STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

CONTINENTAL MEDICAL )

LABORATORIES, INC., )

)

Petitioner, )

)

vs. )

) DEPARTMENT OF HEALTH AND ) REHABILITATIVE SERVICES, )

) CASE NO. 93-3951BID

Respondent, )

and )

) NATIONAL HEALTH LABORATORIES, ) INC., )

)

Intervenor. )

)

RECOMMENDED ORDER

Pursuant to notice, final hearing in the above-styled case was held in Tallahassee, Florida, on July 26, 1993, before Robert E. Meale, Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

The parties were represented at the hearing as follows: For Petitioner: Geoffrey Kirk

Adorno & Zeder, P.A.

2601 South Bayshore Dr., Suite 1600

Miami, Florida 33133

For Respondent: Morton Laitner, District Counsel

District 11 Legal Office

401 Northwest 2d Ave., Suite N-1014 Miami, Florida 33128

For Intervenor: Thomas F. Panza

Seann Michael Frazier Panza, Maurer

3081 East Commercial Blvd., Suite 200 Ft. Lauderdale, Florida 33308

STATEMENT OF THE ISSUE

The issue in this case is whether the Department of Health and Rehabilitative Services improperly awarded a contract to National Health Laboratories, Inc. for the reasons set forth in the petition.

PRELIMINARY STATEMENT

By Petition for Formal Hearing filed July 9, 1993, Continental Medical Laboratories, Inc. challenged the Department of Health and Rehabilitative Services' notice of intent to award a contract to National Health Laboratories, Inc. for laboratory services. The petition alleges that National Health Laboratories, Inc. submitted an improperly completed Public Entity Crime affidavit. The petition alleges that an agreement that National Health Laboratories, Inc. attached to the Public Entity Crime affidavit purportedly exonerated the company for Medicaid and Medicare fraud, but not CHAMPUS fraud.

National Health Laboratories, Inc. filed a Petition to Intervene on July 9, 1993. At the commencement of the hearing, the Petition to Intervene was granted.

At the hearing, Continental Medical Laboratories, Inc. called no witnesses and offered into evidence five exhibits. Department of Health and Rehabilitative Services called one witness and offered into evidence one exhibit. National Health Laboratories, Inc. called two witnesses and offered into evidence nine exhibits. All exhibits were admitted except Continental's Exhibit 4, which was proffered.

The transcript was filed August 13, 1993. Each party filed a proposed recommended order. Rulings on the proposed findings are in the appendix.

FINDINGS OF FACT

1. By Invitation to Bid mailed March 26, 1993 (ITB), the Dade County Public Health Unit requested bids on an annual contract for the performance of clinical laboratory test services. The Dade County Public Health Unit is under the Department of Health and Rehabilitative Services (HRS). The contracting agency shall hereafter be referred to as HRS.

   
   

2. The ITB called for the opening of bids on April 12, 1993. Six bids were timely submitted. The apparent low bid was submitted by National Health Laboratories, Inc. (NHL). The NHL bid was $202,271. The second low bid was submitted by Continental Medical Laboratory, Inc. (CML). The CML bid was

   $241,100.

   
   

3. HRS issued a notice of intent to award the contract to NHL. CML timely protested. There is no issue as to the responsiveness of the CML bid. The only issue as to the responsiveness of the NHL bid concerns the matters raised by CML.

   
   

4. CML's petition alleges that the bid of NHL was defective because the Sworn Statement Pursuant to Section 287.133(3)(a), Florida Statutes, on Public Entity Crimes (Public Entity Crime Affidavit) was incomplete, an agreement attached to the Public Entity Crime Affidavit did not relieve NHL from disqualification concerning CHAMPUS fraud, and NHL should be disqualified from bidding because it failed timely to inform the Department of Management Services of the company's conviction of a public entity crime.

5. Paragraph 10 of the General Conditions of the ITB allows HRS to "waive any minor irregularity or technicality in bids received." However, special conditions provide, in part:

   
   

   PUBLIC ENTITY CRIMES

   
   

   Any person submitting a bid or proposal in response to this invitation must execute the enclosed [Public Entity Affidavit], including proper check(s), in the space(s) provided, and enclose it with the bid/proposal. Failure to complete this form in every detail and submit it with your proposal will result in immediate disqualification of your bid.

   
   

6. The Public Entity Crime Affidavit completed by NHL and submitted with its bid was executed and notarized on April 9, 1993. Paragraph six of the form affidavit states:

   
   

   Based on information and belief, the statement which I have marked below is true in relation to the entity submitting this sworn statement. [Indicate which statement applies.]

   
   

   Neither the entity submitting this sworn statement, nor any of its officers, directors, executives, partners, shareholders,

   employees, members, or agents who are active in the management of the entity, nor any affiliate of the entity has been charged with and convicted of a public entity crime subsequent to July 1, 1989.

   
   

   The entity submitting this sworn statement, or one or more of its officers, directors, executives, partners, shareholders, employees, members, or agents who are active in the management of the entity, or an affiliate of the entity has been charged with and convicted of a public entity crime subsequent to July 1, 1989.

   
   

   The entity submitting this sworn statement, or one or more of its officers, directors, executives, partners, shareholders, employees, members or agents who are active

   in the management of the entity, or an affiliate of an entity has been charged with and convicted of a public entity crime subsequent to July 1, 1989. However, there has been a subsequent proceeding before a Hearing Officer of the State of Florida, Division of Administrative Hearings and the Final Order entered by the Hearing Officer determined that it was not in the public

   interest to place the entity submitting this sworn statement on the convicted vendor list. [attach a copy of the final order]

7. The next paragraph of the Public Entity Crime Affidavit form states: I UNDERSTAND THAT THE SUBMISSION OF THIS FORM

   TO THE CONTRACTING OFFICER FOR THE PUBLIC

   ENTITY IDENTIFIED IN PARAGRAPH I (ONE) ABOVE IS FOR THAT PUBLIC ENTITY ONLY AND, THAT THIS FORM IS VALID THROUGH DECEMBER 31 OF THE CALENDAR YEAR IN WHICH IT IS FILED. I ALSO UNDERSTAND THAT I AM REQUIRED TO INFORM THE PUBLIC ENTITY PRIOR TO ENTERING INTO A CONTRACT IN EXCESS OF THE THRESHOLD AMOUNT PROVIDED IN SECTION 287.017, FLORIDA STATUTES FOR CATEGORY TWO OF ANY CHANGE IN THE INFORMATION CONTAINED IN THIS FORM.

   
   

8. In completing the Public Entity Crime Affidavit, NHL penned in, just over the second alternative that discloses a conviction, "See Attached." The attachment was a copy of an Agreement dated December 31, 1992, between NHL and the "state of Florida" (Settlement Agreement). The agreement was executed by an NHL officer and the Director, Medicaid Fraud Control Unit of the Auditor General Office. The Auditor General's Office is not part of the Department of Management Services.

   
   

9. The Settlement Agreement concerns invoices from NHL to the Florida Medicaid program for certain cholesterol and iron tests from January 1, 1987, through November 30, 1992. The Settlement Agreement requires NHL to pay as restitution to the State of Florida $1,470,917. In return,

   
   

   the state of Florida, for itself and on behalf of its agents and assigns, will

   release and forever discharge NHL, its current or former officers, directors, employees, agents, shareholders, affiliates, assigns

   and successors from any and all claims, actions, demands or causes of action including penalties or interest against any of them, either civil or criminal, as regards Medicaid reimbursement [for certain cholesterol and iron tests] between January 1, 1987 and November 30, 1992, except that nothing contained in this Settlement Agreement shall preclude the state Medicaid program from seeking recoupment of payments made [for certain cholesterol tests] during the period covered by this Settlement Agreement, subject to the understanding that NHL will contest any such recoupment action on the grounds that such payments were appropriate.

10. The Settlement Agreement also provides:

    
    

    The state of Florida agrees that neither the Settlement Agreement nor any federal criminal conviction or other sanction of the corporation or a current or former officer

    or employee of NHL as regards claims for Medicaid reimbursement [for certain cholesterol and iron tests] [b]etween January 1, 1987 and November 30, 1992 will be the basis for a state exclusion of NHL from the Florida Medicaid program.

    
    

11. NHL is a company that provides laboratory testing nationally and receives payment for many of its services from government sources, such as Medicaid, Medicare, or CHAMPUS. CHAMPUS is the Civilian Health and Medical Program of the Uniformed Services.

    
    

12. During the period of 1987 through 1992, NHL supplied certain cholesterol and iron testing, in addition to that specifically requested by the health-care provider, at little or no cost to the health-care provider. But NHL invoiced various government payors at higher rates.

    
    

13. On December 18, 1992, NHL entered guilty pleas to two counts of criminal fraud involving these practices as they concern the CHAMPUS program. These pleas were the bases of a conviction and sentence that included a criminal fine of $1,000,000. One or two former officers entered guilty pleas to charges of criminal fraud involving these practices as they concern the Medicaid program. As part of the settlement, NHL paid the United States the sum of

    $100,000,000.

    
    

14. At the same time, NHL was negotiating with various states, including Florida, with respect to the above-described billing practices. On December 8, 1992, the Director of the Medicaid Fraud Control Unit in the Florida Office of the Auditor General wrote a letter to NHL confirming a proposed settlement. The conditions of the settlement are incorporated in the above- described Settlement Agreement.

    
    

15. On December 17, 1992, the Assistant Secretary for Medicaid in HRS mailed a letter to NHL agreeing that HRS would not take administrative action for the above-described cholesterol and iron claims submitted for reimbursement by NHL to the Florida Medicaid program.

    
    

16. NHL did not inform the Department of Management Services of the guilty plea, conviction, and $1,000,000 criminal fine. However, based probably on information received in early February 1993 from another governmental entity in Florida, the Department of Management Services, on February 8, 1993, sent a letter to NHL advising it that the Department had received information that NHL had been convicted of a public entity crime and requesting copies of the charges and final court action. NHL complied and the Department's investigation is continuing.

    
    

17. On February 18, 1993, HRS Deputy Secretary for Health, sent a memorandum to all of the County Public Health Units directors and administrators advising them of concerns about laboratory fraud and attaching a recent report concerning the NHL case. The report described the NHL guilty pleas, conviction, and sentencing, as well as the business practices that led to the prosecution.

18. By memorandum dated March 18, 1993, HRS Assistant Secretary for Medicaid informed HRS Depute Secretary for Health that the Auditor General had entered into the Settlement Agreement. The memorandum states that, on December 17, 1992, the Assistant Secretary signed an agreement with NHL not to terminate it from the Florida Medicaid program, which was the "same treatment afforded many other providers--including [County Public Health Units]--who overbilled the Medicaid program. The Assistant Secretary's memorandum describes the settlement as requiring NHL to make "full restitution," although the $1.4 million in restitution involves only the iron test and the State of Florida and NHL may still litigate whether any reimbursement is due for the cholesterol tests.

    
    

19. The failure of NHL to check the second alternative on the Public Entity Crime Affidavit did not confer an economic advantage on NHL in the subject procurement. The material attached to the affidavit sufficiently informed HRS of the criminal conviction of NHL.

    
    

20. Likewise, the omission of any mention of CHAMPUS claims in Paragraphs two and three of the Settlement Agreement did not confer any economic advantage on NHL in the procurement. The purpose of mentioning only Medicaid in the Settlement Agreement is that Florida has no jurisdiction over the CHAMPUS program. NHL was concerned only that Florida not terminate NHL's participation in the program over which Florida had jurisdiction--the Medicaid program. These references to "Medicaid reimbursement" are merely descriptive and are not intended to limit the scope of the exoneration purportedly effectuated in the Settlement Agreement.

    
    

    CONCLUSIONS OF LAW

    
    

21. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties. Sections 120.57(1) and 120.53(5), Florida Statutes. (All references to Sections are to Florida Statutes.)

    
    

22. CML has standing and has timely filed the necessary protests.

    
    

23. The issue in this case is whether, in tentatively awarding the laboratory services contract to NHL, HRS has acted arbitrarily, dishonestly, illegally, or fraudulently. Department of Transportation v. Groves-Watkins Constructors, 530 So. 2d 912 (Fla. 1988); Overstreet Paving Company v. Department of Transportation, 608 So. 2d 851, 853 (Fla. 2d DCA 1992) (Groves- Watkins standard applied "in the context of a decision to reject the lowest bid from a responsible bidder as nonresponsive due to a technical deviation"). Presumably, the same standard applies when an agency determines that there is no deficiency in a bid or that a deficiency is a minor irregularity that should be waived.

    
    

24. Strictly speaking, the failure to check the second box on the Public Entity Crime Affidavit is a deficiency. However, this omission was cured by the attachment of the Settlement Agreement and thus conferred no economic advantage on NHL. In the absence of an economic advantage, a deficiency is a minor irregularity, not a material variance. A minor irregularity may be waived.

    See, e.g., System Development Corporation v. Department of Health and Rehabilitative Services, 423 So. 2d 433 (Fla. 1st DCA 1982).

25. The second issue raised by CML somewhat overlaps the first and third issues. The evidence does not support CML's argument that the omission of any mention of CHAMPUS in the second and third paragraphs of the Settlement Agreement limits the scope of the exoneration intended by the agreement. The reference to "Medicaid reimbursement" was descriptive only.

    
    

26. In the third issue, CML asserts that NHL obtained a competitive advantage by not advising the Department of Management Services of the conviction of the public entity crime within 30 days, as required by law. Part of the second issue questions validity of the Settlement Agreement because the Auditor General's office could not make such a binding determination.

    
    

27. Section 287.133(2) provides:

    
    

    1. A person or affiliate who has been placed on the convicted vendor list following a conviction for a public entity crime may not submit a bid on a contract to provide any goods or services to a public entity, . . . may not be awarded or perform work as a contractor, supplier, subcontractor, or consultant under a contract with a public entity, and may not transact business with any public entity in excess of the threshold

       amount provided in s. 287.017 for CATEGORY TWO for a period of 36 months from the date of being placed on the convicted vendor list.

       
       

    2. No public entity shall accept any bid from, award any contract to, or transact any business in excess of the threshold amount provided in s. 287.017 for CATEGORY TWO with any person or affiliate on the convicted vendor list for a period of 36 months from the date that person or affiliate was placed on the convicted vendor list unless that person or affiliate has been removed from the list pursuant to paragraph 3(f). No public entity which was transacting business with a person at the time of the commission of a public entity crime which resulted in that person being placed on the convicted vendor list shall accept any bid from, award any contract to, or transact any business with any other person who is under the same, or substantially the same, control as the

       person whose name appears on the convicted vendor list so long as that person's name appears on the convicted vendor list.

       
       

28. Section 287.133(3)(a) requires that bidders submit a Public Entity Crime Affidavit disclosing

    
    

    whether the person, or an affiliate of that person, was convicted of a public entity crime after July 1, 1989, unless a determination has been made pursuant to

    either paragraph (e) or paragraph (f) that

    it is not in the public interest for the name of that person to appear on the convicted vendor list.

    
    

29. Section 287.133(3)(b) provides:

    
    

    Any person must notify the [Department of Management Services] within 30 days after a conviction of a public entity crime applicable to that person or to an affiliate of that person. Any public entity which receives information that a person has been convicted of a public entity crime shall transmit that information to the [D]epartment in writing within 10 days.

    
    

30. Section 287.133(3)(e)1. authorizes the Department of Management Services to conduct an investigation and "determine whether good cause exists to place [a] person . . . on the convicted vendor list." If the Department finds good cause, the section requires that it advise the person of the intent to place the person on the convicted vendor list and provide an opportunity for a hearing. The section concludes: "No person or affiliate may be placed on the convicted vendor list without receiving an individual notice of intent from the department."

    
    

31. The remainder of Section 287.133(3)(e) describes the formal hearing, which is conducted by a DOAH hearing officer, to determine if the person should be placed on the convicted vendor list. The determination whether it is in the public interest to place a person on the convicted vendor list is based on consideration of 11 factors enumerated in the statutes. Section 287.133((3)(e)4. places the burden of proof on the Department of Management Services.

    
    

32. Nothing in Section 287.133 imposes any penalty for the failure to notify the Department of Management Services of the conviction of a public entity crime. Section 287.133(3)(f) governs the removal of a person from the convicted vendor list. Where the vendor has failed to make prompt payment of damages, dissociate itself from other guilty persons or affiliates, and self- police, Section 287.133(4) renders voidable certain public- entity contracts predating the vendor's conviction or placement on the convicted vendor list.

    
    

33. The question in this case is whether HRS acted arbitrarily, fraudulently, dishonestly, or illegally in deciding to award the laboratory services contract to NHL under the circumstances. There is no dispute that NHL is a person convicted of a public entity crime. There is no dispute that NHL is not on the convicted vendor list. There is a pending investigation by the Department of Management Services. There is no guarantee that the Department will find good cause to issue a notice of intent to place NHL on the list or that, if the Department does so, NHL will be placed on the list.

    
    

34. Section 287.133 disqualifies a vendor from a public contract only after the vendor is placed on the convicted vendor list. The conviction itself does not trigger the disqualification and may not result in placement on the convicted vendor list. The vendor may avoid disqualification through the exercise of discretion by the Department of Management Services in determining

    whether good cause exists for the placement of the vendor on this list or in the DOAH hearing in which the hearing officer determines that the placement of the vendor on the list is not in the public interest.

    
    

35. CML raises an interesting question concerning a vendor that fails to disclose timely to the Department of Management Services a conviction for a public entity crime. CML points out that such a vendor might unfairly postpone its disqualification by nondisclosure of a public-entity crime to the Department of Management Services. This unfair delay, CML asserts, would give such a vendor an unfair competitive advantage against vendors that complied with the law. CML concludes that a vendor's noncompliance with the 30-day notice requirement should therefore render the tentative decision of an agency to award a contract to that vendor arbitrary, illegal, dishonest, or fraudulent.

    
    

36. However, it is unnecessary to address the issue of a vendor's noncompliance with the 30-day notice requirement. There was at most a delay of three weeks between the expiration of the time within which NHL was required to disclose the conviction to the Department of Management Services and when the Department learned of the conviction. Even if the disclosure had been made on January 18, 1993, there is absolutely no evidence that the additional three weeks would have made a difference in this case in terms of listing NHL on the convicted vendor list. As of the date of the final hearing, the Department's investigation was continuing. Even if the investigation were completed the following day, the three-week delay would remain irrelevant. NHL would have 21 days within which to request a hearing. Even if it did so on the day of the adverse decision, the assigning of the hearing officer, scheduling of the final hearing, and issuing of the final order could not take place within three weeks of the request for a hearing.

RECOMMENDATION

Based on the foregoing, it is hereby

RECOMMENDED that the Department of Health and Rehabilitative Services enter a final order dismissing the bid protest of Continental Medical Laboratory, Inc.

ENTERED on August 24, 1993, in Tallahassee, Florida.

ROBERT E. MEALE

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 24th day of August, 1993.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-3951BID

Treatment Accorded Proposed Findings of Respondent and Intervenor 1-8 and 11: adopted or adopted in substance.

9-10 and 12-15: rejected as subordinate. 16-31: adopted or adopted in substance.

32-37: rejected as subordinate and irrelevant.

38-43 and 45-48: rejected as irrelevant and legal argument. 44: adopted.

49-50: adopted as to absence of material variations. 51: rejected as subordinate and recitation of evidence.

Treatment Accorded Proposed Findings of Petitioner

1-14 and 16-17: adopted or adopted in substance.

15: rejected as legal argument and unsupported by the appropriate weight of the evidence.

18-21: rejected as subordinate, repetitious, and legal argument. 22-27: adopted in substance.

28: rejected as irrelevant.

29 (first sentence): rejected as repetitious and irrelevant.

29 (second sentence): rejected as unsupported by the appropriate weight of the evidence.

30: adopted, but the period of the delay of DMS review in this case was too short to make any difference.

31: rejected as unsupported by the appropriate weight of the evidence with respect to a delay of such a short duration.

32: rejected as legal argument inviting a remedy far in excess of any remedy provided for or envisioned by 287.133.

33: rejected as legal argument inviting a remedy far in excess of any remedy provided for or envisioned by 287.133, at least under the facts of the present case.

34: rejected as irrelevant.

35: rejected as legal argument and unsupported by the appropriate weight of the evidence.

COPIES FURNISHED:

Geoffrey Kirk

Adorno & Zeder, P.A.

2601 S. Bayshore Dr., Ste. 1600

Miami, Florida 33133

Morton Laitner, District Counsel District 11 Legal Office

401 NW 2d Ave., Ste. N-1014 Miami, Florida 33128

Thomas F. Panza

Seann Michael Frazier Panza, Maurer

3081 E. Commercial Blvd., Ste. 200 Ft. Lauderdale, Florida 33308

John Slye, General Counsel Department of Health and

Rehabilitative Services 1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

Robert L. Powell Agency Clerk

Department of Health and Rehabilitative Services

1323 Winewood Boulevard

Tallahassee, Florida 32399-0700

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

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

Docket for Case No: 93-003951BID

Orders for Case No: 93-003951BID