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8 N.J.A.R. 283

Medical Assistance and Health Services, Division of; Hudson Manor Skilled Nursing Facility v
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Citation: 8 N.J.A.R. 283
Decision Date: 1983
Agency: DIVISION OF MEDICAL ASSISTANCE
Synopsis: Petitioner contests the nonrecognition of the full costs of its related party lease by the Division of Medical Assistance and Health Services in computing petitioner's rate of Medicaid reimbursement for the years 1982 and 1983. The administrative law judge assigned to the case found that peti- tioner is an approved provider of Medicaid services and is the tenant operating company which leases the facility's physical plant from the landlord company; both companies have identical shareholders. In March 1982, the Division rejected the lease for the physical plant in computing the 1982-83 reimbursement rate on the grounds of a changed internal agency policy which was later adopted into regu- lation in March 1983. The judge concluded that such action could not be sustained under the agency's adjudicative powers, since by this change the agency was implementing a broad policy change which would require compliance with the rule-making requirements of the Administrative Procedure Act. The judge concluded that the agency could, in an adjudicative process, review the lease to determine its validity and fairness on a factual basis, but in the absence of a finding that the lease was inflated by reason of party relatedness, the agency must honor the lease in the same way it would any nonparty lease. Upon review, the Division rejected this initial decision. The Division concluded that the judge had failed to give sufficient weight to the concept of administrative flexibility and the agency's need to implement a legislative scheme even while policy is in the developmen- tal stage. The Division found that a clear legislative intent existed on both the federal and state levels supporting the principle of cost containment. The agency's policy regarding related party leases as being suspect was founded upon the belief that there is significant likelihood that charges incurred by providers in transactions with entities related by common ownership are unreasonable. Accordingly, the agency concluded that the leasing cost was un- reasonable. Allan P. Browne, Esq., for petitioner (Breitenstein & Browne, at- torneys) Karen Surer, Deputy Attorney General, for respondent (Irwin I. Kim- melman, Attorney General of New Jersey, attorney) Initial Decision
Rule(s) Cited: 10:63-3.2(e) 
Citation Tracker rejected-Div. of Med. Ass't.; affirmed -App. Div. A972-83-T2, 5/23/84 (unreported) [Updated through 1991]