STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THE HILLHAVEN CORPORATION, )

d/b/a Fifteen Named Nursing ) Homes, et al., )

)

Petitioners, )

)

vs. ) CASE NOS. 96-0817RX

) 96-2944RX

AGENCY FOR HEALTH )

CARE ADMINISTRATION, )

)

Respondent, )

and )

) INTEGRATED HEALTH SERVICES OF ) CENTRAL FLORIDA, INC., et al., )

)

Intervenors. )

)

SUMMARY FINAL ORDER

A non-evidentiary hearing on the parties' motions for Summary Final Order was conducted on September 4, 1996 before Suzanne F. Hood, Administrative Law Judge with the Division of Administrative Hearings, in Tallahassee, Florida.

APPEARANCES

For Petitioner Hillhaven Corporation and Health Care and Retirement Corporation of America:

M. Christopher Bryant, Esquire

Oertel, Hoffman, Fernandez and Cole, P.A. Post Office Box 6507

Tallahassee, Florida 32314-6507

and

Joel M. Hamme, Esquire Joseph W. Metro, Esquire Reed, Smith, Shaw and McClay Suite 1100, East Tower

1301 K Street, Northwest Washington, DC 20005

For Petitioner Integrated Health Services of Central Florida, Inc.:

Mark A. Emanuele, Esquire

Panza, Maurer, Maynard and Neel, P.A. NationsBank Building, Third Floor 3600 North Federal Highway

Fort Lauderdale, Florida 33308

For Respondent Agency for Health Care Administration: Karel Baarslag, Esquire

Mark S. Thomas, Esquire

Agency for Health Care Administration 2727 Mahan Drive, Building 3

Tallahassee, Florida 32308-5403

STATEMENT OF THE ISSUES

The issue is whether an amendment to Rule 59G-6.010, Florida Administrative Code (1995), was an invalid exercise of delegated legislative authority due to the Agency's failure to follow applicable rulemaking procedures.

PRELIMINARY STATEMENTS

On or about February 13, 1996 Petitioners Hillhaven Division of Vencor Corporation, d/b/a Fifteen Named Nursing Homes and The Health Care and Retirement Corporation of America, d/b/a Sixteen Named Nursing Homes (Hillhaven and HCR) filed a Petition for an Administrative Determination of the Invalidity of a Rule and Notice of Waiver of Thirty Day Hearing Requirement in Division of Administrative Hearings (DOAH) Case No. 96-0817RX. In this case Hillhaven and HCR claimed that an amendment to Rule 59G-6.010, Florida Administrative Code (1995), constituted an invalid

exercise of delegated legislative authority pursuant to Section 120.56, Florida Statutes. An order dated February 23, 1996 consolidated Case No. 96-0817RX with Case Nos. 95-4538 and 95- 5131 which involved preexisting challenges to Rule 59G-6.010, Florida Administrative Code (1995) pursuant to Section 120.57(1), Florida Statutes (1995). The undersigned had scheduled the latter two cases for formal hearing on March 25 through 28, 1996.

Hillhaven and HCR filed a Motion for Summary Final Order and Request for Oral Argument on February 16, 1996 in Case No. 96- 0817RX. The basis for the motion is the alleged improper promulgation of amendments to Rule 59G-6.010, Florida Administrative Code (1995). Respondent Agency for Health Care Administration (Respondent) filed a response in opposition to the motion on March 1, 1996.

The undersigned scheduled a motion hearing on March 13, 1996. By order dated March 11, 1996, the undersigned canceled the motion hearing and granted the request of Hillhaven and HCR to reserve ruling on their Motion for Summary Final Order.

On March 14, 1996 Hillhaven and HCR filed Petitioners' Agreed Motion for Continuance and Abeyance in Case Nos. 95-4538, 95-5131 and 96-0817RX. An order dated March 15, 1995 canceled the formal hearing scheduled for March 25 through 28, 1996 and granted a continuance in the consolidated cases.

On April 15, 1996, Hillhaven and HCR filed a Joint Status Report and Request for Continuation of Abeyance in Case Nos. 95-

4538, 95-5131 and 96-0817RX. The undersigned granted this motion by order dated April 22, 1996.

On May 10, 1996, Integrated Health Services, Inc. (IHS) filed a Petition to Intervene in Case Nos. 95-4538, 95-5131 and 96-0817RX. IHS filed an Amended Petition to Intervene on May 15, 1996. Hillhaven, HCR and Respondent filed responses in opposition to IHS's intervention. After hearing oral argument in a telephone conference, the undersigned denied IHS’s petition by order dated June 7, 1996.

On May 15, 1996, Hillhaven and HCR filed a Second Joint Status Report and Request for Continuance of Abeyance in Case Nos. 95-4538, 95-5131 and 96-0817RX. The undersigned granted this motion by order dated May 20, 1996.

On June 17, 1996 Hillhaven and HCR filed a Third Joint Status Report and Request for Continuation of Abeyance in Case Nos. 95-4538, 95-5131 and 96-0817RX. The undersigned granted this motion by order dated June 19, 1996.

On June 20, 1996 IHS filed a Motion for Rehearing/Second Amended Petition to Intervene in Case Nos. 95-4538, 95-5131 and 96-0817RX. Hillhaven, HCR and Respondent filed responses in opposition to this motion/amended petition. An order dated July 15, 1996 granted IHS intervention in Case No. 96-0817RX as to rule challenge issues only.

On June 20, 1996 Petitioners Integrated Health Services, Inc., et al. (IHS) filed a Petition for an Administrative

Determination of Invalidity of a Rule and Challenge to Methodology Whereby Medicaid Rates were Set in DOAH Case No. 96- 2944RX. In this case, IHS challenged Respondent's amendment to Rule 59G-6.010, Florida Administrative Code (1995), pursuant to Sections 120.56 and 120.57(1), Florida Statutes (1995). The Division of Administrative Hearings assigned Case No. 96-2944RX to Administrative Law Judge William A. Buzzett who scheduled the case for final hearing on July 19, 1996.

On July 10, 1996 Respondent filed an Amended Motion to Dismiss and Amended Motion for Summary Final Order in Case No. 96-2944RX. The next day, IHS filed a Motion for Continuance and Waiver of Thirty Day Hearing Requirement.

On July 15, 1996 Administrative Law Judge William A. Buzzett entered an order in Case No. 96-2944RX canceling the July 19, 1996 final hearing and granting IHS's Motion for Continuance.

That same day, Case No. 96-2944RX was transferred to the undersigned who consolidated it with Case Nos. 95-4538, 95-5131, and 96-0817RX for purposes of formal hearing.

On July 26, 1996, Hillhaven and HCR filed a Response in Opposition to Agency's Amended Motion for Dismissal and Amended Motion for Summary Final Order in Case No. 96-2944RX. IHS filed a similar response on August 2, 1996.

The parties submitted a Joint Status Report on July 31, 1996 indicating their desire to discuss available dates for final hearing and a motion hearing.

Respondent filed an Amended Response to Petitioners' Motion for Summary Final Order on August 16, 1996. Hillhaven and HCR filed a reply in opposition to this amended response on August 22, 1996. IHS filed a motion to adopt Hillhaven and HCR's reply in a pleading dated September 3, 1996.

The undersigned heard oral arguments on September 4, 1996 relative to Hillhaven and HCR's Motion for Summary Final Order filed in Case No. 96-0817RX and Respondent's Motion to Dismiss and Amended Motion for Summary Final Order filed in Case No. 96- 2944RX. The next day the undersigned issued an order directing the parties to file proposed summary final orders in Case Nos.

96-0817RX and 96-2944RX on or before September 30, 1996.

IHS filed a Notice of Adoption of Petitioner's Motion for Summary Final Order on September 20, 1996. A transcript of the motion hearing was filed on September 26, 1996.

The parties filed their Stipulation of Facts in a timely manner. However, they requested an extension of time in which to file their proposed summary final orders. The undersigned issued an order directing the parties to file said proposed summary final orders on or before October 2, 1996.

The parties filed their proposed summary final orders on October 2, 1996. They also filed a Supplemental Stipulation of Fact on October 2, 1996.

FINDINGS OF FACT

1. This case concerns a challenge by Petitioners to a

   version of the Florida Title XIX Long-Term Care Reimbursement Plan ("the Plan") which was noticed for adoption and incorporation by reference into Rule 59G-6.010, Florida Administrative Code,in the June 30, 1995 Florida Administrative Weekly. The Plan, including the version under challenge as well as prior and subsequent versions of the Plan, explains in detail how the state of Florida calculates reimbursement for Florida nursing facilities which care for Medicaid-eligible residents.

2. The state of Florida calculates reimbursement for nursing facilities for caring for Medicaid eligible residents based on three components of nursing facility costs: operating costs, patient care costs, and property costs. Nursing facilities are reimbursed for their operating costs on a per diem basis; operating costs include such items as maintenance supplies, maintenance staff, utilities, laundry, and administration.

3. Florida divides nursing facilities into six classes for reimbursement purposes, based on a facility's location (northern, central, or southern Florida) and size (100 beds or fewer, or more than 100 beds). Operating cost ceilings are established by Respondent for each of the classes of nursing facilities based on the operating costs achieved by nursing facilities in the class and in all classes in the state of Florida. Under both the version of the Plan under challenge here, and the immediately preceding version of the Plan, a nursing facility which achieved

   a per diem operating cost lower than its respective class ceiling could receive an upward adjustment to its operating cost reimbursement rate as an incentive to operate efficiently. This upward adjustment is known as an "operating incentive."

4. In the June 30, 1995 Florida Administrative Weekly, Volume 21, Number 26, Respondent published as a proposed rule the adoption of Version XIII of the Plan. As was the case with prior versions of the Plan, Version XIII of the Plan is incorporated by reference into Rule 59G-6.010, Florida Administrative Code.

5. The intended adoption of Version XIII of the Plan would replace Version XII of the Plan, dated May 22, 1995, as the version of the Plan incorporated by reference into Rule 59G- 6.010, Florida Administrative Code. Version XIII of the Plan, among other changes, changed the methodology used to determine the eligibility of nursing homes providing care to Medicaid patients for operating cost incentives, as well as the methodology used to calculate the dollar amount of operating cost incentives for such eligible nursing homes. The intent of the changes is to reduce the total dollar amount paid to nursing homes as operating incentives by a combination of reducing the number of nursing homes eligible to receive operating incentive payments, and reducing the dollar amount of the operating incentive payment to each eligible nursing home.

6. Respondent's adoption of Version XIII of the Plan was in response to proviso language contained in the Florida General

   Appropriations Act for fiscal year 1995-96, Chapter 95-429, Laws of Florida. The proviso language was attached to specific appropriation 265, and indicated that total state Medicaid funding for nursing home care was being reduced by $13,574,661 "for the operating incentive component of Medicaid nursing home reimbursement." Chapter 95-429 did not specifically present a reimbursement formula or specify particular changes to the calculation of operating incentives to achieve these changes.

7. Under both Version XII and Version XIII of the Plan, the threshold eligibility of a nursing facility to receive an operating incentive payment is determined based on two factors:

   (1) its licensure rating (superior, standard, or conditional) during a specified prior 6-month period, and (2) the utilization of the facility by Medicaid-eligible residents, stated as a percentage of the total patient days of care provided by the facility. Under both Version XII and Version XIII of the Plan, the dollar amount of operating incentives to be paid to an eligible facility was calculated using: (1) the difference between the facility's per diem operating cost and the operating cost ceiling for its class; (2) fractional adjustment factors for the number of days of superior and standard licensure ratings; (3) an upward adjustment cap tied to the pertinent class ceiling; and (4) a prorated adjustment factor for facilities with less than 90 percent Medicaid utilization.

8. Version XIII of the Plan reduced the number of nursing

   homes eligible for operating incentives by raising the threshold percentage of a facility's total patient days represented by its Medicaid patient days. Under Version XII of the Plan, a facility had to provide at least 20 percent of its patient days to Medicaid residents, and meet other criteria, to receive even a partial operating incentive; under Version XIII, that threshold increased to 65 percent. In other words, under Version XIII of the Plan, facilities providing fewer than 65 percent of their patient days to Medicaid residents would not be eligible for any operating incentive regardless of their cost efficiency.

9. Version XIII of the Plan also reduced the dollar amount of operating incentives to be paid to an eligible nursing home by implementing the additional following revisions:

   1. The fractional adjustment factor to a facility's operating cost savings, as compared to the class ceiling for the number of days of superior licensure rating was reduced from

      .6667 to .64, and the factor for days of standard licensure rating was reduced from

      .3333 to .32.

   2. The cap on a facility's operating incentive upward adjustment was lowered from

      15 percent of its class ceiling to 10 percent of its class ceiling.

   3. The Medicaid utilization proration formula was modified to reduce the partial operating incentive payments to those eligible facilities whose utilization was between 65 percent and 90 percent, as compared to the partial operating incentive payments paid to nursing homes with the same utilization percentage under Version XII of the Plan.

      A copy of an Respondent’s internal memorandum, dated June 20, 1995, summarizes the Version XIII changes to the operating incentive calculation.

10. Beginning July 1, 1995, Respondent began determining the eligibility of nursing homes for operating incentives and calculating the dollar amount of operating incentives to eligible nursing homes, by using the same formulas which were contained in Version XIII of the Plan.

11. Prior to July 1, 1995, Respondent did not publish notice in any newspaper of general circulation, other than in the June 30, 1995 Florida Administrative Weekly, concerning revisions to the Plan to change the methodology used to calculate operating incentives for periods beginning on or after July 1, 1995.

12. The June 30, 1995 notice of adoption of Version XIII of the Plan did not furnish an estimate of any expected increase or decrease in annual aggregate Medicaid expenditures; did not explain reasons for changes in the reimbursement methods; and did not identify a local agency in each county of the state where a copy of the Plan was available for review.

13. Respondent estimated that implementation of the changes in operating incentive calculations contained in Version XIII of the Plan would result in a reduction or elimination of operating incentives for over 400 nursing homes, with over 200 of these nursing homes experiencing a loss of more than $20,000 annually.

14. Respondent did not consult with the Florida Medical Care Advisory Committee prior to publication of notice of the intended adoption of Version XIII of the Plan, or prior to filing the Plan with the Department of State.

15. By transmittal letter dated September 28, 1995, Respondent submitted Version XIII of the Plan to the federal Health Care Financing Administration (HCFA). The submittal to HCFA included an Institutional State Plan Amendment Assurance and Finding Certification Statement which indicated that, among other things, the state complied with the public notice requirements of

    42 C.F.R. 447.205 by publishing notice of the Plan amendment on June 30, 1995.

16. Within 21 days of the June 30, 1995 publication of notice in the Florida Administrative Weekly, four challenges to Version XIII of the Plan were filed pursuant to Section 120.54, Florida Statutes. These challenges were consolidated, and were styled:

    National Healthcare, L.P. v. AHCA, DOAH Case No. 95-3689RP

    National Healthcare, L.P. v. AHCA, DOAH Case No. 95-3690RP

    Servicemaster Diversified Health Services,

    L.P. v. AHCA, DOAH Case No. 95-3691RP Florida Convalescent Center, Inc. v. AHCA, DOAH Case No. 95-3692RP

    Each of these four challenges to Version XIII concerned how the Plan dealt with the determination of "related party" status, and the impact of such a determination on reimbursement.

17. On August 18, 1995, in Volume 21, Number 23 of the Florida Administrative Weekly, at page 5517, Respondent published a Notice of Change to Version XIII of the Plan. The language modified by this change concerned the "related party" issues referenced in paragraph 16 above.

18. On October 13, 1995, Respondent executed and filed an Agreed Upon Suggestion of Mootness in DOAH Case Nos. 95-3689RP, 95-3690RP, 95-3691RP and 95-3692RP. On October 16, 1995, the undersigned entered an Order Closing File and Relinquishing Jurisdiction in Case Nos. 95-3689RP, 95-3690RP, 96-3691RP and 95- 3692RP.

19. On November 7, 1995, Respondent filed Version XIII of the Plan and a Certification concerning compliance with rulemaking requirements with the Department of State. The Certification, signed by Respondent’s General Counsel, Jerome Hoffman, identified the effective date of the rule revision as November 27, 1995. The first page of Version XIII of the Plan, filed with the Department of State, also identifies November 27, 1995 as the effective date of Version XIII of the Plan.

20. On or about July 1, 1995, Respondent sent a letter to each nursing facility in the state of Florida briefly summarizing the reimbursement methodology changes contained in Version XIII of the plan, and advising each facility of the Medicaid reimbursement per diem rate pursuant to Version XIII of the Plan.

21. In the June 28, 1996 Florida Administrative Weekly, Volume 22, Number 26, at pages 3854-3855, Respondent published as a proposed rule the revision of Rule 59G-6.010, Florida Administrative Code to adopt Version XIV of the Plan. Respondent intended for Version XIV of the Plan to replace Version XIII.

22. On July 19, 1996 two separate petitions challenging the

    proposed revision to Rule 59G-6.010, Florida Administrative Code, and Version XIV of the Plan were filed with the Division of Administrative Hearings. These challenges were styled:

    Mediplex Rehabilitation of Bradenton v. AHCA, DOAH Case No. 96-3399RP

    HCP III Bradenton, Inc. d/b/a Riverfront Health Care and Rehabilitation Center v. AHCA, DOAH Case No. 96-3401RP

    As of the date of the parties’ Stipulation of Facts in the instant cases, Case Nos. 96-3399RP and 96-0340RP remained pending at the Division of Administrative Hearings. Prior scheduled final hearings were canceled on motion of the Petitioners in Case Nos.

    96-3399RP and 96-3401RP, and status reports were submitted to Administrative Law Judge William A. Buzzett on September 25, 1996.

23. Respondent had not filed Version XIV of the Plan with the Department of State for adoption as of the date of the parties’ Stipulation of Facts in the instant cases.

24. For purposes of disposition of the instant Motions for Summary Final Order only, Respondent agrees that Petitioners Hillhaven, HCR and IHS have standing to bring this rule challenge.

25. Representatives of both Hillhaven and HCR sat on the Reimbursement Committee of the Florida Health Care Association at the time that Committee held discussions, in May or June of 1995, concerning Respondent's proposed reduction in operating incentive payments to nursing facilities. Respondent contends that, as a result, Hillhaven and HCR had actual notice of the proposed reduction in operating incentives prior to Respondent's

    publication of Notice of Intent to adopt Plan Version XIII; as Hillhaven and HCR are unable to independently verify receipt of actual notice during the time period in question at this time, for purposes of consideration of the pending motions only, Hillhaven and HCR do not contest Respondent's assertion that they had actual notice.

    CONCLUSIONS OF LAW

    
    

26. The Division of Administrative Hearings has jurisdiction over the subject matter and parties to this proceeding. Section 120.56, Florida Statutes (1995) and Rule 60Q-2.030, Florida Administrative Code.

27. For purposes of disposition of the subject motions, Hillhaven, HCR and IHS (hereinafter referred to collectively as "Petitioners") have standing to bring this proceeding.

28. Rule 59G-6.010, Florida Administrative Code (1995) (“the Rule”) incorporates by reference the Florida Title XIX

    Long-Term Care Reimbursement Plan ("the Plan"). The Plan and the Rule must be amended each year that the Florida Legislature alters the allocation of general revenue payable to nursing home facilities for Medicaid reimbursement.

29. Respondent implemented Version XIII of the Plan from July 1, 1995 to June 30, 1996. However, an amendment to the Rule reflecting changes consistent with Version XIII of the Plan did not become effective until November 27, 1995. As of July 1, 1996 Respondent began implementing Version XIV of the Plan.

30. Respondent must calculate Medicaid reimbursement using the Medicaid Plan that was in effect when the nursing facility provided the service. The Plan is a detailed formula designed to determine actual reimbursement to individual providers from the total aggregate amount allocated by the legislature pursuant to the annual General Appropriations Act ("GAA"). Witmer v. Dept. of Business and Prof. Reg., 662 So. 2d 1299, 1301 (Fla. 4th DCA 1995).

31. These rule challenges did not become moot simply because Respondent began applying a new version of the Plan on July 1, 1996. Likewise, the 1995-96 version of Rule 59G-6.010, Florida Administrative Code, was not rendered a "nullity" on July 1, 1996 when the 1996-97 GAA became effective. Petitioners are entitled to a determination whether the rule incorporating Version XIII of the Plan was a valid exercise of legislative authority as long as their Medicaid reimbursement under Version XIII of the Plan is at issue.

32. Petitioners have the burden of proof of invalidity of a state Medicaid plan. Home Association v. Harris, 617 F. 2d 388, 393 (5th Cir. 1980).

33. Section 120.56, Florida Statutes (1995), provides that "[a]ny person substantially affected by a rule may seek an administrative determination of the invalidity of the rule on the ground that the rule is an invalid exercise of delegated legislative authority."

34. Section 120.52(8), Florida Statutes (1995), provides as follows:

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

    1. The agency has materially failed to follow the applicable rulemaking procedures set forth in s. 120.54;

    2. The agency has exceeded its grant of rulemaking authority, citation to which is required by s. 120.54(7);

    3. The rule enlarges, modifies, or contravenes the specific provisions of law implemented, citation to which is required by s. 120.54(7);

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

    5. The rule is arbitrary or capricious.

35. The Rule implements the language set forth in Section 409.908, Florida Statutes (1995), which provides as follows:

    Subject to specific appropriations, the agency shall reimburse Medicaid providers, in accordance with state and federal law, according to methodologies set forth in the rules of the agency and in policy manuals and handbooks incorporated by reference therein. These methodologies may include fee schedules, reimbursement methods based on cost reporting, negotiated fees, and other mechanisms the agency considers efficient and effective for purchasing services or goods on behalf of recipients. Payment for Medicaid compensable services made on behalf of Medicaid eligible persons is subject to the availability of moneys and any limitations or directions provided for in the General Appropriations Act or chapter 216. Further, nothing in this section shall be construed to prevent or limit the agency from adjusting fees, reimbursement rates, lengths of stay, number of visits or number of services, or

    making any other adjustments necessary to comply with the availability of moneys and any limitations or directions provided for in the General Appropriations Act. (Emphasis added)

    
    

36. Section 409.908, Florida Statutes (1995), on its face does not require that Respondent formally adopt a version of the Plan as a rule pursuant to Section 120.54, Florida Statutes (1995), before Respondent can begin implementation of that Plan version. This is especially true when the agency does not have time to fully comply with the procedural rulemaking requirements before making "adjustments necessary to comply with the availability of moneys and any limitations or directions provided for in the General Appropriations Act." Section 409.908, Florida Statutes (1995).

37. Section 120.54(12)(a), Florida Statutes (1995), states as follows:

    (12)(a) Whenever an act of the Legislature is enacted which requires implementation of the act by rules of an agency within the executive branch of state government, such rules shall be drafted and formally proposed as provided in this section within 180 days after the effective date of the act, unless the act provides otherwise.

    In this case, the agency met the requirements of Section 120.54(12)(a), Florida Statutes (1995).

38. The effective date of Chapter 95-429, Section 3, at 265, Laws of Florida, was July 1, 1995, fifteen (15) days after it was approved by the Governor and filed in the Office of the Secretary of State on June 16, 1995. Chapter 95-429, Section 34,

    Laws of Florida. Respondent published as a proposed rule the adoption of Version XIII of the Plan by June 30, 1995.

    Respondent also sent each nursing facility a letter or about July 1, 1995 summarizing the changes in Version XIII of the Plan.

39. Chapter 95-429, Section 3, at 265, Laws of Florida, expressly cut $13,574,661 from a total nursing home care budget of $1,447,710,026--a reduction of 0.94 percent. As a matter of fact and law, the reduction in the nursing home care budget was not significant when compared to the total nursing home care budget.

40. Chapter 95-429, Laws of Florida, expressly made it necessary for Respondent to revise the Plan by means of a reduction in "the operating incentive component of medicaid nursing home reimbursement." Chapter 95-429, Section 3, at 265, Laws of Florida. Beginning July 1, 1995, Respondent could no longer implement Version XII of the Plan, notwithstanding the provisions of Rule 59G-6.010, Florida Administrative Code. Respondent had no alternative but to quickly develop Version XIII of the Plan and to begin its implementation before the rulemaking procedures of Section 120.54, Florida Statutes (1995), were complete.

41. Federal Law requires Respondent to submit a reimbursement Plan to the federal government in order to qualify for matching federal funding for the Medicaid program. 42 USC s.1396a (1995). State statute requires that Respondent

    promulgate such Plan into state law pursuant to administrative rule. Sections 409.908 and 409.919, Florida Statutes (1995). There is no federal requirement to promulgate the Plan into a state administrative rule.

42. The Rule and a modified version of the Plan are separate and distinct statements until Respondent amends the Rule to incorporate the new version of the Plan. Version XIII of the Plan clearly meets the definition of a rule as "an agency statement of general applicability that implements, interprets, or prescribes law or policy." Section 120.52(16), Florida Statutes (1995). Therefore, from July 1, 1995 through November 26, 1995, Respondent was acting pursuant to non-rule policy. McDonald v. Department of Banking and Finance, 346 So. 2d 569 (Fla. 1st DCA 1977). Issues related to the applicability of Version XIII of the Plan as non-rule policy may be addressed in a de novo hearing pursuant to Section 120.57(1)(e), Florida Statutes (1996), in Case Numbers 95-4538, 95-5131, and 96-2944RX.

43. From November 27, 1995 through June 30, 1996, Respondent properly applied Version XIII of the Plan as formally adopted and incorporated into the Rule pursuant to the rulemaking requirements of Section 120.54, Florida Statutes (1995).

44. Specific authority for the Rule is found in Section 409.919, Florida Statutes (1995), which states that "[t]he department shall adopt any rules necessary to comply with or

    administer ss. 409.901-409.920 and all rules necessary to comply with federal requirements."

45. Petitioners claim that the Rule as amended in 1995 is invalid due to Respondent's failure to consult with the state Medical Care Advisory Committee (MCAC) as required by 42 C.F.R. Sec. 431.12(e).

46. In order to participate in the federal Medicaid program, a state must establish an MCAC consisting of physicians, other health professionals, members of consumer groups including Medicaid recipients, and state officials. 42 C.F.R. Sec. 431.12. This federal regulation requires that the MCAC have an "opportunity for participation in policy development and program administration, including furthering the participation of recipient members in the agency program." 42 C.F.R. Sec. 431.12(e).

47. Respondent's failure to consult with the MCAC under the circumstances of this case does not invalidate the Rule. Such consultation is not necessarily mandatory. Mississippi Hospital Association, Inc. v. Heckler, 701 F. 2d 511, 523 (5th Cir. 1983), states as follows:

    It would be an understatement to say that the role of the MCAC is not explicitly spelled out in any federal statute, regulation or manual. One advocate of such committees has concluded that "[i]t is clear from the guidelines that HEW envisions that no significant program or policy change will be made by a state until its MCAC is consulted." Rosenbaum, Administration of a State Medicaid Program: The Role of the Medical Care

    Advisory Committee, 11 Clearinghouse Rev. 918, 920 n. 13 (1978) (emphasis added).

    Conceivably the complete absence of an MCAC or one that is improperly constituted or exists in name only, or the failure to consult the committee on a fundamental policy change in a reimbursement plan, might contravene the vague requirement in 42 C.F.R. Sec. 431.12(e) that "[t]he committee must have opportunity for participation in policy development and program administration, including furthering the participation of recipient members in the agency program." Such conditions are not present here. Where the latest rounds of statutory and regulatory changes have emphasized increased state autonomy over Medicaid, and where the federal agency whose own regulation is in question has approved the state's actions, we are reluctant to read more into a regulatory requirement than is clearly expressed.

48. Additionally, consultation with an MCAC is not necessary where the change in the Medicaid plan is a direct result of a policy change by a state legislature. Himes v. Shalala, 999 F. 2d 684, 691 (1st. Cir. 1993).

    The MCAC is merely an advisory committee and its consent is not needed before a state can change its law. When the change at issue is merely the implementation of the state legislature's policy choice, there is no policy development at the agency level and therefore no need to consult with the MCAC.

    Himes v. Shalala, 999 F. 2d at 691.

49. In the instant case, Respondent was implementing the dictates of the legislature to specifically reduce the amount paid to long term care nursing facilities as operating incentives. Petitioners have not met their burden of proving that: (1) the amendment to the Rule was a significant and fundamental policy change; and/or, (2) there is a complete absence of an MCAC in the

    state of Florida or one that is improperly constituted or exists in name only.

50. "The MCAC is not a ratemaking body that must approve every change in reimbursement methodology." Mississippi Hosp. Ass'n., Inc. v. Heckler, 701 F. 2d at 523. To invalidate an otherwise legitimate rule because Respondent did not consult with an advisory committee makes no sense where the federal agency responsible for enforcing 42 C.F.R., Sec. 431.12(e), has approved the Plan as adopted.

51. Petitioners also claim that the Rule is invalid because Respondent did not comply with federal Medicaid program public notice as required by 42 C.F.R., Sec. 447.205(a). Specifically, Petitioners assert that Respondent did not: (1) give an estimate of any expected increase; decrease in annual aggregate expenditures; (2) explain why the agency is changing its methods and standards; and, (3) identify a local agency in each county where copies of the proposed changes are available for public review. 42 C.F.R., Sec. 447.205(c).

52. The federal public notice regulation is inapplicable because it only requires notice of "any significant proposed change in its methods and standards for setting payment rates."

    42 C.F.R. Sec. 447.205. In this case, the changes in methodology resulted in a total aggregate impact on Medicaid reimbursement for all Florida nursing homes of less than one percent. Petitioners have not met their burden of proving that the changes were

    significant enough to trigger the federal notice requirements. Mississippi Hosp. Ass'n., Inc. v. Heckler, 701 F. 2d, at 523.

53. In California Association of Bioanalysts v. Rank, 577 F. Supp. 1342, 1351 (C. D. Cal. 1983), the court stated:

    . . . Prior to December 3, 1981, Sec. 447.205(a) provided that a state must give public notice of any change "in the Statewide method or level of reimbursement for a service, if the change is expected to increase or decrease Medicaid payment for that service by 1 percent or more during the

    12 months following the effective date of the change." Under this provision, a state was not required to provide public notice of changes affecting the procedural mechanisms for establishing rates; notice was required only for changes affecting a state's Medicaid expenditures.

    On December 3, 1981, the HCFA revised Sec. 447.205(a). Although the new regulation deleted the 1 percent trigger, the HCFA made clear that the regulation's scope remained limited to actual changes in reimbursement, rather than to changes in the procedure for setting rates. In discussing the abrogation of the 1 percent trigger, the HCFA stated that "[t]his deletion is in the interest of promoting State flexibility. We do not believe it is necessary to set an explicit expenditure threshold above which public notice is required. A requirement that all significant changes be published will be effective in guaranteeing public notice of major changes in reimbursement." 46 Fed.Reg. 58,680(1981). It is clear that, in amending Sec. 447.205, the HCFA intended to mitigate, rather than exacerbate, the burdens of complying with the regulation. Hence, the promulgation of the State Plan Amendment, which would not have required public notice under the prior version of the regulation, does not require such notice under the current version. See Mississippi Hospital Association, Inc. v. Heckler, 701 F. 2d 511,

    523 (5th Cir. 1983) ("Since the amendment

    would not have required public notice under

    the former regulation, and since the present regulation was adopted to reduce the administrative burdens placed on state Medicaid agencies . . ., we do not read the current regulation to require public notice.

54. In the instant case, Petitioners Hillhaven and HCR do not contest that they had advance actual notice of the proposed change to the Plan. There is insufficient evidence to determine whether IHS had advance actual notice. Nevertheless, the Petitioners have not provided any evidence explaining how they were prejudiced due to Respondent’s failure to consult with the MCAC or due to the lack of public notice regarding the amendments to the Rule.

ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, it is ordered that Respondent's Motion for Summary Final Order is GRANTED in; Case No. 96-0817RX and issues relating to Section 120.56, Florida Statutes (1995), in Case No. 96-2944RX are DISMISSED.

DONE and ORDERED this 14th day of January, 1997, in Tallahassee, Leon County, Florida.

SUZANNE F. HOOD

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 14th day of January, 1997.

COPIES FURNISHED:

M. Christopher Bryant, Esquire Oertel, Hoffman, et al.

Post Office Box 6507 Tallahassee, FL 32314-6507

Joel M. Hamme, Esquire Joseph W. Metro, Esquire Reed, Smith, et al.

1301 K Street, Northeast Washington, DC 20005

Karel Baarslag, Esquire Agency for Health

Care Administration 2727 Mahan Drive

Tallahassee, FL 32308-5403

Thomas F. Panza, Esquire Jennifer Kujawa Graner, Esquire Panza, Maurer, et al.

NationsBank Building, Third Floor 3600 North Federal Highway

Fort Lauderdale, FL 33308

Sam Power, Agency Clerk Agency for Health

Care Administration

2727 Mahan Drive, Suite 3431

Tallahassee, FL 32308

Jerome W. Hoffman, Esquire Agency for Health

Care Administration 2727 Mahan Drive

Tallahassee, FL 32308-5403

Douglas M. Cook, Director Agency for Health

Care Administration 2727 Mahan Drive

Tallahassee, FL 32308-5403

Carroll Webb, Executive Director Administrative Procedure Committee

120 Holland Building Tallahassee, FL 32399-1300

Liz Cloud, Chief

Bureau of Administrative Code The Elliott Building Tallahassee, FL 32399-0250

NOTICE OF RIGHT TO APPEAL

A party who is adversely affected by this final order is entitled to judicial review pursuant to Section 120.68, Florida Statutes. Review proceedings are governed by the Florida Rules of Appellate Procedure. Such proceedings are commenced by filing one copy of the notice of appeal with the Agency Clerk of the Division of Administrative Hearings and a second copy, accompanied by filing fees prescribed by law, with the District Court of Appeal, First District, or with the District Court of Appeal in the Appellate District where the party resides. The notice of appeal must be filed within 30 days of rendition of the order to be reviewed.

Docket for Case No: 96-000817RX

Orders for Case No: 96-000817RX