STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RHA/FLORIDA OPERATIONS, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 96-0801

)

AGENCY FOR HEALTH CARE, )

ADMINISTRATION, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before William A. Buzzett, Hearing Officer with the Division of Administrative Hearings, on May 21, 1996, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Theodore E. Mack, Esquire

Cobb, Cole & Bell

131 North Gadsden Street Tallahassee, Florida 32301

For Respondent: John Gilroy, Esquire

Agency for Health Care Administration 2727 Mahan Drive

Tallahassee, Florida 32308-5403 STATEMENT OF ISSUES

Whether Petitioner's Certificate of Need (CON) application was complete and should have been accepted by the Respondent.

PRELIMINARY STATEMENT

By letter dated January 18,1996, the Respondent, Agency for Health Care Administration (Agency) informed the Petitioner, RHA/Florida Operations, Inc. (RHA), that its application for a certificate of need (CON) had been administratively withdrawn for failing to provide an audited financial statement for the most current fiscal year. On January 25, 1996, the Petitioner submitted a Petition for Formal Administrative Hearing and timely availed itself of the right to a formal administrative hearing pursuant to sections 120.57(1) and 408.039(5), Florida Statutes (1995). This cause was later assigned to the undersigned Hearing Officer for adjudication.

At the hearing, RHA called Mr. John West and Mr. Joseph P. Mitchell as witnesses. Mr. Mitchell was qualified, without objection, as an expert in CON financing. RHA offered three exhibits into evidence. Exhibit 1 was a timeline summary of the events associated with RHA's CON application at issue. Exhibit 1

was accepted without objection. Exhibit 2 was the Financial Statements and Independent Auditors' Report for RHA/Florida Operations, Inc., dated December 13, 1995. Exhibit 2 was accepted, without objection, for the limited purpose of demonstrating that an auditors' report was prepared in December 1995. Exhibit 3 represented the minutes of the Joint Meeting of the Board of Directors of RHA/Florida Operations, Inc., dated November 14, 1995. Exhibit 3 was accepted without objection. The Agency called Mr. Roger Bell as its sole witness. Mr.

Bell was accepted as an expert in CON financing. The Agency offered no exhibits into evidence.

The parties elected to transcribe the proceedings. At the hearing, the parties requested the right to file proposed findings of fact and conclusions of law in the form of Proposed Recommended Orders no later than fifteen days after the filing of the transcript. The undersigned hearing officer agreed to render a Recommended Order no later than fifteen days after receipt of the proposed recommended orders. The proposed findings of the parties were read and considered and the proposed findings of fact are addressed in the appendix to this Recommended Order.

FINDINGS OF FACT

1. RHA is a health care provider that owns and operates nursing homes, hospitals, and intermediate care facilities throughout the State of Florida and other states.

   
   

2. The Agency is the state agency authorized by law to administer the certificate of need (CON) program in Florida.

   
   

3. The Agency published a fixed bed need projection for 25 community nursing home beds in District 2 for the second nursing home batching cycle. District 2 encompasses Gadsden, Holmes, Jackson, and Washington Counties.

   
   

4. The application filing deadline for the above- referenced batching cycle was November 29, 1995.

   
   

5. Pursuant to the fixed need publication for District 2, RHA timely filed CON Application No. 8275 for a 20 bed addition to its existing 120 bed facility in Gadsden County. The application contained audited financial statements for the financial years ending June 30, 1993 and June 30, 1994.

   
   

6. By letter dated December 14, 1995, the Agency advised RHA that its application omitted certain elements and gave RHA the opportunity to supplement its application. Specifically, the letter stated that RHA failed to file an audited financial statement for its most recent fiscal year (1995).

   
   

7. RHA filed no additional financial statements and by letter dated January 18, 1996, the Agency notified RHA that its CON application No. 8275 was being administratively withdrawn from consideration for the reason that it did not contain an audited financial statement for the most current fiscal year. The letter of January 18, 1996, also advised RHA of its right to invoke an administrative hearing, which was timely requested by RHA.

   
   

8. At the hearing, RHA asserted that it complied with the requirements of the applicable CON statute and rule by providing the Agency with its most recent financial statements reflecting the fiscal years ending June 30, 1993 and June 30, 1994. (Petitioner's Exhibit 1).

9. In contrast, the Agency asserted that RHA did not meet the CON statutory and rule requirements because it did not provide an audited financial statement for the fiscal year ending June 30, 1995, and as such, it failed to comply with the statutory requirements.

   
   

10. RHA did not prepare a financial statement for the fiscal year ending June 30, 1995.

    
    

11. On November 14, 1995, RHA's board of directors moved its fiscal year ending date from June 30, 1995 to December 31, 1995. Based on RHA's action, its fiscal years would run from December to December rather than June to June. (Petitioner's Exhibit 3).

    
    

12. RHA applied the new fiscal year ending date retroactively. The effect of the retroactive application was to create a fiscal year that extended for eighteen months. Specifically, the fiscal year extended from July 1, 1994 to December 31, 1995 rather than to June 30, 1995. (Petitioner's Exhibit 2).

    
    

13. Because the application filing deadline for the above-referenced batching cycle was November 29, 1995, and because RHA moved its fiscal year to December 31, 1995, the Agency received no financial information from RHA for the seventeen months immediately preceding the application deadline.

    
    

14. At the hearing, conflicting testimony was received regarding the accounting terms "fiscal period" and "fiscal year." Initially, RHA's expert, Mr. Joseph P. Mitchell, testified that the terms are interchangeable. Subsequently, Mr. Mitchell concluded that while the Agency has interpreted a "fiscal year" to be greater than twelve months, a certified public accountant would not consider an 18 month period to be a fiscal year. It was also determined that the beginning date of a fiscal year is arbitrary and that it can begin at any time.

    
    

15. The Agency's expert witness, Mr. Roger Bell, testified that a "fiscal year" is any twelve month period selected by an entity. Mr. Bell also testified that a "fiscal period" is the alternative to a "fiscal year" - it could be greater than or less than a twelve month cycle.

    
    

16. RHA contends that the Agency's prior acceptance of financial statements for periods other than twelve months constitutes a departure from the traditional view that a fiscal year is twelve months. Mr. Bell explained that the acceptance of financial statements for periods other than twelve months has occurred only in cases where the twelve month fiscal year required to be submitted was actually provided to the Agency, along with additional information above and beyond that requirement.

    
    

17. Mr. Bell also testified that the purpose for the requirement of an audited financial statement of the CON applicant is two-fold. First, he stated that where there are competing applicants, the audited financial statement assists the Agency in determining which applicant is the better candidate for the CON. Second, he stated that the audited financial statement provides an objective source of evidence of the applicant's financial condition and capabilities.

    
    

    CONCLUSIONS OF LAW

    
    

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

19. An applicant bears the burden of proving its entitlement to the certificate of need for which it has applied. Department of Transportation v.

    J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981); Boca Raton Artificial Kidney Center v. Department of Health and Rehabilitative Services, 469 So.2d 260 (Fla. 1st DCA 1985).

    
    

20. Section 408.037(3), Florida Statutes (1995), requires that an application for a certificate of need shall include an "audited financial statement of the applicant." The section further provides that the applicant shall include a "balance sheet and a profit-and-loss statement of the [2 previous fiscal years' operations]." [Emphasis provided].

    
    

21. Rule 59C-1.008(5)(g), Florida Administrative Code, implements the audited financial statement provisions of section 408.037(3).

    
    

22. Rule 59C-1.008(5)(g)(1) provides that the "audited financial statement of the applicant must be for the most current [fiscal year]. If the most current [fiscal year] ended within 120 days prior to the application filing deadline and the audited financial statements are not yet available, then the prior [fiscal year] will be considered the most recent." [emphasis provided].

    
    

23. Rule 59C-1.008(5)(g)(2) provides that the "[e]xisting health care facilities must provide audited financial statements for the [two most recent consecutive fiscal years]." [emphasis provided].

    
    

24. Any testimony reflecting that a fiscal year is greater than twelve months is rejected. The plain meaning of the rule and the testimony supports the finding that a financial statement encompasses only a fiscal year. Nowhere in the rule does it indicate that a fiscal period is appropriate. The fiscal year of the applicant ended on June 30, 1995. RHA failed to comply with the CON requirements by failing to submit an audited financial statement from July 1, 1994 through June 30, 1995. 1/

    
    

25. Failure to submit financial statements of the applicant prevents meaningful testing and review of the applicant's financial ability to implement the project. Humhosco v. Department of Health and Rehabilitative Services, 561 So.2d 388 (Fla. 1st DCA 1990).

    
    

26. As stated in Humhosco and also as referenced in the testimony of expert witness Roger Bell, because the Agency was not provided the most recent financial statements of the applicant, it did not have the opportunity to test or review the financial condition of RHA. Furthermore, because the financial statements contained a seventeen month gap between the latest available financial statement and the CON application deadline, it is impossible for the Agency to meet its statutory duty and review the fiscal condition of the applicant.

    
    

27. RHA's assertion that it had changed its fiscal year and that therefore it had provided its most recent financial statements is rejected for several reasons.

    
    

28. First, the change in the fiscal year occurred retroactively. Specifically, RHA passed its set fiscal year end of June 1995 without rendering a financial statement. It is peculiar at best that RHA, as it has done in the past years, did not prepare its annual financial statement for the year ending June 1995. Equally peculiar is that it was not until November 1995 that RHA

    even decided to change its fiscal year to December 1995. The change in the fiscal year was on the eve of and in the shadow of the pending CON application deadline.

    
    

29. Second, to allow the unilateral manipulation of fiscal years by applicants would render the financial audit requirements of the statute and rule meaningless. Based on the testimony of RHA's expert, the financial years could be changed to any time frame. As a result, the Agency may never receive timely, pertinent, and relevant material that reflects the true and current fiscal health of an applicant.

    
    

30. The language of Rule 59C-1.008(5)(g) is mandatory and requires exact compliance. Brookwood-Jackson County Convalescent Center v. Department of Health and Rehabilitative Services, 591 So.2d 1085 (Fla. 1st DCA 1992); Humhosco, Inc. v. Department of Health and Rehabilitative Services, 561 So.2d

388 (Fla. 1st DCA 1990). RHA materially failed to comply with the minimum application content requirements of section 408.037(3), Florida Statutes, and Rule 59C-1.008(5)(g). RHA did not provide the most recent financial statements and the Agency was correct to administratively withdraw the application.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED:

That the Department enter a Final Order determining that CON Application No. 8275 is incomplete and that it be withdrawn from consideration

DONE and ENTERED this 31st day of July, 1996, in Tallahassee, Florida.

WILLIAM A. BUZZETT, 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 31st day of July, 1996.

ENDNOTE

1/ Rule 59C-1.008(5)(g)(1) is not applicable in this matter because RHA's most recent fiscal year ended June 30, 1995, more than 120 days from the application filing deadline (November 29, 1995).

APPENDIX

The following discussion is given concerning the proposed findings of fact submitted by RHA and the Agency.

Petitioner's Findings:

Paragraph 1 is accepted and incorporated by reference into Findings of Fact

2.

Paragraph 2 is accepted and incorporated into Findings of Fact 5 and 9. Paragraph 3 is accepted and incorporated by reference into Finding of Fact

6.

Paragraph 4 is accepted and incorporated by reference into Findings of Fact

1. and 11.

   Paragraph 5 is accepted, to the extent relevant, and incorporated by reference into Finding of Fact 11.

   Paragraph 6 is accepted to the extent that CON Application No. 8275 contained financial statements for the years ending June 30, 1993 and June 30, 1994.

   Paragraph 7 is accepted for the reasons started in Paragraph 6. Paragraph 8 is rejected as argument.

   Paragraph 9 is accepted.

   Paragraph 10 is rejected as speculative.

   Paragraph 11 is accepted to the extend consistent with Finding of Fact 11. Paragraph 12 is accepted to the extent consistent with Finding of Fact 15. Paragraph 13 is rejected as irrelevant.

   Paragraph 14 is accepted to the extent consistent with Finding of Fact 15.

   Paragraph 15 is accepted to the extent that financial years begin at an arbitrary date set by the respective corporation.

   Paragraph 16 is rejected. Paragraph 17 is rejected.

   Paragraph 18 is accepted to the extent consistent with Finding of Fact 16. Paragraph 19 is rejected as a legal conclusion.

   
   

   Respondent's Findings:

   
   

   Paragraphs 1 is accepted and incorporated into the Findings of Fact. Paragraph 2 is accepted and incorporated by reference into Findings of Fact

2. and 12.

Paragraph 3 is accepted and incorporated by reference into Finding of Fact

5.

Paragraph 4 is accepted and incorporated by reference into Findings of Fact

14 and 15.

Paragraph 5 is accepted and incorporated by reference into Finding of Fact

16.

17.

Paragraph 6 is accepted and incorporated by reference into Finding of Fact

COPIES FURNISHED:

Theodore E. Mack, Esquire COBB, COLE & BELL

131 North Gadsden Street Tallahassee, Florida 32301

John Gilroy, Esquire

Agency for Health Care Administration Fort Knox Building 3, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308-5403

Sam Power, Agency Clerk

Agency for Health Care Administration

301 Atrium Building

325 John Knox Road Tallahassee, FL 32303

Douglas M. Cook, Director

Agency for Health Care Administration 2727 Mahan Drive

Tallahassee, FL 32308

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: 96-000801CON

Orders for Case No: 96-000801CON