DHFS alleges that NCI charged specific milk, condiments, and paper products to the nursing home, without following the usual 60 percent (nursing home) and 40 percent (retirement home) sharing for food costs. NCI asserts that these items are used in the nursing home to counteract the greater danger of spread of disease in the nursing home. DHFS claims that NCI’s documentation to support charging these costs directly to the nursing home is inadequate

The following cost allocation disputes involve an organization (Nursing Care Inc, or NCI) that operates both a nursing home and an apartment building for retirees (retirement home). A single kitchen is used to provide meals to both the nursing home and retirement home. Also, certain labor costs and utilities costs of the kitchen are shared by the two homes. Many of those living in the nurs- ing home are indigent and are on Medicaid. The state Department of Health and Family Services (DHFS) reimburses NCI at Medicaid approved cost reimbursement rates. The Medicaid reimburse- ment rates are based on cost information supplied by the organization, in this case NCI, and are assumed to be accurate; cost allocations are assumed to be reasonable. DHFS has examined the cost report of NCI and has raised the following issues which are now being litigated.