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decided: August 7, 1986.


Appeal from the Order of the Department of Public Welfare, in case of Appeal Of: Harston Hall Nursing and Convalescent Home, Inc, File Nos. 23-81-155, 23-81-156, 23-81-157, 23-82-3 and 23-83-54.


Martin J. Cerullo, Frumkin & Manta, for petitioner.

Bruce G. Baron, Assistant Counsel, for respondent.

Judges MacPhail and Palladino, and Senior Judge Barbieri, sitting as a panel of three. Opinion by Judge Palladino.

Author: Palladino

[ 99 Pa. Commw. Page 476]

Harston Hall Nursing and Convalescent Home, Inc. (Petitioner), a privately owned, skilled nursing and intermediate

[ 99 Pa. Commw. Page 477]

    care facility, has appealed from an order of the Director, Office of Hearings and Appeals (Director) of the Pennsylvania Department of Public Welfare (DPW) denying Petitioner's exceptions to DPW audit findings disallowing certain Medical Assistance reimbursements. In particular, Petitioner objects to DPW's refusal to allow Medical Assistance reimbursement for ground rent and DPW's imputation of interest to an interest-free loan made by Petitioner to its President, which imputed interest was used to reduce reimbursement for capital interest.*fn1 For the reasons which follow, we affirm.

During 1976, Nelson R. Hartranft (Mr. Hartranft), President and sole stockholder of Petitioner, and his wife Thelma (Mrs. Hartranft) were in the process of obtaining a divorce. In order to provide future support for Mrs. Hartranft, the real estate upon which Petitioner's facility is situated, jointly owned by Mr. and Mrs. Hartranft, was placed in trust pursuant to a Trust Agreement, dated March 19, 1976, which required Petitioner to pay ground rent to the Trust. In turn, the Trust paid a monthly income to Mrs. Hartranft. Because DPW determined that this was a transaction among related parties, it disallowed the ground rent expense claimed by Petitioner for fiscal years 1979, 1980, and 1981.

[ 99 Pa. Commw. Page 478]

In its 1977, 1979, 1980 and 1981 audits, DPW found record of an interest-free loan in Petitioner's balance sheets. This loan was made in 1968 or 1969 to Mr. Hartranft. The amount due on January 1, 1977 was $108,807.00 and as of December 31, 1982 was $76,630.00. DPW imputed interest on this loan and then offset the imputed interest against Petitioner's expense claim for interest on capital indebtedness. This action reduced Petitioner's reimbursement for interest from the Medical Assistance Program. No documentation in Petitioner's accounting records exists, dating back to 1968, as to whether the loan was in cash or in kind.

Title XIX of the Federal Social Security Act, 42 U.S.C. §§ 1396-1396q, establishes the Medical Assistance Program (Program). By statute,*fn2 Pennsylvania participates in this jointly financed program which provides reimbursement for nursing care services to individuals qualifying for Medical Assistance. Under the auspices of DPW, Pennsylvania has developed a State Plan for Medical Assistance as required by federal law.*fn3 The Program provides cost-related reimbursement on behalf of eligible individuals whose institutional care for skilled nursing home or intermediate care in a licensed non-public facility is prescribed by a physician.*fn4 The guidelines and procedures for reimbursement are detailed in the Manual for Allowable Cost Reimbursement For Skilled Nursing And Intermediate Care Facilities (MACR).*fn5

[ 99 Pa. Commw. Page 479]

In order to be eligible for cost reimbursement, each nursing facility must file a "cost report" with DPW within ninety days of the close of each fiscal year. 55 Pa. Code §§ 1181.45(a)(3) and 1181.71. DPW then audits the cost report, 55 Pa. Code § 1181.74 and, based upon the results, computes any adjustments to the reimbursement due the facility. The facility has the right to appeal any adjustment with which it is dissatisfied. See 55 Pa. Code §§ 1101.84 and 1181.101.

Our scope of review in a DPW decision is limited to determining whether the adjudication is supported by substantial evidence, is in accordance with the law and whether any constitutional rights were violated. The Jewish Home of Eastern Pennsylvania v. Department of Public Welfare, Office ...

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