STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
FLORIDA ASSOCIATION OF MEDICAL ) EQUIPMENT SERVICES, )
)
Petitioner, )
)
vs. )
)
AGENCY FOR HEALTH CARE )
ADMINISTRATION, )
)
Respondent. )
Case No. 02-1400BID
)
RECOMMENDED ORDER
This case came before Administrative Law Judge John G. Van Laningham for final hearing on June 3 and 5, 2002, in Tallahassee, Florida.
APPEARANCES
For Petitioner: Donna H. Stinson, Esquire
Broad and Cassel
215 South Monroe Street, Suite 400 Post Office Drawer 11300 Tallahassee, Florida 32302
Cynthia A. Mikos, Esquire Cynthia A. Mikos, P.A.
205 North Parsons Avenue, Suite A Brandon, Florida 33510-4515
For Respondent: Kelly A. Bennett, Esquire
Eric A. Miller, Esquire
Agency for Health Care Administration 2727 Mahan Drive, Building 3
Tallahassee, Florida 32308-5403
STATEMENT OF THE ISSUE
The dispute in this case arises from various policy decisions of Respondent that underlie and inform a request for proposals that Respondent has issued for the purchase, through competitive bidding, of durable medical equipment and related services. The ultimate issue is whether Respondent’s decisions in connection with the competitive bidding process at the heart of this controversy have complied with state and federal law governing the Medicaid program.
PRELIMINARY STATEMENT
On April 3, 2002, Petitioner Florida Association of Medical Equipment Services (“FAMES”) filed a Petition for Formal Administrative Hearing Challenging Issuance of RFP AHCA 0203 (“Petition”) with Respondent Agency for Health Care Administration (the “Agency”). The Agency referred the Petition to the Division of Administrative Hearings (“DOAH”) on April 8, 2002, where it was docketed as Case No. 02-1400BID (the “Substantial Interests Proceeding”) and assigned to Administrative Law Judge Van Laningham.
FAMES previously had filed with DOAH a Petition for Determination of Invalidity of Non-Rule Policy, initiating Case No. 02-1314RU (the “Rule Challenge”), which was pending before Administrative Law Judge Stevenson. The Rule Challenge arose from the same underlying facts as the Substantial Interests
Proceeding. In each case, FAMES sought to arrest various policy decisions of the Agency that underlie and inform a request for proposals that the Agency has issued for the purchase, through competitive bidding, of durable medical equipment and related services. The Agency intends to award up to 11 contracts, the holders of which will be responsible, in their respective, designated regional areas, for supplying Medicaid eligible recipients with the equipment and services at issue.
On FAMES’s motion filed May 31, 2002, Judge Stevenson consolidated the two related cases and transferred the Rule Challenge to the undersigned. At the final hearing on the consolidated cases, which commenced on June 3, 2002, the undersigned severed the issues in the Rule Challenge on which the Agency has the burden of proof, namely whether rulemaking is feasible or practicable with regard to any agency statement found to constitute a rule-by-definition. It was determined that another hearing in the Rule Challenge would be conducted if one or more of the agency statements in question were held to be unadopted rules. It is now ORDERED that the Rule Challenge is severed from the Substantial Interests Proceeding so that each case may be decided separately from the other.
At the final hearing, FAMES offered the testimony of the following witnesses: Dr. Jay Wolfson, a professor of public health; Javier Talamo, a respiratory therapist; and Robert
Lichtenstein, a businessman who is the Vice President of FAMES. FAMES also presented the depositions of Alanna Steaple, Maureen Hemmerly, and Robert Sharpe, all of whom are Agency employees; Dr. Jose A. Birriel, a medical doctor; and S. H., the legal guardian of a child who receives durable medical equipment and related services through the Florida Medicaid program. FAMES’s exhibits, marked for identification as 1, 2, 3, 4, 5A, 5B, 6A,
6B, 6C, 6D, 7, 8A, 8B, 9, 10, 11, 12A, 12B, 13, 14, 15, and 16,
were offered and admitted into evidence.
The Agency called Robert Sharpe, the Deputy Secretary for Medicaid, as its only witness. In addition, the Agency introduced exhibits A through H, inclusive, into evidence.
The final hearing transcript was filed with DOAH on July 22, 2002. Thereafter, each party timely filed a Proposed Recommended Order, and these submissions were considered in the preparation of this Recommended Order.
Two motions remain pending and require a ruling: (1) The Agency’s Motion to Correct Errors in Official Transcript; and
Petitioner’s Request for Attorney’s Fees (which was included as part of its Response to Respondent’s Objections to Admission of Depositions, filed on June 21, 2002). Having considered these matters, it is hereby ORDERED that:
The Motion to Correct Errors in Official Transcript is granted, to the extent that a copy of the motion, which contains
a list of errata, will be attached to the final hearing transcript.
The Request for Attorney’s Fees is denied.
FINDINGS OF FACT
Setting the Stage
Medicaid is a cooperative federal-state program in which Florida has voluntarily elected to participate in partnership with the national government. Medicaid provides medically necessary health care——including, relevantly, durable medical equipment (“DME”)——to lower income persons.
In addition to shouldering administrative and regulatory responsibilities, Florida partially funds the Medicaid program, contributing about 42 percent of the money budgeted for the program’s operation in this state. Federal funds make up the balance.
In Special Appropriation 252 of the General Appropriations Act of 2001, the Florida Legislature appropriated an amount for Medicaid compensable home health services, such as DME, that reflected a budget cut of approximately $1.3 million. By way of explanation, the legislature wrote:
Funds in Specific Appropriation 252 reflect [an overall] reduction of [about $1.3 million] as a result of implementing a policy to pay for specific durable medical
equipment products on a competitively bid basis, effective October 1, 2001.
Ch. 2001-253, Section 3, Laws of Florida.
As a cost containment measure, competitive bidding for publicly funded healthcare is a subject that academics and policy makers have been studying and debating for some years. Proponents view competitive bidding as a means of bringing market forces to bear on possibly inflated, predetermined fees, exposing providers’ true costs and producing lower prices as competition trims the fat. Critics fear that competitive bidding will result in a diminution of the quality of available healthcare because the relatively few providers who win contracts will thereafter have little or no incentive to innovate or otherwise exceed minimum contractual requirements—— and, indeed, will be rewarded for cutting costs to the bone.
To decide the instant case does not, however, require a finding or conclusion that competitive bidding is either a good policy choice or a bad one under the circumstances. Without reaching that issue, it is determined that, once made, the broad policy decision to use competitive bidding as a means of purchasing healthcare for Medicaid recipients entails the considerable challenge of devising a detailed competitive bidding model that balances the interest of cost containment, on one side, against competing interests such as the continued
availability of quality care, on the other. At bottom, because the course of performance under the resulting contracts can be expected to exert a regulatory effect on providers and recipients alike, competitive procurement in this particular environment demands that significant policy choices be made.
One substantial impact that competitive bidding can have on recipients——which impact happens to be pertinent here—— is the abridgement of their freedom to choose a provider. Federal law requires, as a general principle, that Medicaid recipients be granted the freedom to obtain medical assistance from any authorized provider. This general rule yields under certain circumstances, as will be discussed in detail in the Conclusions of Law below, but the fact is that federal Medicaid policy expresses a preference for allowing recipients the freedom of choice.
Consonant with that preference, this state’s policy prior to the present dispute was to allow each Medicaid recipient to obtain DME from any willing, Medicaid-enrolled provider. (To serve the Medicaid population, a DME provider must “enroll” in the program by agreeing to comply with the prescribed terms and conditions of coverage and to accept payment from Medicaid at predetermined rates set forth in fee schedules.)
The Players
The Agency is the state agency charged with administering the Medicaid program in Florida. At the federal level, the Centers for Medicare and Medicaid Services (“CMS”) of the U.S. Department of Health and Human Services is the agency authorized to administer Medicaid.
The Agency administers Medicaid in Florida pursuant to a State Medicaid Plan (the “State Plan”). In whole or in part, the State Plan is incorporated by reference, and thereby adopted as rules, in the Florida Administrative Code.
FAMES is a trade association whose members are providers of DME and related services. FAMES represents its members’ interests before state and federal administrative and legislative bodies.
Policy Decisions
The Agency construed the explanatory language of Specific Appropriation 252 as a binding legislative directive to initiate a competitive bidding process for the procurement of DME and related services. In response to this perceived mandate, the Agency prepared a Request for Proposals——identified as RFP – AHCA 0203 (the “RFP”)——which, according to its terms, “establishes the requirements for the durable medical equipment and medical supplies program.”
In choosing which particular items to put out for bids1——a function that necessarily required important underlying policy decisions to be made——the Agency considered fungibility to be a weighty criterion; however, the Agency was strongly motivated, as well, to select things that were thought to offer the greatest potential for cost savings.2 Consequently, while the RFP states that the “procurement [hereunder] is limited to hospital beds, and respiratory equipment and supplies,” the procurement is not quite as limited as this description might suggest. For in addition to goods the Agency is also seeking to purchase services, as the RFP itself discloses: “The purpose of this document is to request proposals from qualified organizations to provide quality, selected Medicaid services to Medicaid recipients.” (Emphasis added).
The most significant of these services are those provided by respiratory therapists. As licensed health care practitioners, respiratory therapists are an integral part of the delivery of respiratory equipment, particularly the ventilators which are covered by the RFP. When a ventilator is placed in a patient’s home, a respiratory therapist must periodically visit the patient to monitor the patient’s oxygen levels and adjust the equipment as needed. In this, the respiratory therapist makes clinical assessments and exercises independent judgment. There is no doubt that, through the
provision of such services, a professional relationship is established between the therapist and the patient. Obviously, respiratory therapists are not fungible in the way that, for example, hospital beds might be.
Another set of important decisions that shaped the design of this competitive procurement concerned the number of contracts to be let and their nature and scope. In this regard, the Agency decided to award a single prime contract for each of the areas served by the Agency’s 11 regional offices. It determined that the same contractor may be selected for more than one regional area. And it announced that, once selected, the prime contractor——and only the prime contractor——will be responsible for serving all of the Medicaid eligible recipients in the specified region; all other providers will be precluded from delivering the same DME goods and services in that area. The upshot of these decisions is that 11 DME providers, at most, will hold prime contracts. Even after accounting for subcontracting, which is allowed, it is clear that the number of eligible providers of the subject DME——which is around 1,500 under the prevailing “any willing and authorized provider” policy——will be dramatically reduced.
Like the decisions that led to the selection of the specific items covered by the RFP, the decisions that will, if fully implemented, overhaul the existing delivery system for the
specified DME are matters of policy committed to the Agency’s discretion. While FAMES has raised legitimate concerns about the wisdom and efficacy of these decisions, establishing that reasonable people could disagree with the Agency’s solutions, the evidence does not show that the Agency abused its discretion or acted arbitrarily or capriciously in formulating the RFP.
That said, it cannot seriously be disputed——and is hereby found——that if the Agency completes the competitive process contemplated by the RFP, the outcome will substantially affect, and indeed will regulate, both providers and Medicaid patients.3 It is clear, in other words, that there are substantive Medicaid policies embedded in, and articulated through, the RFP.
The Agency has not yet amended the State Plan or any Medicaid handbook to account for the changes in Florida Medicaid policy being effected through the competitive bidding process established in the RFP.
An Important Negative Decision
As mentioned, federal law requires as a general rule that Medicaid recipients be guaranteed the right to choose their own providers. Without getting into the legal details at this point, federal law further provides that, under certain circumstances, a state may be granted a waiver of, or fall within an exception to, this freedom of choice requirement.
At the time it was devising the competitive bidding model reflected in the RFP, the Agency believed that it could proceed with the subject procurement in the absence of any formal approval from the federal government, notwithstanding the fact that the project will, if implemented, curtail recipients’ freedom of choice. This belief was based on a single telephone conversation between Florida Medicaid Director Robert Sharpe and an unnamed employee of CMS, which had taken place prior to the 2001 legislative session. The federal official apparently had told Mr. Sharpe that a state does not need to obtain from CMS a waiver of the freedom of choice requirement in order to purchase DME on a competitive-bids basis because DME providers are vendors whose relationships with recipients are not “personal.” This opinion was never reduced to writing.
Because the only evidence of the substance of the aforementioned telephone conversation is Mr. Sharpe’s testimony, it is impossible to make a finding of fact as to whether the preceding paragraph contains an accurate and complete statement of CMS’s policy; there is, simply, no admissible nonhearsay evidence in the record to support such a finding. Although the undersigned accepts Mr. Sharpe’s testimony and finds that such a discussion occurred, this fact has little or no probative value because the Agency must comply with federal law, not the informal advice of an employee of CMS.
In any event, it is undisputed that the Agency decided not to ask CMS to approve either a waiver of, or an exception to, the freedom of choice requirement. Consequently, neither the Secretary of the U.S. Department of Health and Human Services nor CMS has made a finding that adequate services or devices will be available to Medicaid recipients under the competitive bidding process that the Agency has initiated through the RFP.
Though negative in nature, the Agency’s decision not to seek and obtain federal approval, in the form of a waiver or exception, was as important as other, positive decisions regarding the purchase of DME through competitive bidding. As will be seen, federal law requires a waiver or an approved exception in these circumstances. The Agency does not have the discretion to circumvent the federal requirements.
The Notices
The Agency caused the first notice of the RFP to be published in the February 22, 2002, edition of the Florida
Administrative Weekly. This notice described the contract, advised that the RFP would be issued on February 28, 2002, provided instructions for obtaining a copy of the RFP, and established March 7, 2002, as both the deadline for responses and the proposal opening date.
A second notice, similar to the first one, was published in the March 8, 2002, Florida Administrative Weekly. It changed the response deadline/opening date from March 7 to March 11, 2002.
A third notice, published in the March 22, 2002, Florida Administrative Weekly, changed the deadline for proposal submission yet again, from March 7 to April 5, 2002. (Although this third notice did not mention the proposal opening date, presumably it, too, was changed to April 5, 2002.)
The Agency did not directly notify DME providers or FAMES about the RFP.
Factual Determinations Regarding FAMES’s Standing
Members of FAMES are providers of DME goods and services, including those that are the subject of the RFP. DME providers, such as FAMES’s members, are not necessarily Medicaid providers, however. If a DME provider wants to participate in Medicaid and supply goods to Medicaid recipients, it must become enrolled in the Medicaid program. It is not possible to make a finding, based on the evidence in this case, as to how many (or what percentage) of FAMES’s members are enrolled Medicaid providers of DME.
The Agency’s decision to award contracts, through competition, for Medicaid reimbursable DME poses an immediate threat of harm only to existing Medicaid providers, not to all
DME providers. DME providers who are not presently participating in the Medicaid program might be interested in the outcome of this proceeding, but the resulting final agency action will not immediately affect their substantial interests one way or the other.4 As a result, FAMES’s standing must be predicated on its representation of members who are enrolled Medicaid providers of DME.
FAMES’s vice president, Robert Lichtenstein, testified that at least 25 to 50 of FAMES’s 300 or so members provide DME to Medicaid recipients. Mr. Lichtenstein’s understanding of this asserted fact was based not on personal knowledge, he explained, but on conversations with members who had contacted him to discuss the RFP. Because Mr. Lichtenstein had not spoken with all of FAMES’s members, he was unable to state, with any degree of certainty, the total number of Medicaid-enrolled DME providers that belong to FAMES.
Mr. Lichtenstein’s testimony about the minimum number of enrolled providers in FAMES’s ranks rested on statements of declarants (the members) made outside the hearing room, which statements were apparently offered as proof of the matters asserted. Mr. Lichtenstein’s testimony that no fewer than 25 to
50 of FAMES’s members are enrolled Medicaid providers was based, in other words, on hearsay and cannot, for that reason, support a finding of fact on its own.5
On the other hand, Mr. Lichtenstein’s testimony that he personally had talked to some 25 to 50 members about what was happening with the RFP is not hearsay to the extent that fact is relevant without reference to the truth of the matters discussed. Thus, this testimony is admissible, and has been credited, for the relevant, nonhearsay purpose of establishing that at least 25 to 50 of FAMES’s members were sufficiently interested in the RFP to share their views about it with Mr. Lichtenstein.6
The testimony of Mr. Lichtenstein, which was not contradicted or impeached, establishes, at least inferentially, that FAMES represents a number of members who, as enrolled Medicaid providers of DME, have a substantial interest in being reimbursed under state and federal law pursuant to rule-based methodologies.7 The proposed switch to a methodology of reimbursement based on competitive bidding, which methodology allegedly fails to comply with these criteria, impinges upon this interest. While more and better evidence regarding the number of affected members should have been adduced, the fact that a noticeable percentage (roughly 8 to 16 percent) of FAMES’s members happened to speak with Mr. Lichtenstein about the Agency’s competitive bidding process shows a level of interest within the organization from which it reasonably can be inferred, and is hereby found, that the Agency’s decision to
competitively award at most 11 exclusive contracts for certain DME goods and services would directly impact a considerable number of FAMES’s members.
The Agency’s proposed procurement scheme promises to affect these members in two substantial ways. First, under the competitive bidding process, all of FAMES’s members who are Medicaid providers of DME must compete for the Agency’s favor, whereas before they competed for the business of individual recipients. Because, moreover, the Agency plans to select no more than 11 providers, most (if not all) of FAMES’s members who presently serve the relevant market stand to lose existing business and hence suffer economic loss.
The injuries threatened here are not, however, solely economic. The other substantial effect on the Medicaid providers is the violation of their right to be reimbursed in accordance with state and federal law pursuant to methodologies prescribed in lawful rules. To the extent, as FAMES contends, that the Agency is not following either federal law or duly promulgated rules, such unlawful conduct affects FAMES’s members in a way that differs from the effect of such conduct on the public at large.
In short, the substantial interests of a substantial number of FAMES’s members would be determined by the proposed agency action at issue.
Further, there is no real dispute, and it is hereby found, that the substance of the Agency’s decision to award exclusive contracts for DME goods and services on a competitive- bids basis is within FAMES’s general scope of interest and activity.
Finally, the relief requested is appropriate for FAMES to receive on behalf of its members because if the Agency’s decision is rescinded and the proposed competitive procurement abandoned or substantially modified, it is reasonable to suppose that the ultimate remedy will inure to the benefit of FAMES’s
injured members.
CONCLUSIONS OF LAW
On Standing
Because the Administrative Procedure Act was designed in part to expand public access to the activities of agencies, it has long been recognized that a trade or professional association is entitled to bring a rule challenge in a purely representative capacity provided it demonstrates "that [1] a substantial number of its members, although not necessarily a majority, are substantially affected by the challenged rule, [2] that the subject matter of the rule is within the association's general scope of interest and activity, and [3] that the relief requested is of the type appropriate for a trade association to receive on behalf of its members." See Florida League of
Cities, Inc. v. Department of Environmental Regulation, 603 So. 2d 1363, 1366 (Fla. 1st DCA 1992) (citing Florida Home Builders
Ass'n v. Department of Labor & Employment Sec., 412 So. 2d 351, 352-53 (Fla. 1982))(bracketed numbers added).
These same requirements for “associational standing” have been held to apply in proceedings, such as this one, to determine a party’s substantial interests pursuant to Sections
120.569 and 120.57, Florida Statutes. See Farmworker Rights Organization, Inc. v. Department of Health and Rehabilitative Services, 417 So. 2d 753, 754-55 (Fla. 1st DCA 1982). Thus, to establish standing in this case, it is FAMES’s burden to prove, by a preponderance of evidence, that the challenged agency action determines the substantial interests of a substantial number of its members and that the relief requested is of a type appropriate for FAMES to receive on behalf of its members. See Department of Health and Rehabilitative Services v. Alice P.,
367 So. 2d 1045, 1052 (Fla. 1st DCA 1979)(burden is upon petitioner to prove standing, when standing is resisted).
To establish that its substantial interests are being determined, the party requesting a hearing must show, first, that the agency action at issue causes such party a real and immediate injury in fact——an injury not “based on pure speculation or conjecture.” Ward v. Board of Trustees of the Internal Improvement Trust Fund, 651 So. 2d 1236, 1237 (Fla. 4th
DCA 1995). Second, the party must prove either that the pertinent law affords protection against the type of injury for which redress is sought or that the interest invaded is arguably within a protected or regulated zone of interests. See, e.g., Lanoue v. Florida Department of Law Enforcement, 751 So. 2d 94,
96 (Fla. 1st DCA 1999); Agrico Chemical Co. v. Department of
Environmental Regulation, 406 So. 2d 478, 482 (Fla. 2d DCA 1981), rev. denied sub nom. Freeport Sulphur Co. v. Agrico Chemical Co., 415 So. 2d 1359 (1982), and rev. denied sub nom. Sulphur Terminals Co. v. Agrico Chemical Co., 415 So. 2d 1361 (1982). This latter prong is satisfied when a party shows that the challenged action “encroaches upon an interest protected by a statute or the constitution.” Ward, 651 So. 2d at 1238.
In contesting FAMES’s standing, the Agency asserts that Chapter 409, Florida Statutes, does not grant Medicaid providers the right to an ever-flowing income stream and hence does not protect the economic interests of FAMES’s members. While this is largely true, it is also not entirely correct, for there is in Section 409.908, Florida Statutes, an unambiguous provision which plainly mandates that,
[s]ubject 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, competitive bidding pursuant to s. 287.057, 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, provided the adjustment is consistent with legislative intent.
(Emphasis added). FAMES has proved that the Agency’s decisions relating to this competitive procurement not only pose a high risk of potential economic loss for its members, but these decisions also threaten to invade its members’ right to be reimbursed in accordance with state and federal law pursuant to valid administrative rules. It is concluded that the asserted interests of FAMES’s members arguably fall within the zone of interests that Section 409.908, Florida Statutes, is meant to protect or regulate.
It is noted, as well, that unlike the petitioners in Agrico, FAMES is not attempting to prevent a competitor from entering the market. To the contrary, FAMES claims, in effect, that the Agency is redefining the market8 in a manner that
stifles competition, through means that violate federal law, using a methodology not set forth in the Agency’s rules. Cf.
Florida Board of Medicine v. Florida Academy of Cosmetic Surgery, Inc., 808 So. 2d 243, 251 (Fla. 1st DCA 2002)(“[W]e note that [the associations-petitioner] never asserted that their members had a protected interest in being free from competition. Rather, they claimed that their members had an interest in continuing to . . . be supervised [only] by a [physician, doctor, or dentist] pursuant to chapter 466.”). It is concluded that the remedy of formal administrative proceedings under Sections 120.569 and 120.57, Florida Statutes, is designed to provide protection against the kinds of injuries for which FAMES is seeking redress.
The Agency is on firmer ground in claiming that FAMES has failed to prove that a “substantial number” of its members have a stake in the outcome of this proceeding. The direct evidence regarding the number of affected members is woefully lacking and at best demonstrates that approximately 25 to 50 of FAMES’s 300 or so members are Medicaid providers of DME whose substantial interests are immediately affected by the challenged agency action. The Agency argues, credibly, that even 50 affected members out of 300 are not enough to demonstrate that a “substantial number of [the association’s] members, although not
necessarily a majority,” is affected. See Florida Home Builders, 412 So. 2d at 353.
In Florida Home Builders, the seminal case on associational standing, the Florida Supreme Court stopped short of imposing a bright line rule on the “substantial number” requirement, allowing some flexibility in its application, but leaving room for dispute when the number falls well short of majority, as here. As an initial observation, the phrase, “although not necessarily a majority,” arguably hints that a relatively sizeable percentage of the membership needs to be affected——if not a majority, then something close to one. Supporting this view is that the federal case law to which the court looked for guidance permitted an association to sue on behalf of its members if any one of them were suffering an immediate or threatened injury. See Hunt v. Washington State Apple Advertising Comm’n, 432 U.S. 333, 342, 97 S.Ct. 2434, 2441 (1977)(quoting Warth v. Seldin, 422 U.S. 490, 511, 95 S.Ct. 2197, 2212 (1975)). One reasonably could assume that the Florida Supreme Court, having deliberately chosen different and apparently more demanding language, must have intended to make the state’s rule regarding associational standing more stringent than its federal counterpart.
Yet, the court did not say it was doing that.
Furthermore, the court’s rationale for relying upon federal law
in the first place——that the standing requirements under the Federal Administrative Procedure Act were “so similar” to those of Chapter 120 as to justify resort to federal authorities, id. at 353 n.5——should have led the court, as a function of logical consistency, to fashion a very similar test for associational standing, not a much more restrictive one. Therefore, while the term “substantial number” cannot reasonably be construed to mean “any one,” neither should the relatively more permissive federal roots of the state associational standing doctrine be ignored in applying the “substantial number” requirement.
It is also interesting to note that the Florida Home Builders court described its holding as being that “a trade association [has] standing [to bring a rule challenge] on behalf of its members when that association fairly represents members
who have been substantially affected by the rule.” Id. at 362 (emphasis added). This statement connotes that the purpose of the “substantial number” requirement is to ensure that the association represents enough injured members to have good reason to prosecute their collective claim properly and fully, without prejudice to other members who might not be similarly situated.
In this case, the trier has determined, as set forth in the Findings of Fact, that FAMES represents a number of members whose substantial interests are being determined in this
proceeding. Although the evidence does not reveal the precise number of members so affected, it is found and concluded that the number is a “substantial” one for purposes of establishing associational standing. Cf. Federation of Mobile Home Owners of Florida, Inc. v. Department of Business Regulation, 479 So. 2d 252, 254-55 (Fla. 2d DCA 1985)(association that represented tenants in mobile home parks had standing to seek declaratory statement where association was barraged with questions from members regarding the subject matter of petition, even though only a small fraction of the members appeared to be directly affected). At bottom, the undersigned is convinced that FAMES fairly represents a sufficient number of affected members (a) to warrant its prosecution of this case on their behalf, (b) to provide an incentive to litigate their claims to the fullest, and (c) to enable the association to pursue these claims without the internal conflicts that might arise if the association’s litigation position reflected a minority viewpoint among the membership.
The undersigned concludes that the other elements of the associational standing test were satisfied as set forth in the Findings of Fact without the need for further elaboration.
Finally, the Agency’s argument that FAMES lacks standing because it was not eligible to submit a proposal in response to the RFP is rejected for the reasons previously
expressed in the Order Denying Respondent’s Motion to Dismiss entered on April 23, 2002, and also for the reasons discussed infra at paragraphs 87 through 98.
Freedom of Choice
When the State of Florida elected to participate in Medicaid, it became bound to follow the federal statutes and regulations that govern the program. The Public Health Trust of Dade County, Florida v. Dade County School Board, 693 So. 2d 562, 564 (Fla. 3d DCA 1996). Among many other things, the controlling federal law requires that participating states adopt a “State plan for medical assistance” and mandates that such plan contain numerous particular provisions. See 42 U.S.C. § 1396a(a). One of these mandatory plan provisions must specify that
any individual eligible for medical assistance (including drugs) may obtain such assistance from any institution, agency, community pharmacy, or person, qualified to perform the service or services required
. . . who undertakes to provide him such services.
42 U.S.C. § 1396a(a)(23)(A). This is referred to generally as the “freedom of choice” requirement. Under Florida law, freedom of choice is understood to be a recipient’s right. See Rule 59G-1.010(93), Florida Administrative Code (definition of “freedom of choice”).
Florida’s State Plan is not in evidence in this case.
Neither side, however, has asserted that the State Plan lacks the required freedom of choice provision, and so it has been presumed, for present purposes, that the State Plan is in compliance with 42 U.S.C. § 1396a(a)(23)(A).
Exceptions and Waivers
To afford states greater flexibility in the administration of their respective Medicaid programs, Congress has authorized the states to limit freedom of choice under certain circumstances, provided that so doing does not result “in a reduction in the quality of services provided.” 48 F.R. 23212, 23215; see also 46 F.R. 48524, 48524. States that desire to restrict recipients’ options in regard to selection of providers must qualify for an exception to, or a waiver of, the freedom of choice requirement.
Exceptions. Exceptions to the freedom of choice requirement are provided for in 42 U.S.C. § 1396n(a), which states, in relevant part, that a
State shall not be deemed to be out of compliance with the [freedom of choice and certain other state plan requirements] solely by reason of the fact that the State
. . . -
has entered into -
arrangements through a competitive bidding process or otherwise for the purchase of laboratory services . . . or
medical devices if the Secretary has found that -
adequate services or devices will be available under such arrangements . . . .
This exception for “arrangements [entered into] through . . .
competitive bidding” is unique because it is the only exception that requires federal approval (in the form of a positive finding that adequate services or devices will be available) before the state relying upon such exception permissibly may deviate from the freedom of choice requirement. In contrast, states must merely report, to CMS no later than the end of the quarter in which the change is implemented, any program change that falls within one of the other exceptions to the freedom of choice requirement. See 42 C.F.R. § 432.51(d)(2).
Waivers. Whereas states may take advantage of the exceptions with relatively little federal oversight for the most part, waivers must be requested and approved pursuant to a more formal and demanding procedure. The applicable statute provides in pertinent part:
The Secretary, to the extent he finds it to be cost-effective and efficient and not inconsistent with the purposes of this title, may waive [most state plan requirements] as may be necessary for a State –
* * *
(4) to restrict the provider from (or through) whom an individual . . . can obtain
services (other than in emergency circumstances) to providers or practitioners who undertake to provide such services and who meet, accept, and comply with the reimbursement, quality, and utilization standards under the State plan, which standards . . . are consistent with access, quality, and efficient and economic provision of covered care and services
. . . .
42 U.S.C. § 1396n(a). That states must seek and be granted a waiver of state plan requirements is a key distinction between waivers and most exceptions. As the federal Medicaid agency has explained:
With regard to prior approval, had Congress intended [CMS] to approve all projects in advance, there would have been no need to distinguish in the statute between the waiver provisions . . . and the exception provisions . . . . However, the only affirmative findings required by the exception provisions . . . pertain to competitive bidding processes[.]
48 F.R. 23212, 23215. It is significant, then, that arrangements entered into through competitive bidding must be approved in advance. The exception that allows such arrangements to be used for certain purchases is, for that reason, more like a waiver than the other exceptions.
FAMES contends that the Agency’s undisputed failure to obtain, in connection with the competitive bidding process at issue, either a waiver of, or an authorized exception to, the freedom of choice requirement is fatal to the Agency’s current
plans. Preliminarily, it is observed that FAMES’s position rests in part on the assumption that a waiver is even available for a competitive bidding process. An argument could be made that Congress, having specifically mentioned competitive bidding in the exception provisions of 42 U.S.C. § 1396n(a)(1)(B), but having said nothing about competitive bidding in the waiver provisions of 42 U.S.C. § 1396n(b), intended to authorize competitive bidding only to the extent that an exception is available therefor, which would mean that a waiver could not be granted for a project falling outside such exception. Some support for this interpretation may be found in the federal Medicaid agency’s comment that “[c]ompetitive bidding arrangements do not fall under the waiver provisions ”
48 F.R. 23212, 23217. On the other hand, Congress might have intended to confer upon the Secretary the discretion to grant a waiver of state plan requirements for competitive bidding processes that do not qualify for an exception but meet all the requirements for a waiver.
The issue just framed need not be decided here, however. It is sufficient to conclude for present purposes that, as FAMES has insisted, the Agency clearly must obtain prior federal approval of the competitive arrangements under consideration, according to the plain language of 42 U.S.C. § 1396n. Absent a duly authorized exception or waiver, the
Agency’s entry into the arrangements contemplated by the RFP would put the Agency out of compliance with the freedom of choice requirement. Being in direct conflict with unambiguous federal law, such action would be “invalid under the Supremacy Clause [of the U.S. Constitution].” The Public Health Trust, 693 So. 2d at 566.
As indicated, the required federal approval may be manifested in the form of the positive findings required for the competitive-bids exception or, alternatively, a waiver. If CMS determines that the scope of the instant project exceeds the boundaries of the exception provided for in 42 U.S.C. § 1396n(a)(1)(B), then the Agency will either need to modify the project as necessary to qualify for an exception or seek a waiver (if a waiver is available). If the federal Medicaid agency ultimately finds that the safeguards and requirements for an exception are not met in this instance and also refuses, for whatever reasons, to grant a waiver, then the project simply cannot proceed as contemplated.
To restate the foregoing conclusion for emphasis: The Agency cannot go forward with the project described in the RFP unless and until it obtains federal approval therefor, most likely as an exception under 42 U.S.C. § 1396n(a)(1)(B).9 In reaching this conclusion, the undersigned has not overlooked the Agency’s belief that the freedom of choice requirement can
safely be disregarded because the relationship between recipient and DME provider is not “personal.” Because the Agency has not cited, and the undersigned has not seen, any statute or regulation that effectively exempts “vendors” from the freedom of choice requirement, it is concluded that the Agency’s belief was simply mistaken.10
FAMES maintains, and at hearing attempted to prove, that adequate services or devices will not be available under the arrangements into which the Agency proposes to enter pursuant to competitive bidding. This, however, is clearly an issue for CMS to decide as a matter of federal law and policy. Therefore, the undersigned has declined to make fact-findings relating to whether the arrangements in question meet the federal statutory safeguards and requirements.
The question remains whether the Agency’s failure to submit a certification to CMS requesting approval of a competitive-bids exception before issuing the RFP requires that the instant procurement process be halted and all proposals rejected. In that event, the process could only be restarted, if CMS subsequently approved the project, through the issuance of another, perhaps modified request for proposals. On this issue, the Agency argues that because it has not yet entered
into the contracts intended to be awarded under the RFP, CMS’s
approval can still be timely obtained. The Agency’s fallback position deserves careful attention.
Is It Too Late to Certify?
The plain language of 42 U.S.C. § 1396n(a)(1)(B), quoted in pertinent part above in paragraph 53, makes it reasonably clear that if a state were to enter into arrangements through competitive bidding to purchase medical devices or laboratory services before CMS had made a prospective determination that adequate devices or services would be available under such arrangements, then the state would be out of compliance with the freedom of choice requirement. The statute is not so instructive, however, as to when, exactly, CMS must make the required findings in order to authorize the state to proceed. Reference, therefore, is made to the pertinent federal regulations.
The competitive-bids exception is described, in relevant part, in 42 C.F.R. § 431.54(d) as follows:
The [state] Medicaid agency may establish special procedures for the purchase of medical devices . . . through a competitive bidding process or otherwise, if the State assures in the certification required under
§ 431.51(d), and CMS finds, as follows:
Adequate services or devices are available under the special procedures.
This regulation does not directly answer the timing question under consideration, but it does construe the statutory language in a manner that might shed light on the matter.
Look at the parallel provisions of the statute (first row) and the regulation (second row) as summarized in the following table:
enter into | arrangements | through 11 CB | for purchase of devices | if adequate devices will be | available under such arrangements |
establish | special procedures | for purchase of devices | through CB | if adequate devices are | available under such special procedures |
It will be seen that the language and syntax are materially different——so much so that, upon examination, the conclusion is inescapable that the federal agency has put an administrative gloss on the statute.
In the statute, the term “arrangements” refers to the things into which states may enter with another party. In the context of competitive bidding, such things usually are contracts, although the term “arrangements,” as commonly understood, refers not just to contracts but also to understandings or measures that might be less formal than a contract. The arrangements or contracts that fall within this exception are those made “for the purchase of laboratory services . . . or medical devices.” The phrase “through a competitive bidding process,” as used in the statute, plainly does not describe the arrangements per se but rather instructs
how such arrangements must have been entered into, namely, in consequence of having used competitive bidding. Clearly, the term “arrangements” is not intended here to denote a process, nor is it being used as a synonym for “procedures;” the “arrangements” contemplated by the statute are an outcome——an end, not the means.
Interestingly, the regulation turns the spotlight away from the “arrangements” (= contracts) that result from competitive bidding and focuses instead on the process that leads to such arrangements. Consider two points. First, while the term “arrangements” comfortably fits such consensual undertakings as “contracts” and “agreements” within the scope of its common meaning——especially when the term appears as an object of the verb “enter into”——the term “special procedures” does not readily or easily call to mind “contracts.” Indeed, to equate “establish special procedures” (which suggests unilateral agency action) with “enter into arrangements” (which suggests mutual understanding) would require an unreasonably stilted reading of the regulation. The only reasonable interpretation of the regulation is that the phrase “special procedures for the purchase of medical devices [etc.]” means procurement procedures——not the arrangements (or contracts) into which a state may enter by following such procedures.
Second, the phrase “through a competitive bidding process” clearly does not describe the means by which states may establish special procedures (in contrast to the manner in which that same language, as used in the statute, determines how states must have entered into the subject arrangements) but, rather, indicates the method by which providers of laboratory services or medical devices will selected according to the established special procedures.
Properly understood, the regulation is primarily concerned with the purchasing procedures established to govern a competitive procurement, whereas the statute expresses no particular interest in such details. This observation is reinforced by the fact that the regulation (unlike the statute) requires a finding that the state’s “special procedures” assure that adequate services or devices are going to be available to recipients. What this reveals is that the federal Medicaid agency considers the procedural aspects of the competitive process to be an instrumental or deciding factor in ascertaining whether the arrangements that result therefrom——the contracts in the case of competitive bidding——will ensure the availability of adequate services or devices.
This being the case, one might suppose that CMS would want to review the special competitive-procurement procedures before the process gets underway, so that any procedural
deficiencies can be cured in advance of the solicitation of bids. Moreover, it makes little sense, as a practical matter, for a state to conduct a competitive bidding process pursuant to special procedures that CMS might later deem inadequate, causing the whole process to be started over——if it is permitted to proceed at all——to the detriment of the state and the competitors.
With those thoughts in mind, review the regulation that specifically addresses the certification requirement and speaks directly to the timing issue:
Content of certification. If a State implements a project under one of the exceptions allowed under [42 C.F.R.] § 431.54(d), (e) or (f), it must certify to CMS that the statutory safeguards and requirements for an exception under [42
U.S.C. § 1396n(a)] are met.
Timing of certification.
For an exception under § 431.54(d), [which relates to purchases through competitive bidding,] the State may not institute the project until after it has submitted the certification and CMS has made the findings required under the Act, and so notified the State.
For [all other] exceptions . . . , the State must submit the certificate by the end of the quarter in which it implements the project.
42 C.F.R. § 431.51(d)(emphasis added).
This regulation introduces a new phrase, “institute the project,” upon which the meaning of subparagraph (i) hinges. The problem is, the term “project” is not defined in the regulation; it does not even appear in the relevant portions of either 42 U.S.C. § 1396n(a)(1)(B) or 42 C.F.R. § 431.54(d). Consequently, as used here, the term “project” might be understood to refer to (1) the establishment of special, competitive-procurement procedures, (2) the arrangements entered into through competitive bidding, (3) the competitive procurement as a whole, or (4) the object to accomplished pursuant to the arrangements entered into through a competitive bidding process governed by the state’s special purchasing procedures.
Upon reflection, interpretation #1 should be rejected as unreasonable because it would create a paradox: The state could not begin to establish (“institute”) special procedures until after CMS had reviewed and approved those very procedures. Interpretation #2 enjoys the advantage of avoiding this catch-22 and so is preferable to #1. Further, by construing “institute the project” to mean “enter[] into arrangements” (e.g. by signing a contract), the regulation would be squared with 42
U.S.C. § 1396n(a)(1)(B). Interpretation #2, however, does not seem to be the most natural reading of the text.
Interpretation #3 is better than #2 for at least two reasons. First, if CMS had meant for “project” to mean “arrangements,” then most likely it simply would have used the statutory term “arrangements” rather than an awkward synonym. This straightforward presumption casts doubt on the validity of interpretation #2. Second, interpretation #3, by construing the term “project” systemically to refer to the whole of the competitive procurement, furthers CMS’s intent to focus on the competitive process as a means of determining whether the resulting competitive arrangements will be satisfactory. Under interpretation #3, the state would “initiate the project” by soliciting bids or, as here, issuing a request for proposals. This is the interpretation urged by FAMES; if it is correct, then the Agency’s issuance of the RFP violated federal law.
The best interpretation, however, is probably #4. In the context of competitive bidding, the term “project” is frequently employed to signify the underlying goal or purpose of the contract to be awarded, as distinct from the competition though which the contractor is selected. (Consistent with——and likely as a result of——this common usage, related terms such as “project specifications” and “project manager” are also linguistically associated with competitive procurements.) Thus, understanding the term “project” to mean the undertaking to be accomplished under the arrangements to be made through
competitive bidding comports with a natural and customary use of the word in the existing circumstances. For the purposes of 42
C.F.R. § 431.51(d)(i), the relevant “project” would be the purchase of laboratory services or medical devices.
Assuming that the “project” is the object of the arrangements made through competitive bidding, 42 C.F.R. § 431.51(d)(i) seems to allow the state to do everything but commence performing under such arrangements until after CMS has made the required findings. However, 42 U.S.C. § 1396n(a)(1)(B) strongly suggests that the requisite findings must be made before the state enters into the arrangements. Because the statute and the regulation are in pari materia, they must be construed together to achieve their common purpose. Thus, the “institution” of a project should be deemed to occur at the time the state enters into competitively awarded arrangements for the purchase of laboratory services or medical devices. Put another way, to “institute the project” is tantamount to entering into an arrangement——and interpretations 2 and 4, as described above, converge.
That said, interpretation #3 is certainly not frivolous or fanciful; the undersigned acknowledges that it might reflect CMS’s intent. To the extent the meaning of 42
C.F.R. § 431.51(d) is uncertain, however, the resolution of the uncertainty in this forum should favor an interpretation that
puts the ball in CMS’s court to implement its own regulation. In other words, it is preferable at this stage, if reasonably possible, to allow the Agency to attempt to certify that the statutory safeguards and requirements for a competitive-bids exception under 42 C.F.R. § 431.54(d) are being met, rather than to preclude such an attempt, because CMS can easily reject the Agency’s submission if it deems the certification untimely——and thereby quickly correct any error of interpretation made here.
It is concluded, therefore, that because the Agency has not “institute[d] the project,” it still has time (assuming that the contracts described in the RFP have not been entered into) to submit a certification and obtain from CMS the findings necessary to proceed. This conclusion should not be understood to suggest that waiting until the last minute to seek federal approval is wise or prudent, for it is neither. As it is, the Agency and the apparently successful bidders now must wait for CMS’s review and evaluation process to run its course——and suffer the consequences of delay. Worse, after considerable time and effort have been expended on this procurement, everyone involved is exposed to the risk that CMS will force the Agency to start over——or say “no.” Clearly, it must be said, certification should be submitted much earlier in the process.12
The Agency Must Follow Its Rules
The Durable Medical Equipment/Medical Supply Services Coverage and Limitations Handbook (“DME Handbook”), which is incorporated in, and adopted as, Rule 59G-4.070, Florida Administrative Code, provides for the reimbursement of providers on the basis of fee schedules rather than under contracts entered into through competitive bidding. FAMES asserts that the Agency is obligated to continue reimbursing all Medicaid- enrolled DME providers pursuant to the DME Handbook (which is a rule) unless and until the Agency duly amends the DME Handbook, which it has not done. FAMES argues further that the competitive arrangements contemplated in the RFP are inconsistent with the state’s existing statutory framework and, hence, that the Agency could not validly amend its DME Handbook so as to authorize the changes that the Agency would make to the method of reimbursing providers for the DME and related services at issue.
The Agency counters that Chapter 409, Florida Statutes, contains several provisions that specifically authorize the competitive procurement in dispute and that, moreover, the explanatory language in Specific Appropriation 252 constitutes explicit legislative direction to the Agency to pay for DME on a competitive-bids basis.
FAMES is correct that the changes in reimbursement methodology that the RFP promises to bring about will need to be reflected in the DME Handbook or elsewhere in the Agency’s rules. See Section 409.908, Florida Statutes. It is also true, as a matter of black-letter law, that the Agency must obey its own existing rules. E.g. Cleveland Clinic Florida Hospital v.
Agency for Health Care Administration, 679 So. 2d 1237, 1242 (Fla. 1st DCA 1996), rev. denied sub nom. South Broward Hosp. Dist. v. Cleveland Clinic Florida Hosp., 695 So. 2d 701 (1997). Thus, the Agency is required to comply with the operative version of its DME Handbook.
Nothing in the DME Handbook, however, unambiguously prohibits the Agency from implementing a competitive bidding process or from awarding contracts for the purchase of DME through such a process. Furthermore, although commencing to perform under the contracts to be awarded pursuant to the RFP would place the Agency out of compliance with the DME Handbook, there is no evidence that such performance has occurred——yet.
It is concluded, therefore, that the Agency should update its DME Handbook to reflect or accommodate any new competitive reimbursement methodologies that might be put into effect, and to adopt such amendments as a rule, as soon as feasible and practicable, see Section 120.54(1)(a), Florida Statutes.
It is unnecessary, and would be premature, to decide whether any changes to the DME Handbook that that Agency might propose in regard to competitive bidding would be valid or invalid exercises of delegated legislative authority. Such issues that might arise in this connection can be addressed in an appropriate action under Section 120.56, Florida Statutes.13
The Notices
FAMES argues that the Agency failed to give proper notice of the RFP pursuant to Rule 60A-1.002, Florida Administrative Code, which provides, in pertinent part, as
follows:
(4)(a) Legal Advertisements -- All purchases of commodities of [sic] contractual services in excess of the threshold amount for Category Two shall be advertised in the Florida Administrative Weekly . . . no less than ten (10) calendar days prior to the . . . opening for requests for proposals[.]
* * *
Conditions to Be Included in Formal Invitations to Bid, Invitations to Negotiate and Requests for Proposal for Commodities and Contractual Services –
. . . A formal invitation to bid, request for proposal or invitation to negotiate shall be mailed at least 10 days prior to the date set for submittal of responses.
* * *
(c) Notice of Request for Proposal shall be mailed at least 10 days prior to the date set for submittal of proposals.
The legal advertisements that were published in the Florida Administrative Weekly concerning this procurement left much to be desired. It is especially troublesome that the second and third notices, both of which were corrective in nature, enlarged the deadline for proposal submission after the previously established deadline had run. It is concluded, however, that these notices satisfied Rule 60A-1.002(4)(a), Florida Administrative Code, because the third and final notice ran in the Florida Administrative Weekly more than ten calendar days before the response deadline that was finally adopted, i.e. April 5, 2002.
It is concluded that the Agency did not violate Rule 60A-1.002(7)(a) or (c), Florida Administrative Code, either, because there is no evidence in the record that the Agency mailed an RFP, or any notice thereof, to anyone less than ten days prior to the date set for the submission of proposals.14
Of course, the Agency’s manner of advertising the RFP and the advance notice (or lack thereof) given to potential bidders (i.e. enrolled DME providers) might be factors that CMS would consider relevant in determining whether adequate devices will be available under the proposed arrangements.
The Bid Protest Question
The Agency maintains that this proceeding is nothing more than an attempt to challenge the specifications of the RFP and urges further that Section 120.57(3), Florida Statutes, which prescribes the procedures for bringing a bid protest, provides the only administrative remedy even arguably available to FAMES. Upon these premises the Agency rests two interrelated arguments: (1) FAMES, as a non-bidder, lacks standing to prosecute a bid protest; and (2) even if FAMES has standing, it failed to initiate a protest of the specifications within 72 hours after receiving notice of the RFP, as required, and thus waived the right to a hearing. See Section 120.57(3)(b), Florida Statutes.15 The standing issue already has been discussed at some length. The Agency’s second contention merits attention.
The case that best supports the Agency’s position is Advocacy Center for Persons with Disabilities, Inc. v. Department of Children and Family Services, 721 So. 2d 753 (Fla. 1st DCA 1998). There, a nonprofit corporation and two individual patients brought a specifications protest pursuant to Section 120.57(3)(b), Florida Statutes, to challenge the contents of a request for proposals that the Department of Children and Family Services (“DCF”) had issued for the purpose of privatizing the South Florida State Hospital (the
“Hospital”). DCF had commenced this competition in obedience to an express legislative command, which is codified in Section 394.47865, Florida Statutes, and provides in relevant part:
The Department of Children and Family Services shall, through a request for proposals, privatize South Florida State Hospital. The department shall plan to begin implementation of this privatization initiative by July 1, 1998.
DCF dismissed the protest on the ground that the challengers, who were neither bidders nor potential bidders, lacked standing. In addition, DCF “determined that the petitioners’ actual and inappropriate purpose was to prevent the procurement from proceeding at all, rather than ensuring a competitive process in which they might participate.” Advocacy Center, 721 So. 2d at 754.
The appellate court disagreed in part with DCF’s rationale, explaining that standing to mount a bid protest has been recognized to exist in non-bidders under “extraordinary circumstances.” Id. at 755 (citing Westinghouse Elec. Corp. v. Jacksonville Transp. Auth., 491 So. 2d 1238, 1241 (Fla. 1st DCA 1986)). The court affirmed the dismissal of the protest, however, holding that the challengers had “no stake in the procurement procedure authorized by section 394.47865” and hence lacked standing to proceed under Section 120.57(3)(b), Florida Statutes. Id.
In its opinion, the court examined the purposes of a specifications protest, quoting from several different treatises on the subject. Those purposes, in a nutshell, are to ensure a fair competition and save expenses by affording the agency an early opportunity to correct or clarify deficiencies in the specifications that might cause bidders to come to different conclusions about what the contract is. Id. at 755-56. Thus, a “challenge to an RFP must be directed to specifications that are so vague that bidders cannot formulate an accurate bid, or are so unreasonable that they are either impossible to comply with or too expensive to do so and still remain competitive.” Id. at 755.
Against the backdrop of the foregoing principles, the court declared:
It is apparent that only potential bidders, and perhaps suppliers of hospital equipment or services to a bidder, have standing to contend that the RFP is too vague or unreasonable to permit a truly competitive bid. In contrast, appellants' challenge is addressed, point after point, to policy decisions with which they
disagree, rather than specifications which need clarification because of ambiguity or need adjustment because of expense.
Accordingly, the injuries that appellants allege are not the type that section 394.47865 was designed to protect.
In conclusion, the legislature decided that SFSH must be privatized and implemented section 394.47865 to authorize construction of a new facility. Section 394.47865(2)(b)
expressly directs the department and whichever contractor it selects to operate the hospital to ensure that the facility provides effective treatment to the mentally ill, and assistance that will enable patients to return quickly to their communities. Section 120.57(30(b) allows adversely affected persons to challenge the specifications of the RFP. Only potential contractors or providers under the contract to be awarded pursuant to the RFP have standing to litigate whether the RFP's specifications are so vague or unreasonable that the contractor will be unable to satisfy the goals of section 394.47865.
Neither the Advocacy Center nor the individual appellants are engaged in any endeavor related to the actual operation of treatment facilities, and thus they cannot further the department's efforts to ensure a just procurement procedure.
Id. at 756 (underlining added).
The circumstances of the instant case are somewhat similar to those of Advocacy Center. As was true of the challengers in Advocacy Center, FAMES has not attacked specifications in the RFP that it claims need to be clarified or modified to ensure a just procurement, but rather quarrels with underlying policy decisions that are opposed by FAMES’s members. Unlike the challengers in Advocacy Center, however, FAMES has never purported to travel under Section 120.57(3)(b), but instead requested a hearing under Sections 120.569 and 120.57, wherein it is perfectly appropriate to challenge policy decisions that affect one’s substantial interests. That distinction is significant because in Advocacy Center the court
did not explicitly or necessarily hold that Section 120.57(3)(b) afforded the challengers their only administrative remedy—— although, to be sure, the court seems implicitly to have reached that conclusion.
There are other and better reasons, however, for concluding that the decision in Advocacy Center does not defeat FAMES. First, the legislature, by duly enacting an unambiguous statute, had expressly directed DCF to privatize the Hospital through a request for proposals. Thus, because (or to the extent) it appeared that the challengers’ true purpose was to prevent the procurement from proceeding at all, as DCF claimed (and the court repeated), the court was compelled to rule that Section 394.47865 could not permit such relief. In contrast, the legislature has not passed a law requiring the Agency to purchase DME on a competitive-bids basis. The explanatory language in Specific Appropriation 252 no doubt reflects some degree of legislative desire, but it cannot be construed as a mandate to act, according to the teaching of Moreau v. Lewis, 648 So. 2d 124 (Fla. 1995).
In Moreau, the Supreme Court considered a challenge to the constitutionality of “Specific Appropriation 63,” which contained this sentence: “‘Funds in Specific Appropriation 63 reflect [an overall] reduction [of about $5.96 million] to reinstate the pharmacy $1.00 co-payment cost containment
initiative.’” Id. at 126. Because the pertinent statute did not provide for a Medicaid pharmacy co-payment, id. at 125, the petitioner argued that Specific Appropriation 63 unconstitutionally had amended or changed existing law on a subject other than appropriations.16 The Supreme Court disagreed, holding that Specific Appropriation 63 was not
unconstitutional because
the challenged language is merely descriptive of a reduction in an appropriation coupled with a nebulous reference to a “1.00 co-payment cost containment initiative.” Standing alone, the challenged language in Specific Appropriation 63 commands nothing.
Id. at 126-27 (emphasis added).
The language of Specific Appropriation 252 is obviously very similar to that of Specific Appropriation 63. Thus, as was held of the latter in Moreau, it must be concluded here that Specific Appropriation 252 commands nothing as a legal matter——and hence is materially distinguishable from Section 394.47865, Florida Statutes, which did.17
Second, while FAMES, like the challengers in Advocacy Center, is challenging policy decisions with which it disagrees, FAMES——unlike its counterparts in the earlier case——can point to a specific statute that arguably protects the interests that FAMES seeks to vindicate: namely, Section 409.908, Florida Statutes, which requires the Agency to reimburse Medicaid
providers in accordance with state and federal law. As the representative of Medicaid providers, FAMES has a right under Chapter 120 to a regular substantial interests hearing——not merely a special bid protest hearing——to resolve disputed issues of fact concerning policy decisions regarding Medicaid reimbursement that purportedly violate state or federal law, which is exactly what FAMES has alleged.18
Third, this case differs markedly from Advocacy Center because federal law overlays the state law governing the Medicaid program——a factor that simply has no parallel in the previous case. Indeed, this distinction alone renders Advocacy Center inapposite and explains why FAMES was not limited to bringing a specifications protest under Section 120.57(3)(b), Florida Statutes. Among other things, FAMES has challenged the Agency’s decision not to certify to CMS, pursuant to federal law, that the instant competitive-bids procedures and intended arrangements will satisfy the statutory safeguards and other requirements of federal law. This decision causes, or threatens to cause, a real and immediate injury to FAMES’s members of a type that Section 409.908, Florida Statutes, was arguably designed to protect against——and it is a decision that clearly stands apart from the contents of the RFP.
Finally, the requirements of federal Medicaid law cannot be waived through the bid protest procedures prescribed
in Section 120.57(3)(b), Florida Statutes. Therefore, while it is concluded, for the reasons just discussed, that: (1) this case is not a bid protest; (2) FAMES was not required to proceed under Section 120.57(3)(b); and (3) FAMES did not waive its right to an administrative hearing under Chapter 120 by failing to protest the RFP within 72 hours after receiving notice thereof, it is also clear that, as a practical matter, to deny FAMES an administrative remedy could very well lead to bigger problems for the Agency down the road. It would be better for the Agency to comply with the federal certification requirements now than to be enjoined from performing the contracts later for failing to do so.
Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency enter a Final Order that stops the procurement under the RFP until after (1) the Agency has submitted the certification required under 42 C.F.R. § 431.51(d) and CMS has notified the Agency that all of the requirements for an exception under 42 C.F.R. § 431.54(d) have been met or, alternatively, (2) CMS has granted the Agency a waiver of the freedom of choice requirement in connection with this procurement.
It is further RECOMMENDED that the Agency update its DME Handbook to reflect or accommodate any new competitive
reimbursement methodologies that might be put into effect, and to adopt such amendments as a rule, as soon as feasible and practicable, to avoid violating Section 120.54(1)(a), Florida Statutes.
DONE AND ENTERED this 18th day of October, 2002, in Tallahassee, Leon County, Florida.
JOHN G. VAN LANINGHAM
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 18th day of October, 2002.
ENDNOTES
1/ The undersigned understands the difference between a request for proposals and an invitation to bid and knows that, technically, the RFP sought “proposals” from qualified “proposers” rather than “bids” from “bidders.” Because the distinction is irrelevant in this case, however, the term “bid” and its variants when used herein are intended to include the equivalent terminology relating to requests for proposals.
2/ Faced with the need to continue providing DME despite a $1.3 million reduction in its budget, the Agency’s focus on saving money was reasonable and, indeed, to be expected.
3/ The Agency acknowledges that competitive bidding for publicly financed medical assistance carries a regulatory component. As it wrote in Respondent’s Proposed Recommended Order, “[The
Agency] has supported competitive bidding for appropriate items not only as a measure to help control costs, but also to better regulate DME providers and improve the quality of service for Medicaid recipients.” Resp. Prop. Rec. Order at 7 (emphasis added).
4/ It is true that a DME provider who is not currently enrolled and serving Medicaid recipients but would like to keep open the option to do so might be adversely affected by the competitive- bids process at issue; however, assuming such a provider exists, its interest——the substantiality of which largely would depend on how likely it is that the provider actually would enter the Medicaid market for DME——would be relatively remote, speculative to some degree, and, ultimately, not sufficiently immediate to support standing.
5/ The Agency, it should be noted, did not raise a hearsay objection and, indeed, has urged the undersigned to find that “[a]t least 25 to 50 members of Petitioner provide DME services to Medicaid recipients.” Resp. Prop. Rec. Order at 8. Thus, it could be said that this fact was undisputed.
6/ Arguably, as well, his testimony might properly be considered as hearsay evidence that supplements or explains other nonhearsay evidence concerning FAMES’s members, see Section 120.57(1)(c), Florida Statutes, although the undersigned has not resorted to that.
7/ In addition to the testimony discussed in the text, Mr. Lichtenstein also expressed his belief that 12 to 14 of the 19 providers who submitted proposals in response to the RFP are members of FAMES; he recounted that at least two members’ proposals were disqualified; and he noted that an unspecified number of other members did not bid. These data, if true, are consistent with Mr. Lichtenstein’s assertion that at least 25 to
50 members of FAMES are Medicaid providers of DME, because the proposers, it can reasonably be inferred, were Medicaid-enrolled providers. Finally, Mr. Lichtenstein testified that his own company, Hollywood Medical Supply, which is a FAMES member, participates in the Medicaid program for DME. While Mr. Lichtenstein’s testimony about his own company is reliable evidence and accepted as true, and although there is no particular reason to disbelieve the other testimony just described, Mr. Lichtenstein’s beliefs and not-too-detailed anecdotes concerning other members are not exactly the sort of “hard” evidence, such as business records, that one expects to
be offered as proof of such facts. Although of limited probative value, some weight has been given this testimony as support for the inference, described in the text, concerning FAMES’s interest in representing its members in this proceeding.
8/ Medicaid recipients, being free to choose their own DME provider (from among the pool of enrolled providers), are analogous to other consumers, in that providers must compete for their business. (Granted, because the prices are predetermined and uniform, and because the recipient does not use his own money to pay for the DME, cost is not a factor in this competition, which distinguishes it from a routine free market contest.) Thus, if the relevant market is defined as the category of potential “buyers” of Medicaid compensable DME, then Medicaid recipients currently make up the market. If, however, a relatively small number of exclusive contracts is awarded through competitive bidding, as the Agency proposes, then the Medicaid recipients, having no choice of provider, will not be “buyers” of the subject DME. Instead, the relevant buyer will be the Agency, whose interests might not be coterminous with those of the Medicaid recipients served under the contracts.
This is a major change in the market, because competitive advantages attractive to Medicaid recipients——once relevant—— might not appeal to the Agency, just as, conversely, a previously insignificant competitive factor such as cost, which probably mattered little to most recipients, might now be decisive. Then too, under competitive bidding the competition is periodic, rather than continuous, which means that the successful bidders are effectively free from competition during the terms of their respective contracts. In short, competitive bidding is a whole different ballgame. This does not mean that competitive bidding is bad or doomed to fail, but only that it works a significant change in the relevant market.
9/ FAMES argues, plausibly, that the DME-related services covered under the RFP are not “medical devices” that can be purchased under arrangements entered into through competitive bidding pursuant to an exception. The term “medical devices” appears not to be the subject of a federal statutory or regulatory definition. Federal agency commentary, however, explains that “[m]edical devices means items such as durable medical equipment, home health appliances, eyeglasses, hearing aids, or prosthetics that are covered under the State's Medicaid program.” See 46 F.R. 48524, 48525 (emphasis added). Whether the services in question constitute “medical devices” within the meaning of 42 U.S.C. § 1396n(a)(1)(B) is an interpretive issue
arising under federal law that can and should be decided by CMS upon review of the instant project; it need not be decided here.
10/ The Agency also has argued that it was excused from complying with 42 U.S.C. §§ 1396a(a)(23)(A) and 1396n because this procurement apparently is not subject to a so-called “pre- award review” by the U.S. Department of Health and Human Services pursuant to 45 C.F.R. § 74.44(e). This contention is off target. Section 74.44 of Title 45, Code of Federal Regulations, prescribes general procurement procedures with which states must comply if they receive federal funds for the purpose of carrying out entitlement programs such as Medicaid. These procedures apply “[u]nless inconsistent with statutory requirements . . . .” 45 C.F.R. § 74.1(a). Examination reveals that nothing in 45 C.F.R. § 74.44(e) suggests that the purpose of a “pre-award review” is to make the fact-findings necessary for a competitive-bids exception or a waiver pursuant to 42
U.S.C. § 1396n. Nor, for that matter, does the “pre-award review” seem to be associated, in any particular way, with the freedom of choice requirement. Therefore, although the general procurement procedures set forth in 45 C.F.R. § 74.44 must give way in the event of conflict, they are consistent with both 42
U.S.C. § 1396a(a)(23)(A) and 42 U.S.C. § 1396n in this instance. At any rate, moreover, such general procedures could not supplant the specific Medicaid statutes and regulations concerning competitive bidding. A competitive bidding process for the purchase of laboratory services or medical devices might——or might not——be subject to a “pre-award review” under 45
C.F.R. § 74.44(e), but either way a state that desires to curtail freedom of choice must obey 42 U.S.C. § 1396n and the regulations promulgated thereunder.
11/ “CB” is shorthand for “competitive bidding.”
12/ The federal Medicaid agency has said as much:
[I]t is necessary for us to be accurately informed of how States are administering their Medicaid programs, and to determine if their operations are actually in compliance with the statute. Moreover, [42 U.S.C. § 1396n](a)(1)(B) requires a positive Secretarial finding in order for a State to adopt a competitive bidding process. We believe these purposes can be achieved best by having a State notify us early in its
implementing process of program changes under [42 U.S.C. § 1396n]. This early report would not be a request for approval, since the State would not be precluded from beginning implementation pending review of its report. However, we believe that such a mechanism will permit us to pass along to the States, through our review of their reports, the benefit of the experience of the other States and to provide them as much technical assistance as possible.
Therefore, we have decided to require States to report to HCFA regarding program changes under [42 U.S.C. § 1396n] no later than the end of the calendar quarter in which a State first implements these changes. (In the case of a State entering into competitive or other arrangements concerning laboratory services or medical devices, the report would have to be submitted, and a positive finding made, before the arrangements could be implemented.)
46 FR 48524, 48524-25 (emphasis added). Notice the imprecision in the underscored passages.
13/ Certain related issues will likely be resolved in the companion to this proceeding, DOAH Case No. 02-1314RU, wherein FAMES contends that the Agency has failed properly to adopt, according to the rulemaking procedures of Section 120.54, Florida Statutes, various rules-by-definition that are alleged to underlie the instant competitive bidding process.
14/ The Rule, it must be pointed out, is ambiguous because it fails to specify to whom a request for proposals (or notice of request for proposals) must be mailed. The reasonable alternatives are: (1) Mail to every potentially interested, apparently qualified proposer; or (2) mail to anyone who timely asks for a copy. Neither party has taken a position on this point, although no guesswork is required to discern the side on which each would come down.
It is immediately apparent that the first alternative would make Rule 60A-1.002(7) far more demanding (and costly to comply
with) than the second. The undersigned believes that if the drafters of the Rule had intended to impose upon agencies the heavy burden that the first alternative would entail, they would have said so in clearer terms than those chosen. He has opted, therefore, to read Rule 60A-1.002(7) to require that a request for proposals be mailed no later than ten days prior to the response deadline only to those who ask for one, not to the universe of people who might have reason to want one.
15/ Unlike other types of bid protest, a “specifications protest” must be initiated before the letting authority gives notice of the intended award or decides to reject all bids. The failure to timely protest the specifications effects a waiver of the right to Chapter 120 proceedings for that purpose. See Capeletti Bros., Inc. v. Department of Transportation, 499 So.
2d 855, 857 (Fla. 1st DCA 1987).
16/ See Brown v. Firestone, 382 So. 2d 654, 664 (Fla. 1980).
17/ Obviously the Agency cannot be faulted——and is certainly not being criticized here——for construing Specific Appropriation 252 as a practical mandate to proceed with competitive bidding for DME. As a legal matter, however, the Agency could, in theory, have ignored the non-binding suggestion that bids for DME be solicited.
18/ While this case might have been brought as a specifications protest, it did not need to be. FAMES is not complaining about ambiguous or unreasonable provisions in the RFP from the standpoint of a potential bidder, and it most certainly is not interested in helping the Agency refine the RFP to ensure that a fair competitive procurement is conducted. Rather, FAMES wants to prevent the competition from occurring or, failing that, to make sure that any competition that may be conducted——and, equally important, the policies that underlie and inform such competition——comply in all respects with state and federal law. These are legitimate interests which exist independent of the particular specifications of the RFP and are protected under Section 409.908, Florida Statutes.
COPIES FURNISHED:
Donna H. Stinson, Esquire Broad and Cassel
215 South Monroe Street, Suite 400 Post Office Drawer 11300 Tallahassee, Florida 32302
Cynthia A. Mikos, Esquire Cynthia A. Mikos, P.A.
205 North Parsons Avenue, Suite A Brandon, Florida 33510-4515
Kelly A. Bennett, Esquire Eric A. Miller, Esquire
Agency for Health Care Administration 2727 Mahan Drive, Building 3
Tallahassee, Florida 32308-5403
Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive
Fort Knox Building Three, Suite 3431 Tallahassee, Florida 32308
Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive
Fort Knox Building Three, Suite 3431 Tallahassee, Florida 32308
Rhonda M. Medows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive
Fort Knox Building Three, Suite 3116 Tallahassee, Florida 32308
NOTICE OF RIGHT TO SUBMIT EXCEPTIONS
All parties have the right to submit written exceptions within
15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Dec. 30, 2002 | Agency Final Order | |
| Oct. 18, 2002 | Recommended Order | Respondent`s failure to obtain federal approval of a competitive bidding process that affects the Medicaid program requires that the procurements be held in abeyance after federal approval has been granted. |
