STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

GLADES GENERAL HOSPITAL, et al., )

)

Petitioners, )

)

vs. ) CASE NO. 83-3381

) STATE OF FLORIDA, DEPARTMENT OF ) INSURANCE, and FLORIDA PATIENT'S ) COMPENSATION FUND, )

)

Respondents. )

) NORTH SHORE MEDICAL CENTER, ) INC., and SOUTH MIAMI HOSPITAL ) FOUNDATION, INC., )

)

Petitioners, )

)

vs. ) CASE NO. 83-3382

) STATE OF FLORIDA, DEPARTMENT OF ) INSURANCE, and FLORIDA PATIENT'S ) COMPENSATION FUND, )

)

Respondents. )

) SOUTHEAST VOLUSIA HOSPITAL )

DISTRICT, )

)

Petitioner, )

)

vs. ) CASE NO. 83-3383

) STATE OF FLORIDA, DEPARTMENT OF ) INSURANCE, and FLORIDA PATIENT'S ) COMPENSATION FUND, )

)

Respondents. )

) DUVAL COUNTY HOSPITAL AUTHORITY, ) d/b/a UNIVERSITY HOSPITAL OF ) JACKSONVILLE, )

)

Petitioner, )

)

vs. ) CASE NO. 83-3384

) STATE OF FLORIDA, DEPARTMENT OF ) INSURANCE, and FLORIDA PATIENT'S ) COMPENSATION FUND, )

)

Respondents. )

) VICTORIA HOSPITAL, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 83-3385

) STATE OF FLORIDA, DEPARTMENT OF ) INSURANCE, and FLORIDA PATIENT'S ) COMPENSATION FUND, )

)

Respondents. )

) BAPTIST HOSPITAL OF MIAMI, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 83-3386

) STATE OF FLORIDA, DEPARTMENT OF ) INSURANCE, and FLORIDA PATIENT'S ) COMPENSATION FUND, )

)

Respondents. )

) DAYTONA BEACH GENERAL HOSPITAL, ) INC., )

)

Petitioner, )

)

vs. ) CASE NO. 83-3387

) STATE OF FLORIDA, DEPARTMENT OF ) INSURANCE, and FLORIDA PATIENT'S ) COMPENSATION FUND, )

)

Respondent. )

) UNIVERSITY OF MIAMI, )

)

Petitioner, )

)

vs. ) CASE NO. 83-3388

) STATE OF FLORIDA, DEPARTMENT OF ) INSURANCE, and FLORIDA PATIENT'S ) COMPENSATION FUND, )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William E. Williams, held a formal hearing in this cause on February 23 and 24, 1983, in Tallahassee, Florida.

APPEARANCES

For Petitioners, NEIL H. BUTLER, Esquire

Case No. 83-3383: PENNINGTON, WILKINSON and DUNLAP

Post Office Box 3985 Tallahassee, Florida 32315-0985

For Petitioners, JACOB D. VARN, Esquire Case Nos. 83-3381, MARTHA J. COOK, Esquire

3382, 3384 and 3388: CARLTON, FIELDS, WARD, EMMANUEL,

SMITH, and CUTLER, P.A.

Suite 410, Lewis State Bank Tallahassee, Florida 32302

For Respondent, DAVID A. YON, Esquire State of Florida, Department of Insurance Department of 413-B Larson Building

Insurance: Tallahassee, Florida 32301

For Respondent, RICHARD H. COLLINS, Esquire Florida Patient's CRAIG A. DENNIS, Esquire Compensation Fund: PERKINS & COLLINS

Post Office Drawer 5286 Tallahassee, Florida 32301

The Insurance Commissioner issued a Notice of Assessment numbered 83-FPCF- 03Y, dated September 19, 1983 announcing his intent to approve a request for authorization to levy an assessment and to distribute the total amount of the assessment in accordance with Section 768.54(1), Florida Statutes, among the health care providers that were members of the Florida Patient's Compensation Fund (hereinafter the "Fund") for five different fiscal fund years: 1976-77; 1977-78; 1978-79; and 1980-81. Petitions challenging this proposed action were filed by the Petitioners in the above-styled cases. All causes were consolidated into one proceeding and this Recommended Order is applicable to all such causes. By Order dated January 13, 1984, the Fund was granted leave to intervene in, and the right to

John W. Odem, Jerome F. Vogel, Charles J. Portero, and Catherine M. Sims, testified on behalf of the Respondent/Intervenors.

The Petitioners called Jerome F. Vogel, Daniel W. Holloway, and Charles Portero, as witnesses.

The Respondents moved and the Hearing Officer admitted into evidence Exhibits Nos. 1, 3, 4, 5, 7, 9, 10, 11, 12 and 13. The Petitioners moved and

the Hearing Officer received into evidence Exhibits Nos. 1, 2, 4, 5, 6, 7, 8,

10, 11, 12, 13, 14A-G, 15, 16 and 17.

FINDINGS OF FACT

1. In 1975, the Florida Legislature passed the Medical Malpractice Reform Act, Chapter 75-9, Laws of Florida, now codified in Chapter 768, Florida Statutes. Part of this legislative package included the creation of the Fund. In 1976, the Legislature enacted Chapter 76-260, Laws of Florida, which amended Section 627.353, Florida Statutes. Subsequently, the provisions of Section

   627.353 were renumbered as Section 768.54, Florida Statutes. Section 768.54 was subsequently amended by Chapters 77-64, 78-47, 79-170, 80-328, 82-236 and 83- 206, Laws of Florida.

   
   

2. The Fund is a private not-for-profit organization, participation in which is totally voluntary for its member-health care providers. Insofar as Petitioners are concerned, membership in the Fund is but one of several options available to provide legally required evidence of financial responsibility in order to obtain licensure as a hospital facility in Florida. Physicians, hospitals, health maintenance organizations and ambulatory surgical centers who become members of the Fund must maintain at least $100,000 in primary professional liability insurance. Membership in the Fund grants to each participant a limitation of liability above the $100,000 in primary coverage. To the extent that any settlement or judgment exceeds the primary coverage of the participant, it is paid by the Fund without limitation.

   
   

3. The Fund is operated subject to the supervision and approval of a board of governors whose membership is required by law to consist of representatives of the insurance industry, the legal and medical professions, physicians' insurers, hospitals, hospitals' insurers and the general public. The Department of Insurance ("the Department") is charged by statute with certain regulatory functions concerning the Fund. For each of the years in question in this proceeding, the initial membership fees charged plus the investment income earned thereon have proven to be inadequate to pay the claims made against the Fund. Section 768.54(3)(c) , Florida Statutes, provides that, in the event the Fund determines that the "amount of money in an account for a given fiscal year is not sufficient to satisfy the claims made against the Fund, `the Department' shall. . . levy [an] assessment against" the members of the Fund.

   
   

4. Under the original legislation, all classes of health care providers could be assessed unlimited amounts to make up any deficiencies. As a result of legislative amendments which became effective July 1, 1976, the amount which participants, other than hospitals, could be assessed was limited to the amount each Fund member had paid to join the Fund for that particular coverage year. This limitation was again removed in 1983. For all years at issue in this proceeding, however, a statutory limitation was in effect on the amount physician members of the Fund could be assessed.

   
   

5. 1976 legislative amendments also required that each fiscal year of the Fund, which runs from July 1 through June 30, be operated independently of preceding fiscal years, and further required that occurrences giving rise to claims in a particular fund year be paid only from fees or investment income on those fees collected for that particular year. Thus, it is entirely possible for the Fund to experience deficits in a given year, and yet hold surplus funds for other years.

   
   

6. On September 19, 1983, the Department of Insurance issued a "Notice of Assessment." Notice of this Notice of Assessment was published in the Florida Administrative Weekly.

7. The Notice of Assessment announced that the Insurance Commissioner intended to authorize the Fund to levy and collect an assessment in the following amounts from those health care providers that were members of the Fund during each respective year:

   
   

   1976-1977 Membership Year $ 1,633,716

   1977-1978	" "	7,843,522
   1978-1979	" "	12,545,551
   1979-1980	" "	18,673,853
   1980-1981	" "	14,363,697

   
   

8. Each of the hospitals named as Petitioners in the Petition for Administrative Proceedings in Case Nos. 83-3381 - 83-3388 were members of the Florida Patient's Compensation Fund during one or more of the fund years described in paragraph 7.

   
   

9. On or about July 20, 1983, the Board of Governors of the Fund authorized the Fund to certify a deficit assessment in the following amounts to the Department:

   
   

   1976-77 Membership Year $ 1,633,716

   1977-78	"	"	7,843,522
   1978-79	"	"	12,545,551
   1979-80	"	"	18,673,953
   1980-81	"	"	14,363,697
   	TOTAL		$55,060,339

   
   

   These amounts were in fact certified to the Department.

   
   

10. The Department spread these assessments in the Notice of Assessment among the various health care providers as follows:

CLASS OF HEALTH

CARE PROVIDERS AMOUNT OF ASSESSMENT

1976-77 1977-78 1975-79 1979-80 1980-81

1. Physicians and Surgeons

   (a) Class 1 0 394,966 0 0 0

   1. Class 2 0 0 0 0 0

   2. Class 3 0 0 0 0 0

2. Hospitals 1,600,341

7,231,951 12,496,924

18,539,870

14,255,691

1. The Department computed the portion of the assessment to be paid by the different classes of health care providers for all years in question based upon an "indicated rate method." This method is represented by the following formula:

   1. The Department started with the actuarially indicated rate for each class of health care provider as described in the October, 1982 Actuarial Report prepared by Tillinghast, Nelson, et al. This is called the "indicated rate by class."

      
      

   2. The Department then applied the following formula for each class:

   
   

   Indicated Rate by Class x No. of Members in the Class Total indicated fees by Class

   
   

   Total Indicated Fees by Class divided by total Indicated Fees for ALL Classes = Percentage of Indicated Fees by Class

   
   

   Percentage of Indicated Fee by Class x Total Expected Loss for ALL Classes = Expected Loss by Class

   
   

   (Expected Loss is ALL losses for the fund year including claims previously paid, reserves established on claims asserted and IBNR (incurred but not reported).)

   
   

2. The "indicated rate method" for allocating assessments among the various classes of health care providers was selected by the Department as the method which most fairly reflected the classifications prescribed in Section 768.54(3)(c) , Florida Statutes. The record in this proceeding established that this method is the most feasible mechanism for fairly reflecting classifications established by statute, and, at the same time, providing immediate funds necessary to meet all claims against the Fund.

   
   

3. Any difference between the results derived by the rate method reflected in the Notice of Assessment is due to the application of the statutory cap on assessments against physician members, as applied by the Department.

   
   

4. The Notice of Assessment issued by the Department allocated the "excess assessments," which could not be applied to physician members because of the limitation on the amount physicians could be assessed among the other classes of health care providers based upon their percentage of "expected losses."

   
   

5. The amounts of the assessments sought by the Fund, and described in the Notice of Assessment, were calculated by the Fund by using the following formula:

   
   

   Total fees paid during the Fund Year

   + Investment Income attributable to the Fund Year

   + Amounts previously noticed as assessments

   • Expenses allocated to that Fund Year

   • Amount paid on claims for that Fund Year

   • Amount reserved for all known claims for that Fund Year.

   
   

6. The fees ordered by the Department and collected by the Fund, plus the interest income generated by such fees, plus the amounts previously assessed for each fund year in question are inadequate to cover claims against the Fund for each of the years in question herein.

7. Petitioners have contested the amount of reserves and the reserving practices of Fund. When a claim is received by the Fund, a claims supervisor is assigned to the file and reviews that file to determine whether the case involves a Fund member, the nature of the claim and other relevant data. If the claims supervisor determines that a reserve is warranted, he recommends a reserve and customarily prepares a report justifying the reserve. The report and recommended reserve are then reviewed by the Claims Manager and the General Manager, who are free to make adjustments in the recommended reserve amount.

   The file is then taken before the Fund's Claims Committee for review. This committee consists of representatives from the insurance industry, legal profession and hospital industry who are familiar with the current status of medical malpractice trends. The committee reviews the reserve recommendation and may lower, raise or refuse to set a reserve. The Claims Supervisor who recommended the reserve is most often present at the meeting of the Claims Committee for the purpose of answering questions about the file and providing updated information. If the committee approves a reserve, the reserve is carried with the file and no further changes in the reserve occur without committee approval.

   
   

8. While the record in this cause shows that in some individual cases there has been inordinate delay in setting a reserve, and that some reserves have been established on a paucity of objective data, there is insufficient evidence from which to conclude either that any established reserve is incorrect, or that the Fund's reserving or claims handling procedures are unreasonable. In fact, the record establishes that the Fund's reserving practices are consistent with those generally accepted in the insurance industry, that these practices have been reasonably applied in setting case reserves, and that the Fund's reserves are not excessive.

   
   

9. The record in this cause establishes that, assuming all previous assessments noticed had been collected, there exists, at the time of the hearing, as well as the date of the assessment, a deficiency as indicated below in the Fund's account for each year indicated:

   
   

   1976 - 77	$ 1,633,716
   1977 - 78	7,843,522
   1978 - 79	12,545,551
   1979 - 80	18,673,853
   1980 - 81	14,363,697

   
   

10. In view of the statutory cap on the amounts that may be assessed against physician members of the Fund, the foregoing dollar amounts for assessments for each fund year, and the manner in which they are proposed to be allocated among the remaining classes of health care providers are appropriate.

    
    

11. Both Petitioners and Respondent have submitted proposed findings of fact for consideration by the Hearing Officer. To the of fact are not included in this Recommended Order, they have been specifically rejected as being either irrelevant to the issues involved in this cause, or as not having been supported by evidence of record.

    
    

    CONCLUSIONS OF LAW

    
    

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

13. Section 768.54(3)(c), Florida Statutes, which was in effect at all times material hereto, and which, therefore, governs the imposition of assessments by the Fund in this proceeding, provides in pertinent part as follows:

    
    

    Annually, each health care provider, as set forth in subsection (2), electing to comply with paragraph (2)(b) shall pay the fees established under this act, for deposit into the fund, which shall be remitted for deposit in a manner prescribed by the Insurance Commissioner. The limitation of liability provided by the fund shall begin July 1, 1975, and run thereafter on a fiscal-year basis. For the first year of membership, each participating health care provider shall pay a base fee for deposit into the fund in the amount of $1,000 for any individual or

    $300 per bed for any hospital. Those entering the fund after the fiscal year has begun shall pay a prorated share of the yearly fees for a prorated membership. The base fee charged after the first year of participation shall be $500 for any individual, or $300 per bed for any hospital.

    . . In addition, after the first year of operation, additional fees may be charged but shall be appropriately prorated for the portion of the year for which the health care provider participated in the fund, based on the following considerations:

    1. Past and prospective loss and expense experience in different types of practice and in different geographical areas within the state;

    2. The prior claims experience of the member covered under the fund; and

    3. Risk factors for persons who are retired, semi-retired, or part-time professionals.

       
       

       Such base fees may be adjusted downward for any fiscal year in which a lesser amount would be adequate and in which the additional fee would not be necessary to maintain the solvency of the fund. Such additional fee shall be based on not more than two geographical areas with three categories which contemplate separate risk ratings for hospitals, for health maintenance organizations, for ambulatory surgical facilities, and for other medical

       facilities. Each fiscal year of the fund shall operate independently of preceding fiscal years. Participants shall only be liable for assessments for claims from years

       during which they were members of the fund

       . . . The fund shall be maintained at not more than $15,000,000 per fiscal year.

       Additional fees, assessments, or refunds shall be set by the Insurance Commissioner after consultation with the board of governors of fund . . . If the fund determines that the amount of money in an account for a given fiscal year is in excess of or not sufficient to satisfy the claims made against the account, the fund shall certify the amount of the projected excess or insufficiency to the Insurance Commissioner and request the Insurance Commissioner to levy an assessment against or refund to all participants in the fund for that fiscal year, prorated, based on the number of days of participation during the year in

       question. The Insurance Commissioner shall order such refund to, or levy such assessment against, such participants in amounts that fairly reflect the classifications prescribed above and are sufficient to obtain the money necessary to meet all claims for said fiscal year. In no case shall any assessment for a particular year against any health care provider, other than those health care providers defined in subparagraph (1)(b)1., 5., 6., and 7., exceed an amount equal to the fees originally paid by such health care provider for participation in the fund for the year giving rise to such assessment. (Emphasis added.)

       
       

14. The above-quoted statute provides the Fund with three mechanisms to obtain moneys with which to operate: "base" fees; "additional" fees; and "assessments." At all times material hereto, the amount of base fees was specifically set by statute at $1,000 for the fiscal year and $500 for subsequent years for physician members, and $300 per bed for hospital participats. The 1976 Legislature amended Section 768.54(3)(c), Florida Statutes, to prohibit any "assessment" against physicians, osteopaths, and podiatrists from exceeding the membership fees paid for the year giving rise to the assessment. It is specifically concluded, as a matter of law, that this amendment imposed a "cumulative" cap on the liability of physicians, osteopaths, and podiatrists, so that those participants are liable only for a maximum of either $1,000 or $500 in assessments, depending upon whether the year in question was their first year or a subsequent year of participation in the Fund. See, Southeast Volusia Hospital District, et al., State of Florida, Department of Insurance and Florida Patient's Compensation Fund, D.O.A.H. Case Nos. 82-530 and 82-776 (June 22, 1982); Southeast Volusia Hospital District, et al. v. State of Florida, Department of Insurance, Case Nos. 82-3128, 82-3129, 82- 3130, and 82-3134; and Department of Insurance, State of Florida, et al., and Florida Patient's Compensation Fund v. Southeast Volusia Hospital District, 438 So. 2d 815 (Fla. 1983). It is further concluded that the 1983 legislative amendments to Section 768.54, Florida Statutes, did not remove the cumulative assessment cap for the years here under consideration. See, Thayer v. State, 335 So. 2d 815 (Fla. 1976).

15. The record in this proceeding affirmatively establishes that the amounts certified for fund years 1976-1977; 1977-1978; 1978-1979; 1979-1980; and 1980-1981 "fairly reflect" the statutory classifications contained in Section 768.54, Florida Statutes; that the amounts reflected therein are necessary to meet the claims made against the Fund for the fund years in question; that the procedures used by the Department in spreading the assessments among the various health care providers in light of the aforementioned "statutory cap are appropriate; and that the Fund has utilized reasonable claims handling and reserving procedures. To the extent that Petitioners have questioned the amount of "fees" established for this fund year, their complaints are not determinable in this proceeding. In any event, the Petitioners were given a reasonable "point of entry" into the Section 120.57, Florida Statutes, process at the time base fees were levied for the fund years in question and Petitioners' failure to contest the amount of those fees at the time they were levied constitutes a waiver of their ability to now challenge those fees.

Accordingly, based upon the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that a Final Order be entered by the Department of Insurance levying assessments in accordance with the Notice of Assessment dated September 19, 1983, for the fund years 1976-1977; 1977-1978; 1978-1979; 1979-1980; and

1980-1981.

DONE AND ENTERED this 15th day of May, 1984, at Tallahassee, Florida.

WILLIAM E. WILLIAMS

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904)488-9675

FILED with the Clerk of the Division of Administrative Hearings this 15th day of May, 1984.

COPIES FURNISHED:

David A. Yon, Esquire Department of Insurance 413-B Larson Building

Tallahassee, Florida 32301

Jacob D. Varn, Esquire William C. Owen, Esquire

Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A.

Post Office Drawer 190 Tallahassee, Florida 32302

John D. Buchanan, Jr., Esquire Post Office Drawer 1049 Tallahassee, Florida 32302

Richard B. Collins, Esquire Perkins & Collins, P.A.

Suite 702, Lewis State Hank Building Tallahassee, Florida 32302

Ben H. Wilkinson, Esquire Neil H. Butler, Esquire Pennington, Wilkinson & Dunlap Post Office Box 3985

Tallahassee, Florida 32315-0985

G. Bruce Hill, Esquire Adams, Hill & Fulford

333 North Ferncreek Orlando, Florida 32803

Scott R. McMillen, Esquire Mateer, Harbert, Bechtel & Phalin Post Office Box 2854

Orlando, Florida 32802

Docket for Case No: 83-003381

Orders for Case No: 83-003381