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MEDICENTER HOSPITAL v. COMMONWEALTH PENNSYLVANIA (12/02/83)

decided: December 2, 1983.

MEDICENTER HOSPITAL, PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE, RESPONDENT



Appeal from the Order of the Pennsylvania Department of Public Welfare in case of Appeal of Medicenter Hospital, No. 23-80-18.

COUNSEL

James K. McNamara, Quinn, Gent, Buseck and Leemhuis, Inc., for petitioner.

Bruce G. Baron, Assistant Counsel, for respondent.

Judges Craig, MacPhail and Doyle, sitting as a panel of three. Opinion by Judge MacPhail.

Author: Macphail

[ 78 Pa. Commw. Page 611]

Medicenter Hospital (Petitioner), a skilled nursing facility, has appealed from an order of the Department of Public Welfare (DPW) which dismissed Petitioner's exceptions to DPW's audit findings for the fiscal years 1977-78, beginning on July 1, 1977.*fn1 In particular, Petitioner objects to DPW's refusal to allow Medical Assistance reimbursement for rental payments as a cost item separate from those costs which are subject to certain regulatory ceiling limitations. We affirm.

The facts of this case, as stipulated by the parties, reveal that Petitioner began operating as a skilled nursing facility in 1972. The facility used by Petitioner was leased for an annual rental fee of $206,809.61 during both of the years 1977-78. Beginning on July 1, 1976, DPW implemented the federally mandated*fn2 cost-related method of reimbursing skilled nursing and intermediate care facilities for Medical

[ 78 Pa. Commw. Page 612]

Assistance services provided.*fn3 Under this system, facilities were to be reimbursed for "allowable costs" subject to certain regional reimbursement ceilings. At all times here relevant reasonable rental expense has been an allowable cost "for leasing of facilities from non-related parties in an arm's length transaction". Section IV(D)(14) of the Program Manual, 5 Pa. B. 2933 (1975).*fn4 Rental expense, however, is one of the costs which are subject to the group cost ceilings. Prior to July 1, 1977, depreciation and interest were also considered allowable costs subject to the cost ceiling limitations. Section IV(D)(9) of the Program Manual, 5 Pa. B. 2932 (1975).

On July 1, 1977, DPW amended its regulations to permit facilities to claim depreciation and interest as separate cost items to be excluded from the group ceiling limitations on net operating costs. See Section III(E) of the Program Manual, 7 Pa. B. 2700 (1977).*fn5 The primary beneficiaries of this amendment were owner-operated facilities. Petitioner contends that the failure of DPW to permit rental expense to be excluded also from the cost ceilings is violative of federal statutory law and constitutes a denial of equal protection.

Although not vigorously pursued on appeal, Petitioner first argues that DPW misinterpreted its own regulations when it denied separate reimbursement for rental expense. It is well settled, of course, that an agency's interpretation of its own regulations is

[ 78 Pa. Commw. Page 613]

    entitled to considerable weight. Orner v. Department of Public Welfare, 44 Pa. Commonwealth Ct. 635, 639, 404 A.2d 452, 454 (1979). We think it is clear that DPW has reasonably and correctly interpreted its regulations. As of July 1, 1977, the regulations permitted reimbursement for depreciation and interest on capital indebtedness without regard to the group ...


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