Appeal from the Order of the Pennsylvania Department of Public Welfare in the case of Appeal of: Fair Winds Manor, Inc., File Nos. 23-82-265, 23-80-184 and 23-81-140.
Suzanne Rauer, with her, Charles O. Barto, Jr., for petitioner.
Bruce G. Baron, Assistant Counsel, for respondent.
Judges Craig and Palladino, and Senior Judge Kalish, sitting as a panel of three. Opinion by Judge Palladino.
[ 100 Pa. Commw. Page 140]
Fair Winds Manor (Petitioner) appeals from an order of the Department of Public Welfare (Department)
[ 100 Pa. Commw. Page 141]
which denied an appeal by Petitioner of a Department audit modifying certain portions of Petitioner's cost reports submitted to the Department for the purpose of calculating medical assistance reimbursements. We affirm.
The Petitioner is a nursing care facility which is presently owned by Kenneth and Zarah Blair. Formerly, Petitioner was owned by a partnership, Four Winds, Limited, consisting of the Blairs and Alfred and Marlene Brown, who were all general partners, and Charles and Helena Brown, who were limited partners. Zarah Blair and Alfred Brown are sister and brother, the children of Charles and Helena Brown.
Each of the general partners in Four Winds, Limited had an equal interest in and control of the property owned by the partnership. The Blairs, however, borrowed money against their equity and thus decreased their ownership interest in the partnership assets to eleven percent. Charles and Helena Brown, the two limited partners, had a total financial interest of $75,000.00 in the partnership.
After the formation of Four Winds, Limited, a consultant for the partnership determined that renovations to the facility were necessary to correct certain deficiencies which violated the Life Safety Code. In order to obtain a loan from the Commonwealth's Nursing Home Loan Agency, to finance the renovations, all of the general partners would have been required to sign personal guarantees for the loan. Alfred and Marlene Brown, however, refused to become personal guarantors of the loan. Consequently, in November of 1980, the Blairs purchased the interests both of Alfred and Marlene Brown and of Charles and Helena Brown, and the partnership was thereby dissolved. As of November, 1980, therefore, the Blairs were the sole owners of Petitioner.
[ 100 Pa. Commw. Page 142]
In its cost report for fiscal year 1981, Petitioner calculated its depreciation expense using as its cost basis the amount paid by the Blairs in November of 1980 to purchase all of the partnership assets. The Department disallowed Petitioner's calculation of depreciation expense, however, having determined that Petitioner was not entitled to a stepped-up basis because the transfer of ownership which occurred in November of 1980 was a related-party transaction. The Department instead calculated Petitioner's ...