Appeals from the Orders of the Executive Deputy Secretary, Department of Public Welfare, in the case of Grand Oak Nursing Home, Inc. v. Commonwealth of Pennsylvania, Department of Public Welfare, File No. 23-81-13, dated October 19, 1983 and January 27, 1984; Appeal, No. 2391 C.D. 1984, in the case of Upper Bucks Nursing and Convalescent Centers, Inc., Lafayette Manor, Inc., Millville Health Center, Inc., Greenleaf Nursing and Convalescent, Inc., Briarleaf Nursing and Convalescent, Inc., and Grand Oak Nursing Home, Inc. v. Commonwealth of Pennsylvania, Department of Public Welfare, File No. 23-83-67.
Jeffrey B. Schwartz, with him, Steven E. Bernstein, Steven E. Schwartz, Berriman & Schwartz, for petitioner.
Bruce G. Baron, with him, William D. Lenahan, Assistant Counsel, Jeffrey Gonick, Assistant Counsel, John Kane, Acting Chief Counsel, for respondent.
Judges Craig, MacPhail and Blatt, sitting as a panel of three. Memorandum Opinion by Judge Blatt.
[ 116 Pa. Commw. Page 455]
In these consolidated appeals Grand Oak Nursing Home, Inc., (petitioner) challenges an order of the Executive Deputy Secretary (Secretary) of the Department of Public Welfare (Department) which disallowed certain reimbursable costs in the calculation of Grand Oak's per diem reimbursement rate.*fn1
Grand Oak was purchased in 1980 and, pursuant to Medicaid Assistance regulations, was determined to be eligible for reimbursement for depreciation on its capital assets and for interest attributable to finance charges incurred in financing its $2,000,000 purchase price.*fn2 These allowances were factored into the calculation of the per diem rate at which reimbursement is made by the Department for the care of Medicaid patients. The depreciation taken by the previous owners totaled $636,833 and the facility's adjusted basis or "book value" was consequently reduced by that amount,
[ 116 Pa. Commw. Page 456]
resulting in an adjusted basis of $1,363,167. The issue presented here is whether or not the pertinent regulations in effect at the time authorized the Secretary to limit the interest to be reimbursed to that attributable to the adjusted basis, and, therefore, to disallow reimbursement for the interest attributable to that portion of the purchase price which exceeded the adjusted basis.
The pertinent regulations in effect at the times relevant to this matter were set forth in the Manual for Allowable Cost Reimbursement for Skilled Nursing and Intermediate Care Facilities (Manual), which provides, in pertinent part:
IV. Standards for general and selected costs.
The Department shall determine provider's allowable costs in accordance with the following:
(a) The Department's Manual for Allowable Cost Reimbursement for Skilled Nursing and Intermediate Care Facilities and,
(b) The Medicare Provider Reimbursement Manual (HIM-15), except that where the Department's Manual and the HIM-15 differ, the ...