STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HEALTH CARE and RETIREMENT )

CORPORATION OF AMERICA, )

)

Petitioner, )

) FLORIDA CONVALESCENT CENTER, ) INC., and CATHOLIC COMMUNITY )

SERVICES INC., ) CASE NO. 83-2260RX

)

Intervenors, )

)

vs. )

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, iiearing Officer with the Division of Administrative Hearings, on October 17 through 20, 1903, in Tallahassee, Florida. The issue for determination in this proceeding is whether respondent's Rule 10-5.11(21), Florida Administrative Code, constitutes an invalid exercise of delegated legislative authority.

APPEARANCES

For Petitioner: Alfred N. Clark and

LaDonna Cody, Esquires Laramore & Clark, P.A.

325 North Calhoun Street Tallahassee, Florida 32301

For Intervenor John Moyle, Thomas A. Sheehan, III and Florida Donna Stinson, Esquires

Convalescent Moyle, Jones & Flanigan

Centers: Post Office Box 3888 707 North Flagler Drive

West Palm Beach, Florida 33402 and

118 North Gadsden Street, Suite 100 Tallahassee, Florida 32301

For Intervenor Byron D. Matthew, Jr., Esquire Catholic McDermott, Will and Emery Community Services: 700 Brickell Avenue, Suite 804

Miami, Florida 33131

For Respondent: M. Stephen Turner, Esquire

Culpepper, Turner and Mannheimer

318 North Calhoun Street Post Office Drawer 591

Tallahassee, Florida 32302-0591 INTRODUCTION

Petitioner and intervenors challenge the validity of respondent's Rule 10- 5.11(21), Florida Administrative Code, which provides the methodology for determining the need and allocation of nursing home beds in Florida pursuant to the Certificate of Need program. The challenged rule and economic impact statement were received into evidence as Hearing Officer's Exhibits 1 and 2.

In support of its position of invalidity, petitioner Health Care and Retirement Corporation (HCR) presented the testimony of Paul Hronjac, a project planner for the petitioner; Judith J. Baker, accepted as an expert certified public accountant, with special expertise in the development and operation of health care facilities; and Dr. Robert G. Turner, accepted as an expert economist. Petitioner's Exhibits 1 and 2 were received into evidence.

Testifying on behalf of the intervenor Florida Convalescent Center (FCC) were Dr. Milton Schoeman, accepted as an expert in the areas of health planning, bed need assessment, demographics and population dynamics in health care; Margaret Jacks, the chairperson of the State Ombudsman Committee on Long-Term Care; Dr. Fred West, accepted as an expert in health care planning for the elderly; Laurie Morris and Diana Doyle. FCC's Exhibits 1 through 5 were received into evidence.

The intervenor Catholic Community Services (CCS) presented the testimony of its Executive Director, Monsignor Bryan O. Walsh; Linda S. Quick, accepted as an expert in health care planning; Steven C. Biondi; Dr. Irving Vinger; and Nancy Alford Persily, accepted as an expert in the areas of health care planning and gerontology. CCS's Exhibits 1 through 10 were

received into evidence.

The respondent HRS presented the testimony of Philip Rond, its Administrator of the Office of Comprehensive Health Planning who was accepted as an expert health planner, and its Exhibits 1 through 7 were received into evidence.

On December 9, 1983, subsequent to the final hearing, Catholic Community Services, Inc. filed a notice of withdrawal as an intervenor in this proceeding. This withdrawal was based on the fact that respondent MRS had agreed to issue it a Certificate of Need to establish a 180-bed nursing home facility in Dade County.

The remaining parties have filed legal memoranda and/ or proposed findings of fact and proposed conclusions of law and these documents have been fully considered by the undersigned. To the extent that the parties' proposed findings of fact are not included in this Order, they are rejected as being either not supported by competent substantial evidence adduced at the hearing, irrelevant or immaterial to the issues in dispute or as constituting conclusions of law as opposed to findings of fact.

FINDINGS OF FACT

1. Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found:

   
   

2. The petitioner and remaining intervenor are corporations engaged in the business of constructing and operating nursing homes in Florida. Each has pending before MRS applications for Certificates of Need for new nursing homes in Florida, and the challenged Rule 10-5.11(21) , Florida Administrative Code, is applicable to these applications. The respondent MRS has applied and relied upon the challenged rule to deny certificates of need to these parties.

   
   

3. Prior to the adoption of Rule 10-5.11(21) , there was no uniform statewide methodology for the determination of the need for additional community nursing home beds. The different health planning districts utilized various methodologies to determine the nursing home bed need in their communities. The majority of the districts utilized a formula of 27 beds per thousand population

   65 years of age and older. Application of the formula was adjusted or deviated from in some districts to account for other considerations, such as occupancy levels of existing facilities, the waiting lists for existing facilities, travel times and the exclusion of sheltered beds.

   
   

4. In order to develop a uniform statewide methodology for determining the need for additional nursing home beds, the Statewide Health Coordinating Council (SHCC) established a work group to review the various existing methodologies and recommend a uniform methodology. This work group met over a period of some six months. Its recommendation, accepted by the SHCC, was the adoption of a statewide nursing home bed ratio of 27 beds per thousand population age 65 and over, with an area specific allocation based upon the poverty level in the service area compared to the statewide poverty level.

   
   

5. In the July 23, 1982 issue of the Florida Administrative Weekly, HRS gave notice of its intent to adopt Rule 10-5.11(21) relating to community nursing home beds. The need methodology originally proposed was that recommended by the work group and SHCC--the 27/1000 ratio, adjusted by the poverty factor, with a population projected three years into the future. A public hearing on the proposed rule was held on August 10, 1982, and the record of the rule-adoption proceedings was held open until September 10, 1982, for the filing of any additional comments on the proposed rule. written comments were received by ERS after the public hearing.

   
   

6. As a result of and in response to comments received regarding the originally proposed rule, HRS changed the methodology to he utilized for determining nursing home bed need by adding further steps to the application of the formula. Notice of the changes was published in the October 22, 1982 Florida Administrative weekly, and the rule became effective on November 15, 1982. No further public hearings were held on the challenged rule.

   
   

7. The challenged existing rule states that applications for community nursing home beds will be considered in context with applicable statutory and rule criteria. The rule then sets forth a formula methodology for determining nursing home bed need in the various service districts and provides that applications for new or additional nursing home beds "will not normally [be] approve[d]" if approval would cause the number of beds in that district to exceed the number of beds calculated by the rule's methodology. Basically, the methodology prescribed in the challenged rule contains three specific steps or screens which must be met before additional beds may be approved. The three-

   step process begins with the 27/1000 bed need ratio, adjusted by the poverty indicator, as originally proposed. This results in a theoretical bed need. The number of existing and approved beds in the subdistrict is then subtracted from the number obtained by using the ratio to determine whether additional beds are needed in the district and the subdistrict. The subdistrict is then classified into one of four categories, depending on whether there is a need or lack of need in the district and subdistrict under analysis. Each of the four categories is assigned a current and prospective utilization or occupancy level ranging from 80 to 95 percent. The occupancy levels of existing nursing home facilities are utilized to reflect existing community behavior patterns which could not be captured by a general or theoretical need estimator alone. The prospective utilization screen, the last step in the methodology, purports to specify how many beds will be made available when a demand for beds exists. In essence, the rule defines an area-specific generalized or theoretical need for nursing home beds based upon the degree of poverty in an "area, and then looks to community behavior through actual utilization of beds to determine how and when additional beds should he added. The rule is designed to pace the issuance of new beds by examining the actual utilization of nursing home facilities in operation. Bed availability is paced in response to actual demand as evidenced by community behavior toward existing and new nursing home facilities.

   
   

8. The formula methodology contained in the challenged rule does not take into consideration the use of nursing home beds by individuals under the age of

65. The rule assigns no weighted factor for the various age groups 65 and over. It is estimated that some 13 percent of all patients in nursing homes are under

1. The vast majority of those persons presently in nursing homes are 75 and over, and the segment of the elderly population over age 75 is growing much more rapidly than that segment between 65 and 74.

   
   

   1. Many states utilize a higher nursing home bed per elderly population ratio than 27 per thousand. However, the types of beds included in those higher numbers were not established. It is the policy and practice in Florida to recognize and encourage alternative forms of long-term care for the elderly, such as sheltered nursing home beds within a life care facility and adult congregate living facility beds. These tvpes of beds are not included in the 27 figure set forth in the challenged rule. The use of the 27 bed standard is based upon a trend line analysis of historical nursing home utilization, and is intended to be a cap on the number of approvable beds.

      
      

   2. Use of the poverty index factor to adjust theoretical need achieved by a simple bed to population ratio is based upon an actual positive correlation in Florida between the degree of ooverty in an area and the supply of existing nursing home beds in that area. The poverty indicator takes into account only those elderly persons defined according to the latest available United States census. No separate consideration is given to those persons who may be "medically indigent" or "near Poor," though not falling into the poverty category as defined by the United States Census Bureau.

      
      

   3. It often takes between two and three years to place a Certificate of Need approved nursing home into operation. Some 30 of all licensed and approved nursing homes in Florida are not presently in operation. In some counties, such as Dade and Monroe, only 30 percent to 35 percent of the beds approved are in a position to become operational. The effect of the challenged rule is to approve additional beds only after those beds previously approved become operational and occupied. Because the prospective utilization screen counts beds approved but not yet operational and assumes a zero patient census for these beds, application of this screen may result in a determination that no additional beds

      should be approved regardless of the lack of existing available nursing home facilities. This is the result of the rule's current application in Dade County. One of the purposes of the challenged methodology is to measure the actual demand for new nursing home beds in a cautious manner while allowing the market to respond to the beds approved prior to the rule. The methodology prevents the approval of all potentially needed beds in one hatching cycle by waiting to examine how utilization experience in the community may modify need.

      
      

   4. The rule's methodology does not provide a mechanism for making accurate long-range predictions as to the future need for nursing home beds in any specific area. As occupancy levels change, there will he great fluctuations in the resulting need for beds under the prescribed formula. In order to "run" the formula, it is necessary to have information concerning current and projected population figures, the poverty factor, occupancy levels of existing facilities and the actual number of existing and approved nursing home beds in the district and subdistrict.

      
      

   5. The newly enacted Medicare hospital reimbursement system based upon diagnostic related groupings (DRGs) is likely to have a tremendous impact upon the utilization of nursing home beds and other long-term care facilities. With reimbursement levels based upon the nature of the illness as opposed to the length of stay, hospitals will have an incentive to release patients earlier.

      
      

   6. An economic impact statement (EIS) was prepared for the challenged rule. The statement contains an estimate of the respondent's printing and distribution costs involved in implementing the rule. The EIS relates that the rule implements a statewide standard of 27 community nursing home beds per 1,000 population 65 years of age and older, and concludes that this standard does not exceed the current bed need standard applied in Certificate of Need decisions. It was noted that this rule establishes a cap on nursing home growth and thereby restricts public expenditures. A comparison of Medicaid expenditures if a higher bed to population ratio were adopted was provided. With regard to the effect of the rule on competition, the EIS relates that the rule will restrain the development of costly excess capacity and restrain competition among nursing home providers with the intent of containing public expenditures. Increased competition was noted among providers who serve patients whose care is funded with private resources. Before preparing the EIS, the author reviewed the suggested methodology of the State Health Plan and analyzed the various methodologies previously utilized in the various health planning districts throughout the State. She determined that the challenged rule would not basically change the existing methodologies applied throughout the State, and therefore concluded there would he no economic impact beyond the costs associated with the promulgation of a rule. According to calculations performed by the author of the EIS subsequent to the adoption of the challenged rule, the statewide bed to population ratio in Florida as of June, 1983, was 27.3. This result is derived by adding together the existing licensed beds, the Certificate of Need approved beds and the beds available on a statewide basis as a result of the rule's application, and dividing that number by the 1983 population age 65 and over.

      
      

      CONCLUSIONS OF LAW

      
      

   7. Rule 10-5.11(21), Florida Administrative Code, is being challenged by Health Care and Retirement Corporation and Florida Convalescent Center on both substantive and procedural grounds. As applicants for Certificates of Need to construct and operate nursing homes in Florida, these parties have demonstrated

      their substantial interest in the challenged rule which sets forth the methodology for determining the need for additional or new nursing home beds.

      
      

   8. The challengers contend that the subject rule is substantively deficient in that it is arbitrary and capricious, excludes a consideration of other mandated criteria and otherwise violates the intent of the Certificate of Need law. It is contended that the numbers and factors utilized in the rule's methodology are not supported by reason and logic, are contrary to health planning concepts and reach results contrary to the purpose of the legislation being implemented by the rule. More specifically, it is contended that the 27 bed standard, having been based on an historical trend analysis, fails to reflect increased demand for nursing home beds in the future die to increased population, increased "aging" of the population and increased usage of nursing homes resulting from the new Medicare reimbursement system for hospitals. It is contended that the methodology only measures or reflects that part of the demand for nursing home beds which is currently being met by those now in nursing homes. It is a more appropriate health planning technique, urge the challengers, to assess the current need and then project and plan for the future as the population grows. The challengers complain that it is impossible to make long-range predictions of need under the rule's methodology and urge that unopened beds not he considered when evaluating occupancy or utilization levels. It is contended that the rule fails to account for the current and future needs of those patients under the age of 65 and those patients who do not fall into the poverty category as defined by the Census Bureau. The fact that the methodology does not take into consideration the factors of financial feasibility, accessibility, quality of care and efficiency is urged as a ground in support of the rule's invalidity.

      
      

   9. In an attack upon the substance of an agency rule on grounds of arbitrariness or capriciousness, the challenger carries the stringent burden of demonstrating by a preponderance of the evidence that the rule is not supported by facts or logic, was adopted without thought or reason or is otherwise not based upon competent substantial evidence. Agrico Chemical Company v. State, etc., 365 So.2d 759 (Fla. 1st DCA, 1978). The petitioner and intervenor have failed to carry this stringent burden in this case.

      
      

   10. The legislature has delegated to the respondent the duty and authority to promulgate rules for the issuance of Certificates of Need in compliance with and in implementation of the statutory criteria. The respondent has adopted a rule which contains a uniform statewide methodology for reaching determinations of whether additional or new nursing home beds are needed. This methodology takes into consideration a bed to population ratio which is founded in reason and logic. An adjustment to this ratio by the poverty factor is not without reason. At the very least, consideration of the poverty factor is a valid measure of explaining the existing allocation of beds in the state. Likewise, use of the occupancy thresholds provides an explanation of community behavior patterns. While population figures are most important in health care planning, it is equally as important to understand the needs and demands of the population. The respondent's attempt to measure the need for additional beds in the future by utilization of a bed to population ratio adjusted by the poverty indicator, occupancy levels and the number of existing and outstanding Certificate of Need approved facilities is not without reason or logic and is an appropriate health planning technique.

       
       

   11. What the petitioner and the intervenor are actually challenging here is the wisdom of the methodology chosen by the respondent to measure the need for nursing home beds in the future. The fact that the methodology chosen may

       he imperfect, unwise or even out of harmony with a particular school of thought is not grounds for invalidating the discretionary action of an agency which is otherwise acting within its authority. A procedure exists under the Administrative Procedure Act for a regulated person to petition an agency to adopt, amend or repeal an agency rule. Section 120.54(5), Florida Statutes.

       The burden upon a petitioner in such a proceeding is not nearly as stringent as the burden of one challenging an existing rule pursuant to Section 120.56, Florida Statutes, on the ground that the rule is an invalid exercise of delegated legislative authority.

       
       

   12. It is contended that the rule focuses undue attention on a single statutory criterion to the exclusion of other criteria which the legislature has mandated HRS to consider. This contention is refuted by the very language of the rule itself. The rule specifically states that "the Department will consider applications for community nursing home beds in context with applicable statutory and rule criteria." Further, the rule states that the formula methodology for projecting need is to be utilized "in addition to relevant statutory criteria and applicable rule criteria to be used in considering need for or additional community nursing home beds." Finally, the Department's recognition of the applicability of other criteria is illustrated by the words in the rule that "the Department will not normally approve applications" for new beds if approval would cause the number of beds to exceed the number calculated by the rule's methodology. It must also he pointed out that the basis for the withdrawal of the intervenor CCS in this proceeding was HRS's decision to grant it a Certificate of Need for 180 beds in Dade County. It must he assumed that in granting this Certificate of Need, HRS took into consideration factors other than the challenged methodology for determining bed need. In short, contrary to the contentions of the challengers, the rule does not preclude the consideration of special circumstances or other mandated standards or criteria for review of Certificate of Need applications for nursing home facilities.

       
       

   13. Turning now to the procedural basis of the challenge, it is contended that the rule is invalid because the changes made to the rule after the public hearing were not resubmitted for public comment and because of the inadequacy of the economic impact statement. The procedures to be followed in rule-adoption proceedings is fully set forth in Section 120.54, Florida Statutes. Here, respondent properly gave notice of its intended action and gave affected persons the opportunity to present evidence and argument at a public hearing and fully participate in the rule-making proceeding. Respondent even held the proceedings open longer than statutorily required for the receipt of further comment and public input. As is permitted by Section 120.54(12) Florida Statutes, the respondent then made changes in the rule as a result of the record of the public hearing. It provided notice of these changes in the Florida Administrative Weekly. There was no evidence in this proceeding that any person requested that a detailed copy of the changes he provided by certified mail. See Section 120.54(11)(a), Florida Statutes. Absent a specific request by an affected person, there is no statutory requirement that a public hearing be held on changes to a proposed rule. Section 120.54(3), Florida Statutes. There was no evidence in this proceeding that any person requested a public hearing within 14 days of the respondent's notice of changes in the rule.

       
       

   14. Finally, it is urged that the economic impact statement prepared for the challenged rule is inadequate and violative of Section 120.54(2), Florida Statutes. It is contended that the EIS was prepared in conjunction with the originally proposed rule and did not include an analysis of the economic impact resulting from the changes to the rule. This is refuted by the testimony of the author of the EIS. It is further alleged that the EIS is inadequate because it

       does not address the economic impact of the rule upon the elderly, existing nursing home providers, applicants for a Certificate of Need, hospitals which must retain patients due to the unavailability of an adequate supply of nursing home beds, counties and other governmental entities. While the rule does represent a change in the actual methodologies previously utilized throughout the State, it was established that the result of the rule's methodology, on a statewide basis, is basically the same as that computed under the previous local methodologies. Therefore, the actual economic impact upon the groups mentioned above is not substantially different as a result of the challenged rule. No vested or existing rights are removed as a result of this rule. While a Certificate of need applicant may incur costs in gathering the information necessary to "run" the formula, it has always been the applicant's burden to establish need in accordance with statutory or regulatory criteria. Given the existence of other criteria and the consideration of special circumstances, the challengers have failed to prove that this rule would result in an inadequate supply of nursing home beds so as to have an economic effect upon the elderly or other consumers, hospitals or governmental entities.

       
       

   15. Even the total absence of an EIS may he harmless error if there is no economic impact or if the agency has fully considered the asserted economic factors and impact. Division of workers' Compensation v. McFee, 413 So.2d 805 (Fla. 1st DCA, 1982). A facially deficient or less than thorough statement of economic impact does not provide grounds for the rule's invalidity if the fairness of the proceedings was not thereby impaired. Plantation Residents' Association v. School Board of Broward County, 424 So.2d 879 (Fla. 1st DCA, 1983). The petitioner and intervenor have failed to sufficiently demonstrate that the impact from the rule would be substantially different than the prior methods of determining nursing home bed need, that the agency did not consider the economic results of the rule's implementation or that deficiencies in the economic impact statement impaired the fairness of the rule-making proceedings.

FINAL ORDER

Based upon the findings of fact and conclusions of law recited herein, it is concluded that petitioner and intervenor have failed to demonstrate that Rule 10-5.11 (.21), Florida Administrative Code, constitutes an invalid exercise of delegated legislative authority. Accordingly, the petitions seeking to challenge that rule are hereby DISMISSED.

ENTERED and ORDERED this 3rd day of February, 1984, in Tallahassee, Florida.

DIANE D. TREMOR

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 3rd day of February, 1984.

COPIES FURNISHED:

Alfred W. Clark, Esguire LaDonna Cody, Esquire Laramore & Clark, P.A.

325 N. Calhoun Street Tallahassee, Florida 32301

John Moyle, Esquire

Thomas Sheehan, III, Esquire Donna Stinson, Esquire

P.O. Box 3888

West Palm Beach, Florida 33402 and

Suite 100

118 N. Gadsden Street Tallahassee, Florida 32301

Byron Matthew, Jr., Esquire McDermott, Will & Emery

700 Brickell Avenue, Suite 804

Miami, Florida 33131

M. Stephen Turner, Esquire

318 N. Calhoun Street

P.O. Drawer 591

Tallahassee, Florida 32302-0591

David Pingree, Secretary Department of Health and

Rehabilitative Services 1323 Winewood Blvd.

Tallahassee, Florida 32301

Carroll Webb, Executive Director

Joint Administrative Procedures Committee Room 120, Holland Building

Tallahassee, Florida 32301

Liz Cloud, Bureau Chief Administrative Code Section Department of State

The Capitol

Tallahassee, Florida 32301

Docket for Case No: 83-002260RX

Orders for Case No: 83-002260RX