STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
MERCY HOSPITAL, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 85-0160RX
)
STATE OF FLORIDA, )
HOSPITAL COST CONTAINMENT ) BOARD, DEPARTMENT OF INSURANCE, )
)
Respondent. )
)
FINAL ORDER
Pursuant to written notice a formal hearing was held in this ease before Larry J. Sartin, duly designated Hearing Officer of the Division of Administrative Hearings, from April 1, 1985, through April 3, 1985, in Tallahassee, Florida.
APPEARANCES
For Petitioner: John H. Parker, Jr., Esquire
PARKER, HUDSON, RAINER, DOBBS & KELLY
1200 Carnegie Building
133 Carnegie Way Atlanta, Georgia 30303
and
Robert A. Weiss, Esquire
PARKER, HUDSON, RAINER DOBBS & KELLY
The Perkins House
118 North Gadsden Street, Suite 101 Tallahassee, Florida 32301
For Respondent: Douglas A. Mang, Esquire
Charles T. Collette, Esquire MANG & STOVELL, P.A.
Post Office Box 1019 Tallahassee, Florida 32302
STATEMENT OF THE CASE
Mercy Hospital, Inc. (hereinafter referred to as "Mercy") filed a Petition to Determine the Invalidity of Rules 4D-1.03, 4D-1.12(1) and 4D-1.12(2), in which it seeks a final determination that Sections 4D-1.03, 4D-1.12(1) and 4D-1.12(2), F.A.C., to the extent that these rules provide for the methodology for grouping Florida hospitals for purposes of budget review, are invalid exercises of delegated legislative authority. In particular, Mercy challenged these rules as being arbitrary and capricious, contrary to statutory law and violative of constitutional guarantees of administrative equal protection and due process.
Mercy also filed a Petition for Formal Administrative Hearing in which it challenged its grouping assignment by the Hospital Cost Containment Board (hereinafter referred to as the "HCCB"), to Hospital Group 9 for purposes of 1985 budget year review. In its Petition Mercy contended that its grouping assignment is inappropriate as being arbitrary and capricious, contrary to statutory law, not supported by competent substantial evidence or violative of constitutional guarantees of administrative equal protection and due process.
Mercy's challenge of its grouping assignment was designated case number 85-0333 and was consolidated with this case for purposes of hearing. A separate Recommended Order on case number 85-0333 has been issued simultaneously with this Final Order.
The following witnesses testified at the hearing and were qualified as experts in the areas indicated:
For Mercy Area of Expertise Lawrence R. Murray Health care finance,
including rate control programs.
Jerry A. Mashburn Health care finance.
Rick Zimmerman, Ph.D. Statistical analysis and
social science statistics.
Anthony C. Krayer, III Health Care finance,
including the Florida HCCB program.
For HCCB Area of Expertise
Allen Pearman Economics, regional planning and construction and implementation of HCCB grouping methodology.
Frank Fox, Jr., Ph.D. Economics, applied
statistical analysis and the State of Washington's grouping methodology.
Duane Meeter, Ph.D. Applied statistics.
Mercy also presented the testimony of Kenneth G. McGee and Diane Templeton. Mercy's exhibits 1-2 and 5-24 were received into evidence.
The HCCB also presented the testimony of James J. Bracher. HCCB exhibits 1 and 3-7 were received into evidence. A ruling on the admissibility of parts of HCCB composite exhibit 2 was reserved until after the receipt of posthearing written arguments. HCCB exhibit 2 consists of
50 tabbed documents or sets of documents which are maintained in the records of the HCCB. Included in HCCB exhibit 2 are minutes of meetings of the HCCB. Those minutes were accepted into evidence at the hearing.
The admissibility of the "bulk" of HCCB exhibit 2 has been objected to as inadmissible hearsay. Section 90.802, Florida Statutes (1983). The HCCB has argued that the documents are admissible under the public records exception to the hearsay rule of Section 90.803(8), Florida Statutes (1983), and under Section 120.58(1)(a), Florida Statutes (1984 Suppl.).
In addition to the minutes of HCCB meetings, the minutes of Research and Development Committee meetings and any documents issued by the HCCB or the staff are accepted into evidence. Minutes of Technical Advisory Panel meetings and the Technical Advisory Committee meetings and any other documents included in HCCB's exhibit 2 are admitted to the extent that they supplement or explain other evidence.
The parties submitted proposed orders which included proposed findings of fact pursuant to Section 120.57(1)(b)4, Florida Statutes (1984 Suppl.). A ruling on each proposed finding of fact has been made either directly or indirectly in this Final Order, except where a proposed finding of fact has been rejected as subordinate, cumulative, immaterial or unnecessary.
ISSUE
The issue in this case is whether the methodology for grouping hospitals adopted by the HCCB pursuant to Sections 4D- 1.03, 4D-1.12(1) and 4D-1.12(2), F.A.C., constitutes an invalid exercise of delegated legislative authority as being arbitrary or capricious? Mercy has also raised one issue as to whether the grouping methodology is violative of constitutional guarantees of administrative equal protection and due process. This issue, however, is beyond the jurisdiction of the Division of Administrative Hearings.
FINDINGS OF FACT
Introduction.
The HCCB and Its Hospital Grouping Function.
The HCCB was formed pursuant to Part II of Chapter 395, Florida Statutes (1979). The HCCB was created pursuant to the specific authority of Section 395.503, Florida Statutes (1979), in order to further the accomplishment of legislative intent contained in Section 395.5025, Florida Statutes (1984 Suppl.):
It is the intent of the Legislature to assure that adequate health care is affordable and accessible to all the citizens of this state. To further the accomplishment of this goal, the Hospital Cost Containment Board is created to advise the Legislature regarding health care
costs;
inflationary trends in health care costs; the impact of health care costs on the state budget; the impact of hospital charges and third-party reimbursement mechanisms on health care costs; and the education of consumers and providers of health care services in order to encourage price competition in the health care marketplace. The Legislature finds and declares that rising hospital costs and cost shifting are of vital concern to the people
of this state because of the danger that hospital services are becoming unaffordable and thus inaccessible to residents of the state. It is further declared that hospital
costs should be contained through improved competition between hospitals and improved competition between insurers, through financial incentives which foster efficiency instead of inefficiency, and through sincere initiatives on behalf of providers, insurers, and consumers to contain costs. As a safety net, it is the intent of the Legislature to establish a program of prospective budget review and approval in the event that competition-oriented methods do not adequately contain costs and the access of Floridians to adequate hospital care becomes jeopardized because of unaffordable costs.
As a part of its responsibilities the HCCB is required, "after consulting with appropriate professional and governmental advisory bodies and holding public hearings, and considering existing and proposed systems of accounting and reporting utilized by hospitals," to specify a uniform system of financial reporting for hospitals. Section 395.507(1), Florida Statutes Suppl.) to:
In order to allow "meaningful comparisons" of data reported by hospitals under the uniform system of financial reporting, the HCCB is required by Section 395.507(2), Florida Statutes (1984 Suppl.) to group hospitals according to characteristics, including, but not limited to, a measure of the nature and range of services provided, teaching hospital status, number of medical specialties represented on the hospital
staff, percentage of Medicare inpatient days, average daily census, geographical differences, and, when available, case mix.
In providing for grouping of hospital, the HCCB is required to establish ten general hospital groups and additional speciality groups "as needed." Section 395.507(2), Florida Statutes (1984 Suppl.). No hospital group can contain fewer than five hospitals, however. Id. Grouping is to be provided by rule. Id.
Pursuant to Section 395.509(1), Florida Statutes (1984 Suppl.), every Florida hospital is required to file its budget with the HCCB for "approval." The budget is
required to be filed on forms adopted by the HCCB and based on the uniform system of financial reporting. Section 395.507(6), Florida Statutes (1984 Suppl.).
To determine whether a hospital's budget is to be approved, all hospitals in Florida are to be placed in groups. A hospital's budget is then compared to the budgets of the hospitals assigned to its group. Hospital groups for this purpose are established pursuant to Section 395.509(4)(a), Florida Statutes (1984 Suppl.). The provisions of Section 395.509(4)(a), Florida Statutes (1984 Suppl.), are identical to Section 395.507(2), Florida Statutes (1984 Suppl.).
In determining whether a hospital's budget is to be approved, Section 305.509(2), Florida Statutes (1984 Suppl.), establishes two initial "screens" which a hospital must meet based upon the hospital's gross revenue per adjusted admission. The term "gross revenue" is defined as:
the sum of daily hospital service charges, ambulatory service charges, ancillary service charges, and other operating revenue. Gross revenues do not include contributions, donations, legacies, or bequests made to a hospital without restriction by the donors.
Section 395.502(11), Florida Statutes (1984 Suppl.). "Adjusted admission" is defined by Section 395.502(1), Florida Statutes (1984 Suppl.), as:
the sum of acute admissions and intensive care admissions divided by the ratio of inpatient revenues generated from acute, intensive, ambulatory, and ancillary patient services to gross revenues.
Gross revenues per adjusted admission (hereinafter referred to as "GRAA") is therefore the total hospital ambulatory and ancillary service charges and other operating revenue for all acute and intensive care admissions divided by the ratio of inpatient revenues from acute, intensive, ambulatory and ancillary patient services to gross revenue; or, stated more simply , inpatient revenue per admission.
The "screens" which must be met in order for a hospital's budget to be approved upon initial determination are: (1) the hospital's GRAA must not be in the upper 20th percentile of the hospitals within its group; and (2) the rate of increase in a hospital's GRAA as contained in its current budget compared to the hospital's GRAA as reported in its most recently approved budget must not exceed a "maximum allowable rate of increase" if the hospital's GRAA is in the 50th to 79th percentile of the hospitals in its group. If a hospital's GRAA is in the 49th percentile or less of the hospitals in its group, its budget is automatically approved.
In determining whether a hospital's GRAA fails the screens, Section 395.509(2), Florida Statutes (1984 Suppl.), provides:
Percentile values for gross operating revenue per adjusted admission shall be determined monthly by the board for each group established pursuant to s. 395.507(2) by ranking projected gross operating revenues per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. In determining
the applicability of paragraph (a) or paragraph (b), the board shall consider the basis of the projections by the hospital, including consideration of the following factors: any increase in patient admissions caused by the creation of preferred provider organizations or health maintenance organiza- tions, population increases, changes in the hospital case mix or in services offered,
changes in technology, or other similar factors.
If a hospital's GRAA fails either of the screens (its GRAA is in the upper 20th percentile of its group or its GRAA rate of increase is excessive and its GRAA is in the 50th to 79th percentile of its group) that hospital's budget must be reviewed by the HCCB "to determine whether the rate of increase contained in the budget is just, reasonable, and not excessive." Section 395.509(5), Florida Statutes (1984 Suppl.).
Pursuant to Section 395.509(6), Florida Statutes (1984 Suppl.), the HCCB is authorized, if it first determines under Section 395.509(5), Florida Statutes (1984 Suppl.), that the hospital's rate of increase is not just, reasonable and not excessive, to amend or disapprove any hospital's budget which does not meet the two screens of Section 395.509(2), Florida Statutes (1984 Suppl.), to establish a rate of increase which is "just, reasonable, and not excessive." The HCCB's authority under Section 395.509(6), Florida Statutes (1984 Suppl.), applies only if the HCCB first complies with the following pertinent provisions of Section 395.509(5), Florida Statutes (1984 Suppl.):
The board shall disapprove any budget, or part thereof, as excess that contains
a rate of increase which is not necessary to maintain the existing level of services of the hospital or, if the hospital increases its existing level of services, any amount not necessary to accomplish that increase. In making such deterioration . . . the board shall consider the following criteria:
The efficiency, sufficiency, and adequacy of the services and facilities provided by the hospital.
The cost of providing services and the value of the services to the public.
The ability of the hospital to improve services and facilities.
The ability of the hospital to reduce the cost of services.
The ability of the hospital to earn a reasonable rate of return.
The accuracy of previous budget submissions by the hospital compared to the actual experience of the hospital
the
The number of patient days reimbursed by Medicare or Medicaid.
The number of patient days attributable to the medically indigent.
The research and educational services provided by the hospital if it is a teaching hospital.
The projected expenditures or revenues for or from construction of facilities or new services which are subject to regulation under
s. 381.494 may not be included in the budget
of a hospital until the construction or services are approved or authorized by the state health planning agency.
The cost of opening a new hospital, for first 3 years.
The Challenged Rules.
In carrying out its duty to establish a uniform
system of financial reporting, the HCCB adopted Section 4D- 1.03, F.A.C., which provides:
The Board, pursuant to Section 395.505, Florida Statutes, hereby adopts and establishes a uniform system for hospitals to file the prior year audited actual data report, the interim report of financial and statistical information. This system is described and the forms, instructions, and definitions therefor are contained in the
Board's publication entitled Hospital Uniform Reporting System Manual. The Chart of Accounts adopted pursuant to Section 395.507(1),
Florida Statutes, and this Chapter 4D-1, and as hereafter modified, shall be utilized by each hospital for submitting the prior year audited actual data report, the interim report and the budget report.
In order to determine whether a hospital's budget should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), the HCCB adopted Section
4D-1.12, F.A.C. Sections 4D-1.12(1) and (2), F.A.C.,
provide:
The staff shall review the budget report based upon the hospital's ranking for gross revenue per adjusted admission within its group and upon its rate of change in gross revenue per adjusted admission in the proposed budget as required in Section 395.507(6), Florida Statutes, and the most recently Board approved budget.
As part of the budget report review process, groupings of hospitals shall be established according to the characteristics and methodology as outlined in Chapter V, Section B, Hospital Unit Uniform Reporting System Manual and as outlined in Section 395.507(2), Florida Statutes. Percentile values for gross revenue per adjusted admission shall be determined monthly for each group by ranking projected gross revenue per adjusted
admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment.
12. Sections 4D-1.03 and 4D-1.12(1) and (2), F.A.C.,
are the rules challenged by Mercy. These rules, as quoted herein, were effective as of November 5, 1984. The rules were originally adopted effective June 30, 1980. The rules were amended to their present wording in response to "major" legislation enacted in 1984 which amended Part II, Chapter 395, Florida Statutes (1983), and granted authority to the HCCB for the first time to approve, disapprove or amend hospital budgets under certain circumstances.
Chapter 79-106, Laws of Florida.
The challenged rules essentially provide that the HCCB, when grouping of hospitals for purposes of the uniform system of financial reporting and for purposes of reviewing and comparing budgets to determine if they should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), will apply the grouping methodology outlined in Chapter V, Section B of the Hospital Uniform Reporting System Manual (hereinafter referred to as the "Manual"). Section 4D-1.18, F.A.C., also adopted effective November 5, 1984, incorporates by reference the Manual within each rule in Chapter 4D-1, F.A.C., which references the Manual. This rule has not been challenged in this proceeding.
The Hospital Grouping Methodology and Its Development.
Generally, Chapter V, Section B of the Manual, sets out the objective of the grouping methodology, the procedure for forming groups, a list of the variables
considered in forming groups and the weight to be accorded each variable.
The goals of the grouping methodology, as provided in the Manual, are to "facilitate comparison of hospitals with similar patient mix and market conditions" and to "develop groups of sufficient size . . . to assure statistically valid comparisons."
Based upon the procedure for forming groups contained in the Manual, hospitals are grouped into nine, non-teaching, short-term hospital groups, one Major teaching hospital group and a number of specialty hospital groups. It is the method of grouping hospitals into nine short-term hospital groups which is at issue in this proceeding.
Assignment of hospitals to the nine short-term hospital groups is accomplished through the use of the "McQueen's K-means clustering algorithm included in the cluster analysis t computer program package CLAN developed by T.D. Klastorin and Robert Ledingham (June, 1980 version)."
A clustering analysis is a method of grouping a set of objects (in this case, hospitals) into relatively homogeneous groups. The goal of a clustering algorithm is to minimize the differences between the members of the group. The objects are grouped based upon a set of variables which are considered significant for purposes of comparing the objects. In order to account for the significance of each variable, the variables are weighted. The variables have a numerical score and after weighing, the weighted sum of the variables for each object is compared and the objects are grouped based upon their variable scores.
There are a number of clustering algorithms which can be used to group hospitals. The HCCB chose to use the "McQueen's K-means" clustering algorithm. The use of McQueens K-means clustering algorithm has not bean challenged in this proceeding. Nor does the evidence establish that the selection of McQueen's K-means clustering algorithm is arbitrary and capricious.
The clustering algorithm is performed by computer. The computer program utilized by the HCCB to
perform the algorithm is called "CLAN" and was developed by
T.D. Klastorin and Robert Ledingham. The evidence at the hearing supports a finding that the selection of this computer program is reasonable.
Once hospitals are grouped, they are notified of their group designation and allowed to request reconsideration of their group assignment. The request must made within thirty days after notification.
Following the creation of the HCCB in 1979, Price Waterhouse & Company was engaged by the HCCB as a consultant to assist in still establishing an appropriate hospital grouping methodology. The HCCB also created an advisory committee to assist the HCCB and Price Waterhouse & Company in developing the grouping methodology. This committee, designated as the Technical Advisory Committee (hereinafter referred to as the "TAC") was comprised of individuals from the hospital industry and academia and certified public accountants. The TAC worked with Price Waterhouse & Company in developing the grouping methodology and the uniform reporting system. Because of time constraints, the TAC's involvement with evaluating the methodology was limited.
The HCCB ultimately decided to pattern the grouping methodology it adopted after the grouping methodology then being used by the State of Washington, as recommended by Price Waterhouse & Company. The Washington system was not adopted exactly; a number of changes to Washington's methodology were made to the grouping methodology adopted by the HCCB.
Mercy has proposed several findings of fact beginning on page 35 and ending on page 38 of its proposed order concerning the "Differences in Washington Hospital Characteristics and Grouping Methodology Model." Those proposed findings of fact can be and are hereby disposed of by the following finding of fact: because of differences in the hospital industries of the States of Florida and Washington and other differences between the two States, Florida's grouping methodology cannot be justified solely on the basis that Washington's grouping methodology was used as a starting point in developing Florida's grouping methodology. Those differences, however, do not support a finding of fact that Florida's grouping methodology is arbitrary and capricious since the Washington system was
not adopted without substantial modifications, including a reduction of Washington's eighteen variables initially to fourteen and ultimately to seven, and the use of unequal weighting of the variables.
The TAC reviewed and discussed the grouping methodology initially approved by the HCCB prior to its approval. Some of Mercy's witnesses, who were members of the TAC, indicated during their testimony that the TAC never decided anything because no "vote" was ever taken of TAC members and that the TAC did not advise the HCCB but instead advised the staff of the HCCB. Their testimony in this regard has been given little weight. The fact that no formal "vote" was taken of TAC members does not mean that the TAC did not take a position on matters it discussed. The consensus of the TAC could be, and was, gleaned from its discussions. The staff of the HCCB in fact reported decisions of the TAC to the HCCB verbally and by minutes of TAC meetings. Although the accuracy of staff's reports was sometimes questioned, no question was raised about whether TAC had taken positions. The fact that the HCCB staff reported TAC actions to the HCCB also disputes the testimony to the effect that TAC did not advise the HCCB but instead advised the staff of the HCCB. While it may be true that TAC did not deal directly with the HCCB, its analysis was reported, to the HCCB.
The HCCB ultimately adopted rules effective June 30, 1980, which incorporated by reference to the Manual, the general outline of the grouping methodology adopted by the HCCB.
The TAC ceased to exist following adoption of the HCCB's initial rules. Two new advisory committees were formed: a Technical Advisory Panel (hereinafter referred to as "TAP") on grouping and a TAP for financial analysis. The grouping TAP was made up of individuals from the hospital industry.
The grouping TAP met in November and December of 1980 and reviewed the results of test runs of the grouping methodology initially adopted by the HCCB. The results of the initial run were described as "bizarre." This run used equal weighting of the variables. Equal weighting was abandoned and three to four more test runs were made and reviewed by the grouping TAP. After each run the variable
weights were adjusted until the results appeared to be "reasonable."
The HCCB also established a committee consisting of members of the HCCB designated as the Research and Development Committee (hereinafter referred to as the "R & D Committee"). The R & D Committee reviewed the results of test runs and also found the final groups reasonable.
The HCCB met in January, 1981, and adopted the grouping methodology with the adjusted variable weights arrived at as a result of the test runs for use in establishing hospital groups for use in 1981.
The grouping methodology was reviewed every year after its initial adoption in 1980. The methodology was reviewed by the HCCB, HCCB's staff, the TAP's and the R & D Committee each year. Throughout the period from 1980 to the present, criticisms of the grouping methodology have been made. Some of these criticisms were agreed with and others were rejected by the HCCB or its staff.
Following review of the grouping methodology by the TAP's and the R & D Committee in 1981, the original fourteen variables were reduced to eight. In January, 1982, the weight of one of the variables was changed and one variable was replaced by another variable. In December, 1982, a variable was deleted; seven variables remained. In 1983, clustering analysis was limited in its application to the formation of short-term acute care general hospital groups.
In 1984, following the significant amendment of Chapter 395, Florida Statutes (1983), the HCCB adopted the present challenged rules. The rules were effective November 5, 1984. The only change in the grouping methodology approved by the HCCB was the substitution of the Florida price level index variable for percent of population over age 65. The weight assigned to the Florida price level index was the same as the weight that had been assigned to the percent of population over age 65.
The changes made to the grouping methodology in 1984 were first suggested by the staff of the HCCB to the grouping TAP in June of 1984. The grouping TAP met on July 11, 1984 and considered and discussed the proposed changes. A number of problem areas were discussed. Although no test
run results were presented at this TAP meeting, they were provided to TAP members before the HCCB adopted the grouping methodology changes. Concerns about the geographic or exogenous variables expressed at the grouping TAP meeting suggested a belief that too much or too little emphasis was being placed on geographic considerations.
Mercy has proposed a number of findings of fact beginning on page 33 and ending on page 35 of its proposed order concerning the significance of the changes made by the Legislature in 1984 to Part II of Chapter 395, Florida Statutes (1983). Those proposed findings of fact essentially deal with the fact that the powers of the HCCB after the 1984 amendments may have a more significant impact on hospitals and that, therefore, the grouping methodology is of greater interest to hospitals. Mercy's proposed findings of fact are not, however, relevant in determining whether the challenged rules are arbitrary and capricious. The fact that the effect of the grouping methodology on a hospital may now be different does not mean that the use of the grouping methodology, as modified after the 1984 legislative changes to the law, which was developed when the purpose of grouping was different, is not an appropriate methodology. The evidence does not support such a conclusion. Therefore, to the extent that Mercy's proposed findings of fact under Section II, A, of its proposed order have not already been made, they are rejected as unnecessary.
Mercy and the HCCB have proposed findings of fact as to whether Mercy has ever questioned the HCCB's grouping methodology since it was first adopted prior to instituting this proceeding. Those proposed findings of fact are not deemed relevant in determining whether the grouping methodology is arbitrary and capricious. If the grouping methodology is in fact arbitrary and capricious, the fact that Mercy did not challenge the methodology when it was first adopted will not make it any less arbitrary and capricious today.
Mercy's Challenge.
A. Introduction.
Mercy is a not-for-profit, general acute care hospital with 550 licensed beds located in Dade County, Florida. Mercy has raised a number of points in this
proceeding and its proposed order in challenging the rules in question. All of those points, according to Mercy, prove that the rules are an invalid exercise of delegated legislative authority. In determining whether the facts support such a conclusion, the following standard must be kept in mind:
[I]n a 120.54 hearing, the hearing officer must look to the legislative authority for the rule and determine whether or not the proposed rule is encompassed within the grant. The burden is upon one who attacks the proposed rule to show that the agency, if it adopts the rule, would exceed its authority; that the requirements of the rule are not appropriate to the ends specified in the legislative act; that the requirements contained in the rule are not reasonably related to the purpose of the enabling legislation or that the proposed rule or the requirements thereof are arbitrary or capricious.
A capricious action is one which is
taken without thought or reason or irrationally. An arbitrary decision is one not supported by facts or logic or despotic. Administrative discretion must be reasoned and based upon competent substantial evidence. Competent substantial evidence has been described as such evidence as a reasonable person would accept as adequate to support a conclusion.
Agrico Chemical Company v. State, Department of Environmental Regulation, 365 So.2d 759, 763 (Fla. 1st DCA
1978), cert. denied, 376 So.2d 74 (1979).
Additionally, the following must be kept in mind:
The well recognized general rule is that agencies are to be accorded wide discretion in the exercise of their lawful rulemaking authority, clearly conferred or fairly implied and consistent with the agencies' general statutory duties. . . . An agency's construction of the statute it administers is entitled to great weight and is not to be overturned unless clearly erroneous. . . .
Where, as here, the agency's interpretation of a statute has been promulgated in rulemaking proceedings, the validity of such rule must be upheld if it is reasonably related to the purposes of the legislation interpreted and it is not arbitrary and capricious. The burden is upon petitioner in a rule challenge to show by a preponderance of the evidence that the rule or its requirements are arbitrary and
capricious. . . . Moreover, the agency's interpretation of a statute need not be the sole possible interpretation or even the most desirable one; it need only be within the range of possible interpretations.
Department of Professional Regulation v. Durrani, 455 So. 2d 515, 517 (Fla. 1st DCA 1984).
The witnesses who testified in this proceeding who were accepted as experts were qualified in a number of different areas. Those witnesses qualified as experts in statistical analysis or related areas and health care finance rendered opinions as to the appropriateness of the HCCB's grouping methodology.
The method of grouping hospitals adopted by the HCCB is a statistical method. Therefore, the determination of whether the HCCB's methodology is arbitrary and capricious depends largely upon whether the methodology is statistically sound. Mercy and the HCCB therefore presented the testimony of witnesses qualified in the area of statistics: Rick Zimmerman, Ph.D., an expert in statistical analysis and social science statistics (for Mercy), and Duane Meeter, Ph.D., an expert in economics and applied statistical analysis and Frank Fox, Jr., Ph.D., an expert in applied statistics (for the HCCB). All three witnesses were knowledgeable and credible.
Dr. Zimmerman testified that the HCCB's grouping methodology was "clearly inappropriate." Dr. Zimmerman's opinion was based upon a three step analysis in which he determined: (1) whether the variables selected by the HCCB are appropriate; (2) whether the weights assigned to the variables by the HCCB are appropriate; and, (3) the effect changing the variables and/or weights would have on hospital groups.
The results of Dr. Zimmerman's analysis, which formed the basis for his opinion that the HCCB's grouping methodology is not appropriate, are discussed, infra.
Mercy has proposed a number of findings of fact in its proposed order concerning the credibility of Dr. Meeter's and Dr. Fox's testimony. Some of those proposed findings of fact have been considered in determining the weight given to their testimony. Both Dr. Meeter and Dr. Fox were, however, knowledgeable and credible.
In addition to the opinion of its statistical expert, Mercy presented the testimony of three witnesses who were accepted as experts in health care finance: Messrs. Lawrence R. Murray, Jerry A. Mashburn and Anthony
Krayer. All three are certified public accountants. All testified that it was his opinion that the HCCB's grouping methodology was arbitrary. The bases for their opinions are discussed, infra.
Selection of "Seed" Hospitals.
In order to use a clustering algorithm, a starting point is needed; the first object (hospital) to be placed in each group must be selected. The first objects selected are called "seed" objects. Mercy has attached the HCCB's method of selecting the nine "seed" hospitals in initially performing the McQueen's K-means clustering algorithm. Mercy has proposed the following findings of fact with regard to this point:
While none of the parties challenged the use of McQueen's and the CLAN program, no support was offered during the hearing for the method by which the HCCB had selected the nine seed hospitals as initial clustering points. The HCCB's own statistician criticized the HCCB's selection method. The Rankis-Zimmerman report indicates that the final groupings based upon the HCCB's seed hospitals were vastly different than groupings based upon the utilization of seed hospitals selected on a statistical basis.
Both the HCCB's and Mercy's statisticians proposed statistically sound methods for selecting seed hospitals, which had not been
employed by the HCCB in the Grouping Methodology. [Citations omitted]
These proposed findings of fact are not relevant to this proceeding. The burden is on Mercy to show that the selection of "seed" hospitals was arbitrary and capricious; the HCCB is not required to show "support" for its method of selecting the seed hospitals. Additionally, whether there are other methods of selecting seed hospitals is not the test. The HCCB's interpretation of the statute need not be the sole interpretation or even the most desirable one; it only needs to be within the range of possible interpretations. Durrani, supra. Therefore, even if the Rankis-Zimmerman report does indicate that the final groupings of hospitals of the HCCB were vastly different than groupings based upon other methods of selecting seed hospitals, it does not automatically follow that the HCCB's method of selecting seed hospitals was not "within the range of possible interpretations.
The weight of the evidence does not prove that the HCCB's method of selecting seed hospitals was arbitrary and capricious.
Selection of the Variables.
In delegating legislative authority to the HCCB to establish a grouping methodology, the Legislature provided that the following relevant characteristics are to be taken into account:
A measure of the nature and range of services provided;
Number of medical specialties represented on the hospital staff;
Percentage of Medicare inpatient days;
Average daily census;
Geographic differences; and
Case mix, "when available."
In response to the Legislature's mandate, the HCCB has adopted seven variables or characteristics. The variables selected by the HCCB include five hospital- specific (endogenous) variables and two geographic (exogenous variables). The variables are as follows:
Endogenous Variables:
Average occupied beds. Available services.
Physician mix. Number of residents.
Percent Medicare days.
Exogenous Variables:
Florida price level index. Personal income.
The following findings of fact are made with regard to each of the specific characteristics required to be taken into account by the Legislature and the variables adopted by the HCCB:
1. A measure of the nature and range of services provided.
The HCCB has provided in the Manual that "available services" or a service index will be considered. The specific services considered are listed on Table B, Chapter V, of the Manual. Table B also weights or provides a score for each of the various services listed. Each hospital gets the specified score if it has a particular service available. The available services listed are based upon a survey of hospital administrators and chief financial officers in New York, New York, made in the 1970's.
Problems with the list of available services have been pointed out to the HCCB and its staff. The primary problem is that the volume of services provided is not taken into account. The problems with the service index, however, relate to the fact that the service index is a proxy for case mix. To date, there is no alternative available which would be a better proxy for case mix. The Legislature contemplated this fact by providing that a measure of the services provided by a hospital will be considered and that case mix will be taken into account "when available." Therefore, while there are "problems" with the service index, consideration of available services is mandated by the Legislature and there are no acceptable alternatives available use for by the HCCB.
2. Number of medical specialties represented on the hospital staff.
52. The HCCB has provided that a physician specialties mix be considered in grouping hospitals. This physician specialties mix is based upon a list of twenty- six specialties for which a hospital gets a single credit for each specialty available regardless of the number of physician specialists available in each specialty or the volume of patients admitted by a physician.
52. Like the service index, the physician specialties mix is a proxy for ease mix and has problems associated with its use. Also like the service index, consideration of this factor is mandated and there are no acceptable alternatives available for use by the HCCB.
3. Percentage of Medicare inpatient days.
53. The HCCB has provided that "percentage Medicare days be considered in grouping hospitals. Consideration of this variable has not been shown to be arbitrary and capricious.
4. Average daily census.
53. The HCCB has provided that "average occupied beds" is to be considered in grouping hospitals. It does not appear that this variable's use was proper, as discussed, infra.
5. Geographic differences.
The HCCB has provided that geographic differences be considered in grouping hospitals by providing for the inclusion of the Florida price level index, by county, and median income, by county, as variables to be considered.
The only thing that the evidence established with regard to these variables was that they are not "very good" predictors, that "if" they are intended as a measure of input prices they are "poor substitutes," and that there may be "better" measures of the cost of doing business.
The evidence does not, however, show that the use of these variables is arbitrary and capricious.
Mercy has proposed a number of findings of fact concerning geographic influences in part II, H of its proposed order. The proposed findings of fact begin on page 29 and end on page 33. Most of these proposed findings of fact are not made in this Final Order because they are not deemed relevant or material and are unnecessary to the resolution of this proceeding.
The proposed findings of fact contained in part II, H of Mercy's proposed order purportedly show that the HCCB has inadequately accounted for geographic influences. The evidence does establish that the financial characteristics of Florida hospitals and GRAA are affected by the geographic location of a hospital. This is especially true in Florida because of the impact on parts of the State from tourism, language barriers, the number of elderly residents, the available labor markets, and competition.
It is also true that the combined weights of the two geographic variables the HCCB has selected for consideration in the grouping methodology--the Florida price level index and median income--is only one-seventh of the combined weights of all the HCCB's variables. It is also true that the grouping methodology results in hospitals from different areas of the State being grouped together, i.e., Mercy's hospital group includes twenty-
three hospitals, four of which are located in Dade County and three of which are located in Escambia County.
It does not necessarily follow, however, that the HCCB has been arbitrary and capricious in designating only two variables to take into account geographic differences between hospitals. The evidence also does not support a conclusion that it was not proper for the HCCB to limit the weight of the geographic variables to one-seventh of the total weight of the variables. Nor does the evidence demonstrate that the inclusion of hospitals from different areas of the State in the same group is not a proper result just because geographic influences are important.
The fact that a large percentage of Dade County and south Florida hospitals do not qualify for automatic approval of their budgets under Section 395.509(2), Florida Statutes (1984 Suppl.), because they are in the upper 20th and the upper 50th to 79th percentiles does not necessarily prove that geographic influences have not been adequately accounted for either, as suggested be Mercy on page 30 of its proposed order. The evidence simply does not support such a conclusion.
Nor does it necessarily follow that because Dade County hospitals are "efficient" in the minds of some of Mercy's witnesses and yet are unable to achieve automatic approval of their budgets that the grouping methodology does not adequately account for geographic influences, as suggested by Mercy on pages 30 and 31 of its proposed order. First, the Legislature has provided that factors other than geographic differences are to be considered, which the HCCB has provided for. It may therefore be that some Dade County hospitals do not achieve automatic approval of their budgets because of the other variables. The fact that not all Dade County hospitals fail to achieve automatic approval of their budgets supports such a conclusion. Also, even though a hospital's budget is not automatically approved it does not necessarily mean that it is considered inefficient. If that were the case, its budget would probably be subject automatically to amendment or disapproval. That is not the case. If a hospital's budget is not automatically approved its budget is subject to further review under Section 395.509(5), Florida Statutes (1984 Suppl.). It may still be determined that the hospital is "efficient" based upon this review.
The Legislature, in enacting Part II of Chapter 395, Florida Statutes, did indicate that it intended to promote competition and efficiency among hospitals in order to contain hospital costs. Section 395.5025, Florida Statutes (1984 Suppl.). The grouping methodology and, in particular, the comparison of hospitals' GRAA under Section 395.509(2), Florida Statutes (1984 Suppl.), does not alone achieve that intent. Therefore the opinion of several of Mercy's witnesses that Dade County hospitals and in particular, Mercy, are efficient does not support a conclusion that the methodology is arbitrary and capricious or that geographic influences are not adequately considered.
On pages 31 and 32 of its proposed order, Mercy suggests that Dade County hospitals only compete with other Dade County hospitals and therefore grouping hospitals from all sections of the State is illogical. In support of this suggestion, Mercy proposes findings of fact to the effect that the HCCB has recognized that consumers are interested in comparing hospital charges on a regional basis and has provided information about hospital cost on a county-by- county basis in the past.
Mercy's proposed findings of fact are not accepted for essentially the same reasons that its proposed findings of fact with regard to the efficiency of hospitals were rejected. These proposed findings of fact do not support a finding that the HCCB's grouping methodology is arbitrary and capricious or that geographic differences have not been adequately taken into account.
Mercy's has also proposed findings of fact with regard to geographic differences to the effect that after the Legislature specifically required that "geographic differences" be considered in an amendment to Chapter 395, Florida Statutes (1981), in 1982, the HCCB has not added any additional geographic factors to be considered. Although no additional geographic variables have been added, geographic variables have been reviewed and have been changed since 1982. More importantly, these proposed findings of fact do not prove that the existing variables are not adequate.
6. Case Mix.
66. Case mix is to be taken into account "when available." The evidence does not establish that case mix is available at this time.
7. Other variables.
The HCCB is not limited to a consideration of the factors which the Legislature specifically provided are to be considered. Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.). The only other variable the HCCB has provided for consideration is "number of residents." No evidence of significance concerning this variable was presented at the hearing.
There was testimony at the hearing that there are other variables which would be appropriate for consideration in grouping hospitals. The evidence does not, however, establish that failure to consider other variables means that the grouping methodology adopted by the HCCB is arbitrary and capricious.
Dr. Zimmerman opined that he had determined that the variables selected by the HCCB were not appropriate. Dr. Zimmerman based his opinion upon the fact that he had conducted a "multiple regression analysis." According to Dr. Zimmerman, a "multiple regression analysis is a statistical procedure used to evaluate the relationship of a given set of independent, predictor variables (the HCCB's seven variables) to a single dependent variable (GRAA)."
Based upon his application of multiple regression analysis, Dr. Zimmerman concluded that three of the variables used in the HCCB's grouping methodology are not statistically significant predictors of GRAA: available services, average occupied beds and median income. Two of these variables (available services and average occupied beds) are required by Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), to be taken into account in the grouping methodology. These Sections also require that geographic factors, which median income is, be taken into account. This does not, however, mean that median income must be included as a variable by the HCCB.
Dr. Meeter testified that the statistical significance of the HCCB's variables can be determined by the use of "log transformation." Based upon Dr. Meeter's
use of log transformation, median income and available services are statistically significant variables; average occupied beds is not statistically significant. Although the HCCB was required to include "average daily census" as a factor in grouping hospitals, the HCCB was not required to use "average occupied beds."
Based upon Dr. Zimmerman's and Dr. Meeter's testimony, the use of average occupied beds as a variable was not proper. Whether the use of available services and median income as variables was proper depends upon whether log transformation is a proper method of determining the statistical significance of variables. Although the evidence on this question was in conflict, it appears that the use of log transformation was proper. The inclusion of available services and median income is therefore not arbitrary and capricious.
A second problem with the variables used by the HCCB suggested by Dr. Zimmerman involves the correlation between the seven predictor variables or "multicollinearity." The existence of multicollinearity can invalidate a clustering program. Dr. Zimmerman determined that the correlation between the physician mix, available services and average occupied beds variables and between the Florida price level index and median income variables is large enough that there is a "potential" problem.
Dr. Zimmerman's determination that there is a "potential" problem was made through two techniques. He first used "paired correlation." Based upon paired correlation, Dr. Zimmerman used a "rule of thumb" that a paired correlation of 0.7 or higher should be looked at closer. Finding a paired correlation between physician mix, available services and average occupied beds of .74 and between the Florida price level index and median income of .71, Dr. Zimmerman then calculated "R squared" to determine if a potential problem did in fact exist. Dr. Zimmerman indicated that the calculation of R squared is the most highly recommended method of determining if multicollinearity is a problem but agreed there are other methods of making such a determination.
Dr. Meeter indicated that Dr. Zimmerman's rule of thumb that based upon paired correlations of 0.7 or higher indicates the problem should be looked at more closely is
too strict. Other than Dr. Zimmerman's "experience" (which according to Dr. Zimmerman, consisted of a class he took), Dr. Zimmerman did not cite any authority which supported his rule of thumb. The only other source Dr. Zimmerman referred to--the "SPSS" manual--only indicates that the
.82-1.0 range indicates that extreme collinearity exists.
Another problem raised by Dr. Meeter with Dr. Zimmerman's conclusions as to multicollinearity, involves the use of "variance inflation factors" (hereinafter referred to as VIF is another technique used by statisticians to determine if multicollinearity is a problem. Dr. Zimmerman did not look at VIF.
VIF can be determined by transforming R squared: VIF 1/1- R2. A VIF in excess of 5 or 10 is an indication that multicollinearity exists. One source quoted by Dr. Meeter even indicates that a much higher VIF is necessary to conclude that multicollinerity exists. Transforming Dr. Zimmerman's R squared calculations indicates that VIF is in excess of 5 in only one instance. As discussed more fully, infra, Dr. Zimmerman used a number of alternative methods of grouping hospitals which he designated as "Schemes." Based upon Dr. Zimmerman's "Scheme 3," Dr. Zimmerman found an R squared value of .819. The VIF for an R squared value of .819 is in excess of 5. Scheme 3, however, is not an application of the HCCB's grouping methodology; it is a grouping methodology in which the variables are assigned different weights. As indicated by Dr. Meeter, the weights used in grouping can effect the correlation of the variables. Therefore, the fact that Scheme 3 indicates a possible multicollinearity problem does not prove that multicollinearity is in fact a problem with the HCCB's grouping methodology.
Based upon the foregoing it is found that multicollinearity does not exist sufficiently to conclude that the variables used by the HCCB are arbitrary and capricious. Dr. Zimmerman only testified that there was a "potential" problem. Additionally, although multicollinearity may invalidate a clustering program, the evidence does not prove that the HCCB's clustering program is in fact invalid because of any existing "potential" problem.
In light of the foregoing findings of fact, it is clear that the HCCB's variables are appropriate with the
exception of average occupied beds. The fact that this one variable is not statistically significant, however, does not by itself support a finding that the grouping methodology is inappropriate.
The Lack of Testing of the Grouping Methodology.
A third point raised by Mercy is entitled "Lack of Testing" in its proposed order and includes several proposed findings of fact on pages 17 and 18 of Mercy's proposed order. Mercy has essentially proposed findings of fact that: (1) it had been recommended to the HCCB when it originally adopted its grouping methodology in 1980 that a statistician be hired to test the grouping methodology; (2) that the failure to do so had been criticized in the past;
that it had been recommended that the HCCB obtain assistance of individuals knowledgeable in Florida hospital characteristics to evaluate the grouping process but had failed to do so; (4) that the HCCB had not, until just prior to the hearing of this case, hired a statistician;
(5) that the HCCB has not used multiple regression analysis or within-cluster co- variance weighting; and, (6) that the State of Washington's State Hospital Commission has employed a statistician to test its methodology and has effectively been advised by individuals knowledgeable with Washington's hospital characteristics.
These proposed findings of fact do not establish that the grouping methodology adopted by the HCCB is arbitrary and capricious even if they were all correct findings of fact. All that these proposed findings of fact show is that the HCCB may not have gone about the adoption of its grouping methodology in the most appropriate manner. Any such shortcomings, based upon 20/20 hindsight, in the manner in which the methodology was adopted do not prove that the grouping methodology itself is not appropriate.
Additionally, the evidence does not support all of these proposed findings. In particular, as was discussed, supra, the HCCB did in fact look to individuals knowledgeable in Florida hospital characteristics to evaluate its grouping methodology.
The Weight of the Variables.
The most significant and troublesome challenge made by Mercy to the HCCB's grouping methodology involves
the weights assigned to the variables considered in grouping hospitals. The weights assigned by the HCCB to the seven HCCB variables are:
Variable Weight
Endogenous:
Average occupied beds. | 1.0 |
Available services. | 2.0 |
Physician mix. | 0.5 |
Number of residents. | 0.5 |
Percent Medicare days. | 2.0 |
Exogenous:
Florida price level index. 0.5
Personal income. 0.5
The determination of whether the weights selected by the HCCB are arbitrary and capricious depends largely upon the evidence presented at the hearing by those witnesses knowledgeable in the field of statistics. Three witnesses were qualified as experts in statistically related fields. All three were well qualified in their fields and were credible and persuasive.
According to Dr. Zimmerman, "the weights used currently by the HCCB are clearly inappropriate." In Mercy exhibit 17, Dr. Zimmerman reaches the following conclusion with regard to the HCCB's variable weights:
These weights clearly do not reflect the relationship of the various variables to GRAA and thus appear as arbitrary and inappropriate for use in clustering hospitals on the basis of cost-related variables.
Dr. Zimmerman's opinion is based upon the use of "multiple regression analysis," which, according to Mercy exhibit 17, "assesses the relationship of each of the predictor variables to the dependent measure (GRAA)."
The evidence, however, does not support a finding of fact that multiple regression analysis is the only statistically valid method of establishing weights to be used in clustering analysis. In fact, there are a number of statistically valid methods of establishing variable weights. One of those acceptable methods is the
"subjective" method which was used by the HCCB. Doctors Meeter and Fox substantiated this finding of fact.
The use of the subjective method involves the participation of individuals knowledgable in the Florida hospital industry in reviewing and commenting on the weights used. The evidence clearly supports a finding that individuals with such knowledge participated in the process of developing the HCCB's grouping methodology including the selection of variable weights. Even one of Mercy's witnesses provided testimony which supports this conclusion: Mr. Kenneth G. McGee testified that "[i] t was just a trial and error process of changing weights until we ended up with something that people considered more reasonable than what had been produced in the past."
Mercy has questioned Dr. Meeter's testimony with regard to the use of the subjective method of weighting variables based upon a number of proposed findings of fact. First, Mercy has proposed findings of fact to the effect that Dr. Meeter indicated that the subjective method is "bad" if not carefully applied. What Dr. Meeter actually said was that any method should be applied carefully. Secondly, Mercy has proposed a finding of fact that in a book relied upon by Dr. Meeter in rendering his opinion about the subjective method--John Hardigan's 1975 book, Clustering Algorithms--the author describes the subjective method as an "unsatisfactory" one. What Dr. Meeter's testimony proves is that Hardigan's comment was a tongue- in-cheek comment that there are several appropriate methods of weighting variables all of which are unsatisfactory, including regression analysis (used by Dr. Zimmerman) and the subjective method (use by the HCCB). Dr. Meeter also relied upon other statistical literature in rendering his opinion as to the use of the subjective method in determining variable weights. Finally, Mercy has suggested that Dr. Meeter did not undertake any independent "statistical" analysis which would support his opinions. Based upon the nature of Dr. Meeter's testimony, it does not appear that such a statistical analysis is a prerequisite to concluding that the use of the subjective method is an acceptable method of determining variable weights.
Mercy has proposed a finding that the subjective method of weighting is inappropriate based upon Dr. Zimmerman's testimony. Dr. Zimmerman was asked the
following questions and gave the following responses concerning the subjective method:
Q Now, in your understanding of how the Board arrived at its weights, is it your opinion that that is totally inappropriate methodology for clustering? Yes or no or maybe?
A I am looking to counsel for counsel here.
MR. PARKER: Do you understand the
questions?
THE WITNESS: I do understand the question. And let me give you my full answer as I best understand it.
The weights -- and I think what I have commented on at great length -- the weights used by the Hospital Cost Containment Board are clearly on statistical grounds inappropriate. There's no question about that.
BY MR. COLLETTE:
Now, on these clustering grounds, you testified as to your familiarity with
clustering grounds, on clustering grounds, are they totally inappropriate?
A If the question is -- I wouldn't say that. Hearing that there is no objection, I will continue.
I would rule out the use of a purely subjective weighting scheme as a final solution for cluster analysis.
I think it might be one that would be considered at a very early step, but never used, as kind of a preliminary idea.
However, I would clearly rule out the use of a purely subjective weighting scheme as something to be proud of and actually put into application.
So, if that means yes to your question, I guess yes in that specific way.
Dr. Zimmerman's responses are not totally clear with regard to whether the subjective method is, in his opinion, an acceptable method of determining variable weights. Nor would his response, if totally clear, overcome the weight of the evidence in support of a conclusion that the HCCB's method of determining variable weights is not arbitrary and capricious.
Alternative Methods of Grouping Hospitals.
Mercy has proposed a number of findings of fact under a section of its proposed order entitled "Alternative Variables and Weights Indicated by Statistical Analyses." Pages 22 to 29 of Mercy's proposed order. Some of the proposed findings included therein have been dealt with in other portions of this Final Order, including those findings of fact dealing with the use of multiple regression analysis and multicollinearity.
In Dr. Zimmerman's report (Mercy exhibit 17) and during his testimony a number of alternative methods of grouping hospitals were tested and evaluated. Dr. Zimmerman concluded that a number of these alternative methods would be preferable to the methodology adopted by the HCCB. Dr. Zimmerman tested twelve different methods (referred to as "Schemes" by Dr. Zimmerman): the HCCB's, the State of Washington's and ten other methods which used some or all of the seven variables designated by the HCCB.
Scheme 3 used all seven variables selected by the HCCB but with different weights. Dr. Zimmerman rejected this scheme because of multicollinearity. In Scheme 4, Dr. Zimmerman used only the four variables which he found to be statistically significant: physician specialties mix, number of residents, percent Medicare days and the Florida price level index. Dr. Zimmerman recognized that this Scheme was not acceptable because of the statutory mandate as to the types of factors which must be taken into account.
In order to recognize the requirement of Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), that certain variables be taken into account and
to alleviate the purported multicollinearity problem, Dr. Zimmerman combined the variables he considered highly correlated into two "scales." "Scale 1" combined physician specialties mix, available services and average occupied beds and "Scale 2" combined the Florida price level index and median income. The weights assigned to these scale were based upon the weights Dr. Zimmerman felt were more appropriate as discussed, supra.
Dr. Zimmerman then used multiple regression analysis and a variety of combinations of variables and Scales in Schemes 6-12. Of these Schemes, Dr. Zimmerman testified that Schemes 6 and 10 were preferable, if Scheme
4 could not be used. Scheme 6 involved the use of all of the variables: percent Medicare days, number of residents and Scales 1 and 2. Scheme 10 involved the use of all of the variables except median income: percent Medicare days, number of residents, the Florida price level index and Scale 1.
Dr. Zimmerman compared the results of using the HCCB's grouping methodology to the results from using Schemes 3,4,6 and 10. The results showed that more Dade County hospitals had GRAA's, in comparison to the hospitals in the resulting groups under Schemes 3,4,6 and 10, which would result in automatic approval of their budgets than under the HCCB's methodology. Mercy's position within its group also improved as a result of using Schemes 3,4,6 and 10.
These proposed findings of and Mercy's proposed findings of fact concerning alternatives considered by Dr. Meeter do not prove that the HCCB's grouping methodology is arbitrary and capricious. As found, supra, six of the seven variables selected by the HCCB are reasonable. The weights assigned to those variables have also been found to be reasonable and Mercy's suggested findings of fact with regard to multicollinearity have been rejected. Mercy has failed to prove that the HCCB's grouping methodology is arbitrary and capricious. Therefore, any alternative methods or Schemes and the results of using such methods cannot and do not overcome such findings.
Conclusions.
Based upon the foregoing, it is clear that the bases for the opinions that the HCCB's grouping methodology is inappropriate are not supported by a preponderance of the evidence. Dr. Zimmerman's opinion, which was based upon a number of conclusions, was only supported by the fact that one of the variables selected by the HCCB is not proper. The evidence, however, does not support a finding that this fact alone means that the grouping methodology adopted by the HCCB is inappropriate.
The facts do not support a conclusion that the grouping methodology adopted by the HCCB is arbitrary and capricious.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the parties to, and the subject matter of, this proceeding. Section 120.56, Florida Statutes (1983).
Section 395.507(1), Florida Statutes (1984 Suppl.), requires that the HCCB specify a uniform system of financial reporting for Florida hospitals. Section
395.509, Florida Statutes (1984 Suppl.), requires that the HCCB review budgets submitted by Florida hospitals.
In order to allow "meaningful comparisons" of data reported under the uniform system of financial reporting and to determine if a hospital's budget should be automatically approved, the Legislature has delegated authority to the HCCB to establish a hospital grouping methodology by rule. The hospital grouping methodology is to be established pursuant to Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.).
In carrying out these responsibilities, the HCCB has promulgated Sections 4D-1.03, 4D-12(1) and 4D-1.12(2),
F.A.C. These rules have been challenged by Mercy, to extent that they adopt the hospital grouping methodology developed by the HCCB. Mercy has contended that these rules constitute an invalid exercise of delegated legislative authority as being arbitrary and capricious.
In determining whether the challenged rules are arbitrary and capricious the standards expressed in Durrani, supra, and Agrico Chemical, supra, which are quoted under the Findings of Fact portion of this Final order, apply.
The HCCB is accorded wide discretion in the exercise of its duty to establish a grouping methodology for hospitals. The HCCB's rulemaking authority was clearly conferred by the Legislature and the grouping methodology is consistent with the HCCB's statutory duties.
If the HCCB's grouping methodology is reasonably related to the purposes of Sections 395.507 and 395.509, Florida Statutes (1984 Suppl.), and is not arbitrary (not supported by fact or logic or is despotic) or capricious (an action taken without thought or reason or taken irrationally), it must be upheld.
The burden of proving that the grouping methodology is arbitrary and capricious is clearly on the Petitioner, Mercy. Mercy may have proved that portions of the grouping methodology could be improved, but that is not enough. The grouping methodology need not be the sole method or even the most desirable method; it only needs to be within the range of possible interpretations of Sections
395.507 and 395.509, Florida Statutes (1984 Suppl.)
The facts in this case prove that the grouping methodology developed by the HCCB is within the range of possible interpretations of Sections 395.507 and 395.509, Florida Statutes (1984 Suppl.). Mercy has failed to prove that the grouping methodology is arbitrary and capricious.
Accordingly, it is concluded that the challenged rules do not constitute an invalid exercise of delegated legislative authority by the HCCB.
ORDER
Based upon the foregoing Findings of Fact and Conclusions of Law, it is
ORDERED:
The Petitioner, Mercy, has failed to prove that Sections 4D- 1.03, 4D-1.12(1) and 4D-1.12(2), F.A.C.,
constitute an invalid exercise of delegated legislative authority. Accordingly, the Petition is DISMISSED.
DONE and ORDERED this 28th day of June, 1985, in Tallahassee, Florida.
Hearings
1550
Hearings
LARRY J. SARTIN
Hearing Officer
Division of Administrative
The Oakland Building 2009 Apalachee Parkway
Tallahassee, Florida 32399-
(904) 488-9675
FILED with the Clerk of the Division of Administrative
this 28th day of June, 1985.
COPIES FURNISHED:
James J. Bracher Executive Director
Hospital Cost Containment Board Woodcrest Office Park
Building L, Suite 101
325 John Knox Road Tallahassee, Florida 32303
John H. Parker, Jr., Esquire PARKER, HUDSON, RAINER,
DOBBS & KELLY
1200 Carnegie Building
133 Carnegie Way Atlanta, Georgia 30303
Robert A. Weiss, Esquire PARKER, HUDSON, RAlNER,
DOBBS & KELLY
The Perkins House Suite 101
118 North Gadsden Street Tallahassee, Florida 32301
Douglas A. Mang, Esquire Charles T. Collette, Esquire MANG & STOWELL, P.A.
Post Office Box 1019 Tallahassee, Florida 32302
Liz Cloud, Chief
Bureau of Administrative Code 1802 The Capitol
Tallahassee, Florida 32301
Carroll Webb Executive Director
Administrative Procedures Committee
120 Holland Building Tallahassee, Florida 32301
| Issue Date | Proceedings |
|---|---|
| Jun. 28, 1985 | CASE CLOSED. Final Order sent out. |
| Issue Date | Document | Summary |
|---|---|---|
| Jun. 28, 1985 | DOAH Final Order | Rules establishing grouping of hospitals for budget review by board invalid. |
