Jerry B. Chariton, Steven M. Greenwald, Shaffer & Chariton Wilkes-Barre, for petitioner.
Jason W. Manne, Asst. Counsel, Dept. of Public Welfare, Pittsburgh, Bruce G. Baron, Asst. Counsel, Harrisburg, Dept. Public Welfare, for respondent.
Doyle and Smith, JJ., and Kalish, Senior Judge. Smith, Judge, dissenting.
[ 127 Pa. Commw. Page 147]
Petitioner Meadows Nursing Home (Meadows)*fn1 appeals*fn2 from an order of the Director of the Office of Hearings and Appeals of the Department of Public Welfare (DPW) denying Meadows reimbursement of costs under Pennsylvania's Medical Assistance program, Section 443.1 of the Public Welfare Code.*fn3 The issue before this Court is whether 55 Pa.Code §§ 1181.259(s), 1181.271(8) permitted DPW to disallow the portion of recognizable depreciation expenses incurred by Meadows with respect to nonallowable cost centers.
Meadows is a skilled nursing care facility providing services to Medicaid patients pursuant to the Medical Assistance program. The facility has 120 beds and DPW has
[ 127 Pa. Commw. Page 148]
determined that 1.45% of the square footage of Meadows' building is allocable to non-reimbursable cost centers.*fn4
Since 1977, allowable depreciation costs for facilities such as Meadows have been limited to a maximum construction cost per bed of $22,000. See 55 Pa.Code § 1181.259(s). Therefore, at 120 beds, Meadows' total cap for depreciation purposes was $2,640,000. DPW calculates the actual cost per bed based on the total project cost, and for the fiscal year ending June 30, 1984, determined that Meadows had actually spent $28,470.38 per bed for a total of $3,416,446.*fn5 However, rather than reimburse Meadows at the capped rate of $22,000 per bed, DPW disallowed 1.45% of this amount claiming it represented those costs attributable to nonallowable cost centers and reimbursed Meadows $21,681 per bed.
DPW cites 55 Pa Code § 1181.271(8) as its authority to reimburse Meadows at the reduced rate. That section provides:
In determining the net operating costs of a facility, the Department will not allow expenses or revenues relating to:
(8) The direct and indirect costs related to nonallowable cost centers including gift, barber, beauty, flower and coffee shops, homes for administrators or pastors, ...