STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

EASTE POINT HOSPITAL, INC., d/b/a ) EAST POINTE HOSPITAL; CORAL GABLES ) HOSPITAL, INC., d/b/a CORAL GABLES ) HOSPITAL; HEALTHTRUST, INC., - THE ) HOSPITAL COMPANY (ST. AUGUSTINE ) GENERAL HOSPITAL, L.P., d/b/a ST. ) AUGUSTINE GENERAL HOSPITAL; ) HOSPITAL CORPORATION OF LAKE WORTH, ) d/b/a PALM BEACH REGIONAL HOSPITAL; ) MEDICAL CENTER OF SANTA ROSA, INC., ) d/b/a SANTA ROSA MEDICAL CENTER; ) MEMORIAL HOSPITAL OF TAMPA, L.T.D., ) d/b/a MEMORIAL HOSPITAL OF TAMPA; ) NORTH OKALOOSA MEDICAL CENTER, INC. ) d/b/a NORTH OKALOOSA MEDICAL CENTER; ) PALM BEACH GARDENS COMMUNITY ) HOSPITAL, INC. d/b/a AMI PALM BEACH ) GARDENS MEDICAL CENTER; CORAL GABLES ) HOSPITAL, INC., d/b/a CORAL GABLES ) HOSPITAL; PALMS WEST HOSPITAL, INC. ) d/b/a PALMS WEST HOSPITAL; PLANTATION ) GENERAL HOSPITAL L.P., d/b/a ) PLANTATION GENERAL HOSPITAL; SOUTH ) SEMINOLE HOSPITAL, INC., d/b/a SOUTH ) SEMINOLE COMMUNITY HOSPITAL; GENERAL ) GENERAL HEALTH SERVICES, INC. d/b/a )

EDWARD WHITE HOSPITAL; SUN CITY ) CASE NOS. 91-4346H

)

RECOMMENDED ORDER

Pursuant to notice, the above matters were heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Donald R. Alexander, on August 29, 1991, in Tallahassee, Florida.

APPEARANCES

For Petitioners: John H. French, Jr., Esquire and Intervenor John F. Gilroy, III, Esquire Florida League of P. O. Box 10095

Hospitals, Inc. Tallahassee, Florida 32302

For Respondent: Julia C. Pallentino, Esquire

301 The Atrium

325 John Knox Road Tallahassee, Florida 32303

For Intervenor: Peter Schwarz, Esquire

Citizens of the 111 West Madison Street, Room 812 State of Florida Tallahassee, FL 32399-1400

STATEMENT OF THE ISSUES

The issues are (a) whether petitioners' budget letters for fiscal year 1991-1992 should be accepted by respondent, and (b) whether the agency has utilized a non-rule policy in rejecting the letters, and if so, whether the policy has been adequately explained and justified.

PRELIMINARY STATEMENT

These matters began on June 21, 1991, when respondent, Health Care Cost Containment Board, issued letters to each of the fourteen petitioners advising them that their budget letters for fiscal year 1991-1992 had been reviewed and found to be "non-conforming" because the gross revenues per adjusted admission were overstated. Thereafter, petitioners requested a formal hearing to contest the agency's preliminary decision. The matters were referred by respondent to the Division of Administrative Hearings on July 12, 1991, with a request that a hearing officer be assigned to conduct a formal hearing. By order dated August 5, 1991, the parties' request to consolidate all fourteen cases was granted. In addition, the same order consolidated these cases with Case Nos. 91-4762R through 91-4776R, which relate to a challenge by petitioners and supporting intervenor, Florida League of Hospitals, Inc., of an alleged illicit policy used by the agency in rejecting petitioners' budget letters. However, a separate final order has been rendered in the rule cases.

On August 7, 1991, intervenor, Citizens of the State of Florida, filed an amended motion to dismiss the petitions for formal hearing on the ground no disputed issues of material fact existed and thus the undersigned had no jurisdiction to hear the matters. A ruling on the motion was reserved and will be dealt with in the Conclusions of Law portion of this Recommended Order.

Twelve of the fourteen budget cases were scheduled for final hearing on August 5 and 6, 1991. However, because of the request to consolidate those cases with the two remaining budget cases and the rule challenges, the parties

agreed to continue the final hearing to August 29, 1991, in Tallahassee, Florida.

At final hearing petitioners and supporting intervenor presented the testimony of Sarah Fitzgerald, a health care consultant and accepted as an expert in health care finance and Florida hospital cost containment board regulations. Also, they offered petitioners' exhibits A and B which were received in evidence. Respondent presented the testimony of David Oropallo, a Board management review specialist and accepted as an expert in Florida health care regulatory matters. Also, it offered respondent's exhibits 1 - 3. All exhibits were received in evidence. Intervenor, Citizens of the State of Florida, presented the testimony of J. Gary Walker, an attorney and assistant professor at the University of South Florida who was accepted as an expert in health law and regulation. Also, it offered intervenor's exhibits A-C. All exhibits were received in evidence. Finally, the parties stipulated into evidence joint exhibits 1 and 2. Joint exhibit 2 is the deposition of James J. Bracher, Board executive director.

The transcript of hearing (two volumes) was filed on September 16, 1991.

Proposed findings of fact and conclusions of law were filed by petitioners, intervenor Florida League of Hospitals, Inc. and respondent on September 26, 1991, and by intervenor Citizens of the State of Florida on September 27, 1991. A ruling on each proposed finding has been made in the Appendix attached to this Recommended Order.

FINDINGS OF FACT

Based upon all of the evidence, the following findings of fact are determined:

1. Background

   
   

   1. Petitioners are hospitals subject to the regulatory jurisdiction of respondent, Health Care Cost Containment Board (Board). As such, they are required to annually file their projected budgets with the Board for review and approval. This controversy relates to petitioners' fiscal year 1991-1992 budgets (1992 budget) and whether such filings conformed with the Board's requirements and should have been accepted.

      
      

   2. Budget letters for the fiscal year 1992 were filed by petitioners with the Board in May 1991. After the documents were reviewed by the Board's staff, on June 21, 1991, the Board issued virtually identical proposed agency action to each hospital advising the hospital that its budget letter was "nonconforming for the following reason: The hospital's maximum GRAA should be $ , instead of $ , ", with the appropriate dollar amounts inserted in the blanks. The letter went on to advise the hospital that it should resubmit a corrected budget document and until it did so, its submission would be considered incomplete. As provided for by agency rule, the hospitals then filed general and specific objections to this preliminary determination. After such objections were reviewed by the Board and presumably found to be without merit, petitioners requested a formal hearing to contest the proposed agency action.

      
      

2. The Parties

   
   

   1. Petitioners are fourteen hospitals located throughout the State of Florida. Intervenor, Florida League of Hospitals, Inc., is a non-profit organization which is organized and maintained for the benefit of the

      proprietary hospitals which comprise its membership. The Board is a state agency charged with the responsibility of annually reviewing hospital budgets to insure that a hospital's charges do not exceed certain established thresholds.

      This is accomplished by an annual review of the budgets of all regulated hospitals. Intervenor, Citizens of the State of Florida, is represented by the Office of the Public Counsel. That office is charged with the responsibility of representing the citizens in all proceedings before the Board. The parties have stipulated that petitioners and the two intervenors have standing to initiate or participate in this proceeding.

      
      

3. The Review Process

   
   

   1. As noted above, budgets must be filed on an annual basis at least ninety days prior to the beginning of a hospital's fiscal year. In these cases, all petitioners have fiscal years ending on August 31 and thus their budgets are due no later than June 1 of each year. There are two types of budget filings authorized by law. First, a hospital may file what is known as a budget letter, which is a one-page submission on a form provided by the Board. In the letter, the hospitals are required to acknowledge and certify to certain information contained in Subsection 407.50(2), Florida Statutes (1989). Secondly, a hospital may file a detailed budget which is more complicated than the budget letter and requires the completion of a twenty-seven page form. In a detailed filing, a hospital must provide, at a minimum, detailed information regarding the hospital's unit and hospital statistics, related party transactions, patient rates and discount policies, explanation of increases in revenue and expense, and prospective payment arrangements. The detailed budget filing is obviously a more expensive, complicated and time-consuming process than is the filing of a budget letter. It should be noted here that the current filing process was created by the legislature in 1988 when substantial amendments to the law were enacted. Those amendments provided, inter alia, that budget letters could be used for the first time beginning with fiscal year 1990. Prior to that time, all hospitals filed detailed budgets.

      
      

   2. Given the technical language which governs the Board's budget review process, a brief discussion regarding that process is appropriate. In very broad terms, the Board's principal function is to ensure that the revenues (charges) received by a hospital are not excessive or unreasonable. It performs this function by reviewing the budgets of each hospital during the annual budget review process. As is relevant to this controversy, the Board uses two major financial indicators in the review process. They are the gross revenues per adjusted admission and the maximum allowable rate of return, also known in regulatory parlance as the "GRAA" and "MARI", respectively. 1/ In order to measure the reasonableness of a hospital's charges, the Board requires each hospital to calculate a GRAA, which is the result of dividing the gross operating revenues of the hospital during a fiscal year by adjusted admissions. This financial indicator is basically a measure of revenue per case after adjusting for outpatient admissions and represents an average of all gross revenues per case. Except when authorized by the Board, a hospital may not increase its charges (GRAA) from one year to the next by more than its maximum allowable rate of increase. This percentage limitation, more commonly known as the MARI, is calculated pursuant to a statutorily defined formula. It is important to note that a budget letter is used when a hospital does not intend to increase its charges by more than the percentage amount specified in its approved MARI. Thus, in return for the hospital agreeing to operate within its MARI during the next fiscal year, the Board allows the hospital to have its budget approved through the less complicated budget letter process. Conversely, when a hospital intends to increase its charges from one fiscal year to the next

      by a greater percentage amount, it is obliged to file a detailed budget and subject itself to this more time-consuming process.

      
      

   3. In each budget letter filing, a "base GRAA" must be calculated. After that calculation is made, the base GRAA is then inflated by the hospital's MARI plus one, which produces what is known as the "budget letter GRAA". Thus, where a base GRAA is $10,000 and the MARI is 10%, the budget letter GRAA is $11,000, which is derived by multiplying the base GRAA ($10,000) by one plus the MARI (1 plus .10%, or 1.10). The budget letter GRAA represents the maximum projected gross revenues per adjusted admission the hospital can receive during the next fiscal year without having to justify the excess charges to the Board. The principal point of contention in these cases is the appropriate manner in which the base GRAA for each of petitioners' budget letters should be calculated. This in turn bears directly on the issue of whether petitioners are eligible to file a budget letter. There is no dispute as to the appropriate MARI, and the parties have agreed that the dollar figures and percentages applicable under each party's proposed calculations are accurately reflected in joint composite exhibit 1 received in evidence.

      
      

4. Calculation of the Base GRAA

   
   

   1. Petitioners and supporting intervenor contend that the appropriate base GRAA should be calculated so as to most accurately reflect the GRAA from the previous fiscal year. In this vein, they have proposed three methodologies which are described on page 2 of joint composite exhibit 1 and are also discussed in greater detail in a subsequent portion of these findings. Petitioners cite the language in Subsection 407.50(2)(a), Florida Statutes (1989) as the authority for these approaches. On the other hand, the Board and its supporting intervenor assert that the GRAA base must be calculated by using the methodology identified as alternative 5 on page two of joint exhibit 1 and also described in Subsection 407.50(3), Florida Statutes (1989). In every case, this produced a smaller base GRAA than was proposed by petitioners, and unless they accede to the Board's calculation, they will be required to file detailed budgets. Like the petitioners, the Board and supporting intervenor also rely upon the language in Section 407.50, Florida Statutes (1989) as authority for their position. Even so, petitioners contend that respondent's methodology is actually a rule, not duly promulgated, and thus it must be justified and explained in this proceeding as is required of any non-rule policy. In a separate final order issued this same date in Case Nos. 91-4762R through 91- 4776R, the undersigned has determined that the methodology is in fact a policy having all of the attributes of a rule and thus it must be defended and explicated in a section 120.57(1) proceeding.

      
      

   2. Pursuant to a statutory amendment enacted in 1988, existing subsection 407.50(1) provided a so-called phase-in period for calculating a budget letter GRAA in fiscal years 1990 and 1991, and the manner for doing so was spelled out rather clearly in the law. The problem here lies in the fact that other provisions within section 407.50, which are not as clear as subsection 407.50(1), govern the filing of budget letters for fiscal year 1992 and beyond. The problem was recognized by the Board as early as July 1988 when its general counsel prepared a memorandum for Board members which compared the then existing law with amendments just adopted by the 1988 legislature. At that time, the Board was advised that for fiscal year 1992 and beyond, the base GRAA would be calculated in a manner generally consistent with the methodology proposed by the Board in these cases. This memorandum was placed in what is known as the "Board Book", a compilation of all documents considered by the Board at its meetings,

      and copies of the memorandum were later distributed to virtually all regulated hospitals in the State. The memorandum read in pertinent part as follows:

      
      

      For FY 1992 and beyond, will be determined as in following 1992 example. Base for 1992 budget will be 1990 actual GRAA unless 1990 actual GRAA exceeded 1989 actual GRAA by more than Board-approved MARI, 1991 base will be 1989 actual GRAA inflated by Board-approved rate of increase for 1990.

      
      

      In addition, at a technical advisory panel meeting held on November 7, 1990, hospital representatives were advised that while subsection 407.50(1) provided a phase-in period with a specified procedure for calculating a budget letter GRAA, the Board staff was in the process of developing a calculation of budget letter GRAA for fiscal year 1992 and beyond. Testimony at hearing established that the Board staff conveyed a description of the methodology to hospital representatives at that time. These actions suggested that the Board intended for the base GRAA for fiscal year 1992 to be calculated differently than the methodology used during the phase-in period. Not surprisingly, there is no agency precedent on this matter since these cases represent the first occasion on which 1992 budget letters were filed and reviewed.

      
      

   3. As noted earlier, a budget letter is appropriate when a hospital does not seek a rate of increase in GRAA in excess of the MARI for the hospital's next fiscal year. Whether the rate of increase in the GRAA is of such magnitude as to require detailed review is directly dependent on the manner in which the base GRAA is calculated, and this issue lies at the heart of the dispute. This is because the Board uses the results of the calculation (base GRAA x applicable rate of return) solely for the purpose of creating a so-called threshold GRAA, which if exceeded by the hospital's requested GRAA, triggers the need for detailed review. Thus, the calculation simply provides the Board with a means for determining whether the proposed increase in the GRAA falls within budget letter guidelines. 2/ In every case here, petitioners' GRAA exceeded the Board's threshold GRAA so as to trigger the need for a detailed budget.

      
      

   4. The Board's calculation of the base is done in a manner consistent with subsection 407.50(3). That subsection reads in pertinent part as follows:

      
      

      In determining the base, the hospital's prior year audited actual experience shall be used unless the hospital's prior year audited actual experience exceeded the applicable rate of increase in which case the base shall be the gross revenue per adjusted admission

      from the year before the prior year, increased by the applicable rate of increase for the prior year, and then inflated by the applicable rate of increase for the current year.

      
      

      Thus, the methodology requires that the prior year audited actual experience be used as the starting point unless such charges exceeded the applicable (approved) rate of increase. Although the parties agree that 1991 actual data would be the most desirable to use, that data is unavailable. Therefore, fiscal year 1990 results of operation, which are the most current audited actual experience, must necessarily constitute "the prior year audited actual

      experience" within the meaning of the statute. To determine whether the 1990 actual experience exceeded the applicable rate of increase, the Board measured the increase in the actual GRAA from 1989 to 1990. If the actual rate of increase did not exceed the approved rate of increase, the Board took the 1990 actual GRAA, inflated that amount by the applicable rate of increase for the current year (1991), and used the resulting number as the base GRAA.

      Conversely, if the 1990 actual GRAA exceeded the 1989 approved GRAA by more than the authorized rate, the Board used the 1989 actual GRAA (the gross revenues from the year before the prior year) inflated by the 1990 MARI, as further increased by the applicable rate of increase for the current year (1991) to produce the GRAA base.

      
      

   5. The Board has used the above described methodology for several reasons. First, it found nothing in subsection 407.50(2) which calculated a base for budget letter submissions. Indeed, the word "base" is found only in subsections 407.50(1) and (3), and by its own terms the former subsection does not apply to 1992 budget letter filings. Thus, the Board calculated the base in accordance with the method prescribed in subsection (3). Second, prior to the change in the law in 1988, the budget review process was "budget-based" in contrast to the present process which is tied to actual rates of increase. In other words, under the "old" process, the Board compared a budget under review with a prior budget number while the "new" process compares the budget under review with prior actual numbers. The Board's methodology is consistent with this philosophy and ties the base measurement to actual experience rather than estimated or budget figures. Third, for budget years 1990 and 1991, hospitals did not incur a penalty for exceeding their GRAA. The Board now intends to impose a penalty should this threshold be exceeded by hospitals in 1992 budget year and beyond. The Board's methodology is obviously geared toward this type of review process. Fourth, if a hospital's actual charges are less than its budgeted GRAA, by increasing the budgeted GRAA by the MARI as petitioners propose, a hospital's actual rate of increase would be greater than the MARI. Under the Board's methodology, a hospital would be required to justify such an increase. Similarly, if the Board's methodology was not used, a hospital could file a budget letter certifying a maximum GRAA which exceeds the threshold GRAA under subsection 407.50(3), thereby circumventing the detailed review process. Such a result should be avoided since to do otherwise would create an internal conflict within the terms of section 407.50 and would be contrary to the Board's mission under the law, as expressed in subsection 407.003(3)(a), which is to "contain hospital charges that exceed certain thresholds". Finally, Board experience shows that it is not unusual for a hospital to have a wide variance between actual experience and budget. Indeed, as many as one half of all hospitals have a marked variation between actual results and budget projections. Because of this, the Board methodology is a reasonable way in which to take these variances into account in the budget review process. Collectively, these considerations support a finding that, while not perfect or ideal in every respect, the Board methodology is logical, reasonable and appropriate.

      
      

   6. Petitioners have lodged several objections to the methodology. First, they point out that seven of the fourteen petitioners went through detailed budget review during their last budget filing and were required to justify all matters in their 1991 budgets. Thus, they contend that if they do not agree with the Board imposed budget letter GRAA, they must undergo detailed review a second time for some items that were already reviewed and approved in the prior budget year. However, the greater part of the review here will be of new projections for 1992 which were not included in the 1991 budget. Therefore, there will be little, if any, redundancy in the process. Moreover, detailed review is called for whenever a hospital seeks a rate of increase greater than

      its MARI even if this occurs in consecutive budget years. Secondly, petitioners contend that two hospitals were penalized by the use of the methodology simply because they had less charges than were budgeted. In other words, when actual results of operations became available, two hospitals learned that their actual charges were less than their budgeted charges. 3/ This resulted in at least one hospital receiving a smaller budget letter GRAA in 1992 than it had in 1991. Petitioners characterize this as a "perverse incentive" since the Board's methodology seemingly encourages a hospital to increase its charges to the budgeted level to avoid having its charges reduced in future years. However, the legislature recognized this anomaly by providing that if a hospital's GRAA increased at a rate of increase lower than its MARI, it would receive "banked" percentage points which it could carry forward in the form of credits to subsequent budget years. In these cases, no hospital elected to use banked credits. Then, too, if a hospital desires a greater rate of increase (and concomitant larger GRAA), it has the statutory mechanism to justify that increase through the detailed budget review process. Similarly, for those hospitals that exceed their budget, and under the Board's methodology are faced with a future reduction in revenue caps, they need only justify those excess charges in the detailed review process in order to avoid this dilemna.

      Petitioners also criticize the methodology because it does not consider the budget GRAA from the previous fiscal year even though a hospital has already gained approval to operate at the prior year budget level. However, this argument fails to recognize that the use of actual data over budget data is preferred since budgets are merely projections that are often times not attained. Petitioners next point out that the current detailed budget review scheme now codified in Chapter 10N-5, Florida Administrative Code, was not adopted until after subsection 407.50(3) became law in 1988. Thus, they suggest that the word "base" in subsection (3) represents a statutory directive to use a GRAA base specific to detailed budget review. However, the rules in question implement subsections 407.05(6) and 407.50(6) rather than subsection 407.50(3), and the challenged base GRAA calculation is not used during that subsequent detailed budget review process. In other words, even though subsection (3) pertains generally to detailed budget review and provides a calculation of a "base", the Board has opted to use a different methodology found in chapter 10N-

      5 in the detailed review process. Although the legislature amended the law in both 1989 and 1991, it chose not to disturb this process or otherwise limit the Board's authority to continue to apply those rules. Therefore, the Board's rejection of petitioners' interpretation is found to be persuasive. Finally, it should be recognized that fiscal years 1990 - 1992 are so-called transition years after the major substantive changes in the law in 1988 and it is not unexpected to have some unusual cases arise. While petitioners have cited a few such cases occurring in budget year 1992, the appropriate remedy is to explain and justify these abnormalities through the detailed review process. Accordingly, these criticisms are found to be without merit.

      
      

5. Alternative Proposals

1. Petitioners have proposed three alternative methodologies to calculate the base. They are identified as alternatives 2, 3 and 4 on page 2 of joint composite exhibit 1. 4/ Petitioners assert their alternatives most accurately reflect the GRAA from the previous fiscal year and thus are in compliance with the language in subsection 407.50(2)(a) that requires a hospital to acknowledge its applicable rate of increase in its GRAA "from the previous fiscal year". Accordingly, in formulating their methodologies, petitioners have relied heavily on the words "previous fiscal year" and in some form or fashion have tied all of their calculations to the year 1991. Under petitioners' proposal, a hospital

   could presumably choose from one of the three alternatives depending on which one was best suited to that hospital's financial circumstances.

   
   

2. Petitioners have first proposed to calculate the base by taking the 1990 actual GRAA and inflating it by the 1991 MARI. They contend that this alternative is reasonable because it uses the most recent actual data (1990) as well as reliable numbers (1991 MARI). While this methodology is the same as the Board's methodology for those hospitals whose 1990 actual GRAA did not exceed their 1990 budget GRAA, petitioners do not propose to use it in that manner. Rather, they intend to use it to calculate the base GRAA for two hospitals whose 1990 actual results exceeded budget projections. By doing so, however, those hospitals would be allowed to circumvent the otherwise required detailed review process. Secondly, petitioners suggest that the 1991 budget GRAA be used as the base for calculating a 1992 budget GRAA. This methodology was apparently designed for seven hospitals which underwent detailed budget review during the last fiscal year. Petitioners contend this formula is reasonable because the 1991 budget GRAA has already been approved by the Board, and the seven hospitals had extensive review of last year's budgets. Even so, there is nothing that prohibits detailed review, if warranted, in consecutive budget years, and in any event, actual data is generally preferred over budget projections. Lastly, petitioners propose that the same methodology described in subsection 407.50(1) and used for budget years 1990 and 1991 be used again on the theory that if it was reasonable in those years, it is still reasonable to use now. This methodology calls for the higher of fiscal year 1990 actual GRAA inflated by the 1991 MARI or 1991 budget GRAA to be used as the 1992 base GRAA. Pursuant to the methodology, five hospitals have used the 1991 budget letter GRAA as their 1992 base GRAA. However, by its own terms the methodology used in subsection 407.50(1) is specifically limited to budget years 1990 and 1991, and the law contemplates a change in the calculation of the base in all subsequent budget years. Moreover, the use of actual versus projected numbers is to be favored. In short, then, while the three methods arguably have some beneficial features, they still do not have all of the favorable attributes found in the Board's methodology.

   
   

   CONCLUSIONS OF LAW

   
   

3. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties hereto pursuant to Subsection 120.57(1), Florida Statutes (1989).

   
   

4. As the parties challenging the agency's decision not to accept their budget letters, "the burden of proof is on the hospital(s) to demonstrate that such determination is, in light of the total record, not supported by a preponderance of the evidence". Section 407.53, Florida Statutes (1989).

   
   

5. The critical language which governs this proceeding is found in Subsections 407.50(2) and (3), Florida Statutes (1989). Those subsections read in relevant part as follows:

   
   

   (2)(a) Except for hospitals filing a budget pursuant to subsection (3), each hospital, at least 90 days prior to the commencement of its next fiscal year, shall file with the board a certified statement, hereafter known as the "budget letter", acknowledging its applicable maximum allowable rate of increase in gross revenue per adjusted admission from

   the previous fiscal year as calculated pursuant to s. 407.002(17) and its maximum projected gross revenue per adjusted admission for the next fiscal year, and shall affirm that the hospital shall not exceed such applicable maximum allowable rate of

   increase.

   * * *

   (3) At least 90 days prior to the beginning of its fiscal year, each hospital requesting a rate of increase in gross revenue per adjusted admission in excess of the maximum allowable rate of increase for the hospital's next fiscal year, or each hospital utilizing banked percentage points pursuant to paragraph (2)(b) and requesting a rate of increase in excess of the maximum allowable rate of increase in excess of the maximum allowable rate of increase plus the available banked percentage points, shall be subject to detailed budget review and shall file its projected budget with the board for approval. In determining the base, the hospital's prior year audited actual experience shall be used unless the hospital's prior year audited actual experience exceeded the applicable

   rate of increase in which case the base shall be the gross revenue per adjusted admission from the year before the prior year, increased by the applicable rate of increase for the prior year, and then inflated by the applicable rate of increase for the current year. As used in this subsection, "applicable rate of increase means the MARI unless the board has approved a different rate of increase in which case such rate of increase shall apply.

   * * *

   
   

6. Petitioners have generally raised three arguments concerning the Board's action under the above statute. First, they contend that the Board's methodology is not one that is readily apparent from a literal reading of the statute and thus the methodology constitutes a non-rule policy, not adequately explicated and justified, which must fail. In the alternative, they contend that under accepted rules of statutory construction, the Board's methodology cannot pass muster. Finally, they contend the Board has previously resolved this question in their favor by final agency action issued in August 1990, and that precedent should be followed here. On the other hand, the Board and supporting intervenor contend that the law is clear on its face that subsection 407.50(3) must be used to make the threshold determination of whether a hospital is eligible to file a budget letter. In the alternative, they argue that if the methodology is indeed a non-rule policy as petitioners claim, there is sufficient proof of record to reach a conclusion that the policy is a logical and rational one.

19.. In a separate final order issued this same date, the undersigned has determined that the methodology used by the Board is a policy having all of the

attributes of a rule. This result was reached on the theory that a user of the statute could arguably read its neutral language and come to the conclusion that, while subsection 407.50(2)(a) did not prescribe the manner in which the base GRAA would be calculated, a similar judgment could be reached with respect to subsection 407.50(3), and thus any calculation of the base GRAA must be drawn from an informal policy. Therefore, if the Board intends to apply this policy to petitioners, it must explicate, support and defend such policy with appropriate evidence. See, e. g., St. Francis Hospital, Inc. v. DHRS, 553 So.2d 1351, 1353 (Fla. 1st DCA 1989). By a preponderance of the evidence, the Board has adequately explained and justified the bases for its policy. This conclusion is based on the reasons set forth in the findings of fact, with particular but not exclusive emphasis on findings of fact 11 and 12. Therefore, it is concluded that the policy is rational, logical and reasonable and may be used.

1. Petitioners have also presented argument to show that the Board's construction of the statute is incorrect or that its methodology does not comport with the law. 5/ Initially, it is noted that the law is arguably ambiguous and is subject to debate. While subsection 407.50(2)(a) prescribes the form and manner for submission of budget letters, it does not prescribe a methodology for determining whether a hospital's certified GRAA exceeds the MARI. Under these circumstances, the Board is free to develop a methodology to make that determination so long as the method chosen is rational and justified and does not do violence to the enabling law. As noted earlier, there is sufficient proof of record to reach a conclusion that, while the agency's policy is not perfect or ideal in every respect, it is nonetheless reasonable, logical and justified and is to be preferred to the alternatives presented by petitioners. In addition, the methodology is in accord with the purpose of the law, that is, to "contain hospital charges that exceed certain thresholds", and does not do violence to the precepts that the law is tied to actual rates of increase, actual results are preferred over budget projections, and detailed review should be required whenever a hospital's actual rate of increase exceeds its MARI. The contentions that the Board's methodology can only be reached through a strained interpretation of the statute and that petitioners' alternatives alone can serve as a proxy for "the previous fiscal year" (1991 actual data) are hereby rejected. Petitioners' remaining arguments concerning statutory construction are insufficient to sustain their claim.

   
   

2. Finally, the undersigned has considered petitioners' contention that the Board has previously resolved this issue in their favor in the case of The Retreat v. Health Care Cost Containment Board, 12 FALR 3633 (HCCCB, Final Order August 6, 1990). However, that case is distinguishable since it dealt with the acceptance of a fiscal year 1990 budget letter filed under the provisions of subsection 407.50(1), an issue not relevant here, and did not involve the calculation of a base for a 1992 budget letter. Moreover, the language in that decision upon which petitioners rely (finding of fact 7 at page 3640) is merely dicta which was unnecessary to resolve the case, and even if the agency arguably took a contrary position in 1990, it has adequately explained this change of policy. Beverly Enterprises v. Department of Health and Rehabilitative Services, 573 So.2d 19, 23 (Fla. 1st DCA 1990).

   
   

3. The amended motion to dismiss filed by the Office of the Public Counsel on behalf of the Citizens of Florida, and joined in by the Board, is hereby denied. The untimely request for judicial notice of certain portions of the transcript of record in The Retreat case filed by the Public Counsel is also denied.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered by the Board confirming that

petitioners' budget letters should be rejected as being non-conforming.

DONE and ORDERED this 16th day of October, 1991, at Tallahassee, Florida.

DONALD R. ALEXANDER

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 16th day of October, 1991.

ENDNOTES

1/ Another financial indicator used by the Board but not essential to a resolution of these cases is the net revenues per adjusted admission (NRAA). The regulatory scheme includes a penalty provision for hospitals which exceed approved levels of NRAA.

2/ If detailed budget review is called for, the Board's base GRAA calculation is not used in the subsequent review process. Rather, other provisions within section 407.50 and Chapter 10N-5, Florida Administrative Code, govern that process. These rules were adopted after the substantive amendments to the law in 1988.

3/ This can occur for a number of reasons including, but not limited to, competition, changes in rates, the introduction of a new service and a variation in the frequency and severity of admissions.

4/ Petitioners also proposed a fourth alternative which used the 1991 actual GRAA as the base GRAA. However, since 1991 actual data is still unavailable, they did not seriously pursue this alternative.

5/ These include contentions that the Board's construction of the statute produces an absurd result, the principle of ejusdem generis requires that the provisions in subsection 407.50(3) pertaining to the calculation of a base be limited to detailed budgets, and the legislature's use of different terms ("previous fiscal year" and "prior fiscal year") in subsections 407.50(2) and

(3) is absolutely presumed to indicate different meanings.

APPENDIX TO RECOMMENDED ORDER

Petitioners and supporting intervenor:

1. Rejected as being unnecessary.

2-7. Partially adopted in finding of fact 2. 8-10. Partially adopted in finding of fact 6.

1. Covered in footnote 2.

2. Partially adopted in finding of fact 8.

3. Covered in preliminary statement.

4. Partially adopted in finding of fact 5 and footnote 1.

5. Partially adopted in findings of fact 5 and 6. 16-17. Partially adopted in finding of fact 4.

1. Partially adopted in finding of fact 5.

2. Covered in footnote 3.

3. Partially adopted in finding of fact 10.

21 Partially adopted in findings of fact 4 and 6.

22. Partially adopted in finding of fact 9.

1. Partially adopted in findings of fact 11 and 12.

2. Partially adopted in finding of fact 9.

3. Partially adopted in finding of fact 8.

4. Rejected as being argument.

5. Partially adopted in finding of fact 11.

6. Partially adopted in findings of fact 8 and 11.

7. Rejected as being a conclusion of law.

8. Rejected as being unnecessary or argument. 50-51. Partially adopted in finding of fact 12.

1. Rejected as being unsupported by the evidence.

2. Partially adopted in finding of fact 12.

3. Rejected as being unsupported by the evidence.

4. Used in the rule cases.

5. Rejected as contrary to the more credible evidence.

Respondent:

1-3. Substantially adopted in finding of fact 1. 4-8. Partially adopted in finding of fact 2.

9. Partially adopted in finding of fact 7. 10-14. Partially adopted in finding of fact 4.

1. Partially adopted in finding of fact 5.

2. Partially adopted in finding of fact 10.

3. Rejected as being unnecessary.

18-20. Partially adopted in finding of fact 11.

1. Partially adopted in finding of fact 12.

2. Partially adopted in finding of fact 8.

Intervenor:

1. Partially adopted in finding of fact 2.

2. Partially adopted in finding of fact 12.

3. Rejected as being unnecessary.

4-6. Partially adopted in finding of fact 2.

7. Partially adopted in finding of fact 6. 8-9. Partially adopted in finding of fact 10.

1. Covered in preliminary statement.

2. Partially adopted in finding of fact 6. 12-14. Rejected as being unnecessary.

15. Partially adopted in finding of fact 6. 16-17. Partially adopted in finding of fact 11.

1. Partially adopted in finding of fact 9.

2. Partially adopted in finding of fact 11.

3. Partially adopted in finding of fact 9. 21-23. Covered in footnote 2.

24-25. Partially adopted in finding of fact 11.

26. Rejected as being unnecessary.

27-28. Partially adopted in finding of fact 11. 29-30. Rejected as being unnecessary.

1. Rejected as being redundant.

2. Partially adopted in finding of fact 11. 33-34. Rejected as being unnecessary.

1. Partially adopted in finding of fact 8.

2. Rejected as being a conclusion of law. 37-39. Partially adopted in finding of fact 8. 40-45. Rejected as being unnecessary.

Note - Where proposed findings have been partially used, the remainder has been rejected as being irrelevant, unnecessary, subordinate, redundant, not supported by the more credible and persuasive evidence, or a conclusion of law.

COPIES FURNISHED:

John H. French, Jr., Esquire

P. O. Box 10095 Tallahassee, FL 32302

Julia C. Pallentino, Esquire

301 The Atrium

325 John Knox Road Tallahassee, FL 32303

Peter Schwarz, Esquire

111 West Madison Street, Room 812 Tallahassee, FL 32399-1400

James J. Bracher, Executive Director Health Care Cost Containment Board

301 The Atrium

325 John Knox Road Tallahassee, FL 32303

NOTICE OF RIGHT TO FILE EXCEPTIONS

All parties have the right to submit written exceptions to the Recommended Order. All agencies allow each party at least ten 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 their 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: 91-004346

Orders for Case No: 91-004346