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decided: July 6, 1984.


Appeals from the Order of the Department of Public Welfare in case of Re: Appeal of Temple University Hospital of Audit Disallowances relating to the Cost Reporting Periods July 1, 1974 to June 30, 1977, dated April 13, 1982.


Matthew M. Strickler, with him, Geoffrey A. Kahn, Ballard, Spahr, Andrews & Ingersoll, for petitioner.

Stanley Slipokoff, with him, John A. Kane, Deputy Chief Counsel, for respondent.

President Judge Crumlish, Jr. and Judges Williams, Jr. and Colins, sitting as a panel of three. Opinion by Judge Williams, Jr.

Author: Williams

[ 83 Pa. Commw. Page 517]

Temple University (Temple), a member of the Commonwealth System of Higher Education, has appealed a final adjudication by the Department of Public Welfare (Department) disallowing certain claims for reimbursement of costs under Pennsylvania's Medical Assistance (Medicaid) Program, Section 443.1 of the Public Welfare Code, Act of June 13, 1967, P.L. 31, as amended, added by Section 5 of the Act of July 31, 1968, P.L. 904, as amended, 62 P.S. ยง 443.1.*fn1

[ 83 Pa. Commw. Page 518]

Temple is the owner and operator of Temple University Hospital (Hospital), a public general hospital and a provider of inpatient medical care to low-income persons under the Pennsylvania Medicaid Program. As a provider, Temple is entitled to reimbursement by the Commonwealth of certain allowable costs associated with its provision of services to Medicaid patients.*fn2 The Pennsylvania Department of Public Welfare, the agency authorized to administer Pennsylvania's Medicaid Program, conducts annual audits of Temple's recordkeeping and cost reports, and based on those audits, determines the level of reimbursement to be made.

In this appeal, covering three fiscal years, Temple contends that the Department improperly disallowed reimbursement for interest expenses incurred in order to satisfy the operational needs of the Hospital. Temple also contends that the Department improperly

[ 83 Pa. Commw. Page 519]

    determined the formula for reimbursement for physician services provided by staff of the Medical School of Temple University (Medical School).

Before addressing the substantive issues, the unusual procedural history of this case warrants recitation. The case began with an audit by the State Auditor General of Temple's Medical Assistance cost reports for the twelve-month periods ending June 30, 1975 and June 30, 1976. The Auditor General disallowed portions of Temple's asserted costs for interest expense on the grounds that Temple's accounting methods did not provide sufficient verification for all of the expenses claimed. The Auditor General's report was subsequently adopted by the Department for purposes of determining Temple's entitlement to reimbursement under the Medicaid Program. Temple appealed from the determination, and was granted a hearing on December 13, 1979 before Harvey S. Miller, a hearing examiner attached to the Department's Office of Hearings and Appeals.*fn3 Examiner Miller issued his findings and recommendation that Temple's appeal be sustained. That recommendation, however, was never acted upon by the Office of Hearings and Appeals or by the Secretary of Welfare because the Department, on November 25, 1980, filed a petition to reopen the proceedings and consolidate them with an appeal which Temple had lodged from the Department's disallowance of claims for reimbursement for the fiscal year ending June 30, 1977. In the more recent appeal, Temple challenged the disallowance of a portion of its claim for interest expense as well as the

[ 83 Pa. Commw. Page 520]

    formulas applied by the Department to reimburse for emergency-room and staff physician services.

The Office of Hearings and Appeals denied the Department's petition to reopen and consolidate the proceedings, on the grounds that the Department had asserted no basis which would justify granting the petition. Notwithstanding the denial by the Office of Hearings and Appeals of the Department's petition, then-Secretary of Welfare Helen B. O'Bannon, on December 31, 1980, granted the Department's petition, and ordered the appeal for fiscal years 1974-1975 and 1975-1976 reopened and consolidated with the appeal for fiscal year 1976-1977. In ordering the reopening and consolidation, the Secretary stated:

The issue at hand is one that continues to be challenged. Additional information and consolidation appear to be in the public interest. However, I hereby direct the hearing examiner to rule on the accuracy, validity and reasonableness of the interest allocation apportionment used by the agent for the Auditor General. This finding shall be an explicit part of any subsequent decision ...

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