STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THE HILLHAVEN CORPORATION and ) HEALTH CARE AND RETIREMENT ) CORPORATION OF AMERICA, et. al., )

)

Petitioners, )

)

vs. ) CASE NO. 91-7996RE

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

) UNITED HEALTH, INC., d/b/a )

(17 Florida Facilities) )

)

Petitioners, )

)

vs. ) CASE NO. 91-8002RE

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

) AMERICARE CORPORATION, ) DIVERSICARE CORPORATION and ) THE WAVERLY GROUP, INC., )

)

Petitioners, )

)

vs. ) CASE NO. 91-8087RE

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent. )

)

FINAL ORDER

Pursuant to written notice a formal hearing was scheduled in these cases before Larry J. Sartin, a duly designated Hearing Officer of the Division of Administrative Hearings, for January 6-10, 1992, in Tallahassee, Florida.

APPEARANCES

For Petitioner, The Hillhaven Corporation: Thomas C. Fox, Esquire

Michael D. Smith, Esquire REED, SMITH, SHAW & McCRAY

1200 18th Street, N.W. Washington, D.C. 20036

For Petitioners, Diversicare Corporation, et. al., Health Care and Retirement Corporation of America, et. al., Americare Corporation, et. al. and The Waverly Group, Inc., et. al:

Alfred W. Clark, Esquire Post Office Box 623 Tallahassee, Florida 32302

For Petitioners, United Health, Inc., et. al.:

W. David Watkins, Esquire

Oertel, Hoffman, Fernandez & Cole, P.A.

Post Office Box 6507 Tallahassee, Florida 32314-6507

For Respondent, Department of Health and Rehabilitative Services:

David Pius Senior Attorney

Department of Health and Rehabilitative Services

Building 6, Room 230

1317 Winewood Boulevard

Tallahassee, Florida 32399-0700

STATEMENT OF THE ISSUES

Whether Emergency Rule 10CER89-21 and an amendment of Rule 10C-7.0482, Florida Administrative Code, constitute an invalid exercise of delegated legislative authority?

PRELIMINARY STATEMENT

On December 22, 1989, the Department of Health and Rehabilitative Services (hereinafter referred to as the "Department"), published notice of the promulgation of Emergency Rule 10CER89-21, modifying Rule 10C-7.0482, Florida Administrative Code. On February 2, 1990, the Department published notice of a permanent amendment to Rule 10C-7.0482, Florida Administrative Code.

By letter dated January 29, 1990, the Assistant Secretary for Medicaid of the Department notified the Petitioners in these cases that Medicaid reimbursement rates and ceilings for nursing home providers were frozen at their December 31, 1989, levels, beginning with the new rate semester on January 1, 1990, with one exception.

The Petitioners in these cases, except The Waverly Group, Inc., et. al. (hereinafter referred to as "Waverly"), filed petitions requesting a formal administrative hearing pursuant to Section 120.57(1), Florida Statutes, to contest the proposed decision of the Department. Waverly filed a request for an informal hearing pursuant to Section 120.57(2), Florida Statutes, to contest the Department's proposed decision.

The Department issued Final Orders denying the requests for formal administrative hearings requested by the Petitioners and the informal hearing requested by Waverly. Those Final Orders were appealed by the Petitioners. On May 13, 1991, the District Court of Appeal entered an opinion reversing the Department's decision and ordering the Department to grant the Petitioners' request for Section 120.57, Florida Statutes, proceedings.

The Department filed separate Notices with the Division of Administrative Hearings requesting that the a Hearing Officer be assigned to conduct all necessary proceedings on the petitions for Section 120.57, Florida Statutes, proceedings filed by the parties. Seven separate cases were opened by the Division of Administrative Hearings: 91-4893, 91-4894, 91-4895, 91-4914, 91- 4929, 91-5837 and 91-6191. These cases were eventually assigned to the undersigned and were set for final hearing and consolidated.

On December 13, 1991, The Hillhaven Corporation (hereinafter referred to as "Hillhaven"), and Health Care and Retirement Corporation of America, et. al. (hereinafter referred to as "HCRA"), filed a Petition for Administrative Determination of Invalidity of an Emergency Rule and of an Adopted Rule. This Petition was assigned case number 91-7996RE and was originally assigned to another Hearing Officer, J. Stephen Menton.

United Health, Inc. (hereinafter referred to as "United"), also filed a Petition for Administrative Determination of Invalidity of an Emergency Rule and of an Adopted Rule on December 13, 1991. This Petition was assigned case number 91-8002R and was also assigned to Mr. Menton.

On December 18, 1991, Americare Corporation, et.al. (hereinafter referred to as "Americare"), Diversicare Corporation, et. al. (hereinafter referred to as "Diversicare"), and Waverly filed a Petition for Administrative Determination of Invalidity of an Emergency Rule and of an Adopted Rule. This Petition was assigned case number 91-8087R and was assigned to the undersigned.

Heartland Health Care Center, the Petitioner in case number 91-4894, has not participated in these rule challenge proceedings.

In these case, the Petitioners have challenged Emergency Rule 10CER89-21 and a proposed amendment of Rule 10C-7.0482, Florida Administrative Code, pursuant to Section 120.56, Florida Statutes, as invalid exercises of delegated legislative authority.

Case numbers 91-7996RE and 91-8002RE were transferred to the undersigned and, along with case number 91-8087RE, were consolidated during a motion hearing conducted on January 6, 1992.

During the month of December, 1991, the parties filed several motions in the Section 120.57, Florida Statutes, cases. By agreement of the parties and the undersigned, the commencement of the final hearing of those cases and these rule challenge proceedings was postponed from January 6, 1992, to January 7,

1992. It was also agreed that the various motions filed by the parties would be considered and ruled on at a motion hearing to be conducted on January 6, 1992.

Following argument of the parties on January 6, 1992, all outstanding motions were ruled on. An Order was entered January 6, 1992, listing the various motions and the rulings thereon.

It was suggested to the parties during the January 6, 1992, motion hearing that the parties meet during the time scheduled for the final hearing of the cases and attempt to agree to stipulate to the facts and/or evidence which should be submitted for consideration in these cases and the Section 120.57, Florida Statutes, cases, that the parties then file proposed recommended and final orders and that this Final Order and a Recommended Order to be entered simultaneously with this Final Order be entered based upon the stipulated facts and evidence, and the proposed orders. The parties agreed to this suggestion and no formal hearing was conducted.

The parties were informed that a separate Recommended Order would be entered in case numbers 91-4893, 91-4894 and 91-4895, 91-4914, 91-4929, 91-5837 and 91-6191. The Recommended Order in those cases is being entered simultaneously with this Final Order.

On January 17, 1992, the parties filed a Stipulation of Facts. The stipulated facts, to the extent relevant, have been incorporated in this Final Order and referenced as (S.F.). Attached to the Stipulation of Facts is a List of Joint Exhibits. Those exhibits are hereby accepted into evidence.

Stipulated fact number 39 is hereby accepted.

Official recognition is taken of the prior appeal in this matter, United Health, et. al. v. Department of Health and Rehabilitative Services, Case Nos. 90-1206, et. al. (Fla. 1st DCA May 13, 1991) and the Final Order in Florida Health Care Ass'n v. Department of Health and Rehabilitative Services, 12

1. 649 (January 23, 1990).

   
   

   On March 9, 1992, United filed a Notice of Supplemental Authority giving notice of the opinion in Sheridan v. Deep Lagoon Marina, 576 So.2d 771 (Fla. 1st DCA). On March 13, 1992, the Department filed a Motion for Leave to File Response to Supplemental Authority and the Department's Response to Notice of Supplemental Authority. On March 25, 1992, United filed a Reply to Response to Notice of Supplemental Authority. The Motion for Leave to File Response to Supplemental Authority is hereby granted. The supplemental authority, the response thereto and the reply to the response have been considered.

   
   

   The parties have filed proposed final orders containing proposed findings of fact. A ruling on each proposed finding of fact has been made either directly or indirectly in this Final Order or the proposed finding of fact has been accepted or rejected in the Appendix which is attached hereto.

   
   

   FINDINGS OF FACT

   
   

   1. The Parties and The Petitioners' Standing.

      
      

      1. The Petitioners, Hillhaven, United, Diversicare, HCRA, Americare and Waverly, are providers of long-term care services to elderly and disabled persons including Medicaid recipients. (S.F. 1).

      2. Petitioners have standing to raise their respective claims in this matter. (S.F. 38).

         
         

      3. The Department is an agency of the State of Florida. The Department is responsible for administering the Florida Medicaid program. (S.F. 3).

         
         

   2. The Federal Medicaid Program.

      
      

      1. General.

         
         

         1. Title XIX of the Social Security Act, codified at 42 U.S.C. 1396-1396s, and commonly referred to as the Medicaid Act, is a cooperative federal-state program. Under the Medicaid program, the federal government provides matching funds to states to help them provide their needy residents with necessary medical services. (S.F. 1).

            
            

      2. State Participation in the Program.

         
         

         1. State participation in the Medicaid program is not mandatory. A state which opts to participate, however, must submit to the Health Care Financing Administration (hereinafter referred to as "HCFA") of the Department of Health and Human Services (hereinafter referred to as "HHS") a "state plan for medical assistance" which meets all relevant federal requirements. 42 U.S.C. 1396a. (S.F. 2).

            
            

         2. Once HCFA approves a state's plan, that state is entitled to federal financial participation (hereinafter referred to as "FFP"), which means that HHS pays the state a certain percentage of amounts expended under the plan. 42

            U.S.C. 1396b. The state must then administer the program in accordance with federal law, regulations and the approved state plan. 42 U.S.C. 1396c. (S.F. 2).

            
            

         3. Each state that participates in the Medicaid program must designate an agency to implement the Medicaid program in that state. 42 U.S.C. 1396(a)(5) and 42 C.F.R. 431.10. The state agency designated is not allowed to delegate its authority to administer or supervise the state plan. 42 C.F.R. 431.10(e).

            
            

      3. Amendment of a State Medicaid Plan.

      
      

      1. The mechanism for amending a state's Medicaid plan is set forth in 42 C.F.R. 447.256(c) and 430.20. (S.F. 10).

         
         

      2. In pertinent part, 42 C.F.R. 447.256(c), provides:

         A state plan amendment that is approved will become effective no earlier than the first day of the calendar quarter in which an approvable amendment is submitted in accordance with [42 C.F.R.] 430.20 and 447.253.

         
         

      3. In pertinent part, 42 C.F.R. 20(b)(2), provides that "[f]or a plan amendment that changes the State's payment method and standards, the [effective date] rules of [42 C.F.R.] 447.256 apply."

         
         

      4. The requirements for public notice of a proposed amendment to a state's Medicaid plan are set forth in 42 C.F.R. 447.205. (S.F. 11). The notice, pursuant to 42 C.F.R. 447.205(c), must include:

         
         

         1. Describe the proposed change in methods and standards;

         2. Give an estimate of any expected increase or decrease in annual aggregate expenditures;

         3. Explain why the agency is changing its methods and standards;

         4. Identify a local agency in each county (such as the social services agency or health department) where copies of the proposed changes are available for public review;

         5. Give an address where written comments may be sent and reviewed by the public; and

         6. If there are public hearings, give the location, date and time for hearings or tell how this information may be obtained.

            
            

      5. One of the requirements for federal approval of an amendment to a state plan is the requirement that the state provide payment rates in compliance with the "Boren Amendment", 42 U.S.C. 1396a(a)(13), and make findings and submit assurances to HCFA that:

         
         

         The Medicaid agency pays for . . . long-term care facility services through the use of rates that are reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated providers to provide services in conformity with applicable State and Federal laws, regulations, and quality and safety standards.

         
         

         42 C.F.R. 447.253(b)(1).

         
         

   3. The Medicaid Program in Florida.

1. Florida's Participation.

   
   

   1. Florida participates in the Medicaid program pursuant to Section 409.266, Florida Statutes, and the Florida Title XIX Long-Term Care Reimbursement Plan (hereinafter referred to as the "Florida Medicaid Plan"). (S.F. 3). The Department is the agency responsible for administering the Florida Medicaid Plan.

      
      

   2. The Florida Medicaid Plan authorizes payments for nursing home services provided to eligible individuals in accordance with Medicaid regulations. (S.F. 3).

      
      

2. Adoption and Approval of a Medicaid Plan.

   
   

   1. The Florida Medicaid Plan as revised January 1, 1988, was submitted by the Department to HCFA in accordance with 42 U.S.C. 1396A. The Department provided assurances to HCFA that Medicaid reimbursement rates under the January 1, 1988 Florida Medicaid Plan were reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities. See 42 U.S.C. 1396(a)(13)(A). (S.F. 4).

      
      

   2. HCFA approved the January 1, 1988, Florida Medicaid Plan effective January 1, 1988. (S.F. 4).

      
      

3. The Florida Medicaid Plan.

   1. Under the January 1, 1988, Florida Medicaid Plan, long-term care providers such as the Petitioners are reimbursed under a prospective reimbursement methodology. Rates are set in advance of the rate semester based on historical cost data trended forward for inflation with no retroactive adjustment to account for actual costs for a cost reporting period (as opposed to actual reimbursement for the same period). (S.F. 5).

      
      

   2. Florida long-term care providers are divided into four classes based on geographic location and size. (S.F. 5).

      
      

   3. Each provider's rate consists of four components: (1) the property cost component; (2) the operating cost component; (3) the patient care cost component; and (4) a return on equity or use allowance. (S.F. 5).

      
      

   4. Reimbursement ceilings for patient care and operating cost components are established for each of the four classes. Ceilings are effective semiannually on January 1 and July 1. A statewide ceiling for the property cost component applies to providers who are reimbursed on the basis of depreciation and interest. Section 4B of the January 1, 1988 Florida Medicaid Plan. (S.F. 6).

      
      

   5. Providers that do not receive depreciation and interest for their property costs are reimbursed under the Fair Rental Value Systems (hereinafter referred to as "FRVS"). Under FRVS, reimbursement is based on the acquisition costs of a capital asset including capital additions and improvements subsequent to acquisition. These acquisition costs are indexed forward to October 1, 1985 by a portion of the rate of increase in the Dodge Construction Index. Id. Subsection V.E.I.a. (S.F. 7).

      
      

   6. The January 1, 1988 Florida Medicaid Plan also requires that the FRVS component of a provider's rate be adjusted semiannually using the change in the Dodge Index for the most recent six month period published prior to the rate semester. Id. Subsection V.E.I.a. The January 1, 1988 Florida Medicaid Plan requires semiannual inflationary adjustments, to become effective on July 1 and January 1 of each year. (S.F. 8).

      
      

   7. The January 1, 1988 Florida Medicaid Plan established Petitioners' Medicaid rates during the period January 1, 1988 through December 31, 1989. (S.F. 9).

      
      

4. The Legislature's Appropriation of Funds for Medicaid.

   
   

   1. The appropriation for Florida's fiscal year 1989-1990 from the Florida Legislature included funds to reimburse Medicaid long-term care facility providers for the fiscal year July 1, 1989 through June 30, 1990 in accordance with the January 1, 1988 Florida Medicaid Plan. (S.F. 12).

      
      

5. Florida's Budget Cuts and The Department's Response.

   
   

   1. During the fiscal year ending June 30, 1990, Florida experienced a shortfall in general revenue collections, and then-Governor Bob Martinez certified that a deficit would occur in the Florida state budget. (S.F. 13).

      
      

   2. In order to deal with the budget deficit, the Department was asked to provide cost containment alternatives to the Administration Commission

      (consisting of the Governor and the cabinet) which the Department did. (S.F. 13).

      
      

   3. Among the alternatives recommended by the Department was an amendment to the current Florida Medicaid Plan which would maintain Medicaid reimbursement rates for long-term care facilities at their December 31, 1989 level. This alternative was advocated by the Department as the most appropriate and fair of all the alternatives presented by the Department. (S.F. 13). In effect, the Department suggested that the Florida Medicaid Plan be amended to eliminate those provisions of the Florida Medicaid Plan providing for semiannual adjustments to the Medicaid reimbursement rate.

      
      

   4. Exhibit 2 is a true, correct and complete copy of an Impact Statement prepared by the Department and submitted to the Administration Commission concerning the proposed rate freeze that was accepted by the Administration Commission. This document was not submitted to HCFA. (S.F. 13).

      
      

   5. In the Impact Statement provided to the Administration Commission on November 21, 1989, the Department concluded that Florida nursing homes would receive 4% less than their anticipated costs due to the proposed freeze:

      
      

      Nursing Home Care ($13,131,931 GR) - This proposal will not allow nursing home per diem rates to increase based on their projected cost increases. The Medicaid Program will be reimbursing nursing homes 4.0% less than their anticipated costs. This price level reduction will impact on 489 participating nursing homes. There is no basis upon which to project the impact this will have on our clients [sic] ability to access those services of the quality of care received.

      
      

      This was the only analysis conducted by the Department prior to January 1, 1990, of Florida nursing home anticipated costs compared to the rates nursing homes would receive under the proposed rate freeze.

      
      

   6. On November 21, 1989, the Administration Commission, under the procedure outlined in Section 216.221, Florida Statutes, accepted the Department's proposal effective December 1, 1989 and reduced the Department's budget accordingly. (S.F. 13).

      
      

   7. The budget reductions ordered by the Administration Commission were taken from the Department's general revenue appropriation effective January 1, 1990, through mandatory reserves, or a holdback, of appropriations. The impact on the Department was that it had less authority to spend funds.

      
      

   8. The rate freeze approved by the Administration Commission allowed changes in rates due to licensure rating changes pursuant to Section V.D. of the January 1, 1988 Florida Medicaid Plan. (S.F. 13).

      
      

   9. A letter from the Department to nursing home administrators in Florida, including the Petitioners, dated January 29, 1990, was sent to Florida facilities affected by the rate freeze. The Department stated in the January 29, 1990, letter (exhibit 5), that the rate freeze would remain in effect until monies were appropriated by the Florida Legislature to recalculate new rates and ceilings. (S.F. 17).

      
      

6. Promulgation of Rules Implementing the Rate Freeze.

   1. In order to effectuate the freeze, the Department caused to be published in the Florida Administrative Weekly on December 22, 1989, notice of Emergency Rule 10CER89-21 (10C-7.0482) (hereinafter referred to as the "Emergency Rule"). See exhibit 3. (S.F. 14).

      
      

   2. The Emergency Rule amended the Department's rules by providing that Florida Medicaid reimbursement would be in accordance with the January 1, 1988 Florida Medicaid Plan as revised January 1, 1990. See exhibit 4. (S.F. 14).

      
      

   3. The January 1, 1990 modifications to the January 1, 1988 Florida Medicaid Plan were attached to the notice of the Emergency Rule and were incorporated therein. (S.F. 14).

      
      

   4. The effect of the Emergency Rule was to eliminate the provisions of the January 1, 1988 Florida Medicaid Plan providing for recalculation of reimbursement rates, which recalculation would have included an inflationary adjustment, for the Petitioners' per diem Medicaid rates for the period beginning January 1, 1990. The Emergency Rule had the effect of maintaining the Petitioners' per diem Medicaid rates at the level in effect on December 31, 1989, excluding changes based on licensure rating reclassifications. The Emergency Rule did not limit the rate freeze to the period prior to June 30, 1990, and did not specify the date or approximate date on which the rate freeze would end. (S.F. 14). Emergency rules, however, are only effective for ninety days in Florida.

      
      

   5. Although the public notice of the Emergency Rule did not specify the anticipated increase or decrease in annual expenditures, notice of the general impact of the Emergency Rule was provided.

      
      

   6. On February 2, 1990, the Department caused to be published in the Florida Administrative Weekly notice of an amendment to Rule 10C-7.0482, Florida Administrative Code (hereinafter referred to as the "Permanent Rule"). See exhibit 6. (S.F. 15).

      
      

   7. The Permanent Rule eliminated the recalculation of reimbursement rates, which recalculation would have included an inflationary adjustment for Petitioners' per diem Medicaid rates for the period beginning January 1, 1990. The Permanent Rule maintained the Petitioners' per diem Medicaid rates at the level in effect on December 31, 1989, excluding changes based on licensure rating reclassifications. (S.F. 15).

      
      

   8. The Permanent Rule did not limit the rate freeze to the period prior to June 30, 1990 or specify the date or approximate date on which the rate freeze would end. The "purpose and effect" section of the Permanent Rule stated that the rate freeze would be in effect until sufficient funds were appropriated by the Legislature to recalculate rates and ceilings for Medicaid providers. (S.F. 15).

      
      

   9. By letter date March 15, 1990 (exhibit 8), a "Notice of Change" was filed by the Department with the Joint Administrative Procedures Committee. The Notice of Change modified the effective date of the Permanent Rule from March 22, 1990 to March 26, 1990. The Notice of Change was published in the Florida Administrative Weekly on March 23, 1990. Exhibit 27. (S.F. 19).

      
      

   10. No other public notices, or emergency or permanent rules, were published by the Department subsequent to February 2, 1990, which would have

       affected the Petitioners' Medicaid rates for the period January 1, 1990 through June 30, 1990. (S.F. 16).

       
       

   11. There are no documents which indicate that the Department enacted the Emergency Rule or the Permanent Rule for reasons other than those stated in the public notices for the Emergency Rule and the Permanent Rule and the January 29, 1990, letter. (S.F. 18).

       
       

   12. The Department enacted the Emergency and Permanent Rules solely due to the budgetary cuts ordered by the Administration Commission. The preamble to the Emergency Rule stated "[b]ased on a recent decision made by the Governor and Florida Cabinet, Medicaid rates were frozen at the December 31, 1989 levels for all providers of these institutions." The preamble to the Emergency Rule also stated that "a shortfall in general revenue requires the state to reduce or eliminate payment for needed services to medicaid recipients." Neither the preamble to the Emergency Rule nor the Permanent Rule indicated that Florida nursing homes had received excess reimbursement in relation to their costs under the 1988 Medicaid Plan. There was, however, no Florida law which required any other reason for the Emergency Rule or the Permanent Rule be provided by the Department.

       
       

   13. In a previous filing in this matter, the Department stated: "[i]n response to a shortfall in general revenue collections. . . , the Administration Commission (composed of the Governor and the cabinet) ordered the Department to "freeze" rates at the December 31, 1989 level. The amendment was made effective by [the Emergency Rule and the Permanent Rule]." See also Florida Nursing Home Association v. Department of Health and Rehabilitative Services, 12 FALR at 667 ("The Emergency Rule simply carries out the reductions ordered by the Administration Commission on November 21, 1989").

       
       

   14. On January 29, 1990, Gary J. Clarke, Assistant Secretary for Medicaid of the Department, wrote to Nursing Home Administrators, including Petitioners, and stated that the rate freeze was enacted due to a decision made by the Administration Commission:

       
       

       Due to a projected general revenue deficit of $280 million for the State of Florida for fiscal year ending June 30, 1990, the Administration Commission met on November 21, 1989, to determine the appropriate budget reductions for all state programs. In order to reduce the Medicaid budget for its portion of the [DHRS] required reductions, yet avoid gross disruption of services, the Commission required that Medicaid reimbursement rates and ceilings for nursing home providers be frozen at their December 31, 1989 levels, beginning with the new rate Semester on January 1, 1990. . .

       
       

   15. There are no documents which include a representation contrary to the above quoted portion of the January 29, 1990 letter that the Department enacted the Emergency Rule or Permanent Rule for reasons other than the budgetary cuts ordered by the Administration Commission.

       
       

   16. The January 29, 1990 letter from the Department also indicated that the length of the rate freeze was indefinite:

       This policy shall remain in effect until such time that monies are appropriated by the Florida legislature to recalculate new rates and ceilings.

       
       

7. Impact of the Emergency Rule and Permanent Rule on the Petitioners.

   
   

   1. The Petitioners received an inflationary adjustment in their Medicaid per diem rates on July 1, 1989 in accordance with the terms of the January 1, 1988 Florida Medicaid Plan. The Petitioners did not receive an inflationary adjustment in their per diem rates which would have been due on January 1, 1990 under the January 1, 1988 Florida Medicaid Plan for the period January 1, 1990 through June 30, 1990. Instead, Petitioners' rates calculated effective January 1, 1990 used the same cost reports and inflation adjustment that had already been included in their July 1, 1989 rates. (S.F. 36).

      
      

   2. The fact that the Petitioners did not receive an inflationary adjustment in their per diem rates for the period January 1, 1990 through June 30, 1990, was because the Emergency Rule and the Permanent Rule eliminated the rate increase provisions of the January 1, 1988 Florida Medicaid Plan.

      
      

8. Notification to HCFA of the Rate Freeze.

1. On March 30, 1990, HCFA received a letter dated March 22, 1990, from the Secretary of the Department submitting for consideration "a Title XIX state plan amendment to our state plan." (S.F. 20). The Secretary of the Department stated the following in the letter:

   
   

   This amendment TN 90-8 revises the plan by freezing the reimbursement rates and ceilings of all nursing home providers at the rates of reimbursement for services rendered on December 31, 1989.

   . . . .

   The assurances required by 42 CFR 447.253 and proof of public notice are attached.

   
   

   Exhibit 9.

   
   

2. Attached to the Secretary's March 22, 1990, letter was a letter dated March 29, 1990, which along with State Plan Amendment Transmittal Number ("TN") 90-08 and proof of public notice, constituted all the documentation submitted by the Department to HCFA prior to July 1, 1990 concerning the rate freeze. (S.F. 20).

   
   

3. TN 90-08, as submitted by the Department to HCFA on March 29, 1990, proposed to modify the Florida Medicaid Plan, as the Department had provided for in the Emergency Rule and the Permanent Rule, to eliminate the recalculation of rates, which recalculation would have included an inflationary adjustment for Petitioners' per diem Medicaid rates for the period beginning January 1, 1990. TN 90-08 proposed to maintain the Petitioners' per diem Medicaid rates at the level in effect on December 31, 1989, excluding changes based on licensure rating reclassifications. TN 90-08, as submitted on March 29, 1990, did 12not limit the rate freeze to the period prior to June 30, 1990. (S.F. 21).

   
   

4. In the March 29, 1990 letter to HCFA, the Department referenced a telephone survey in which it had compared Florida Medicaid per diem rates to the per diem rates paid to long-term care facilities along the state borders between

   Florida and Georgia, and Florida and Alabama, under the Georgia and Alabama Medicaid programs. The Department estimated that this telephone survey was performed during the time period December, 1989 through February, 1990. In conducting the Georgia and Alabama telephone survey, the Department did not determine whether Georgia's or Alabama's long-term care facilities per diem rates were reasonable and adequate to cover the costs of efficiently and economically operating Georgia or Alabama facilities, and the Department did not determine whether Georgia or Alabama Medicaid programs covered the same or similar costs as the Florida Medicaid program. A copy of the survey materials was submitted as exhibit 10. Exhibit 10 was not provided to HCFA. (S.F. 22).

   
   

5. In the March 29, 1990 letter, the Department referenced an analysis in which it stated that it had compared the increase in an inflationary index from 1989 to 1990 to the increase in the Medicaid rates paid to Florida long-term care facilities from 1989 to 1990. This analysis was performed during the period January, February, or March 1990. These materials were not submitted to HCFA. (S.F.23).

   
   

6. The Georgia and Alabama telephone survey, the inflation analysis, and that portion of the data in Exhibit 15 generated prior to March 29, 1990 by the Department relating to Florida long-term care facility historical costs and prospective per diem rates were the only reports, surveys, analyses or studies performed by the Department (as of March 29, 1990) to support its assurances to HCFA that its rates for the period beginning January 1, 1990 were reasonable and adequate to cover the costs of efficiently and economically operated facilities in order to provide care and services in conformity with applicable state and federal laws, regulations, and quality and safety standards. (S.F.23).

   
   

7. TN 90-08 was submitted to HCFA during the calendar quarter to which the Florida Medicaid Plan amendment was to be effective.

   
   

8. TN 90-08 was reviewed by HCFA and a memorandum dated April 30, 1990, was written and circulated within HCFA concerning the proposed amendment. The memorandum indicates what the proposed amendment proposes, states that the review was conducted in accordance with Federal requirements and lists the assurances the State had given. The memorandum concludes, however, that "[a]fter review of the State's assurances and related information, HCFA does not yet have a reasonable basis upon which to accept the State's assurance that the proposed rates meet the 'reasonable and adequate' statutory standard of section 1902(a)(13)(A) of the Social Security Act "

   
   

9. By letter dated May 9, 1990, HCFA notified the Department that:

   
   

   . . . we find that we cannot approve [the Plan amendment] as submitted. We are exercising our rights under section 1915(f) of the Social Security Act to request additional information and clarification as discussed below:

   . . . .

   
   

10. Although HCFA did not deny or reject the Florida Medicaid Plan amendment submitted by the Department in the May 9, 1990, letter, HCFA did indicate that it could not approve the proposed amendment as submitted.

    
    

11. It was recognized in the May 9, 1990, HCFA letter, as it was in the April 30, 1990, memorandum that a state may use budgetary considerations as one

    factor in establishing the rates to be paid providers as long as the rates are reasonable and adequate.

    
    

12. It was also recognized in the May 9, 1990, HCFA letter that "the fact that rates in surrounding States are comparable to Florida's rates provides no justification whatsoever that its rates are reasonable and adequate. Rather, the HRS must compare its proposed rates with the costs that Florida facilities must incur in providing care and services."

    
    

13. In the May 9, 1990, HCFA letter it is noted that the Department noted in its March 29, 1990, letter that rates are to be recalculated for the period beginning July 1, 1990, but that inconsistent language is included elsewhere in its proposal. Therefore, HCFA recommended that the Plan amendment be revised to limit the freeze to the six month period beginning January 1, 1990.

    
    

14. The May 9, 1990, HCFA letter indicates that processing of the amendment would cease until the additional information and clarification were provided to HCFA.

    
    

15. It is readily apparent from HCFA's April 30, 1990, memorandum and its letter of May 9, 1990, that HCFA was well aware of the requirements for amending a state Medicaid plan and the requirements that states must meet in setting Medicaid rates. The April 30, 1990, memorandum and the May 9, 1990, letter indicate that the original proposal submitted by the Department did not meet those requirements without further information being provided. HCFA did not, however, reject the Department's proposal or make any determination as to whether the proposed freeze was appropriate. HCFA merely indicated that more information was necessary and gave the Department an opportunity to provide it.

    
    

16. On May 20, 1991, the Department submitted a letter to HCFA in response to the May 9, 1990, HCFA letter limiting the rate freeze to the six month period prior to July 1, 1990, and submitted a revised TN 90-08 to HCFA which included this change. Exhibit 18. (S.F. 30).

    
    

17. In the May 20, 1991, Department letter the Department also referenced a second inflationary analysis. This inflationary analysis was performed by the Department in March or April, 1991. The inflationary analysis along with data generated by the Department relating to Florida long-term care facility historical costs and prospective per diem rates (exhibit 15) were the only reports, surveys, analyses or studies performed by the Department to support its May 20, 1991 assurances to HCFA that its rates for the period beginning January 1, 1990 were reasonable and adequate to cover the costs of efficiently and economically operated facilities in order to provide care and services in conformity with applicable State and Federal laws, regulations, and quality and safety standards. Exhibit 19 is a true, correct and complete copy of the written materials prepared by the Department in performing the inflationary analysis referenced in the May 20, 1991 letter. These documents were not submitted to HCFA. (S.F. 31).

    
    

    1. HCFA'S Approval of the Plan Amendment.

       
       

18. By letter dated July 2, 1991, HCFA notified the Department that the Florida Medicaid Plan amendment TN 90-08 was approved with an effective date of March 26, 1990.

    
    

19. By letter dated September 16, 1991, the Department advised HCFA that, as stated in the March 29, 1990, letter, the originally requested effective date

    of March 26, 1990, was an inadvertent error. It was pointed out that the correct effective date was January 1, 1990.

    
    

20. By letter dated October 3, 1991, HCFA notified the Department that HCFA had approved the amendment to the Florida Medicaid Plan effective January 1, 1990.

    
    

    1. Elimination of the Rate Freeze.

    
    

21. Effective July 1, 1990 the Florida Medicaid Plan was amended to remove the language of the Emergency Rule and Permanent Rule added effective January 1, 1990 which froze rates to their December 31, 1989 level. (S.F. 37).

    
    

22. On August 7, 1991, HCFA approved the subsequent amendment, TN 90-13, with an effective date of July 1, 1990. This subsequent Florida Medicaid Plan amendment calculated the July 1, 1990 long-term care facility Medicaid reimbursement rates using the same inflation adjustment which would have been used on July 1, 1990 had the January 1, 1990 amendment never been implemented. No reimbursement relative to the January 1, 1990 amendment, however, was made retroactively to long-term care facilities for the period January 1, 1990 through June 30, 1990. (S.F. 37).

    
    

    CONCLUSIONS OF LAW

    
    

    1. Jurisdiction and Standing.

       
       

23. The Division of Administrative Hearings has jurisdiction of the parties to and the subject matter of this proceeding. Section 120.56(1), Florida Statutes (1991).

    
    

24. The Petitioners have standing to institute the instant action. They were subject to the Emergency Rule and the Permanent Rule.

    
    

    1. Nature of the Petitioners' Challenges.

       
       

25. The only appropriate challenge to an existing rule which may be brought before the Division of Administrative Hearings is a challenge pursuant to Section 120.56, Florida Statutes. The only relief which may be sought pursuant to Section 120.56, Florida Statutes, is a determination of the invalidity of the rule on the ground that the rule is an "invalid exercise of delegated legislative authority."

    
    

26. What constitutes an "invalid exercise of delegated legislative authority" is defined in Section 120.52(8), Florida Statutes, as follows:

    
    

    1. "Invalid exercise of delegated legislative authority" means action which goes beyond the powers, functions, and duties delegated by the Legislature. A proposed or existing rule is an invalid exercise of delegated legislative authority if any one or more of the following apply:

       1. The agency has materially failed to follow the applicable rulemaking procedures set forth in s. 120.54;

       2. The agency has exceeded its grant of rulemaking authority, citation to which is required by s. 120.54(7);

       3. The rule enlarges, modifies, or contravenes the specific provisions of law implemented, citation to which is required by s. 120.54(7);

       4. The rule is vague, fails to establish adequate standards for agency decisions, or vest unbridled discretion in the agency; or

       5. The rule is arbitrary or capricious.

    
    

27. In order to challenge a rule, the person bringing the challenge must state with particularity which portion(s) of the above definition the challenged rule violates and the specific facts supporting such an allegation.

    
    

28. In these cases, Hillhaven and HCRC have not alleged with any specificity how the Emergency Rule or the Permanent Rule constitute an "invalid exercise of delegated legislative authority" pursuant to the definition of Section 120.52(8), Florida Statutes. United, Diversicare, Americare and Waverly have alleged that the Emergency Rule and the Permanent Rule constitute an "invalid exercise of delegated legislative authority" as defined in Section 120.52(8)(b), (c) and (e), Florida Statutes.

    
    

29. All of the Petitioners have also argued that the Emergency Rule and the Permanent Rule are invalid because they are inconsistent with federal laws. They have also raised constitutional issues in support of their argument that the Emergency Rule and the Permanent Rule are invalid.

    
    

    1. Burden of Proof.

       
       

30. The burden of proof in this proceeding was on the Petitioners. Florida League of Cities, Inc. v. Department of Insurance and Treasurer, 540 So.2d 850 (Fla. 1st DCA 1989); Department of Administration, Division of Retirement v. Albanese, 455 So.2d 639 (Fla. 1st DCA 1984); and Agrico Chemical Company v. Department of Environmental Regulation, 365 So.2d 759 (Fla. 2d DCA 1979).

    
    

    1. Constitutional Issues.

       
       

31. In the proposed final order filed by the Petitioners in these cases it has been argued that the Emergency Rule and the Permanent Rule are invalid based upon the decision of the Supreme Court of Florida in Chiles v. Children A, B, C, D, E and F, 589 So.2d 260 (Fla. 1991). The Court's decision in Chiles is premised on constitutional issues. The Department has also raised an issue concerning application of the Eleventh Amendment to the United States Constitution.

    
    

32. A Hearing Officer has no jurisdiction over constitutional challenges brought pursuant to Section 120.56, Florida Statutes. See Key Haven Associated Enterprises, Inc. v. Board of Trustees of Internal Improvement Fund, 427 So.2d

    153 (Fla. 1982); Long v. Department of Administration, 428 So.2d 688 (Fla. 1st DCA 1983); and Cook v. Parole and Probation Commission, 415 So.2d 845 (Fla. 1st DCA 1982). Consequently, the question of whether the rationale of the Chiles decision should be applied in these cases is not reached. Nor is the issue concerning application of the Eleventh Amendment raised by the Department reached. The undersigned has no authority to declare Section 216.221, Florida Statutes, invalid, based upon the reasoning of the Court in Chiles.

    
    

33. In order to accept the Petitioners' suggestion that the Chiles decision applies, regardless of the basis for the decision, would require a

    determination that the Court in the Chiles decision declared Section 216.221, Florida Statute, void ab initio or would require retroactive application of the Court's decision. As pointed out by the Department, the Court in Chiles expressly provided that its decision is to operate prospectively only:

    
    

    Accordingly, we affirm the trial court's order holding sections 216.011(1)(ll) and 216.221, Florida Statutes (1989), unconstitutional as a violation of the doctrine of separation of powers.

    Any budgetary actions taken pursuant to these statutes subsequent to the injunctive relief granted by the trial judge cannot be implemented. [Emphasis added].

    
    

    Chiles, 589 So.2d at 269.

    
    

34. The Petitioners have argued in their Brief in Support of Petitioners' Proposed Conclusions of Law, Order and Recommended Order that "[w]hile the Chiles court's order was necessarily limited to prospective budgetary actions, which was the relief requested by the plaintiffs, the Chiles court did not limit its holding to encompass only prospective applications." The Petitioners go on to cite cases which indicate that the courts will declare a statute unconstitutional prospectively only where the form of the statute is constitutionally flawed, but the legislature had the power to enact the statute. See Martinez v. Scanlan, 582 So.2d 1167 (Fla. 1991). The difficulty with these arguments is that the Court in Chiles did expressly declare its ruling to be prospective. Therefore, the general rule that a statute declared unconstitutional is void ab initio, does not apply. Given the Court's pronouncement, it cannot be concluded that Section 216.221, Florida Statutes, is unconstitutional unless the undersigned makes an independent determination that the rationale of the Chiles Court applies equally to the facts in these cases. Such a determination necessarily would require a decision on the constitutional issues the Chiles decision is based upon. It is not within the jurisdiction of the undersigned to make such a determination. See Tampa v. G.T.E. Automatic Electric, Inc., 337 So.2d 844 (Fla. 2d DCA 1976); and Deltona Corp. v. Bailey, 336 So. 1163 (Fla. 1976).

    
    

    1. The Validity of the Emergency Rule and the Permanent Rule.

    
    

35. Section 120.52(8)(b) and (c), Florida Statutes: The Petitioners have suggested that the Emergency Rule and the Permanent Rule are invalid because the Department "has exceeded its grant of rulemaking authority" (Section 120.52(8)(b), Florida Statutes), and because the rules enlarge, modify, or contravene the specific provisions of law implemented (Section 120.52(8)(c), Florida Statutes).

    
    

36. The specific authority cited for the Emergency and Permanent Rules is Sections 409.026(1) and (6), Florida Statutes, which provide, in pertinent part:

    
    

    1. The department shall conduct, supervise, and administer all social and economic services within the state which are or will be carried on by the use of federal or state funds or funds from any other

       source. . .

       . . . .

       (6) The department may:

       1. Accept such duties with respect to social and economic services as may be delegated to it by any agency of the Federal Government or any state, county, or municipal government;

       2. Act as agent of, or contract with, the Federal Government, state government, or any county or municipal government in the conduct and administration of social and economic services activities in securing the benefits of any public assistance that is available from the Federal Government or any of its agencies and in the disbursement of funds received from the Federal Government, state government, or any county or municipal government for social and economic services purposes within the state; and

          . . . .

          
          

37. The laws implemented by the Emergency Rule and the Permanent Rule are Sections 409.026(6) and 409.266, Florida Statutes. Section 409.266, Florida Statutes, provides, in pertinent part:

    
    

    1. The department is designated as the state agency responsible for the administration of Medicaid funds under Title XIX of the Social Security Act and, to the extent moneys are appropriated, is authorized to provide payment for medical services . . .

       . . . .

    2. The department shall purchase medical services for eligible persons in the most cost-effective form consistent with the delivery of quality medical

       care. . . .

       . . . .

       
       

38. It is not clear from the petitions filed in these cases why the Petitioners believe that the Emergency or Permanent Rules violate Sections 120.52(8)(b) or (c), Florida Statutes. In the petitions filed in case numbers 91-8002R and 91-8087R, the Petitioners argued that the challenged rules violate Section 120.52(8)(b), Florida Statutes, "by making the rules retroactive in application without express statutory authorization for retroactivity." In particular, the Petitioners have argued that the modification of the Florida Medicaid Plan effectuated by the challenged rules must be approved by HCFA. The Petitioners have cited no provision of Florida law that requires that the Department obtain approval from HCFA of the particular modification of the January 1, 1988 Florida Medicaid Plan prior to the time the Emergency Rule and Permanent Rule were adopted. Both rules were adopted in a timely manner under Florida law. The evidence failed to prove that the Department failed to comply with any of the requirements of Section 120.54, Florida Statutes, which must be met in adopting the challenged rules.

    
    

39. The Petitioners in case numbers 91-8002R and 91-8087R, have also argued that the Department has violated Section 120.52(8)(c), Florida Statutes, "by reducing the availability of health-care providers of Medicaid reimbursement funds appropriated by the Florida legislature." This argument involves the application of the Chiles decision, discussed supra. Additionally, the evidence failed to prove that the Department's actions in adopting the challenged rules enlarge, modify or contravene Sections 409.026(6) or 409.266, Florida Statutes. Section 409.266, Florida Statutes, specifically provides that the Department is

    authorized to provide Medicaid payments "to the extent moneys are appropriated." This provision must be read in conjunction with Section 216.221(1), Florida Statutes, which provides:

    
    

    all appropriations shall be maximum appropriations, based upon the collection of sufficient revenues to meet and provide for such appropriations. It is the duty of the Governor, as chief budget officer, to ensure that revenues collected will be sufficient to meet the appropriations and that no deficit occurs in any state fund.

    
    

40. As determined by the Hearing Officer in Florida Health Care Association, Inc., and Florida Association of Homes for the Aging, Inc. v. Department of Health and Rehabilitative Services, 12 F.A.L.R. 649 (DOAH Case No. 89-7000R, 1990), "the Emergency Rule is authorized by the Department's general rulemaking authority since it is a necessary action to ensure that the Department complies with Section 409.266(1) in its implementation of this program by providing reimbursements only 'to the extent moneys are appropriated.'" Without considering the Chiles decision, the same rationale still applies not only to the Emergency Rule but also to the Permanent Rule.

    
    

41. In the proposed final order filed by the Petitioners it has been argued that the challenged rules are invalid "as the rate freeze violates Florida statutory provisions designating DHRS as the single state agency for the administration of the Florida Medicaid program." Presumably, although not expressly stated, the Petitioners are suggesting that the challenge rules violate Section 120.52(8)(b) and/or (c), Florida Statutes, because of the involvement of the Administration Commission in the freeze decision. This argument is rejected.

    
    

42. The initial decision to amend the Florida Medicaid Plan in response to budget constraints was made by the Department. It recommended and advocated the modification to the Administration Commission. To the extent that the Administration Commission was involved in this matter, it was pursuant to Section 216.221, Florida Statutes, and involved acceptance of a remedy to a budget crises proposed by the Department.

    
    

43. It has also been argued in the Petitioners' proposed final order that the challenged rules are invalid because they fail to comply with certain requirements of Federal law. In particular, it has been argued that the challenged rules are invalid because the Department did not submit the amendments to the Florida Medicaid Plan "in approvable form within the calendar quarter in which that Plan amendment is to be effective" and because the Department "has not published proper public notice of the rate freeze, as required by federal regulations."

    
    

44. Again, it is not clear what portion of the definition of an "invalid exercise of delegated legislative authority" the Petitioners are relying on in suggesting the challenged rules are invalid because of the alleged failure of the Department to follow Federal regulations. Based upon a review of all of the subsections of Section 120.52(8), Florida Statutes, it is concluded that the Petitioners have failed to prove that the Emergency Rule and/or the Permanent Rule are invalid because of the failure to follow any Federal requirements.

    
    

45. The authority granted to the Department to carry out and administer the Florida Medicaid program is broad. It is reasonable to conclude that the

    Department must, in carrying out its authority, comply with applicable Federal requirements necessary for the State of Florida to participate in the Medicaid program. Therefore, it would not be appropriate for the Department, pursuant to the grant of rulemaking authority of Section 409.026(1) and (6), Florida Statutes, to adopt rules which are contrary to Federal requirements.

    
    

46. In this matter, the Petitioners would have the undersigned declare the Department's Emergency Rule and Permanent Rule invalid because the Department allegedly has failed to follow Federal law when the Federal agency charged with the primary responsibility of enforcing the very Federal provisions the Department has allegedly violated has determined that the Department's actions, from a Federal law stand point, were in compliance with Federal law. There is no requirement in Florida law generally, or in the rulemaking authority of the Department at issue in these cases in particular, that requires or authorizes such action. If in fact the Department has failed to follow Federal requirements in amending the Florida Medicaid Plan, HCFA should have refused to approve the Plan amendments submitted by the Department. Having failed to do so, it is HCFA's agency action in approving the amendments that the Petitioners should have challenged.

    
    

47. In the Brief filed by the Petitioners, the Petitioners have argued that the Department is required by Florida law to comply with Federal requirements. The Petitioners suggest that "[t]he Hearing Officer has jurisdiction to review any violation of federal statutes and regulations as violations of state law." This argument is rejected. In support of their argument the Petitioners have cited Section 409.908(2)(b), Florida Statutes (1991). As recognized by the Petitioners, Section 409.908, Florida Statutes, was not enacted until during the 1991 Legislative Session. It was not the law when the challenged rules were adopted or during the time when they were effective. Section 409.908(2)(b), Florida Statutes (1991), does not control in this matter.

    
    

48. The Petitioners have also relied upon Section 409.266(1), Florida Statutes (1990 Supp.). Section 409.266(1), Florida Statutes (1990 Supp.), requires that the Department "administer Medicaid funds under Title XIX of the Social Security Act . . . ." This language does not require that the Department comply with all requirements of Title XIX of the Social Security Act. It merely requires the Department to administer "Medicaid funds" and identifies which funds are being referred to: those provided for under Title XIX of the Social Security Act.

    
    

49. The Petitioners have also referred to the legislative history of Section 409.266, Florida Statutes (1990 Supp.), and Section 409.980, Florida Statutes (1991). The Legislative history cited by the Petitioners does nothing to alter the conclusion that there was no specific requirement in Florida law that required the Department to adhere to the particular provisions of Federal law the Petitioners have alleged the Department has failed to comply with in this matter.

    
    

50. The Petitioners have also cited Department rules and other portions of the Florida Medicaid Plan which require that the Department follow certain Federal provisions. All of those provisions specify the circumstances under which certain specified Federal provisions are to be complied with. For example, Section VI of the Florida Medicaid Plan, cited by the Petitioners, requires that "[t]he state shall pay each nursing home for services provided in accordance with the Florida Title XIX State Plan and applicable State or Federal rules and regulations." This provision goes on to provide, however, that the

    "payment amount shall be determined" according to the provisions of the Florida Medicaid Plan. None of the provisions cited by the Petitioners specifically require that the Department comply with the particular Federal provisions at issue in this proceeding in imposing a freeze on the inflationary adjustments previously provided for in the Florida Medicaid Plan or in obtaining approval of a Plan amendment.

    
    

51. Finally, the Petitioners have cited several cases in which state and federal courts have determined that a state agency charged with responsibility for administering a state Medicaid program had failed to comply with federal law. None of those cases, however, govern this matter. None of the cases cited involved the determination of whether a Florida state agency's rules were "an invalid exercise of delegated legislative authority" as defined in Section 120.52(8), Florida Statutes.

    
    

52. More importantly, none of the case cited by the Petitioners involved review of a state agency's compliance with federal law when the federal agency charged with responsibility for implementing the federal law in question has reviewed the state agency's action and has indicated its approval of that action. That is the factual situation in these cases which distinguishes these cases from the cases cited by the Petitioners.

    
    

53. Section 120.52(8)(e), Florida Statutes: The Petitioners have also argued that the challenged rules are arbitrary and capricious. An arbitrary and capricious action has been defined as follows:

    
    

    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.

    
    

    Agrico Chemical Company v. Department of Environmental Regulation, 365 So.2d 759 (Fla. 2d DCA 1979).

    
    

54. The Petitioners have not explained why they believe the challenged rules are arbitrary or capricious in their proposed final order or brief. The Petitions in case numbers 91-8002R and 91-8087R have argued that the rules are arbitrary and capricious because:

    
    

    . . . they do not afford reasonable and adequate reimbursement to nursing homes. By ignoring the continual increase in operating costs of nursing homes due to the effects of inflation, HRS' implicit determination that inflation has no adverse effect on the operation of nursing homes is without a factual basis, so it is arbitrary, and it is contrary to the facts, so it is capricious.

    
    

55. The Hearing Officer in Florida Health Care Association has already determined that the Emergency Rule, which includes the same substantive provisions as the Permanent Rule, is a well reasoned response to the Department's duty to administer the Medicaid program in Florida and to deal with budgetary constraints in the State.

    
    

56. The Department was charged with the responsibility of administering the Florida Medicaid program. The Department was authorized to make payments to providers of care "to the extent moneys are appropriated". Section 409.266(1),

    Florida Statutes. The extent to which moneys were appropriated must be read in conjunction with Section 216.221(1), Florida Statutes, which at the time of the adoption of the challenged rules and during the period of their effectiveness, was valid and applicable to the Department. When all of the relevant laws applicable to the Department are considered and the facts concerning the financial difficulties of the State are taken into account, it cannot be said that the decision of the Department to adopt the Emergency Rule and/or the Permanent Rule was arbitrary or capricious.

    
    

57. The only way it could be concluded that the Petitioner's argument concerning whether the Department has acted arbitrarily and capriciously is correct would require a consideration of whether federal substantive requirements for the payment of providers of medical services to Medicaid eligible patients have been met. In particular, it would have to be determined whether the Department has provided sufficient assurances that the "Boren Amendment" requirements are met. Consideration of this issue would require the undersigned to second guess or review the decision of HCFA to approve the modifications to the Florida Medicaid Plan. As concluded, supra, such a determination would not be proper, nor authorized, in these cases.

ORDER

Based upon the foregoing Findings of Fact and Conclusions of Law, it is ORDERED that the Petitioners have failed to prove that Emergency Rule

10CER89-21 or the amendment to Rule 10C-7.0482, Florida Administrative Code, constitute an invalid exercise of delegated legislative authority in violation of Section 120.56, Florida Statutes, and the Petitioners' petitioners are DISMISSED.

DONE and ENTERED this 26th day of May, 1992, in Tallahassee, Florida.

LARRY J. SARTIN

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 26th day of May, 1992.

APPENDIX TO FINAL ORDER, CASE NOS 91-7996RE, 91-8002RE and 91-8087RE

The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Final Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted.

The Petitioners' Proposed Findings of Fact

Proposed Finding Paragraph Number in Final Order

of Fact Number of Acceptance or Reason for Rejection

1 1 and 4.

2 5-6.

3 13.

4 7.

5 3 and 13-14.

6 15.

7 17-19.

8 20.

9 21.

10 22.

11 23.

12 8.

13 12.

14 11.

15 24.

16 25-27.

17 28-29.

18 29.

19 30-32.

20 34-37.

1. See 39. The last three sentences are not relevant. The determination of compliance with specific federal requirements for the Department's action was the responsibility of HCFA. HCFA presumably determined that the Department complied with all federal requirements since it approved the Department's plan amendment.

2. 39. The last two sentences are not relevant. The determination of compliance with specific federal requirements for the Department's action was the responsibility of HCFA. HCFA presumably determined that the Department complied with all federal requirements since it approved the Department's plan amendment.

23 40-41.

24 43.

25 45.

26 46.

27 47.

28 48. The last two sentences are argument.

29 49.

30 42.

31 29 and 32. The weight of the evidence failed to prove the Department's motive for providing assurances to HCFA were anything other than to meet federal requirements.

The Department's Proposed Findings of Fact

Proposed Finding Paragraph Number in Final Order

of Fact Number of Acceptance or Reason for Rejection

1 1.

2 4.

3 5.

4 6.

5 3 and 13-14.

6 15.

7 17-19.

8 20.

9 21.

10 22.

11 23.

12 8.

13 11.

14 24.

15 25-26.

16 Hereby accepted.

17 27 and 29-32.

18 34-37.

19 39-41.

20 41.

21 43.

22 33.

23 42.

24 52-53 and 58.

25 54.

26 55.

27 56.

28 57.

29 60-65.

30 67.

31 68.

32 69.

33 70.

34 71.

35 50 and 73.

36 72.

37 73.

38 Hereby accepted.

COPIES FURNISHED:

Thomas C. Fox, Esquire Michael D. Smith, Esquire 1200 18th Street, N.W. Washington, D.C. 20036

Alfred W. Clark, Esquire Post Office Box 623 Tallahassee, Florida 32302

W. David Watkins, Esquire Post Office Box 6507

Tallahassee, Florida 32314-6507

David Pius Medicaid Counsel

Department of Health and Rehabilitative Services

1317 Winewood Boulevard

Building 6, Room 230

Tallahassee, Florida 32399-0700

Carroll Webb, Executive Director Administrative Procedures Committee Holland Building, Room 120 Tallahassee, Florida 32399-1300

Sam Power Agency Clerk

Department of Health and Rehabilitative Services

1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700

John Slye General Counsel

Department of Health and Rehabilitative Services

1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700

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.

================================================================= DISTRICT COURT OPINION

=================================================================

IN THE DISTRICT COURT OF APPEAL FIRST DISTRICT, STATE OF FLORIDA

THE HILLHAVEN CORPORATION, NOT FINAL UNTIL TIME EXPIRES TO HEALTH CARE AND RETIREMENT FILE MOTION FOR REHEARING AND CORPORATION OF AMERICA, DISPOSITION THEREOF IS FILED. UNITED HEALTH, INC.,

DIVERSICARE CORPORATION, AMERICARE CORPORATION, THE WAVERLY GROUP, INC., HEARTLAND HEALTH CARE

CENTER, et al.,

Petitioners/Appellants,

DOAH Case No. 91-7996RE

vs. CASE NOS. 92-2167/2168/2181/ 2182/2184/2185/2186/2247/

DEPARTMENT OF HEALTH AND 2296/2297/2298 REHABILITATIVE SERVICES,

Respondent/Appellee.

/ Opinion filed November 1, 1993.

An Appeal from an order of the Division of Administrative Hearings. Larry J. Sartin, Hearing Officer.

Thomas C. Fox, Joel M. Hamme, Joyce E. Mayers and Michael D. Smith of Reed Smith Shaw & McClay, Washington, D.C., Counsel for Hillhaven and HCRA; Alfred W. Clark, Tallahassee, Counsel for HCRA, Americare, Diversicare, Waverly, and Heartland; W. David Watkins of Oertel, Hoffman, Fernandez & Cole, P.A., Tallahassee, Counsel for United Health, for Petitioners/Appellants.

David G. Pius, Senior Attorney, Department of Health and Rehabilitative Services, Tallahassee, for Respondent/Appellee.

ERVIN, J.

The appeals in these cases, which were consolidated below and on appeal, involve a number of Florida nursing homes that are challenging the validity of emergency rule 10CER89-21 and permanent rule 10C-7.0482, adopted by appellee, the Department of Health and Rehabilitative Services (HRS). The rules eliminated a semiannual inflationary adjustment for appellants' per diem Medicaid rates, effective January 1, 1990 through June 30, 1990. Appellants claim that the rules are an invalid exercise of delegated legislative authority, because they implement a statute which was determined violative of the doctrine of separation of powers. In the alternative, they assert that the rules are invalid because HRS did not comply with federal law when implementing the rate freeze. We agree with appellants' first issue and, thus, do not reach their second.

The parties stipulated to the following facts. The Medicaid Act, Title XIX of the Social Security Act, 42 U.S.C. Sections 1396-1396s, is a cooperative, federal-state program whereby the federal government provides matching funds to states furnishing medical services to needy residents. Under the 1988 Medicaid

plan, long-term care providers, such as appellants, are reimbursed under a prospective reimbursement methodology. Rates are set in advance of the rate semester, based upon historical cost-data trended forward for inflation, with no retroactive adjustment to account for actual costs. The plan requires semiannual inflationary adjustments in Florida nursing home rates, effective January 1 and July 1 of each year. The plan was used to establish appellants' Medicaid rates during the period from January 1, 1988 through December 31, 1989. In conformity with the plan, the state legislative appropriation for the fiscal year 1989-1990 included funds to reimburse Medicaid long-term care facility providers for the fiscal year beginning July 1, 1989 through June 30, 1990.

Thereafter, during the 1989-90 fiscal year, Florida experienced a shortfall in general revenue collections, 1/ causing Governor Martinez to certify that a deficit would occur in the state budget. HRS, in addition to all other state agencies, was asked to provide cost-containment alternatives to the Administration Commission (AC), consisting of the governor and members of the cabinet. Among the alternatives listed, HRS recommended amending the Medicaid plan to require a freeze in nursing-home Medicaid reimbursement rates, beginning January 1, 1990, for an indefinite period. On November 21, 1989, the AC accepted the proposal and reduced HRS's budget accordingly, pursuant to Section 216.221(2), Florida Statutes (1989), which provides in part: "The commission may, by affirmative action, reduce all approved state agency budgets and releases by a sufficient amount to prevent a deficit in any fund."

To comply with pertinent procedure for effectuating the freeze, HRS published notice in the Florida Administrative Weekly of emergency rule 10CER89-

21 on December 22, 1989, and permanent rule 10C-7.0482, on February 2, 1990. In its first notice, HRS stated, in part:

A shortfall in general revenue requires the state to reduce or eliminate payment for needed services to Medicaid recipients. . . .

Based upon a recent decision made by the Governor and Florida Cabinet, Medicaid rates were frozen at the December 31, 1989 levels for all providers of these institutions. . . .

This emergency rule freezes Medicaid reimbursement rates for nursing home providers effective January 1, 1990 in accordance with budget reductions mandated by the Administrative Commission on November 21, 1989.

15 Fla. Admin. Weekly 6016-17 (Dec. 22, 1989). As a consequence of the suspension in funding, appellants did not receive an inflationary adjustment in their per diem rates which would otherwise have been due under the 1988 Medicaid plan for the period January 1, 1990 through June 30, 1990. The rate freeze ended on July 1, 1990, when the plan was amended to delete the budget reduction, and appellants' rates in subsequent rate semesters were calculated as if the rate freeze had never occurred. Appellants, however, received no retroactive reimbursement for the period in question.

Appellants initially filed their challenges to the amendment to the Medicaid plan in February 1990 and, after a hearing and an appeal, consolidated their rate challenges for monetary relief under Section 120.57, Florida Statutes (1989), and their rule challenges under Section 120.56, Florida Statutes (1989), into one proceeding in December 1991 before a Department of Administrative Hearings hearing officer (HO). In lieu of testimony, the parties filed a

stipulation of facts and joint exhibits. The HO issued final orders denying appellants' section 120.56 rule challenges and section 120.57 rate challenges, both of which are the subjects of this appeal.

In their 120.56 rule challenges, appellants claimed that HRS's emergency and permanent rules were invalid under the decision of Chiles v. Children A, B, C, D, E, & F, 589 So.2d 260 (Fla. 1991), holding that section 216.221 was facially unconstitutional because it violated the doctrine of separation of powers. Appellants also challenged the rules as invalid, because they contravened the specific provisions of law authorizing implementation of the rule, Sections 409.026(1) and (6), 2/ and Section 409.266, Florida Statutes (1989). 3/ Appellants' additional arguments are not pertinent to this opinion.

While properly deciding that he had no jurisdiction to consider the constitutional challenge, 4/ the HO also determined that Chiles could not be applied retroactively because he considered the opinion to have prospective application only. As a result, the HO ruled that Chiles, decided after the adoption of the rules but before the commencement of the December 1991 proceeding, was not applicable to the pending cases and therefore concluded that the emergency and permanent rules were properly enacted to ensure that HRS implement the Medicaid program under section 409.266(1), by providing reimbursements only to the extent that funds were appropriated. We hold that Chiles does not operate prospectively only, but rather that it applies to invalidate the rules at issue.

In Chiles, the facts disclose that the governor determined that a general revenue shortfall existed in the fiscal 1991-92 state budget and, accordingly, directed state agencies to revise their financial plans to reduce their current operating budgets in order to bring the budget into balance. The AC adopted the governor's recommendations and the agencies' budgets were reduced to amounts less than those established by the 1991 Appropriations Act. Six foster children affected by the reductions thereupon brought actions for declaratory and injunctive relief against the AC. The trial court granted the children's request, held section 216.221 unconstitutional, and enjoined the AC from implementing the budget reductions. On appeal, the supreme court held that section 216.221 was unconstitutional, because it delegated the power to reapportion the state budget to the executive branch of the government, whereas the Constitution only permits the legislature to appropriate state funds by duly enacted statutes. The court concluded as follows:

Accordingly, we affirm the trial court's order holding sections 216.011(1)(11) 5/ and 216.221, Florida Statutes (1989), unconstitu- tional as a violation of the doctrine of separation of powers.

Any budgetary actions taken pursuant to these statutes subsequent to the injunctive relief granted by the trial judge cannot be implemented.

Id. at 269 (footnote added).

It was the latter paragraph from the above portion of Chiles which the hearing officer determined was an express statement that the decision was to operate prospectively. We cannot agree. On the contrary, we regard the above as a simple statement of the court's holding, articulating only the effect of its affirmance of the trial court's injunction. It clearly indicates that any

reductions or elimination of programs made by an agency in response to the acts of the governor and AC were void. In our judgment, this paragraph should not be understood as broadly precluding consideration of any other legal challenges to executive actions taken pursuant to section 216.221.

Even if Chiles were considered as having prospective application, it is well established that an appellate court is required to apply the law in effect at the time of its decision, rather than the law prevailing at the time the judgment was rendered below. See Florida E. Coast Ry. v. Rouse, 194 So.2d 260,

262 (Fla. 1967) (on rehearing); In re Forfeiture of the Following Described Property, 1985 Mercedez Serial No. WDB7AO4C1FF070173, 596 So.2d 1261, 1264 (Fla. 1st DCA 1992) (and cases cited therein). Under this doctrine, this court is required to apply the Chiles decision to the issue at bar.

The fact that Chiles held section 216.221 facially invalid, whereas the action at bar involves an attack on two rules implementing section 216.221 as an invalid exercise of delegated legislative authority, does not render the Chiles rule inapplicable to the instant case. Section 120.52(8), Florida Statutes (1989), provides, in part:

"Invalid exercise of delegated legislative authority" means action which goes beyond the powers, functions, and duties delegated by the Legislature. A proposed or existing rule is an invalid exercise of delegated legislative authority if any one or more of the following apply:

1. The rule enlarges, modifies, or contravenes the specific provisions of law implemented[.]

One of the provisions of law which the rules also implemented was section 409.266, which details the requirements of the Medicaid program in Florida. Section 409.266(1) provides:

The department [HRS] is designated as the state agency responsible for the administra- tion of Medicaid funds under Title XIX of the Social Security Act and, to the extent moneys are appropriated, is authorized to provide payment for medical services to any [eligible] person[.]

(Emphasis added.)

The legislature appropriated sufficient funds to HRS for the fiscal year 1989-1990 for the purpose of reimbursing the providers at bar. Although HRS did not explicitly cite section 216.221 as one of the laws implemented by the emergency and permanent rules, the text of the notice of emergency rulemaking stated that the rule was being promulgated pursuant to the AC's decision to freeze the Medicaid rates. The parties specifically stipulated below that the budget-reduction procedure was authorized by section 216.221. The only authority given to the executive branch of government to reduce the state budget is derived from section 216.221. By freezing the rates at the 1989 levels, at the behest of the AC, thus allowing excess funds to be distributed elsewhere, HRS reduced its own legislative appropriation. As Chiles clearly indicates, neither HRS nor the AC had the constitutional authority to so act. Hence, HRS's

rules contravened section 409.266(1) by unlawfully interfering with the legislative appropriations process, and thereby constituted an invalid exercise of delegated legislative authority.

Accordingly, we strike the emergency and permanent rules, and direct HRS to reinstate the Medicaid rates in the amount which appellants were entitled to before the freeze took effect.

REVERSED.

JOANOS and WOLF, JJ., CONCUR.

ENDNOTES

1/ The revenue shortfall for fiscal year 1989-90 was $280 million, and HRS's share of the deficit was $64 million. 15 Fla. Admin. Weekly 6016 (Dec. 22, 1989).

2/ Sections 409.026(1) and (6) authorize HRS to administer all social and economic services within the state; to accept duties delegated to it by any agency of the federal government; and to conduct and administer social and economic service activities to secure public assistance from the federal government.

3/ Section 409.266 designates HRS as the state agency responsible for administering Medicaid funds and requires HRS to purchase medical services for eligible persons in the most cost- effective form consistent with the delivery of quality medical care.

4/ Although a hearing officer may not determine the facial constitutionality of a statute, this court may consider such issue on direct review. Key Haven Associated Enters. v. Board of Trustees of Internal Improvement Trust Fund, 427 So.2d 153, 157 (Fla. 1982).

5/ This provision included the judicial branch within the term, "state agency."

Docket for Case No: 91-007996RE

Orders for Case No: 91-007996RE