STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

VISUAL HEALTH AND SURGICAL )

CENTER OF THE PALM BEACHES, )

)

Petitioner, )

)

vs. ) CASE NO. 85-

2962RX

)

STATE OF FLORIDA, DEPARTMENT ) OF HEALTH AND REHABILITATIVE SERVICES, )

)

Respondent, )

and )

) HCA HEALTH SERVICES OF FLORIDA, INC., )

)

Intervenor. )

) ST. MARY'S HOSPITAL, INC., MEASE HOSPITAL ) & CLINIC and FLORIDA HOSPITAL ASSOCIATION, ) INC., )

)

Petitioners, )

)

vs. ) CASE NO. 85-

2963RX

)

STATE OF FLORIDA, DEPARTMENT ) OF HEALTH AND REHABILITATIVE SERVICES, )

)

Respondent, )

and )

) HCA HEALTH SERVICES OF FLORIDA, INC., )

)

Intervenor. )

)

SURGICAL SERVICES, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 85-

3193RX

)

STATE OF FLORIDA, DEPARTMENT ) OF HEALTH AND REHABILITATIVE SERVICES, )

)

Respondent, )

and )

) HCA HEALTH SERVICES OF FLORIDA, INC., )

)

Intervenor. )

)

FINAL ORDER

These consolidated cases came on for hearing in Tallahassee, Florida, before Robert T. Benton, II, Hearing Officer of the Division of Administrative Hearings, on September 30, 1935. The parties are represented by counsel:

For Petitioner: Charles A. Stampelos, Esquire Visual Health and William B. Wiley, Esquire Surgical Center of McFarlain, Bobo, Sternstein, the PalmBeaches Wiley & Cassedy

666 First Florida Bank Building Post Office Box 2174 Tallahassee, Florida 32316-2174

For Petitioner: Terry Cole, Esquire St. Mary's Hospital, Oertel & Hoffman, P.A.

Inc. Mease Hospital Suite C - 2700 Blair Stone Road and Clinic and Tallahassee, Florida 32301 Florida Hospital

Association, Inc.

For Petitioner: William A. Bell, Esquire Florida Hospital 208 South Monroe Street Association, Inc. Tallahassee, Florida 32301

For Petitioner: Michael J. Cherniga, Esquire

Surgical Services, Roberts, Baggett, LaFace & Richard

Inc. 101 East College Avenue Tallahassee, Florida 32301

For Intervenor: Donna H. Stinson, Esquire HCA Health Services Thomas A. Beason, Esquire of Florida, Inc. Moyle, Flanigan, Katz,

Fitzgerald,

& Sheehan, P.A.

The Perkins House, Suite 100

118 North Gadsden Street Tallahassee, Florida 32301

For Respondent: David P. Gauldin, Esquire Department of Building 1, Room 407

Health and 1323 Winewood Boulevard Rehabilitative Tallahassee, Florida 32301 Services

Petitioners and the intervenor in these consolidated cases contend that certain memoranda dated June 6 and February 21, 1985, amount to rules which should be held, in accordance with Section 120.56, Florida Statutes (1983), an invalid exercise of delegated legislative authority.

Respondent Department of Health and Rehabilitative Services (HRS) takes the position that the memoranda, although statements of current policy, are advisory and directory only and lack the consistent, binding effect an illicit rule would have. HRS conceded that the memoranda would constitute an invalid exercise of delegated legislative authority, since neither has been promulgated in the manner prescribed by Section 120.54, Florida Statutes (1984 Supp.), if they could be shown to fit the statutory definition of rule.

The Hearing Officer has had the benefit of a proposed final order filed by Visual Health and Surgical Center of the Palm Beaches, (Visual), the proposed final order of petitioners St. Mary's Hospital, Inc., Mease Hospital and Clinic and Florida Hospital Association, (FHA), recommended findings of fact and conclusions of law filed by HRS, the closing argument of HCA Health Services of Florida, Inc., and the memorandum of closing argument by Surgical Services, Inc. Specific rulings on proposed findings of fact are set out in the attached appendix.

FINDINGS OF FACT

1. HRS stipulated that the challenging parties, petitioners and intervenor, are substantially affected by, and so have standing to challenge, the memoranda in

   question. According to the pleadings, the challengers are existing providers of surgical services faced with the prospect of increased competition from competitors likely to receive certificates of need for ambulatory surgical centers under the HRS policy articulated in the challenged memoranda.

   
   

2. On June 6, 1985, Robert Maryanski, administrator of HRS' Office of Community Medical Facilities, "issued to staff regarding the review of ambulatory surgical [c]ertificate of [n]eed applications," (T. 71) including applications for certificates of need for limited or specialty ambulatory surgical centers, Deposition of Marta Hardy, p. 23, the following:

   
   

   PDCF POLICY MEMORANDUM #7 JUNE 6, 1985

   
   

   SUBJECT: Policy on CON review of ambulatory surgical center proposals

   
   

   TO: PDCF (Liz Dudek) PDCF (Paul Reilly)

   PDCF (Wayne McDaniel) PDCF (Joe Mitchell)

   
   

   The following policies will be employed by this office in the review of ambulatory surgical center CON applications:

   
   

   1. Based upon a review of available literature and outpatient surgical information obtained from the

      American Hospital Association

      Survey, a 30 percent factor will be used as the optimum number of surgeries

      to be performed on an outpatient basis.

   2. In all instances, the potential for outpatient surgeries will be determined at a county level.

   3. "Specialty" ambulatory surgical center (e.g., opthalmic) will not

      be given special consideration. The break even level of operations approach is considered adequate to assess the potential for such facilities.

   4. In those instances when the

      outpatient surgical potential in a county is calculated to be slightly below the applicant's projected break even level of operation and there is no existing and/or approved ambulatory surgical center in the county-consideration will be given to approving the application, assuring all other appropriate criteria are satisfied, to foster competition for outpatient surgery as an alternative to more costly inpatient surgery.

   5. Proposals which include a captive population (e.g., health

      maintenance organization) will be given additional consideration as required by appropriate statutory criteria (e.g., Chapter 381.494(6)(c), Florida Statutes.)

   6. If "pre-existing clinics, which have been performing surgical procedures similar to those

      approval of the project, after assuring that all other appropriate criteria are satisfied. An architectural review will be conducted to verify that the existing facility meets, or will be capable of meeting, licensure requirements.

   7. In those instances, in which a hospital makes application for outpatient surgical capabilities or an increase in its existing outpatient surgery capability via the establishment or expansion of operating rooms dedicated to outpatient surgery, the hospital's current level of outpatient

      surgical procedures will be subtracted from the total hospitals' outpatient surgical procedures. The hospitals' outpatient surgical rate (minus the applicant hospital) will be computed separately from the applicant's outpatient surgical rate. The county's projected population will be used to project hospitals' (minus the applicant hospital) outpatient volume, as well as existing ambulatory surgical facilities' volume. These figures will be subtracted from the total outpatient surgical "pool"

      projection. The 2nd year break even point number of procedures for approved ambulatory surgical facilities (which either are not in

      operation or have not operated a full year), is next subtracted from the total "pool." At this point, the projected number of outpatient procedures which would be performed at the applicant hospital, is compared to the remainder from the previous calculations. Should the projected outpatient level equal or exceed the calculated break even level of operation, consideration will be given to approving the application, assuring all other appropriate criteria are

      satisfied. In the case of hospital ambulatory Surgical projects which do not involve additional operating rooms dedicated to outpatient surgery, the above ambulatory

      surgery methodology will not be used.

   8. Licensed and existing ambulatory surgical centers which have been operational one year or more, will be surveyed to determine the number of procedures performed over one year. These procedures will be applied to the projected population and deducted from the total outpatient potential as described above. In the case of those approved but unlicensed ambulatory surgery methodology will not be

      used.

      1. Licensed and existing ambulatory surgical centers which have been operational one year or more, will be surveyed to determine the number of procedures performed over one year. These procedures will be applied to the projected population and deducted from the total outpatient potential as described above. In the case of those approved but unlicensed ambulatory surgical centers, the previously calculated break even level of operation will be deducted from the total outpatient potential.

      2. In all instances, the projected year of

         operation will be based on the time required for construction, if appropriate, as reflected in the application plus two years from the date of this office's review.

      3. "Procedures" include all diagnostic procedures (e.g., endoscopic and cystoscopic), as well as all other invasive procedures regularly construed

      of as surgeries.

      
      

      If you have any questions regarding this policy, please contact me upon receipt. This policy is effective on June 15, 1985.

      
      

      Petitioner's Exhibit A

      
      

      The June memorandum stated policy substantially similar to a memorandum authored by Mr. Maryanski's predecessor on February 21, 1985, which contained at least some of the elements of the policy that HRS applied earlier than October 9, 1983, Deposition of Nelson, p. 5, and even as early as December of 1982, Deposition of Porter, p. 11, and which reads:

      
      

      TO: PDCF STAFF

      SUBJECT: UPDATED POLICY ON CON REVIEW OF AMBULATORY SURGERY PROPOSALS

      
      

      At a meeting with Doug Mannheimer, members of PDCFR, and myself on February 14, the following guidelines for reviewing CON proposals for ambulatory surgery were agreed upon:

      
      

      1. Effective immediately, we will use 30 percent as the optimum number of

         surgeries to be performed on an outpatient basis as opposed to 29 percent.

         
         

         health maintenance organizations.

         
         

         1. The issue of how to deal with

            "pre-existing" unlicensed ambulatory surgery providers was also discussed. It was decided that if an applicant can demonstrate that it has been providing ambulatory surgical services historically in a facility which

            meets, or for a minor capital expenditure could meet, licensing requirements and that the provision of such services has been done profitably, this type of applicant should receive special consideration in CON reviews. However, in such cases, it will be necessary for the CON architect to verify that the existing facility meets, or almost meets, licensure requirements, and for the CON accountant to verify that the operation has historically been profitable.

         2. Data base issues were discussed. PDCFR was informed of the

            decision to remove the ambulatory surgery data collection burden from Nell Mitchem. The possibility of having PDCH and/or the local health councils collect such information on a semi-annual basis was

            discussed and will be explored further by Tom Porter.

         3. The method of counting procedures of existing ambulatory surgery

            centers was considered. The pros and cons of utilizing the center's break even point as described in its CON application versus its actual use was debated. It was decided that existing ambulatory surgery centers which have been in business one year or more will be surveyed to determine their actual use.

            In the case of those existing centers in business less than one year, the break even point will be used.

         4. The issue of counting dedicated hospital-based ambulatory surgery facilities was discussed. It was decided that in instances where a hospital applies for ambulatory surgical capabilities or an increase in that capability via the establishment or expansion of operating rooms solely dedicated to outpatient surgery, the hospital's current provision of outpatient surgery will be subtracted from the total of outpatient surgeries performed and then converted to an institution-specific rate and applied to projected population to determine the need. In the case of hospital ambulatory surgery projects not involving additional operating rooms or solely dedicated outpatient operating rooms, the ambulatory surgery methodology will not be employed. In these instances, the review will be primarily architectural.

         5. The definition of "procedures" was considered. It was determined that procedures should include all diagnostic procedures (e.g., endoscopic and cystoscopic), as well as all procedures regularly thought of as surgeries.

      establishment or expansion of operating rooms solely dedicated to outpatient surgery, the hospital's current provision of outpatient surgery will be subtracted from the total of outpatient surgeries performed and then converted to an institution-specific rate and applied to projected population to determine the need. In the case of hospital ambulatory surgery projects not involving additional

      operating rooms or solely dedicated outpatient operating rooms, the ambulatory surgery methodology will not be employed. In these instances, the review will be primarily architectural.

      1. The definition of "procedures" was considered. It was determined that procedures should include all diagnostic procedures (e.g., endoscopic and cystoscopic), as well as all procedures regularly thought of as surgeries.

      2. The method of computing the

         break even point was discussed. Tom Porter will work with Joe Mitchell to come up with an improved method for doing this.

      3. The issue of what year we project need to was discussed. It was

      decided that in all cases, the projection year would be based on the time shown in the application as required for construction and licensing of the facility plus two years from the date of the HRS review or date of administrative hearing, whichever is later.

      If you have any questions concerning this memorandum, please see me.

      
      

      /s/ Gene

      W. Eugene Nelson, Administrator COMMUNITY MEDICAL FACILITIES

      
      

      Petitioner's Exhibit B.

      
      

      The June memorandum supersedes the February memorandum but "not totally." Deposition of Marta Hardy, p. 10. The June memorandum made changes regarding the treatment of hospitals' applications. Deposition of Elizabeth Dudek, p. 23.

      
      

3. On September 13, 1985, more than two weeks after the petitions had been filed in Cases Nos. 85-2962RX and 85-2963RX, Mr. Maryanski signed the following memorandum:

   SUBJECT: Policy Memorandums TO: PDCF (Liz Dudek)

   (Wayne McDaniel) (Paul Reilly) (Joe Mitchell)

   
   

   Policy memorandums are statements of the current policy of the Office of

   Community Medical Facilities, and the Department of Health and Rehabilitative Services, regarding the subject to which it is addressed. The policy at issue is in a state of development, and should not be considered to have reached a level of general applicability to all cases. This memorandum is not intended to dictate the out-come of action being taken on any given case, but rather represents a momentary picture of this policy as it has developed through cases previously encountered.

   
   

   In order to provide for reasonably consistent actions taken in similar instances in this office, please utilize this policy memorandum as a guideline, subject to change and development on a case basis.

   
   

   Respondent's Exhibit No. 1

   
   

   At some point staff were told "if there are reasons to deviate [from the policy embodied in the June memorandum] that they should come and discuss those reasons with their supervisor or" (T. 73) Mr. Maryanski. At least some HRS staff adhere to the policy stated in the June memorandum. Deposition of Elizabeth Dudek, p. 28.

   
   

4. But the only reasons for deviating from the policy set out in the Maryanski memorandum of June 6, 1985, are the very reasons that would justify deviation from duly promulgated administrative rules. (T. 77)

   
   

5. Petitioner's Exhibit A, the June memorandum, has application statewide and is addressed to all applications for certificate of need for ambulatory surgical centers. (T. 77) Without this policy in effect, "the only means [HRS] would have available would be to review am-surg applications according to statutory criteria." (T. 73)

   
   

6. HRS has assigned to its Office of Comprehensive Health Planning, not to its Office of Community Medical Facilities (headed by Mr. Maryanski and, before him, by Mr. Nelson), responsibility for promulgating administrative rules.

   
   

7. On July 6, 1984, HRS published notice of intent to adopt a rule governing applications for certificates of need for ambulatory surgical centers, at 10 Florida Administrative Weekly No. 27, pp. 2064-2067. Petitioner's Exhibit C. Additional or amended notice was published on March 15, 1985, at 11 Florida Administrative Weekly No. 11. After petitions challenging HRS' proposed rule 10-5.11(30) were filed, HRS abandoned the effort formally to adopt a rule specifying the criteria for granting certificates of need for ambulatory surgical centers, by filing notice of withdrawal with the Department of State on June 20, 1985.

   
   

8. On deposition, HRS' Deputy Assistant Secretary for Health Planning testified that the June "memo was issued right after we withdrew the rule." At 6. Although in fact the notice of withdrawal of proposed rule 10-5.11(30) was not filed until after the June 6 memorandum was executed, the decision to withdraw the proposed rule, to judge from this testimony, antedated the memorandum which "in the absence of any kind of methodology, [HRS] decided to issue.

   . . to provide methodology guidelines to the staff within the office." Deposition of Marta Hardy, p. 6.

   
   

   CONCLUSIONS OF LAW

   
   

9. Petitioners and intervenor contend that the memoranda assailed in these proceedings fall within the statutory definition of "rule", but that they are invalid as rules; while the agency, conceding the memoranda are invalid as rules, sets up as its defense that the memoranda do not amount to a "rule", within the meaning of Section 120.52(15) Florida Statutes (1984 Supp.). At hearing the challenging parties offered to prove not only that the memoranda had not been promulgated as rules in the manner prescribed by statute, but also that the substance of the policy they reflect does not comport with the statutes they purport to implement, and that this policy has economically significant consequences that HRS never took into account. But the parties' respective positions require resolution of only the narrow issue whether the memoranda amount to a rule or rules.

   
   

   Memoranda Illicit Rules

   
   

10. The Administrative Procedure Act defines the term rule "broadly. . . to reach . . . invisible policy-making."

    Straughn v. O'Riordan, 338 So.2d 832, 834 n.3 (Fla. 1976). Section 120.52(15), Florida Statutes (1984 Supp.) defines a rule as an

    
    

    agency statement of general applicability that implements, interprets or prescribes law or policy or describes the organization, procedure, or practice requirements of an agency and includes any form which imposes any requirement or solicits any information cot specifically required by statute or by an existing rule. The term also includes the amendment or repeal of a rule. The term does not include:

    (a) Internal management memoranda which do not affect either the private interests of any person or any plan or procedure important to the public and which have no application outside the agency issuing the memorandum

    . . . .

    
    

    Here, as in State Department of Administration v. Stevens,

    344 So.2d 290 (Fla. 1st DCA 1977), the challenged

    
    

    documents clearly are agency policy statements of general applicability which were applied and were intended to be applied with the force of a rule of law. They are not internal management memoranda which do not affect either the private interests of any person or any plan or procedure important to the public. They do not fall within any of the other exceptions to the statutory definition. 344 So.2d at 296.

    
    

    Like the unpromulgated merit salary procedures attacked in Florida State University v. Dann, 400 So.2d 1304 (Fla. 1st DCA 1981), these memoranda "were virtually self-executing."

    400 So.2d at 1305. They were "issued by the agency head for implementation by subordinates with little or no room for discretionary modification." State Department of Administration v. Stevens, 344 So.2d 290, 296 (Fla. 1st DCA 1977). That HRS does not denominate the memoranda rules is not dispositive.

    
    

    Whether an agency statement is a rule turns on the effect of the statement, not on the

    agency's characterization of the statement by some appellation other than "rule."

    State Department of Administration, Division of Personnel v. Harvey, 356 So.2d 323, 325 (Fla. 1st DCA 1977)(reh. den. 1978).

    
    

    To the same effect, see Amos v. Department of Health and Rehabilitative Services, 444 So.2d 43,46 (Fla. 1st DCA 1983).

    
    

11. As regards the 30 percent figure, which both memoranda set as the optimum fraction of surgical procedures to be performed on outpatients, the order invalidating an antecedent 29 percent figure as an illicit rule is controlling precedent, Saint Vincent's Medical Center v. State of Florida, Department of Health and Rehabilitative Services, 5 FALR 2021-A aff'd sub nom. Ambulatory Care-Duval Development Corp v. Department of Health and Rehabilitative Services, 453 So.2d 46 (Fla. 1st DCA 1984).

    
    

12. Since the policy articulated in the challenged memoranda "is not incorporated in regularly adopted rules,

    . . . [HRS] may be required by any disappointed applicant [or substantially affected third party objector] to defend its policy in a Section 120.57 proceeding where . . . [HRS] will be required to present evidence and argument," State Department of Administration, Division of Personnel v.

    Harvey, 356 So.2d 323, 326 (Fla. 1st DCA 1977)(reh den 1978), in support of its policy. City of Tallahassee v. Florida Public Service Commission, 433 So.2d 505, 508 (Fla.

    1983).

    
    

13. If HRS has sufficiently "solidified its position on policy in a particular area . . . [and] should codify such policy by rule," Phillips v. Department of Corrections, 472 So.2d 1307, 1308 (Fla. 1st DCA 1985), HRS may be under a legal duty to grant a petition filed under Section 120.54(5), Florida Statutes (1984 Supp.) to initiate rulemaking. But how HRS might dispose of a petition to initiate rulemaking is no more cognizable, in a proceeding like the present one under Section 120.56, Florida Statutes (1983), than the question of precisely what policy should obtain in a particular Section 120.57 proceeding on an application for a certificate of need for an ambulatory surgical center. See Balsam v. Department of

Health and Rehabilitative Services, 452 So.2d 976 (Fla. 1st DCA 1984). It is, accordingly,

ORDERED:

Respondent's policy memoranda dated February 21, 1985, and June 6, 1985, in evidence as Petitioners' Exhibits A and B, are an invalid exercise of delegated legislative authority.

DONE AND ENTERED this 29th day of October, 1985, at Tallahassee, Florida.

Officer Hearings

Hearings

ROBERT BENTON, II, Hearing

Division of Administrative The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative

this 29th day of October, 1985.

APPENDIX TO RECOMMENDED ORDER

CASE NOs. 85-2962RX, 85-2963RX, 85-3193RX

1. Visual's proposed findings of fact have been adopted in substance in their entirety, as have been FHA's except the date in FHA's first proposed finding should be 1981, not December of 1982.

2. HRS' proposed findings of fact Nos. one through five and eight have been adopted, in substance. Proposed finding of fact No. 6 is an accurate rendition of the testimony, but the testimony has not been credited in important respects. HRS' proposed finding No. 7 has been rejected as contrary to the weight of the evidence. With respect to HRS' proposed finding No. 9, the evidence established publication of only one notice of intent to adopt a rule governing applications for certificates of need for ambulatory surgical centers.

COPIES FURNISHED:

Terry Cole, Esquire OERTEL & HOFFMAN, P.A.

Suite C

2700 Blair Stone Road Tallahassee, Florida 32301

William A. Bell, Esquire

P.O. Box 469

Tallahassee, Florida 32302

David P. Gauldin, Esquire General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Blvd.

Tallahassee, Florida 32301

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

William B. Wiley, Esquire Charles A. Stampelos, Esquire

McFARLAIN, BOBO, STERNSTEIN, WILEY & CASSEDY, P.A.

666 Lewis State Bank Building Tallahassee, Florida 32301

David Pingree, Secretary Department of HRS

1323 Winewood Blvd.

Tallahassee, Florida 32301

Michael J. Cherniga, Esquire Roberts, Baggett, LaFace & Richard

101 East College Avenue Tallahassee, Florida 32301

Donna Stinson, Esquire Thomas A. Beason, Esquire

Moyle, Flanigan, Katz, FitzGerald & Sheehan, P.A.

The Perkins House, Suite 100

118 North Gadsden Street Tallahassee, Florida 32301

NOTICE OF RIGHT TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DIVISION OF ADMINISTRATIVE HEARINGS AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.

Docket for Case No: 85-002962RX

Orders for Case No: 85-002962RX