STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MARTIN MEMORIAL HOSPITAL )

ASSOCIATION, INC., )

)

)

Petitioner, )

)

vs. ) CASE NO. 91-1969RX

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

)

Respondent. )

)

)

FINAL ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Claude B. Arrington, held a formal hearing in the above-styled case on April 29, 1991, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Byron B. Mathews, Jr., Esquire

MCDERMOTT, WILL & EMERY

2200 Miami Center

201 South Biscayne Boulevard Miami, Florida 33131

For Respondent: Edward Labrador, Esquire

Department of Health and Rehabilitative Services

1323 Winewood Boulevard Tallahassee, Florida

32399-0700

STATEMENT OF THE ISSUE

Whether Rule 10-5.008(1)(d), Florida Administrative Code, is an invalid exercise of delegated legislative authority and whether Respondent's non-rule interpretation of this rule constitutes an invalid rule.

PRELIMINARY STATEMENT

On March 27, 1991, Petitioner, Martin Memorial Hospital Association, Inc. (Martin Memorial) filed a petition, pursuant to the provisions of Section 120.56, Florida Statutes, challenging the validity of Rule 10-5.008(1)(d), Florida Administrative Code, and also challenging the non-rule interpretation of the rule by Respondent, Department of Health and Rehabilitative Services (DHRS). The rule challenges will be referred to as DOAH Case No. 91-1969RX. In a

separate proceeding, Martin Memorial filed a petition pursuant to Section 120.57(1), Florida Statutes, challenging the action of DHRS in rejecting a letter of intent to file for a certificate of need in the February 1991 batching cycle because the letter of intent did not comply with the requirements of Section 381.709(2), Florida Statutes, and of Rule 10-5.008(1)(d), Florida Administrative Code. That separate proceeding will be referred to as DOAH Case Number 91-2230. Martin Memorial moved to consolidate these two cases for the purposes of hearing because the two cases involved many of the same facts. With no objection from DHRS and with its waiver of the requirement that it be afforded 14 days notice prior to hearing, the matters were consolidated for the purposes of hearing. This Final Order is being issued in DOAH Case Number 91- 1969RX and a Recommended Order will be issued simultaneously in DOAH Case Number 91-2230.

The "Petition to Determine Invalidity of Rule" filed by Martin Memorial alleged that Rule 10-5.008(1)(d), Florida Administrative Code, is an invalid exercise of delegated legislative authority in that:

1. The Department has operated under Section 381.709(2), Fla. Stat. since its enactment in 1987 and has accepted LOI's (letters of intent) submitted by Martin Memorial after 1987 containing the exact same language as the LOI at issue in this case without requiring the statutory language to be tracked verbatim.

2. There are no statutory requirements in Section 381.709(2) which require that the certified resolution of the board of directors in the LOI track the language of the statute verbatim.

3. Rule 10-5.008(1)(d), by requiring that the language of the board resolution contained in an LOI must track, verbatim, the language of Section 381.709(2), Fla. Stat., renders inadequate the same language that previously satisfied the statutory requirements.

4. The requirement in Rule 10-5.008 that the language of Section 381.709(2) be tracked verbatim, is in essence, an additional criterion to be met by the CON applicant not required by statute.

5. By adding an additional criterion to be met, Rule 10-5.008(1)(d), in effect, improperly modifies, enlarges, or contravenes the statutory requirements of Section 381.709(2) and, thus, is an invalid exercise of delegated legislative authority. ...

Martin Memorial's petition also challenged the application and interpretation of the challenged rule by DHRS as an invalid non-rule policy. This challenge is premised on the following allegations:

In the First Batching Cycle of 1991 for Hospital Projects, the Department accepted as valid LOI's from other applicants whose board resolutions did not track verbatim the

statutory language of Chapter (sic) 381.709(2). Fla. Stat. Apparently, the Department is operating under a non-rule policy interpretation of Rule 10-5.008 that finds valid some LOI's that do not track verbatim the language of Chapter 381.709(2), although other applicants' LOI's must for some reason meet this requirement.

At the consolidated final hearing, Petitioner presented the testimony of Christopher Coffey, Martin Memorial's Director of Planning, and the deposition testimony of Amy M. Jones, the Assistant Director for the DHRS Office of Regulation and Health Facilities. Petitioner introduced 16 exhibits, each of which was accepted into evidence. Respondent presented the live testimony of Ms. Jones and introduced 7 exhibits, each of which was accepted into evidence. In addition, the two joint exhibits offered by the parties were accepted into evidence.

A transcript of the proceedings has been filed. Rulings on the parties' proposed findings of fact may be found in the Appendix to this Final Order.

FINDINGS OF FACT

1. Respondent, Department of Health and Rehabilitative Services (DHRS), is the state agency that administers Florida's certificate of need program.

   
   

2. Petitioner, Martin Memorial Hospital Association, Inc. (Martin Memorial) is a hospital regulated by the State of Florida's certificate of need program. Martin Memorial regularly files letters of intent seeking certificates of need to establish health services for which prior issuance of a certificate of need by DHRS is needed.

   
   

3. In the first batching cycle of 1991 for hospital projects, Martin Memorial filed a letter of intent with DHRS indicating its intent to submit a certificate of need application to establish an open heart surgery program. This letter of intent was dated February 22, 1991, and was signed on behalf of Martin Memorial by Christopher Coffey, its Director of Planning. The letter contained a description of the proposed project and contained the following statement: "The proposed project will not exceed $5,000,000 in cost to construct and equip". Attached to the letter of intent was a duly executed resolution adopted by Martin Memorial's governing board which authorized the filing of the application for the certificate of need and contained the following:

   
   

   RESOLVED, that the Board of Directors of Martin Memorial Hospital Association, Inc. does hereby authorize and approve the completion of such anticipated project within the time period permitted by law and within the cost guidelines specifically indicated in the above-referenced Certificate of Need. (Emphasis added.)

   
   

4. Section 381.709(2), Florida Statutes, requires the filing of a letter of intent prior to the filing of an application for a certificate of need and, pertinent to this proceeding, contains certain requirements as to the contents

   of the letter of intent. Section 381.709(2)(c), Florida Statutes, provides, in pertinent part, as follows:

   
   

   1. ... The letter of intent shall contain a certified copy of a resolution by the board of directors of the applicant, or other governing authority if not a corporation, authorizing the filing of the application

      described in the letter of intent; authorizing the applicant to incur the expenditures necessary to accomplish the proposed project; certifying that if issued a certificate, the applicant shall accomplish the proposed project within the time allowed by law and at or below the costs contained in the application; and certifying that the applicant shall license and operate the facility.

      
      

5. Pursuant to Section 381.704(4), Florida Statutes, DHRS has authority to "... adopt rules necessary to implement ss. 381.701-381.715." Rule 10- 5.008(1)(d), Florida Administrative Code, is an existing rule which became effective January 31, 1991. This challenged rule pertains to the resolution that must accompany a letter of intent pursuant to Section 381.709(2)(c), Florida Statutes, and provides, in pertinent part, as follows:

   
   

   1. The resolution shall contain, verbatim, the requirements in paragraph 381.709(2)(c), F.S., ... .

      
      

6. Martin Memorial's letter of intent dated February 22, 1991, was timely received by DHRS on February 25, 1991, the last day for the filing of letters of intent for the first batching cycle of 1991 for hospital projects. In reviewing letters of intent, DHRS employs a checklist that it developed which contains a list of pertinent statutory and rule requirements for letters of intent. By the use of this checklist, DHRS staff attempts to determine whether a particular letter of intent is deficient.

   
   

7. The letter of intent submitted by Martin Memorial on February 25, 1991, was reviewed by DHRS staff, was deemed to be deficient, and was rejected. As a result of this decision by DHRS to reject Martin Memorial's letter of intent, Martin Memorial was unable to submit for review the certificate of need application it wanted to file for the first batching cycle of 1991.

   
   

8. DHRS rejected Martin Memorial's letter of intent because it considered the accompanying board resolution to be deficient in that it failed to meet the requirements of either the challenged rule or the subject statute. This conclusion was reached by DHRS because the resolution used the words "within the cost guidelines specifically indicated in the above-referenced Certificate of Need" instead of stating that it would "accomplish the proposed project at

   or below costs contained in the application". The letter dated March 7, 1991, from DHRS to Mr. Coffey advising Martin Memorial of the rejection of its letter of intent provided the following rationale for its rejection of the letter of intent:

   
   

   The resolution did not reflect the language contained in the statute as required by 381.709(2)(c), Florida Statutes, and Rule 10-

   5.008(1)(d), F.A.C. Specifically, the resolution did not state that the applicant would accomplish the proposed project at or below the costs contained in the application.

   
   

9. Before the challenged rule became effective, DHRS put Martin Memorial and other potential applicants on notice as to the rule's requirements and of the DHRS' intent to enforce both the rule and statute. Chapter 8 of the DHRS Certificate of Need Policy Manual includes a discussion of the content requirements for letters of intent and board resolutions. Paragraph 8-3b of this manual provides, in pertinent part:

   
   

   b. Attached to the letter of intent must be a certified copy of a resolution by the board of directors of the applicant ... which:

   * * *

   (3) Certifies that if issued a certificate, the applicant will accomplish the proposed project ... at or below the costs contained

   in the application ...

   
   

10. DHRS sponsored a certificate of need training workshop in Tampa that Mr. Coffey attended. A similar workshop was conducted in Tallahassee. During these workshops, the challenged rule was discussed and those in attendance were given a packet of information which included a sample board resolution. 1/ This sample resolution contained the "at or below" language. Those participating in the workshops were advised to pay close attention to the proposed rules (which included the challenged rule) because the proposed rules represented the most current expression of DHRS' interpretation of the statutory requirements pertaining to the certificate of need application process. Those participating in the workshops were also informed that the use of the word "verbatim" in the challenged rule did not mean that the resolution had to contain every word appearing in Section 381.709(2)(c), Florida Statutes. DHRS represented that it would use a "reasonableness" standard to determine if the

    statutory requirements and the rule requirements had been met by the applicant's board resolution.

    
    

11. At the formal hearing, Amy Jones described what DHRS meant when it represented to the workshop participants that a "reasonableness" standard would be applied in determining whether the board resolutions met the "verbatim" requirement of the challenged rule. Ms. Jones testified that DHRS did not consider words such as "the" or "and" to be essential, and that the board resolution would still be deemed valid even if an applicant omitted or added one of these words or changed the punctuation.

    
    

12. According to Ms. Jones, the wording of the resolution does not have to recite the statute verbatim, but it does have to recite the requirements of the statute in a verbatim fashion. Exactly which words of the statute are "requirements" of the statute so that their verbatim reproduction is mandated is not set forth in the rule, the certificate of need policy manual, or in any other written guideline.

    
    

13. In the first batching cycle of 1991, DHRS received a substantial number of letters of intent accompanied with board resolutions that did not contain verbatim wording of Section 381.709(2)(c), Florida Statutes. Each board resolution was reviewed by one of the reviewers in the DHRS certificate of need office, and notes were made on the DHRS checklist when the board resolution was

    not verbatim. Thereafter, four of the senior officials in the DHRS certificate of need office met to determine if the board resolutions that were not entirely verbatim would be deemed valid or invalid. Ms. Jones, who was one of the four senior officials who reviewed these questioned resolutions, testified that the decision as to whether a resolution that did not quote the statute verbatim was valid or invalid was a group decision based on a "common sense" approach.

    
    

14. Ms. Jones testified that the word "application" in the phrase "at or below the cost contained in the application" would be a "requirement" word that had to be in the resolution. She also testified that a resolution that accompanied a letter of intent filed by Lee Memorial Hospital was deemed valid even though the resolution stated that the project was authorized and approved "at or below the cost specifically indicated in the above-referenced Certificate of Need". DHRS did not consider the failure to include the word "application" to be fatal to that resolution because the resolution, in a previous paragraph, authorized and approved the filing of a "Certificate of Need application". The group decision of the four DHRS officials was that it was clear that Lee Memorial intended to refer to its "Certificate of Need application" when it used the phrase "in the above referenced Certificate of Need".

    
    

15. DHRS's position is that the board resolution must contain the authorizations and certifications required by the statute in language taken verbatim from the statute, and that a resolution that fails to contain such verbatim certification is deficient. Ms. Jones stated the rationale for this position. First, past applicants have proposed projects at very low costs and later sought cost overruns after the project's completion. Second, the phrase "at or below" reflects the DHRS goal of controlling costs. Third, DHRS views the "at or below" language as being a mandatory statutory requirement that DHRS has no authority to waive.

    
    

16. DHRS considers the phrase "within the cost guidelines" as used by Martin Memorial to be too vague to comply with the statutory requirement that an applicant certify that it will complete the proposed project at or below the costs stated in its application. 2/ This interpretation represents a change in position by DHRS. The "within the cost guidelines" language contained in the Martin Memorial resolution was taken from a sample board resolution that DHRS had provided Martin Memorial in 1988. 3/ After being provided this sample form, Martin Memorial routinely incorporated this language in the wording of its board resolutions that accompanied its letters of intent, including letters of intent for both the first and second hospital batching cycles of 1990. Until the rejection of the letter of intent filed February 25, 1991, DHRS had accepted the letters of intent filed by Martin Memorial.

    
    

17. By letter dated August 31, 1990, DHRS advised Mr. Coffey that its letter of intent for the second batching cycle of 1990 had been accepted. This letter also contained the following caveat:

    
    

    Applicants are failing to fully adhere to the requirements for submission of letters of intent specified under Section 381.709(2)(a), Florida Statutes, and Chapter 10-5.008(1)(a), Florida Administrative Code. Reliance on substantial compliance must not be assumed when the statute is clear and unambiguous.

    Attached for your use in future review cycles is a copy of Chapter 8 of the Certificate of Need Policy Manual HRSM 235-1. Also included

    with the application is a copy of the statutes and rules pertaining to Certificate of Need and an example format for a certified copy of a board resolution. 4/ You are hereby notified of the letter of intent requirements in law.

    CONCLUSIONS OF LAW

    
    

18. The Division of Administrative Hearings has jurisdiction over this matter. Section 120.56(1), Florida Statutes.

    
    

19. Martin Memorial has established its standing to challenge the validity of Rule 10-5.008, Florida Administrative Code, and DHRS' non-rule policy in interpreting this rule.

    
    

20. Chapter 120.52, Florida Statutes, contains certain definitions pertinent to this proceeding and provides, in pertinent part:

    
    

    (8) "Invalid exercise of delegated legislative authority" means action which goes beyond the powers, functions, and duties delegated by the Legislature. A proposed or existing rule is an invalid exercise of delegated legislative authority if any one or more of the following apply:

    * * *

    1. The rule enlarges, modifies, or contravenes the specific provisions of law implemented ...

       * * *

    2. The rule is vague, fails to establish adequate standards for agency decisions, or vests unbridled discretion in the agency ...

    * * *

    (16) "Rule" means each agency statement of general applicability that implements, interprets, or prescribes law or policy or describes the organization, procedure, or practice requirements of an agency and includes any form which imposes any requirement or solicits any information not specifically required by statute or by an existing rule. ...

    
    

21. Rule 10-5.008, Florida Administrative Code, is an existing rule that implements Section 381.709(2), Florida Statutes. Section 381.709(2), Florida Statutes, imposes certain requirements for the resolution that is to accompany a letter of intent, but the statute does not require that the language of the statute be quoted verbatim. The statute does require, in pertinent part, that the letter of intent "... shall contain a certified copy of a resolution ...

    certifying that if issued a certificate, the applicant shall accomplish the proposed project ... at or below the costs contained in the application ".

    
    

22. DHRS has the responsibility of administering the certificate of need program in the State of Florida, and has adopted, in the form of the challenged rule, its interpretation Section 381.709(2)(c), Florida Statutes. An agency's interpretation of its governing rules and statutes is afforded wide discretion

    in the exercise of its lawful rulemaking authority. Here the challenged rule is consistent with the general statutory duties placed upon DHRS and is a product of its lawfully exercised rulemaking authority. A rule such as the challenged rule will not be overturned even if the interpretation placed on the governing statute is not the sole possible interpretation, the most logical interpretation, or the most desirable interpretation. An agency's interpretation of its governing statutes is entitled to great weight and will not be overturned unless the interpretation is clearly erroneous or unauthorized. See, Pan American World Airways, Inc. v. Public Service Commission, 427 So.2d 716 (Fla. 1983); Satellite Television Engineering, Inc. v. Department of General Services, 522 So. 2d 440 (Fla. 1st DCA 1988); and Department of Professional Regulation v. Durrani, 455 So. 2d 515 (Fla. 1st DCA 1984). See also, Health Quest Corporation, et al. v. Department of Health and Rehabilitative Services and Arbor Health Care Co., et al., 11 FALR 5427 (1989), ABC Liquors, Inc. v. Department of Business Regulation, 397 So.2d 696 (Fla. 1st DCA 1981); Department of Insurance v. Southeast Volusia Hospital District, 438 So.2d 815 (Fla. 1983).

    
    

23. There is no statutory requirement in Section 381.709(2), Florida Statutes, that the board resolution quote verbatim all or part of the statute. The absence of such a requirement in the statute does not, however, require a conclusion that the pertinent rule is an invalid exercise of delegated legislative authority because it enlarges or modifies the statute implemented. Section 381.709(2), Florida Statutes, mandates that the letter of intent contain a resolution from the applicant's governing body and that the resolution contain certain unequivocal representations and commitments, including the representation as to the cost of the project. 5/ DHRS, as the agency charged with its enforcement, has the discretion to require that applicants make their commitments as to the matters required by statute to be in a board resolution in the unequivocal language used in the statute. The rule does not enlarge, modify, or contravene the specific provisions of law implemented - it merely states in rule form the agency's interpretation of the statute. It is concluded that DHRS's interpretation of the statute is not an invalid exercise of delegated legislative authority pursuant to Section 120.52(8)(c), Florida Statutes. 6/

    
    

24. Martin Memorial has failed to establish in this proceeding that DHRS' interpretation and application of Rule 10-5.008, Florida Administrative Code, constitutes a rule within the definition of Section 120.52(16), Florida Statutes. There has been no showing that the application or interpretation of the rule is an "... agency statement of general applicability that implements interprets, or prescribes law or policy ..." within the meaning of the statutory definition of a rule.

ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, it is ORDERED that Petitioner's challenge to Rule 10-5.008(1)(d), Florida

Administrative Code, and that Petitioner's challenge to Respondent's

interpretation and application of Rule 10-5.008(1)(d), Florida Administrative Code, as invalid exercises of delegated legislative authority are DENIED.

DONE AND ORDERED in Tallahassee, Leon County, Florida, this 3rd day of June, 1991.

CLAUDE B. ARRINGTON

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 3rd day of June, 1991.

ENDNOTES

1/ The sample board resolution is not an official DHRS form, but was provided as a service to those attending the seminars.

2/ The term "guideline" means "a standard or principle by which to make a judgement or determine a policy or course of action". Webster's Unabridged Dictionary, Second Edition. The meaning of the phrase "cost guidelines" is arguable. DHRS was concerned, to quote Ms. Jones, that by using the term "cost guidelines", the applicant "... could have come in above the costs at some point in their [sic] application, that cost guidelines simply was -- seemed to make the costs in this application just a guesstimate [sic] and not a firm commitment on the part of the board". It is concluded that DHRS had a reasonable basis for concluding that the term "cost guidelines" was vague and equivocal and that it did not express the firm commitment required by statute that the project would be completed at or below the costs contained in the application.

3/ The pertinent statutory language has not changed since its enactment in 1987.

4/ The sample format contained the "at or below" language of the statute.

5/ The cost of health-related projects is one of the primary considerations in the certificate of need review process.

6/ It should be noted that Martin Memorial has not challenged the rule under the provisions of Section 120.52(8)(d), Florida Statutes. Since that issue has not been raised by the pleadings or argued by the parties, no conclusion is reached as to whether the rule is impermissibly vague.

APPENDIX TO FINAL ORDER

The following rulings are made on the proposed findings of fact submitted on behalf of the Petitioner.

1. The proposed findings of fact in paragraph 1 are rejected as being unnecessary to the conclusions reached. These proposed findings are discussed in the preliminary statement portion of the Final Order.

2. The proposed findings of fact in paragraphs 2, 3, 4, 5, 9, 10, 11, 12, 14 and 15 are adopted in material part by the Final Order.

3. The proposed findings of fact in paragraph 6 are rejected as being a conclusion of law.

4. The proposed findings of fact in paragraphs 8 are adopted in material part by the Final Order with the exception of the footnote, which is rejected as being unnecessary to the conclusions reached.

5. The proposed findings of fact in paragraph 13 are rejected as being unnecessary as findings of fact, but are incorporated in the conclusions of law portion of the Final Order.

The following rulings are made on the proposed findings of fact submitted on behalf of the Respondent.

1. The proposed findings of fact in paragraphs 1, 2, 4, 5, 6, 7, 8, 9, 10, and

   11 are adopted in material part by the Final Order.

2. The proposed findings of fact in paragraph 3 are rejected as being unnecessary to the conclusions reached. These proposed findings are discussed in the preliminary statement portion of the Final Order.

COPIES FURNISHED:

Sam Power, Agency Clerk Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

Linda K. Harris

Acting General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

Byron B. Mathews, Jr., Esquire MCDERMOTT, WILL & EMERY

2200 Miami Center

201 South Biscayne Boulevard Miami, Florida 33131

Edward Labrador, Esquire Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

Carroll Webb, Executive Director Administrative Procedures Committee

120 Holland Building Tallahassee, Florida 32399-1300

Liz Cloud, Chief

Bureau of Administrative Code Room 1802, The Capitol Tallahassee, Florida 32399-0250

NOTICE OF RIGHT TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DIVISION OF ADMINISTRATIVE HEARINGS AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.

Docket for Case No: 91-001969RX

Orders for Case No: 91-001969RX