STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

AGENCY FOR HEATLH CARE )

ADMINISTRATION, )

)

Petitioner, )

)

vs. ) CASE NO. 92-4792

) COUNTY OF BAY d/b/a BAY MEDICAL ) CENTER, )

)

Respondent. )

)

RECOMMENDED ORDER

This case was heard by Eleanor M. Hunter, the designated hearing officer for the Division of Administrative Hearings, on September 21, 1992, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Lesley Mendelson, Esquire

Agency for Health Care Administration 2727 Mahan Drive, Suite 103

Tallahassee, Florida 32308

For Respondent: Donna Stinson, Esquire

Moyle, Flanigan, Katz, Fitzgerald, & Sheehan, P.A.

The Perkins House, Suite 100

118 North Gadsden Street Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

Whether, pursuant to Subsection 408.040(2)(a), Florida Statutes, (previously, Subsection 381.710) and Subsections 59C-1.018(2)(a)3.a. and 59C- 1.021(2), Florida Administrative Code (previously Sections 10-5.018 and 10.5.021), Certificate of Need Number 6357, issued to Bay Medical Center, should be revoked.

PRELIMINARY STATEMENT

Certificate of Need ("CON") Number 6357 was issued to Bay Medical Center on November 7, 1990, for the construction of a six story tower to replace the existing hospital buildings. The project was approved, by expedited review, since no new beds or services were requested. The project was deemed to be under construction in November, 1991. Two months later, physical construction activity ceased, and on June 16, 1992, the Agency for Health Care Administration ("AHCA") filed an Administrative Complaint seeking to revoke the CON. In the Administrative Complaint, AHCA alleged, in part, the following:

(4) Respondent has violated the provisions of Section 381.710(2)(a), Florida Statutes and Fla. Admin. Code Rules 10-5.021(2)(a) and (b), in that it ceased continuous construction and failed to make a good faith effort, as defined in Fla. Admin. Code 10-5.021(2)(a), to meet the timetable for project development specified in its application.

1. Respondent did not notify the Office of Regulation and Health Facilities within 35 days in writing of a break in construction; neither did Respondent submit for approval documentation verifying the holder's inability to control the break in construction.

2. Respondent did not submit to the Office of Regulation and Health Facilities within 45 calendar days of work stoppage, for approval, a plan for recommencement of construction not to exceed 90 calendar days.

Bay Medical timely filed a request for hearing. At the hearing, AHCA presented the testimony of Elizabeth Dudek and Jon Cooper, and exhibits 1-8, which were received in evidence. Bay Medical presented the testimony of Michael

1. King and John Taylor.

   
   

   The transcript of the hearing was filed with the Division of Administrative Hearings on October 1, 1992. Proposed Findings of Fact were received on October 21, 1992.

   
   

   FINDINGS OF FACT

   
   

   Based upon the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made:

   
   

   1. The Agency for Health Care Administration ("AHCA") is designated as the state agency to administer the Certificate of Need ("CON") laws. See, Subsection 408.034(1), Florida Statutes (1991). 1/

      
      

   2. Bay Medical Center is a 302-bed acute care hospital in Panama City, Florida. It is owned by Bay County, and operated through an independent Board of Trustees appointed by the Governor of the State of Florida. Bay Medical is located in Department of Health and Rehabilitative Services ("HRS") District 2, Subdistrict 1.

      
      

   3. On November 5, 1990, HRS 2/ issued CON 6357 to Bay Medical for the construction of a six story tower to consolidate operations currently located in a number of separate buildings.

      
      

   4. On August 9, 1991, Bay Medical submitted a revised project completion forecast, in which it agreed that construction documents would be completed and submitted to HRS on April 3, 1992.

      
      

   5. Bay Medical did not request any extension of the one year validity of the CON and, on November 4, 1991, the project was deemed under construction.

      Notice to that effect, along with notice that to remain valid continuous construction must be maintained, was sent to Bay Medical on November 20, 1991.

      
      

   6. In the same letter, Bay Medical was reminded that if any halt in construction occurred, they were to notify HRS according to the directions contained in Florida Administrative Code Rule 10-5.021. This notice provided "Your certificate shall remain valid until licensure, provided you maintain continuous construction. Should a halt in construction occur, please notify this office according to the directions in Rule 10-5.021 Florida Administrative Code." A copy of an interim project cost report was enclosed with the letter along with a reminder of the schedule for filing.

      
      

   7. HRS' November 20, 1991 letter also put Bay Medical on notice that failure to submit an interim project cost report in a timely manner would be considered a failure to make a good faith effort to comply with the approved timetable. The notice provided:

      
      

      You are reminded that interim project cost reports are required at 6-month intervals after your project has commenced construction. Enclosed is a copy of HRS Form 1707 which is due back to this office according to the following schedule:

      6-month Project Cost Report due by:

      May 3, 1992

      12-month Project Cost Report due by:

      November 3, 1992

      Failure to submit this form in a timely manner will be considered by this office as not making a good faith effort to comply with the approved project timetable, and may be subject to a penalty.

      
      

   8. In approximately January, 1992, Bay Medical received its final audited financial reports for fiscal year 1990 from the Health Care Financing Administration ("HCFA"). The HCFA audit resulted in negative adjustments to Medicare reimbursements, which had been paid prospectively. As a result, Bay Medical which had appeared to be profitable, in fact, was not.

      
      

   9. About the same time, Bay Medical received a report from its consultant, the accounting firm of Ernst & Young, which confirmed that the CON project was probably not financially feasible.

      
      

   10. As a result of the reports from HCFA and Ernst & Young, construction activities ceased in January, 1992.

       
       

   11. Once again, as it had in the November 20, 1991 letter, HRS notified Bay Medical on April 1, 1992 that the 6-month report was due to be filed on May 3, 1992.

       
       

   12. Bay Medical's administrator met with Wayne McDaniel in March, 1992, who then headed the monitoring section of the CON office at HRS. The unrefuted testimony of the administrator was that McDaniel suggested Bay Medical wait until the May report was due to notify the agency of the status of the construction. When the 6-month project report was due in May 1992, Bay Medical's planner testified that McDaniel suggested filing a letter indicating that the hospital was having difficulty preparing the report. He also testified

       that McDaniel reminded them of the rule requiring written documentation of construction difficulties, but did not specifically instruct them to comply with the rule.

       
       

   13. On May 1, 1992, Bay Medical's letter notified HRS that it was experiencing difficulty in completing the interim project cost report, and was therefore unable to comply with the May 3, 1992 due date.

       
       

   14. In response to the May 1, 1992, notification, Wayne McDaniel sent a team, consisting of an architect and a staff person, to inspect the project for the purpose of determining the status of the project and difficulties, if any, which were being encountered.

       
       

   15. The inspection revealed that construction had not progressed since the project had been deemed under construction. The construction site was and, at the time of hearing, still is being used as a parking lot.

       
       

   16. Prior to stopping construction, Bay Medical spent approximately

       $550,000 in architectural and engineering fees, $10,000 in filing fees, and

       $55,000 in construction costs, as well as approximately $100,000 on feasibility studies.

       
       

   17. After construction ceased, Bay Medical did not, within 35 days of work stoppage, notify the agency, in writing, of a break in construction and submit documentation verifying its inability to control the break in construction.

       
       

   18. Bay Medical did not, within 45 calendar days of work stoppage, submit to the agency for approval, a plan for recommencement of construction not to exceed 90 calendar days.

       
       

   19. Bay Medical is seeking a local option sales tax to provide the collateral for Bay Medical to borrow money for the project.

       
       

   20. If the referendum is approved, and the project is approved by the Board of Trustees and the City Commission, and an inter-local agreement is entered into, then the tax will be levied, and Bay Medical may be able to resume construction at some unknown future time.

       
       

       CONCLUSIONS OF LAW

       
       

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

       
       

   22. The Agency for Health Care Administration, since it is seeking to revoke a certificate of need, has the burden of proof in this proceeding, Department of Health and Rehabilitative Services v. Florida Convalescent Centers, Inc., 11 FALR 709 (HRS 1989), Florida Department of Transportation v.

       J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981), Balino v. Department of Health and Rehabilitative Services, 348 So.2d 349 (Fla. 2nd DCA 1977). The statutes and rules applicable to this proceeding must be strictly construed and strictly followed, State v. Pettishal, 99 Fla. 296, 126 So. 147 (1930), Davis v. Department Professional Regulation, 457 So.2d 1074 (Fla. 1st DCA 1984).

       
       

   23. Subsection 408.040(2)(a) 3/ provides: Unless the applicant has commenced

       construction, if the project provides for construction, unless the applicant has incurred an enforceable capital expenditure commitment for the project, if the project does not provide for construction, or unless subject to paragraph (b), a certificate of need shall terminate 1 year after the date of issuance, except in the case of a multifacility project, as defined in s.

       381.702(17), where the certificate of need shall terminate 2 years after the date of issuance. The department may extend the period of validity of the certificate for an additional period of up to 6 months, upon a showing of good cause, as defined by rule, by the applicant for the extension. The department shall monitor the progress of the holder of the certificate of need in meeting the timetable for project development specified in the application with the assistance of the local health council as specified in s. 381-703(1)(b)7., and may revoke the certificate of need if the holder of the certificate is not meeting such timetable and is not making a good faith effort, as defined by rule, to meet it. (emphasis added)

       
       

   24. Florida Administrative Code Rule 59C-2.2021(2) 4/ defines "good faith effort" as follows:

       
       

       A holder shall be deemed to have made a "good faith effort" if the following requirements are met.

       (a) Projects which cease continuous construction in excess of 30 calendar days shall perform the following steps:

       1. Within 35 calendar days of work stoppage, notify the agency in writing of a break in construction and submit for approval, documentation verifying the holder's inability to control the break in construction.

       2. Within 45 calendar days of work stoppage, submit to the agency for approval, a plan for recommencement of construction not to exceed

          90 calendar days. The revised dates may increase the amount of time elapsed within and among the steps set forth in the original application for completion of the project.

       3. Within 15 calendar days of the project restart time, the holder shall submit to the agency a letter from the project's architect certifying that the project has restarted construction in accordance with the approved plan submitted under this paragraph.

   25. AHCA asserts and Bay Medical concedes that the agency twice gave it written notice of the requirment to submit reports at the specified intervals. Bay Medical explains with unrefuted testimony that its compliance with these requirements was excused by an agency supervisor responsible for CON monitoring. Essentially, Bay Medical argues that, at least through May 1992, when Wayne McDaniel told Bay Medical to write a letter to the agency and sent an inspection team to Bay Medical, its strict compliance with AHCA rules had been waived by McDaniel.

       
       

   26. Bay Medical relies on the doctrine of equitable estoppel, citing Westchester General Hospital v. Department of Health and Rehabilitative Services, 419 So.2d 705 (Fla 1st DCA 1982). In addition, assuming that the agency has waived its rules, Bay Medical asserts that it has not violated the following relevant statutory provision:

       
       

       The department shall monitor the progress of the holder of the certificate of need in meeting the timetable for project development specified in the application with the assistance of the local health council as specified in s. 381.703(1)(b)7., and may revoke the certificate of need, if the holder of the certificate is not meeting such timetable and is not making a good faith effort, as defined by rule, to meet it.

       
       

       Section 381.710(2)(a), Florida Statutes (1991).

       
       

   27. Bay Medical claims compliance with the statutory requirement because the timetable submitted by Bay Medical as required and approved by the agency indicates only that construction is to begin in May 1992; and that "stage II" documents are to be complete by December 1992. (Other dates are in 1993 and 1994.) The evidence showed that, in fact, construction commenced prior to May 1992, and there was no testimony about "stage II" documents. Other dates on the approved timetable are in the future, and there was no evidence as to whether those dates could be met or not.

       
       

   28. AHCA neither rebutted the underlying factual basis for Bay Medical's claim of equitable estoppel at hearing, nor addressed the issue in its proposed findings of fact and conclusions of law. Therefore, if the uncontested underlying factual basis established by Bay Medical is legally sufficient to invoke the doctrine of equitable estoppel, Bay Medical must prevail because AHCA has failed to meet its burden in a revocation proceeding.

       
       

   29. In the Westchester case, supra., HRS was precluded from enforcing a rule resulting in the forfeiture of a hospital's exemption from regulation, after having treated its construction plans as exempt (grandfathered) under CON laws on numerous occasions. The elements of estoppel, discussed in Humhosco, Inc. v. Department of Health and Rehabilitative Services, 561 So.2d 388 (Fla. 1st DCA 1990), are a representation as to a material fact contrary to a later- asserted position, reliance on the representation, and a detrimental change in position by the party claiming estoppel, as a result of the representation and reliance.

       
       

   30. In Humhosco, supra, the court found an agency's preliminary action in deeming an application complete does not estop the agency from challenging flaws in the application at a subsequent de novo hearing. As further examples of

       cases of estoppel, the Humhosco case cites Manor Care, Inc. (Sarasota) v. DHRS,

       558 So.2d 26 (Fla. 1st DCA 1989), and State Department of Revenue v. Anderson, 403 So.2d 397 (Fla. 1981).

       
       

   31. Manor Care, supra., rejects the use of estoppel when the agency initially waives its rules for one of several competing applicants, then changes its position. Unlike the situation with Bay Medical, the Manor Care result was described by the court as "essential to the integrity of the batching concept for comparative review." 558 So.2d at 28. In Anderson, supra, a yacht dealer's previous experience with the Department of Revenue was the basis for a finding of no estoppel. Here, there is no showing that Bay Medical should have known that following the AHCA supervisor's advice would result in AHCA action against it.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered dismissing the Administrative

Complaint to revoke Certificate of Need Number 6357.

DONE and ENTERED this 1st day of December, 1992, at Tallahassee, Florida.

ELEANOR M. HUNTER

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 1st day of December, 1992.

ENDNOTES

1/ Previously numbered Subsection 381.704(1), Florida Statutes. See 92-33, Laws of Florida.

2/ HRS is the agency which had the responsibility to administer CON laws prior to AHCA. See, Chapter 92-33, Laws of Florida.

3/ Previously numbered as Subsection 381.710(2)(a), Florida Statutes (1991). 4/ Previously numbered as Subsection 10-5.021(2), Florida Administrative Code.

APPENDIX

Petitioner's Proposed Findings of Fact:

1. Accepted in Finding of Fact 1.

2. Accepted in Finding of Fact 2.

1. Subordinate in Finding of Fact 5 and 6.

2. Accepted in Finding of Fact 17.

3. Accepted in Finding of Fact 18.

18 - 21. Accepted in Finding of Fact 19.

22, 26. Accepted in or subordinate to Finding of Fact 20. Respondent's Proposed Findings of Fact.

1. Accepted in Finding of Fact 2.

2. Accepted in Finding of Fact 3.

3. Accepted in Finding of Fact 5.

4. Irrelevant.

5. Accepted in Finding of Fact 8.

6. Accepted in Finding of Fact 9.

7. Accepted in Finding of Fact 11 and 12.

8. Accepted in Finding of Fact 12.

9. Accepted, as corrected, in Finding of Fact 13.

10. Subordinate to Finding of Fact 19 and 20.

11. Accepted in Finding of Fact 16.

12. Irrelevant.

COPIES FURNISHED:

Lesley Mendelson, Esquire Agency for Health Care

Administration

2727 Mahan Drive, Suite 103

Tallahassee, Florida 32308

Donna Stinson, Esquire Moyle, Flanigan, Katz,

Fitzgerald & Sheehan, P.A. The Perkins House, Suite 100

118 North Gadsden Street Tallahassee, Florida 32301

Sam Power, Acting Agency Clerk Agency for Health Care

Administration

The Atrium, Suite 301

325 John Knox Road Tallahassee, Florida 32303

Harold D. Lewis, General Counsel Agency for Health Care

Administration

The Atrium, Suite 301

325 John Knox Road Tallahassee, Florida 32303

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.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

STATE OF FLORIDA, AGENCY FOR ) HEALTH CARE ADMINISTRATION, )

)

Petitioner, )

)

vs. ) CASE NO. 92-4792

)

COUNTY OF BAY d/b/a )

BAY MEDICAL CENTER, )

)

Respondent. )

)

ORDER CLOSING FILE

THIS CAUSE came on for consideration upon Petitioners Motion for Remand filed on May 28, 1993. Having reviewed the record in this proceeding and being advised in the premises, it is

ORDERED that:

1. The file of the Division of Administrative Hearings is closed.

   
   

2. This matter is returned to the referring agency for final disposition.

DONE AND ORDERED in Tallahassee, Leon County, Florida, this 4th day of June, 1993.

ELEANOR M. HUNTER

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 4th day of June, 1993.

COPIES FURNISHED:

R. S. Power, Agency Clerk Senior Attorney

Agency for Health Care Administration

325 John Knox Road, Suite 301 Tallahassee, Florida 32303

Donna H. Stinson, Esquire Moyle, Flanigan, Katz, et al.

118 North Gadsden Street, Suite 103 Tallahassee, Florida 32301

Lesley Mendelson, Esquire Senior Attorney

Atrium Building, Suite 101

325 John Knox Road Tallahassee, Florida 32303

Docket for Case No: 92-004792

Orders for Case No: 92-004792