STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

EASTE POINT HOSPITAL, INC., )

d/b/a EAST POINTE HOSPITAL; ) PLANTATION GENERAL HOSPITAL L.P., ) d/b/a PLANTATION GENERAL HOSPITAL; ) SUN CITY HOSPITAL, INC., d/b/a ) SOUTH BAY HOSPITAL; GENERAL )

HEALTH SERVICES, INC, d/b/a )

EDWARD WHITE HOSPITAL; SOUTH ) SEMINOLE HOSPITAL, INC., d/b/a ) SOUTH SEMINOLE COMMUNITY ) HOSPITAL; HOSPITAL CORPORATION ) OF LAKE WORTH, d/b/a PALM BEACH ) REGIONAL HOSPITAL; HEALTHTRUST, ) INC. - THE HOSPITAL COMPANY, )

d/b/a ST. AUGUSTINE GENERAL ) HOSPITAL; MEMORIAL HOSPITAL OF ) TAMPA, L.T.D., d/b/a MEMORIAL ) HOSPITAL OF TAMPA; PALM BEACH ) GARDENS COMMUNITY HOSPITAL, INC., ) d/b/a AMI PALM BEACH GARDENS ) MEDICAL CENTER; HUMANA HOSPITAL )

PEMBROKE PINES, INC., d/b/a ) CASE NOS. 91-4762RU HUMANA HOSPITAL, PEMBROKE PINES; ) 91-4763RU

CORAL GABLES HOSPITAL, INC., ) 91-4764RU

d/b/a CORAL GABLES HOSPITAL; ) 91-4765RU

PALMS WEST HOSPITAL, INC., d/b/a ) 91-4766RU

PALMS WEST HOSPITAL; NORTH ) 91-4767RU

OKALOOSA MEDICAL CENTER, INC., ) 91-4768RU

d/b/a NORTH OKALOOSA MEDICAL ) 91-4769RU

CENTER; MEDICAL CENTER OF SANTA ) 91-4770RU

ROSA, INC., d/b/a SANTA ROSA ) 91-4771RU

MEDICAL CENTER and FLORIDA ) 91-4772RU

LEAGUE OF HOSPITALS, INC., ) 91-4773RU

) 91-4774RU

Petitioners, ) 91-4775RU

) 91-4776RU

vs. )

) HEALTH CARE COST CONTAINMENT BOARD, )

)

Respondent, )

and )

) CITIZENS OF THE STATE OF FLORIDA, )

)

Intervenor. )

)

FINAL ORDER

Pursuant to notice, the above matters were heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Donald R. Alexander, on August 29, 1991, in Tallahassee, Florida.

APPEARANCES

For Petitioners: John H. French, Jr., Esquire

John F. Gilroy, III, Esquire Post Office Box 10095 Tallahassee, Florida 32302

For Respondent: Julia C. Pallentino, Esquire

301 The Atrium

325 John Knox Road Tallahassee, Florida 32303

For Intervenor: Peter Schwarz, Esquire

111 West Madison Street, Room 812 Tallahassee, Florida 32399-1400

STATEMENT OF THE ISSUES

The issue is whether the methodology employed by respondent in calculating petitioners' budget letter gross revenues per adjusted admission is a rule, not duly promulgated, and thus is an illegal exercise of delegated legislative authority.

PRELIMINARY STATEMENT

These matters began on June 21, 1991, when respondent, Health Care Cost Containment Board, issued letters to various hospitals advising them that their budget letters for fiscal year 1991-92 had been reviewed and found to be "nonconforming" because the gross revenues per adjusted admission (GRAA) were overstated. In making that determination, respondent used a methodology drawn principally from Subsection 407.50(3), Florida Statutes (1989). By petitions filed on July 30, 1991, petitioners, who are fourteen hospitals and the Florida League of Hospitals, Inc., contended that the methodology employed by respondent in making that calculation was in fact a rule, not duly adopted in accordance with chapter 120, and thus it constituted an invalid exercise of delegated legislative authority. After the petitions were reviewed for legal sufficiency, they were assigned to the undersigned hearing officer on August 1, 1991.

The fourteen hospitals have also filed petitions for a formal hearing under Subsection 120.57(1), Florida Statutes (1989) to challenge the correctness of the agency's determination in rejecting their budget letters. Those matters have been assigned Case Nos. 91-4346H through 91-4359H and were consolidated with these cases by order dated August 5, 1991. However, a separate recommended order is being issued in those cases. Pursuant to agreement of the parties, all matters were heard on a consolidated record on August 29, 1991, in Tallahassee, Florida.

At final hearing petitioners presented the testimony of Sarah Fitzgerald, a health care consultant and accepted as as expert in health care finance and Florida hospital cost containment board regulations. Also, they offered petitioners' exhibits A and B. Both exhibits were received in evidence.

Respondent presented the testimony of David Oropallo, an agency management review specialist and accepted as an expert in Florida health care regulatory matters. Also, it offered respondent's exhibits 1 - 3. All exhibits were received. Intervenor, Citizens of the State of Florida, presented the testimony of J. Gary Walker, an attorney and assistant professor at the University of South Florida who was accepted as an expert in health law and regulation. Also, it offered intervenor's exhibits A - C. All exhibits were received in evidence. Finally, the parties stipulated into evidence joint exhibits 1 and 2. Joint exhibit 2 is the deposition of James J. Bracher, respondent's executive director.

The transcript of hearing (two volumes) was filed on September 16, 1991. Proposed findings of fact and conclusions of law were filed by petitioners and respondent on September 26, 1991, and by intervenor on September 27, 1991. A ruling on each proposed finding has been made in the Appendix attached to this Final Order.

FINDINGS OF FACT

Based upon all of the evidence, the following findings of fact are determined: A. Parties

1. Petitioners, Easte Point Hospital, Inc. and others, are fourteen hospitals in the State of Florida who are subject to the regulatory jurisdiction of respondent, Health Care Cost Containment Board (Board). Petitioner, Florida League of Hospitals, Inc., is a nonprofit organization which is organized and maintained for the benefit of the proprietary hospitals which comprise its membership.

   
   

2. The Board is a state agency charged with the responsibility of annually reviewing hospital budgets to insure that a hospital's charges do not exceed certain established thresholds. Intervenor, Citizens of the State of Florida, is represented by the Office of the Public Counsel. That office has the duty of representing citizens in all proceedings before the Board.

   
   

   1. Events Leading to the Filing of the Rule Challenges

      
      

3. Petitioners are required to annually file their projected budgets with the Board for its review and approval. This controversy pertains to the filing of budgets for fiscal year 1992. There are two types of budget filings authorized by law. First, a hospital may file what is known as a budget letter, which is a one- page submission on a form provided by the Board. In preparing such a letter, the hospitals are required to provide information regarding their gross revenues per adjusted admission (GRAA) and maximum allowable rate of increase (MARI), two financial indicators that are used by the Board in measuring the reasonableness of a hospital's charges. A budget letter is to be filed whenever a hospital does not intend to increase its charges (GRAA) in the next fiscal year by more than the percentage amount specified in its approved MARI. Secondly, a hospital may file a detailed budget which is much more complicated than the budget letter and requires the completion of a twenty-seven page form. The preparation of a detailed budget is obviously more time- consuming and expensive than a budget letter and requires the hospital to justify its entire budget. The detailed budget is to be filed whenever a hospital intends to increase its charges (GRAA) from one fiscal year to the next by a greater percentage amount than is specified in the MARI. These cases deal with the legitimacy of a methodology used by the Board in determining whether a hospital is eligible to file a budget letter.

4. In this proceeding, each of the fourteen hospitals filed budget letters with the Board in May 1991. After the budget documents were reviewed by the Board's staff, on June 21, 1991, the Board issued virtually identical proposed agency action to each hospital advising the hospital that its budget letter was "nonconforming for the following reason: The hospital's maximum GRAA should be

   $ , instead of $ , ", with the appropriate dollar amounts inserted in the blanks. The letter went on to advise each hospital that it should resubmit a corrected budget document and until it did so, its submission would be considered incomplete. The effect of the Board's action was to reduce each hospital's budget letter GRAA and the amount of revenues (charges) it could receive in the next fiscal year unless it agreed to file a detailed budget. The hospitals are accordingly affected by the proposed agency action and thus have standing to being this action. Likewise, since the methodology employed by the Board in rejecting the budget letters affects all members of the Florida League of Hospitals, Inc. who file budget letters, that organization also has standing to participate. The parties have further stipulated to the standing of intervenor, Citizens of the State of Florida.

   
   

5. Although the proposed agency action does not show the methodology used by the Board in reaching its conclusion that the "maximum GRAA" was overstated, the record reveals that the Board utilized a certain methodology to calculate the "base GRAA", the first calculation in the budget letter review process. /2 This methodology is described in the second sentence of Subsection 407.50(3), Florida Statutes (1989) as follows:

   
   

   In determining the base, the hospital's prior year audited actual experience shall be used unless the hospital's prior year audited experience exceeded the applicable rate of increase in which case the base shall be the gross revenue per adjusted admission from the year before the prior year, and then inflated by the applicable rate of increase for the current year.

   
   

   Petitioners concede that the methodology used by the Board tracks the language in the above statute verbatim. However, they contend that, when the language in subsection 407.50(2)(a) is considered, it becomes apparent that the use of this methodology is the review of budget letters is not clearly called for, and thus the methodology is a policy having all of the attributes of a rule which has not been adopted pursuant to chapter 120. Conversely, respondent and intervenor claim the methodology is not a policy but simply an interpretation of the controlling statute.

   
   

   1. Is the Methodology a Rule?

   
   

6. By virtue of rather extensive amendments to the law in 1988, budget letters were first authorized for use by hospitals beginning with budget years 1990 and 1991. Prior to that time, all hospitals filed detailed budgets. There was no quarrel over the manner in which hospitals performed their calculations in the first two budget letter filings since subsection 407.50(1) clearly specified the methodology for making all calculations during the first two years. This controversy arises because all subsequent filings of budget letters are controlled by language found in other portions of section 407.50. The relevant portions of that statute read as follows:

   1. (a) Except for hospitals filing a budget pursuant to subsection (3), each hospital, at least 90 days prior to the commencement of its next fiscal year, shall file with he board a certified statement, hereafter known as the "budget letter", acknowledging its applicable maximum allowable rate of increase in gross revenue per adjusted admission from the previous fiscal year as calculated pursuant to s. 407.002(17) and its maximum projected gross revenue per adjusted admission for the next fiscal year, and shall affirm that the hospital shall not exceed such applicable maximum allowable rate of increase. . .

      * * *

   2. At least 90 days prior to the beginning of its fiscal year, each hospital requesting a rate of increase in gross revenue per adjusted admission in excess of the maximum allowable rate of increase for the hospital's next fiscal year, shall be subject to detailed budget review

      and shall file its projected budget with the board for approval. In determining the base, the hospital's prior year audited actual experience shall be used unless the hospital's prior year audited actual experience exceeded the applicable rate of increase in which case the base shall be the gross revenue per adjusted admission from the year before the prior year, increased by the then applicable rate of increase for the current year.

      * * *

      
      

      A reading of the above statute indicates that subsection 407.50(2) (a) prescribes the form and manner for a budget letter submission. The submission consists primarily of a certified statement by the hospital acknowledging "its applicable maximum allowable rate of increase in gross revenue per adjusted admission from the previous fiscal year as calculated pursuant to s. 407.0C2(17) and its maximum projected gross revenue per adjusted admission for tie next fiscal year, and shall affirm that the hospital shall not exceed such applicable maximum allowable rate of increase. At the same time, subsection 407.50(2) (a) provides that its provisions shall apply to all hospitals "except those filing a (detailed) budget pursuant to subsection (3)". However, the subsection does not prescribe the manner in which the budget letter's base GRAA should be calculated. On the other hand, subsection 407.50(3) appears, at least facially, to impose certain requirements upon detailed budget filings, including the time requirements for filing a detailed budget, who must file one, and the manner in which to calculate the "base". Thus, a literal reading of the statute could lead the reader to reasonably conclude that, while subsection 407.50(2) (a) does not prescribe the manner in which the base GRAA should be calculated for purposes of a budget letter submission, the same judgment can be reached with respect to subsection 407.50(3). In other words, an affected person would not necessarily know from a reading of the law that the base GRAA for a budget letter submission filed under subsection (2) (a) would be calculated using a methodology found in subsection (3). Accordingly, it is found that the methodology used by the Board in calculating the budget letter GPAA is not a statutory interpretation but instead is a policy. While respondent and intervenor presented evidence to justify and explain the rationale for calculating the budget letter base GRAA in

      this manner, this evidence is more relevant in the companion section 120.57(1) cases.

      
      

7. The methodology employed by the Board is one of general applicability since it applies to all hospitals who file budget letters in fiscal year 1992 and beyond. It is applied uniformly without discretion by agency personnel to all hospitals, requires compliance and has the direct and consistent effect of law. The policy has not been adopted as a rule.

   
   

   CONCLUSIONS OF LAW

   
   

8. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties hereto pursuant to Section 120.56, Florida Statutes (1989).

   
   

9. Petitioners bear the burden of proving that the challenged statement is a rule, not duly promulgated, and thus is an invalid exercise of delegated legislative authority. See, e. Agrico Chemical Company v. State Department of Environmental Regulation, 365 So.2d 759, 763 (Fla. 1st DCA 1978).

   
   

10. The first issue to be resolved is whether the use of the questioned methodology is simply an interpretation of a statute as respondent and intervenor urge or whether it constitutes the implementation of a policy as maintained by petitioners. The issue is not clear-cut since the agency's action arguably has the attributes of both a policy and an interpretation. While at least one recent case indicates the court has sided with an agency on this type of question, Meridian, Inc. v. Department of Health and Rehabilitative Services,

548 So.2d 1169 (Fla. 1st DCA 1989) (interpretation by HRS of certificate of need rule held to be a rule interpretation and not incipient policy), the case of St. Francis Hospital, Inc. v. Department of Health and Rehabilitative Services, 553 So.2d 1351, 1353 (Fla. 1st DCA 1989) provides the following instructive language in making this determination:

We recognize that an agency interpretation of a statute which simply reiterates the legislature's statutory mandate and does not place upon the statute an interpretation that is not readily apparent from its literal reading, nor in and of itself purport to create rights, or require compliance, or to otherwise have the direct and consistent effect of the law, is not an unpromulgated rule, and actions based upon such an interpretation are permissible without requiring an agency to go through rulemaking.

Thus, under the foregoing guidelines, when the agency statement is not readily apparent from a literal reading of the relevant statute, that is, it does not merely track or recite the statutory language, and an affected person might reasonably obtain a different result, the statement takes on the characteristics of incipient policy rather than an interpretation of the law. Here, the relevant portions of subsections 407.50(2) and (3) read as follows:

1. (a) Except for hospitals filing a budget pursuant to subsection (3), each hospital, at least 90 days prior to the commencement of its next fiscal year, shall file with the board a certified statement, hereafter known as the

   "budget letter", acknowledging its applicable maximum allowable rate of increase in cross revenue per adjusted admission from the previous fiscal year as calculated pursuant to s.

   407.002(17) and its maximum projected gross revenue per adjusted admission for the next fiscal year, and shall affirm that the hospital shall not exceed such applicable maximum allowable rate of increase. .

   * * *

2. At least 90 days prior to the beginning of its fiscal year, each hospital requesting a rate of increase in gross revenue per adjusted admission in excess of the maximum allowable rate of increase for the hospital's next fiscal year, shall be subject to detailed budget review

and shall file its projected budget with the board for approval. In determining the base, the hospital's prior year audited actual experience shall be used unless the hospital's prior year audited actual experience exceeded the applicable rate of increase in which case the base shall be the gross revenue per adjusted admission from the year before the prior year, increased by the then applicable rate of increase for the current year.

* * *

In this case, the agency has applied a methodology described in subsection 407.50(3) to petitioners' filings made under subsection 407.50(2)(a). The Board contends this action is merely a statutory interpretation because the first phrase in subsection (2)(a), namely, "(e)xcept for hospitals filing a budget pursuant to subsection (3)", clearly indicates the creation of a condition precedent to filing a budget letter which in turn requires the reader to go to subsection (3) to determine one's eligibility to file the same:. However, a literal reading of the statute would indicate, at least arguably, that the provisions of subsection 407.50(3) would not be used to calculate a base GRAA for a hospital making a budget letter filing under subsection 407.50(2)(a).

This being so, and under the guidelines enunciated in St. Francis, it is concluded that the statement (methodology) is incipient policy and not an interpretation of the law.

1. Because not every policy is a rule, petitioners must still show that the questioned policy has the attributes of a rule. Subsection 120.52(16), Florida Statutes (1989) defines a rule as follows:

   
   

   each agency statement of general applicability that implements, interprets, or prescribes laws or policy or describes the organization, procedure, or practice requirements of an

   and includes any form which imposes any requirement or solicits any information not specifically required by statute or by an existing rule. The term also includes the amendment or repeal of a rule.

   Therefore, if the Board's statement is found to be one of general applicability implementing, interpreting or prescribing agency policy, it meets the statutory definition of a rule.

   
   

2. Further instructive advice for determining whether agency action constitutes a rule is found in the case of Balsam v. Department of Health and Rehabilitative Service6, 452 So.2d 976, 977- 78 (Fla. 1st DCA 1984) where the court held that:

   
   

   Any agency statement is a rule if it purports in and of itself to create certain rights and

   adversely affect others, or serves by its own effect to create rights, or to require compliance, or otherwise to have the direct and consistent effect of law.

   
   

3. The preponderance of the evidence shows that the agency statement is one of general applicability to all hospitals filing budget letters for fiscal year 1992 and is uniformly applied by agency personnel without discretion. In addition, it adversely affects hospitals by lowering their budget GRAA, requires compliance and otherwise has the direct and consistent effect of law. Finally, it has not been adopted as a rule under chapter 120. Accordingly, it is concluded that the statement is an unpromulgated rule and thus is an invalid exercise of delegated legislative authority. This is not to say that the agency cannot use this methodology in its budget review process. Rather, it may do so when it explains, justifies and defends that policy on a case by case basis. That issue is addressed in the Recommended Order issued in the companion cases..

Based on the foregoing findings of fact and conclusions of law, it is ORDERED that the Health Care Cost Containment Board's methodology used in

calculating a base gross revenues per adjusted admission during the budget letter review process, as described in the second sentence of Subsection 407.50(3), Florida Statutes (1989), is an invalid exercise of delegated legislative authority.

DONE and ENTERED this 16th day of October, 1991, in Tallahassee, Florida.

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 16th day of October, 1991.

ENDNOTES

1/ Only intervenor filed a separate proposed final order in these cases. Petitioners adopted the proposed findings of fact and conclusions of law submitted in Case Nos. 91-4346H - 91-4359H while respondent filed one proposed order for both the rule cases and the section 120.57(1) cases.

2/ In the budget letter review process, the Board first calculates a base GRAA which is then inflated by the MARI to produce what is known as the budget letter GRAA. The budget letter GRAA represents the maximum projected gross revenues per adjusted admission the hospital can receive during the next fiscal year. If the hospital's requested GRAA exceeds the budget letter GRAA, it is required to either submit a detailed budget or reduce its GRAA to the level suggested by the Board. Thus, the calculation is used to create a threshold GRAA by which to determine whether the hospital is eligible to file a budget letter.

APPENDIX TO RECOMMENDED ORDER

Petitioners:

Rulings made in the companion section 120.57 cases.

Respondent:

Rulings made in the companion section 120.57 cases.

Intervenor:

1. Rejected as being a conclusion of law.

2. Rejected as being unnecessary.

3-5. Partially adopted in finding of fact 5.

1. Partially adopted in findings of fact 4 and 6.

2. Partially adopted in finding of fact 5.

3. Partially adopted in finding of fact 6.

Note - Where a proposed finding has been partially used, the remainder has been rejected as being irrelevant, unnecessary, subordinate, not supported by the evidence or a conclusion of law.

COPIES FURNISHED:

John H. French, Jr., Esquire

P. O. Box 10095 Tallahassee, FL 32302

Julia C. Pallentino, Esquire

301 The Atrium

325 John Knox Road Tallahassee, FL 32303

Peter Schwarz, Esquire

111 West Madison Street, Room 812 Tallahassee, FL 32399-1400

V. Carroll Webb, Director

Joint Administrative Procedures Committee Room 120, Holland Building

Tallahassee, FL 32399-1300

Liz Cloud, Chief

Bureau of Laws and Administrative Code Room 1802, The Capitol

Tallahassee, FL 32399-0250

NOTICE OF RIGHT TO JUDICIAL REVIEW

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: 91-004762RU

Orders for Case No: 91-004762RU