STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SUPPORT SYSTEMS SERVICES ) CORPORATION, )

)

Petitioner, )

)

vs. ) CASE NO. 90-4448 DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was conducted in this case on September 17, 1990, at Tallahassee, Florida, before Michael M. Parrish, a duly designated Hearing Officer of the Division of Administrative Hearings.

Appearances for the parties at the hearing were as follows:

APPEARANCES

For Petitioner: Alisa S. Duke, Esquire

DYKEMA GOSSETT

790 East Broward Boulevard Suite 400

Fort Lauderdale, Florida 33301

For Respondent: Edward Labrador, Esquire

Assistant General Counsel Department of Health and Rehabilitative Services 2727 Mahan Drive

Fort Knox Executive Center Tallahassee, Florida 32308

STATEMENT OF THE ISSUES

The basic issue in this case is whether the Petitioner's application for CON Number 6220 should be withdrawn from consideration or processed to conclusion on the merits. The disposition of this issue turns on the nature of the financial information submitted in support of the application.

PRELIMINARY STATEMENT

At the hearing the Petitioner presented the testimony of two witnesses and offered seven exhibits, all of which were received in evidence. The Respondent presented the testimony of two witnesses and offered one exhibit, which was received in evidence. At the conclusion of the hearing the parties requested, and were granted, 30 days from the filing of the transcript within which to file their proposed recommended orders. The transcript was filed on October 4, 1990.

Thereafter, both parties filed proposed recommended orders containing proposed findings of fact and conclusions of law. Specific rulings on all proposed findings of fact are contained in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. The Petitioner, Support Systems Services Corporation (hereinafter "SSSC"), is a Florida corporation. It is a subsidiary of, and is wholly owned by, John Knox Village of Florida, Inc. (hereinafter "JKV"). JKV is a regulated continuing care retirement center. SSSC currently provides home health services to non-Medicare residents of John Knox Village. SSSC seeks to become a Medicare-certified provider of such services.

   
   

2. On March 23, 1990, SSSC filed a timely application for a certificate of need ("CON") to establish a Medicare certified home health agency. The SSSC application included audited consolidated financial statements for the years ending December 31, 1988, and December 31, 1989, for an entity described in the audit report as "John Knox Village of Florida, Inc., and Subsidiary." The audited consolidated financial statements submitted as part of the application are consolidated financial statements of both JKV and SSSC. The first paragraph of the notes to the consolidated financial statements includes the following: "The consolidated financial statements include the accounts of the subsidiary. All significant intercompany transactions and balances have been eliminated." The independent financial status of SSSC cannot be determined from the consolidated financial statements submitted with the application.

   
   

3. On April 12, 1990, the Department of Health and Rehabilitative Services (hereinafter "DHRS") sent a so-called "omissions letter" to SSSC. The letter described four elements of the application that had been omitted from the application. The omitted element relevant to this case was described in the letter of April 12, 1990, as follows:

   
   

   Audited financial statements were not provided for Support System Services, Inc., (the applicant) in accordance with 381.707(3), Florida Statutes. Please submit the correct audited financial statements for the previous two fiscal years.

   
   

   The letter of April 12, 1990, also included the following information:

   
   

   Section 381.709, Florida Statutes, requires that you respond to the above omissions by May 14, 1990. Failure to provide responses by this date will result in your application being deemed incomplete and administratively withdrawn from further consideration.

   
   

4. By letter dated May 7, 1990, SSSC submitted its response to the omissions letter. With regard to the financial statements, SSSC responded, in pertinent part:

   
   

   Section 381.707(3): Pursuant to our conversation of April 30, 1990, please find enclosed the excerpted audited financial statements by Coopers & Lybrand for fiscal year 1988 and 1989.

5. Attached to SSSC's letter of May 7, 1990, were six pages of financial information regarding SSSC. The information consisted of balance sheets for December 31, 1988, and December 31, 1989, statements of revenue and expenses for the years ending December 31, 1988, and December 31, 1989, and consolidating statements of cash flow for the years ending December 31, 1988, and December 31, 1989. The financial information submitted with SSSC's letter of May 7, 1990, did not contain any information from which it could be determined whether those financial statements had been examined by an independent certified public accountant. The financial information submitted with SSSC's letter of May 7, 1990, was not accompanied by an opinion of a certified public accountant as to the fairness with which the financial statements presented financial position, results of operations, and cash flows. The financial information submitted with SSSC's letter of May 7, 1990, was not an audited financial statement.

   
   

6. At the time SSSC filed its CON application there were no audited financial statements in existence that addressed only the financial status of SSSC.

7. By letter dated May 15, 1990, DHRS advised SSSC, inter alia: In accordance with the provisions of

   Sections 381.707 and 381.709(3), Florida

   Statutes, you were given until May 14, 1990, to respond satisfactorily to the omissions noted in the correspondence from this office dated April 12, 1990, relative to your proposal to initiate a Medicare certified home health agency in Broward County.

   Because of your failure to provide separate and complete audited financial statements for Support Systems Services Corporation (the applicant and license holder) as required by Section 381.707(3), Florida Statutes, your proposal has been withdrawn from further consideration effective May 14, 1990.

   
   

   The letter of May 15, 1990, also advised SSSC of its right to invoke administrative hearing proceedings, which rights were timely invoked by SSSC.

   
   

8. In the February 17, 1989, issue of the Florida Administrative Weekly, the DHRS published a "Notice To All Potential Certificate Of Need Applicants." That notice was for the purpose of informing future applicants regarding the need to include an audited financial statement "of the applicant." The DHRS procedure manual for processing certificate of need applications addresses, in Chapter 11, the need for an audited financial statement "of the applicant." Neither the F.A.W. notice of February 17, 1989, nor Chapter 11 of the manual specifically mention consolidated statements, but both emphasize that the required audited financial statement must be that "of the applicant."

   
   

9. The purpose for the requirement of an audited financial statement of the applicant is two-fold. First, where there are competing applicants, it assists the DHRS in making its determination with respect to which applicant is the better candidate for a CON. Second, the audited financial statement provides an objective source of evidence (through the independent opinion of the

   auditor) as to the applicant's financial condition and capabilities. These purposes are not fulfilled by the financial information submitted by SSSC with its application or in its response to the omissions letter.

   
   

   CONCLUSIONS OF LAW

   
   

10. The Division of Administrative Hearings has jurisdiction over this matter pursuant to Section 120.57(1), Florida Statutes (1989).

    
    

11. An applicant bears the burden of proving it meets the statutory and rule criteria for the issuance of an entitlement to a certificate of need. Southeastern Medical Center v. Department of Health and Rehabilitative Services,

    8 F.A.L.R. 5148 (Fla. Dept. of HRS 1986); Boca Raton Artificial Kidney Center v. Department of Health and Rehabilitative Services, 475 So.2d 260 (Fla. 1st DCA 1985); Florida Department of Transportation v. J.W.C. Co., Inc., 396 So.2d 778 (Fla. 1st DCA 1981).

    
    

12. Section 381.707(3), Florida Statutes (1989), provides:

    
    

    An application for a certificate of need shall contain:

    (3) An audited financial statement of the applicant. In an application submitted by an existing health care facility, health maintenance organization, or hospice, financial condition documentation shall include, but need not be limited to, a balance sheet and a profit-and-loss statement of the 2 previous fiscal years' operation. (emphasis added.)

13. Florida Administrative Code Rule 10-5.002(3) defines "applicant" as: [A]ny individual, partnership, corporation,

    or any governmental entity which has filed an

    application for a certificate of need with the department.

    
    

14. The applicant for the certificate of need at issue in this case is Support System Services Corporation. No audited financial statement of the applicant, Support System Services Corporation, was included in the application or provided in response to the omissions letter. Instead, an audited financial statement of John Knox Village of Florida, Inc., and Subsidiary was provided. The Petitioner argues that the financial information submitted is sufficient because the consolidated statement includes information about both the applicant and its parent. In this regard, it is argued that the consolidated statement provides more than is required by the statute. In a sense, it does, but at the same time it also provides less than is required by the statute because, although the consolidated financial statements present a good picture of the financial condition of the parent (taking into consideration the financial condition of the subsidiary/applicant), the independent financial condition of the subsidiary/applicant cannot be determined from the consolidated financial statements.

15. The requirement in Section 381.707(3), Florida Statutes, is mandatory and cannot be waived. Sarasota County Public Hospital Board d/b/a Memorial Hospital, Sarasota v. Department of Health and Rehabilitative Services, 12

    F.A.L.R. 3810, 3820 (Fla. Dept. of HRS 1990). See also, Humhosco Inc. d/b/a Humana Hospital Brandon v. Department of Health and Rehabilitative Services, 561 So.2d 388, 391 (Fla. 1st DCA 1990); Neal v. Bryant, 149 So.2d 529 (Fla. 1962)(the word "shall" in statute has a mandatory connotation). In Sarasota County Public Hospital Board, the Board submitted a CON application which contained the 1987 audited financial statement of Sarasota Memorial Hospital, the Board's major operation. Id. at 3815. Although the Hospital's audited financial statement very closely reflected the Board's operating and financial condition, the Hearing Officer found the audit to be deficient for two reasons. Id. at 3817, 3818. First, the audited financial statement was not of the applicant Board, but of a subordinate organization. Second, the audit contained financial information for only one year instead of the required two years.

    
    

16. Similarly, in Humhosco, Inc., supra, the applicant (Humhosco) submitted only the audited financial statement of Humana Hospital-Brandon, a division of Humhosco, Inc. Humhosco, Inc., 388 So.2d at 389. The Court upheld the Hearing Officer's determination that the audited financial statements contained within Humhosco's application were insufficient to meet the requirements of Section 381.707(3), Florida Statutes. Id. at 390. The Court's reasoning focused on how failure to submit an audited financial statement of the applicant prevents others from "meaningfully reviewing and testing the financial feasibility of the proposed project and the financial ability of the applicant to implement the project." Id. at 391. (emphasis added).

    
    

17. On the basis of the clear statutory language and the cases discussed above, it must be concluded that the financial information submitted by the Petitioner in this case is insufficient to comply with the statutory mandate.

    
    

18. Anticipating the possibility of the foregoing conclusion, the Petitioner also argues that if its financial materials are insufficient, it should be permitted to supplement them. This argument fails to take into consideration the plain language of Section 381.709(3)(a), Florida Statutes (1989), which provides:

    
    

    An applicant shall file an application with the department, and shall furnish a copy of the application to the local health council and the department. Within 15 days after the applicable application filing deadline established by department rule, the staff of the department shall determine if the application is complete. If the application is incomplete, the staff shall request specific information from the applicant necessary for the application to be complete; however, the staff may make only one such request. If the requested information is not filed with the department within 21 days of the receipt of the staff's request, the application shall be deemed incomplete and withdrawn from consideration. (emphasis added).

19. The DHRS timely complied with its responsibilities under the statutory language quoted immediately above. Upon the failure of the Petitioner to timely submit the information requested in the omissions letter, the DHRS is required by the statute to deem the application "incomplete and withdrawn from consideration."

RECOMMENDATION

Based on all of the foregoing, it is RECOMMENDED that the Department of Health and Rehabilitative Services issue a final order in this case deeming the Petitioner's application to be incomplete and withdrawing the application from further consideration.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 3rd day of December 1990.

MICHAEL M. PARRISH

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 3rd day of December, 1990.

APPENDIX TO RECOMMENDED ORDER IN CASE NO. 90-4448

The following are my specific rulings on all proposed findings of fact submitted by all parties.

Findings proposed by Petitioner:

Paragraphs 1, 2, 3, 4, and 5: Accepted in substance.

Paragraph 6: First sentence accepted in substance. Second sentence rejected as contrary to the greater weight of the evidence.

Paragraph 7: Rejected as subordinate and unnecessary details. Paragraphs 8 and 9: Accepted in substance.

Paragraph 10: Rejected as subordinate and unnecessary details.

Paragraph 11: First sentence accepted. The remainder is rejected as, for the most part, subordinate and unnecessary details; portions are also contrary to the greater weight of the evidence.

Paragraph 12: Rejected as irrelevant.

Paragraph 13: Accepted in substance, without the editorial implications. Paragraphs 14 and 15: Accepted in substance.

Paragraphs 16, 17, and 18: Rejected as subordinate and unnecessary details. Paragraphs 19 and 20: Rejected as contrary to the greater weight of the evidence.

Paragraph 21: Rejected as constituting argument or subordinate and unnecessary details.

Paragraph 22: Rejected as constituting argument or conclusions of law, rather than proposed findings.

Paragraphs 23, 24, and 25: Rejected as irrelevant. Paragraph 26: Accepted in substance.

Paragraph 27: Rejected as contrary to the greater weight of the evidence. Findings proposed by Respondent:

Paragraph 1: Rejected as constituting conclusions of law, rather than proposed findings of fact.

Paragraphs 2, 3, 4, 5, 6, 7, and 8: Accepted in substance, with some subordinate and unnecessary details omitted.

Paragraph 9: Rejected as subordinate and unnecessary details. Paragraph 10: Accepted in substance.

Paragraph 11: For the most part rejected as unduly repetitious or as subordinate and unnecessary details.

Paragraphs 12, 13, 14, and unnumbered paragraph at end: Rejected as constituting argument, rather than proposed findings of fact.

COPIES FURNISHED:

Alisa S. Duke, Esquire DYKEMA GOSSETT

790 East Broward Boulevard Suite 400

Fort Lauderdale, Florida 33301

Edward Labrador, Esquire Assistant General Counsel Department of Health and

Rehabilitative Services 2727 Mahan Drive

Fort Knox Executive Center Tallahassee, Florida 32308

Sam Power, Clerk Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

Linda K. Harris, Esquire General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 90-004448

Orders for Case No: 90-004448