STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BEVERLY ENTERPRISES-FLORIDA, ) INC. d/b/a BEVERLY GULF )

COAST-FLORIDA, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 92-5410

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent, )

) BEVERLY ENTERPRISES-FLORIDA, ) INC. d/b/a BEVERLY GULF )

COAST-FLORIDA, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 92-5411

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent, )

) BEVERLY ENTERPRISES-FLORIDA, ) INC. d/b/a BEVERLY GULF )

COAST-FLORIDA, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 92-5412

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

)

RECOMMENDED ORDER

These consolidated cases were heard by Eleanor M. Hunter, the Hearing Officer designated by the Division of Administrative Hearings, on October 15, 1992.

APPEARANCES

For Petitioner: John Alford, Attorney-at-Law

Eleanor A. Joseph, Attorney-at-Law Holland & Knight

Post Office Drawer 810 Tallahassee, Florida 32302

For Respondent: Edward G. Labrador, Attorney-at-Law

Assistant General Counsel

Agency for Health Care Administration Suite 103

2727 Mahan Drive

Tallahassee, Florida 32308 STATEMENT OF THE ISSUE

1. Whether three certificate of need applications omitting the assets page of the audited financial statements are incomplete and should be rejected by the agency.

PRELIMINARY STATEMENT

Beverly Enterprises-Florida, Inc. d/b/a Beverly Gulf Coast-Florida, Inc. ("Beverly") submitted six CON applications in the June 1992 batching cycle. In three of these six applications, Beverly omitted one page of information from the audited financial statements. These three applications were rejected as incomplete by the Agency for Health Care Administration ("AHCA"). Beverly timely filed three separate petitions challenging AHCA's action. These cases were consolidated for hearing.

Beverly presented the testimony of John Talbot Land and Exhibits 1 through 5, which were received in evidence. AHCA presented the testimony of Elizabeth Dudek and Roger Bell, and Exhibits 1 through 6.

FINDINGS OF FACT

The essentially undisputed facts are as follows:

1. Beverly Enterprises-Florida, Inc. d/b/a Beverly Gulf Coast-Florida, Inc. ("Beverly") filed six certificates of need ("CON") applications with the Agency for Health Care Administration ("AHCA"). The applications were submitted for the June 1992 batching cycle for community nursing home beds.

   
   

2. Three of Beverly's applications, those for CON Nos. 7029, 7026, and 6997, for nursing home beds in Orange and Clay Counties, were compiled by the same health care consultant. In each of those three, one page of the audited financial statements submitted to AHCA was a blank sheet of paper.

   
   

3. The balance sheet in the original bound audited financial statement had the assets page on the left side, facing the liabilities page of the booklet. When taken apart, copied and collated, without turning the assets page over, a clerical person inadvertently copied a blank page.

   
   

4. Beverly's audited financial statements with the blank pages were submitted in response to AHCA's request for omissions and was filed on the deadline date, July 17, 1992.

5. All of the information on the assets page is not otherwise available in the Beverly CON applications, although some specific items on the missing page are included in other portions of the application. Beverly reported, for example, the amount of its total current assets for 1991, but not for 1990, on schedule 13 of the applications. Cash is also reported on page 6 of the audited financial statement in the statement of cash flow. Property, equipment, and capitalized leases for both 1990 and 1991 are listed in the notes on page 9 of the audited financial statements. The amount due from the parent corporation for both years is found in Note 7, on page 13 of the audited financial statements. These cross-referenced items indicate that the missing page is identical to that filed in the three Beverly applications which the agency accepted for review.

   
   

6. AHCA uses one certified public accountant to review all financial data in CON applications. When several applications are received from the same applicant in the same batching cycle, the agency's CPA's analysis of the financial condition of the applicant is used for all of those applications.

   This financial analysis, according to the agency's CPA, is not a comparative analysis. CON reviewers knew that other Beverly applications were filed for the same batching cycle and were complete, but took the position that each application must stand on its own.

   
   

7. AHCA usually notifies applicants of omitted pages and other obvious clerical errors in several ways. When the error occurs in an initial submittal of an application, AHCA formally includes notices of such errors in a letter outlining all omissions. Applicants are also informally notified of errors in omissions responses, submitted prior to the deadline for such responses, and are allowed to correct those errors. Neither was possible in this case, because Beverly's omissions responses, including the audited financial statements, were filed on the deadline.

   
   

8. AHCA also asserts that it has no discretion in this matter and must reject the Beverly applications based on Rule 59C-1.002, Florida Administrative Code, defining audited financial statement, and Subsection 381.707(2)(a), Florida Statutes (1991), subsequently renumbered as Subsection 408.037(2)(a), Florida Statutes.

   
   

9. Beverly established, and agency personnel confirmed, that AHCA had and knew it had the missing page in the audited financial statements in three other applications it was reviewing contemporaneously. Beverly asserts that since it uses the same financial analysis for all of an applicant's contemporaneously filed applications, it should have done so with the three applications at issue in this proceeding.

   
   

10. AHCA has retained a filing fee of $22,000 for each of the three Beverly applications, because it accepted those applications for review.

    
    

11. Beverly asserts entitlement to a refund if, in fact, AHCA rejects its applications from review for incompleteness. Beverly relies on the absence of a definition of what constitutes "acceptance" of an application by the agency. It argues that these three applications were subject to a cursory review for completeness, and therefore never "accepted."

    CONCLUSIONS OF LAW

    
    

12. The Division of Administrative Hearings has jurisdiction over the parties and subject matter pursuant to Subsections 120.57(1) and 408.039(5)(b), Florida Statutes (1992).

    
    

13. Petitioner bears the burden of establishing its compliance with the minimum statutory application content requirements of the CON law. See, Humhosco, Inc. v. Department of Health and Rehabilitative Services, 561 So.2d

    388 (Fla. 1st DCA 1990).

    
    

14. Section 408.037, Florida Statutes, requires, in part, that "[a]n application for a certificate of need shall contain":

    
    

    (3) An audited financial statement of the applicant. In an application submitted by an existing health care facility, health maintenance organization or hospice, financial condition documentation shall include, but need not be limited to, a balance sheet and profit-and-loss statement of the 2 previous fiscal years' operation.

    
    

    (emphasis added); See also, Rule 59C-1.08(5)(g), Florida Administrative Code. The agency has, by rule, defined audited financial statement to mean:

    
    

    all pages of the financial statements of the applicant that have been examined by an independent certified public accountant in accordance with generally accepted auditing standards as set forth in Statements on which the certified public accountant expresses an opinion as to the fairness with which the financial statements present financial position, results of operations, and changes in financial position in conformity with generally accepted accounting principles as established by the American Institute of Certified Public Accountants and the Financial Accounting Standards Board.

    
    

    Rule 59C-1.002(5), Florida Administrative Code (emphasis added). The audited financial statement submitted by a CON Applicant must comply with these standards.

    
    

15. The agency argues that the determinative principal of law is that the agency's rejection of these applications may be overturned only if clearly erroneous, given its wide discretion to interpret statutes and rules which it administers. Pan American World Airways, Inc. v. Public Service Commission and Florida Power and Light Company, 427 So.2d 716, 719, (Fla. 1983). AHCA correctly points out that the agency is entitled to such deference, even though its interpretation is not the one preferred by the court, not the sole possible interpretation, nor even the most desirable one, but is only within the range of possible interpretations. Retain Grocers Association of Florida Self Insurer's Fund v. Department of Labor and Employment Security, 474 So.2d 379 (Fla. 1st DCA 1985); and Department of Administration v. Nelson, 424 So.2d 852 (Fla. 1st DCA 1982).

16. The agency is, however, required to use its discretion with reasonable consistency. Prior decisions demonstrate two different lines of cases on the need for exact compliance with minimum CON letter of intent and application content requirements. In Humhosco, supra., the agency required exact compliance with the requirement that the corporate resolution supporting a project must be issued by the board of directors of the applicant corporation, not any other related corporation. The same result has been reached when an applicant was not a license holder of the facility for which the CON was applied and, therefore, could only "approve" rather than certify that it would license and operate the facility, as required by statute. Brookwood - Jackson County Convalescent Center v. Department of Health and Rehabilitative Services, 591 So.2d 1085 (Fla. 1st DCA 1992). In Lykes Memorial Hospital, Inc. v. Department of Health and Rehabilitative Services, DOAH Case No. 90-6001 (1/14/91), the applicant submitted its parent corporation's most recent audited financial statement, from which it was impossible to determine the separate financial condition of the applicant.

    
    

    The hearing officer found that:

    
    

    "Respondent [agency] does not have access to the applicant's financial records and is therefore dependent on the disclosures or notes . . . Without such note disclosures,

    a proper financial analysis cannot be performed."

    
    

17. A different line of cases includes Martin Memorial Hospital Association v. DHRS, 584 So.2d 39 (Fla. 4th DCA 1991), in which the application of the correct applicant/license holder was allowed review, although its resolution said it would complete the project "within the cost guidelines" rather that "at or below . . costs", as required by statute. The court in Martin Memorial, supra., held that the applicant was in substantial compliance with the statute. Similarly, in South Broward Hospital District d/b/a Memorial Hospital v. DHRS, et al., 14 FALR 3163 (1992), obviously inconsistent dates on the custodian's certificate and the corporate resolution were considered harmless, scrivener's errors. 14 FALR at 3169. In addition, the Recommended Order states that an agency supervisor recognized "that Section 381.707(2)(d) requires a detailed statement of income and revenue which includes the two-year pro forma assumptions (table 25) and the list of capital projects." Nevertheless, the supervisor's review . . . led her to the conclusion that the requirement was met. 14 FALR at 3191. In addition, it appears there was expert testimony that "the statute requirement to provide information on costs during construction and the effect on the applicant's and others' operations was not met. 14 FALR at 3187. In its final order, denying exceptions based on the requirements for capital project's list and pro forma, and inconsistencies in corporate resolution and certificate dates, the agency stated:

    
    

    Experience dictates that if a standard of perfection were applied to a CON application, even the most carefully prepared application would be found flawed when placed under the hot light of prehearing discovery.

    If a de facto moratorium on new health care facilities subject to CON regulation is to be avoided, review of a CON application must allow for the exercise of judgment and discretion.

    
    

    South Broward, 14 FALR at 3164.

    
    

18. Since this unique factual situation has not previously occurred, according to AHCA's expert witness, the outcome of this case has to be based on a determination of which line of cases are factually most comparable to these facts. Humhosco and Brookwood - Jackson are factually distinguishable by the defects in the indentity of the applicants ability to comply with statutory requirements. Lykes is based on the agency's inability to perform a financial analysis because it had no access to the applicant's financial records. In this case, however, the agency has conceded that it has the information.

    
    

19. The test in Memorial for substantial compliance with the statutory requirements and the South Broward approach to scrivener's errors are more applicable to Beverly's situation in this case. See, also Intercontinental Properties, Inc. v. State, Department of Health and Rehabilitative Services, et al., 17 FLW D2030 (3rd DCA 9/1/92), and Overstreet Paving Co. v. State, Department of Transportation, 17 FLW D2.323 (2nd DCA 10/9/92). Particularly persuasive is the agency's candid admission that it performs one analysis of an applicant's financial condition and uses that analysis for each of the applications filed by the same applicant for the same batching cycle. In addition, the safeguards provided by the cross-referenced items to other pages in the audited financial statement allow the agency to know, with absolute certainty, what information goes on the blank assets page. Given the agency's ability to perform its function, as it customarily does, and the inability of the applicant to alter or manipulate the information to its advantage or to the disadvantage of competing applicants, the Beverly applications should be comparatively reviewed. The agency acted arbitrarily, and failed to articulate a public policy or health planning objective served by its decision to reject the three Beverly applications for review.

    
    

20. Based on the disposition of this case, issues related to the demand for a refund of application fees have not been considered.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered accepting for comparative review

Certificates of Need 6997, 7026 and 7029.

DONE and ENTERED this 4th 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 4th day of December, 1992.

APPENDIX

Petitioner's Proposed Findings of Fact:

19. Accepted in Conclusions of Law 18.

20 - 21. Accepted in Finding of Fact 6.

1. Accepted in Conclusions of Law 19.

2. Rejected.

24 - 27. Accepted in Finding of Fact 5.

28 - 29. Accepted in Finding of Fact 10.

30 - 31. Accepted in Finding of Fact 10 - 11.

Respondent's Proposed Finding of Fact:

COPIES FURNISHED:

Eleanor A. Joseph Holland & Knight

P. O. Drawer 810 Tallahassee, Florida 32302

Edward Labrador, Esquire Agency for Health Care

Administration 2727 Mahan Drive

Tallahassee, Florida 32308

Sam Power, Agency Clerk Agency For Health Care

Administration

1323 Winewood Boulevard

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: 92-005410CON

Orders for Case No: 92-005410CON