Appeal from the Order of the Department of Public Welfare in case of Appeal of: Allied Services For The Handicapped, File No. 23-81-15.
Joseph A. O'Brien, Oliver, Price and Rhodes, for petitioner.
Jeffrey Gonick, Assistant Counsel, for respondent.
President Judge Crumlish, Jr. and Judges Barry and Blatt, sitting as a panel of three. Opinion by Judge Blatt.
[ 78 Pa. Commw. Page 298]
This case comes here on appeal from a decision by the Department of Public Welfare (Department) denying expense reimbursements to Allied Services for the Handicapped, Inc. (Allied).
Allied operates a long-term care facility which offers both skilled nursing and intermediate care services. Prior to September 1, 1980, it submitted an M 11 cost report to the Office of Medical Assistance of the Department of Public Welfare. The Department reviewed this report and issued per diem reimbursement rates. In establishing the rates, however, the Department disallowed Allied's claims for both the interest it paid on money borrowed to pay interest during construction of the facility and the interest paid on establishing a debt reserve fund. Allied contends here that both interest expenses were "interest on capital indebtedness," and, are, therefore, reimbursable.
[ 78 Pa. Commw. Page 299]
In Department of Public Welfare v. Forbes Health Systems, 492 Pa. 77, 422 A.2d 480 (1980), our Supreme Court limited our inquiry when we are addressing issues of an agency's interpretation of its regulations, and said:
In reviewing an administrative agency's interpretation of its own regulations, courts are governed by a two step analysis. First, "in construing administrative regulations, the ultimate criterion is the administrative interpretation, which becomes of controlling weight unless it is plainly erroneous or inconsistent with the regulation." United States v. Larionoff, 431 U.S. 864, 872 (1977), quoting Bowles v. Seminole Rock Co., 325 U.S. 410 (1945). Second, the regulations "must be consistent with the statute under which they are promulgated." Id. at 873.
Id. at 81, 422 A.2d at 482. The analytical approach taken by the Forbes court in applying the legal test above described was to determine whether or not there was "specific authorization" in the regulations for the challenged activity and whether or not the agency's interpretation is "plainly inconsistent with the wording of the regulations." Id. at 82, 422 A.2d at 482.
Allied claims that the interest paid on money borrowed to pay interest is an "interest on capital indebtedness expense," and, therefore, must be reimbursed by the Department. Section IV, 10a of the Manual for Allowable Cost Reimbursement for Skilled Nursing and Intermediate Care Facilities (Manual), 8 Pa. B. 2836-2837 (1978), however, provides the general rule for recovery for interest expenses, which is as follows: "Necessary and proper interest on ...