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SEWICKLEY VALLEY HOSPITAL v. COMMONWEALTH PENNSYLVANIA (11/28/88)

decided: November 28, 1988.

SEWICKLEY VALLEY HOSPITAL, PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE, RESPONDENT



Appeals from the Orders of the Department of Public Welfare in the case of Appeal of: Sewickley Valley Hospital, Docket Nos. 27-86-074 and 40-86-020, dated February 5, 1988 and File Nos. 27-86-074 and 40-86-020, dated June 27, 1988.

COUNSEL

John F. Hooper, Meyer, Unkovic & Scott, for petitioner.

Jason W. Manne, Assistant Counsel, for respondent.

Judges Barry and Palladino, and Senior Judge Narick, sitting as a panel of three. Opinion by Judge Barry.

Author: Barry

[ 121 Pa. Commw. Page 338]

Sewickley Valley Hospital (Hospital) appeals from an order of the Office of Hearings and Appeals (OHA) of the Department of Public Welfare (DPW) dismissing the Hospital's appeal from revised amended audit reports for the fiscal years ending on June 30, 1980, 1981,

[ 121 Pa. Commw. Page 3391982]

and 1983 for being untimely and an order of the Secretary of DPW vacating a prior order granting reconsideration of the dismissal of the Hospital's appeal.

In Sewickley Valley Hospital v. Department of Public Welfare, 81 Pa. Commonwealth Ct. 298, 474 A.2d 51 (1984) (Sewickley I), this Court, acting upon an appeal by the Hospital from audits for the fiscal years of 1977, 1978 and 1979, held that the Hospital could amortize the loss it incurred in the 1977 fiscal year on defeasance of debt over the life of the bonds that had been issued on April 1, 1977 to satisfy an August 1, 1975 bond issue and to claim as a cost for each reporting period that portion of the loss on defeasance which applied to the reporting period, instead of requiring it to recognize the entire loss on defeasance in the year in which it was incurred. In entering the order in that case, this Court found persuasive, and relied upon, the decision of the Deputy Administrator of the Health Care Financing Administration in Ravenswood Hospital Medical Center v. Blue Cross Association/Health Care Service Corp., Medicare & Medicaid Guide (CCH) para. 32,044. Therein it was held that the provider could not claim as costs the entire loss on defeasance in the year it was incurred.

After this Court's decision in Sewickley I had been handed down and our state Supreme Court had denied allocatur therefrom, the United States District Court for the Northern District of Illinois overruled the decision of the Deputy Administrator of the Health Care Financing Administration in Ravenswood and held that the provider in that case was entitled to claim the entire loss in the year the loss on defeasance was incurred. See Ravenswood Hospital Medical Center v. Schweiker, 622 F. Supp. 338 (N.D. Ill. 1985). Upon learning of this federal district court decision, DPW issued an internal memorandum dated January 9, 1986 to the Office of the Auditor General, Bureau of State Aided Audits (Bureau)

[ 121 Pa. Commw. Page 340]

    advising it that DPW could now disallow the Hospital from continuing to amortize the loss it incurred in the 1977 fiscal year on defeasance of the 1975 debt and claiming as a cost for each reporting period that portion of the loss on defeasance which applied to the reporting period. It did not send a copy of this memorandum to the Hospital.

On April 11, 1986, the Bureau issued "revised amended audit" reports for the fiscal years of 1980, 1981, 1982 and 1983. On the page of each of the reports reflecting adjustments that were being made to the Hospital cost reports for those fiscal years, it was reflected that the portions of the loss incurred in the 1977 fiscal year on defeasance of the 1975 debt that were applicable to those reporting periods were being disallowed as a cost. The Hospital later received a settlement statement which indicated that it owed DPW $14,996.00 because of DPW's disallowance of its continuing claim of that loss as a cost. This document had been sent out by the comptroller's office of DPW on May 27, 1986. Apparently it was only after the Hospital had received this settlement statement that it realized what DPW had done. On June 30, 1986 the OHA received two letters from the Hospital which indicated that the Hospital wished to appeal the April 11, 1986 audit disallowances and the May 27, 1986 settlement. Following a hearing on the matter the appeal from the audit disallowances was dismissed as untimely.*fn1 The OHA, found that the ...


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