Lead Opinion
In this case we decide whether, under the Code of Maryland Regulations (“COMAR”) 10.09.10.10,
The petitioner, Crofton Convalescent Center (“Crofton”), is a nursing facility certified to provide medical care through the Maryland Medical Assistance Program (“Medicaid”). In 1998, Crofton entered into a financing arrangement that, through the use of an interest rate swap agreement, exchanged the variable interest rate on Crofton’s mortgage for a fixed rate. Crofton then submitted the interest payments made according to the swap agreement (“swap payments”) as mortgage interest payments for reimbursement from the respondent Department of Health and Mental Hygiene (“DHMH”). DHMH, however, disallowed Crofton’s claim that interest paid under its swap agreement was a reimbursable expense under CO-MAR.
Crofton appealed DHMH’s decision to the Nursing Home Appeal Board (“the Board”), which hears appeals from providers participating in Maryland’s Medicaid program, and which ultimately affirmed DHMH’s decision. Crofton then petitioned for judicial review in the Circuit Court for Baltimore City, which reversed the Board’s decision. On appeal, a divided panel of the Court of Special Appeals held, in an unreported opinion, that the swap payments were not reimbursable.
Crofton argues that, because the financing arrangement that included the swap agreement was incidental to refinancing Crofton’s mortgage, the Court of Special Appeals erred when it determined that the swap payments were not mortgage interest payments. For the reasons that follow, we hold that the Board applied the proper definition of mortgage interest and that Crofton’s swap payments do not qualify as mortgage interest under that definition. We therefore affirm the judgment of the Court of Special Appeals.
I.
Crofton provides nursing and other medical services, in part, through Maryland’s Medical Assistance Program (“Medieaid”), which is a state program partially funded by the federal government. Liberty Nursing Center, Inc. v. Dep’t of Health and Mental Hygiene,
Maryland’s Medicaid program is administered by DHMH. Id. at 581,
When DHMH denies reimbursement to a provider participating in Maryland’s Medicaid Program, the Board considers the provider’s appeal. The present case arises out of the Board’s denial of Crofton’s request that DHMH reimburse the swap payments Crofton made subsequent to refinancing its mortgage.
This Case
In 1998, the term on Crofton’s $4.2 million mortgage was expiring, bringing due a balloon payment on the loan. To avoid making the balloon payment, Crofton sought to refinance the mortgage through a fixed rate loan. Crofton considered several bids, including a bid from M & T Bank (“the Bank”) for a loan with a 6.55% fixed interest rate.
A basic, “plain vanilla,” swap agreement “is a contract between two parties, ... to exchange or ‘swap’ cash flows at specified intervals, calculated by reference to a particular rate or index.” See S. Lawrence Polk & Bryan M. Ward, A Guide to the “Regulatory No Man’s Land” of Over-The-Counter Interest Rate Swaps, 124 Banking L.J. 397, 399 (2007). The “[m]ost commonly employed [interest rate swaps] are fixed/floating rate swaps in which the first counterparty pays the second at designated intervals, a specific amount of interest based on a fixed interest rate multiplied” by an agreed principal amount called the “notional” amount. Stuart Somer, A Survey of Legal & Regulatory Issues Relevant to Interest Rate Swaps, 4 DePaul Bus. L.J. 385, 387 (1992). Concurrently, the second counterparty pays the first counterparty based on a floating interest
In Thrifty Oil Co., a panel of the Ninth Circuit Court of Appeals explained a hypothetical five-year interest rate swap between Counterparties A and B:
(1) Counterparty A agrees to pay a floating interest rate equal to LIBOR ...; (2) Counter-party [sic] B agrees to pay a 10% fixed interest rate; (3) both counterparties base their payments on a $1 million notional amount and agree to make payments semiannually. If LIBOR is 9% upon commencement of the first payment period, Counterparty B must pay A: (10%-9%) ★ $1 million ★ (.5) = $5,000. These net payments vary as LIBOR fluctuates and continue every six months for the term of the swap. If interest rates rise, the position of Counterparty B, the fixed-rate payor, improves because the payments it receives increase. For example, if LIBOR rises to 11% at the beginning of the next payment period, Counterparty B receives a net payment of $5,000 from A. Conversely, the position of Counterparty A, the floating-rate payor, improves when interest rates fall. The party whose position retains positive value under the swap is considered ‘in the money’ while a party with negative value is considered ‘out of the money.’
Interest rate swaps are typically documented in a confirmation and a master agreement. Id. at 1192. The master agreement is often a standard form agreement prepared by the International Swaps and Derivatives Association (“ISDA”). Id. In this case, Crofton and the Bank memorialized the swap in an ISDA master agreement accompanied by a separate confirmation and amortization schedule.
Under Crofton’s accounting system, Crofton treated the swap payments as mortgage interest payments, which are reimbursable costs under COMAR 10.09.10.10.C. Crofton reports costs for which DHMH should reimburse providers (“allowed costs”), to DHMH each fiscal year. DHMH reviews the reports and
The Litigation
Crofton appealed the decision to the Board, which referred the appeal to the Office of Administrative Hearings for a contested evidentiary hearing before an Administrative Law Judge (“ALJ”).
10. A separate agreement, the swap interest agreement, was entered into with a fiscal intermediary. The swap agreement required payments that would convert the floating rate term payments into a fixed 5.5% interest rate.
15. Mortgage interest paid by Medicaid providers is reimbursable by Medicaid.
17. The above referenced notes are part of a total capital financing agreement that includes linked mortgage interest and swap interest.
18. Under Generally Accepted Accounting Principles (“GAAP”), all of the above referenced interest payments to the bank are treated as mortgage interest.
DHMH filed exceptions with the Board, which then held a hearing at which both parties presented oral arguments.
The Board accepted the ALJ’s findings except the above-mentioned four findings of fact.
Fact 10. The parties to the loan entered into a separate agreement called an interest swap rate agreement, (swap agreement or interest swap agreement) Under the interest swap agreement, the two parties exchanged monthly interest payments, i.e., Crofton exchanged its variable or floating mortgage interest rate of LIBOR plus 1 for a fixed interest rate of 5.5%.
Fact 15. Mortgage interest paid by Medicaid providers is reimbursable byMedicaid, subject to certain ceilings and exceptions.
Fact 17. M & T Bank treats the 4.2 million dollar mortgage note and the second $500,000 mortgage note as one agreement requiring one monthly payment at the variable interest rate. It treats the swap interest agreement as a separate, independent agreement, requiring a separate payment. Fact 18. Under Generally Accepted Accounting Principles (GAAP), the above referenced interest payments are treated as mortgage interest. However, under Medicaid reimbursement rules, GAAP is not controlling, state and federal regulations are.
After making these findings, the Board concluded that the interest payments under the swap agreement were not reimbursable. The Board reasoned as follows.
First, the Board evaluated the nature of a swap agreement and determined that payments under it did not meet the definition of mortgage interest. In reaching that conclusion, the Board noted that Maryland’s Medicaid program applies the federal Medicare definition of mortgage interest, which is “the cost incurred for the use of borrowed funds. Interest on current indebtedness is the cost incurred for funds borrowed!.]” 42 C.F.R. 413.153(b)(1). Because Crofton’s swap payments were interest paid on a notional amount, not on money borrowed under a mortgage agreement, the Board determined that the payments did not qualify as mortgage interest. Then, noting that COMAR does not expressly address swap payments, the Board, based on the COMAR provision that directs the Board to applicable federal law, see COMAR 10.09.10.29, concluded that the federal Provider Reimbursement Manual (“PRM”) provision addressing swap interest applied.
Crofton filed a petition for judicial review in the Circuit Court for Baltimore City. The Circuit Court reversed the Board’s decision, finding that the refinanced mortgage and the subsequent interest rate swap agreement were two parts of an integrated transaction that effectively converted the swap payments into mortgage interest payments. The court therefore found that the swap payments were costs for which Crofton was entitled to reimbursement.
DHMH appealed to the Court of Special Appeals. That court first addressed the applicable standard of review of administrative agency decisions and rejected DHMH’s contention that the court should review an agency decision for “substantial evidence.” Instead, the court applied the standard articulated by this Court in Adventist Health Care, Inc. v. Maryland Health Care Comm’n,
Then, citing Thrifty Oil Co.,
We granted certiorari, Crofton Convalescent Center, Inc. v. Dep’t of Health & Mental Hygiene,
1. Should interest paid by a nursing care facility pursuant to an integrated mortgage financing transaction securing commercial real property that includes a swap agreement be treated without regard to the integrated nature of the transaction?
2. Does Thrifty Oil Co. v. Bank of Am. Nat’l Trust & Sav. Ass’n,310 F.3d 1188 (9th Cir.2002) establish Maryland law governing whether interest paid by a nursing care facility pursuant to a swap agreement that secures the facility’s real property is mortgage interest under the Maryland Medicaid regulation making mortgage interest an allowable, reimbursed cost?
II.
To determine whether, regardless of a provider’s intent to “integrate” its swap and loan agreements, COMAR treats swap payments as mortgage payments for reimbursement purposes, we must examine the scope of the term “mortgage interest” as it appears in COMAR.
Crofton argues that the definition of mortgage interest is controlled by Maryland common law, which defines a mortgage as follows:
A loan is secured by a mortgage when: the property is conveyed or assigned by the mortgagor to the mortgagee, in form like that of an absolute legal conveyance, but subject to a proviso or condition by which the conveyance is to become void, or the estate is to be reconveyed, upon payment to the mortgagee of the principal sum secured, with interest, on a day certain; and upon nonperformance of this condition, the mortgagee’s conditional estate becomes absolute at law, and he may take possession thereof[.]
Norwest Bank Minnesota v. Pence,
Crofton further argues that the Board improperly relied on the PRM’s guidelines because the Board should only rely on federal statutes and regulations when COMAR is silent. Crofton asserts that COMAR is not silent as to mortgage interest reimbursement because COMAR 10.09.10.10C,
DHMH counters that COMAR does not explicitly refer to swap payments or interest paid pursuant to a swap agreement. DHMH argues, moreover, that without evidence that the agency intended the term mortgage interest, as referenced in the regulations, to include swap payments, COMAR cannot be construed to encompass swap payments. DHMH contends, instead, that mortgage interest should be interpreted according to the PRM as required by COMAR 10.09.10.29, which provides: “Except when the language of a specific regulation indicates an intent by the Department to provide reimbursement for covered services to Program recipients without regard to the availability of federal financial participation, State regulations shall be interpreted in conformity with applicable federal statutes and regulations.” COMAR 10.09.10.29.
An agency’s interpretation of a regulation is a conclusion of law. Adventist Health Care,
Although we keep in mind the considerable weight afforded an agency’s interpretation of its regulations, we may not abdicate our responsibility to examine independently the regulations upon which the Board relied in deciding Crofton’s appeal,
“The cardinal rule of statutory interpretation is to ascertain and effectuate the intent of the Legislature.” Kushell,
COMAR’s Department of Health and Mental Hygiene Title, Title 10, refers to mortgage interest several times. COMAR 10.09.10.10A and 10.09.10.10C address, respectively, costs included in a nursing facility’s capital cost center and capital costs eligible for capital per diem reimbursement. Each provision lists allowable costs, which include “mortgage interest (including bond interest).” COMAR 10.09.10.10A(3), 10.09.10.10C(3). Apart from this express statement clearly treating bond interest as mortgage interest, we agree with the Board that Title 10 does not define the scope of mortgage interest. See COMAR 10.09.10.01 (“Definitions”).
The absence of an express definition of a term, however, does not preclude us from construing its plain meaning. When searching for a statute’s plain meaning, we consider the language of the relevant provision not in isolation but within the context of the statutory scheme as a whole. Adventist Health Care,
An examination of COMAR 10.09.10.10A and 10.09.10.10C, within the context of Title 10 (DHMH) in its entirety, compels the conclusion that swap payments are explicitly excluded from the definition of mortgage interest. Specifically, Title 10’s “Interpretive Regulation,” COMAR 10.09.10.29, directs us, in the absence of express evidence of the DHMH’s intent to reimburse costs “without regard to the availability of federal financial participation,” to interpret State regulations “in conformity with applicable federal statutes and regulations.” COMAR 10.09.10.29;
Both the C.F.R. and the PRM define interest as “the cost incurred for the use of borrowed funds.” 42 C.F.R. § 413.153(b); PRM § 202.1. Only necessary interest, however, qualifies as an allowable cost. 42 C.F.R. § 413.153(a); PRM § 202.2. Interest is necessary if it is “incurred on a loan that is made to satisfy a financial need, [f]or a purpose related to patient care, and [i]ncurred on a loan that is reduced by investment income.” 42 C.F.R. 413.153(b)(2); PRM § 202.2. “The burden of proof to show that there is a financial need for the borrowing ... rests with the provider.” PRM § 202.2A. Section 202.2A explicitly provides, however, that “[interest expense incurred under an interest rate swap agreement is not recognized for Medicare payment purposes because the interest expense incurred under such agreement does not result from a loan made to satisfy a financial need of the provider.” § 202.2A.
To illustrate this point, § 202.2A includes the following example:
Hospital A has $10 million in bonds at a variable interest rate of prime plus 2%. The bonds were issued for a patient care related purpose and the interest is an allowable expense under Medicare. The hospital prefers a fixed rate and enters into a swap interest rate agreement with a bank. The amount of the note is $10 million. The agreement stipulates that the hospital will pay the bank a fixed rate of 12% and the bank will pay the hospital a variable rate of prime plus 2%.
For the first year, prime remains at 10% and there is no exchange of funds between the bank and the hospital. For the second year, the prime drops to 8%. The hospital pays the bank $200,000 in interest. This interest is NOT reimbursable under Medicare. For the thirdyear, the prime rate increases to 12%. The bank pays the hospital $200,000. This is NOT considered investment income for Medicare reimbursement. The transaction has no impact on the allowability of the interest expense associated with the bonds.
Although this example does not address mortgage interest specifically, the example is especially instructive because it addresses swap payments substituted for otherwise allowable interest payments.
Crofton distinguishes its swap payments by arguing that, unlike Hospital A’s swap agreement, which was separate from the bonds, Crofton’s swap agreement was an inseparable piece of an integrated financing package, and because the package refinances a mortgage secured by Crofton’s property, the swap payments constituted mortgage interest payments. Crofton further argues that the swap payments must be construed as mortgage interest payments because the “Bank and Crofton intended the Notes, Loan and Security Agreement, Swap Interest Agreement and Deed of Trust to function as a singular, non-severable transaction, not a separate, independent, stand alone agreement,” and Maryland contract law requires courts to construe contracts in conformance with the parties’ intent. Moreover, Crofton argues that Maryland public policy supports treating the swap agreement and the related loan as one integrated transaction because Crofton entered into the swap agreement in an effort to operate more efficiently and to lower Crofton’s fixed costs.
Conversely, DHMH agrees with the Board’s finding that the swap agreement was related to Crofton’s loans only because the swap agreement enabled Crofton to “exchange interest rates without modifying the terms of the mortgage loan agreement” and “[t]he fact that in 2002 Crofton paid interest under both the loan and the swap agreements does not make the interest paid under the swap agreement reimbursable[.]” DHMH further agrees "with the Board’s determination that COMAR only allows reimbursement of interest expenses incurred to refinance existing debt or to obtain a new loan. Therefore, DHMH argues that the Board properly referred to the PRM to determine whether Crofton’s swap payments were allowable costs.
We are not persuaded that Crofton’s intent to integrate the swap and mortgage agreements overcomes the PRM’s clear directive that swap payments, even when incurred in place of allowable interest expenses, are not reimbursable interest payments. Similar to Crofton, “Hospital A” entered into its swap agreement to secure a fixed interest rate on bonds upon which, but for the swap agreement, the provider would have made allowable interest payments. Even though the hypothetical swap agreement supplants the bonds’ variable interest rate, the PRM explains that the swap payments are not bond interest payments and thus are not reimbursable. The PRM’s analysis focuses on neither Hospital A’s intent nor the swap agreement’s effect-replacing the variable bond interest rate with a fixed rate. Consequently, to treat Crofton’s intent and the timing of the transactions as determinative in this case would be inconsistent with the PRM, and we decline Crofton’s invitation to do so.
In promulgating its rules governing reimbursement of expenses, DHMH has elected, in the absence of an express indication of its intent to reimburse a specific expense, to decide reimbursement questions by resort to the C.F.R. and the PRM. See COMAR 10.09.10.29. This DHMH is authorized to do. See §§ 15-103, 15-105 of the Health General Article; Adventist Health Care,
We have said that COMAR does not explicitly encompass swap agreements; consequently, our interpretation of CO-MAR must be consistent with the C.F.R. and the PRM. The PRM’s clear delineation of the difference between swap payments and otherwise allowable interest expenses compels the conclusion that the term “mortgage interest” under COMAR does not encompass swap payments regardless of a provider’s intent to substitute those payments for otherwise reimbursable interest expenses. See COMAR 10.09.10.29.
Accordingly, we hold that the Board correctly relied on the PRM to determine that Crofton’s swap payments were not reimbursable as mortgage interest payments under COMAR. We further hold that, because the PRM governs the interpretation of COMAR in this case, a provider’s swap payments are not reimbursable as mortgage interest payments under CO-MAR 10.09.10.10, regardless of a nursing care facility’s intent to integrate a swap agreement and a mortgage refinancing agreement into a single transaction.
III.
Our ruling that the PRM governs our interpretation of COMAR 10.09.10.10 obviates the need to address the second question Crofton presents, which invokes the correctness of the Board’s application of Thrifty Oil to the analysis. We therefore affirm the judgment of the Court of Special Appeals on the sole ground that the Board properly referred to the PRM to determine that swap payments are not reimbursable mortgage interest under COMIAR.
JUDGMENT OF THE COURT OF SPECIAL APPEALS AFFIRMED. COSTS TO BE PAID BY PETITIONER.
ADKINS, J., dissents and files opinion joined by HARRELL, J.
Notes
. Unless otherwise noted, all references to COMAR are to Title 10, Subtitle 09, Chapter 10, which contains regulations governing the Department of Health and Mental Hygiene’s federally approved reimbursement plan for nursing facilities.
. At the time of the financing, the fixed rate loan offer came from First National Bank. M & T Bank subsequently bought a successor to First National Bank.
. LIBOR stands for London Interbank Offered Rate, "a well-known index in the financial markets measuring interest rates.” Citizens First Nat’l Bank of Princeton v. Cincinnati Ins. Co.,
. "An 'amortizing' interest rate swap is a swap whose notional amount declines at specified intervals during its term.” Thrifty Oil Co., 310 F.3d at 1193 n. 5. Crofton’s swap agreement was subject to an amortization schedule that declined at the same monthly rate as the total principal balance owed on Crofton’s two term loans.
. A provider challenging a DHMH decision may elect the manner in which the Board considers the appeal. COMAR 10.01.09.03D. A provider may request that the Board consider the appeal based solely on written materials; based on written materials and an informal oral argument; or based on evidence presented at a full evidentiary hearing. Id. When a provider chooses to argue an appeal at a full evidentiary hearing, the Board may designate an agency to conduct the hearing, but the Board is the ultimate administrative decision maker. See COMAR 10.01.09.06, 10.01.09.07 (providing that, when the Board does not conduct the hearing, the hearing officer should make recommendations to the Board, which issues the final decision).
. If exceptions are made to the ALJ’s findings, the Board will hold a hearing on the exceptions and make the final decision including findings of fact and conclusions of law. COMAR 10.01.09.06, 10.01.09.07.
. The Board accepted the ALJ’s background factual findings that Crofton is a nursing facility and part of the Medicaid program; Crofton sought to refinance its debt with a fixed rate mortgage, and the Bank offered it a variable rate mortgage; and, during the period at issue, the variable interest rate was below 5.5% and therefore Crofton was required to make swap payments.
. The PRM is a federal guide, published by the Health Care Financing Administration, that states use to determine whether costs of care will be reimbursed by the federal government.
. COMAR 10.09.10.10C provides that "[t]he final Medical Assistance per diem reimbursement for capital in investor-operated and non-investor-operated facilities shall include ... [mjortgage interest (including bond interest).” 10.09.10.10C(3).
. COMAR 10.09.10.10A provides that the "Capital cost center includes ... mortgage interest[.]” 10.09.10.10.A(3).
. COMAR 10.09.10.101 provides that "refinancing of existing debt is permitted as the basis for reimbursement calculations only to the extent of the outstanding principal balance remaining on the existing debt when ... [t]he existing debt has ballooned in accordance with the scheduled date reflected in the debt instrument[.]” 10.09.10.101(1).
. COMAR 10.09.10.08B(1) also provides that allowable costs for covered services are determined "according to the principles established under Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq., and contained in the Medicare Provider Reimbursement Manual, HCFA Publication 15-1, unless otherwise specified by this chapter[J”
Dissenting Opinion
Dissenting Opinion by ADKINS, Judge, which HARRELL, J., joins.
I respectfully dissent from the majority’s holding that payments made pursuant to a interest rate swap agreement are, by definition, not “mortgage interest” under the Code of Maryland Regulations (“COMAR”) 10.09.10.10. In my view this holding ignores the fundamental nature of the transaction between Crofton Convalescent Center, Inc. (“Crofton”) and First National Bank of Maryland (“First National”).
Examining the facts of the transaction reveals that the parties took a complicated route to reach a simple result. Crofton sought a fixed-rate loan from First National. After initial negotiations, First National offered Crofton a 6.55% fixed-rate loan, which was not accepted by Crofton. Subsequently, First National proposed a more complicated, two-step transaction. First, Crofton paid interest according to a variable rate. Second, First National and Crofton exchanged the difference between the variable rate and the 5.5% fixed rate, which was the swap role. The variable interest payments existed only in form; in substance, they were subject to an immediate adjustment, via the swap payment, to the 5.5% level.
The majority defers to the Board’s reasoning that the swap arrangement is separate from the mortgage loan simply because First National requested that Crofton make two separate payments, one for the swap, and one for the variable-rate loan. This bookkeeping accommodation made by Crofton for the lender is an insufficient basis for the Board’s ruling that the swap payments were not part of an integrated loan agreement made for the purpose of refinancing the existing mortgage loan when the parties’ clear written agreements say otherwise.
The Master Agreement, which sets up the swap arrangement between the parties, explicitly states:
All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties ... and the parties would not otherwise enter into any Transactions.
“Transactions” is defined in the Master Agreement as “one or more transactions ... that are or will be governed by this Master Agreement, which includes the schedule ... and the documents and other confirming evidence ... exchanged between the parties confirming those Transactions.” Correspondingly, the Loan and Security Agreement says: “The Borrowers and the Bank have entered into an ISDA Master Agreement dated the date hereof (which ... is herein called the ‘Swap Agreement’).” The Term Note for the $4,200,000 indebtedness proves that it is issued “pursuant to the provisions of’ the Loan Agreement. The Term Note for the $500,000 contains the same provision.
Equally important is the undisputed fact that Crofton sought from the bank a fixed 5.5% loan, turned down the bank’s offer for a 6% loan, and deferred to the bank’s proposal that this more complicated deal would accomplish what Crofton sought in the first place—a 5.5% loan for capital purposes. Yet the Board concluded as follows:
The ALJ found that the swap agreement was an agreement linked to the above referenced notes, [i.e. for the $4.7 million dollar loan], to ensure that the interest rate was 5.5%. But that is exactly what a swap interest rate agreement is supposed to do. It allows one of the parties to swap the uncertainties of a floating or variable interest rate for the certainty of a fixed interest rate. Nor is the fact that the interest rate swap agreement includes a notional principal amount [footnote 2 omitted] that is the same as the amount of the loan unusual, controlling, or change the character of the agreement. Most, if not all, swap agreements refer to an amount that is the principal amount of a loan (i.e. the swap agreement’s notional principal.) ... The stated amount of principal is “notional,” because an interest swap agreement is a separate, independent, stand alone agreement [footnote 3 omitted] that does not modify or exchange the principal amount owed on the loan. In short, the interest swap agreement in question, like all interest rate swap agreements, did not produce a new loan or any additional principal for either of the parties to the agreement. The swap agreement simply allowed the parties to exchange interest rates without modifying the terms of the mortgage loan agreement.
Rather than looking at the transaction in question, as the Administrative Law Judge did, the Board relied on several internet definitions of swap agreements, which indicate that in the typical swap transaction the principal amount is never exchanged.
Contrary to Respondent’s suggestion, there is no evidence that Crofton entered into the swap agreement to gamble on market rates. The Administrative Law Judge found as a fact that the “swap agreement required payments that would convert the floating rate term payments into a fixed 5.5% interest rate.” The parties’ intent that Crofton pay 5.5% interest on the capital loan is undeniable.
COMAR 10.09.10.10(C) lists five classes of capital expenses which are reimbursable: “(1) Property taxes; (2) Property insurance; (3) Mortgage interest (including bond interest); (4) Net capital value rental; and (5) Central office capital costs.” "While the regulations provide detailed and complex reimbursement procedures and formulas, they do not provide further details regarding reimbursable capital expenses generally or mortgage interest in particular.
As the majority acknowledges, “we may not abdicate our responsibility to examine independently the regulations upon which the Board relied in deciding Crofton’s appeal[.]” Majority Op., supra, at 216,
This example is not applicable to Crofton’s loan. Unlike Crofton’s loan, the swap interest rate agreement in the example does not “satisfy a financial need of the provider” because the hospital already had the capital it needed, which it obtained when it issued the bonds. The swap interest rate agreement was with a third party, and thus was separate and apart from the borrowing represented by the bonds. The third party bank never lent any money to the hospital.
Accordingly, I submit that it was wrong, as a matter of law, for the Board, tasked with applying the clear language of COMAR 10.09.10.10, which requires reimbursement to a nursing home for mortgage interest on capital loans, to rest its decision on the federal PRM addressing dissimilar financial arrangements utilized by a hospital that had issued bonds. The deference we give to agency determinations of law has limits. As the majority recognizes, “ ‘it is always within our prerogative to determine whether an agency’s conclusions of law are correct.’ ” Adventist Health Care, Inc. v. Md. Health Care Comm’n,
Judge HARRELL has authorized me to state that he joins in this dissenting opinion.
. See, e.g., InvestorWords.com-Investing Glossary, http://www. investorwords.com, (last visited March 12, 2010); Investopedia.com, http://www.investopedia.com (describing swap agreements as: "Traditionally, the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed. Recently, swaps have grown to include currency swaps and interest rate swaps.”) (last visited March 12, 2010).
. The Board utilized the definition of "mortgage interest” offered by the Department of Health and Mental Hygiene: "interest is the cost incurred for the use of borrowed funds.” This is consistent with the definition of "interest” in Black’s Law Dictionary as "|T|he compensation fixed by agreement or allowed by law for the use or detention of money, or for the loss of money by one who is entitled to its use; esp. the amount owed to a lender in return for the use of borrowed money.” Black’s Law Dictionary 886 (9th ed. 2009).