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HILLCREST HOME v. COMMONWEALTH PENNSYLVANIA (02/02/89)

decided: February 2, 1989.

HILLCREST HOME, INC., PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE, RESPONDENT



Appeal from the Order of the Department of Public Welfare, in the case of Appeal Of: Hillcrest Home, Inc., Docket No. 23-85-211.

COUNSEL

Charles O. Barto, Jr., Charles O. Barto, Jr. and Associates, for petitioner.

Cynthia White Williams, Assistant Counsel, for respondent.

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

Author: Doyle

[ 123 Pa. Commw. Page 290]

Hillcrest Home, Inc. (Hillcrest) petitions for review of an order of the Secretary of the Department of Public Welfare (DPW) vacating the order of DPW's Office of Hearings and Appeals (OHA) which sustained Hillcrest's administrative appeal. We reverse the Secretary's order.

Hillcrest is a long-term-care provider which participated in Pennsylvania's Medical Assistance Program. On

[ 123 Pa. Commw. Page 291]

January 8, 1985, Hillcrest sold its long-term-care nursing facility and realized a gain of $753,000 on the sale. Pursuant to DPW regulation Section 1181.259(1) of the Pennsylvania Code (Code), 55 Pa. Code ยง 1181.259(1), Hillcrest offset gain realized on the sale against allowable depreciation expense on its final cost report for the period from July 1, 1984 through January 8, 1985, a truncated fiscal year. Section 1181.259(1) provides in part, "All gains on the sale of fixed . . . assets will offset the facility's total depreciation expense in the year that the asset was . . . sold . . ." (emphasis added). In a subsequent audit by DPW of Hillcrest's cost report, DPW offset the gain realized from the sale against the facility's depreciation expense for the year of sale, i.e., the truncated fiscal year as noted, as well as for 173 days from the previously closed and audited report for the prior cost reporting year which ended June 30, 1984, thus recapturing an additional $33,994 of depreciation.

DPW interprets the term "year" as used in Section 1181.259(1) of the Code to mean a calendar year of 365 days from the date of sale, and by such an interpretation it justifies offsetting gain realized on the sale against depreciation not only between July 1, 1984 and January 8, 1985 (the closing fiscal year) but also for 173 days prior to July 1, 1984.

Hillcrest, on the other hand, disagrees with DPW's interpretation of the term "year," and instead contends "year" means simply the "fiscal year" of the sale; Hillcrest argues therefore that DPW would be justified in offsetting depreciation against gain only during the fiscal year, July 1, 1984 through January 8, 1985.

The precise issue, therefore, presented to this Court is the statutory interpretation of the term "year" as it is employed in DPW's regulations. However, a threshold question of the timeliness of the Secretary's action must

[ 123 Pa. Commw. Page 292]

    be examined and an understanding of the procedural posture of the case is, therefore, necessary before we address the substantive issue. A fair hearing was held on September 30, 1986, and the attorney examiner recommended on September 15, 1987 that Hillcrest's appeal be sustained and that DPW's adjustment be reversed.*fn1 The Acting Director of the Office of Hearings and Appeals (OHA) adopted the recommendation of the attorney examiner by his order of September 25, 1987. On October 8, 1987, DPW filed a request for reconsideration from the final OHA order. The Secretary of DPW granted DPW's request for reconsideration by an order on November 6, 1987, and finally, on February 22, 1988, vacated the September 25, 1987 OHA order and denied Hillcrest's appeal on the basis of DPW's ...


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