Appeal from the Order of the Office of Hearings and Appeals, Department of Public Welfare, in case of Appeal of: Chateau Convalescent Center, No. 23-181-165.
Arlen M. Tompkins, Griffith & Burr, P.C., for petitioner.
Jeffrey Gonick, Assistant Counsel, for respondent.
Judges Craig and Palladino, and Senior Judge Barbieri, sitting as a panel of three. Opinion by Judge Palladino. Judge Williams, Jr. did not participate in the decision in this case.
[ 90 Pa. Commw. Page 427]
Chateau Convalescent Center (Chateau) appeals from an order of the Department of Public Welfare, Office of Hearings and Appeals (DPW) which affirmed the decision of a hearing examiner reducing the amount of allowable costs for which Chateau would be given reimbursement under the State Medical Assistance Program (Program). Specifically contested is DPW's reduction of Chateau's reimbursable interest on capital indebtedness expense by $35,484.00 following DPW's audit of Chateau's cost report for its fiscal year ending March 31, 1980.
Chateau is a general nursing facility offering skilled nursing services under Pennsylvania's Medical Assistance Program (Program). As a provider under the Program, Chateau is eligible for reimbursement for certain costs incurred in its furnishing of
[ 90 Pa. Commw. Page 428]
nursing care to eligible recipients. Each provider is required to submit a cost report to DPW within ninety days following the close of each fiscal year. This cost report is the basis upon which DPW determines the proper amount of allowable costs, which costs are then used to determine the reimbursement payable to providers enrolled in the Program.
On its cost report, Chateau initially reported the sum of $62,646.00 as total "other interest" expense for the fiscal year in question. Included in this amount was $35,484.00 in interest paid by Chateau to Bryn Mawr Joint Venture (Joint Venture), a company related to Chateau by common ownership, on money loaned for current operating expenses. Chateau then deducted the $35,484.00 in interest it had paid on this loan from its total "other interest" expense as a nonallowable cost. Upon audit DPW allowed the $35,484.00 to be included as an allowable "other interest" cost but offset this amount against Chateau's allowable cost for "interest on capital indebtedness". It is from DPW's order affirming these adjustments that Chateau appeals to this Court.*fn1
DPW's regulations governing the reimbursement of costs are set forth in the Medical Assistance Program Manual for Allowable Cost Reimbursement for Skilled Nursing and Intermediate Care Facilities (Manual), 55 Pa. Code §§ 1181.201-1181.274. "Interest on capital indebtedness" is defined in the Manual as funds borrowed for capital purposes, i.e., acquisition of facilities, equipment and capital improvements. 55 Pa. Code § 1181.202. The Manual also defines "interest
[ 90 Pa. Commw. Page 429]
on current indebtedness" as the direct cost incurred for funds borrowed for current operating expenses or working capital. 55 Pa. Code § 1181.202. Both interest expenses are allowable costs under the Manual; However, interest on current indebtedness is included in a facility's net operating costs which, although reimbursable, are subject to ceiling limitations set by DPW. 55 Pa. Code § 1181.211. "Interest on capital indebtedness", on the other hand, is a separate cost item which is excluded from ceiling limitations. 55 Pa. Code § 1181.216. Thus, DPW's adjustments to Chateau's cost report increased those costs subject to a ceiling ...