unnecessary in the efficient delivery of services covered by the insurance programs established under this title) in order that, under the methods of determining costs, the necessary costs of efficiently delivering covered services to individuals covered by the insurance programs established by this title would not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by such insurance program. . . . Regulations promulgated in accordance with the above statute are contained in 42 CFR 405.451(b)(l) which provides in pertinent part that: The objective is that in determining costs, the costs with respect to individuals covered by the program will not be borne by individuals not so covered, and the costs with respect to individuals not so covered will not be borne by the program. Considertion of the above-quoted provisions require that all costs relating to Medicare patients be separated out in determining the costs for which reimbursements will be made under Medicaid. The Medicare adjustments here presented are for the purpose of accomplishing this objective and/or adjustments that the Respondent is required to make. From the foregoing, it is concluded that the revised update audit report dated July 2, 1979, properly gives consideration to the requirements of the above-quoted provisions. It is, therefore, RECOMMENDED that Fountainhead Nursing Convalescent Home be required to remit the overpayments as reflected in the July 2, 1979, audit update, or in lieu thereof, that these overpayments be deducted from future Medicaid payments to Respondent. Additionally, it is recommended that the Petitioner credit the Respondent with the amount of $37,162 for fiscal year ending June 30, 1977, which amount represents the amount previously disallowed for the Administrator's compensation. RECOMMENDED this 30th day of August 1979, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675
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
Findings Of Fact Introduction Petitioner, Stacey Health Care Centers, Inc. d/b/a Riverside Care Center (RCC or petitioner), operates an eighty bed nursing home at 899 Northwest Fourth Street, Miami, Florida. The facility is licensed by respondent, Department of Health and Rehabilitative Services (HRS). At all times relevant hereto, RCC was a participant in the Florida Medicaid Program. The facility has been in operation since March, 1983, and has always attained a superior rating. In July, 1984 it filled all eighty beds and has remained full since that time. As a Medicaid participant, RCC was required to submit to HRS a cost report for the fiscal year ending December 31, 1984. This was filed in the latter part of March, 1985. The report sets forth those costs which RCC claims it incurred in providing Medicaid services during the fiscal year. In 1985, HRS contracted with Grant Thornton, an independent accounting firm, to perform a field audit of RCC's books and records to verify whether RCC's reported costs for fiscal year 1984 were proper expenditures and therefore reimbursable. On May 7, 1986 an audit report and management letter were issued by Grant Thornton proposing that RCC's cost report be adjusted in nineteen respects. The report and letter were later forwarded by HRS to RCC on January 7, 1987. Contending that seven of the adjustments (2, 3, 5, 6, 7, 12 and 15) were not appropriate or justified, RCC requested a formal hearing to contest the report. This resulted in the instant proceeding. Audit Principles and Guidelines Under the Medicaid contract entered into by RCC and HRS, the provider agreed to conform with all pertinent rules and regulations governing Medicaid providers. These include, in order of importance, (a) relevant agency rules codified in the Florida Administrative Code, (b) the Florida Title XIX Long-Term Care Reimbursement Plan (Long Term Plan) then in effect, (c) the Health Insurance Manual (HIM-15), which is a compendium of federal cost reimbursement principles for nursing homes, and (d) where applicable, generally accepted accounting principles (GAAP). Of particular relevance to this proceeding is Subsection III.G.1. of the September 1, 1984 Long Term Plan which provides that "the 0wner administrator . . . compensation will be limited to reasonable levels determined in accordance with HIM-15." The latter document utilizes Bureau of Health Insurance (BHI)/2 data to determine reasonable compensation for owner- administrators in other similar sized institutions in the same geographic area. From this data, a cap or limitation is derived, and any owner compensation above this cap is disallowed and not reimbursed. The theory behind this cap is that an owner- administrator should receive no more compensation than does a non- owner administrator. Also relevant is the so-called prudent buyer concept embodied in section 2103 of HIM-15. Paragraph A of that section provides in part that "the prudent and cost- conscious buyer not only refuses to pay more than the going price for an item or service, he also seeks to economize by minimizing cost." Put another way, the buyer will pay no more than is necessary to procure a supply or service and if he does not, the expense is disallowed. The Concept of Hateriality (Items 2, 7 and 12) The audit report proposes to disallow items 2, 7 and 12 on the ground RCC did not provide adequate documentation to support the expenditures. In sum, the three items total $145. The parties have stipulated that the issue of adequate documentation is not yet ripe. Even so, petitioner suggests the expenses should be allowed since they are "immaterial to the overall cost report." However, the testimony herein reflects that even though an item is immaterial, it may still be disallowed if not in compliance with pertinent regulations. Put another way, there is no regulation or rule which requires an expenditure to be automatically approved simply because it is immaterial. Therefore, the proposed adjustments are proper. Owner's Compensation (Items 3, 5, 6 and 15) Corporate structure The majority (95 percent) of the capital stock of RCC is owned by Stacey Enterprises, Inc. (SEI) located in Cincinnati, Ohio. SEI also owns and operates a 63-bed skilled nursing facility, Gerrard Convalescent Home (GCH), in Covington, Kentucky which is subject to that state's regulatory jurisdiction. Under this corporate structure, which is called a "chain organization" in federal bureaucratese, SEI is considered to be a "home office" providing certain administrative and support functions to RCC. In theory, a home office managing more than one facility should be more efficient than a nursing home that provides its own administrative functions. This is because a home office should reduce costs through economy of scale. In the health care industry, a home office may provide such services as purchasing, personnel, payroll, accounting, computer, and the like. Ralph L. Stacey, Jr. (Stacey), who resides in Covington, Kentucky, is the president and sole stockholder of SEI. He is licensed as a nursing home administrator in Florida and Kentucky, and serves in that capacity at both RCC and GCH. However, in 1984 he had another full-time licensed administrator at RCC and consequently did not claim reimbursement for a full- time salary at either facility. Stacey is also the sole employee of the home office. As such, his duties for the three entities (RCC, GCH and SEI) overlap, and coupled with his place of residence, constitute the source of this controversy. Filing requirements Because of the chain organizational setup, HRS required the provider to file two annual cost reports, one in the name of RCC and the other by SEI as the home office. Both purported to reflect those costs which were properly allocated to Florida operations and were therefore reimbursable under the Florida Medicaid program. However, since the RCC report contains Florida's allocated portion of home office costs, the HRS audit refers only to RCC's 1984 Medicaid cost report. Content of two reports Since SEI claims it provided services in 1984 to both RCC and GCH, an allocation of its regulatory expenses ($7,504) was necessary in order to determine what portion applied to Florida operations. To do this, and for purposes of filing the home office report, SEI developed a ratio based on total patient days of the two facilities, an accepted method for making such an allocation. After removing $139 in non-regulatory expenses, SEI then allocated 54.4 percent of the remaining home office expenses to RCC, or a total of $4,007. Of that amount, over ninety-seven percent fell within the category of "travel." Included within this category are $2,103 in airline tickets, while the make up of the remaining expenses has not been identified. However, the parties have suggested they include primarily "living" expenses incurred by Stacey while living part- time in Miami in 1984. All were ostensibly incurred while Stacey served in the role of a home office employee. The home office charges are referred to on the audit report as adjustment number 5. In addition to the home office charges, RCC's cost report claims reimbursement for a pro rate portion of expenses incurred by Stacey while serving as administrator for both RCC and GCH in 1984. To allocate these costs, Stacey determined the amount of time devoted to each facility, and then assigned appropriate portions of his total expenses to each operation. The precise factor used is not of record. It is noted that the audit report classifies these expenses into three categories (gas and electric, other travel and rent) while the witnesses referred to them as rent, meals, utilities, motor vehicle expenses, supplies, salary, and other miscellaneous items. Whatever their nature, they are reflected on the audit report as adjustment numbers 3, 6 and 15. The controversy and HRS' Proposed action The principal controversy herein centers around Stacey's claimed expenses while commuting to and living in Florida in 1984, and which were charged to RCC as administrative costs or as indirect home office charges. The commuting was necessary since Stacey's primary residence was Covington, Kentucky, and he was also required to tend to duties as an administrator in Kentucky and a home office employee in Ohio. In its audit report, the agency has proposed to disallow all such costs on the general ground they were not related to patient care, relying principally on Sections 2102.3 and 2304 of HIM- 15 as authority for such action. As clarified at hearing, HRS then relied upon the prudent buyer concept and owner's compensation rule to combine Stacey's travel and lodging expenses and certain other minor items with his salary and treat them as part of owner's compensation. These items are characterized in the audit report as gas and electric charges ($2,114), "other" travel ($9,243), and rent expense ($5,910), and, as noted above, are identified as adjustments 3, and 15, respectively.2/ In addition, HRS concluded that all of the home office expenses ($4,007) were violative of the prudent buyer concept since none would be needed if RCC had used a Florida resident as administrator. Accordingly, it reclassified them as owner's compensation on the theory the expenditures benefited the owner and therefore constituted personal compensation to Stacey. These charges (both home office and administrative) collectively totaled $37,082/4 The agency then utilized what it perceived to be the proper cap under then-applicable BHI guidelines ($33,830) for owner's compensation, and applied a 55.9 percent factor to that amount./5 This produced a cap for RCC in the amount of $18,911. All expenses ($21,274) above that cap were disallowed. An analysis of the services provided During 1984, and as reflected in petitioner's exhibit 1, Stacey made numerous trips by airline between Cincinnati and Miami while visiting the RCC facility. Each month Stacey spent between nine and eighteen days in Miami. This is confirmed by his personal calendar introduced in evidence as petitioner's exhibit 1. He also executed a one-year lease on an apartment in Miami on February 1, 1984 at a cost of $465 per month. He did so on the theory it was cheaper to rent than to pay nightly motel charges. However, Stacey acknowledges that if he had elected to spend $50 per day on lodging, he would have spent $7,040, or $984 less than that amount claimed on the cost report for apartment rent and utilities. While in Miami, Stacey utilized the RCC station wagon to transport patients between the hospital and the facility, for screening purposes, and for errands to purchase supplies. This was not controverted. However, the vehicle was also used by Stacey to carry him from his apartment to the facility and return, a use considered personal by HRS. To separate the two functions, Stacey should have kept a record (e.g. a trip log) to show what part of the usage was personal, and what part was related to patient care. Here no such records were apparently maintained, and consequently a precise allocation cannot be made. But, since documentation is not in issue, this point is not now germane. In his role as administrator and home office employee, Stacey's duties included staffing the facility, dealing with governmental agencies, developing and implementing policies and procedures, handling payroll and purchasing, and approving vouchers for both reasonableness and payment. The duties and functions, if prudent and necessary, are clearly within the scope of those performed by an administrator and home office employee. However, the record is less than clear as to which duties were performed when and in what capacity. Reconciling what happened with HRS rules - A cost difficult task There is no rule or regulation that prohibits a Florida nursing home from employing a nonresident administrator. /6 Moreover, it is not uncommon for an administrator to serve in that capacity at more than one facility. At the same time HRS routinely reimburses a provider for legitimate, reasonable home office expenses such as travel, lodging and administrative functions that are incurred while performing necessary support. Notwithstanding the lack of a rule that prohibits Stacey from being administrator, his position must be viewed in light of the prudent buyer concept. Under this concept, Stacey must show that it is more efficient and economical to utilize his services as administrator than to hire one who lives in the Miami area. In this regard, the proof is lacking. More Specifically, other than self-serving statements that this type of setup was more economical and efficient, Stacey did not provide any concrete evidence that contradicted the testimony of HRS witness Donaldson./7 This is especially true since Stacey already had a full-time licensed administrator (Tim Newren) on RCC's payroll who was able to run RCC's day-to-day operations in Stacey's absence. Indeed, their functions seemed to be duplicative in nature, and Stacey, when asked to describe Newren's duties when both were in Miami, indicated that Newren "consults with me." There was also no evidence to show that Stacey performed special services that Newren could not, or that it was necessary he be in Florida around twelve days each month, particularly since Stacey acknowledged he was in daily telephonic contact with Newren when in Ohio and Kentucky. Therefore, with one exception noted hereinafter, the expenditures in adjustments 3, 6 and 15 were not prudent and were properly disallowed. As noted earlier, the RCC station wagon was used to transport and screen patients, and for errands related to patient care. Such usage would have occurred even if Stacey had not come to Florida. Because their reasonableness has not been questioned, and the expenses relate to patient care, they should be allowed subject to the provision by RCC of proper documentation. HRS regulations and acknowledged prior audit policy allow reimbursement for reasonable travel expenses associated with the provision of home office services. However, to prove their legitimacy, they must be shown to be necessary, and to ef- fectuate savings to the provider. In this case, the charges to Florida operations were principally airline tickets for periodic trips to Florida, and living expenses for Stacey while in Miami. Although the record is not altogether clear, these charges were incurred by Stacey to come to Florida where he presumably then performed certain tasks that would normally be provided by a home office. Here again, the provider did not show that it was essential to perform the services in Florida, or that they could not have been performed by Newren. As such, they were not prudent, and should be disallowed. Finally, HRS utilized the wrong BHI cap in computing compensation to be allowed the owner. Instead of using $35,824, HRS erroneously used the figure of $33,830. The former limitation is the correct amount, and results in an increase in owner's compensation of $1,131.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that petitioner's cost report be adjusted and reimbursement accordingly made in a manner consistent with this Recommended Order subject to the furnishing of proper documentation by the provider where necessary. DONE AND ORDERED this 17th day of September, 1987, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER 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 17th day of September, 1987.
Findings Of Fact The Agency issued a Notice of Intent to Impose Fine stating the intent to impose an administrative fine in the sum of five thousand dollars ($5,000.00) against the Respondent, Diplomat Home Care, Inc. (hereinafter "Respondent"), a home health agency. The Notice of Intent to Impose Fine charged that Respondent failed to timely submit a quarterly report for the quarter ending June 30, 2009, violating Section 400.474(6)(f), Florida Statutes (2008). The cause was properly referred to the Division of Administrative Filed February 12, 2010 12:47 PM Division of Administrative Hearings. Hearings for proceedings according to law, See, Section 120.57(1), Florida Statutes (2009). By Orders dated December 21, 2009, the Division of Administrative Hearings determined that no material issue of fact remained in dispute and relinquished jurisdiction to the Agency for Health Care Administration, copies of which are attached hereto and incorporated herein (Comp. Ex. 2). The facts, as alleged and found, establish that Respondent failed to timely submit a quarterly report for the quarter ending June 30, 2009, violating Section 400.474(6)(f), Florida Statutes (2008). The fine imposed is five thousand dollars ($5,000.00).
Conclusions Having reviewed the Notice of Intent to Impose Fine dated September 17, 2009, attached hereto and incorporated herein (Ex. 1), and all other matters of record, the Agency for Health Care Administration (hereinafter "Agency") finds and concludes as follows:
