STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

LYKES MEMORIAL HOSPITAL, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 90-6001

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent, )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Don W. Davis, held a formal hearing in the above- styled case on November 16, 1990, in Tallahassee, Florida. The following appearances were entered:

APPEARANCES

For Petitioner: Stephen A. Ecenia, Esq.

Suite 400

First Florida Bank Building Tallahassee, Florida 32301

For Respondent: Edward G. Labrador, Esq.

Assistant General Counsel Department of Health and Rehabilitative Services 2727 Mahan Dr., Suite 103

Tallahassee, Florida 32308 STATEMENT OF THE ISSUES

The issue for determination is whether Petitioner's application for Certificate Of Need (CON) number 6266 should be withdrawn from consideration for failure to submit an audited financial statement as required by Section 381.707(3), Florida Statutes, or processed to conclusion on the merits.

PRELIMINARY STATEMENT

At the final hearing, Petitioner presented the testimony of David McReynolds, C.P.A., an expert in accounting and health care finance, and Michael Boling, C.P.A., also an expert in accounting and health care finance.

Petitioner also presented eight evidentiary exhibits. Respondent presented the testimony of two witnesses; Amy M. Jones, Assistant Director of Respondent's Office of Regulation and Health Facilities, and Roger Bell, C.P.A., an expert in accounting. Respondent also presented two evidentiary exhibits.

The transcript of the hearing was filed with the Division of Administrative Hearings on December 10, 1990. Proposed findings of fact were submitted by the parties and are addressed in the appendix to this recommended order.

FINDINGS OF FACT

1. Petitioner in this proceeding is Lykes Memorial Hospital, Inc., (Lykes) a separate, albeit subsidiary, corporation from its parent, Lykes Health Systems, Inc.

   
   

2. Lykes is a 166 bed, not-for-profit general acute care community hospital located in Brooksville, Florida.

   
   

3. On or about May 30, 1990, Lykes timely filed CON Application No. 6266 to add 30 hospital-based, extended care beds through renovation of existing space.

   
   

4. On or about June 14, 1990, Respondent requested Lykes to provide certain items of information omitted from the original application. One of the items requested in Respondent's written omissions request was an audited financial statement of the applicant for Lykes' most current fiscal years, 1988 and 1989.

   
   

5. Lykes responded by providing two audits: an audit of Lykes Memorial Hospital, Inc., for the year ending September 30, 1988, and an audit of Lykes Health Systems, Inc., for the years ending September 30, 1989 and 1988 (the consolidated audit).

   
   

6. By letter dated July 25, 1990, Respondent notified Lykes that its CON application was being withdrawn from consideration due to the failure of Lykes to submit audited financial statements of Lykes for the most recent fiscal year of operation which ended September 30, 1989.

   
   

7. The submission of an audit containing the most current audited financial information is necessary for Respondent to determine an applicant's current financial condition and assess the proposed project's financial feasibility. Such analysis is crucial to a determination of whether the applicant will continue to be an ongoing corporation providing its best services to patients over a long-term period.

   
   

8. Respondent's analysis is limited to the audited financial statement of the applicant. To permit an applicant to meet the requirement for an audited financial statement by providing an audited financial statement from an entity different than the applicant opens the door to submission of varying and discretionary types of financial information. Such a practice could result in unfair comparisons of financial information in the process of comparative review with regard to financial information analysis.

   
   

9. There are three essential parts to an audited financial statement. Those parts are an independent auditor's opinion; financial statements; and notes to the financial statements.

   
   

10. Although Lykes' submission of an audited financial statement for the year ending September 30, 1988, meets requirements contained in Section 381.707(3), Florida Statutes, mandating submission of such a statement by an applicant, the submitted audit was not for the most current fiscal year of operation. Rather, the audit submitted is for the year before.

11. For existing health care facilities such as Lykes, Section 381.707(3), Florida Statutes, also requires the submission of a balance sheet and a profit- and-loss statement for the previous two fiscal years' operation.

    
    

12. Respondent has interpreted Section 381.707(3), Florida Statutes, to require an applicant's submission of the most current year's audit. When the application is submitted by an existing health care facility, Respondent requires submission of an audited financial statement for the two most current fiscal years. This requirement is contained in Chapter 11-3, part 6, of Respondent's Certificate of Need Policy Manual. Personnel involved in the preparation of Lykes' application were aware of this requirement.

    
    

13. While the audited financial statement of Lykes for the year ending September 30, 1988, provides an auditor's opinion on the financial condition of Lykes, the applicant, at that time; no such opinion is contained in the audit of Lykes Health Systems, Inc., for the years ending September 30, 1988, and 1989, which is specific to Lykes apart from the parent corporation.

    
    

14. Respondent does not have access to an applicant's financial records and is therefore dependent upon disclosures or notes to an audited financial statement to provide fair disclosure of the financial statements and identify specific areas of concern. Without such note disclosures, a proper financial analysis cannot be performed.

    
    

15. Notes in the consolidated audit of Lykes Health Systems, Inc., are not complete note disclosures for Lykes, the applicant. Further, notes in the consolidated audit were prepared for the consolidated group of businesses operating under the umbrella of Lykes Health Systems, Inc., and not for any individual entity within the group. It is not possible to isolate information applicable to Lykes from the auditor's notes to the consolidated audit.

    
    

16. The consolidated audit included statements of revenues and expenses, fund balances, and a balance sheet for Lykes for the fiscal years ending September 30, 1989, and September 30, 1988. However, no decision should be made with regard to those financial statements in the absence of note disclosures specific to Lykes, assuring that an auditor has specifically analyzed that entity and reached an opinion with regard to it.

    
    

17. While a note to the consolidated audit contains a breakdown of capital assets for the consolidated group, this is not a specific breakdown of capital assets for Lykes, the applicant. Hence, Respondent cannot determine the applicant's capital assets breakdown.

    
    

18. Further examples of the lack of specificity afflicting the consolidated audit include notes which fail to provide a specific breakdown of bonds payable for Lykes; a specific breakdown of or disclosure of contributions by Lykes to the pension plan; and no specific breakdown for Lykes with regard to patient service revenues. Instead, everything is grouped together.

    
    

19. The consolidated audit does not contain all of the notes which would appear in an audit of Lykes, the applicant. Additional financial statements included with the consolidated audit contain no notes. The report must be interpreted in relation to Lykes Health Systems, Inc., taken as a whole.

20. The audit of Lykes Health Systems, Inc., cannot be considered a specific audit of Lykes, the applicant. 1/ Rather, the consolidated audit expresses an opinion with regard to the parent corporation.

    
    

    CONCLUSIONS OF LAW

    
    

21. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter. Section 120.57(1), Florida Statutes.

    
    

22. Petitioner bears the burden of establishing its entitlement to the Certificate of Need it seeks. Florida Department of Transportation v. J. W. C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981). Specifically, Petitioner must establish its compliance with the criteria of Section 381.707(3), Florida Statutes, which provides:

    
    

    An application for a certificate of need shall contain:

    (3) An audited financial statement of the applicant. In an application submitted by an existing health care facility, health maintenance organization, or hospice, financial condition documentation shall include, but need not be limited to, a balance sheet and a profit-and-loss statement for the

    2 previous fiscal years' operation.

23. Rule 10-5.002(3), Florida Administrative Code, defines "applicant" as: [A]ny individual, partnership, corporation, or

    any governmental entity which has filed an

    application for a certificate of need with the Department.

    
    

24. Lykes is clearly the applicant for CON number 6266. However, no audited financial statement for the current fiscal year of the applicant was provided pursuant to Respondent's omissions request. The only audited financial statement for the current fiscal year's operation submitted to Respondent was that of the parent corporation, Lykes Health Systems, Inc., which is not the applicant.

    
    

25. The submission of a consolidated audited financial statement of an applicant's parent corporation has been held to be ineffective to meet requirements of Section 381.707(3), Florida Statutes. See, Support Systems Services Corporation v. Department of Health and Rehabilitative Services, Case No. 90-4448 (DOAH Recommended Order, December 3, 1990). In Support Systems, the Hearing Officer rejected the argument, also advanced by Petitioner in this matter, that the consolidated audit provided more information than is required by statute, with the statement that:

    
    

    [i]n a sense, it does, but at the same time it also provides less than is required by the statute because, although the consolidated financial statements present a good picture of the financial condition of the parent . . . the independent financial condition of the subsidiary/applicant cannot be determined from the consolidated financial statements.

26. Lykes also argues that it has complied with the plain meaning of the language of the statute through provision of an audit of Lykes Memorial Hospital, Inc., for the year ending September 30, 1988, and the consolidated audit of Lykes Health Systems, Inc., for the years ending September 30, 1989, and 1988, containing attached financial documentation.

    
    

27. The applicant's argument is unpersuasive. It is well settled that an agency's interpretation of a statute it administers is entitled to great weight and will not be overturned unless clearly erroneous. National Federation of Retired Persons (NFRP) v. Department of Insurance, 553 So.2d 1289, 1290 (Fla. 1st DCA 1989); Natelson v. Department of Insurance, 454 So.2d 31, 32 (Fla. 1st DCA 1984); Pan American World Airways, Inc. v. Florida Public Service Commission, 427 So.2d 716, 719 (Fla. 1983).

    
    

28. Further, the agency's interpretation of a statute need not be the sole possible interpretation or the most desireable one; it need only be within the range of possible interpretations. Humhosco, Inc. v. Department of Health and Rehabilitative Services, 476 So.2d 258, 261 (Fla. 1st DCA 1985).

    
    

29. Lykes also argues that Respondent's previous acceptance of identical financial information to review Lykes' application for CON No. 6174 for a cardiac catheterization program effectively estopped Respondent from determining whether this information now meets minimum statutory requirements. This argument is also unpersuasive. Acceptance of the previous application for CON No. 6174 must be viewed as preliminary agency action. Humhosco, Inc., supra, at

391. Finally, Respondent's preliminary action with regard to the previous application does not invalidate an otherwise valid rule. Department of Transportation v. Clancy, 521 So.2d 376 (Fla. 2d DCA 1988).

30. It is concluded that Petitioner's application fails to meet the requirements of Section 381.707(3), Florida Statutes. In accordance with Section 381.709(3)(a), Florida Statutes, Respondent should deem the application incomplete and withdraw it from further consideration.

RECOMMENDATION

Based on the foregoing, it is hereby

RECOMMENDED that a Final Order be entered withdrawing Petitioner's application for CON No. 6266 from further consideration.

DONE AND ENTERED this 14th of January, 1991, in Tallahassee, Leon County, Florida.

DON W. DAVIS

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 14th day of January, 1991.

APPENDIX

The following constitutes my specific rulings, in

accordance with Section 120.59, Florida Statutes, on findings of fact submitted by the parties.

Petitioner's Proposed Findings

1-6. Adopted in substance, though not verbatim. 7-9. Rejected, unnecessary.

1. Adopted in substance.

2. Rejected, unnecessary.

3. Adopted by reference.

4. Rejected, cumulative.

5. Rejected, argumentative.

6. 1st sentence addressed, remainder rejected as unnecessary. 16-17. Rejected, argument.

18-19. Rejected, not supported by weight of the evidence. 20-22. Rejected, argument.

23. Rejected, relevance.

24-25. Rejected, unnecessary and argumentative. Respondent's Proposed Findings

1-3. Adopted in substance, not verbatim.

4. Adopted by reference.

5-15. Adopted in substance, though not verbatim. 16-17. Adopted by reference.

COPIES FURNISHED:

Stephen A. Ecenia, Esq. Suite 400

First Florida Bank Building Tallahassee, FL 32301

Edward G. Labrador, Esq. Assistant General Counsel Department of Health and

Rehabilitative Services 2727 Mahan Dr., Suite 103

Tallahassee, FL 32308

Gregory L. Coler Secretary

Department of Health and Rehabilitative Services

1323 Winewood Boulevard

Tallahassee, FL 32399-0700

Sam Power Clerk

Department of Health and Rehabilitative Services

1323 Winewood Boulevard

Tallahassee, FL 32399-0700

General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, FL 32399-0700

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this recommended order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should consult with the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this recommended order. Any exceptions to this recommended order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 90-006001

Orders for Case No: 90-006001