STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
SYLVIA URLICH, President, ) WESTCHESTER GENERAL HOSPITAL, )
)
Petitioner, )
)
vs. ) CASE NO. 80-137RX
) FLORIDA DEPARTMENT OF HEALTH ) AND REHABILITATIVE SERVICES, )
)
Respondent, )
vs. )
) HEALTH SYSTEMS AGENCY OF SOUTH ) FLORIDA, )
)
Intervenor. )
)
FINAL ORDER
The Petitioner, Westchester General Hospital, filed a Petition for Determination of the Invalidity of Existing Rules pursuant to Section 120.56, Florida Statutes. Petitioner is seeking an order determining that the Department of Health and Rehabilitative Services Rules 10-5.02(21) and 10- 5.05(2) constitute invalid exercises of delegated legislative authority. By Order entered January 29, 1980, the Director of the Division of Administrative Hearings entered an Order assigning the matter to the undersigned. A final hearing was originally scheduled to be conducted on February 25, 1980, but was continued upon stipulation of the parties, and was rescheduled and conducted on March 11, 1980. A Motion to Intervene was filed by the Health Systems Agency of South Florida, Inc., and the Motion was granted by Order entered March 4, 1980.
At the final hearing, the Respondent, Department of Health and Rehabilitative Services, sought to have introduced into evidence the deposition of a witness, Kenneth W. Schang, which was taken in connection with another matter pending before the Division of Administrative Hearings, that being Department of Health and Rehabilitative Services v. Westchester General Hospital, DOAH Case No. 80-044. The deposition had not yet been transcribed at the time of the final hearing, and the Petitioner objected to its being received into evidence. Ruling upon admissibility of the deposition was deferred to allow the parties an opportunity of file legal memoranda respecting the issue.
While the Administrative Procedure Act allows evidence to be received in written form [Section 120.58(1)(a), all parties have a right to cross-examine witnesses. Section 120.58(1)9f). It does not appear that the deposition of Kenneth W. Schang was noticed as being taken for the purpose of preserving the witness's testimony in connection with this rule challenge proceeding. Thus, receipt of the deposition would frustrate the Petitioner's right to cross-examine the witness. The Department has failed to establish any of the conditions which would need to exist in the courts of Florida for receipt of testimony in the form of a deposition. There was no showing that the witness was unable to
testify at the hearing, or that the Department was unable to procure his appearance. His testimony in the form of a deposition would thus not be admissible under the Florida Rules of Civil Procedure. Under the Florida Rules of Evidence set out at Chapter 90, Florida Statutes, deposition testimony from another proceeding is admissible only if it is shown that the witness is unavailable as a witness in the instant proceeding. Section 90-804(2)(a).
Again, the Department has failed to establish the unavailability of the witness Schang. Even if a proper predicate had been laid for receipt of the witness's testimony through a deposition, it would not be admissible in this proceeding. A copy of the deposition was filed in DOAH Case No. 80-044. The undersigned Hearing Officer has read the deposition in its entirety. None of the testimony in the deposition is relevant to the issue of whether the rules being challenged in this proceeding constitute invalid exercises of delegated legislative authority, or whether the Petitioner has the requisite standing to bring the rule challenge proceeding. The deposition therefore has no probative value to this proceeding, and it will be excluded from evidence.
The Petitioner contends that the Department's Rules 10-5.02(21) and 10-5.05 constitute invalid exercises of delegated legislative authority because the economic impact statement prepared by the Department is inadequate, because the rules allegedly amend and alter the provisions of the statute which they implement, because the rules are arbitrary and capricious, and because the rules do not contain a correct statement of the statutory authority for their promulgation.
FINDINGS OF FACT
The Respondent, Department of Health and Rehabilitative Services, is responsible for administering the "Health Facilities and Health Services Planning Act," Section 381.493 through 381.497, Florida Statutes. The Act provides, inter alia, that health care facilities seeking to increase their bed capacity, to engage in construction of additional facilities, to make certain capital expenditures, or to convert facilities from one type of health care facility to another must obtain a Certificate of Need Section of the Department's Office of Community Medical Services.
The Health Facilities and Health Services Planning Act was adopted by the 1972 Florida Legislature (Chapter 72-391, Laws of Florida), and as originally adopted, included a "grandfather clause" which exempted certain health care facilities from the requirement of obtaining a Certificate of Need. The grandfather clause was set out at Section 381.497, and provided:
Sections 381.493-381.495 shall not affect any health-care facility project for which land has been acquired and preliminary construction plans have been prepared and filed with the Department of Health and
Rehabilitative Services prior to July 1, 1973, or any ambulatory surgical center constructed or in operation by January 1, 1976.
The grandfather clause became a source of frustration in administering the Act because many grandfathered projects were not being brought to completion, and it accordingly became difficult to estimate health care needs. The provision also caused Florida's program to be out of compliance with federal requirements.
Accordingly, the 1978 Florida Legislature repealed the clause. Chapter 78-194,
Section 3, Laws of Florida. In addition to repealing the grandfather clause, the Act provided, in Section 1:
(2) On or before July 15, 1978, the department shall provide notice to each health-care facility project determined by the department to be exempt or grandfathered under the Health Facilities and Health Services Planning Act.
If a health-care facility project has been previously notified in writing by the department that it is exempt or grandfathered under the Health Facilities and Health Services Planning Act, such notice shall be considered as valid evidence of inapplicability of Sections
381.493-381.495 to said project, and exemption from the Health Facilities and Health Services Planning Act.
The Petitioner is President of Westchester General Hospital located in Miami, Florida. Westchester General Hospital has been in the process of planning and constructing a health care facility project which the Department concluded was exempt from the requirement of a Certificate of Need under the grandfather clause. Planning for the project commenced prior to July 1, 1973, but only acquisition of land and adoption of preliminary plans had been completed by the time that the Legislature adopted Chapter 78-194. The Department failed to notify Westchester General Hospital that the grandfather clause had been repealed prior to July 15, 1978, as required under Chapter 78- 194, Laws of Florida. Apparently, Westchester's preliminary plans had never actually been filed with the Department, and the Department therefore overlooked Westchester when it was accomplishing the notifications. Later it was determined that since Westchester had been previously advised that its project was exempt under the grandfather clause, the Department could not, under estoppel principles, change its position, and notice was ultimately provided in October, 1978.
The repeal of the grandfather clause was effective under that Act on July 1, 1979. The Department initiated rule making to implement the repeal of the grandfather clause. The Department's rule 10-5.05, Florida Administrative Code, was filed with the Office of the Secretary of State on May 15, 1979, and became effective June 5, 1979. The rule requires that projects which had been subject to the grandfather exemption must be in continuous and physical construction by July 1. 1979. Rule 10-5.02(21), Florida Administrative Code, which became effective on the same date, defined continuous and physical construction to contemplate action beyond site preparation under final plans that had been approved by the Department.
The Department had concluded that Westchester General Hospital's project which had been exempt from Certificate of need requirements under the grandfather clause was not under construction by July 1, 1979, as contemplated by Rules 10-5.05 and 10-5.02(21). Accordingly, an administrative complaint was issued, and proceedings respecting the complaint are pending before the Division of Administrative Hearings. The pertinent language of Rule 10-5.05 is as follows:
Such projects [projects which had been exempt from Certificate of Need requirements under the grandfather clause] not subject to review
shall forfeit such exemption from review unless the project is under physical and continuous construction, pursuant to final construction plans approved by the department, prior to 1 July 1979.
The term "construction" as used in Rule 10-5.05, and as used elsewhere in rules relating to Certificate of Need requirements, is defined in Rule 10-5.02(21) as follows:
"Construction" means the commencement of and continuous activities beyond site preparation normally associated with erecting, altering or modifying a health care facility pursuant to construction plans and specifications approved by the department under the provisions of Rules 10D-28, 10D-29, or 10D-38, Florida Administrative Code.
This definition of "construction is not the definition that is typically followed in the architectural and construction industries. Typically in those fields, when construction is deemed to commence in connection with a given project is a question of the intention of the parties. Architects who testified at the hearing stated that construction is typically thought to commence either at the time that the contract is signed, or when the very first work, including site preparation, begins. The Department's definition which requires more than mere site preparation was chosen because of the Department's experience in administering the Certificate of Need program. Effective health care planning was being frustrated because health care providers whose projects had been grandfathered, or even providers who had received a Certificate of Need were undertaking site preparation, but were taking no further steps to complete the project. The Department sought to take a restrictive view of then construction of a project actually commences to assure that providers were not simply taking enough steps to maintain exempt status or to maintain a Certificate of Need without actually undertaking to complete the project. The Department concluded that activities beyond site preparation would demonstrate the the provider was sufficiently serious about the project to carry it to completion.
The Department prepared an economic impact statement in support of Rules 10-5.05 and 10-5.02(21) as required by Section 120.54(2). Under the heading "Cost or Benefit to Persons Directly Affected," the economic impact statement provides:
Persons most directly affected by the Certificate of Need program are the general population who ultimately pay for capital expenditures for health care facility projects through charges rendered for services provided. The incurrence of a capital expenditure (several thousand or several million dollars) for an unnecessary health care facility project, in
the absence of this proposed amendments, would economically impact on the general public in an undeterminable dollar amount which would
vary according to the total cost of the unnecessary project. The denial of a several thousand or
million dollar capital expenditure for an unnecessary
health care project would result in the general public's health care costs not being unnecessarily increased. These proposed amendments would enhance existing rules under
which the Department of Health and Rehabilitative Services denied (during 1975, 1976, 1977,and 1978) unnecessary projects totalling $145,306,100 which, had they been accomplished, would have adversely impacted on health care costs borne
by the general public.
The economic impact statement contains no estimate of costs to health care providers of the rules. The Department concluded that insofar as there were such costs (which it asserts there were not), the costs are the result of the statute which repeals the grandfather clause rather than of the rules. The Department did not consider the increased costs that a provider would incur because the project would be subject to Certificate of Need requirements rather than exempt under the grandfather clause. There are such costs, and they are susceptible of estimation. The Department did not consider these costs and made no effort to estimate them.
The economic impact statement, under the heading "Estimate of Effect on Competition and Open Market," provides as follows:
These proposed amendments will have no impact on competition and open market employment in that they do not address licensing requirements beyond those already established in existing statutes and rules.
This statement would appear to be correct, because whether projects are exempt from Certificate of Need requirements or not, the projects must be taken into consideration in determining whether such Certificate of Need would be issued for other projects. The rules setting forth the planning criteria, rather than the rules relating to repeal of the grandfather clause, impact competition and the open market.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter of this proceeding and over the parties. Section 120.56, Florida Statutes, (1979).
Westchester General Hospital is substantially affected by Rules 10-5.05 and 10-5.02(21). The Department has contended that the Petitioner is no longer eligible for a grandfather exemption from Certificate of Need requirements under the rules, and if this position is upheld in further proceedings, the project which Westchester has initiated may not be able to receive a Certificate of Need. In any case, Westchester would need to go through the Certificate of Need process, and its costs would be increased.
The economic impact statement prepared by the Department in support of Rules 10-5.05 and 10-5.02(21) does not address the economic impact that the rules have upon health care providers in the Petitioner's position. The rules set conditions under which projects which had enjoyed exempt status under Section 281.597 would continue to enjoy that status. Providers whose projects
lose exempt status would need to obtain a Certificate of Need in order to continue with the project. There is a definite cost to be incurred in the Certificate of Need process, and the cost is susceptible of estimation.
If an agency fails to adopt an economic impact statement, or if the statement is false or erroneous, the agency's rule constitutes an invalid exercise of delegated legislative authority. Department of Health and Rehabilitative Services v. Delray Hospital Corporation, 373 So. 2d 75 (1 DCA Fla. 1979); Department of Environmental Regulation v. Leon County, 344 So. 2d 297, 299 (1 DCA Fla. 1977). This does not mean that failure to adopt an economic impact statement or failure to articulate all of the elements set out in Section 120.54(2) necessarily renders a rule invalid. In School Board of Broward County v. Gramith, 375 So. 2d 340 (1 DCA Fla. 1979); and Polk v. School Board of Polk County, 373 So. 2d 960 (2 DCA Fla. 1979), the courts held that such failures will not render a rule invalid unless it is shown that the error impaired the fairness of the proceeding or the correctness of the action taken by the agency. The Supreme Court of Florida recently approved this harmless error concept in Florida-Texas Freight, Inc. v. Hawkins, So. 2d (Supreme Court Case No. 53,303, Opinion dated December 23, 1979). The case involved a rule of the Public Service Commission. The requirement for an economic impact statement was measured against the requirements of Section 120.54(2) as it existed prior to the adoption of Chapter 78-425, Laws of Florida, which amended the requirements for an economic impact statement. The Court stated:
By this provision [F.S. 120.54(2)(a)] the legislature seeks to promote agency introspection in administrative rule making. The process
of formulating rules and regulations involves
an interplay between social and economic factors and the legislative goals underlying agency action. In order to insure a comprehensive
and accurate analysis of economic factors in this calculus, the legislature has instructed an agency, through Section 120.54(2)(a), to prepare an explicit statement delineating the short and long term economic consequences of a proposed rule. Such a procedure directs agency attention to certain key considerations
and thereby facilitates informed decision making.
It also serves the salutary purpose of opening
up the administrative process to public scrutiny.
The Public Service Commission did nothing more to comply with the provisions of Section 120.54(2)(a) than to assert that the rules had no economic impact. The Court noted that the Commission had not complied with the requirements of the statute, but stated:
True, the statement did not track the seven subsections of the statute, but in the absence of some evidence to the contrary or a showing of prejudice by a protestant, this shortcoming does not require remand.
Section 120.54(2)(a) provides:
Each agency, prior to the adoption, amendment, or repeal of a new rule, shall provide
information omits proposed action by preparing a detailed economic impact statement. The economic impact statement shall include:
An estimate of the cost to the agency of the implementation of the proposed action, including the estimated amount
of paper work;
An estimate of the cost or the economic benefit to all persons directly affected by the proposed action;
An estimate of the impact of the proposed action on competition and the open market for employment, if applicable; and
A detailed statement of the data and method used in making each of the
above statements.
The Department totally failed to recognize and estimate the cost of its rules upon health care providers who, like the Petitioner, had enjoyed grandfathered status with respect to their projects, and no longer would under the rules.
Consideration of these costs is required under Section 120.54(2)(a)2. Under these circumstances, it must be concluded that the failure has affected the fairness of the proceedings. To rule otherwise would render a nullity the economic impact requirement of the statute. The very introspection that the Legislature desired would be missing, and the Department, despite its failure to consider the economic consequences of the various policy choices available to it in interpreting and implementing the repeal of the grandfather clause, nonetheless would have adopted a valid rule.
Other contentions raised by the Petitioner with respect to the validity of the economic impact statement have been considered. Insofar as any other errors have been demonstrated, they are of a mundane, harmless sort, and would not justify a finding that the rules are invalid.
Since it is conclude that the economic impact statement prepared by the Department is inadequate, and the rules are therefore invalid, it is not necessary to consider further issues raised by the Petitioner respecting the validity of the rules. Since the matters were fully litigated, however, is appropriate that they be ruled upon. The Petitioner contends that the Department's rules amend the statute which repealed the grandfather clause, and are arbitrary and capricious. The basis of this contention is that the statute does not require that a project be under construction in order to continue to enjoy grandfathered status, and that the Department's choice of a definition for "construction" is contrary to accepted practice in the architectural and construction industries. These contentions are without merit.
The Department has broad rule-making authority with respect to the Certificate of Need program. Section 381.494(6)(b), Florida Statutes, (1979). Chapter 78-194, Laws of Florida, which repeals the grandfather clause that had been set out at Section 381.497, Florida Statutes, leaves room for interpretation as to whether the projects that had formerly been exempt from Certificate of Need requirements would need to be completed, under construction, or merely in planning stages on July 1, 1979, the effective date of the repeal. The Department has the authority to adopt rules which interpret repeal of the grandfather clause, and has undertaken to do that through Rules 10-5.05 and 10-
5.02(21). The view taken by the Department that in order to continue to enjoy grandfathered status the project must be beyond the mere site preparation stage is not the most restrictive interpretation that could have been made of the statute. Under the most strict interpretation, it could have been concluded that projects not actually completed by July 1, 1979, would need to have a Certificate of Need. While the definition of "construction" chosen by the Department is not the same definition generally utilized in the architectural and construction industries, it is a reasonable definition for the purposes of the Certificate of Need statute. The goal was to assure that providers would actually complete projects rather than simply take initial construction steps, then await development of favorable conditions before completing the project.
The Department's choice of policies is reasonably related to assuring proper health care and health facilities planning. The mere fact that the Department has chosen this construction rather than the one advance by the Petitioner or the one generally accepted in the construction industry does not render the rule invalid. Florida Canners Association v. Department of Citrus, 371 So. 2d 503,
519 (2 DCA Fla. 1979). The Petitioner has not satisfied its burden of establishing by a preponderance of the evidence that the rules are arbitrary or capricious. Agrico Chemical Company v. Department of Environmental Regulation,
365 So. 2d 759 (1 DCA Fla. 1978). Indeed, the preponderance of the evidence in this case establishes that the rules are a reasonable implementation of the statute and are neither arbitrary, nor capricious.
Westchester has contended that the rules are invalid because neither Chapter 78-194, Laws of Florida, nor Section 381.497, Florida Statutes, are cited as authority for the rules. To the extent that this is actually a procedural defect, it does not prejudice the Petitioner, impair the fairness of the rule-making proceedings, or render the action taken by the Department erroneous. The error, if error there be, is of a most unprejudicial sort, and is harmless.
The Department of Health and Rehabilitative Services Rules 10-5.05 and 10-5.02(21) constitute invalid exercises of delegated legislative authority due to the inadequacy of the economic impact statement prepared in support of the rules.
FINAL ORDER
Based upon the foregoing findings of fact and conclusions of law, it is hereby
Department of Health and Rehabilitative Services Rules 10-5.05 and 10- 5.02(21), Florida Administrative Code, constitute invalid exercises of delegated legislative authority due to the inadequacy of the economic impact statement prepared in support of the rules, and the rules are hereby declared to be invalid.
ENTERED this 18th day of April, 1980, in Tallahassee, Florida.
G. STEVEN PFEIFFER Hearing Officer
Division of Administrative Hearings Room 101, Collins Building
Tallahassee, Florida 32301
(904) 488-9675
COPIES FURNISHED:
Stephen Marc Slepin, Esquire Suite 201, Ellis Building 1311 Executive Center Drive Tallahassee, Florida 32301
Eric J. Haughahl, Esquire Assistant General Counsel Department of Health and
Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 406 Tallahassee, Florida 32301
R. William Roland, Esquire McConnaughhay & Roland, P.A. Post Office Drawer 229 Tallahassee, Florida 23302
Ms. Liz Cloud Administrative Code Bureau Department of State
The Capitol, Room 1802 Tallahassee, Florida 32301
Carroll Webb, Esquire Executive Director
Administrative Procedures Committee Room 120, Holland Building Tallahassee, Florida 32301
| Issue Date | Proceedings |
|---|---|
| Apr. 18, 1980 | CASE CLOSED. Final Order sent out. |
| Issue Date | Document | Summary |
|---|---|---|
| Apr. 18, 1980 | DOAH Final Order | Challenged rules were invalid for failure to include and adequate economic impact statement. |
