STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HUMANA, INC., HUMEDICENTERS, ) INC., and HUMHOSCO, INC., )

)

Petitioners, )

)

and )

)

UNIVERSITY COMMUNITY HOSPITAL ) CASE NO. 83-3887RX

(Tampa), )

)

Intervenor, )

vs. )

) STATE OF FLORIDA, DEPARTMENT OF ) HEALTH AND REHABILITATIVE )

SERVICES, )

)

Respondent. )

)

FINAL ORDER

A formal hearing was held in this matter before Marvin E. Chavis, duly designated Hearing Officer of the Division of Administrative Hearings, on January 25 - 27, 1984, and on February 1, 1984, in Tallahassee, Florida.

APPEARANCES

For Petitioner: John H. French, Jr., Esquire

James C. Hauser, Esquire MESSER, RHODES AND VICKERS

Post Office Box 1876 Tallahassee, Florida 32302

For Respondent: James M. Barclay, Esquire

Building 2, Suite 256

1317 Winewood Boulevard

Tallahassee, Florida 32301

For Intervenor: Cynthia S. Tunnicliff

CARLTON, FIELDS, WARD, EMMANUEL, SMITH & CUTLER, PA.

Post Office Drawer 190 Tallahassee, Florida 32302

ISSUES AND BACKGROUND

This case arises out of a petition filed by Humana, Inc., Humedicenters, Inc., and Humhosco, Inc., challenging the validity of Respondent's Rule 10- 5.11(23), Florida Administrative Code. The challenged rule was promulgated by the Department of Health and Rehabilitative Services to provide a uniform

methodology for determining the need for acute care beds in the various IRS districts in Florida. Subsequent to the filing of the petition and the scheduling of this matter for hearing, the Intervenor, University Community Hospital, filed a petition to Intervene and was permitted to intervene upon the same issues raised by the original petition.

At the formal hearing, the Petitioners Humana, Inc., Humedicenters, Inc., and Humhosco, Inc., called as witnesses Brad Sexauer, David Petersen, Ira Korman, Richard Alan Baehr, Frank Sloan and James Bruce Ryan. Petitioners offered and had admitted into evidence nine exhibits. The Intervenor, University Community Hospital, called as witnesses Warren Dacus and George Britton. The Intervenor offered and had admitted into evidence three exhibits. The Respondent, the Department of Health and Rehabilitative Services, called as witnesses Stanley K. Smith, Stephen Williams and Phillip C. Rond. The Department offered and had admitted into evidence 36 exhibits. Respondent's Exhibits 5, 6, 14, 15, 16 and 17 were not admitted for all purposes but were admitted as hearsay for the purpose of corroborating or explaining other admissible evidence in the record.

Counsel for each of the parties submitted proposed findings of fact and conclusions of law for consideration by the Hearing Officer. To the extent that those proposed findings of fact and conclusions of law are inconsistent with this order, they were rejected as not being supported by the evidence or as unnecessary to the resolution of this cause.

FINDINGS OF FACT

1. STANDING

   
   

   1. The Petitioners and Intervenor are corporations engaged in the business of constructing and operating hospitals in the State of Florida. Humedicenters, Inc. and Humhosco, Inc., are wholly owned subsidiaries of Humana, Inc. Humana, Inc., and its corporate subsidiaries presently have seven (7) pending applications for Certificates of Need for acute care hospital facilities. At least one of those applications for a facility in Jacksonville, Florida, was denied by HRS on the basis that no need existed under the challenged rule methodology.

      
      

   2. The Intervenor, University Community Hospital, is located in HRS Service District 6A in northern Hillsborough County. On June 29, 1982, University Community Hospital applied for a Certificate of Need for additional medical surgical beds and on December 1, 1982, HRS denied that application. HRS has taken the position that the challenged rule is applicable to that application and under the rule, there is no need for additional medical-surgical beds in District 6.

      
      

2. DEVELOPMENT OF THE RULE

   
   

   1. As early as 1976, the Department began its effort to identify alternative approaches to acute care bed need determinations and at that time, the Department contracted with a consultant to review and assess various bed need approaches. An analysis was made of the then current methods or models used for projecting short-term bed requirements. This analysis was provided to a Bed Need Task Force which had been formed to consider appropriate bed-need methodologies.

   2. In early 1977, the Bed Need Task Force was appointed to review current bed-need methodologies and to recommend necessary changes to the methodologies in use. The Bed Need Task Force was formed for the primary purpose of recommending a general approach to be used in bed need determinations and to identify key policies to be followed in development of an acute care methodology for the State of Florida. This task force was composed of a variety of representatives from various groups including local planning agencies, hospital associations, the statewide health council, and the health industry itself. An outside consultant was used by the Task Force to aid them in their review. In February 1978, the Final Report of the Bed Need Task Force was issued.

      
      

   3. Subsequent to the Bed Need Task Force, the Task Force on Institutional Needs, (hereafter TFIN) was established. The purpose of the TFIN was to present a recommended methodology and policies related to that methodology for purposes of the initiation of implementation activities. The TFIN issued its final report in December 1978. This report contained a number of policies to be used in conjunction with the methodology. These policies stated that:

      
      

      1. The population composition should not include tourists but should include seasonal residents who reside in Florida greater than six months and these migrants who were in Florida on April 1, the date of each census.

      2. The methodology should deal with the differences in need for acute care services by age and sex.

      3. The use rates utilized should be based on a statewide normative standard. These standards should be based on statewide use rates for which data can be obtained and should be subject to periodic review.

      4. Methodology should eventually address need for various levels of care.

      5. Need determinations should be for specific geographical areas, the area of the Health Systems Agency (hereafter HSA). These areas are new the HRS districts.

      6. Patient flows should be taken into account but should not be binding on future determination in terms of expansion or addition of new facilities.

      7. The hospital service area concept should be rejected and a temporal accessibility criterion utilized.

      8. At the HSA level, a minimum volume standard should be developed for each service.

      9. The standards within the methodology should be applied uniformly all over the state in all HRS districts or service areas.

      10. The standards should not be applied to individual facilities.

      11. In terms of role and responsibility, the Department of HRS should be responsible for the need methodology with the local health agencies having responsibility for the

          facilities configuration model for its district.

   4. Having developed a recommended methodology and a set of policies to be used in conjunction with that methodology, the Department contracted with Research Triangle Institute (RTI) to develop a sampling design to be used in the data collection activity so that the methodology could be operationalized. A second contract was let to implement the data collection necessary to the methodology and to develop statewide estimates based on the data collected.

      
      

   5. The 1978, 1979, 1980, and 1981 State Health Plans each discussed the objective of achieving a certain ratio of nonfederal licensed acute care beds per 1,000 population in Florida. The 1981 State Health Plan adopted a goal to ensure a supply of licensed nonfederal, short-stay beds (including psychiatric beds) in Florida equivalent to 4.24 beds per 1,000 residents. Also, in 1981, the State Health Council adopted a "normative" bed-to-population ratio of 4.24 beds per 1,000 population. "Normative" means a statement of what "ought to be" as opposed to some historical standard.

      
      

   6. In the Spring of 1982, HRS actually began drafting the rule and in the September 3, 1982, issue of the Florida Administrative Weekly, HRS gave notice of its intent to adopt Rule 10-5.11(23) relating to acute care hospital beds. That notice also set a time, date and place for a public hearing on that proposed rule. Before a public hearing on that proposed rule was held, however, Petitioners Humana of Florida, Inc., Humedicenters, Inc., and Humhosco, Inc., and others, challenged it in D.O.A.H. Case 82-2561R. The intervenor in this proceeding was also an intervenor in that challenge.

      
      

   7. A public hearing on that initial rule was held September 20, 1982. Neither the Petitioner nor the Intervenor made any statement at the public hearing in opposition to the rule or in opposition to the expected economic impact. No written comment was submitted by these two parties following the public hearing. At the public hearing, there were eight oral presentations made by interested parties and 14 written comments were received. From the time the initial rule was promulgated until the time it was finally adopted, there were numerous other comments that were received.

      
      

   8. Two sets of changes were subsequently made to the proposed rule which reflected discussion and input the Department received both from the public hearing process and from challenges to the rule. The first set of changes was published April 1, 1983 in the Florida Administrative Weekly. Several issues were raised which were dealt with by the Department. Psychiatric bed need was removed and placed in a separate rule, the methodology was incorporated into the rule, language regarding the use of the formula was clarified, data updating provisions were added, a provision was made to consider peak demand, the district utilization adjustment procedure was changed and subdistrict bed allocation procedures were changed. Although there was also objection to the use of statewide use rates, the Department because of strong policy considerations, made no change in the statewide use rates. These changes were made in response to the comments at the public hearing, written comments submitted, and other input from the health industry.

      
      

   9. After the Department published its first set of changes to the initial rule, but before the publication of the second set of changes, Petitioners voluntarily dismissed their rule challenge in D.O.A.H. Case No. 82-2561R. The second set of changes was published in the Florida Administrative Weekly on May 13, 1983. At the time of their voluntary dismissal of their rule challenge and prior to the adoption of the challenged rule, Humana, Inc., and its subsidiaries, Humedicenters, Inc. and Humhosco, Inc. were aware of the economic impact the proposed rule would have on their operations in Florida.

3. THE RULE

   
   

   1. Rule 10-5.11(23), Florida Administrative Code, is founded on a basic methodological approach to projecting the need for health care services which is commonly accepted and utilized among health planners. In its most generic form, this methodological approach may be expressed as follows:

      
      

   2. The population of the geographic planning unit is projected for some point in the future (usually five years); i.e., how many people will live in the planning area at the end of five years.

      
      

   3. The projected population is multiplied by a utilization rate in order to project how many days of hospital care the projected population is likely to need during the target year. A utilization rate is the measure by which hospital services are consumed within a given geographic entity and is determined by dividing the total number of hospital patient days in a year in a given area by the total population of that area for that year. Restated, a utilization rate is equivalent to the ratio of the number of days of care received by the population to the population as a whole.

      
      

   4. As noted above, multiplying a projected population by a utilization rate produces the projected number of-patient days during the target year. This number is then divided by 365 to derive an average daily census i.e., the average number of patients which one would expect to be in area hospitals on any given day of the year.

      
      

   5. The average daily census is then converted into beds by dividing the average daily census by an optimal occupancy standard for a given service. The optimal occupancy standard contemplates that hospitals cannot and should not operate at 100 percent occupancy in that some reserve capacity is necessary to meet seasonal or even weekly fluctuations and variations in patient characteristics and mix. The product of this generic methodology is the total number of beds needed in the planning area at the end of the planning horizon.

      
      

   6. Application of the methodology set forth in the rule is basically a three-step process. The initial step is the forecast of the District Bed Allocation (DBA), which is accomplished as follows:

      
      

   7. The population of each Department service district is forecast by age cohort (a cohort is a given subgroup of the total population) five years into the future. The age cohorts utilized in the rule are: (1) under 65; (2) 65 and older; (3) under 15; and (4) females 15-44.

      
      

   8. Total patient days are then forecast for each age cohort. Patient days are forecast by applying statewide, service-specific discharge rates and average lengths of stay to the age cohort projections. The specific hospital services included in the Rule are medical/surgical, intensive care, coronary care, obstetrical and pediatric.

      
      

   9. Projected patient days for persons age 65 and older are adjusted to account for the migration flew of elderly patients both to and from Florida and to and from Department districts within Florida. This flew adjustment is based upon historical migration patterns derived from 1977 Medicare data.

      
      

   10. The service-specific patient days by age cohort is then converted to projected bed need by dividing each component by 365 to arrive at an average

       daily census and then by applying a service-specific occupancy standard to derive the total bed need for each given service and age cohort.

       
       

   11. The sum of the bed need forecasts for each service/cohort is the DBA.

       
       

   12. The second step is an adjustment to the DBA under certain circumstances based on the projected occupancy of the beds allocated to a given district. This is known as the Adjusted District Bed Allocation (ADBA), and it is composed of the following steps:

       
       

   13. A Projected Occupancy Rate (FOR) for each district is calculated by multiplying the entire forecast population of the district by a Historic Utilization Rate (HUR), which is derived over the most recent three year period. The product is then divided by 365 times the DBA. The product of this computation is the POR which would result if the district contained the number of beds projected by the DBA and the population continued to utilize hospital services in accordance with the HUR.

       
       

   14. If the POR is less than 75 percent, the ADBA is determined by substituting a 90 percent occupancy standard in the formulation of DBA instead of the service-specific occupancy standards which would otherwise be applied (ranging from 65 percent for obstetrics to 80 percent for medical/surgical). If the POR is greater than 90 percent, the ADBA is determined by substituting a 75 percent occupancy standard in the calculation of DBA instead of such service- specific standards. In other words, when the POR is less than 75 percent, a a downward bed need adjustment results. When POR is greater than 90 percent, an upward need adjustment results.

       
       

   15. This part of the methodology is used to make an adjustment for those districts which for whatever reason lie outside the range of-expected utilization. The 75 percent and 90 percent thresholds are based upon an ideal operating range of 80 to 85 percent. The actual standard utilized by HRS is 80 percent, at the low or conservative end of that range.

       
       

   16. The third step involves the calculation of a Peak Demand Adjustment (PDA) which is accomplished as fellows:

       
       

   17. The average daily census for a given district is calculated by dividing the total number of projected days by 365.

       
       

   18. Peak demand is calculated by adding the average daily census to the square root of tic average daily census multiplied by a given standard deviation (1.65 for low peak demand districts or 2.33 for high peak demand districts) referred to as a "Z" value in the methodology:

       
       

   19. Peak demands utilized as the projected district acute care bed need if it is greater than the bed need for the district reflected by DBA or ADBA as calculated in steps one and two above.

       
       

   20. The purpose of this peak demand adjustment is to ensure that each district will have sufficient bed capacity to meet service-specific peak demands. Each subdistrict is to be identified by the Local Health Council as having high or low peak demand. These designated as high peak demand utilize a "Z" value; of 2.33 in the methodology in order to assure sufficient capacity to meet 99 percent of their peak capacity. These subdistricts designated as low peak demand areas utilize a "Z" value in the methodology of 1.65 and this assures sufficient total bed capacity to meet 95 percent of the peak demand.

   21. The rule also includes an accessibility standard which provides that in each district acute care hospital beds should be available and accessible to

       90 percent of the residents within 30 minutes driving time and 45 minutes driving time in urban and rural areas respectively.

       
       

   22. The rule provides for periodic updating of the statewide discharge rates, average lengths of stay and patient flow factors as data becomes available. The historical use rate used in arriving at the adjusted district bed allocation is updated annually through the use of the most recent three years.

       
       

   23. Although the rule provides that a Certificate of Need will not "normally" be granted unless need is shown to exist under the methodology in the rule, this need calculation is not determinative of the issue of whether a Certificate of Need should be granted. The rule also provides that even if no bed need is shown to exist under the methodology a Certificate of Need may still be granted if the criteria, other than bed need, under Section 381.494(6)(c), Florida Statutes, demonstrate need. Likewise, the rule states that a Certificate of Need may be denied, where bed need is shown to exist under the rule, but other criteria in Section 381.494(6) are not met. The rule also specifically permits the approval of additional beds in a subdistrict where the accessibility requirements of the rule are not being met. Additional beds may also be approved where there is a need in a subdistrict but a surplus in the district as a whole.

       
       

   24. The rule utilizes population projections by age cohort in determining the number of hospital patient days by service which will be needed five years in the future. These population projections are based upon the projections made by the Bureau of Economic and Business Research (hereafter BEBR) at the University of Florida. BEBR makes three projections--low, midrange, and high-- for each year. The rule utilizes the midrange projection and the inherent margin of error in these projections is typically plus or minus 5 percent. Although these projections have systematically been low in the past, BEBR now uses a different method which utilizes six different techniques in arriving at ten projections which are then averaged.

       
       

   25. The flow adjustment used in arriving at the DBA is based upon 1977 MEDPAR data. This data was for Medicare recipients 65 years of age and elder and therefore the flow adjustment is only for that portion of the population over 65 years of age. No data was available from which flow factors could be determined for age cohorts or groups from o to 64 years of age. No data for either age group was available after 1977.

       
       

4. ECONOMIC IMPACT STATEMENT

1. An economic impact statement (EIS) was prepared for the challenged rule. The EIS contains an estimate of the Department's printing and distribution cost. The EIS was-- prepared by Phillip Rond, an employee of the Department of Health and Rehabilitative Services. In preparing the EIS, Mr. Rond did a comparison of the health system plans (HSP) with the results under the rule. This comparison was for projected need for the year 1987 and was done for each HRS District. The comparison generated the following results:

   
   

   HRS DISTRICT	HSP	RULE
   1	0	0
   2	3	0

   3 0 0

   4 0 0

   5 0 0

   6 0 0

   7 0 0

   8 0 87

   9 0 137

   10 0 0

   11 0 0

   
   

   3 224

   
   

   The need calculations under the rule do not change substantially the short term projections under prior methodologies. The rule calculations for 1987 showed need for 221 more beds than was shown to exist under the methodologies used in the health systems plans. Mr. Rond also reviewed the background literature that led to the analysis contained in the state health plan as well as the reports from the Hospital Cost Containment Board.

   
   

2. With regard to the rule's affect on competition and the open market the EIS notes that the rule will restrain the development of costly excess acute care bed capacity and in doing so will foster cost containment. Where need is indicated by the methodology or other criteria within the rule then competitive new beds will be allowed.

   
   

3. In terms of economic benefit to persons directly affected the EIS points out that there will be a positive impact for some facilities and a negative impact for others. The rule will negatively impact facilities which wish to expand or add new beds if no need for those beds exists under the methodology of the rule. Existing facilities, however, will not be exposed to expansion of the bed supply in those districts where no need for additional beds exist. This benefit will be particularly positive for those facilities providing indigent care.

   
   

4. It is a general estimate that operating costs for a health facility will be approximately 22 cents for each dollar of capital expenditure. The rule is intended to support a supply of beds to meet need while preventing excess or unused beds, thus reducing annual operating costs. The EIS notes that by reducing operating costs, the operating cost per bed will be lower and should result in a slower escalation of costs to consumers as well as third party payers such as insurers, taxpayers, and employers.

   
   

5. Prior to adoption of the challenged rule, the Department considered and evaluated each of the factors listed in Section 120.54(2), Florida Statutes.

   
   

6. There has been traditionally in Florida a surplus of acute care beds. The 1977 medical facilities plan indicated a surplus of beds ever need of 7,253 beds. Using the rule methodology and projecting to 1987, there is a surplus ? 5,562 beds and for 1988, a surplus of 4,044 beds. In both 1980 and 1982, there were significant numbers of licensed beds in the state which were not in use. In 1980, there were 4,923 beds out of the total bed stock in acute care hospitals not in use. This was about 10.7 percent of the total licensed in bed stock. In 1982, there were 5,093 or about 10.6 percent of such beds licensed and not in use.

   
   

7. In 1976, the occupancy rate for acute care hospitals in Florida was

   60.3 percent. In 1982, the occupancy rate in such facilities was 67 percent.

   The target occupancy rate under the challenged rule and its methodology is 80 percent.

   
   

   CONCLUSIONS OF LAW

   
   

8. The Division of Administrative Hearings has jurisdiction ever the subject matter and parties of this action.

   
   

9. The Petitioner and Intervenor are health care providers in Florida and each has applied for a Certificate of Need to construct and operate additional acute care hospital facilities in Florida. Both parties have demonstrated their substantial interest in the challenged rule which sets forth the methodology for determining the need for additional or new acute care hospital beds.

   
   

10. The parties challenging the rule contend generally that the rule is arbitrary and capricious, is not based upon any legislative authority, and is inconsistent with and violates the intent of the Certificate of Need statute. The methodology established by the rule utilizes a three step procedure to determine a district bed allocation (DBA), an adjusted district bed allocation (ADBA), and a peak demand calculation The challengers have attacked each of these three separate steps as arbitrary and capricious. With regard to the DBA calculation, the challengers contend that the use of statewide normative use rates is arbitrary in that they are not based on competent, reliable data and because they are inappropriate for a state such as Florida where highly diverse conditions exists from one district to another. It is also contended that the BEBR mid range population projections utilized in determining DBA are unreliable. The other attack on the DBA relates to the use of the 1977 MEDPAR data in developing the flow adjustment in the DBA calculation.

    
    

11. The primary challenge to the ADBA methodology was based upon the use of historical use rates (HUR) which is the average utilization figure for the district for the most recent three year period. It is contended that the ADBA methodology perpetuates inappropriate migration patterns and is flawed in math and logic. It is also argued that the HUR is insensitive to changes in the forecast age distribution of a district's population.

    
    

12. The basic challenge to the peak demand calculation charges that it is impossible for the peak demand methodology to accomplish its intended purpose and therefore is arbitrary and capricious. As to each of the three steps, the challengers contend that the total methodology does not accomplish the ends specified in the Certificate of Need law as stated in Section 381.493(2), Florida Statutes.

    
    

13. The challengers also contend that there is no statutory authority for the promulgation of the rule as a whole and that the promulgation of the rule was procedurally defective due to an inadequate economic impact statement.

    
    

14. Petitioner's contention that the Department is without legislative authority to promulgate the challenged rule is without merit. The rule itself cites as its specific authority Sections 381.031(1)(g)11., 381.493(2), and 381.494(6), (7), and (8), Florida Statutes. Section 381.031(1)(g)11. provides:

    
    

    (1) It shall be the duty of the Department of Health and Rehabilitative Services to:

    (g) Adopt, promulgate, repeal, and amend rules consistent with law regulating:

    (11) The execution of any other purpose or intent of the laws enacted for the protection of public health of Florida.

    
    

    Section 381.493(2) sets forth the legislative intent of the Certificate of Need law and provides:

    
    

    LEGISLATIVE INTENT.--It is the intent of the Legislature to stimulate the establishment and continuous reevaluation of community-oriented health goals by providers, consumers, and public agencies; to assist in the rational examination of alternate methods of achieving these goals; and to aid in their achievement through the most effective means possible within the limits of available resources. It is imperative to plan the rendering of health services in order to meet and provide for community health needs in a responsible and effective manner, and this planning by the community must be assisted by a state health planning agency which is intended to coordinate the activities of all health planning agencies. It is the intent of the Legislature to invest the state health planning agency with the roles of provider of information, consultant, stimulator, and adviser to all health care institutions, health service providers, hospices, and consumers. It is intended that the agency work closely with local health councils, health care facilities, health services providers, and hospices in developing a planning process to define service needs in specific geographic areas and assist health care facilities, health service providers, and hospices in those areas to develop programs of service that will assure the best possible service to the community. It is also intended that the agency work with the community to find and define areas of need and to consider available alternatives to meet the needs. Every consideration shall be given to the elimination of unnecessary duplication of health services and the provision of health services which are not currently available or which are insufficiently provided within the community. It is further intended that health care facilities, certain health services providers, and hospices shall not change the scope of those services without the approval and authorization of the state health planning agency. It is intended that strengthening of competitive forces in the health services industry be encouraged.

15. The "state health planning agency" referred to in the above section is the Department of Health and Rehabilitative Services. Section 381.493(3)(t), Florida Statutes.

    
    

16. Section 381.494(6) requires the Department to make "such investigations and inquiries as necessary to enable the department to approve or deny a certificate of need." That same section sets forth the procedure to be followed in the review and the criteria to be utilized in making a determination as to whether the Certificate of Need should be granted or denied.

    
    

17. Section 381.494(7) sets forth the functions of the local health council and provides in part:

    
    

    (b) The local health council shall:

    1. Develop a district plan, using uniform methodology as set forth by the department, which will permit each local health council to develop goals and criteria based on its unique local health needs, such as the special health needs of rural areas and medically under-served communities. The district plan shall be submitted to the department and updated periodically and shall be in a form prescribed by the department. The elements of an approved district plan which are necessary to the review of any certificate-of-need application shall be adopted by the department as a part of its rules. . . .

    
    

18. In addition to the above provisions, the duties and responsibilities of the Department are further defined in 381.494 which provides in part:

    
    

    1. DUTIES AND RESPONSIBILITIES OF DEPARTMENT; RULES.--

       1. The department is designated as the single state agency to issue, revoke, or deny exemptions from certificate-of-need review in accordance with the district plans and present and future federal and state statutes.

       2. The department, with the advice of the Statewide Health Council, shall consult with the local health councils and with such hospital, nursing home, and professional associations and societies and other agencies, as it deems advisable, in matters of policy affecting the administration of ss. 381.493-381.499 and in promulgating rules and minimum standards for the issuance of certificates of need. The department, by rule, shall define the limits of ex parte contacts during the application review process. Such rules and standards shall be in accordance with the Administrative Procedure Act.

       3. Upon review of the application for a

    certificate of need in accordance with the district plan and with criteria established by paragraph (6)(c) and administrative rules, the department shall issue or deny the certificate of need in its entirety or for identifiable portions of the total project.

    . . .

    
    

    A reading of these sections together reveals one of the purposes of the certificate of Need law is to protect public health. The local health councils are to develop district plans utilizing a uniform methodology developed by the department. All applications for Certificate of Needs are to be reviewed in accordance with the district plan and criteria established by Section 381.494(6)(c) and administrative rules. The department is designated as the single state agency to issue, revoke, or deny Certificates of Need. The Department is expressly empowered to promulgate rules to carry out the purpose of the laws enacted for the protection of public health and is clearly contemplated as the agency which will develop the uniform methodology to be used by the local health councils. There is then, ample statutory authority for the Department to promulgate a rule establishing a uniform methodology for determining need for acute care beds in the various HRS districts.

    
    

19. In attacking an agency rule as arbitrary or capricious or an abuse of discretion, the challenger has the burden of proof and that burden is a stringent one, indeed. Agrico Chemical Co. v. State of Florida, Department of Environmental Regulation, 365 So. 2d 759 (Fla. 1st DCA 1979). The courts have provided guidance for the review of such challenges by defining the terms arbitrary and capricious as they relate to adoption of administrative rules:

    
    

    A capricious action is one which is taken without thought or reason or irrationally.

    An arbitrary decision is one not supported by facts or logic or despotic. Administrative discretion must be reasoned and based upon competent substantial evidence. Competent substantial evidence has been described as such evidence as a reasonable person would accept as adequate to support a conclusion.

    Id. at 763.

    
    

    Rule making by an agency is quasi-legislative action and must be considered with deference to that function. Florida Beverage Corporation v. Wynn, 306 So. 2d

    200 (Fla. 1st DCA 1975). Given a proposed rule within an area of regulation delegated by the legislature to an agency, the test for arbitrariness is the same for the proposed rule as it would be for a statute having the same effect. Florida Citrus Commission v. Owens, 239 So. 2d 840, 848 (Fla. 4th DCA 1979), cert. denied, 242 So. 2d 873 (Fla. 1971). Agrico Chemical Co. v. State of Florida, Department of Environmental Regulation, supra at 762.

    
    

20. In reviewing whether a particular rule is violative or inconsistent with the intent of the statute being implemented, the rule need only fall within the permissible range of interpretations of the statute and as one court has noted in response to a challenge to a rule promulgated by this Respondent and relating to septic tanks:

    
    

    Permissible interpretations of a statute must and will be sustained, though other

    interpretations are possible and may even seem preferable according to some views. If the rule binds too tightly to suit them, the appellee developers have their proper remedy in the representative and politically responsive branches, the legislative or the executive, but not in the judiciary, nor in Section 120.56 rule challenge proceedings before a hearing officer. Department of Health and Rehabilitative Services v. Framat Realty, Inc., 407 So. 2d 238, 242 (Fla. 1st

    DCA 1981).

    407 So. 2d 238, 242 (Fla. 1st DCA 1981).

    
    

21. Several years of study and review by representatives of the Department, local health agencies, and the health care industry went into the development of the methodology and policies contained in the challenged rule. Two different task forces aided by qualified consultants in the health care field evaluated alternative methodologies for determining acute care need and the policies upon which the methodology should be based. The challenged rule is consistent with both the methodology and policies developed by these bodies.

    
    

22. The challengers contend that the data gathered by RTI and NTS for the purposes of making the methodology operational was not adequate for that purpose. The data was taken from hospital records in accordance with acceptable standards and procedures used by statisticians and in accordance with proper sampling techniques. Likewise, any inadequacies or deficiencies in the 1977 MEDPAR data used to establish the flow adjustment or the BEBR population projections are not so unreliable as to render the rule arbitrary and capricious.

    
    

23. It is contended that the use of statewide normative use rates is arbitrary and inappropriate. However, the evidence establishes that such normative standards were the result of a policy decision based upon the several years of review and study referred to above. For those districts where the particular circumstance of the district take it out of the expected occupancy standards there is an adjustment to the district bed allocation within the methodology. In addition to the adjustment there is ample flexibility within the rule for the granting of additional beds where circumstances unique to a particular district have created a need under the other criteria of Section 381.494(6)(c). The rule allows the approval of additional beds in any district where the allocation under the methodology is inadequate under the other criteria of the statute.

    
    

24. The legislature has delegated to the Department the responsibility for promulgating rules for the implementation of the statutory criteria applicable to Certificate of Need applications. The Department has adopted Rule 10- 5.11(23), Florida Administrative Cede, in order to provide a uniform methodology for determining need for additional or new acute care beds in the HRS districts. The use of statewide normative use rates in that methodology is not without reason and logic. The potential inaccuracies in the BEBR mid-range population projections are not so drastic as to render these projections unreliable or inappropriate in establishing projected bed needs. Likewise, the use of a flow adjustment, even though limited to only that portion of a district's population

    65 years of age and elder, is not without reason and logic.

25. The methodology utilized in arriving at the adjusted district bed allocation is also not without reason and logic. The challengers contend that the use of a 75 percent threshold and 90 percent threshold on either side of the

    80 percent standard creates an arbitrary imbalance in the adjustments which are made when districts fall substantially above or below the expected occupancy level for that district. However, even if there were a requirement that the adjustments be equal in impact, the evidence established that although the agency uses the 80 percent standard in its calculation the thresholds were set 5 percent above and below the optimum occupancy rate range of 80 to 85 percent.

    
    

26. Likewise the peak demand adjustment is not without reason or logic. The calculation is not designed to identify specific seasonal demand peaks, but is merely intended to assure that a district with high or low peak demands will be able to absorb or meet these peak demands. The major portion of any peak demand within these districts is met by the district bed allocation and the adjusted district bed allocation.

    
    

27. Petitioner's contention that the rule is not appropriate to the ends specified in the legislative act is mere a challenge to the wisdom of cost containment through controlled growth in capacity than a challenge to the validity of the rule. As the court noted in Department of Health and Rehabilitative Services v. Framat Realty, Inc., supra, that is an argument more appropriately made to the legislature than to an Administrative Hearing Officer. The methodology of the rule is merely one of several criteria to be considered in evaluating Certificate of Need applications. One of its purposes is to eliminate and control excess capacity or surplus beds. What Petitioners seek is an open and free market with unbridled growth and expansion in acute care facilities. The criteria in Section 381.494(6)(c), Florida Statutes, clearly prohibit such unbridled growth and the challenged rule is consistent with both the stated intent and overall purpose of the Certificate of Need law.

    
    

28. It is not necessary that a rule, and especially an initial rule in a particular substantive area, be perfect or that it be the best rule available. Agency rule making is an evolving process and the legislature has provided a mechanism for affected persons to seek changes to a valid rule. See Section 120.54(5), Florida Statutes. The challengers may disagree with the particular methodology utilized in this rule. However, where reasonable men can differ the agency has the authority to utilize that methodology which it has determined to be appropriate.

    
    

29. Petitioner and Intervenor have also asserted that the economic impact statement prepared for the challenged rule is inadequate and violative of Section 120.54(2), Florida Statutes. The challengers contend that Mr. Rond, the author of the EIS, does not have the demonstrated ability to make the determinations required by Section 120.54(2) and that the EIS itself is inadequate.

    
    

30. The purpose of the economic impact statement required by Section 120.54(2), Florida Statutes, has recently been described in Department of Health and Rehabilitative Services v. Wright, 439 So. 2d 937 (Fla. 1st DCA 1983) as fellows:

    
    

    [1] Prior to the adoption, amendment or repeal of any rule, section 120.54.

    (2)(a) mandates that an agency prepare an economic impact statement, the purpose being to promote agency introspection in

    administrative rule making; to ensure a comprehensive and accurate analysis of economic factors, which factors work together with social factors and legislative goals underlying agency action; to direct agency attention to key considerations and thereby facilitate informed decision making; and finally, to expose the administrative process to public scrutiny.

    
    

    That same decision went on to discuss guidelines for reviewing the adequacy of an EIS and noted:

    
    

    [2,3] However, the Florida Supreme Court has observed that "[t]he procedure envisioned by section 120.54(2)(a) does not . . . command adherence to form over substance." Id.

    Moreover, although section 120.54(2) was amended in 1978 to provide that an agency's failure to include within its rule an "adequate" statement of economic impact is grounds for invalidation of the rule, that provision does not require perfection but only "substantial compliance" with section 120.54(2)(a). Id. As the preparation of a statement of economic impact "is a procedural aspect of any agency's rulemaking authority," it is subject to the "statutory harmless error rule" of section 120.68(8), Florida Statutes, which provides for remand only where a material error in procedure in an administrative proceeding impairs the fairness of the proceedings or the correctness of the action taken. Polk v.

    School Board of Polk County, 373 So. 2d 960, 962 (Fla. 2d DCA 1979); School Board of Broward County v. Gramith, 375 So. 2d 340 (Fla. 1st DCA 1979); Plantation Residents' Association, Inc. v. School Board of Broward County, 424 So. 2d 879, 881 (Fla. 1st DCA 1982). Thus the absence or insufficiency of an economic impact statement is harmless error if it is established that the proposed action will have no economic impact, i.e. by its merely implementing already established procedures, or if it is shown that the agency fully considered the asserted economic factors and impact. Division of Workers'

    Compensation v. McKee, 413 So. 2d 805, 806

    (Fla. 1st DCA 1982); Florida-Texas Freight, Inc.

    v. Hawkins; Polk v. School Board of Polk County.

    
    

    Upon this reasoning, it is concluded in the instant case that the EIS is not so deficient as to render the challenged rule invalid.

    
    

31. The Department considered and addressed in the EIS each of the factors listed in Section 120.54(2). The primary economic impact complained of is the

    inability of the challengers and others similarly situated to expand or add new acute care facilities. However, the evidence established that the rule is no more restrictive than prior methodologies and in fact indicated need for mere additional beds in 1987 than did the health systems plans for the various districts. The EIS noted that some health suppliers would be constrained from increasing their number of acute care beds. However, in light of the fact that the statewide occupancy rate in 1982 in acute care facilities was only 67 percent and approximately 10 percent of the licensed acute care beds were not even in use, it is highly speculative to assume that these challengers would have been able to obtain Certificates of Need for acute care beds under any acceptable methodology for determining need.

    
    

32. From 1976 to 1983, the industry itself had ample opportunity to give its input regarding the impact of an acute care bed need methodology. A public hearing was held on this rule and the challengers chose not to participate and provide their view of the potential economic impact of the challenged rule. Written comments were received by the Department and again the challengers chose not to participate and express their objections to the economic impact statement. The agency did in fact make several changes in the proposed rule as a result of comments and suggestions from representatives of the health care industry.

    
    

33. The total absence of an EIS will not render a rule invalid if there is no economic impact or if the agency has in fact considered all of the required economic factors and impact. Division of Worker's Compensation v. McKee, 413 So. 2d 805 (Fla. 1st DCA 1982). Even though the EIS may appear deficient on its face, this will not render the rule invalid if the fairness of the proceedings was not thereby impaired. Plantation Resident's Association v. School Board of Broward County, 424 So. 2d 879 (Fla. 1st DCA 1983). The Petitioner and Intervenor have failed to establish that the impact of the rule would be substantially different than under prior methods used to determine need for acute care beds, that the agency failed to consider the required economic factors and their impact, or that the deficiencies in the EIS impaired the fairness of the proceedings.

FINAL ORDER

Based upon the foregoing findings of fact and conclusions of law, it is concluded that the Petitioner and Intervenor have failed to demonstrate that Rule 10-5.11(23), Florida Administrative Code, is an invalid exercise of delegated legislated authority. The petitions challenging the rule are therefore DISMISSED.

DONE AND ORDERED this 22nd day of May 1984, in Tallahassee, Florida.

MARVIN E. CHAVIS

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 22nd day of May 1984.

COPIES FURNISHED:

John H. French, Jr., Esquire James C. Hauser, Esquire MESSER, RHODES AND VICKERS

Post Office Box 1876 Tallahassee, Florida 32302

James M. Barclay, Esquire Building 2, Suite 256

1317 Winewood Boulevard

Tallahassee, Florida 32301

Cynthia S. Tunnicliff

CARLTON, FIELDS, WARD, EMMANUEL, SMITH & CUTLER, PA

Post Office Drawer 190 Tallahassee, Florida 32302

David Pingree, Secretary Department of Health and

Rehabilitative Services

323 Winewood Boulevard Tallahassee, Florida 32301

Carroll Webb, Executive Director Administrative Procedures Committee

120 Holland Building Tallahassee, Florida 32301

Liz Cloud, Chief

Bureau of Administrative Code 1802 The Capitol

Tallahassee, Florida 32301

Docket for Case No: 83-003887RX

Orders for Case No: 83-003887RX