93-004262 Americare Corporation, D/B/A Cedar Hills Nursing Center vs. Agency For Health Care Administration Status: Closed Recommended Order on Tuesday, May 3, 1994.

Summary: Fair Rental Value System under post-1985 medicaid reimbursement provisions for nursing homes is construed in lessee-provider's favor upon limited law and facts presented

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

AMERICARE CORPORATION d/b/a )

CEDAR HILLS NURSING CENTER, )

)

Petitioner, )

)

vs. ) CASE NO. 93-4262

)

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

________________________________)

RECOMMENDED ORDER

Upon due notice, this cause came on for formal hearing on December 20, 1993

in Tallahassee, Florida, before Ella Jane P. Davis, a duly assigned hearing

officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Alfred W. Clark, Esquire

Post Office Box 623

Tallahassee, Florida 32302

For Respondent: Harold M. Knowles, Esquire

Knowles & Randolph

528 East Park Avenue

Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

Whether or not Petitioner's lease acquisition costs should be included in

its asset cost basis for establishment of a Fair Rental Value reimbursement rate

in accordance with the Florida Title XIX Long Term Care Reimbursement Plan (the

Medicaid Plan).

PRELIMINARY STATEMENT

The style of this cause has been amended as set out above to reflect the

new agency nomenclature and statutory responsibilities.

By letter dated May 17, 1993, the Department of Health and Rehabilitative

Services (HRS), now the Agency for Health Care Administration (AHCA), notified

Cedar Hills that it had reviewed the asset cost basis used to calculate Cedar

Hills' initial Fair Rental Value (FRV) rate as of October 1, 1985, and

determined that the $448,659.00 paid by Americare d/b/a Cedar Hills to lease the

Cedar Hills facility under a 1980 lease-purchase agreement was not includable in

its FRV cost basis, and that the agency intended to establish a specific dollar

cost basis (asset cost) for its calculations.

Upon appropriate petition and agency referral, this cause appeared before

the Division of Administrative Hearings.

At formal hearing, Petitioner presented the oral testimony of David Trimble

and Douglas Palmer, each of whom was accepted as an expert in health care

accounting and reimbursement. Petitioner's Exhibits 1 through 9 were received

into evidence. Respondent presented the oral testimony of Charles Patrick

Patterson, who also was accepted as an expert in the field of health care

accounting and reimbursement. Respondent's Exhibit 1 was received in evidence.

Six items representing federal and state statutes, rules, and publications

were officially recognized.

A transcript was filed in due course as were the parties' respective

proposed recommended orders. In response to Petitioner's motion to strike

Respondent's late-filed proposed recommended order, an order was entered denying

the motion to strike but permitting Petitioner to elect one of several ways of

curing any potential prejudice occasioned by Respondent's late-filed proposal.

Petitioner elected to file a responsive and clarifying supplemental memorandum

of law. Accordingly, any prejudice to Petitioner's position occasioned by

Respondent's delayed filing of its proposals is deemed cured, and all proposed

findings of fact of both parties have been ruled upon in the appendix to this

recommended order, pursuant to Section 120.59(2) F.S.

FINDINGS OF FACT

1. Respondent Agency for Health Care Administration (AHCA) is the state

agency responsible for implementation and administration of the Florida Medicaid

Program. Its predecessor agency was the Department of Health and Rehabilitative

Services (HRS), and HRS' acts with regard to Petitioner and Medicaid

reimbursement may be attributed to AHCA for purposes of this proceeding.

2. Cedar Hills Nursing Center, owned by Americare Corporation, is a

licensed 180-bed nursing home located in Jacksonville, Florida.

3. Cedar Hills participates in the Florida Medicaid Program and provides

inpatient nursing home services to Medicaid eligible persons.

4. Cedar Hills is entitled to reimbursement for certain approved property

related costs in accordance with the Florida Title XIX Long Term Care

Reimbursement Plan (Medicaid Plan), which was adopted and incorporated by

reference in Rule 10C-7.0482 F.A.C.

5. One of the methods of property cost reimbursement under the Medicaid

Plan is the Fair Rental Value System (FRVS). FRVS reimbursement requires the

establishment of a basis for computation and indexing of the FRV rate. Cedar

Hills, as an existing facility at October 1, 1985, is entitled to have an FRVS

rate established for capitalized tangible assets based upon the assets'

acquisition costs at the last dates of acquisition prior to July 18, 1984. (See

Conclusions of Law 36, 39)

6. Essentially, FRVS determines the historic allowable costs for assets

related to a facility (nursing home) as of the last acquisition cost prior to

July 18, 1984, and establishes a base cost or value. This base cost, or value,

is indexed (inflated) forward and becomes the basis for computing FRVS

reimbursement.

7. The computation is "facility-specific," since a particular provider-

chain may own multiple facilities. Thus, no rate is assigned a chain (Americare

herein), but rather, the rate is assigned to the facility, in this instance,

Cedar Hills Nursing Center.

8. AHCA refused to include in Cedar Hills' asset cost for FRVS the lease

and option acquisition costs relating to Cedar Hills which were paid by

Americare Corporation in 1980 as a part of a purchase of a group of Florida

nursing homes, including Cedar Hills.

9. Effective March 1, 1980, Americare Corporation purchased from Chelsea

Park Corporation and Hyde Park Nursing Home Partnership (HPNH, Inc.), a

subsidiary of Chelsea Park Corporation, all business assets of the sellers

relating to six Florida nursing homes. Cedar Hills was one of the six nursing

homes. The total purchase price was $5.7 million. This asset acquisition

included the sellers' interest in a lease of the Cedar Hills facility.

Americare did not purchase the Cedar Hills facility outright, and title did not

pass to Americare d/b/a Cedar Hills in 1980.

10. At the time of the 1980 asset acquisition, title to the land and

building at Cedar Hills was held by HPNH, Inc..

11. Prior to March 1, 1980, HPNH, Inc. was the licensed operator and

Medicaid provider at Cedar Hills pursuant to an assignment of lease rights from

its parent, Chelsea Park Corporation. After March 1, 1980, Americare

Corporation became the licensed operator and Medicaid provider at Cedar Hills.

12. The license issued by the Department of Health and Rehabilitative

Services, Office of Licensure and Certification, to HPNH, Inc., prior to March

1, 1980, shows "HPNH, Inc., owner", as the licensed operator.

13. The official license issued by the Department of Health and

Rehabilitative Services, Office of Licensure and Certification, effective March

1, 1980, shows "Americare Corporation, Owner" as the licensed operator.

14. The 1980 asset acquisition included the acquisition by Americare of

tangible assets at Cedar Hills.

15. The Chelsea Park Corporation accounting records prior to the Americare

asset acquisition reveal tangible assets relating to Cedar Hills which were

being depreciated.

16. Americare's Medicaid Cost Reports for Cedar Hills for the period

immediately following the 1980 transaction show tangible assets relating to

Cedar Hills which were being depreciated by Americare.

17. The transaction Agreement between Americare and Chelsea Park expressly

provided for Americare to acquire "business assets" of Chelsea Park, which

assets included not only the lease agreement for Cedar Hills but also operating

assets specified as "all fixtures attached to either real estate or leasehold

property, all machinery, linen, personal property, equipment, handling

equipment, furniture, furnishings and accessories thereto, . . ." These

"operating assets" are listed on Exhibit 4 to the Agreement (Petitioner's

Exhibit 3) and clearly include tangible assets relating to Cedar Hills. The

expert witness testimony is consistent that the lease-option (Lease is

Respondent's Exhibit R-1) constituted "the moral equivalent of a virtual

purchase" of the facility.

18. Acquisition costs are determined from the most current depreciation

schedules for the facility. In this case, the facility is Cedar Hills. Cedar

Hills properly capitalized the aforesaid lease and option acquisition costs and

reflected them on its depreciation tables.

19. The parties' dispute herein hinges upon interpretation of Section V.

E. (1) (a) of the Medicaid Plan, and whether or not the lease rights purchased

in 1980 by Americare constituted a tangible or an intangible asset, and whether

or not the lease and option constituted an "acquisition," as Petitioner

contends, or whether, as Respondent contends, only passage of title by purchase

can constitute an "acquisition," as that term is contemplated by that section of

the Medicaid Plan. That section of the Medicaid Plan incorporates by reference

HCFA-PUB.15-1 (the Medicaid Provider Reimbursement Manual), and all testifying

experts agreed that if there is a conflict, the Medicaid Provider Reimbursement

Manual takes precedence over generally accepted accounting principles and

standards (GAAP and GAAS) for purposes of Medicaid accounting.

20. The parties stipulated that, "The costs of land, buildings, equipment,

and other capital items allowable for Medicaid reimbursement by HCFA-PUB.15-1

such as construction loan interest expense capitalized, financing points paid,

attorneys fees, and other amortized "soft" costs associated with financing or

acquisition are included in determining allowable acquisition costs in

establishing the FRVS rate. (See, Conclusions of Law 39, 46-47)

21. Cedar Hills contended that lease and option acquisition costs are

"soft costs." AHCA's expert agreed that lease and option acquisition costs may

be considered "soft" costs in certain instances and that financing and

refinancing costs are "soft costs".

22. Respondent AHCA contended that the lease rights purchased by Americare

constituted an intangible asset and could not be included as part of the FRVS

base unless those rights related to the acquisition of a capitalized tangible

asset. The Medicaid reimbursement for Cedar Hills will be lower if the lease

acquisition costs are not included in the asset cost basis.

23. As a part of a Medicaid audit report in 1981 after the 1980 asset

acquisition, HRS allocated $619,224.88 to that portion of the transaction

relating to Cedar Hills. The cost allocated by HRS to Cedar Hills included an

allocation for tangible assets and soft costs. The soft costs allocated to

Cedar Hills are $448,659.00, which are the costs allocated to the acquisition of

the lease and option rights relating to Cedar Hills.

24. Over the 1980-1993 period, Cedar Hills amortized the $448,659.00 of

lease rights costs on its books and on its cost reports. (See J-3 of

Petitioner's Exhibit 7). This treatment was permissible under pre-FRVS cost

reimbursement principles which allowed costs of a lease to be covered in

property costs. HRS (Medicaid) reimbursed Cedar Hills for its amortization of

lease rights costs and, in addition, reimbursed a return on equity payment on

the unamortized portion of these costs. HRS never indicated any disagreement

with Americare's treatment of the lease acquisition costs as capital items.

25. Americare possessed only a lease with an option to purchase from 1980

to 1993. Legal title to the Cedar Hills facility was not conveyed by its owner,

HPNC, Inc., to Americare Corporation until April, 1993.

26. After amortizing the lease costs of $448,659.00 over the 13-year

period that Cedar Hills leased the Cedar Hills facility, Cedar Hills requested

that such costs be included in its FRVS basis. Cedar Hills is not seeking any

costs in excess of the actual costs it paid to acquire the lease and option. It

is seeking to include those costs as part of its base upon which future Medicaid

reimbursement calculations for the Cedar Hills facility shall be made.

27. At the time Cedar Hills was first leased in 1980, there was no

requirement that Americare exercise its option to purchase the facility. The

lease of Cedar Hills by Americare was not a condition precedent to the purchase

of the group of other facilities which were purchased by Americare

simultaneously with the leasing of Cedar Hills.

28. However, it would not have been possible for Americare to become the

operator of Cedar Hills Nursing Center without acquiring both the tangible

assets and the lease agreement relating to Cedar Hills' physical plant.

Acquisition by Americare of the lease rights was necessary in order for

Americare to be able to use the Cedar Hills assets for nursing home purposes.

29. The lease acquisition costs relating to Cedar Hills were associated

with the acquisition of approximately $90,000 worth of capital assets, some of

which, such as furniture, were clearly personalty, but some of which were

"fixtures," specifically, kitchen dietary equipment, laundry machines, and

plumbing which had been integrated into the leased building.

30. FRVS determines the basis for allowable capitalized tangible assets

and for certain intangible costs which in and of themselves are not tangible

assets but which are allowed in the FRVS basis so long as they pertain to the

acquisition of tangible assets. Examples are attorneys' fees and accountants'

work associated with purchase of a facility which are normally capitalized along

with the facility when purchased.

31. Soft costs are intangible costs, in that they are capital costs for

something that cannot be physically touched. Basically, they are costs

associated with an acquisition which are paid in the normal course of an

acquisition. Stated differently, soft costs are intangible type costs that are

related to tangible assets. GAAP and GAAS would characterize Petitioner's lease

in this situation as a "capitalized lease" and permit all its "soft costs" to be

handled as they have been.

32. AHCA's audit to determine a FRVS base used documentation submitted by

Petitioner, including depreciation schedules. AHCA considered the lease-

purchase to be an "intangible." AHCA agrees that lease and option acquisition

costs may be considered "soft" costs in certain instances, but not this one.

Petitioner contended that lease and option acquisition costs are "soft" costs

and should be included in this instance. All costs incurred by the legal owner

in acquiring tangible fixed assets, including related soft costs, have been

included in the FRVS base established by AHCA. The FRVS audit report allowed

only $1,138.00 as acceptable additions to the FRVS base in the rate semester

that the lease was acquired by Americare based on costs incurred by the legal

title holder or by Americare in purchasing tangible fixed assets, including soft

costs, but Americare's soft costs associated with the lease acquisition were not

included.

CONCLUSIONS OF LAW

33. The Division of Administrative Hearings has jurisdiction over the

parties and subject matter of this cause, pursuant to Section 120.57(1), F.S.

34. The parties' respective positions are as follows:

Petitioner contended that the lease and option acquisition costs

relating to Cedar Hills incurred in March 1980 by Americare Corporation when it

purchased a group of Florida nursing homes (J-3 of Petitioner's Exhibit 7)

should be included in the Cedar Hills asset cost for purposes of establishing a

Fair Rental Value (FRV) reimbursement rate; that the lease and option

acquisition costs are amortized soft costs which have been consistently included

by Petitioner and approved by HRS in the depreciation schedules relating to

Cedar Hills; and that the lease and option acquisition costs are includable in

capital related costs pursuant to Medicaid reimbursement guidelines if the costs

relate to the acquisition and use of tangible assets (Exhibit 4 to Petitioner's

Exhibit 3) that would be depreciable if owned outright.

Respondent's audit considered the lease of 1980 through 1993 and the

option to purchase which Americare exercised in 1993, both lease and purchase

option having been acquired in 1980, to be a "virtual purchase." Respondent

argued that a "virtual purchase" is a term of art or other recognized concept

under Medicare funding and reimbursement) which does not transfer legal title to

property and for which Medicare does not permit lessees to claim ownership

costs. Respondent has interpreted the organic law so that "acquisition" for

FRVS purposes can only mean "acquisition of legal title." Respondent further

contended that Petitioner's lease acquisition costs should not be included in

the FRVS base because Cedar Hills already has been reimbursed for these costs

and inclusion of these costs would constitute "double dipping" by Americare.

35. As a threshold matter, this case involves not Medicare reimbursement,

but Medicaid reimbursement, and simply because a licensing arm of HRS put the

word "owner" on Cedar Hills' license, that fact is not controlling as to what

entity holds, or held, legal title.

36. Why Medicaid converted from the step-up plan of reimbursing ownership

interests to the FRVS plan is important. Before FRVS, no matter what a

purchaser paid for a facility, as long as there was an appraisal, the purchaser

was reimbursed based on the total new cost paid by the new purchaser for the

facility. The change to FRVS was part of Florida's compliance with the federal

Deficit Reduction Act and was designed to prevent providers from continually

buying and selling their facilities to "step up" their costs. The change to

FRVS is summed up as, "Each existing facility, at October 1, 1985 shall have an

FRVS rate established for capitalized tangible assets based upon the assets'

acquisition prior to July 18, 1984." (See Conclusions of Law 39) FRVS took the

historic cost of assets instead of the most recent cost of assets as a

reimbursable factor.

37. Nothing in the instant case is "disguised." The disputed $448,659.00

in soft costs consistently have been capitalized and reflected on Petitioner's

depreciation schedules, as have been tangible assets acquired by Petitioner in

the 1980 transaction. HRS/AHCA has consistently approved the method. The

disputed costs are reflected on, and can be easily determined from, Petitioner's

depreciation schedules. Here, all of Cedar Hills' papers and costs existed in

1980, and Cedar Hills only contends that its 1980 lease-purchase acquisition of

use rights was the last date of a legal "acquisition" prior to July 18, 1984,

and that its 1980 lease-purchase was an "acquisition" as recognized by the

applicable organic law, even though it was not an acquisition of legal title

(ownership) by purchase.

38. AHCA has not suggested that to hold for Petitioner in this case would

be to undermine the intent of the drafters of FRVS to avoid "step up" escalation

of reimbursement costs or would permit a flood of similar claims. Indeed,

except for a vague reference to one other occasion when a similar, but not

necessarily identical, situation arose and was denied for FRV purposes, AHCA's

expert could not illustrate the agency's blanket assertion that HRS/AHCA has

"consistently" disallowed situations similar to Petitioner's for FRV-Medicaid

purposes.

39. The parties are agreed that the Medicaid Plan is not just instructive,

but controlling. Rule 10C-7.0482 F.A.C. adopts by reference the Florida Title

XIX Long Term Care Reimbursement Plan (Medicaid Plan) as the basis for nursing

home Medicaid reimbursement. The provision of the Medicaid Plan which is most

relevant is found at Section V. E. (1)(a):

a. Each existing facility, at October 1,

1985, shall have an FRVS rate established

for capitalized tangible assets based upon

the assets' acquisition costs at the last

dates of acquisition prior to July 18, 1984.

Facilities purchased after July 18, 1984, and

not enrolled in the Medicaid program prior to

the purchase or facilities constructed after

July 18, 1984, and enrolled in the program

shall have an FRVS rate established on the

basis of the last acquisition costs prior to

enrolling in the Medicaid program. The

acquisition costs shall be determined from the

most current depreciation schedule which shall

be submitted by each provider. These

acquisition costs, including the cost of

capital improvements and additions subsequent

to acquisition, shall be indexed forward to

October 1, 1985, by a portion of the rate of

increase in the Florida Construction Cost

Inflation (FCFI) Index based on the Dodge

Construction Index. The change in the FCCI

Index from September, 1984 to March 1985, shall

be used to project the FCCI Index for October 1,

1985, with no subsequent retroactive adjustment.

The costs of land, buildings, equipment, and

other capital items allowable for Medicaid

reimbursement per HCFA-PUB.15-1, such as

construction loan interest expense capitalized,

financing points paid, attorneys fees, and

other amortized "soft" costs associated with

financing or acquisition shall be included in

determining allowable acquisition costs

subject to indexing. Property taxes (which

excludes sales tax on lease payments) and

property insurance expenses shall not be

included in the calculation of the FRVS rates,

but shall be reimbursed prospectively, based

on actual costs incurred and included in the

total property rate. . . [emphasis supplied]

40. Petitioner was an existing facility at October 1, 1985 and entitled to

have an FRVS rate established.

41. Other categories in which Petitioner may fall are not so clear.

Petitioner is NOT a facility purchased after July 18, 1984 and not enrolled in

the Medicaid program prior to the purchase. It also is NOT a facility

constructed after July 18, 1984 and enrolled in the program after that date and

its construction. Rather, Petitioner is, in effect, a "hybrid," a facility

purchased after July 18, 1984, whose purchaser was the same licensed

provider/lessee enrolled in the Medicaid program prior to the 1993 purchase and

prior to the FRV 1984 time frame. The disputed costs arose four years prior to

the first FRV time frame.

42. Despite oblique phraseology that reads as a complex exception to an

exception, the last sentence of Section V. E. (1) (a) suggests that sales taxes

on lease payments may be included in the FRVS. If sales taxes on lease payments

may be included, why not other costs of the lease?

43. 42 Code of Federal Regulations Section 413.130 (1) (b), admittedly a

Medicare regulation, but one which was officially recognized, treats leases and

rentals as includable in capital-related costs if they relate to the use of

assets that would be depreciable if the provider owned them outright or they

relate to land, which is neither depreciable nor amortizable if owned outright,

saying, "the terms 'leases' and 'rentals of asset' signify that a provider has

possession, use, and enjoyment of the assets."

44. With regard to this Petitioner's situation, HRS/AHCA seems to have

consistently treated Petitioner's depreciation tables and related lease expenses

as capital costs permitted under Medicaid guidelines and under 42 CFR Section

413.130 (1) (b), and has now elected to do otherwise.

45. HCFA-PUB.15-1 is adopted by reference in Section V. E. (1)(a), the

applicable Medicaid rule supra.

46. The parties' joint prehearing stipulation included the V. E. (1)(a)

reference to HCFA-PUB.15-1, the Medicaid Provider Reimbursement Manual, which

has been found as fact above at Finding of Fact 20. That Finding of Fact is

also adopted and incorporated herein as a Conclusion of Law.

20. The parties stipulated that, "The costs

of land, buildings, equipment, and other

capital items allowable for Medicaid

reimbursement by HCFA-PUB.15-1 such as

construction loan interest expense

capitalized, financing points paid, attorneys

fees, and other amortized "soft" costs

associated with financing or acquisition are

included in determining allowable acquisition

costs in establishing the FRVS rate. (See,

Conclusions of Law 39, 46-47)

47. HCFA-PUB.15-1 a/k/a H-I-M 15 a/k/a Paragraph 4728 (Prov. Reimb. Man.,

Part 1, Section 111) Medicare and Medicaid Guide , is the only portion of HCFA-

PUB.15-1 referenced in the parties' stipulation, the only portion officially

recognized, and the only portion before the undersigned for analysis. It

describes by way of "example" a situation remarkably similar to the one at bar.

48. Under this example, if an arm's-length transaction/purchase of

tangible capital assets occurs and a favorable lease of incidental structures

occurs simultaneously, all the soft costs associated with the lease are

includable in the FRVS. Under this example, if the Cedar Hills lease and

Americare's simultaneous purchase of the other five nursing home facilities had

been interdependent, the soft costs of the Cedar Hills lease clearly would have

been includable for FRV purposes. The facts herein do not support a finding of

such interdependence of the 1980 transaction as regards the several nursing

homes. (See Findings of Fact 27-28). However, herein, Petitioner has

demonstrated that the lease was interdependent with Petitioner's capital asset

purchase of numerous tangible items, including but not limited to fixtures such

as plumbing, kitchen dietary equipment, and laundry equipment totalling

approximately $90,000, which equipment could not have been utilized without

leasing the building of which they are integral parts. Such "fixtures" are

often treated for purposes of normal real estate transactions as real property.

Two experts in health care accounting and reimbursement, who were also certified

public accountants, testified that as they interpreted Medicaid provision V. E.

(1) (a), codified as Rule 10C-7.0482 F.A.C. and the example explicating it, the

$448,659.00 in costs would be includable in FRVS and that for purposes of pre-

FRV Medicaid and for purposes of GAAP and GAAS, the tangible assets and the

lease soft costs would have been treated just as Petitioner has treated them.

49. Part of AHCA's expert's reasoning as to why the lease may not be

integral to the purchase of the capitalized tangible fixtures in the instant

case is that the materiality of the overall value of the facility being leased

is greater than the amount being simultaneously purchased outright. The

disparity between the cost of purchased tangible assets and the lease price, or

ultimately the soft costs associated with the lease, factors into HRS' refusal

to include Americare's past soft costs in its future FRVS basis. However, it

has not been shown that anything in the Medicaid Plan restricts the allowability

of soft costs to only certain soft costs over or under a particular dollar

amount. Accordingly, AHCA's unwritten policy of adding this type of factor to

the methodology has not been properly explicated or justified and should not be

applied. See, Section 120.57 (1)(b)15 F.S.

50. The remainder of AHCA's position depends on what constitutes an

"acquisition" associated with tangible assets.

51. The Medicaid guidelines do not define "acquisition."

52. Standard legal and lay language usage does not support AHCA's position

that "acquisition" applies exclusively to a transfer of legal title. For

instance, Black's Law Dictionary, Fifth Edition, copyright 1979, contains the

following alternative legalistic definitions:

Acquire. To gain by any means, usually by

one's own exertions; to get as one's own; to

obtain by search, endeavor, investment,

practice, or purchase; receive or gain in

whatever manner; come to have. In law of

contracts and of descents, to become owner of

property; to make property one's own. To

gain ownership of. ... The act of getting or

obtaining something which may be already in

existence, or may be brought into existence

through means employed to acquire it. ...

Sometimes used in the sense of "procure." It

does not necessarily mean that title has

passed. Includes taking by devise. See also

Accession; Acquisition; Purchase.

Acquisition. The act of becoming the owner of

certain property; the act by which one

acquires or procures the property in anything.

... Used also of the thing acquired. Taking

with, or against consent. ... Term refers

especially to a material possession obtained

by any means. ...(emphasis supplied)

The American Heritage Dictionary of the English Language, copyright 1981,

contains the following vernacular definitions:

acquire 1. To gain possession of. 2. To get

by one's own efforts. ... in addition to ...

obtain.

acquisition 1. The act of acquiring.

2. Something acquired, especially as an

addition to an established category or group.

53. Although actions of licensing arms of HRS and AHCA are not controlling

of the issue of who holds legal title to a nursing home, it is instructive to

note that various Florida statutes and rules relating to health care facilities

regulated by AHCA also regard leasing of nursing homes as synonymous with a

transfer of ownership or "acquisition" of nursing homes for regulatory purposes.

54. For instance, Section 400.179 F.S., governing sale or transfer of

ownership of a nursing home facility, provides:

Whenever a nursing facility is sold or the

ownership is transferred, including leasing,

the transferee shall make application to the

department for a new license at least 60 days

prior to the date of transfer of ownership.

(emphasis supplied)

55. Rule 59B-6.009 F.A.C., concerning reports required, defines "change in

health care entity ownership," to include "leasing of the health care entity"

when the lessee assumes the liability for operation of the health care entity.

56. Rule 59C-1.002 (1) F.A.C., concerning certificates of need, defines

"acquisition" as:

...the act of possessing or controlling, in any

manner or by any means, a health care facility...

57. Rule 59E-4.009 F.A.C., concerning health care cost containment,

describes "change of ownership" as:

A change in ownership means that a majority

of the ownership or the controlling interest

of the nursing home is transferred or assigned.

A change in ownership includes but is not

limited to the acquisition of the nursing home

by any person or any legal entity by any means,

the leasing of the nursing home when the

lessee agrees to undertake or provide services

at the nursing home to the extent that legal

liability for operation of the nursing home

rests with the lessee ... (emphasis supplied)

58. Upon the foregoing, AHCA's position that "acquisition" means only an

acquisition by purchase of ownership/title is not reasonable.

59. From a public policy standpoint, AHCA's expert in health care

accounting and reimbursement testified, and its counsel argued, that to allow

Petitioner's lease's soft costs to become a factor in the FRV would constitute

"double dipping," because under the pre-FRVS reimbursement methodology, lease

acquisition costs were considered capital items allowable for reimbursement.

Pre-FRVS, the costs of the user were submitted for reimbursement, which

Americare has already done. Under FRVS, it is the costs of the owner of record

(under AHCA's limited definition theory) which should be submitted as part of

the new basis for future reimbursement. AHCA therefore wants to include some

costs of Americare, the lessee, and some costs of the last owner/lessor in the

FRVS basis for prospective Medicaid reimbursement. AHCA's approach puts all the

emphasis upon construing the word, "acquisition" as used in the new FRV rule as

being synonymous with "owned-purchased," and apparently has not assessed the

fact that in the instant situation, under the pre-FRVS system, the prior owner

was not the Medicaid provider at the Cedar Hills facility. At any point in

time, only a Medicaid provider is ever reimbursed on any basis. The title

holder herein was not the provider/license holder, did not incur the disputed

lease costs, and was not reimbursed for them by Medicaid.

60. When FRVS went into effect in 1985, Americare's lease and option

acquisition costs were capital items allowable under Medicaid. Cedar Hills is

not seeking any costs in excess of the actual costs it paid to acquire the lease

and option. It is only seeking to include those costs as part of its base upon

which future reimbursement calculations shall be made.

61. Under this analysis, AHCA's contention that Petitioner is attempting

to "double dip" does not hold up. For instance, a piece of equipment with a

ten year life could be fully depreciated over a ten year period prior to the

beginning of FRVS reimbursement, yet the full cost of that equipment would be

included in the FRVS cost base, in spite of the fact that the provider had been

"reimbursed" for the full value of the equipment. Likewise, all soft costs for

which a provider has been reimbursed based upon amortization of those costs will

be included in the FRVS asset cost base in spite of the fact that the provider

has, in effect, been paid for those soft costs.

62. AHCA's expert conceded that there is no "double dipping" on this

Petitioner's depreciation because eventually any amount that is recouped again

on the basis of tangible asset depreciation already taken by Petitioner will be

recaptured by the State at a future point under FRVS.

63. Overall, the HRS expert's opinion of how Rule 10C-7.0482 F.A.C. (the

Medicaid FRV provision) should be interpreted is less persuasive than that of

the other experts because in response to most questions about Medicaid

reimbursement, the AHCA expert answered in terms of Medicare guidelines,

policies, and procedures. He also relied on a Medicare section he "believed"

was Section 110, concerning "virtual purchases." The undersigned could

speculate that Section 110 is the paragraph preceding Paragraph 4728 (Prov.

Reimb. Man., Part 1, Section 111) in the Medicare and Medicaid Guide in HCFA-

PUB. 15-1 (see Conclusions of Law 47), but it would only be speculation. A copy

of Section 110 was not offered in evidence or for official recognition, and if

it constitutes a policy of AHCA, it was not fully explicated in accord with

Section 120.57 (1) (b) 15. F.S., specifically because there is nothing in this

record that shows that Medicare includes the FRVS element found in Medicaid.

Also, it is noted that the parties seem to be in agreement that even under

Medicare principles, this Petitioner-provider's lease rights costs are

reimbursable as a "capital asset" because this Petitioner-provider actually

incurred the costs, and that Medicaid expressly includes valid soft costs in the

FRVS basis. It is also undisputed that the soft costs incurred here were

associated with acquisition of the listed capital tangible assets.

64. Upon the greater weight of the credible competent opinion evidence,

Medicaid, parts of Medicare, and GAAP and GAAS support Petitioner's position.

AHCA's other analogies to Medicare sections not properly explicated in this

proceeding were not convincing. Upon the limited facts and legal arguments of

this proceeding, the disputed lease acquisition costs should be included in

Cedar Hills' FRVS asset base, because the costs have been included on its

depreciation schedules as capital items allowable for Medicaid reimbursement

and/or amortized soft costs directly associated with acquisition.

RECOMMENDATION

Upon the foregoing findings of fact and Conclusions of Law, it is

RECOMMENDED that the Agency for Health Care Administration include the

lease acquisition costs of $448,659.00 in Petitioner's asset cost basis for

establishment of its Fair Rental Value System reimbursement rate.

RECOMMENDED this 3rd day of April, 1994, at Tallahassee, Florida.

___________________________________

ELLA JANE P. DAVIS, Hearing Officer

Division of Administrative Hearings

The De Soto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 3rd day of April, 1994.

APPENDIX TO RECOMMENDED ORDER 93-4262

The following constitute specific rulings, pursuant to S120.59(2), F.S.,

upon the parties' respective proposed findings of fact (PFOF).

Petitioner's PFOF:

1-6 Accepted, but often rephrased

7 Rejected as legal argument or a conclusion of law.

Covered under Conclusions of Law

8-20 Accepted, but often rephrased

21 Accepted as modified in Findings of Fact 31-32. Otherwise

rejected as a conclusion of law. See Conclusions of

Law.

22-28 Accepted except often rephrased. Also cumulative material

was eliminated.

29 Rejected as legal argument or as a conclusion of law. See

Conclusions of Law

30 Accepted

31-32 Rejected as legal argument or as a conclusion of law. See

Conclusions of Law

Respondent's PFOF:

1-7 Accepted, but often rephrased. Also, cumulative material

was eliminated.

8 Rejected as legal argument or as a conclusion of law. See

Conclusions of Law.

9-15 Accepted, but often rephrased. Also cumulative material

was eliminated.

16 Rejected as inaccurate or as a mischaracterization of the

record evidence as a whole.

17 Accepted, but rephrased.

18 Accepted that only one audit was done for FRVS purposes,

however prior yearly cost report approvals were, in

essence, HRS mini-audits of the provider's claimed

reimbursements. Therefore, the proposal as worded is

rejected as a whole.

19-21 Accepted, but rephrased.

22 Rejected as not supported by the greater weight of the

credible evidence.

23 Rejected as cumulative

COPIES FURNISHED:

Harold Knowles, Esquire

Knowles & Randolph

528 E. Park Avenue

Tallahassee, FL 32301

Alfred W. Clark, Esquire

Post Office Box 623

Tallahassee, FL 32302

Sam Power, Agency Clerk

Agency for Health

Care Administration

The Atrium, Ste. 301

325 John Knox Road

Tallahassee, FL 32303

Douglas M. Cook, Director

Agency for Health

Care Administration

2727 Mahan Drive

Tallahassee, FL 32308

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended

Order. All agencies allow each party at least 10 days in which to submit

written exceptions. Some agencies allow a larger period within which to submit

written exceptions. You should contact the agency that will issue the final

order in this case concerning agency rules on the deadline for filing exceptions

to this Recommended Order. Any exceptions to this Recommended Order should be

filed with the agency that will issue the final order in this case.