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NORTHWOOD NURSING AND CONVALESCENT HOME v. COMMONWEALTH PENNSYLVANIA (10/02/87)

decided: October 2, 1987.

NORTHWOOD NURSING AND CONVALESCENT HOME, INC., PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE, RESPONDENT



Appeal from the Order of the Office of Hearings and Appeals, Department of Public Welfare, in case of Appeal of: Northwood Nursing and Convalescent Homes, Inc., File Nos. 23-83-138 (FYE 12/31/81) and 23-83-355 (FYE 12/31/82).

COUNSEL

Arlen M. Tompkins, Abrahams & Loewenstein, for petitioner.

Bruce G. Baron, Assistant Counsel, for respondent.

Judges Craig and Doyle, and Senior Judge Barbieri, sitting as a panel of three. Opinion by Senior Judge Barbieri.

Author: Barbieri

[ 110 Pa. Commw. Page 42]

Northwood Nursing and Convalescent Home, Inc. (Petitioner) appeals an order of the Department of Public Welfare (DPW), denying Petitioner's appeal from DPW's disallowance of its interest expense on capital indebtedness for 1981 and 1982.

Petitioner is a skilled nursing facility, duly licensed by the Pennsylvania Department of Health, and a provider in the Pennsylvania Medical Assistance Program (Program). Petitioner is a wholly owned subsidiary of Nursecare Health Centers, Inc. (Nursecare), which also owns Union Forge, a nursing home located in New Jersey.

Title XIX of the Federal Social Security Act, 42 U.S.C., ยงยง 1396-1396s, establishes the Medical Assistance Program which provides reimbursement for nursing care services to individuals qualifying for medical assistance. By statute,*fn1 Pennsylvania participates in this program and has developed a state plan for Medical Assistance as required by federal law.*fn2

The Program provides for cost-related reimbursement to skilled nursing homes on behalf of eligible individuals whose institutional care in such facilities is prescribed by a physician.*fn3 Providers enrolled in the Program must submit a "cost report" to DPW within ninety days of the close of each fiscal year.*fn4 The cost

[ 110 Pa. Commw. Page 43]

    reports are used by DPW in determining provider reimbursement. DPW audits the cost reports*fn5 and makes necessary adjustments to the reimbursement due the provider. The provider then has the right to appeal any adjustment it disagrees with.*fn6

Petitioner claimed capital indebtedness expense of $15,010.00, net of $1,095.00 in interest income, on its cost report for fiscal year ending December 31, 1981. On its cost report for fiscal year ending December 31, 1982, Petitioner claimed capital indebtedness expense of $14,257.00, net of $447.00 in interest income earned in that year.

In January of 1983, DPW audited Petitioner's 1981 cost report and offset a portion of Nursecare's 1981 interest income against Petitioner's otherwise allowable capital indebtedness expense for that year. DPW's auditors determined that $93,864.00, of Nursecare's total expenses for 1981 of $140,609.00, was for management services provided to Petitioner. Therefore, a corresponding percentage (66.76%) of Nursecare's 1981 interest income of $47,912.00, or $31,986.00, was offset against Petitioner's capital indebtedness expense of $15,010.00.

In October of 1983, DPW audited Petitioner's 1982 cost report and once again offset a portion of Nursecare's 1982 interest income against Petitioner's capital indebtedness expense for that year. It was determined that $95,058.00 of Nursecare's total expenses for 1982 of $165,986.00, was for management services rendered Petitioner. DPW then ...


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