Appeal from the Order of the Department of Public Welfare, Office of Hearings & Appeals in the case of Appeal Of: Leader Nursing Centers, Inc., File No. 24-82-2 et al. (Step-Up Appeals), dated April 16, 1987.
Thomas H. Brock, with him, Malcolm J. Harkins, III, Casson, Harkins & Lapallo, for petitioners.
Bruce G. Baron, Assistant Counsel, for respondent.
Judges Doyle, Barry and McGinley, sitting as a panel of three. Opinion by Judge Doyle. Judge MacPhail did not participate in the decision in this case.
[ 122 Pa. Commw. Page 102]
Manor Health Care Corporation (MHC) appeals to this Court from the final order of the Director of the Office of Hearings and Appeals, Department of Public Welfare (DPW), disallowing, upon the recommendation of the Hearing Attorney, certain depreciation costs which were submitted for the purpose of calculating medical assistance reimbursements for the fiscal years 1982 and 1983.
This case arises under Title XIX of the Federal Social Security Act, 42 U.S.C. §§ 1396-1396q (1984), which establishes the Medical Assistance Program, commonly known as "Medicaid." This program is jointly funded and administered by the federal government and the states which elect to participate.*fn1 The federal government matches the money appropriated by the states to pay for health care services, including nursing home care. On behalf of our state, DPW contracts with and pays providers of medical services, who provide services to Medicaid eligible persons.
In the case presently before us, MHC negotiated an agreement with the CENCO corporation whereby CENCO granted MHC a one hundred and twenty-day option to purchase all the shares of its subsidiary, the Leader Healthcare Organization (LHO), for thirty million dollars. CENCO, apparently among its other holdings, was the parent and sole stockholder of LHO. LHO was the owner and sole shareholder of Leader Nursing Centers Incorporated (LNCI), a Pennsylvania corporation which owned and operated seventeen nursing homes whose Medicaid payment rates are the subject of
[ 122 Pa. Commw. Page 103]
this appeal. In addition, MHC agreed to commence a tender offer for CENCO itself.
On October 19, 1981, MHC exercised its option and purchased all of the stock of LHO. On May 21, 1982, seven months after completing that purchase, MHC merged LNCI into LHO, and then merged LHO into itself, MHC. The corporations were, therefore, "telescoped," and the only surviving corporation was MHC, which then owned seventeen nursing homes. During this period of time, namely, from October 1981 until May 1982, MHC completed a purchase of CENCO, the former parent and grandparent respectively of LHO and LNCI.
In accordance with DPW regulations, LHO filed final cost reports from the beginning of its facilities' fiscal year to the effective date of the merger of LHO into MHC, i.e., January 1, 1982 to May 21, 1982.*fn2 These final cost reports were used by DPW to set the 1982 interim per diem rates*fn3 (interim rates) for MHC's operation of the seventeen nursing homes, effective May 22, 1982 and July 1, 1982. MHC was notified of these interim rates by letters dated July 19, 1982, August 20, 1982, and September 8, 1982. MHC challenged ...