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FRANKLIN COUNTY NURSING HOME v. COMMONWEALTH PENNSYLVANIA (09/16/88)

filed: September 16, 1988.

FRANKLIN COUNTY NURSING HOME, PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE, RESPONDENT



PETITION FOR REVIEW

COUNSEL

Mark H. Gallant, Esq., Philadelphia, Pa., for PETITIONER

Bruce G. Baron, ASST. COUNSEL, John Kane, CHIEF COUNSEL, Harrisburg, Pa., for RESPONDENT

Honorable David W. Craig, Judge, Honorable Bernard L. McGINLEY, Judge, Honorable Doris A. Smith, Judge

Author: Mcginley

Opinion BY JUDGE McGINLEY

Franklin County Nursing Home (Franklin) appeals an order of the Executive Deputy Secretary*fn1 (Secretary) of the Department of Public Welfare (Department). The appeal pertains to the denial by the Secretary of reimbursement of costs under Pennsylvania's Medical Assistance Program (PA MAP), Section 443.1 of the Public Welfare Code.*fn2 Franklin contends that the reimbursement is mandated by Section 201 of the General Appropriations Act of 1980 (Appropriations Act). We affirm.

Franklin is a county skilled nursing and intermediate care facility (SNF and ICF, respectively) which provides services to Medicaid patients pursuant to PA MAP. During a fiscal year, Franklin receives interim payments which provide it with a steady cash flow for the fiscal year. The interim per diem rates are based on the latest annual adjusted reported costs and approved budgets. At the end of the fiscal year, Franklin's account is audited by the Auditor General and an appropriate adjustment is then made to the facility by the Department for over or under payments. The annual adjustment is based on actual allowable costs, subject to a ceiling. If the facility's audited rate (i.e., the lesser of its actual allowable costs or the applicable ceiling) exceeds the sum of the interim payments, then the facility is entitled to a reimbursement. Thus, the level of the ceiling directly affects the amount of a facility's reimbursement.

Prior to the ceiling revision which is at issue in this case, the ceiling was based on a statewide weighted average of year end reported per diem costs for such facilities. Section 201 of the Appropriations Act, which was signed into law on June 18, 1980, changed the method of determining ceilings. The Appropriations Act directed the Department to replace the statewide ceiling with a group-based ceiling system involving the calculation of separate ceilings for such nursing homes within each of five standard metropolitan statistical areas (SMSAs) within Pennsylvania.

Franklin's final audited rates of reimbursement for the fiscal year ending December 31, 1980, were determined in an audit report issued by the Auditor General on April 21, 1982. The report showed that Franklin's 1980 per diem operating costs were $42.37 for SNF and $29.23 for ICF. The SNF ceiling for the period from February 1, 1980, through June 30, 1980, was $49.23, and the ICF ceiling for this period was $35.51. The SNF ceiling for the period from July 1, 1980, through September 30, 1980, was $48.34, and the ICF ceiling for this period was $35.67. Because Franklin's per diem SNF cost was lower than the statewide SNF ceilings which were in effect for these periods, Franklin's final audited per diem SNF rate (i.e., the rate at which Franklin would be reimbursed) for these periods was $42.37, i.e., an amount equal to its actual allowable costs. Similarly, because Franklin's per diem ICF cost was lower than the statewide ICF ceilings which were in effect for these periods, Franklin's final audited per diem ICF rate for these periods was $29.23, again, an amount equal to its actual allowable costs. Franklin does not dispute the audit for these periods.

The SMSA-based ceilings were implemented on October 1, 1980.*fn3 Franklin was assigned to Non-SMSA Group III. Its SNF ceiling for the period from October 1, 1980, through December 31, 1980, was $39.24. Its ICF ceiling for this period was $29.14. Because Franklin's actual allowable SNF and ICF costs for this period were greater than the respective ceilings, its audited SNF and ICF rates, i.e., the rates at which it would be reimbursed, were equal to the new ceilings. The practical effect of the ceiling change, as it relates to this time period, is that Franklin did not recoup its costs.

Franklin's final audited rates of reimbursement for the fiscal year ending December 31, 1981, were determined in a report issued by the Auditor General on September 23, 1983. The report showed that Franklin's 1981 per diem operating costs were $42.29 for SNF and $31.65 for ICF. The SMSA SNF ceiling for the period from January 1, 1981, through June 30, 1981 was $39.24. The SMSA ICF ceiling for this period was $29.14. The SMSA SNF ceiling for the period from July 1, 1981, through December 31, 1981, was $48.85. The SMSA ICF ceiling for this period was $36.58. For the first half of 1981, Franklin's audited rate for both SNF and ICF equaled the SMAS ceilings, which were less than Franklin's costs. Again, the practical effect of these ceilings was that Franklin failed to recoup its actual allowable costs for the first half of 1981. Franklin does not dispute the audited rate for the second half of 1981.

Originally the Auditor General denied Franklin reimbursement for certain costs in Franklin's 1980 audit. Franklin appealed from the 1980 audit report on June 14, 1982, at docket No. 23-82-093. After a hearing on this matter, the hearing officer recommended that Franklin's reimbursement for the period from October 1, 1980, through December 31, 1980, be increased to the level of its actual allowable costs. On January 20, 1983, the OHA adopted this recommendation. On February 4, 1983, the Department petitioned for reconsideration, and an order granting reconsideration was entered on February 18, 1983. On May 23, 1983, the Department requested that the record be re-opened. On October 24, 1983, Franklin appealed from the 1981 audit report at Docket No. 23-83-317. On April 9, 1984, the OHA adopted the Hearing Officer's recommendation that the matters be consolidated. On May 8, 1984, the Secretary entered an order that the record be re-opened. Further evidence was admitted on May 17, 1984. On May 9, 1985, the Secretary entered an order reversing the OHA order of January 20, 1983.*fn4 On June 7, 1985, Franklin filed an appeal with this Court seeking review of the May 9, 1985 order.

Franklin argued below that the Auditor General erred when he set Franklin's audited rates for the periods in dispute by applying the new SMSA ceilings as a cap on Franklin's actual allowable costs. In doing so, Franklin contended, the Auditor General failed to give effect to what it termed a "no loss" provision in Section 201 of the Appropriations Act. This provision states that "the new ceilings shall provide that no public nursing home shall have a ceiling below its rate that was in effect prior to implementation of the new ceilings." Franklin interprets the word "rate" therein to mean final, audited rate. Pursuant to this line of reasoning, because Franklin's final audited rate ...


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