vs. ) CASE NO. 81-1480RX
Respondent. )
This matter came on for final hearing in Coral Gables, Florida, before the Division of Administrative Hearings by its Hearing Officer, Robert T. Benton II, on August 3, 1981. At the hearing, the parties waived the time for entry of the final order. The Division of Administrative Hearings received the hearing transcript on August 27, 1981. On motion, time for submission of the parties' proposed orders was extended to November 13, 1981. The parties were represented by counsel:
For Petitioner: Edward J. Hopkins, Esquire, and
Michael H. Cook, Esquire Wood, Lucksinger & Epstein
Richard E. Benton, Esquire
For Respondent: Robert A. Weiss, Esquire
By petition filed June 1, 1981, petitioner requests that Rule 10C-7.39(5), 1/ Florida Administrative Code, "and its predecessor policies be declared invalid" along with "Attachment 4.19A of the Florida State Plan for Medical Assistance" to the extent it is interpreted otherwise than to require reimbursement for inpatient hospital services "by the standards and methods used under the Medicare program, and at the rates that [hospitals] would be reimbursed using those methods and standards."
After this rule challenge had been assigned to another hearing officer, by order entered June 9, 1981, petitioner moved that the present case be consolidated for hearing with the related substantial interest case, No. 80-112, pending before the undersigned; respondent expressly consented to this procedure; and, on June 26, 1981, an order was entered consolidating the two cases for hearing. The consolidated hearing was first scheduled for July 7, 1981, then continued until August 3, 1981, at the parties' instance, and upon their written consent and waiver of the 30-day time for hearing specified by Section 120.56, Florida Statutes (1979).
The parties entered into a lengthy prehearing stipulation dated July 10, 1981, and executed a supplemental prehearing stipulation on August 3, 1981.
These written stipulations, as supplemented by further stipulations made on the record at the time of the final hearing, are the basis for the following.
FINDINGS OF FACT.
The rule at issue has been variously codified, but will be referred to for purposes of the present case as Rule 10C-7.39(6), Florida Administrative Code. The pertinent language, which was first adopted as part of Rule 10C- 7.03(5), Florida Administrative Code, on March 30, 1976, and which was repealed on July 28, 1981, provides:
Reimbursement for services provided is
in accord with the standards and principles of reasonable cost as defined and applied under the Social Security Act, Title XVIII, Medicare Program. In lieu of retroactive adjustment, 6 percent shall be added to a participating hospital's costs to determine a current reimbursement rate.
Respondent adopted this rule on the claimed authority of Section 409.266, Florida Statutes.
In its 1969 legislative session, the Florida Legislature enacted Section 409.266, Florida Statutes, entitled "Medical Assistance for the Needy," providing the original State legislative basis and authority for Florida's entry into the Medicaid program.
Section 409.266(2), Florida Statutes, as enacted, authorized the Florida Department of Social Services or any other department that the Governor might designate to:
Enter into such agreement with
other state agencies or any agency of the federal government and accept such duties with respect to social welfare or public aid as may be necessary to implement the provisions of subsection (1) and to qualify for federal aid including compliance with provisions of Public Law 86-778 and the "Social Security Amendments of 1965" [estab-
lishing Title XIX of the Social Security Act.]
Section 409.266(3), Florida Statutes, as enacted, stated that:
The department of social services is authorized and directed to prepare and operate a program and budget in order to implement and comply with the provisions of public law 86-778 and the "Social Secu- rity Amendments of 1965." Chapter 69-265, Laws of Florida (1969).
No provisions of Florida law other than Section 409.266, Florida Statutes, as enacted, authorized any agency to perform any function specifically to implement the Medicaid program.
The State of Florida formally commenced participation in the Medicaid program effective January 1, 1970.
At all times pertinent to this controversy, respondent, Florida Department of Health and Rehabilitative Services or its predecessor agencies (referred to as "HRS") , has been and continues to be the "State Agency" identified in 42 U.S.C. Section 1396a (a) (5), and charged under Section 409.266, Florida Statutes, as amended, with the formulation of a State Plan for Medical Assistance ("State Plan"), 42 U.S.C. Section 1396a, and with the ongoing responsibility for the administration of the Medicaid program in the State of Florida.
Since Florida's entry into the Medicaid program in 1970, HRS has been authorized essentially to "[e]nter into such agreements with appropriate agents, other State agencies, or any agency of the Federal Government and accept such duties in respect to social welfare or public aid as may be necessary or needed to implement the provisions of Title XIX of the Social Security Act pertaining to medical assistance." Section 409.266(2)(a), Fla. Stat., as amended.
HRS has never been authorized to enter into any agreements, accept any duties, or perform any functions with respect to the Medicaid program that are in contravention of or not authorized by Title XIX of the Social Security Act and implementing Federal regulations and requirements.
As a prerequisite for Florida's entry into the Medicaid program, HRS prepared and filed with the United States Department of Health, Education, and Welfare ("HEW") a State Plan, pursuant to Title XIX of the Social Security Act, and pursuant to its delegated legislative authority set forth in Section 409.266(2)(a), Florida Statutes. (In May, 1980, HEW was redesignated the United States Department of Health and Human Services, but for purposes of this action both shall be referred to as HEW.)
C.W. Hollingsworth was the HRS official who had the responsibility for supervising the preparation, the filing, and for obtaining the approval of HEW of Florida's initial State Plan
Florida's initial State Plan was approved by HEW effective January 1, 1970.
At the time that Florida received approval of its initial State Plan, Title XIX of the Social Security Act required state plans to provide for the payment of the reasonable cost of inpatient hospital services.
At the time that Florida received approval of its initial State Plan, HEW regulations governing reimbursement for inpatient hospital services under Medicaid required the State Plan to provide for reimbursement of Medicaid inpatient hospital services furnished by those hospitals also participating in the Medicare program, applying the same standards, cost reimbursement principles, and methods of cost apportionment used in computing reimbursement to such hospitals under Medicare. 45 C.F.R. Section 250.30(a) and (b), 34 Fed. Reg. 1244 (January 25, 1969).
At the time that Florida entered the Medicaid program, Medicare cost reimbursement principles in effect governing reimbursement for the cost of inpatient hospital services required payment of a participating hospital's actual and reasonable costs of providing such services to Medicare beneficiaries, and, moreover, that such payment be made on the basis of the hospital's current costs rather than upon the costs of a prior period or upon a fixed negotiated rate. 42 U.S.C. Section 1395x (v) (1)(A) 20 C.F.R. Section 405.451(c) (2), 405.402(a) [later renumbered 42 C.F.R. Section 405.451(c)(2) and Section 405.402(a)].
Such Medicare principles and standards also provided for interim payments to be made to the hospital during its fiscal year. At the conclusion of the subject fiscal year, the hospital was required to file a cost report wherein the hospital included all of its costs of providing covered inpatient services to Medicare beneficiaries. A settlement or "retroactive adjustment" process then was required to reconcile the amount of interim payments received by the hospital during the fiscal period with its allowable costs incurred during that period. If the hospital had been overpaid during the year, it was required to refund the amount of that overpayment to the Medicare program. Conversely, if the hospital had been underpaid during the year, the Medicare program was required to make an additional payment to the hospital, retroactively, in the amount of the underpayment. 20 C.F.R. Section 405.402(b)(2), 405.451(b)(2).
Essentially the same Medicare principles and standards governing reimbursement of inpatient hospital services described in the two preceding paragraphs have been in effect at all times pertinent to this controversy.
42 C.F.R. Section 405.401, et seq.
Florida's approved State Plan as of January 1, 1970, governing reimbursement of inpatient hospital services under the Medicaid program, committed HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards.
The only versions of Florida's State Plan provisions that have been approved by HEW and that have governed HRS's reimbursement of inpatient hospital services prior to July 1, 1981, each commit HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards.
Attached as an appendix to the final order is the form agreement drafted under the supervision of C.W. Hollingsworth, which has been in use from January 1, 1970, until July 1, 1981.
From the inception of the Florida Medicaid program, and as a prerequisite for participation therein, a hospital has been required to execute a copy of the form agreement. A hospital may not participate in the Medicaid program without having executed such an agreement, nor may it propose any amendments thereto.
The intent and effect of the form agreement is to require HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards.
The form agreement requires HRS to compute a percentage " allowance in lieu of the retroactive adjustments ("percentage allowances") in determining the rates that hospitals will be paid for providing inpatient hospital services to Medicaid patients.
The form agreement requires HRS to compute a new percentage allowance each year based on hospital cost trends.
The meanings of the terms "allowance in lieu of retroactive adjustments" in all pertinent state plans and "percentage allowance for the year in lieu of retroactive payment adjustment" contained in the form agreement are identical.
In drafting the form agreement, HRS intended that the "percentage allowance for the year in lieu of retroactive payment adjustment" be set at a level sufficient to ensure that hospitals participating in the Medicaid program would be reimbursed their "reasonable costs" of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards.
At all times pertinent to this controversy, participating hospitals, like petitioner, have been reimbursed by HRS for inpatient hospital services provided to Medicaid patients in the following manner:
Within ninety (90) days following the close of its fiscal year, the partici- pating hospital files a Form 2551 or 2552 Annual Statement of Reimbursable Costs, as
applicable, with both Blue Cross of Florida, Inc., the major fiscal intermediary respon- sible for the administration of Part A of the federal Medicare program in the State
of Florida, and with HRS. This document, also referred to as a "cost report" details various hospital and financial statistical data relating to the patient care activities engaged in by the hospital during the sub- ject fiscal period.
Upon receipt of the participating hospital's cost report for a fiscal period, HRS makes an initial determination based upon Medicare cost reimbursement principles and standards of the hospital's total allow- able inpatient costs, charges, and total
patient days during the subject fiscal period, and then determines an inpatient per diem
reimbursement rate for the period.
To the inpatient per diem reimburse- ment rate is then added a percentage allow- ance in lieu of making any further retroactive corrective adjustments in reimbursement which. might have been due the hospital applicable
to the reporting period. The adjusted in- patient per diem reimbursement rate is applied prospectively, and remains in effect until further adjustments in the rate are required.
If HRS determines that total inpa- tient Medicaid reimbursement to a partici- pating hospital during a fiscal period exceeds the hospital's allowable and rea- sonable costs of rendering such covered inpatient services applying Medicare cost reimbursement principles and standards, then the hospital is required to remit to HRS the amount of such overpayment.
If, however, HRS determines that
the total inpatient Medicaid reimbursement received by a participating hospital is less than the hospital's actual and reason- able costs of rendering such covered inpa- tient services to Medicaid patients during
the period applying Medicare cost reimburse- ment principles and standards, no further retroactive corrective adjustments are made; provided, however, that should an overpayment occur in a fiscal period, it may be offset and applied retroactively against an under- payment to the participating hospital which occurred during the next preceding fiscal period only.
HRS has used the following "percentage allowances" in determining Medicaid reimbursement rates for inpatient hospital services:
January 1, 1970-June 30, 1972 ...12 percent
July 1, 1972-approximately March 30, 1976 ... 9 percent
Approximately March 31, 1976-June 30, 1981... 6 percent
Since at least January 1, 1976, HRS has not recomputed the "percentage allowance" on an annual basis.
Since at least January 1, 1976, HRS has not based the "percentage allowance" that it has applied in determining Medicaid inpatient hospital reimbursement rates upon hospital cost trends.
HRS has used no technical methodology based upon hospital cost trends to develop any of the "percentage allowances."
At least since January 1, 1974, HRS's "percentage allowances" have been less than the corresponding average annual increases in the costs incurred by Florida hospitals of providing inpatient hospital services.
Prior to March 30, 1976, all of HRS's published regulations addressing reimbursement of participating hospitals for their costs of providing inpatient hospital services to Medicaid patients required HRS to reimburse such hospitals in accordance with Medicare cost reimbursement principles and standards.
In certain internal documents, Petitioner's Exhibits P-44 and P-12, HRS states that the average costs of providing inpatient hospital services in the State of Florida rose at least 18 percent during calendar year 1975.
In November, 1975, the Secretary of HRS was informed by HRS officials that HRS faced a projected budgetary deficit for its fiscal year ended June 30, 1976.
A decision memorandum presented options to the HRS Secretary for reducing the projected deficit.
Among such options presented to and approved by the HRS Secretary was to reduce the "percentage allowance" from 9 percent to 6 percent.
The reduction of the "percentage allowance" by HRS from 9 percent to 6 percent was effected in response to HRS's projected deficit, and was not based upon an analysis of hospital cost trends.
HRS incorporated the 6 percent "percentage allowance" into its administrative rules which were published on March 30, 1976.
In response to objections raised by the Florida Hospital Association to the reduction in the percentage allowance by HRS from 9 percent to 6 percent, HRS officials reexamined that reduction.
During HRS's reexamination of its previous "percentage allowance" reduction, HRS was aware of and acknowledged the fact that Florida hospital costs were increasing at an average annual rate in excess of both the earlier 9 percent and the resulting 6 percent "percentage allowance."
In a memorandum dated September 13, 1976, from HRS official Charles Hall to the Secretary of HRS, Petitioner's Exhibit P-45, Charles Hall informed the Secretary that the methods and standards then used by HRS to reimburse participating hospitals for their costs of providing inpatient hospital services to Medicaid patients was out of compliance with federal requirements.
Charles Hall further informed the Secretary that the reason HRS had not theretofore been cited by HEW for noncompliance was the manner in which the Florida State Plan had been drafted, i.e., that the State Plan required HRS to reimburse hospitals under Medicaid for the reasonable costs that they would have been reimbursed applying Medicare cost reimbursement principles and standards.
In a letter dated September 20, 1976, Petitioner's Exhibit P-31, HEW informed HRS that HEW had received a complaint from the Florida Hospital Association that the methods HRS was actually using to reimburse hospitals for the costs of providing inpatient hospital services to Medicaid patients were in violation of federal regulation 45 C.F.R. Section 250.30(a).
A proposed amendment to Florida's State Plan submitted by HRS to HEW in November, 1976, Petitioner's Exhibit P-49, if approved, would have allowed HRS to reimburse hospitals for the cost of providing inpatient hospital services to Medicaid patients under methods differing from Medicare cost reimbursement principles and standards (an "alternative plan").
"Alternative plans" have been permitted under applicable federal regulations since October 21, 1974.
A state participating in the Medicaid program may elect to establish an "alternative plan," but may not implement such "alternative plan" without the prior written approval of HEW.
Florida has not had in effect an "alternative plan" of reimbursing participating hospitals for their costs of providing inpatient hospital services to Medicaid patients that was formally approved by HEW at any time prior to July 1, 1981.
By letter dated January 7, 1977, Petitioner's Exhibit P-32, HEW notified HRS that it had formally cited HRS for noncompliance with federal regulations governing reimbursement of inpatient hospital services under Medicaid.
HRS acknowledged their noncompliance and between November, 1976, and October 30, 1977, HRS attempted to revise its proposed "alternative plan" on at least two occasions in an attempt to obtain HEW approval.
In October, 1977, HRS withdrew its proposed "alternative plan" then pending with HEW. HRS then contracted with an outside consultant, Alexander Grant & Company, to assist in the formulation of a new "alternative plan" proposal.
In January, 1978, Alexander Grant & Company delivered its draft of an "alternative plan" to HRS.
In October, 1978, HRS submitted a draft "alternative plan" to HEW for review and comment, and HEW expected HRS to submit a formal "alternative plan" proposal to HEW for its approval by November 1, 1978.
HRS did not submit the formal "alternative plan" proposal to HEW until August 12, 1980.
In a letter dated February 21, 1979, from Richard Morris, HEW Regional Medicaid Director, Region IV, to United States Senator Richard Stone of Florida, Mr. Morris advised Senator Stone:
For more than two years the Florida Medicaid Program has not met Federal Requirements for inpatient hospital services reimbursement.
Their payment methodology under-reimburses certain hospitals year after year. The pros- pective interim per diem rate paid by Florida to hospitals includes a percentage allowance to cover increased costs during the forthcom- ing year that is consistently less than increased costs in some hospitals. If the payments are less than costs, the difference
is not reimbursed. This results in underpay- ments. We have worked closely with Florida to develop an acceptable alternative system that would meet Federal requirements. To date, Florida has not implemented such a system despite having received informal
HEW agreement on a draft plan developed more than a year ago. It is our understanding that this alternative plan is not a high priority item at this time. We will con- tinue to work with HRS staff to secure Florida compliance regarding this require- ment. Petitioner's Exhibit P-46.
Since August 12, 1980, HRS has submitted to HEW for its approval at least four more versions of an "alternative plan." Petitioner's Exhibits P-120, P-121, P-123, and P-152. Each of these versions were approved by the Secretary of HRS, and HRS believes each to comply with applicable Florida law.
Mr. Erwin Bodo, Ph.D., was and is the HRS official responsible for the development and drafting of Exhibits P-120, P-121, P-123, and P-152.
In June, 1981, HEW approved an "alternative plan" for the State of Florida (Exhibit P-152) , and such "alternative plan" was implemented effective July 1, 1981.
Until July 1, 1981, HRS continued to use the 6 percent percentage allowance" to compute inpatient hospital reimbursement under Medicaid. Even after its repeal, Rule 10C-7.39(6), Florida Administrative Code, is applied by respondent in calculating reimbursement for Medicaid services provided between March 30, 1976, and July 1, 1981.
From November 20, 1976, until July 1, 1981 the period in which HRS was attempting to secure HEW approval for an alternative plan--HRS was aware that the costs of inpatient hospital services were increasing at an average annual rate in excess of the 6 percent "percentage allowance."
From September 1, 1976, through July 1, 1981, HRS has been out of compliance with its approved State Plan provisions, and HEW regulations governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards.
Since the quarter ending December 31, 1976, until July 1, 1981, HEW has formally cited HRS as being in contravention of its approved State Plan provisions, and HEW (now HHS) regulations, governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals--including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards.
PAN AMERICAN HOSPITAL CORPORATION
Petitioner, Pan American Hospital Corporation, is a not-for-profit corporation, duly organized and existing under the laws of the State of Florida.
Petitioner is a tax-exempt organization as determined by the Internal Revenue Service pursuant to Section 501(c)(3) of the Internal Revenue Code of 1954, as amended.
At all times pertinent to this controversy, petitioner has operated and continues to operate a duly licensed 146-bed, short-term acute care general hospital, located at 5959 Northwest Seventh Street, Miami, Florida 33126.
At all times pertinent to this controversy, petitioner has been and continues to be a duly certified provider of inpatient hospital services, eligible to participate in the Florida Medicaid program since January 27, 1974.
The Appendix to this Final Order is a true and correct copy of the "Participation Agreement" entered into between petitioner and HRS, whereunder, inter alia, petitioner became eligible to receive payment from HRS for covered inpatient hospital services provided to Medicaid patients.
At all times pertinent to this controversy, petitioner has been a certified "provider of services" participating in the Medicare program.
During the fiscal periods in dispute in this action, petitioner did provide covered inpatient hospital services to Medicaid patients, and became eligible for payment by HRS of its reasonable costs of providing such services, determined in accor- dance with Medicare cost reimbursement principles and standards.
With respect to each of the fiscal periods in dispute in this action, petitioner timely filed all cost reports and other financial data with HRS or its contracting agents, including Blue Cross of Florida, Inc., to enable HRS to determine petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients.
During each of the fiscal periods in dispute in this action, HRS failed to reimburse petitioner for its reasonable costs of providing covered inpatient hospital services to Medicaid patients, determined in accordance with applicable Medicare cost reimbursement principles and standards. Such costs incurred by petitioner were reasonable, necessary, related to patient care, and less than customary charges within the meaning of those Medicare principles and standards.
With respect to each of the fiscal periods in dispute, HRS and/or its contracting agent, Blue Cross of Florida, Inc. , reviewed and audited the cost reports filed by petitioner, and as a result of such review and audits set or adjusted, as applicable, the Medicaid inpatient per diem reimbursement rate at which petitioner would be paid during the next succeeding fiscal period or until that rate was again adjusted.
MOTION TO DISMISS RULE CHALLENGE DENIED
Respondent sought dismissal of petitioner's challenge to Rule 10C- 7.39(6), Florida Administrative Code, on grounds that the challenged rule provision has now been repealed (effective July 28, 1981). By this motion,
respondent raises the question whether petitioner remains "substantially affected" notwithstanding the repeal. The parties are in agreement that respondent still applies Rule 10C-7.39(6) , Florida Administrative Code, in calculating reimbursement for providers like petitioner who furnished Medicaid services during the time between adoption of the rule and its repeal.
The present case resembles State Department of Transportation v. Pan American Construction Company, 338 So.2d 1291 (Fla. 1st DCA 1976), app. dism.
345 So.2d 427 (Fla. 1977). The rule challenged in that case had been promulgated pursuant to a statute that was later amended by legislation which took effect after the Section 120.56 hearing, but before entry of a final order invalidating the rule. In response to the statutory amendment, moreover, the agency whose rule was under challenge adopted an emergency rule superseding the challenged rule. On appeal, the agency argued that the rule challenge was moot. The court ruled:
While normally the law as it exists at the time of review will be applied to a pending case, in this proceeding, begun under the old law and rules adopted pursuant to it, we consider that respondents are entitled to construction of such law and rules.
Their rights under contracts with peti- tioner which were in existence during the life of the former statute and rules may be affected by the construction of that statute and the rules adopted pursuant to it. State Department of Transportation v. Pan American Construction Co., 338 So.2d 1291, 1294 (Fla. 1st DCA 1976)
In the present case there has been no statutory amendment, but here as in State Department of Transportation v. Pan American Construction Co., the proceedings pursuant to Section 120.56, Florida Statutes, began before the repeal of the challenged rule; and the parties' "rights under contracts . . . which were in existence during the life of the former . . . [rule] may be affected by the construction of that . . . [rule]." 338 So.2d at 1294. Simultaneously with the present proceedings, petitioner and respondent are litigating the question of what moneys, if any, respondent owes petitioner as reimbursement for Medicaid services furnished during periods which include the entire time that Rule 10C- 7.39(6) was in effect. No. 80-112. Even though Rule 10C-7.39(6), Florida Administrative Code, stands repealed, petitioner remains "substantially affected by" the rule, within the meaning of Section 120.56(1), Florida Statutes (1979).
MOTION TO DISMISS DENIED
Respondent contends that these proceedings are defective "for failure to join an indispensable party," viz., the federal government, because it "is Respondent's intention, should any liability result from this action, to make a claim for federal financial participation as to approximately fifty-nine percent of such liability [See generally] 42 U.S.C. Section 1320b-2(a)(2)." Motion to Dismiss, p. 2. This motion is also addressed to the petition in the companion substantial interest case, No. 80-112, and discussed in the recommended order in that case. For present purposes, it suffices to state the self-evident: No agency can avoid an administrative challenge to a rule it alone has promulgated on grounds that some other party's interest may be adversely affected by invalidation of the rule.
CONSTITUTIONAL GROUNDS
Among other things, petitioner contends that Rule 10C-7.39 (6), Florida Administrative Code, should be invalidated as violative of state and federal constitutional prohibitions against impairment of contractual obligations. Article I, Section 10 of the Constitution of the State of Florida proscribes "law[s] impairing the obligation of contracts," and the federal constitution also forbids any "State . . . [to] pass any . . . law impairing the obligation of contracts." Article I, Section 10. See United States Trust Co. v. New Jersey, 431 U.S. 975 (1977).
Challenges to administrative rules brought pursuant to Section 120.56, Florida Statutes (1979), cannot, however, be predicated on constitutional grounds. State Department of Administration, Division of Personnel v. State Department of Administration, Division of Administrative Hearings, 326 So.2d 187 (Fla. 1st DCA 1976). See Department of Environmental Regulation v. Leon County, 344 So.2d 290, 295 n. 2 (Fla. 1st DCA 1977).
INVALID EXERCISE OF DELEGATED LEGISLATIVE AUTHORITY
The main thrust of petitioner's challenge to Rule 10C-7.39 (6), Florida Administrative Code, is its contention that respondent adopted the challenged rule not to implement Section 409.266, Florida Statutes, but in an attempt to avoid obligations imposed by Section 409.266, Florida Statutes, and the provisions of federal law incorporated by reference in that State statute. The challenged rule pertains to agreements made between respondent and providers of medical services in accordance with the provisions of Title XIX of the Social Security Act. The statute authorizes respondent to "[e]nter into . . . agreements as may be necessary or needed to implement the provisions of Title XIX of the Social Security Act pertaining to medical assistance." Section 409.266(2)(a) , Florida Statutes (1979). No party suggests that any other State statutory provision furnishes substantive authority for promulgation of Rule
10C-7.39(6), Florida Administrative Code, and the parties have stipulated that "HRS has never been authorized to . . . perform any functions with respect to the Medicaid program that are in contravention of or not authorized by Title XIX of the Social Security Act and implementing Federal regulations and requirements." Agency rules must conform to enabling statutes and may not repeal, amend, or modify any statute. State Department of Health and Rehabilitative Services v. McTigue, 387 So.2d 454 (Fla. 1st DCA 1980); Department of Health and Rehabilitative Services v. Florida Psychiatric Society,
382 So.2d 1280 (Fla. 1st DCA 1980); State Department of Transportation v. Pan American Construction Co., 338 So.2d 1291 (Fla. 1st DCA 1976) app. dism. 345 So.2d 427 (Fla. 1977)
Incorporated by reference into Section 409.266, Florida Statutes, was the federal statutory requirement that hospitals providing Medicaid services be reimbursed by respondent for reasonable costs incurred in accordance with an approved State Plan. 42 U.S.C. Section 1396a (a)(13)(B) , Pub. L. 89-97, Section 121(a), redesiquated 42 U.S.C. Section 1396a (a) (13)(D), Pub. L. 90- 248, Section 224(a). At the time of its incorporation into State law, this federal statute had been definitively explicated by federal regulations requiring that reasonable cost for Medicaid purposes be calculated in accordance with applicable Medicare principles for purposes of reimbursing hospitals like petitioner that furnished both Medicaid and Medicare services. 2/ 42 C.F.R. Section 50.30(b), 34 Fed. Reg. 1244 et seq. (January 25, 1969). In addition, all Florida "State Plan provisions . . . approved by HEW and. . govern[ing]
HRS's reimbursement of inpatient hospital services prior to July 1, 1981, . .
. commit HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards." Pre-hearing Stipulation, 19.
Even before adopting Rule 10C-7.39(6), Florida had begun setting Medicaid reimbursement rates by adjusting the previous year's rates upward to reflect inflation, as a matter of policy. As the parties have stipulated, in November of 1975, a budgetary deficit was projected for HRS; and, even though HRS was aware that inflation was substantially higher than 6 percent, HRS eventually decided to promulgate the rule now under challenge, setting the adjustment at 6 percent. HRS promulgated Rule 10C-7.39(6), Florida Administrative Code, not in furtherance of its statutory charge to reimburse Medicaid providers for costs reasonably incurred, but in order expediently to cut its own costs by disregarding the statutory scheme and reimbursing Medicaid providers less than the costs they had reasonably incurred. Cf. Patricia Godboldt v. David Pingree, Secretary, Department of Health and Rehabilitative Services, State of Florida, No. 81-2862 (2d Cir.; Prelim. Inqy., Nov. 25, 1981).
UNCODIFIED POLICY CHALLENGED AS RULE
Petitioner challenges not only Rule 10C-7.39(6), Florida Administrative Code, but also, as "an illicit rule," HRS's prior practice of setting reimbursement rates by adjusting the previous year's rates. The percentage allowances under preexisting practice were higher (9 and 12 3/ percent) but the methodology was the same as that codified in Rule 10C-7.39(6), Florida Administrative Code. The parties stipulated to the existence of a practice that reflected a policy that changed over time, see McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977) , but did not stipulate that this practice reflected a hard and fast "rule." The parties stipulated that "HRS used [12 percent from January 1, 1970, to June 30, 1972, and 9 percent from July 1, 1972, to approximately March 30, 1976] . . . in determining Medicaid reimbursement rates for inpatient hospital services," but did not prove or stipulate to the existence of any formal document or other written statement "issued by the agency head for implementation by subordinates with little or no room for discretionary modification." State Department of Administration v. Stevens, 344 So.2d 290, 296 (Fla. 1st DCA 1977). In the absence of such a stipulation or proof, the agency's practice of requiring a 9 percent "percentage allowance, has not been shown to amount in itself to an illicit rule. Department of Corrections v. McCain Sales of Florida, Inc., 400 So.2d 1301 (Fla. 1st DCA 1981).
ATTACHMENT 4.19A
Petitioner's challenge to Attachment 4.19A of the Florida State Plan for Medical Assistance was conditioned by the words "to the extent that Attachment 4.19A . . . Is interpreted in a manner different than that set forth in Paragraph 15" of the petition. Since the parties stipulated, in substance, to the allegations of paragraph 15 of the petition, the condition for the challenge never occurred. In any event, it is very clear that Attachment 4.19A did not have the force of a rule, inasmuch as its key pronouncement, viz., that "retroactive adjustments are prohibited by skate statute" was completely disregarded by respondent. Rule 10C-7.39(6), Florida Administrative Code, the policies which preceded that rule, and every contract respondent entered into with providers of Medicaid services contemplated retroactive adjustments.
DONE AND ENTERED this 4th day of December, 1981, in Tallahassee, Florida.
ROBERT T. BENTON, II
Filed with the Clerk of the Division of Administrative Hearings this 4th day of December, 1981.
1/ Amended and recodified as Rule 10C-7.39(6), Florida Administrative Code, effective January 2, 1979.
/2 The parties stipulated that these requirements remained essentially unaltered by subsequent federal statutory and regulatory amendments, during the pertinent time period. In any event, any modification of federal law occurring after the original enactment of Section 409.266, Florida Statutes, would not, as a matter of State constitutional law, be relevant in construing Section 409.266,Florida Statutes. See State v. Welch, 279 So.2d 11 (Fla. 1973);Freimuth
v. State, 272 So.2d 473 (Fla. 1972); and Florida Industrial Commission v. State, 155 Fla. 772, 21 So.2d 599 (1945).
3/ Since petitioner's initial contract with respondent postdated respondent's use of the 12 percent "percentage adjustment, "respondent is not substantially affected by that policy and lacks standing to challenge the 12 percent policy as a de facto rule.
Edward J. Hopkins, Esquire, Liz Cloud
and Michael H. Cook, Esquire Florida Administrative Code One Houston Center, Suite 1600 Department of State Houston, Texas 77010 The Capitol, Room 1802
Richard E. Benton, Esquire
Post Office Box 1833 Carroll Webb, Executive Director Tallahassee, Florida 32302 Administrative Procedures
Room 120, Holland Building Robert A. Weiss, Esquire Tallahassee, Florida 32301 Department of Health and
David H. Pingree, Secretary Department of Health and
