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Stratford Nursing & Convalescent Center v. Division of Medical Assistance and Health Services

Decided: November 20, 1986.

STRATFORD NURSING & CONVALESCENT CENTER, PLAINTIFF-APPELLANT,
v.
DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES, DEFENDANT-RESPONDENT



On appeal from a final decision of the Director, Division of Medical Assistance and Health Services, Department of Human Services.

Furman, Dreier and Stern. The opinion of the court was delivered by Furman, P.J.A.D.

Furman

Pursuant to N.J.A.C. 10:63-3.10(m)(2), now repealed, appellant nursing home requested respondent Division of Medical Assistance and Health Services (DMAHS) to recognize its 22-year lease obligation in lieu of a capital facilities allowance (CFA) in calculating its Medicaid reimbursement rate for four rate periods extending from January 1, 1978 to June 30, 1981. That request was denied by DMAHS.

N.J.A.C. 10:63-3.10(m)(2) provided:

The departments will review on an individual basis, situations where the strict application of the provisions of this section would be inappropriate under particular circumstances, such as:

The existence of firm arms-length leases whose terms cannot be modified;

Twice in contested cases hearings, an Administrative Law Judge (ALJ) recommended that the DMAHS denial be reversed. The Director of DMAHS twice declined to adopt the ALJ's recommendation. This appeal ensued. We in turn reverse.

Based upon fact findings, including a fact finding that appellant would be reimbursed about $86,000 less than its actual costs for the four rate periods by the strict application of CFA, the ALJ concluded that appellant suffered a significant hardship as a result of nonrecognition of its long-term, arms-length and nonmodifiable lease.

Initially, upon review of the ALJ's recommendation the Director of DMAHS remanded to the Office of Administrative Law for the taking of additional testimony on that issue whether appellant was reimbursed a lesser amount subsequent to respondent's adoption of Cost Accounting and Rate Evaluation (CARE) guidelines effective January 1, 1978. The CFA is one of the components of the reimbursement rate which is screened for reasonableness and adequacy according to the CARE guidelines. A nursing home is entitled to a reimbursement rate equal to the lesser of actual or screened costs. Prior to CARE, nursing homes were reimbursed for actual costs except as limited to a ceiling fixed by DMAHS.

On remand to the same ALJ, undisputed evidence established that appellant's reimbursement rates were $3.625 per bed per day prior to CARE and $4.107 per bed per day pursuant to the strict application of CFA. No adjustment was made for inflation. Richard Speranza, Chief of the Office of Long-Term Care Reimbursement within DMAHS, made clear in his testimony that:

The policy of the Division is to assess the impact of the Care system on a facility who was under the terms of an arms-length ...


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