Christine M. Kane, Newtown, for petitioners.
Bruce G. Baron, Asst. Counsel, Harrisburg, for respondent.
Barry and Palladino (p.), JJ., and Narick, Senior Judge.
[ 127 Pa. Commw. Page 484]
This is an appeal from an order of the Director of the Office of Hearings and Appeals of the Department of Public Welfare (DPW) denying certain appeals from audit findings. Petitioners, Morris Manor, Inc., and Wallingford Enterprises, Inc., are providers of skilled and intermediate nursing care. The DPW disallowed certain costs claimed by petitioners as reimbursable under the Medical Assistance program. Two issues are presented for our review, the first of which involves only Wallingford.
Wallingford obtained a loan for capital improvements in 1978 and then later obtained a second loan at a higher rate of interest which it used to refinance the first
[ 127 Pa. Commw. Page 485]
loan. DPW used the prime rate of interest at the time of the first loan in calculating the reimbursable interest expense for the audit periods in question. This action was taken pursuant to Section IV(D)(10)(a) of the DPW Cost Manual (Manual) which, for the audit periods in question, read:
a. Necessary and proper interest on both current and capital indebtedness is an allowable cost. However, there will be an upper limit on capital interest of 3 points above the prime interest rate at the time funds are borrowed.
8 Pa.B. 2836 (1978). Wallingford argues that DPW should have used the prime interest rate at the time the second loan was obtained in computing the allowable interest expense. DPW decided that the phrase "at the time the funds are borrowed" refers to the time the first ...