STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THE HILLHAVEN CORPORATION, )

)

Petitioner, )

)

vs. ) CASE NO. 91-4893

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

) HEARTLAND HEALTH CARE CENTER, )

)

Petitioner, )

)

vs. ) CASE NO. 91-4894

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

) UNITED HEALTH, INC., d/b/a )

(17 Florida Facilities) )

)

Petitioners, )

)

vs. ) CASE NO. 91-4895

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

)

DIVERSICARE CORPORATION, ) DESOTO MANOR NURSING HOME, ) GOLFVIEW NURSING HOME, ) HARDEE MANOR NURSING HOME, ) and LEESBURG NURSING HOME, )

)

Petitioners, )

)

vs. ) CASE NO. 91-4914

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

) HEALTH CARE AND RETIREMENT ) CORPORATION OF AMERICA, ET AL.,)

)

Petitioners, )

)

vs. ) CASE NO. 91-4929

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

)

AMERICARE CORPORATION, ) CEDAR HILLS NURSING CENTER, ) GOLFCREST NURSING HOME, ) GOOD SAMARITAN NURSING and ) SOUTHERN PINES NURSING CENTER, )

)

Petitioners, )

)

vs. ) CASE NO. 91-5837

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

)

THE WAVERLY GROUP, INC., ) CRYSTAL RIVER GERIATRIC CENTER,) WEST MELBOURNE HEALTH CARE ) CENTER, OCALA GERIATRIC CENTER,) ST. AUGUSTINE GERIATRIC CENTER,) and DAYTONA BEACH GERIATRIC ) CENTER, )

)

Petitioners, )

)

vs. ) CASE NO. 91-6191

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to written notice a formal hearing was scheduled in these cases before Larry J. Sartin, a duly designated Hearing Officer of the Division of Administrative Hearings, for January 6-10, 1992, in Tallahassee, Florida.

APPEARANCES

For Petitioner, Hillhaven Corporation: Thomas C. Fox, Esquire

Michael D. Smith, Esquire REED, SMITH, SHAW & McCRAY

1200 18th Street, N.W. Washington, D.C. 20036

For Petitioners, Heartland Health Care Center, Diversicare Corporation, et. al., Health Care and Retirement Corporation of America, et. al., Americare Corporation, et. al. and The Waverly Group, Inc., et. al:

Alfred W. Clark, Esquire Post Office Box 623 Tallahassee, Florida 32302

For Petitioners, United Health, Inc., et. al.:

W. David Watkins, Esquire

Oertel, Hoffman, Fernandez & Cole, P.A.

Post Office Box 6507 Tallahassee, Florida 32314-6507

For Respondent, Department of Health and Rehabilitative Services:

David Pius Senior Attorney

Department of Health and Rehabilitative Services

Building 6, Room 230

1317 Winewood Boulevard

Tallahassee, Florida 32399-0700

STATEMENT OF THE ISSUES

Whether the Department of Health and Rehabilitative Services improperly determined the Petitioners' rate of Medicaid reimbursement for the period January 1, 1990, through June 30, 1990?

PRELIMINARY STATEMENT

By letter dated January 29, 1990, the Assistant Secretary for Medicaid of the Respondent, the Department of Health and Rehabilitative Services (hereinafter referred to as the "Department") notified the Petitioners in these cases that Medicaid reimbursement rates and ceilings for nursing home providers were frozen at their December 31, 1989, levels, beginning with the new rate semester on January 1, 1990, with one exception.

The Petitioners in case numbers 91-4893, The Hillhaven Corporation (hereinafter referred to as "Hillhaven"), 91-4894, Heartland Health Care Center (hereinafter referred to as "Heartland"), 91-4895, United Health, Inc., et. al.

(hereinafter referred to as "United"), 91-4914, Diversicare Corporation, et. al. (hereinafter referred to as "Diversicare"), 91-4929, Health Care and Retirement Corporation of America, et. al. (hereinafter referred to as "HCRA"), and 91- 5837, Americare Corporation, et. al. (hereinafter referred to as "Americare"), all filed petitions pursuant to Section 120.57(1), Florida Statutes, requesting a formal administrative hearing to contest the proposed decision of the Department. The Petitioners in case number 91-6191, The Waverly Group, Inc., et. al. (hereinafter referred to as "Waverly") filed a request for an informal hearing pursuant to Section 120.57(2), Florida Statutes, to contest the Department's proposed decision.

The Department issued Final Orders denying the requests for formal administrative hearings requested by the Petitioners and the informal hearing requested by Waverly. Those Final Orders were appealed by the Petitioners. On May 13, 1991, the District Court of Appeal entered an opinion reversing the Department's decision and ordering the Department to grant the Petitioners' request for Section 120.57, Florida Statutes, proceedings.

On August 5, 1991, the Department filed separate Notices with the Division of Administrative Hearings requesting that the a Hearing Officer be assigned to conduct all necessary proceedings on the petitions filed by Hillhaven, Heartland, United, Diversicare and HCRA.

On August 27, 1991, an Order of Consolidation was entered granting a motion to consolidate case numbers 91-4893 (Hillhaven), 91-4894 (Heartland), 91-4895 (United), 91-4914 (Diversicare) and 91-4929 (HCRA). A Notice of Hearing was also entered on August 27, 1991, setting the final hearing of these cases for January 6-10, 1992.

On September 12, 1991, the Department filed a Notice requesting that a Hearing Officer be assigned to conduct all necessary proceedings on the petition filed by Americare. An Order of Consolidation was entered October 2, 1991, consolidating case number 91-5857 (Americare) with the previously consolidated cases.

On September 25, 1991, the Department filed a Notice requesting that a Hearing Officer be assigned to conduct all necessary proceedings on the petition filed by Waverly. An Order of Consolidation was entered October 16, 1991, consolidating case number 91-6191 (Waverly) with the previously consolidated cases.

On December 9, 1991, an Order Granting Motion to Amend was entered granting a motion to amend the petitions filed by Hillhaven and HCRA.

On December 13, 1991, Hillhaven and HCR filed a Petition for Administrative Determination of Invalidity of an Emergency Rule and of an Adopted Rule. This Petition was assigned case number 91-7996R and was originally assigned to J. Stephen Menton.

United also filed a Petition for Administrative Determination of Invalidity of an Emergency Rule and of an Adopted Rule on December 13, 1991. This Petition was assigned case number 91-8002R and was also assigned to Mr. Menton.

On December 18, 1991, Americare, Diversicare and Waverly filed a Petition for Administrative Determination of Invalidity of an Emergency Rule and of an Adopted Rule. This Petition was assigned case number 91-8087R and was assigned to the undersigned.

In case numbers 91-7996R, 91-8002R and 91-8087R, the Petitioners challenged two rules of the Department, Emergency Rule 10CER89-21 and an amendment to Rule 10C-7.0482, Florida Administrative Code, pursuant to Section 120.56, Florida Statutes, as invalid exercises of delegated legislative authority.

Case numbers 91-7996R and 91-8002R were transferred to the undersigned and, along with case number 91-8087R, were consolidated during a motion hearing conducted on January 6, 1992.

During the month of December, 1991, the parties filed several motions in these cases. By agreement of the parties and the undersigned, the commencement of the final hearing of these cases and the rule challenge cases was postponed from January 6, 1992, to January 7, 1992. It was also agreed that the various motions filed by the parties would be considered and ruled on at a motion hearing to commence on January 6, 1992.

Following argument of the parties on January 6, 1992, all outstanding motions were ruled on. An Order was entered January 6, 1992, listing the various motions and the rulings thereon.

It was suggested to the parties during the January 6, 1992, motion hearing that the parties meet during the time scheduled for the final hearing of the cases and attempt to agree to stipulate to the facts and/or evidence which should be submitted for consideration in these cases and the rule challenge cases, that the parties then file proposed recommended and final orders and that this Recommended Order and a Final Order to be entered simultaneously with this Recommended Order be entered based upon the stipulated facts and evidence and the proposed orders. The parties agreed to this suggestion and no formal hearing was conducted.

The parties were informed that a separate Final Order would be entered in case numbers 91-7996R, 91-8002R and 91-8087R. The Final Order in those cases is being entered simultaneously with this Recommended Order.

On January 17, 1992, the parties filed a Stipulation of Facts. The stipulated facts, to the extent relevant, have been incorporated in this Recommended Order. Attached to the Stipulation of Facts is a List of Joint Exhibits. Those exhibits are hereby accepted into evidence.

Official recognition is taken of the prior appeal in this matte, United Health, et. al. v. Department of Health and Rehabilitative Services, Case Nos. 90-1206, et. al. (Fla. 1st DCA May 13, 1991) and the Final Order in Florida Health Care Ass'n v. Department of Health and Rehabilitative Services, 12

F.A.L.R. 649 (January 23, 1990).

The parties have filed proposed recommended orders containing proposed findings of fact. The proposed findings of fact of the parties are identical to those proposed in the rule challenge proceedings, case numbers 91-7996R, 91- 8002R and 91-8087R. The findings of fact made in the Final Order entered in those case are incorporated into this Recommended Order.

A ruling on each of the proposed findings of fact was made in the Final Order. Those rulings have been included in the Appendix which is attached hereto.

FINDINGS OF FACT FROM FINAL ORDER IN CASE NUMBERS 91-7996R, 91-8002R AND 91-8087R

1. The Parties and The Petitioners' Standing.

   
   

   1. The Petitioners, Hillhaven, United, Diversicare, HCRA, Americare and Waverly, are providers of long-term care services to elderly and disabled persons including Medicaid recipients. (S.F. 1).

      
      

   2. Petitioners have standing to raise their respective claims in this matter. (S.F. 38).

      
      

   3. The Department is an agency of the State of Florida. The Department is responsible for administering the Florida Medicaid program. (S.F. 3).

      
      

2. The Federal Medicaid Program.

   
   

   1. General.

      
      

      1. Title XIX of the Social Security Act, codified at 42 U.S.C. 1396-1396s, and commonly referred to as the Medicaid Act, is a cooperative federal-state program. Under the Medicaid program, the federal government provides matching funds to states to help them provide their needy residents with necessary medical services. (S.F. 1).

         
         

   2. State Participation in the Program.

      
      

      1. State participation in the Medicaid program is not mandatory. A state which opts to participate, however, must submit to the Health Care Financing Administration (hereinafter referred to as "HCFA") of the Department of Health and Human Services (hereinafter referred to as "HHS") a "state plan for medical assistance" which meets all relevant federal requirements. 42 U.S.C. 1396a. (S.F. 2).

         
         

      2. Once HCFA approves a state's plan, that state is entitled to federal financial participation (hereinafter referred to as "FFP"), which means that HHS pays the state a certain percentage of amounts expended under the plan. 42

         U.S.C. 1396b. The state must then administer the program in accordance with federal law, regulations and the approved state plan. 42 U.S.C. 1396c. (S.F. 2).

         
         

      3. Each state that participates in the Medicaid program must designate an agency to implement the Medicaid program in that state. 42 U.S.C. 1396(a)(5) and 42 C.F.R. 431.10. The state agency designated is not allowed to delegate its authority to administer or supervise the state plan. 42 C.F.R. 431.10(e).

         
         

   3. Amendment of a State Medicaid Plan.

   
   

   1. The mechanism for amending a state's Medicaid plan is set forth in 42 C.F.R. 447.256(c) and 430.20. (S.F. 10).

      
      

   2. In pertinent part, 42 C.F.R. 447.256(c), provides:

      
      

      A state plan amendment that is approved will become effective no earlier than the first day of the calendar quarter in which an approvable amendment is submitted in

      accordance with [42 C.F.R.] 430.20 and

      447.253.

      
      

   3. In pertinent part, 42 C.F.R. 20(b)(2), provides that "[f]or a plan amendment that changes the State's payment method and standards, the [effective date] rules of [42 C.F.R.] 447.256 apply."

      
      

   4. The requirements for public notice of a proposed amendment to a state's Medicaid plan are set forth in 42 C.F.R. 447.205. (S.F. 11). The notice, pursuant to 42 C.F.R. 447.205(c), must include:

      
      

      1. Describe the proposed change in methods and standards;

         
         

      2. Give an estimate of any expected increase or decrease in annual aggregate expenditures;

         
         

      3. Explain why the agency is changing its methods and standards;

         
         

      4. Identify a local agency in each county (such as the social services agency or health department) where copies of the proposed changes are available for public review;

         
         

      5. Give an address where written comments may be sent and reviewed by the public; and

         
         

      6. If there are public hearings, give the location, date and time for hearings or tell how this information may be obtained.

         
         

   5. One of the requirements for federal approval of an amendment to a state plan is the requirement that the state provide payment rates in compliance with the "Boren Amendment", 42 U.S.C. 1396a(a)(13), and make findings and submit assurances to HCFA that:

      
      

      The Medicaid agency pays for . . . long-term care facility services through the use of rates that are reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated providers to provide services in conformity with applicable State and Federal laws, regulations, and quality and safety standards.

      
      

      42 C.F.R. 447.253(b)(1).

      
      

3. The Medicaid Program in Florida.

1. Florida's Participation.

   
   

   1. Florida participates in the Medicaid program pursuant to Section 409.266, Florida Statutes, and the Florida Title XIX Long-Term Care Reimbursement Plan (hereinafter referred to as the "Florida Medicaid Plan").

      (S.F. 3). The Department is the agency responsible for administering the Florida Medicaid Plan.

      
      

   2. The Florida Medicaid Plan authorizes payments for nursing home services provided to eligible individuals in accordance with Medicaid regulations. (S.F. 3).

      
      

2. Adoption and Approval of a Medicaid Plan.

   
   

   1. The Florida Medicaid Plan as revised January 1, 1988, was submitted by the Department to HCFA in accordance with 42 U.S.C. 1396A. The Department provided assurances to HCFA that Medicaid reimbursement rates under the January 1, 1988 Florida Medicaid Plan were reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities. See 42 U.S.C. 1396(a)(13)(A). (S.F. 4).

      
      

   2. HCFA approved the January 1, 1988, Florida Medicaid Plan effective January 1, 1988. (S.F. 4).

      
      

3. The Florida Medicaid Plan.

   
   

   1. Under the January 1, 1988, Florida Medicaid Plan, long-term care providers such as the Petitioners are reimbursed under a prospective reimbursement methodology. Rates are set in advance of the rate semester based on historical cost data trended forward for inflation with no retroactive adjustment to account for actual costs for a cost reporting period (as opposed to actual reimbursement for the same period). (S.F. 5).

      
      

   2. Florida long-term care providers are divided into four classes based on geographic location and size. (S.F. 5).

      
      

   3. Each provider's rate consists of four components: (1) the property cost component; (2) the operating cost component; (3) the patient care cost component; and (4) a return on equity or use allowance. (S.F. 5).

      
      

   4. Reimbursement ceilings for patient care and operating cost components are established for each of the four classes. Ceilings are effective semiannually on January 1 and July 1. A statewide ceiling for the property cost component applies to providers who are reimbursed on the basis of depreciation and interest. Section 4B of the January 1, 1988 Florida Medicaid Plan. (S.F. 6).

      
      

   5. Providers that do not receive depreciation and interest for their property costs are reimbursed under the Fair Rental Value Systems (hereinafter referred to as "FRVS"). Under FRVS, reimbursement is based on the acquisition costs of a capital asset including capital additions and improvements subsequent to acquisition. These acquisition costs are indexed forward to October 1, 1985 by a portion of the rate of increase in the Dodge Construction Index. Id. Subsection V.E.I.a. (S.F.7).

      
      

   6. The January 1, 1988 Florida Medicaid Plan also requires that the FRVS component of a provider's rate be adjusted semiannually using the change in the Dodge Index for the most recent six month period published prior to the rate semester. Id. Subsection V.E.I.a. The January 1, 1988 Florida Medicaid Plan requires semiannual inflationary adjustments to become effective on July 1 and January 1 of each year. (S.F.8).

   7. The January 1, 1988 Florida Medicaid Plan established Petitioners' Medicaid rates during the period January 1, 1988 through December 31, 1989. (S.F.9).

      
      

4. The Legislature's Appropriation of Funds for Medicaid.

   
   

   1. The appropriation for Florida's fiscal year 1989-1990 from the Florida Legislature included funds to reimburse Medicaid long-term care facility providers for the fiscal year July 1, 1989 through June 30, 1990 in accordance with the January 1, 1988 Florida Medicaid Plan. (S.F. 12).

      
      

5. Florida's Budget Cuts and The Department's Response.

   
   

   1. During the fiscal year ending June 30, 1990, Florida experienced a shortfall in general revenue collections, and then-Governor Bob Martinez certified that a deficit would occur in the Florida state budget. (S.F. 13).

      
      

   2. In order to deal with the budget deficit, the Department was asked to provide cost containment alternatives to the Administration Commission (consisting of the Governor and the cabinet) which the Department did. (S.F. 13).

      
      

   3. Among the alternatives recommended by the Department was an amendment to the current Florida Medicaid Plan which would maintain Medicaid reimbursement rates for long-term care facilities at their December 31, 1989 level. This alternative was advocated by the Department as the most appropriate and fair of all the alternatives presented by the Department. (S.F. 13). In effect, the Department suggested that the Florida Medicaid Plan be amended to eliminate those provisions of the Florida Medicaid Plan providing for semiannual adjustments to the Medicaid reimbursement rate.

      
      

   4. Exhibit 2 is a true, correct and complete copy of an Impact Statement prepared by the Department and submitted to the Administration Commission concerning the proposed rate freeze that was accepted by the Administration Commission. This document was not submitted to HCFA. (S.F. 13).

      
      

   5. In the Impact Statement provided to the Administration Commission on November 21, 1989, the Department concluded that Florida nursing homes would receive 4% less than their anticipated costs due to the proposed freeze:

      
      

      Nursing Home Care ($13,131,931 GR) - This proposal will not allow nursing home per diem rates to increase based on their projected cost increases. The Medicaid Program will be reimbursing nursing homes 4.0% less than their anticipated costs. This price level reduction will impact on 489 participating nursing homes. There is no basis upon which to project the impact this will have on our clients [sic] ability to access those services of the quality of care received.

      
      

      This was the only analysis conducted by the Department prior to January 1, 1990, of Florida nursing home anticipated costs compared to the rates nursing homes would receive under the proposed rate freeze.

   6. On November 21, 1989, the Administration Commission, under the procedure outlined in Section 216.221, Florida Statutes, accepted the Department's proposal effective December 1, 1989 and reduced the Department's budget accordingly. (S.F. 13).

      
      

   7. The budget reductions ordered by the Administration Commission were taken from the Department's general revenue appropriation effective January 1, 1990, through mandatory reserves, or a holdback, of appropriations. The impact on the Department was that it had less authority to spend funds.

      
      

   8. The rate freeze approved by the Administration Commission allowed changes in rates due to licensure rating changes pursuant to Section V.D. of the January 1, 1988 Florida Medicaid Plan. (S.F. 13).

      
      

   9. A letter from the Department to nursing home administrators in Florida, including the Petitioners, dated January 29, 1990, was sent to Florida facilities affected by the rate freeze. The Department stated in the January 29, 1990, letter (exhibit 5), that the rate freeze would remain in effect until monies were appropriated by the Florida Legislature to recalculate new rates and ceilings. (S.F. 17).

      
      

6. Promulgation of Rules Implementing the Rate Freeze.

   
   

   1. In order to effectuate the freeze, the Department caused to be published in the Florida Administrative Weekly on December 22, 1989, notice of Emergency Rule 10CER89-21 (10C-7.0482) (hereinafter referred to as the "Emergency Rule"). See exhibit 3. (S.F. 14).

      
      

   2. The Emergency Rule amended the Department's rules by providing that Florida Medicaid reimbursement would be in accordance with the January 1, 1988 Florida Medicaid Plan as revised January 1, 1990. See exhibit 4. (S.F. 14).

      
      

   3. The January 1, 1990 modifications to the January 1, 1988 Florida Medicaid Plan were attached to the notice of the Emergency Rule and were incorporated therein. (S.F. 14).

      
      

   4. The effect of the Emergency Rule was to eliminate the provisions of the January 1, 1988 Florida Medicaid Plan providing for recalculation of reimbursement rates, which recalculation would have included an inflationary adjustment, for the Petitioners' per diem Medicaid rates for the period beginning January 1, 1990. The Emergency Rule had the effect of maintaining the Petitioners' per diem Medicaid rates at the level in effect on December 31, 1989, excluding changes based on licensure rating reclassifications. The Emergency Rule did not limit the rate freeze to the period prior to June 30, 1990, and did not specify the date or approximate date on which the rate freeze would end. (S.F. 14). Emergency rules, however, are only effective for ninety days in Florida.

      
      

   5. Although the public notice of the Emergency Rule did not specify the anticipated increase or decrease in annual expenditures, notice of the general impact of the Emergency Rule was provided.

      
      

   6. On February 2, 1990, the Department caused to be published in the Florida Administrative Weekly notice of an amendment to Rule 10C-7.0482, Florida Administrative Code (hereinafter referred to as the "Permanent Rule"). See exhibit 6. (S.F. 15).

   7. The Permanent Rule eliminated the recalculation of reimbursement rates, which recalculation would have included an inflationary adjustment for Petitioners' per diem Medicaid rates for the period beginning January 1, 1990. The Permanent Rule maintained the Petitioners' per diem Medicaid rates at the level in effect on December 31, 1989, excluding changes based on licensure rating reclassifications. (S.F. 15).

      
      

   8. The Permanent Rule did not limit the rate freeze to the period prior to June 30, 1990 or specify the date or approximate date on which the rate freeze would end. The "purpose and effect" section of the Permanent Rule stated that the rate freeze would be in effect until sufficient funds were appropriated by the Legislature to recalculate rates and ceilings for Medicaid providers. (S.F. 15).

      
      

   9. By letter date March 15, 1990 (exhibit 8), a "Notice of Change" was filed by the Department with the Joint Administrative Procedures Committee. The Notice of Change modified the effective date of the Permanent Rule from March 22, 1990 to March 26, 1990. The Notice of Change was published in the Florida Administrative Weekly on March 23, 1990. Exhibit 27. (S.F. 19).

      
      

   10. No other public notices, or emergency or permanent rules, were published by the Department subsequent to February 2, 1990, which would have affected the Petitioners' Medicaid rates for the period January 1, 1990 through June 30, 1990. (S.F. 16).

       
       

   11. There are no documents which indicate that the Department enacted the Emergency Rule or the Permanent Rule for reasons other than those stated in the public notices for the Emergency Rule and the Permanent Rule and the January 29, 1990, letter. (S.F. 18).

       
       

   12. The Department enacted the Emergency and Permanent Rules solely due to the budgetary cuts ordered by the Administration Commission. The preamble to the Emergency Rule stated "[b]ased on a recent decision made by the Governor and Florida Cabinet, Medicaid rates were frozen at the December 31, 1989 levels for all providers of these institutions." The preamble to the Emergency Rule also stated that "a shortfall in general revenue requires the state to reduce or eliminate payment for needed services to medicaid recipients." Neither the preamble to the Emergency Rule nor the Permanent Rule indicated that Florida nursing homes had received excess reimbursement in relation to their costs under the 1988 Medicaid Plan. There was, however, no Florida law which required any other reason for the Emergency Rule or the Permanent Rule be provided by the Department.

       
       

   13. In a previous filing in this matter, the Department stated: "[i]n response to a shortfall in general revenue collections. . ., the Administration Commission (composed of the Governor and the cabinet) ordered the Department to "freeze" rates at the December 31, 1989 level. The amendment was made effective by [the Emergency Rule and the Permanent Rule]." See also Florida Nursing Home Association v. Department of Health and Rehabilitative Services, 12 FALR at 667 ("The Emergency Rule simply carries out the reductions ordered by the Administration Commission on November 21, 1989").

       
       

   14. On January 29, 1990, Gary J. Clarke, Assistant Secretary for Medicaid of the Department, wrote to Nursing Home Administrators, including Petitioners, and stated that the rate freeze was enacted due to a decision made by the Administration Commission:

       Due to a projected general revenue deficit of

       $280 million for the State of Florida for fiscal year ending June 30, 1990, the Administration Commission met on November 21, 1989, to determine the appropriate budget reductions for all state programs. In order to reduce the Medicaid budget for its

       portion of the [DHRS] required reductions, yet avoid gross disruption of services, the Commission required that Medicaid reimbursement rates and ceilings for nursing home provider be frozen at their December 31, 1989 levels, beginning with the new rate Semester on January 1, 1990. . .

       
       

   15. There are no documents which include a representation contrary to the above quoted portion of the January 29, 1990 letter that the Department enacted the Emergency Rule or Permanent Rule for reasons other than the budgetary cuts ordered by the Administration Commission.

       
       

   16. The January 29, 1990 letter from the Department also indicated that the length of the rate freeze was indefinite:

       
       

       This policy shall remain in effect until such time that monies are appropriated by the Florida legislature to recalculate new rates and ceilings.

       
       

7. Impact of the Emergency Rule and Permanent Rule on the Petitioners.

   
   

   1. The Petitioners received an inflationary adjustment in their Medicaid per diem rates on July 1, 1989 in accordance with the terms of the January 1, 1988 Florida Medicaid Plan. The Petitioners did not receive an inflationary adjustment in their per diem rates which would have been due on January 1, 1990 under the January 1, 1988 Florida Medicaid Plan for the period January 1, 1990 through June 30, 1990. Instead, Petitioners' rates calculated effective January 1, 1990 used the same cost reports and inflation adjustment that had already been included in their July 1, 1989 rates. (S.F. 36).

      
      

   2. The fact that the Petitioners did not receive an inflationary adjustment in their per diem rates for the period January 1, 1990 through June 30, 1990, was because the Emergency Rule and the Permanent Rule eliminated the rate increase provisions of the January 1, 1988 Florida Medicaid Plan.

      
      

8. Notification to HCFA of the Rate Freeze.

1. On March 30, 1990, HCFA received a letter dated March 22, 1990, from the Secretary of the Department submitting for consideration "a Title XIX state plan amendment to our state plan." (S.F. 20). The Secretary of the Department stated the following in the letter:

   This amendment TN 90-8 revises the plan by freezing the reimbursement rates and ceilings of all nursing home providers at the rates of reimbursement for services rendered on December 31, 1989.

   
   

   . . . .

   
   

   The assurances required by 42 CFR 447.253 and proof of public notice are attached.

   
   

   Exhibit 9.

   
   

2. Attached to the Secretary's March 22, 1990, letter was a letter dated March 29, 1990, which along with State Plan Amendment Transmittal Number ("TN") 90-08 and proof of public notice, constituted all the documentation submitted by the Department to HCFA prior to July 1, 1990 concerning the rate freeze. (S.F. 20).

   
   

3. TN 90-08, as submitted by the Department to HCFA on March 29, 1990, proposed to modify the Florida Medicaid Plan, as the Department had provided for in the Emergency Rule and the Permanent Rule, to eliminate the recalculation of rates, which recalculation would have included an inflationary adjustment for Petitioners' per diem Medicaid rates for the period beginning January 1, 1990. TN 90-08 proposed to maintain the Petitioners' per diem Medicaid rates at the level in effect on December 31, 1989, excluding changes based on licensure rating reclassifications. TN 90-08, as submitted on March 29, 1990, did not limit the rate freeze to the period prior to June 30, 1990. (S.F. 21).

   
   

4. In the March 29, 1990 letter to HCFA, the Department referenced a telephone survey in which it had compared Florida Medicaid per diem rates to the per diem rates paid to long-term care facilities along the state borders between Florida and Georgia, and Florida and Alabama, under the Georgia and Alabama Medicaid programs. The Department estimated that this telephone survey was performed during the time period December, 1989 through February, 1990. In conducting the Georgia and Alabama telephone survey, the Department did not determine whether Georgia's or Alabama's long-term care facilities per diem rates were reasonable and adequate to cover the costs of efficiently and economically operating Georgia or Alabama facilities, and the Department did not determine whether Georgia or Alabama Medicaid programs covered the same or similar costs as the Florida Medicaid program. A copy of the survey materials was submitted as exhibit 10. Exhibit 10 was not provided to HCFA. (S.F. 22).

   
   

5. In the March 29, 1990 letter, the Department referenced an analysis in which it stated that it had compared the increase in an inflationary index from 1989 to 1990 to the increase in the Medicaid rates paid to Florida long-term care facilities from 1989 to 1990. This analysis was performed during the period January, February, or March 1990. These materials were not submitted to HCFA. (S.F.23).

   
   

6. The Georgia and Alabama telephone survey, the inflation analysis, and that portion of the data in Exhibit 15 generated prior to March 29, 1990 by the Department relating to Florida long-term care facility historical costs and prospective per diem rates were the only reports, surveys, analyses or studies performed by the Department (as of March 29, 1990) to support its assurances to HCFA that its rates for the period beginning January 1, 1990 were reasonable and adequate to cover the costs of efficiently and economically operated facilities

   in order to provide care and services in conformity with applicable state and federal laws, regulations, and quality and safety standards. (S.F.23).

   
   

7. TN 90-08 was submitted to HCFA during the calendar quarter to which the Florida Medicaid Plan amendment was to be effective.

   
   

8. TN 90-08 was reviewed by HCFA and a memorandum dated April 30, 1990, was written and circulated within HCFA concerning the proposed amendment. The memorandum indicates what the proposed amendment proposes, states that the review was conducted in accordance with Federal requirements and lists the assurances the State had given. The memorandum concludes, however, that "[a]fter review of the State's assurances and related information, HCFA does not yet have a reasonable basis upon which to accept the State's assurance that the proposed rates meet the 'reasonable and adequate' statutory standard of section 1902(a)(13)(A) of the Social Security Act "

   
   

9. By letter dated May 9, 1990, HCFA notified the Department that:

   
   

   . . . we find that we cannot approve [the Plan amendment] as submitted. We are exercising our rights under section 1915(f) of the Social Security Act to request additional information and clarification as discussed below:

   
   

   . . . .

   
   

10. Although HCFA did not deny or reject the Florida Medicaid Plan amendment submitted by the Department in the May 9, 1990, letter, HCFA did indicate that it could not approve the proposed amendment as submitted.

    
    

11. It was recognized in the May 9, 1990, HCFA letter, as it was in the April 30, 1990, memorandum that a state may use budgetary considerations as one factor in establishing the rates to be paid providers as long as the rates are reasonable and adequate.

    
    

12. It was also recognized in the May 9, 1990, HCFA letter that "the fact that rates in surrounding States are comparable to Florida's rates provides no justification whatsoever that its rates are reasonable and adequate. Rather, the HRS must compare its proposed rates with the costs that Florida facilities must incur in providing care and services."

    
    

13. In the May 9, 1990, HCFA letter it is noted that the Department noted in its March 29, 1990, letter that rates are to be recalculated for the period beginning July 1, 1990, but that inconsistent language is included elsewhere in its proposal. Therefore, HCFA recommended that the Plan amendment be revised to limit the freeze to the six month period beginning January 1, 1990.

    
    

14. The May 9, 1990, HCFA letter indicates that processing of the amendment would cease until the additional information and clarification were provided to HCFA.

    
    

15. It is readily apparent from HCFA's April 30, 1990, memorandum and its letter of May 9, 1990, that HCFA was well aware of the requirements for amending a state Medicaid plan and the requirements that states must meet in setting Medicaid rates. The April 30, 1990, memorandum and the May 9, 1990, letter indicate that the original proposal submitted by the Department did not meet

    those requirements without further information being provided. HCFA did not, however, reject the Department's proposal or make any determination as to whether the proposed freeze was appropriate. HCFA merely indicated that more information was necessary and gave the Department an opportunity to provide it.

    
    

16. On May 20, 1991, the Department submitted a letter to HCFA in response to the May 9, 1990, HCFA letter limiting the rate freeze to the six month period prior to July 1, 1990, and submitted a revised TN 90-08 to HCFA which included this change. Exhibit 18. (S.F. 30).

    
    

17. In the May 20, 1991, Department letter the Department also referenced a second inflationary analysis. This inflationary analysis was performed by the Department in March or April, 1991. The inflationary analysis along with data generated by the Department relating to Florida long-term care facility historical costs and prospective per diem rates (exhibit 15) were the only reports, surveys, analyses or studies performed by the Department to support its May 20, 1991 assurances to HCFA that its rates for the period beginning January 1, 1990 were reasonable and adequate to cover the costs of efficiently and economically operated facilities in order to provide care and services in conformity with applicable State and Federal laws, regulations, and quality and safety standards. Exhibit 19 is a true, correct and complete copy of the written materials prepared by the Department in performing the inflationary analysis referenced in the May 20, 1991 letter. These documents were not submitted to HCFA. (S.F. 31).

    
    

    1. HCFA'S Approval of the Plan Amendment.

       
       

18. By letter dated July 2, 1991, HCFA notified the Department that the Florida Medicaid Plan amendment TN 90-08 was approved with an effective date of March 26, 1990.

    
    

19. By letter dated September 16, 1991, the Department advised HCFA that, as stated in the March 29, 1990, letter, the originally requested effective date of March 26, 1990, was an inadvertent error. It was pointed out that the correct effective date was January 1, 1990.

    
    

20. By letter dated October 3, 1991, HCFA notified the Department that HCFA had approved the amendment to the Florida Medicaid Plan effective January 1, 1990.

    
    

    1. Elimination of the Rate Freeze.

    
    

21. Effective July 1, 1990 the Florida Medicaid Plan was amended to remove the language of the Emergency Rule and Permanent Rule added effective January 1, 1990 which froze rates to their December 31, 1989 level. (S.F. 37).

    
    

22. On August 7, 1991, HCFA approved the subsequent amendment, TN 90-13, with an effective date of July 1, 1990. This subsequent Florida Medicaid Plan amendment calculated the July 1, 1990 long-term care facility Medicaid reimbursement rates using the same inflation adjustment which would have been used on July 1, 1990 had the January 1, 1990 amendment never been implemented. No reimbursement relative to the January 1, 1990 amendment, however, was made retroactively to long-term care facilities for the period January 1, 1990 through June 30, 1990. (S.F. 37).

    ADDITIONAL FINDINGS OF FACT

    
    

23. The Emergency Rule and the Permanent Rule have been determined to be valid in a Final Order entered simultaneously with this Recommended Order.

    
    

24. The Department's action in freezing the Medicaid reimbursement rate of the Petitioners in these cases was taken pursuant to the Emergency Rule and the Permanent Rule.

    
    

    CONCLUSIONS OF LAW

    
    

    1. Jurisdiction and Standing.

       
       

25. The Division of Administrative Hearings has jurisdiction of the parties to and the subject matter of this proceeding. Section 120.57(1), Florida Statutes (1991).

    
    

26. The Petitioners have standing to institute the instant action. They were denied inflationary increases in their Medicaid reimbursement rates by the Department for the period January 1, 1990, through June 30, 1990.

    
    

    1. Burden of Proof.

       
       

27. The burden of proof in this proceeding was on the Petitioners. Florida League of Cities, Inc. v. Department of Insurance and Treasurer, 540 So.2d 850 (Fla. 1st DCA 1989); Department of Administration, Division of Retirement v. Albanese, 455 So.2d 639 (Fla. 1st DCA 1984); and Agrico Chemical Company v. Department of Environmental Regulation, 365 So.2d 759 (Fla. 2d DCA 1979).

    
    

    1. Validity of the Department's Action.

    
    

28. The Petitioners recognize that the decision in this case depends primarily upon whether the Emergency Rule and the Permanent Rule challenged in case numbers 91-7996R, 91-8002R and 91-8087R are invalid. The evidence also supports the conclusion that the appropriateness of the Department's action in these cases depends upon the validity of the Emergency Rule and Permanent Rule.

    
    

29. The Petitioners received an inflationary adjustment in their Medicaid per diem rates on July 1, 1989 in accordance with the terms of the January 1, 1988 Florida Medicaid Plan. The Petitioners did not receive an inflationary adjustment in their per diem rates which would have been due on January 1, 1990 under the January 1, 1988 Florida Medicaid Plan for the period January 1, 1990 through June 30, 1990. Instead, Petitioners' rates calculated effective January 1, 1990 used the same cost reports and inflation adjustment that had already been included in their July 1, 1989 rates.

    
    

30. The fact that the Petitioners did not receive an inflationary adjustment in their per diem rates for the period January 1, 1990 through June 30, 1990, was because the Emergency Rule and the Permanent Rule eliminated the rate increase provisions of the January 1, 1988 Florida Medicaid Plan. Therefore, the action of the Department challenged in these case was taken in conformity with the Emergency Rule and the Permanent Rule.

    
    

31. Having acted in conformity with its rules and the Petitioners having failed to prove the invalidity of those rules, the Department's action in

    freezing the Petitioners' Medicaid reimbursement rate cannot be said to have been improper:

    
    

    An administrative rule or regulation is operative and binding on those coming within its terms from its effective date until it is modified or superseded by subsequent legislation or by subsequent regulations

    . . . and it expires with the repeal of the statute from which it gives life.

    
    

    Hulmes v. Division of Retirement, Department of Administration, 418 So.2d 269,

    270 (Fla. 1st DCA 1982). See also, McCoy v. Hollywood Quarries, Inc., 544 So.2d

    276 (Fla. 4th DCA 1989); and Jordan v. Department of Professional Regulation, 522 So.2d 453 (Fla. 1st DCA 1988).

    
    

32. The Petitioners have also suggested that the Department's failure to provide an inflationary adjustment in their per diem rates for the period January 1, 1990 through June 230, 1990, was improper even though the Emergency Rule and the Permanent Rule have not been determined to be invalid. In support of this argument the Petitioners have suggested that the amendment to the January 1, 1988 Medicaid Plan adopted by the Emergency Rule and the Permanent Rule did not become effective during the period January 1, 1990 through June 30, 1990 and, therefore, cannot support the Department's action. The Petitioners have cited no authority to support this argument. The determinative fact in this case is that the Department amended the January 1, 1988 Medicaid Plan consistent with Florida law when it adopted the Emergency Rule and the Permanent Rule pursuant to Section 120.54, Florida Statues. The Emergency Rule was adopted prior to January 1, 1990, and the Permanent Rule was timely adopted prior to the expiration of the Emergency Rule.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a Final Order in these cases

dismissing the Petitioners' amended petitions.

DONE and ENTERED this 26 day of May, 1992, in Tallahassee, Florida.

LARRY J. SARTIN

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 day of May, 1992.

APPENDIX

Case Numbers 91-4893, 91-4894, 91-4895, 91-4914, 91-4929, 91-5837 and 91-6191

The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted.

The Petitioners' Proposed Findings of Fact

Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection

1 1 and 4.

2 5-6.

3 13.

4 7.

5 3 and 13-14.

6 15.

7 17-19.

8 20.

9 21.

10 22.

11 23.

12 8.

13 12.

14 11.

15 24.

16 25-27.

17 28-29.

18 29.

19 30-32.

20 34-37.

1. See 39. The last three sentences are not relevant. The determination of compliance with specific federal requirements for the Department's action was the responsibility of HCFA. HCFA presumably determined that the Department complied with all federal requirements since it approved the Department's plan amendment.

2. 39. The last two sentences are not relevant. The determination of compliance with specific federal requirements for the Department's action was the responsibility of HCFA. HCFA presumably determined that the Department complied with all federal requirements since it approved the Department's plan amendment.

23 40-41.

24 43.

25 45.

26 46.

27 47.

57 Not relevant.

58 69.

59 70.

60 71.

61 50 and 73.

The Department's Proposed Findings of Fact

Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection

COPIES FURNISHED:

Sam Power Agency Clerk

Department of Health and Rehabilitative Services

1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700

John Slye General Counsel

Department of Health and Rehabilitative Services

1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700

Thomas C. Fox, Esquire Michael D. Smith, Esquire 1200 18th Street, N.W. Washington, D.C. 20036

Alfred W. Clark, Esquire Post Office Box 623 Tallahassee, Florida 32302

W. David Watkins, Esquire Post Office Box 6507

Tallahassee, Florida 32314-6507

David Pius Medicaid Counsel

Department of Health and Rehabilitative Services

1317 Winewood Boulevard

Building 6, Room 230

Tallahassee, Florida 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 CONTACT 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: 91-004893

Orders for Case No: 91-004893