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STATE OF MICHIGAN 

COURT OF APPEALS 

CIENA HEALTHCARE MANAGEMENT, 

DIMONDALE NURSING CARE CENTER, 

WEST OAKS SENIOR CARE AND REHAB 

CENTER, THE COURTS OF HOLT, SAGINAW 

HOME OF COMPASSIONATE CARE, 

DURAND SENIOR CARE AND REHAB 

CENTER, EVERGREEN MANOR SENIOR 

CARE CENTER, FAITH HAVEN LIVING 

CENTER, LIVONIA WOODS NURSING AND 

REHAB, NORTHFIELD PLACE, ROYAL 

NURSING CENTER, EASTWOOD NURSING 

CENTER, GOLDEN OAKS MEDICAL CARE 

FACILITY, and ROYALTON MANOR, 

 Petitioners-Appellees, 

UNPUBLISHED 

July 14, 2015 

v No. 321027 

Shiawassee Circuit Court 

DEPARTMENT OF HEALTH AND HUMAN 

SERVICES, 

LC No. 13-004740-AA 

 Respondent-Appellant. 

CIENA HEALTHCARE MANAGEMENT, 

NORTHFIELD PLACE, ROYAL NURSING 

CENTER, EASTWOOD NURSING CENTER, 

GOLDEN OAKS MEDICAL CARE FACILITY, 

and ROYALTON MANOR, 

 Petitioners-Appellants, 

and 

DIMONDALE NURSING CARE CENTER, 

WEST OAKS SENIOR CARE AND REHAB 

CENTER, THE COURTS OF HOLT, SAGINAW 

HOME OF COMPASSIONATE CARE, 

DURAND SENIOR CARE AND REHAB 

CENTER, EVERGREEN MANOR SENIOR 
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CARE CENTER, FAITH HAVEN LIVING 

CENTER, and LIVONIA WOODS NURSING 

AND REHAB, 

 Petitioners, 

v No. 321066 

Shiawassee Circuit Court 

DEPARTMENT OF HEALTH AND HUMAN 

SERVICES, 

LC No. 13-004740-AA 

 Respondent-Appellee. 

Before: O’CONNELL, P.J., and OWENS and M. J. KELLY, JJ. 

PER CURIAM. 

 In these consolidated appeals involving a dispute over Medicaid reimbursement, the 

parties appeal by leave granted the circuit court’s order following review of an administrative 

decision. In docket number 321027, respondent, Department of Health and Human Services, 

appeals the circuit court’s decision to reverse the agency’s order with respect to the nursing 

homes managed by NexCare Health Systems, LLC.1 In docket number 321066, petitioners 

appeal the circuit court’s decision to affirm the agency’s final order with respect to Ciena 

Healthcare Management, Inc. and the nursing homes it operates.2 For the reasons more fully 

explained below, we affirm the circuit court’s order with respect to Ciena, but reverse in part 

with respect to the NexCare nursing homes. 

 

1

 Dimondale Nursing Care Center, West Oaks Senior Care Rehab Center, The Courts of Holt, 

Saginaw Home of Compassionate Care, Durand Senior Care and Rehab Center, Evergreen 

Manor Senior Care Center, Faith Haven Living Center, and Livonia Woods Nursing and Rehab 

are NexCare facilities. The management company, NexCare Health Systems, LLC, is not a party 

to this appeal. 

2

 Ciena operates Northfield Place, Royal Nursing Center, Eastwood Nursing Center, Golden 

Oaks Medical Care Facility, and Royalton Manor. 
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I. BASIC FACTS AND PROCEDURAL HISTORY 

 Ciena and NexCare are unrelated Michigan corporations that operate several nursing 

homes, each of which is a legal entity distinct from its managing corporation. Ciena and 

NexCare contract with the Department3

 to provide nursing home services to eligible individuals 

under the joint state and federal Medicaid program. 42 USC 1396 et seq.; MCL 400.1 et seq. In 

order to be reimbursed for the services, Ciena and NexCare submit annual cost reports to the 

Department itemizing the costs each facility spent to serve Medicaid beneficiaries. If the 

Department’s audit reveals that a cost report contains incorrect data, such as non-allowable 

expenses, it will use corrected information to set future repayment rates and, under certain 

circumstances, will retroactively change a previously applied rate. Apart from some exceptions 

that do not apply to this case, a provider who disputes an adverse audit may request a formal 

hearing. MCL 24.271 et seq. 

 The Department audited petitioners’ cost reports for fiscal years 2007 and 2008, and 

disallowed $547,318 in interest expenses claimed by Ciena’s home office, and more than $1 

million in combined interest expenses claimed by the individual NexCare homes. In both cases, 

the Department disallowed the expense under § 8.8 of Michigan’s Medicaid Provider Manual:4

Working capital borrowings are considered funds borrowed for a relatively short 

period to meet current normal operating expenses. Interest on current 

indebtedness—loan amounts meeting program working capital criteria is 

allowable, whereas interest expense for long-term working capital indebtedness is 

not considered allowable. The nursing facility must document the reason(s) and 

need for the working capital loan. The use must be to meet normal operating 

expenses and must be supported by an application of funds analysis 

demonstrating the use of loan proceeds for nursing facility expenses. The loan 

must include/require repayment of the principle [sic] balance within a prescribed 

time period, including regular scheduled repayment amounts applying to the 

principle [sic] borrowings amount. The loan must meet allowable cost principles. 

[Provider Manual at 46.] 

 At issue for Ciena is the interest on 21 promissory notes securing loans from individuals, 

couples, and trusts, most of which were issued in 2004 and 2005. The interest rates on the loans 

ranged from 11% to 12%, and the notes required monthly interest-only payments. Ciena 

deposited the borrowed funds into its home account and then disbursed them to the individual 

homes as needed to cover losses and, among other things, to make capital improvements. 

 

3

 At the time of the proceedings below, the applicable department was the Department of 

Community Health, but its responsibilities were later transferred to the Department of Health and 

Human Services. See Executive Order 2015-4. 

4

 We refer to Michigan’s Medicaid Provider Manual as the Provider Manual. During the time at 

issue, the federal government issued an analogous Provider Reimbursement Manual, which we 

refer to as the Reimbursement Manual. 
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 At issue for the NexCare petitioners is interest claimed on eight lines of credit taken out 

by individual homes between March 2002 and January 2007. The oldest line of credit was 

converted into a 3-year note in 2006, and six more lines of credit were bundled into an obligated 

group debt instrument issued by Bank of America in December 2008. The eighth facility opened 

a $1 million line of credit in 2004 and at the time of the audit had not converted it into some 

other type of debt instrument. The Department allowed the interest expense on these lines of 

credit in 2005 and 2006, but disallowed the interest expense in 2007 and 2008, reasoning that the 

lines of credit became long-term debt when converted into the debt instruments. 

 After receiving the adverse results, Ciena and NexCare separately requested formal 

hearings. At their request, the hearing officer consolidated their appeals, and the parties filed a 

joint stipulation of issues, law, and facts. After three hearings and review of the parties’ briefs 

and evidence, the hearing referee found against petitioners on every issue and confirmed the 

Department’s decision to disallow the interest expenses. The hearing officer specifically 

determined: 

1. The Department applied the proper tests of allowability when it disallowed the 

interest expense on (1) the Ciena promissory notes and (2) the lines of credit of 

the NexCare Homes. . . . 

2. The [] Provider Manual . . . appl[ies] to the Ciena promissory notes and the 

lines of credit of the NexCare homes . . . in the cost reporting periods that are the 

subject of this appeal. 

3. The interest on the Ciena [and] NexCare . . . borrowings is not an “allowable 

cost” pursuant to [Reimbursement Manual]-15 Section 202.1. 

4. The [Provider Manual] was properly promulgated as part of the state plan 

pursuant to 42 USC 1396a and its implementing regulations. 

* * * 

8. The Office of Audit is not barred from applying policies introduced into the 

[Provider Manual] in a subsequent cost reporting period to interest expense on 

borrowings that have not been disallowed in a prior cost reporting period. 

9. The Office of Audit is not barred from retrospectively applying the policy in 

Section 8.8 specifically related to long term borrowings to short term borrowings 

before the borrowings are actually converted to long term borrowings. 

* * * 

11. The “prudent buyer” principle was another basis to disallow the interest 

expense on the Ciena promissory notes. 

12. The “related party” principle was another basis for disallowing the interest 

expense on the Ciena promissory notes and it was proper for the Department to 

disallow the same. 
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 After reviewing petitioners’ exceptions to the hearing referee’s findings, the 

Department’s Director entered a final order adopting the referee’s conclusions. Petitioners 

appealed the final order to the circuit court, which issued an order affirming the referee’s 

findings and rulings with respect to Ciena, but reversing with respect to the NexCare homes. 

After the circuit court denied the parties’ motions for reconsideration, the parties applied to this 

Court for leave to appeal. This Court granted leave and consolidated the appeals.5

II. AGENCY REVIEW 

 “This Court reviews a lower court’ s review of an agency decision to determine whether 

the lower court applied correct legal principles and whether it misapprehended or grossly 

misapplied the substantial evidence test to the agency’s factual findings.” Department of Labor 

& Economic Growth v Dykstra, 283 Mich App 212, 222; 771 NW2d 423 (2009) (quotation 

marks and citation omitted). When reviewing an agency’s decision, the circuit court is “limited 

to determining whether the decision was contrary to law, was supported by competent, material, 

and substantial evidence on the whole record, was arbitrary or capricious, was clearly an abuse 

of discretion, or was otherwise affected by a substantial and material error of law.” Id. at 223 

(quotation marks and citation omitted); see also MCL 24.306. 

 “When reviewing whether an agency’s decision was supported by competent, material, 

and substantial evidence on the whole record, a court must review the entire record and not just 

the portions supporting an agency’s findings.” Great Lakes Sales, Inc v State Tax Comm, 194 

Mich App 271, 280; 486 NW2d 367 (1992). Substantial evidence is evidence “that a reasoning 

mind would accept as sufficient to support a conclusion.” Monroe v State Employees’ 

Retirement Sys, 293 Mich App 594, 607; 809 NW2d 453 (2011) (quotation marks and citation 

omitted). “Substantial evidence is ‘more than a mere scintilla’ but less than ‘a preponderance’ of 

the evidence.” Huron Behavioral Health v Department of Behavioral Health, 293 Mich App 

491, 497; 813 NW2d 763 (2011) (citation omitted). “If there is sufficient evidence, the circuit 

court may not substitute its judgment for that of the agency, even if the court might have reached 

a different result.” VanZandt v State Employees Ret Sys, 266 Mich App 579, 584; 701 NW2d 

214 (2005). “Courts should accord due deference to administrative expertise and not invade 

administrative fact finding by displacing an agency’s choice between two reasonably differing 

views.” Monroe, 293 Mich App at 607 (quotation marks and citation omitted). This is 

particularly true with regard to “witness credibility and evidentiary questions.” VanZandt, 266 

Mich App at 588. 

 

5

 See Ciena Healthcare Mgt v Dep’t of Community Health, unpublished order of the Court of 

Appeals, issued August 18, 2014 (Docket No. 321027); Ciena Healthcare Mgt v Dep’t of 

Community Health, unpublished order of the Court of Appeals, issued August 18, 2014 (Docket 

No. 321066). 
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B. DOCKET NO. 321027 

 The Department conceded in the circuit court and in its brief on appeal that it should have 

allowed the interest on the line of credit taken out by Durand Senior Care and Rehab because the 

loan was less than one year old. It argues on appeal, however, that the circuit court erroneously 

extended this concession to the other seven NexCare homes, and thus clearly erred by reversing 

the final order with respect to all the NexCare facilities rather than with respect to the Durand 

facility alone. We agree that the circuit court erred by reversing the final order with respect to all 

of the NexCare facilities, but not for the reason advanced by the Department. 

 Contrary to the Department’s assertion, the circuit court did not reverse the final order 

with regard to NexCare by erroneously extending its finding that the Durand facility should have 

been allowed to claim the interest expense on its line of credit. Rather, the circuit court reversed 

because it agreed with NexCare that the interest paid on the lines of credit should have been 

allowed up to the time when the lines were refinanced. In drawing this conclusion, however, the 

circuit court failed “to accord due deference to administrative expertise” and improperly invaded 

“administrative fact finding by displacing [the] agency’s choice between two reasonably 

differing views.” Monroe, 293 Mich App at 607. 

 The relevant question with regard to the NexCare homes was whether loans, which were 

initially considered short term, could be treated as long-term debt before actually being formally 

converted to a long-term debt instrument. The hearing referee found that the lines of credit taken 

out by the NexCare homes had taken on the character of long-term debt before the time they 

were refinanced into long-term debt. Accordingly, the referee determined that their retrospective 

classification was proper, and that the auditor properly determined that the lines of credit were 

not funds borrowed for a relatively short time to meet current normal operating expenses. 

 The circuit court, however, rejected that contention and reversed, not because the record 

showed that NexCare’s loans had not taken on the character of long-term debt, but because it felt 

that it was reasonable to treat the loans as short-term until formally converted. The circuit court 

based its decision on the form of the loans, but the hearing referee looked not just at the timing, 

but also at how the facilities used the loans. Because the referee’s view was reasonable and 

supported by the record, the circuit court was obligated to defer to the hearing referee’s 

administrative expertise. Id. at 607. Absent any indication that the record was insufficient to 

support the referee’s findings, the court was prohibited from “substituting its judgment for that of 

the agency, even if the court might have reached a different result.” VanZandt, 266 Mich App at 

584. By substituting its own judgment for that of the agency, the circuit court committed clear 

error. Id. at 596. For these reasons, we reverse the circuit court’s order with regard to the seven 

non-Durand homes. 

C. DOCKET NO. 321066 

 Although petitioners assign several errors to the circuit court in this docket, the 

dispositive issue is whether § 8.8 of the Provider Manual is valid. Petitioners do not dispute that 

when they enrolled in the Medicaid program administered they signed agreements stating that 

they would read and comply with the Provider Manual and with the Department’s “policies and 

procedures for the Medical Assistance Program contained in the manual, manual updates, 
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provider bulletins, and other program notifications.” They also do not dispute that they agreed 

to comply with the provisions of 42 USC 405 and MCL 400.1 et seq. Also undisputed is the fact 

that Ciena’s promissory notes do not require repayment of the loan principal within a “prescribed 

period,” or that Ciena has been making interest-only payments on most of the loans for at least 

two years, and for even longer on some of the loans. Thus, if § 8.8 is valid, it would necessarily 

follow that the interest on those promissory notes would not be eligible for reimbursement. 

Accordingly, petitioners claim that § 8.8 of the Provider Manual is invalid because it changes the 

state plan with regard to whether an expense is allowable and therefore cannot be enforced until 

it is approved by the Centers for Medicare and Medicaid Services. 

 Michigan’s state plan incorporates 42 CFR 413.153 and Reimbursement Manual-15, 

§ 202.1 as guidelines for identifying allowable costs. 42 CFR 413.153(a)(1) provides that 

“[n]ecessary and proper interest on both current and capital indebtedness is an allowable cost.” 

It defines interest as follows: 

Interest is the cost incurred for the use of borrowed funds. Interest on current 

indebtedness is the cost incurred for funds borrowed for a relatively short term. 

This is usually for such purposes as working capital for normal operating 

expenses. Interest on capital indebtedness is the cost incurred for funds borrowed 

for capital purposes, such as acquisition of facilities and equipment, and capital 

improvements. Generally, loans for capital purposes are long-term loans. [42 

CFR 413.153(b)(1).] 

 Reimbursement Manual-15, § 202.1 provides the same definition of “interest,” further 

characterizing “relatively short term” as “usually for 1 year or less.” It also specifies that to be 

allowable, interest must be “[s]upported by evidence of an agreement that funds were borrowed 

and that payment of interest and repayment of funds are required.” 

 The definition of working capital borrowings in § 8.8 as “funds borrowed for a relatively 

short period of time to meet normal operating expenses,” is clearly consistent with the definition 

in 42 CFR 413.153(b)(1) of current indebtedness as “funds borrowed for a relatively short 

term . . . usually for such purposes as working capital for normal operating expenses.” The 

requirement in § 8.8 that for interest to be allowable, the underlying loan must require repayment 

of the balance within a prescribed period interprets, but does not change, the requirement in 

Reimbursement Manual-15 § 202.1 that for interest to be allowable, the underlying loan must 

require payments of interest and repayment of the principal. Because the state plan incorporates 

42 CFR 413.153 and Reimbursement Manual-15 § 202.1, with which § 8.8 of the Provider 

Manual is consistent, we conclude that § 8.8 does not change the state plan, and therefore does 

not require federal approval before enforcement. 

Alternatively, petitioners argue that, even if § 8.8 is valid, it is ambiguous and must be 

construed against the Department. An ambiguity can be found only where the language of a 

statute as used in its particular context has more than one common and accepted meaning. 

Colucci v McMillin, 256 Mich App 88, 94; 662 NW2d 87 (2003). Because petitioners do not 

base their claim of ambiguity on the actual text of § 8.8, we find their argument unpersuasive. 
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Petitioners base their claim of ambiguity on two alleged admissions by the Department. 

They contend first that a statement by an appeals officer in a written conference report for Belle 

Fountain Nursing and Rehabilitation Center, asserting that what constitutes “regular” payments 

is ambiguous, establishes the ambiguity of the entire section. Assuming arguendo that the term 

“regular” is ambiguous, construing it against the Department would not help petitioners because 

the meaning of “regular” is not at issue. The promissory notes for Ciena actually require regular 

payments, but still run afoul of § 8.8 because they require interest-only payments. Accordingly, 

construing § 8.8 against the Department with respect to “regular” would not produce a different 

outcome for Ciena. 

 Petitioners next rely on a notice issued by the Department in conjunction with a 2012 

proposed change in the wording of § 8.8 to specify that a relatively short time meant “12 months 

or less.” As a rationale for the change in wording, the Department explained that the “[c]urrent 

policy does not clearly define the appropriate time period for repayment of the principal balance 

of a working capital loan.” Petitioners contend that this is evidence that § 8.8 is ambiguous with 

regard to what constitutes a “relative short period.” However, notwithstanding the rationale for 

revising the wording of § 8.8, the proposed change does no more than incorporate the 

characterization of “relatively short term” as “usually for 1 year or less” found in Reimbursement 

Manual-15 § 202.1, and in that part of the state plan that incorporates Reimbursement Manual-15 

§ 202.1, with which petitioners have taken no issue. 

 In sum, § 8.8 of the Provider Manual does not change the state plan; it corresponds to 42 

CFR 413.153 and interprets Reimbursement Manual-15 § 202.1, both of which are incorporated 

into the state plan as guidelines for identifying allowable costs. Further, because petitioners have 

not pointed to any language in § 8.8 that, when “used in its particular context has more than one 

common and accepted meaning,” there is no ambiguity. Colucci, 256 Mich App at 94. 

Consequently, § 8.8 of the Provider Manual is valid and enforceable, and the Department 

properly applied it to disallow the interest expense on loans that in most cases were at least two 

years old and required interest-only payments. For that reason, it is unnecessary for this Court to 

address whether the related party and the prudential buyer principles provided alternative bases 

for disallowing the interest expense. 

 Finally, petitioners claim that the circuit court deferred to the referee’s findings of fact 

when it should have determined that those findings were based not on the whole record, but on 

portions of testimony taken out of context, and that they ignored or were contrary to the parties’ 

stipulations. The portion of the record petitioners cite is the circuit court’s articulation of the 

standard of review for administrative decisions found in Quality Clinical Laboratories, Inc v 

Dep’t of Social Services, 141 Mich App 597, 599; 367 NW2d 390 (1985). Petitioners do not 

identify which of the more than 50 stipulations the referee, agency or court ignored or 

contradicted, and we will not search the record for citations to support their claim. Derderian v 

Genesys Health Care Sys, 263 Mich App 364, 388; 689 NW2d 145 (2004). Because petitioners 

have abandoned this claim of error by failing to properly support it, we decline to address it. 

Wilson v Taylor, 457 Mich 232, 243; 577 NW2d 100 (1998). 
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III. CONCLUSION 

 We reverse the circuit court’s order with regard to the eight NexCare facilities and 

remand this case to the circuit court to issue an order reversing the Department’s final order with 

regard to the Durand facility alone. In all other respects we affirm. 

 Affirmed in part, reversed in part, and remanded for further proceedings consistent with 

this opinion. We do not retain jurisdiction. 

/s/ Peter D. O'Connell 

/s/ Donald S. Owens 

/s/ Michael J. Kelly