The Issue Whether the respondent committed the acts alleged in the Administrative Complaint dated December 8, 1995, and, if so, the penalty which should be imposed.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing and on the entire record of this proceeding, the following findings of fact are made: During the 1994-1995 school year, Ernest L. Sellars was employed as a teacher by the Broward County School Board. During that year, he taught second grade at Park Ridge Elementary School, where he had worked since the 1992-1993 school year. Prior to the 1994-1995 school year, Mr. Sellars taught a fifth-grade class at Park Ridge Elementary School. Walter L. Cooper was the principal of Park Ridge Elementary School during the 1994-1995 school year. On March 16, 1995, Mr. Cooper submitted a Personnel Investigation Request to the School Board’s Professional Standards Office regarding an allegation by Faith Williams that, at 8:15 a.m. on March 15, 1995, Mr. Sellars had physically abused her daughter, S. B., a student in his second grade class. The specific allegation stated in the request was that Mr. Sellars “grabbed her around her neck, threw her to the floor causing scratches on her knee.” Ronald S. Wright, the Professional Standards Director for the School Board, considered the request and recommended to the Superintendent that a special investigation be conducted into the allegations. The investigation was approved and assigned to the School Board’s Special Investigative Unit, a state-certified law enforcement agency. Rodney Green, an officer with the Special Investigative Unit, was assigned to conduct the investigation. He took the statements of eight students in Mr. Sellars second-grade class, S. B., J. D., L. W., J. J., B. W., C. B., C. A., and M. B., and of S. B.’s mother, Faith Williams. These statements were taken on April 3, 5, and 6, 1995. Either Mr. Cooper, Jacquelyn Haywood, the assistant principal, or a Ms. Bean were present while the students’ statements were taken. Mr. Sellars was notified of the investigation on April 7, 1995, and Officer Green took his statement on May 2, 1995. At some point before Officer Green took the students’ statements, each student was interviewed by either Mr. Cooper or Ms. Haywood. Immediately prior to taping the students’ statements, Officer Green interviewed each of the students. Photographs were taken of the classroom assigned to Mr. Sellars’s second-grade class. These photographs were of the classroom’s closet, the arrangement of the students’ desks, the rear of Mr. Sellars’s desk and the podium standing beside the desk, and the cabinet adjacent to the classroom’s sink. These photographs, which appear to be the same as those received into evidence as Petitioner's exhibit 2, were shown to the students during the April, 1995, interviews and were attached to the investigative report. Four of the students in Mr. Sellars’s 1994-1995 second-grade class testified during the hearing, J. D., J. J., L. W., and J. A.. They were the only witnesses, with the exception of Mr. Sellars, to testify who had personal knowledge of Mr. Sellars’s conduct in the classroom. The investigative report containing the statements taped by Officer Green was received into evidence without objection.1 J. D. and L. W. testified at the hearing regarding their recollection of the incident in which Mr. Sellars allegedly physically abused S. B.2 Their testimony was not only conflicting, it was not consistent with the statements they gave to Officer Green. In addition, far from explaining or supplementing the evidence given by J. D. and L. W. at the hearing, the descriptions of the incident included in the statements given to Officer Green varied widely both in the generalities and in the details, and it is difficult to conclude that the statements even dealt with the incident which allegedly took place on March 15, 1995. J. D., J. J., L. W., and J. A. testified at the hearing regarding their recollection of the ways in which Mr. Sellars disciplined or punished children who were “bad" in class. Although the testimony of J. D., J. J., and L. W. was consistent in that each testified that Mr. Sellars would put “bad” students in the closet, in the cabinet, and under the desk/podium, the testimony was conclusory and inconsistent with regard to the details of the alleged confinement.3 For example, it cannot be concluded from the testimony whether students were actually put in the closet as punishment or whether they were sent to the closet for time- out. The closet was set up as a media center. Books, games, and supplies were stored on the closet shelves, and a large television on a stand was located just outside the closet. The television was in front of the closet door and held it open, and, given the position of the television, it is unlikely that the door to the closet was ever closed. J. D. testified that Mr. Sellars would poke students in the chest with his middle finger, which was essentially consistent with information he gave in his statement to Officer Green. However, none of the students testifying at the hearing corroborated this testimony, and the statements given by the other students to Officer Green, likewise, did not corroborate this testimony. J. J. gave a graphic description in his testimony at the hearing of how Mr. Sellars put J. A. in the cabinet near the sink: “He would like, grab JA by the back of the neck and he had opened the thing and told JA get in there and JA got in there.” (Transcript at 177) J. A. testified that Mr. Sellars had never put him in the cabinet or the closet or under the podium and that he had never seen Mr. Sellars punish students by putting them in the closet or the cabinet, under the podium, or on the floor under tables or desks. He further testified that he had never seen Mr. Sellars poke students in the chest, hit them over the head with his fist, or slam them against the chalkboard or the wall and that Mr. Sellars had never done those things to him. There was no evidence presented that Mr. Sellars had been the subject of any complaint alleging improper discipline or child abuse other than the one filed by Faith Williams in March, 1995. Mr. Cooper testified that, had there been an allegation of child abuse, a report would have been filed.4 Elizabeth Anderson, J. A.’s mother, testified that her son had never told her about any instances in which Mr. Sellars had mistreated any of the students in the class. Mr. Sellars categorically denied ever having committed any of the acts alleged in the Administrative Complaint. The Superintendent has failed to present any evidence which can be used as the basis of findings of fact that Mr. Sellars committed the acts alleged in paragraphs F, G, I, J, K, L, or M of the Administrative Complaint.5 The Superintendent has failed to prove by the greater weight of the credible evidence presented at the hearing that Mr. Sellars committed the acts alleged in paragraphs D, E, H, N, O, or P of the Administrative Complaint.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Broward County School Board enter a final order dismissing the Administrative Complaint against Ernest L. Sellars and reinstating Mr. Sellars without back pay or benefits lost during his suspension. DONE AND ENTERED this 10th day of April, 1997, in Tallahassee, Leon County, Florida. PATRICIA HART MALONO Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 10th day of April, 1997.
Findings Of Fact North Ridge is a 396 bed short term general acute care hospital located in Broward County, Florida. The ownership of North Ridge changed on September 3, 1985, and the fiscal year was changed from September 30th to August 31st. NRGH Ex. 1, p. 4; NRGH Ex. 2. North Ridge is an investor owned hospital owned by American Medical International, Inc. NRGH Ex. 2. Staff of the HCCB conducts the review of budgets and budget amendments using certain screens and guidelines, T. 21,27, as well as the hospital's 1984 and 1986 budgets. T. 26, 104. In reviewing a budget or a budget amendment, the staff of the HCCB follows certain internal procedures consisting of several steps of review. A budget or amended budget (which, unless stated otherwise, will be deemed to be the same for purposes of this order) is first stamped with the date it is received. T. 21-22. It is then given to Aldric Borders, Regulatory Analyst Supervisor, who distributes budgets to analysts, including Melvin Austin, who is under the supervision of Mr. Borders, and is a Regulatory Analyst II. T. 22, 21, 434. This is not controlled by the hospital. The process thus begins with the date the budget is received and date stamped, although actual substantive review cannot begin until the budget reaches an analyst. The analyst checks the documents to see that they are "in order" and begins the review process. Preliminary findings and recommendations are the end result of the work of the analyst. T. 25-6. A proposed budget amendment is reviewed using the same internal procedures used to review a budget, but the amended budget is not sent to TMIC for generation of computer printouts. T. 24-5. The staff of the HCCB has an internal goal of 25 days within which staff attempts to send out to the hospital their preliminary findings and recommendations. T. 27. It is not clear whether the 25 day period is calculated from the date that the amended budget is received by the HCCB or the date that staff determines the amendment to be complete. T. 27, 104. The 25 days includes approval by James Bracher, Executive Director of the HCCB. T. 27- The 25 day period is only a staff goal, and is not contained in rule or statute. T. 91-2. The HCCB received the proposed amendment filed by North Ridge on December 16, 1985. T. 31; NRGH Exhibit 2; T. 202. The amended budget requested a gross revenue per adjusted admission of $7,569. T. 272. A few days later, North Ridge received NRGH Exhibit 4, which is a letter from the HCCB stating that the amended budget report was "incomplete, nonconforming, and not verifiable." The letter (dated December 17, 1985, from John Pattillo, Chief Financial Analyst) asked North Ridge to complete the enclosed wcrksheets and return it as soon as possible, and mentioned instructions included. Attached was an instruction form to complete worksheet C2A. T. 202. Upon receipt of this letter, Richard Wichmann, Hospital Financial Manager for the Petitioner, called the HCCB and spoke to Pace Allen, who was then employed by the HCCB, asking him how to complete the form. T. 202. On January 13, 1986, Mr. Wichmann wrote to Mr. Allen enclosing worksheet C2A which had been completed in response to the December 17, 1985, letter from Mr. Pattillo. NRGH Exhibit 5. It is stipulated that worksheet C2A was submitted to the HCCB on January 13, 1986. Worksheet C2A was developed to provided a logical, consistent manner for hospitals to provide data that staff of the HCCB would need to help them analyze a proposed budget amendment. The form was first developed just shortly before it was required of North Ridge, in late 1985. The form has been changed several times, but generally is being consistently applied by the HCCB to all hospitals seeking to amend their budgets. There is no evidence that the form is a part of the Hospital Uniform Reporting System Manual. The form is the subject of a proposed rule. T. 410-11. Thus, the letter of Mr. Pattillo on December 17, 1985, requiring that North Ridge submit a completed form C2A was based upon incipient and evolving policy of the HCCB to require such forms when proposed budget amendments are received. There was no evidence that the policy is unreasonable in any respect, and it is the conclusion of the Hearing Officer that the policy is in fact reasonable. The North Ridge amended budget was first assigned to Nancy Speccia, who began the review process. T. 435. Ms. Speccia then left her position with the HCCB, T. 436, and on about January 31, 1986, the proposed amended budget was assigned by Aldric Borders to Melvin Austin for review. Id. T. 92. Ms. Speccia's work was not sufficiently complete at this point to allow the issuance of preliminary findings and recommendations. T. 436. The only reason for delay between early January and early February 1986 was that Ms. Speccia had been originally assigned to the amended budget and had left the HCCB without completing the analysis. T. 206-7. On February 11, 1986, Mr. Wichmann met with Aldric Borders and Melvin Austin at the offices of the HCCB in Tallahassee. T. 204. If staff of the HCCB had completed the preliminary findings and recommendations based upon the information available to staff as of the beginning of the meeting on February 11, 1986, staff would have recommended denial of the proposed amendment by North Ridge. T 441. During this meeting, there was a discussion of the increase in the amended budget from the original budget of gross revenue per adjusted admission and the change in case mix. T. 440, 36, 39, 41. The change in gross revenue in the amended budget was not based upon a change in rates or charges to patients, but was based solely upon a change in case mix. T. 205. During the meeting on February 11, 1986, the HCCB staff asked Mr. Wichmann to provide additional information concerning the change in case mix. T. 43. The only witness who asserted that interest expense was discussed at the meeting on February 11th was Mr. Borders. T. 440. Mr. Borders, however, did not testify that the staff of the HCCB at the February 11th meeting requested that Mr. Wichmann supply additional information concerning interest expense. See T. 441. Mr. Borders simply testified that "we wanted some details on that," but he did not say that he asked Mr. Wichmann for those details. T. 441. Indeed, Mr. Borders denied that he himself had "made a request of the hospital regarding the hospital's interest expense." T. 471. Mr. Austin did not testify that he had asked Mr. Wichmann to supply information concerning interest expense at the February 11th meeting. Thus, it is concluded that the only additional information that Mr. Wichmann was asked to gather and submit as of February 11, 1986, was information concerning case mix. This conclusion is further Supported by the pattern of very prompt responses by Mr. Wichmann with respect to all other requests for information. It is inferred that Mr. Wichmann would have also promptly supplied interest expense information had anyone asked him for such information at the February 11th meeting. At the meeting on February 11, 1986, Mr. Austin requested that North Ridge take some action to alter the 120-day period. T. 44. As will be discussed ahead, all parties at the meeting were aware of the fact that nearly 60 days had already elapsed since the proposed amended budget was first received by the HCCB, and Mr. Wichmann expressed his concerns about this lapse of time. T. 206. In response to the request from Mr. Austin, Mr. Wichmann sent Mr. Austin a letter dated February 13, 1986, NRGH Exhibit 6. T. 207-8. The letter in its entirety states: Per our conversation on Tuesday, February 11, 1986, this letter is to request a waiver of the 120 day approval period for the above provider until documentation is provided to your satisfaction of the the above provider until documentation is provided to your satisfaction of the narrative. My understanding is that once the above information is supplied to your satisfaction, the 120 day period will begin when received. If this is not correct, please notify me immediately. Prior to writing the letter of February 13, 1986, Mr. Wichmann did not consult with an attorney. T. 253. At the time of writing the letter, Mr. Wichmann said that he did not know what a "waiver" was. T 207. It is unclear from the question whether Mr. Wichmann was referring to the ordinary meaning of the word or the legal concept. Mr. Wichmann did not remember a lot of the discussion of the "waiver" (except the part about the budget being returned, discussed ahead), and there appears to have been very little discussion among Mr. Wichmann, Mr. Austin, and Mr. Borders concerning the details of the "waiver." T 442-3. On February 14, 1986, Mr. Austin received NRGH Exhibit 6, T. 45. The letter was copied to Mr. Borders by Mr. Austin, but was not shown to the HCCB Executive Director, Mr. Bracher at that time. T. 45-6. Mr. Bracher was unaware of any requested or allegedly granted waiver until early April of 1986. Hearing Officer Exhibit 1 (Prehearing Stipulation), p. 2. No written acknowledgment of acceptance of any requested or offered waiver of the 120-day period was ever sent by the Hospital Cost Containment Board or its staff to North Ridge, and the question of whether North Ridge was requested to provide the staff with a waiver of the 120-day period, or in fact had offered to granted any such waiver, was never presented to the Board for approval or consideration. Id. Mr. Wichmann was never told by the HCCB whether his letter of February 13, 1986, had been approved. T. 216. Mr. Austin did, however, tell Mr. Wichmann on February 14, 1986, that the letter was "what he had wanted." T. 216. That was the last that Mr. Wichmann heard from the HCCB regarding his letter. Id. 14, 1956, Mr. Wichmann had no further communication with the staff of the HCCB or the HCCB concerning the issue of waiver contained in his letter of February 13, 1986. T. 240, 247. Mr. Austin testified that "case mix was a major thrust at the meeting" on February 11, 1986. T. 41. He also testified that after leaving the meeting on February 11, 1986, we all discovered the problem in that we would probably need more information regarding the case mix data." T. 37-8. Mr. Austin further testified that the purpose of the requested "waiver" was "to get the proper documents to evaluate the hospital amendment" with respect to case mix. T. 42-3. In the same passage, Mr. Austin mentions evaluation of the case mix data, but does not appear to envision the "waiver" as clearly covering evaluation time. The entire passage is as follow: Well, we talked about getting a 120-day waiver notice, and the reasons behind that was based on the hospital requesting sending in their amendment based on case mix. We would need more time to -- to get the proper documents to evaluate the hospital amendment, but -- and by having the 120-day waiver notice, perhaps time constraints would not be a factor in trying to evaluate the information properly. T. 42-3 (E.S.) Mr. Borders similarly limited his characterization of the purpose of the requested "waiver" to a period of time for North Ridge to submit additional information: To the best of my knowledge, we told Mr. Wichmann that if North Ridge, in order for us to make a valid review of his 1986 amended budget, that a waiver would be-- if he wanted to submit to us additional information concerning justification for the budget, then a waiver would be in line. T. 469. (E.S.) In summary, both Mr. Austin and Mr. Borders were given full opportunity to characterize what they understood to be the purpose of the requested "waiver." Both focused primarily upon the time needed for North Ridge to submit additional case mix information. Neither clearly stated that the "waiver" was intended to cover time for staff to evaluate the new information. Neither clearly stated that intended to cover time for staff to evaluate the new information. If either Mr. Austin or Mr. Borders had clearly stated that the "waiver" was needed for a time to evaluate the case mix information, they then would also have had to have established in their testimony a clear event--such as the completion of such evaluation, or the completion of the evaluation coupled with a favorable recommendation or request for more data--as the end of the period under "waiver." It must therefore be concluded that Mr. Austin and Mr. Borders intended the requested "waiver" to cover only the time required for North Ridge to submit additional case mix data as requested at the February 11, 1986, meeting. Mr. Wichmann similarly understood the purpose of the requested "waiver" to be to allow time for North Ridge to submit additional data concerning case mix. T. 246. He also testified: During our meeting at the staff office on February 11, 1986, discussed North Ridge's amended budget, I was asked by Mr. Austin to submit a waiver to the Board, or to himself for North Ridge's amended budget because he believed that the amended budget was, the narrative was not complete and needed more information on case mix. T. 563-64. Finally, and most persuasive, the "waiver" letter sent by Mr. Wichmann only mentions waiver "until the documentation is Provided to your satisfaction." The letter also states that "and the above information is supplied to your satisfaction, the 120 day period will begin when received." The last two words are critical, for it is evident that Mr. Wichmann intended the 120-day period to be again fully operative as of the date of receipt of the information, not the date of "satisfaction." It is therefore concluded that the purpose of the requested "waiver" was to give North Ridge time to submit additional information concerning case mix. The purpose was not to give the staff of the HCCB a specified additional time to evaluate new data as to case mix. At the meeting on February 11, 1986, Mr. Austin, Mr. Borders, and Mr. Wichmann all thought that the 120-day period had already started to run with respect to the proposed amended budget of North Ridge, and the meaning of the "waiver" letter of Mr. Wichmann must be construed with this fact in mind. Mr. Wichmann stated this as he testified as to the purpose he intended in drafting his letter of February 13, 1986: The intent was to stop the clock and start it again on March 4th when the narrative had been received by the staff. T. 246. In response to a question as to why the 120-day period should not begin with March 4, 1986, Mr. Wichmann further testified: Because on December 16, 1985, I submitted North Ridge amended budget complete, conforming and verifiable. T. 244. Similarly, as set forth above, on page 42 of the transcript, Mr. Austin had described the purpose of the waiver and used the phrase "time constraints" in that context. He then was asked what he had meant by "time constraints," and he answered: Well, in terms of getting--once a budget amendment is received and getting approved by the Board, there is 120 days, and based the time that the amendment was received and the time--at that point in time, we were already at February 11th and we were nowhere near recommending any approval or disapproval. So that's why we requested the 120-day waiver notice. T. 43. (E.S.) Moreover, the following testimony confirms that at the meeting on February 11, 1986, Mr. Austin thought that the 120-day period had already started to run: Q. Did you make a statement to anyone that you would send the budget back? A. Yes, I did. Q. What was the circumstance of making that statement? A. That was the circumstances of the hospital not justifying their budget amendment . . . . It had nothing to do with a waiver notice. Q. What did you tell Mr. Wichmann? A. That the hospital's amendment was not justified, and that the fact that the amendment had been in-house since December the 16th, and the mere fact that proper justification had not been received, and in order to avoid time constraints, and in order to allow the hospital to justify the budget, I felt, and my supervisor felt that a waiver notice would be best for both parties involved here. And that is to give the hospital time to submit justification and to allow time constraints on staff's part to avoid the time constraints. T., 638-9. (E.S.) Mr. Borders also believed at the February 11, 1986, meeting that the 120-day period had started to run. He characterized the circumstances surrounding that meeting as follows: Well, we were into February, and the budget had come in December, and we still didn't have enough information in which to evaluate it, and to give him a positive recommendation, which was what he was seeking. At that time, we discussed the 120-day waiver, and what that would do would allow him more time to get us additional information, and also keep us from running out of the -- keep the 120 days from running out on us while the budget was in-house. T. 442. (E.S.) It is true that Mr. Borders also testified that "we" told Mr. Wichmann that: . . . we needed a waiver that would allow us time to evaluate his analysis, and that the 120 days wouldn't start until we received sufficient documentation of his budget. T. 443. (E.S.) One cannot conclude, however, from this testimony that Mr. Borders did not think that the 120-day period had not already started to run by February 11, 1986. First, if Mr. Borders had actually thought that the 120-day period had not already started, he would have had no reason to ask for a "waiver." He simply would have asked for agreement that the period would begin at some future date. Second, the testimony conflicts with what Mr. Borders said on page 442 of the transcript, set forth above. Mr. Wichmann understood from his meeting with Mr. Austin and Mr. Borders that if he did not agree to an alteration of the 120-day period (a "waiver"), the proposed amended budget of North Ridge would be returned to him as if it had never been filed. T 205. Mr. Wichmann heard Mr. Austin tell him this. Id. Mr. Austin testified that he did not connect "waiver" and his statement that the budget would be returned to Mr. Wichmann. T 637. He admitted, however, that he did not tell Mr. Wichmann that he would send the proposed budget amendment back to North Ridge. T. 638. He testified that the statement about sending the budget back was made in connection with the perceived failure of North Ridge as of February 11, 1986, to "justify" its amendment to the Satisfaction of Mr. Austin, and that "in order to allow the hospital to justify the budget, I felt, and my supervisor felt that a waiver notice would be best for both parties Involved here." T. 638. The manner in which Mr. Austin combined the concepts of "justification of the budget, the "waiver notice," and the statement, admittedly made, that the budget would be "sent back" leads to the conclusion that in context, the implication was left with Mr. Wichmann that the budget would have been sent back to Mr. Wichmann if he had not submitted additional information and provided a "waiver notice." Mr. Borders apparently did not understand the Implications of what Mr. Austin said, since Mr. Borders testified that he did not hear it and would have Corrected Mr. Austin if it had been said. T. 441-2. On about March 4, 1986, Mr. Wichmann hand delivered to Mr. Austin NRGH Exhibit 7, which is a letter of the same date from Mr. Wichmann to Mr. Austin conveying additional information concerning case mix. T. 46-7. During the period from February 11, 1986, to March 4, 1986, Mr. Austin was waiting for additional information to justify the increase in case mix, and Mr. Austin characterized the March 4, 1986, letter as "a better narrative trying to support their amendment." T. 47-8. On March 4, 1986, Mr. Wichmann also met with Mr. Austin and spent additional time explaining case mix changes. T. 219. Upon receipt of the case mix information, Mr. Austin again began to review the amended budget. T. 48. On March 10, 1986, North Ridge received another request from the staff of the HCCB for additional information relating to case mix which had previously been provided. Although this information was provided to staff on March 13, 1986, on about March 12, 1986, Mr. Austin told Mr. Wichmann that the information concerning case mix was acceptable. T. 220. On March 5, 1986, Mr. Bracher, Executive Director of the HCCB wrote to Rudy Noriega, Acting Chief Executive Officer of North Ridge. NRGH Exhibit 8. The first two paragraphs of that letter stated: A preliminary review of the first request to amend the 1986 approved budget has been completed for North Ridge General Hospital. It is concluded that the first request to amend is not complete, conforming and verified based or the lack of information discussed below. The 120 day review period cannot begin until additional data is received. (E.S.) The letter does not mention NRGH Exhibit 4, which was dated December 17, 1986, and advised that the amended budget was not complete, conforming, or verifiable due to a lack of worksheet C2A. The March 5, 1986, letter from Mr. Bracher is concerned solely with obtaining "information regarding the hospital's actual experience for this year, and its' [sic] projected revenues for the remainder of the year." NRGH Exhibit 8. (E.S.) The letter is not concerned with case mix information as had been discussed with Mr. Borders and Mr. Austin on February 11, 1986, but, rather, sought entirely new information. Since the letter of March 5, 1986, was aimed at gathering actual historical data from that portion of the 1986 fiscal year which had already elapsed, it included within as item 17 on page 2 a request for the 1986 actual operating experience for "interest expense." On March 13, 1986, Mr. Wichmann responded to the letter of Mr. Bracher of March 5, 1986, and supplied the fiscal year 1986 actual experience data by cost center as requested. NRGH Exhibit 9. On page two of that exhibit Mr. Wichmann provided Mr. Austin with the actual interest expense that had been incurred by North Ridge from September 1, 1985 to December 31, 1985, which was $2,533,311. If one were to assume that the interest expense was to remain the same throughout the fiscal year, the projected interest expense would be 4 times that amount, or $10,133,244. On March 19 and 25, 1986, additional refinements in previously submitted case mix information was discussed between staff and representatives of North Ridge. Additional case mix data was sent by North Ridge to the board on April 7, 1986. Prehearing stipulation. On April 1, 1986, Mr. Pattillo, Chief Financial Analyst for the HCCB, who wrote the letter of December 17, 1985, NRGH Exhibit letter to Mr. Noriega again stating that the amended budget report was "incomplete, nonconforming, or not verifiable," this time a result of the amended budget having been entered into the computer. NRGH Exhibit 10. Mr. Noriega (L was requested to enter changes on the computer printout which needed changing, and to return the signed copy to the HCCB. Id. The information requested by Mr. Pattillo did not concern case mix. On April 7, 1986, Edward F. Kipp, Chief Financial Officer of North Ridge, responded to NRGH Exhibit 10, the letter of April 1, 1986, providing the information that had been requested by Mr. Pattillo. NRGH Exhibit 11. On April 17, 1986, Mr. Wichmann sent a letter to Allen Pearman, deputy director of research for the HCCB, with additional case mix information requested by Mr. Pearman as a result of an earlier meeting with Mr. Wichmann. T. 222-5; NRGH Exhibit 12. On April 23, 1986, Mr. Austin wrote to Don S. Steigman, Chief Executive Officer of North Ridge, requesting that North Ridge complete the attached MDC report and provide certain other information with respect to case mix. NRGH Exhibit 13. Mr. Wichmann responded by sending the information contained in NRGH Exhibit 14, which was received by the HCCB on May 5, 1986, and concerned only case mix information. See also T. 49-50. In the first week of May 1986, the HCCB staff determined, based upon all information submitted by North Ridge, that North Ridge had justified the amended gross revenue per adjusted admission based on the change to case mix. T. 50-1. This occurred upon receipt of information concerning MDC's, T. 51, which is contained in NRGH Exhibit 14. During the first two weeks of May, 1986, Mr. Austin spoke to Terry Richardson about Mr. Austin's concern that interest expense was not appropriate in the amended budget. T. 55. This was the first time that Mr. Austin had considered interest expense as an issue. T. 55. Mr. Austin was in the process of drafting a version of the staff preliminary findings and recommendations during the first two weeks of May, and had written it approving the change to gross revenue per adjusted admission, but was uncertain about the interest expense. T. 56. Mr. Austin sent his draft of preliminary findings and recommendations to Mr. Borders on May 14, 1986, T. 54, and the draft disapproved the amended budget. T. 53. The basis for disapproval was not disapproval of case mix or gross revenue per adjusted admission. T. 56. On about May 9, 1986, Mr. Richardson told Mr. Wichmann that the HCCB staff would recommend approval of the amended budget with respect to the case mix issue. At the same time Mr. Richardson told Mr. Wichmann that staff would be recommending a reduction of the amended budget for all long-term interest expense in excess of the 80th percentile of their hospital group. T. 227. This was the first time that anyone from the HCCB had informed North Ridge that interest expense was a problem. T. 229. Until about May 9, 1986, the only issue had been case mix. Id. During this same conversation, Mr. Richardson made a request to Mr. Wichmann for information concerning interest expense. The request was not made in writing, and the testimony of Mr. Richardson and Mr. Wichmann as to what was requested evidences misunderstanding of what Mr. Richardson may have intended. The problem arises because Mr. Richardson could have asked Mr. Wichmann for information concerning the current actual interest expense of North Ridge, or how the budgeted interest expense was projected, or both. Mr. Richardson's testimony on this point is not clear. He was asked by counsel "what did you ask of Mr. Wichmann" and responded "we asked him how the interest expense for the hospital was calculated." T. 406. It would appear from this answer that Mr. Richardson meant how was the budgeted expense projected, but it also could have meant how was the actual current Interest expense calculated. The matter is further confused by the next question asked. Mr. Richardson was directed to the precise place in the amended budget which contains the budgeted interest expense, and was asked: "Did you ask Mr. Wichmann to submit justification regarding that figure?" (E.S.) T. 406. Justification implies having a basis in fact, and a basis in fact would involve the current actual interest expense. Mr. Richardson replied: "We asked him to submit the method of calculation of that figure for purposes of determining whether it was justifiable." T. 406-7. (E.S.) It must be concluded from Mr. Richardson's testimony that Mr. Richardson intended to ask Mr. Wichmann to justify the projected interest expense in the budget, which would include both the method of calculation of the budgeted figure and the actual current interest expense. It also must be concluded from the above testimony that Mr. Richardson did not clearly communicate his intention to Mr. Wichmann. Mr. Wichmann understood Mr. Richardson's request to be concerned only with substantiation of actual current interest expense. T. 227-8. Mr. Wichmann understood Mr. Richardson to have said that the amended budget would be approved if North Ridge could substantiate the actual current interest expense incurred. Id. Mr. Wichmann did not understand that Mr. Richardson had requested or intended that North Ridge present information concerning how the budgeted interest expense had been calculated. T. 257. In an attempt to comply with this request, Mr. Wichmann contacted Arthur Andersen & Company to have them substantiate what would be North Ridge's actual interest expense, and to show what the interest expense would be based on external forms of financing. T. 231, 256. Had he understood that Mr. Richardson wanted to know how the amended budgeted interest expense had been calculated, Mr. Wichmann would have provided that information. T. 261-2. NRGH Exhibit 15 is the information provided to Mr. Wichmann from Arthur Andersen & Co. in response to Mr. Wichmann's request, and this was submitted to the HCCB on May 19, 1986. T. 231, 57. At the time of delivery of this document, Mr. Wichmann spoke to Mr. Austin and Mr. Borders to explain what he thought Arthur Andersen & Co. had presented. T. 254. Mr. Wichmann also told Mr. Austin that he thought that the interest expense was 10 per cent of the $85 million which had been paid by AMI for the hospital. T. 255-6. Upon review of NRGH Exhibit 15, the HCCB staff concluded that NRGH exhibit 15 " . . . did not in detail justify how the interest expense was calculated." T. 61. (E.S.) The May 14, 1986, draft of preliminary findings and recommendations did not reduce the amended budget due to interest expense, but was simply negative in tone on this issue. T. 63. That draft did not go any further than Mr. Borders. Id. On May 23, 1986, Mr. Austin told Mr. Wichmann that the interest expense had not been substantiated and that staff intended to recommend that the amended budget be reduced due to the interest expense. T. 232. This recommendation was put into written form as preliminary findings and recommendations and sent by Mr. Austin to Mr. Borders and Mr. Bracher, Executive Director, recommending that the interest expense in the amended budget of North Ridge be reduced back to the group 80th percentile level. T. 64-5, 233. This recommendation was disapproved, however, by Mr. Bracher, and Mr. Bracher directed that the reduction focus upon the operating margin of North Ridge. T. 65-6, 233-5. Mr. Bracher disapproved the preliminary findings and recommendations on Thursday, May 28, 1986, and the disapproved document was received by Mr. Borders and Mr. Austin on Friday, May 29, 1986. T. 67-8. Mr. Austin then told Mr. Wichmann that the basis for the recommendation of staff to reduce the amended budget of North Ridge was not interest expense, but was operating margin. T. 69, 236. He also told Mr. Wichmann that staff approved the case mix change. Id. Mr. Austin then prepared another version of the preliminary findings and recommendations and sent that forward for staff review. T70. This document was ultimately approved by Mr. Bracher and became the final staff version of the staff preliminary findings and recommendations which is NRGH Exhibit 1, T. 71, and is dated June 12, 1986. It was received by Mr. Wichmann the next day. T. 236-7. As of the date of this recommended order, there has been no final order of the Hospital Cost Containment Board approving or disapproving the proposed amended budget of North Ridge. In view of the foregoing findings of fact and the conclusions of law which follow, findings of fact concerning the substantive issues in this case pertaining to the proposed amended budget are not necessary. However, since the budget review process is necessarily compressed into such a short period of time, the following findings of fact will nonetheless be made for the record. The following facts are part of the prehearing stipulation: North Ridge has submitted sufficient justification of a change in case mix to establish that the hospital's requested GRAA of $7,569 appears to be reasonable and justified considering the noted change in North Ridge's cardiac patients. As a result, the Hospital has met its burden of proof regarding case mix. The statewide average operating margin for proprietary hospitals in Florida, based upon 1984 actual data, is 13.3 percent. The operating margin requested by North Ridge in its FY 1986 amended budget after application of the base year adjustment is 4.5 percent. The State of Florida has not obtained a waiver allowing state regulation of Medicare and Medicaid revenues. The Hospital Cost Containment Board does not at the current time have a definition for "reasonable rate of return." North Ridge General Hospital's original FY 1986 budget was approved by the Board for gross revenue per adjusted admission (GRAA) of $7,122. T. 42, 452. The original budget was criticized by staff with respect to four issues, but the amended budget was not criticized by staff on these issues, T. 348-9 After approval of the FY 1986 budget, North Ridge filed its corrected FY 1986 budget. T. 453. The corrected budget conformed the budget to all reductions made in the approved budget, including the base year adjustment. T. 452-3. As previously found as fact, the proposed amended budget requested a GRAA of $7,569. It also requested a net revenue per adjusted admission (NRRA) of $5,684. T. 272-3. Interest expense was not a basis for recommendation of reduction of the proposed amended budget in the preliminary findings and recommendations issued by the HCCB staff on June 13,1986. See findings of fact 43; T. 472. It is not reasonable or proper to calculate interest expense on capital. Interest expense must be calculated on debt. T. 528. North Ridge asserts that the interest expense is reasonable because it was a result of the purchase of the hospital by American Medical International, Inc. North Ridge asserts that there is no equity in the budgeted debt. T. 147. If it was a reasonable projection of debt expense, then the amount of $8.5 million interest expense would be reasonable based on 10 percent interest. T. 546. The intercompany interest rate of American Medical International, Inc., which is the rate AMI charges its affiliates for the cost of capital, is 10 percent. T. 148, 150. North Ridge actually calculated its projected interest expense for its proposed amended budget using the 10 percent rate and a debt amount asserted to be $84,977,800. Citizens Ex. 5. The debt amount is asserted to consist of $28,840,800, a mortgage assumed from a commercial bank, $36,750,000, a note issued to the former owner of North Ridge, $17,037,000, an amount due for redemption of preferred stock, and $2,350,000, an amount associated within the company for "domestic development," which was labeled legal, accounting, and related company acquisition costs. Citizens Ex. 5; NRGH Ex. 15. All of these items were associated with the acquisition of North Ridge by AMI. If all of these were legitimate projections of debt when the proposed amended budget was prepared, and do not contain equity, then the budgeted interest expense of $8.5 million is reasonable pursuant to the testimony of Pace Allen, T. 546, and John Hutchins, T. 151-2. The analysis of the reasonableness of the budgeted interest expense performed by Mr. Hutchins, NRGH Ex. 15, is based upon debt information available September 2, 1985, the beginning of the fiscal year for 1986. T. 147; NRGH Ex. 15. The note payable, in the amount of $36,750,000, had no stated interest rate, and was to be paid off on February 28, 1986, by North Ridge or by AMI on behalf of North Ridge. T. 148, 181. It was refinanced on February 28, 1986, by A-I and reflected in the "intercompany financing account" of North Ridge. NRGH 15, p. 2; T. 572. Mr. Hutchins imputed a reasonable rate of interest to the note. T. 148. The preferred stock was redeemed prior to June 30, 1986. T. 572. It had a mandatory redemption date of June 26, 1986, and a mandatory redemption amount of $17,888,550. T. 148; NRGH Ex. 15, p. 2. The unaudited balance sheet for North Ridge for the period ending June 30, 1986, showed only $28,135,803 as long term debt, Citizens Ex. 6, because the note and preferred stock were paid or redeemed prior to June 30,1986. T. 572. The June 30, 1986, balance sheet of North Ridge contains an item "intercompany accounting" under capital. North Ridge put on no evidence to show that this term should be considered to be debt, or that it was carried as capital on this balance sheet by mistake. The item usually is carried above capital. T. 556. At 10 percent interest, the interest on the item shown as long term debt, $28,135,803, would be $2,013,503. T. 529. For the period ending June 30, 1986, the unaudited statement of income and expenses of North Ridge showed $6,673,686 as "cost of capital." Citizens Ex. 7. This figure could include any number of things, including the cost of floating bonds or interest. T. 534. If it was all interest expense, extrapolated for the full fiscal year, the interest expense would be about $8,000,000. Id. There is no evidence in the record to show what the "cost of capital" item is in fact. The interest expense in the approved 1986 budget was about $41,000. T. 440-1. None of the three methods used in NRGH Ex. 15, prepared by Arthur Andersen & Co., were used by North Ridge to calculate projected interest expense for the proposed amended budget. T. 180; Citizens Ex. 5. North Ridge did not present evidence to explain the amount of $2,350,000 shown on Citizens Ex. 5 for "domestic development." T. 176 The proposed interest expense of $8.5 million is about twice that of the amount of the 80th percenti1e for hospitals in North Ridge's group. T. 115. The interest expense could be less by $4,100,000 to equal the 80th percentile. Citizens Ex. 2. The percentile is calculated by comparing interest expense to total operating expense. HCCB Ex. 1. At the 50th percentile, the interest expense of North Ridge would be $2,286,909. Id. North Ridge has failed to justify the reasonableness of the interest expense that it projected in its proposed amended budget filed December 16, 1985. Mr. Hutchins, for Arthur Andersen & Co., testified as an expert, but his report disclaims any opinion as to the "elements" of his report, which include the propriety of treating the various amounts as proper projected debt at the time the proposed amended budget was filed. NRGH Ex. 15. The disclaimer is due to the fact that Mr. Hutchins did not do an examination in accordance with generally accepted auditing principles. Id. North Ridge put on no direct testimony or evidence to show to whom the $36.7 million note was payable, why it bore no interest, when it was due, and who paid it off. It would appear from the fact that it was completely paid on February 28, 1986, by "refinancing" and thereafter was reflected in the "intercompany financing account," see finding of fact 56 above, it would appear that AMI paid it off in cash. This action should have been foreseen when the proposed amended budget was prepared in December 1985. There is no evidence when the preferred stock was redeemed. Page 2 of the Arthur Andersen & Co. report states that management intended to refinance the obligation to redeem the preferred stock, but this statement is hearsay and is not further explained by direct evidence as to when the refinancing would occur. It might not have occurred until June 26, 1986. There is no evidence to explain why the preferred stock caused an interest expense prior to redemption. Further, North Ridge did not attempt to explain the "cost of Capital" item on Citizens Ex. 7, despite the testimony that this item did not necessarily contain interest expense. Nor did North Ridge credibly prove that it was proper to project an interest expense on the $2,350,000 it labeled "domestic development." In the absence of credible expert opinion as to the factual basis of all these "elements" and absent direct evidence from North Ridge, other than hearsay contained in NRGH Ex. 15, a finding of fact cannot be made that these were reasonable projections of reasonably ascertainable amounts of interest expense as of the time the proposed amended budget was prepared. Since the debt to an outside bank in the amount of about $28 million is still shown by implication as long term debt as of June 30, 1986, and since 10 percent interest is a reasonable rate of interest, the proper interest rate for the proposed amended budget of North Ridge should be at least $2,013,503, which is quite close to the 50th percentile for its group. Staff of the HCCB and the Public Counsel propose that the interest rate be reduced to the 80th percentile of the group by subtraction of $4,100,000 from allowed interest. Citizens Exhibit 2. This in effect acknowledges $4,400,000 as proper interest expense in the amended budget. Given the possibility that some interest was paid prior to redemption of the preferred stock and payment of the note, see finding of fact 28, and upon consideration of there commendations of staff, it is concluded that reduction of the interest expense by $4,100,000 would be reasonable. Operating margin is the difference between a hospital's operating expenses and its net operating revenues, divided by net operating revenues to obtain a percentage. T. 77. The statewide operating margin for proprietary hospitals in Florida based on 1984 actual data is 13.3 percent. See finding of fact 47. As requested in its amended budget after application of the base year adjustment, the operating margin of North Ridge is projected for FY 1986 to be 4.5 percent. Id. The operating margin is 7.4 percent without the base year adjustment. T.273. The operating margin in the 1986 approved budget was 1.5 percent. T. 286. A proposed increase in operating margin can be analyzed for reasonableness by comparison to the statewide average for like hospitals and by comparison to the previous operating margin for the hospital concerned. T. 116- In most cases in the past, the HCCB had made the comparison only to the statewide average. T. 329. Compared only to the statewide average of 13.3 percent for proprietary hospitals, the proposed operating margin of 4.5 percent is very reasonable. Comparison of the proposed increase in operating margin to the prior operating margin in the hospital's budget is an appropriate comparison, but some care must be taken when the Initial operating margin approaches zero. It is misleading to use the "percentage of the increase" method in this circumstance since an increase, as here, from 1.5 percent to 4.5 percent, is mathematically an increase of 200 percent when compared to the original amount, but really is quite small, only 3 percent. T. 328-9. Staff of the HCCB did not consider the statewide operating margin average to be a relevant basis for comparison for an amended budget, T. 118, add did not do so in this case. T. 121. Staff asserted that the foregoing is a policy of the HCCB in reviewing amendments to budgets. T. 120. The policy is not contained in a rule or statute. T. 120. There is no specific evidence in the record to justify the policy. The policy is reasonable on its face an initial means to identify the nature of increases proposed in a budget amendment, but it is facially unreasonable to stop at that point and not analyze the basis for increases. A hospital should not be barred from correcting errors in their budgets. A primary reason that the projected operating margin of North Ridge is only 4.5 percent is due to the interest expense of $8.5 million. If the interest expense projected were at the group 50th percentile, the operating margin would be 12.8 percent. HCCB Ex. 1; T. 98. This interest expense would be $2,286,909, which is substantially the same as the interest expense of $2,013,503 for the commercial mortgage loan. It should be noted that the operating margin of 4.5 percent and 12.6 percent both contain the base year adjustment T. 98-9; finding of fact 47. As discussed above, North Ridge has not proved by credible evidence that as of the time of preparing the proposed amended budget, there was a basis for expecting that an interest expense of $8.5 million would actually be incurred for the entire year. Clearly it was known that the preferred stock was to be redeemed by June 1986 and the $37 million note was to be completely paid by the end of February, 1986. If, thereafter, North Ridge's interest expense is merely a payment of interest to American Medical International, which owns North Ridge, this is a payment on capital, and should not be deducted from operating revenue as an operating expense to calculate operating margin. T. 536-7. There really is no clear evidence in this record to prove conclusively that North Ridge has been paying AMI interest at about a 10 percent rate, but it appears that some sort of inter- company transaction of this sort is occurring. T. 294. Thus, for the portion of the year that such interest was paid to AMI rather than to an outside entity, those amounts (whatever they may be) should not be considered to be a deduction from operating revenue to calculate operating margin. There is evidence concerning other factors that could be used to justify an increase in operating margin. Of these, the only one applicable is the need to purchase capital equipment. Operating margin is a source of funds for capital equipment. T. 284. North Ridge's approved 1986 budget and the amended budget contain the same equipment expenditure projections. T. 288-9. The operating margin in the approved budget was 1.5 percent. T. 286. This margin was not felt to be sufficient by Mr. Wichmann to purchase the capital equipment planned in the approved budget. T. 286, 289. The increase in case mix may be a reason for needing more capital in the amended budget, and thus a greater operating margin, but the record is not clear on this point. T 287. Increased services would require a greater operating margin if increased capital was associated with the increased services. T. 287. An insufficiency of supplies would be a reason to increase operating margin. T287. There is no evidence that North Ridge's supplies are inadequate. T 287. The amended budget does not project a higher level of services for the service index than did the 1986 approved budget. T. 525. In the short run, deferred income taxes could be used as a source of funds, as could depreciation, T. 289-90, and these funds could be used to purchase capital equipment. T. 524. Staff of the HCCB currently uses an incipient and evolving policy to require that benefits that a hospital may receive from a reduction in Medicare contractual allowances, which results in Increased revenues from the federal government, be passed on to non-Medicare patients by "netting out" these benefits against any increase proposed by the hospital in its budget or amended budget. T 416. The policy was first mentioned in March at the Board meeting to Venice Hospital T. 413-7, 582. The policy was not "applied" except as a basis for a critical public comment. The hospital's proposed amendment did not propose a change in gross revenue. T, 414. The reduction in the contractual adjustment referred to in the testimony is the difference between the Medicare contractual adjustment in the 1986 original budget and the proposed budget amendment. A Medicare contractual adjustment is the amount of shortfall in Medicare reimbursement which is written off by the Hospital. The amount of reduction in contractual adjustment in this case is $3,152,818. T. 80. The proposed amendment to the 1986 budget also has $171,203 of additional revenue over costs to private payors compared to the approved 1986 budget. T. 79-80. The sum of these two amounts, which is $3,324,021, ultimately has a positive effect on operating margin. T. 490. Staff of the HCCB recommends that the $3,324,021 be passed on as a benefit to private paying patients by a reduction in net revenues and gross revenues. T. 79-17; Citizens Ex. 2. The amount of $3,324,021 discussed in the last paragraph is exactly the difference between the operating margin in the 1986 approved budget (corrected) and the proposed amended budget. T. 492, 455. The Medicare contractual adjustment of $3,152,818 was caused by an increase in the hospital's case mix, T. 312-3, and the Medicare prospective payment system of reimbursement for Medicare patients has impacted both case mix and contractual adjustment. Id. Under the perspective payment system, it is the policy of the federal government that a hospital may keep the excess of reimbursement if more than costs, but the hospital is at risk if costs exceed the payment. T. 321-2. Medicare pays a flat amount per case, and cases are weighted for determining the amount of payment into types called diagnostic related groups, or DRG's. T. 315. The percentage of fixed payment patients at North Ridge is 73.3 percent. T. 170. The percentage of Medicare patients days is 67.1 percent. NRGH Ex. 1. The State of Florida, has not obtained a waiver allowing state regulation of Medicare and Medicaid revenues. Prehearing Stipulation. A hospital could reduce its net revenues by the amount of the contractual adjustment by giving that amount away, T. 167, or by some combination of actions which amounts to the same thing: lowering rates for private payment patients and performing more indigent care. See T. 387. The testimony that a hospital has no method to do this is rejected. See T. 167. It would appear that North Ridge has 26.7 percent of its patients days that are not Medicare patient days that could be involved in the lowering or waiving of charges. See finding of fact 94. The corrected budget as approved by the HCCB for FY 1986 contains a base year adjustment of $1,662,632, and the proposed amended budget does not. T. 484, 314. There is no clear or competent evidence as to precisely how the corrected budget distributed the base year adjustment, but since the adjustment is a result of statute and only effects net revenues, it ultimately must reduce net revenues by this amount. T. 386. Lawrence R. Murray testified for North Ridge as an expert in hospital finance and accounting and third-party reimbursement matters including Medicare and Medicaid. T. 301. Mr. Murray argued that the similarity between the dollar amounts relating to the contractual adjustment (about $3 million) and the differences between the operating margin in the corrected budget and the proposed amended budget (see findings of facts 79 and 80) meant that the contractual adjustment recommendations of the staff of the HCCB were really recommendations to reduce the operating margin of North Ridge by that amount. T. 596-7. He then reasoned that the operating margin in the corrected budget already had the base year adjustment made but the proposed amended budget did not, and this was partially the cause of the increase in operating margin. He concluded that if the operating margin of North Ridge should be reduced by the amount of the contractual adjustments, then the amount of the reduction should be reduced by first subtracting the base year adjustment. Id. The problem with the argument is that the reduction recommended by the staff of about $3 million is premised upon this amount being a change entirely in contractual adjustments, not a change in operating margin. Since admittedly the proposed amended budget has not had the base year adjustment made, that adjustment has to be made at some time, and it is proper to do it as shown on Citizens Ex. 2. The similarity between the contractual adjustment figure and the difference in operating margins appears to be caused by the fact that operating revenues rose by $1.6 million (to $72.6 million from the corrected budget revenues of $71 million) and this amount is the amount of the base year adjustment. T. 453-4. The difference in revenues less deductions between the corrected budget (with the base year adjustment) and the proposed amended budget (without the base year adjustment) is $4.6 million. Id. The corrected budget with the base year adjustment had gross revenues of $71 million and deductions of $51 million, and the proposed amended budget had gross revenues of $72.6 million and deductions of $15 million. Cost shifting is the shifting of a cost from one payor to another who presumably did not incur the cost. As such, it results in higher costs to the payor to whom the cost is shifted. The contractual adjustment in the instant case is the result in an increase in reimbursement of costs which results in higher net revenues for Medicare patients. T. 187. A requirement to lower revenues for private payment patients in the same amount results in a lower cost to these patients, and thus is the opposite in effect of cost shifting as defined above. T. 536. In its preliminary findings and recommendations, staff applied a methodology to calculate how a predetermined reduction in gross revenue would be applied to net revenue. NRGH Exhibit 1; T. 82. This methodology uses a fixed percentage based upon the amended budget ratio of net to gross revenues. Id. There is a conflict in the record as to whether staff of the HCCB purposes to apply this method to North Ridge, although it appears from representations of counsel as well as proposed finding of fact 27 that staff clearly proposes not to apply this method to North Ridge. T. 17,425-6. The fixed percentage method of calculating from gross to net revenues does not properly consider payor mix and should not be used in this case because it is inaccurate. T. 169-70. Administrative, courtesy and policy discounts include discounts to clergymen, physicians, employees, and employee dependents, and discounts to health maintenance organizations and preferred provider organizations. T. 179. About 1.8 percent of total patient days are represented by these discounts. NRGH Exhibit 16. Indigent and charity care represents the amount of revenue that is written off by a hospital to indigent care. T. 179. About 4.4 percent of total patient days are represented by indigent care. NRGH Exhibit 16. About 67.1 percent of total patient days of North Ridge come from Medicare. NRGH Exhibit 16. North Ridge thus has about 73.3 percent of its patients as fixed payment patients. T. 170; NRGH Exhibit 16. If the Contractual adjustment net revenues are to be shifted as a benefit to non-fixed payment patients, the percentage of those patients so benefiting is 26.7 percent. If there is to be a reduction in net revenues due to the contractual adjustment issue, the total amount of the reduction would be $3,324,021, which is a reduction of $344 per adjusted admission for net revenues. Citizens Exhibit 2. The proper method of converting a net revenues reduction for contractual adjustments to a gross revenue figure, using the fixed payment patients percentage, is found on Citizens Exhibit 2. T. 513. This exhibit correctly projects admissions using actual admissions projected for the year. T. 515. However, the percentage to be used should be 73.3 percent fixed payment patients. This method accurately takes into account the fixed price payor mix by calculating the GRAA reduction from the NRAA reduction by dividing the percentage of non-Medicare and Medicaid patient days by total patient days. Thus, the reduction in NPAA as shown on Citizens Exhibit 2 of $344 is correct if there is to be a reduction for contractual adjustments, but the reduction in GRAA should be $1288, which is $344 divided by 26.7 percent. T. 190. Citizens Exhibit 2 blends the proposed amended budget with actual experience for the fiscal year. T. 514. It is not a new policy to do this. T. 542. The policy is also contained in a proposed rule 27J-1.0205(3), which was officially recognized, and is made Hearing Officer's Exhibit 1. The proposed rule does not prohibit blending in this case. There was no explicit evidence offered to substantiate the reasonableness of this policy, but the policy is facially reasonable given the obvious fact that a projected budget, including an amendment in midyear, should be based on the most recent historical data for making the projection Mr. Murray's testimony did not demonstrate that the policy is unreasonable. Moreover, none of the hospital budgets mentioned by Mr. Murray involved a reduction in contractual adjustment for Medicare. T. 641. 102. Pace Allen testified as an expert in hospital accounting and finance. T. 505. Mr. Allen's testimony with respect to Citizens Exhibits 1 and 2 was concerned primarily with calculation methods. Mr. Allen did not perform an independent analysis of the reasonableness of North Ridge's proposed amended budget, T. 540, and did not compare interest expense to other hospitals. T. 544. Mr. Allen had not express an opinion as to what the final GRAA and NRRA should be. T. 560. Citizens Exhibit 2, however, shows as a result a GRAA of $6224 which was verified by Mr. Murray. T. 625. It appears that the GRAA at the 50th percentile for North Ridge's group is $6422. NRGH Ex. 1. A GPAA of $6224 is less than the approved budget for 1986 of North Ridge. There is no rule to provide standards for determining the justification and extent to which a decrease in contractual adjustments for Medicare should be passed on to non-Medicare patients by decreasing gross revenue per adjusted admission. Further, in the case at bar, the HCCB has not presented evidence to justify the application of the policy in the case at bar. While it is true that application of the policy will lower the operating margin of North Ridge to about 6 percent, there is no explanation in the record why that is the correct figure for North Ridge. It cannot be assumed to be the correct figure since the statewide average operating margin for proprietary hospitals is 13.3 percent. It is true that there is some evidence that North Ridge does not need an increase in operating margin for capital needs associated with case mix change, or to purchase supplies, or to provide new services. There is also some evidence that North Ridge may need an increased operating margin for capital equipment. But the evidence on the whole is insufficient to determine whether this means windfall profits to North Ridge or simply an Increase of reimbursement that is in whole or in part reasonably necessary to reimburse actual costs for services.
Recommendation Based upon the foregoing, it is recommended that the Hospital Cost Containment Board enter its Final Order confirming that the proposed amended budget of North Ridge General Hospital for fiscal year 1986 has been approved in its entirety by operation of law. DONE and ORDERED this 25th day of August, 1986, in Tallahassee, Florida. WILLIAM C. SHERRILL, JR. 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 25th day of August, 1986. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-2412H Pursuant to section 120.159(2), Fla. Stat. (1985) the following are specific rulings upon all proposed findings of fact submitted by the parties which have been rejected in this recommended order, using the same numbers used by the parties. Findings of fact proposed by the Petitioner: The finding is not necessary. The finding is not necessary. The finding is not necessary. The finding is a matter of law. The finding is not necessary. 9. The second sentence is a matter of law. It is not clear whether staff considers the 25 day--period to start with receipt of the budget or substantive review. The first sentence is thus rejected. The finding is a matter of law. 21. The last clause of the sentence is irrelevant. 25. The second sentence is irrelevant. 36. This finding is rejected because the exhibit did not explain the basis of the interest expense as found in the findings of fact. This finding is irrelevant. This finding is irrelevant. 56. The last sentence is a matter of law. The first sentence is a matter of law, as is the second sentence. This finding is irrelevant since Petitioner admits there was a valid partial waiver. This finding is legally incorrect since the amended budget would be complete, conforming, and verifiable on the 40th day from receipt, absent a valid notice within the 40 day period to the contrary which remained uncorrected. Irrelevant. Irrelevant. Rejected as explained in detail in the findings of fact. Rejected in detail in the findings of fact. While it is true that interest expense is a fixed cost, the failure of North Ridge to explain the expense makes this finding irrelevant. Irrelevant. Rejected as stated in the findings of fact for lack of evidence. The first sentence is rejected since Arthur Andersen & Co. only "obtained information," and the basis was uncorroborated hearsay. T. 147. The last sentence is rejected for lack of supporting evidence. Rejected because not supported by competent evidence. 91. The last sentence is not relevant since a policy may properly be applied the first time in this ease. 92-100. No ruling has been made upon these proposed findings of fact since the recommended orders relies upon other issues, making these findings unnecessary. 105. The second sentence is rejected in finding 85. 107. The second sentence is rejected as a matter of law, not fact. 111. Rejected in finding of fact 88. The third and fourth sentences are rejected as being irrelevant. There was no proof of this policy or any reliance on it by the Board, and thus this is irrelevant. 116. Irrelevant. Rejected as not supported by persuasive evidence. Rejected with respect to interest expense. No ruling was made with respect to contractual adjustments or operating margin. Findings of fact proposed by the Respondent: 2. The lack of worksheet C2A has been found as a fact, but there is no evidence in the record to find as fact that the amendment "could not be properly analyzed" without additional information. Staff could have analyzed what they had and recommended disapproval based on what they had. 4. There is no evidence in the record that there was a "paucity of supporting documentation." It is true that Mr. Austin and others felt they needed more information to give a favorable recommendation. The last phrase of the second sentence is rejected since it implies that something other than case mix information was discussed at the February 11, 1986, meeting. The evidence is not sufficient to make that finding. The last phrase of the second sentence is rejected since the evidence does not show that the "waiver" was discussed in the context of allowing staff time to analyze the amendment. 9. The last sentence is rejected since the evidence does not show that staff asked Mr. Wichmann at the February 11, 1986, meeting to supply any information except case mix. The last phrase of the second sentence is rejected because the evidence does not show that the "waiver" was discussed in the context of allowing staff time to evaluate the amendment. The fifth sentence is rejected because there is no evidence that the purpose of the "waiver" was clearly discussed with Mr. Wichmann, at least in terms of how the "waiver" would operate. There is no credible evidence that Mr. Wichmann was told that "the 120 days would not start until sufficient documentation was received by the Board." The last sentence is rejected because Mr. Wichmann only testified that he did not remember much about the discussion concerning "waiver" except that the budget would be returned to him. The second and third sentences have been partially rejected since what Mr. Austin did tell Mr. Wichmann could reasonably have been interpreted by Mr. Wichmann as saying that without the waiver and the new information, the budget would be returned. The ultimate conclusion of this proposed finding is rejected because not supported by the weight of credible evidence. As discussed in the findings of fact, neither Mr. Austin nor Mr. Borders clearly or credibly testified that it was clearly understood by Mr. Wichmann that his "waiver" letter was intended to erase the first 58 days of the 120-day period which had elapsed. Moreover, neither Mr. Austin nor Mr. Borders clearly testified that they understood the "waiver" to include time for them to evaluate the new information concerning case mix. But more important, Mr. Wichmann's letter clearly did not grant time to evaluate. The period would start running again as of the date of receipt of the information once "satisfaction" had been achieved. Regardless of what Mr. Austin or Mr. Borders wanted, they got only what the letter says. Finally, with regard to specific proposed findings in this paragraph, Mr. Wichmann did not testify that he did not know the "ordinary" meaning of the word waiver. He was not asked that. It is unclear from the question whether the legal meaning, which was clearly at issue at the time of the question, or the ordinary" meaning, was meant by the question. The failure of Mr. Wichmann, Mr. Austin, and Mr. Borders to clarify what was desired and what was intended by the letter of February 13, 1986, is perhaps true, and if pursued as a finding of fact, could result in a finding that there was never a meeting of the minds, and hence, no waiver at all. This finding, however, is rejected, by findings of fact 12-23. Reading the Health Care Access Act is irrelevant since the statute does not define "waiver" or "extension," and Mr. Wichmann admittedly had no advice from a lawyer when he wrote his letter. Finally, the failure of Mr. Wichmann to explain the contents of his letter to the staff of the HCCB is wholly irrelevant. He ended the letter with the sentence "If this is not correct, please notify me immediately." The burden of clarifying ambiguities in the letter was on the staff of the HCCB, not Mr. Wichmann. The fifth and sixth sentences are rejected because Mr. Wichmann did not repudiate his letter, and the meaning of his letter has previously been discussed and found as fact. The eighth and ninth sentences are irrelevant. The rules of the HCCB do not prohibit submission of additional information after a budget is "filed," and it would be completely unreasonable to preclude a continuing exchange of information in an effort to resolve budget issues in free form action without the necessity of a formal administrative hearing. Moreover, the power of staff, pursuant to rule 4D-1.014, to ask for more information, as previously discussed above, has nothing to do with whether a budget has been "filed" so as to commence the 120-day period. The Legislature surely did not intend that the 12-day period be postponed indefinitely by staff through unending requests for information. The eleventh through fourteenth sentences are rejected as matters of law. The first sentence is rejected in the conclusions of law. See the last sentence of the immediately preceding paragraph also. The last sentence is also rejected for the reasons stated in the conclusions of law, paragraph 33. The facts proposed in this paragraph are irrelevant. Mr. Wichmann failed to submit information concerning the original budget compared to the amended budget, staff should have immediately recommended disapproval of the North Ridge amendment, thus allowing enough time for a section 120.57(1) hearing and a final order by the Board. Moreover, staff already had the original budget in its files, so it is unclear what Mr. Wichmann's asserted "failure" was. Finally, case mix was the central focus, and case mix was in fact approved by staff. There is insufficient evidence to conclude that Mr. Wichmann's attempt to "disassociate the budget amendment request from the original budget submission" had anything to do with the issues in this case, if it occurred at all. This finding is rejected because it is irrelevant. The second sentence is an issue of law. The second sentence is an issue of law. The sixth sentence through the end are irrelevant. 28. The last two sentences are rejected because contrary to the evidence. 35. Irrelevant. Findings of fact proposed by the Intervenor: 8. It is unclear from the testimony whether the 25 day goal is commenced by the filing of the budget or the day when substantive review begins, and therefore the finding as stated categorically is rejected. This finding is irrelevant, although it is true and provides background information. The phone call was not in writing and was not within the 40 days from receipt of the budget amendment by the HCCB. This finding is also irrelevant for the reasons stated in the last paragraph. 29. This finding is rejected for the reasons stated in finding of fact 12, and also 11, 17, and 18. The portion of this proposed finding concerning "time to analyze further justification and further evaluate the requested amended budget" is rejected in findings of fact 17-20. This proposed finding is rejected in finding of fact 22. This proposed finding is essentially rejected in finding of fact 23. 40. The second sentence is rejected because the question did not use the word "ordinary" and Mr. Wichmann could easily have thought counsel meant some legal definition. 55. This proposed finding is essentially rejected in findings of fact 37 and 38. 64. Irrelevant. 72-78. Rejected because cumulative. The ultimate finding is accepted and adopted. 79. The last two sentences are rejected as hearsay. 82-84, 88-91. Irrelevant and cumulative. 108. Rejected because the evidence is not sufficient. 122-123. Rejected in favor of the percentages found from other evidence in the record. 124. Cumulative and unnecessary. 128 The amount of GRAA proposed cannot be found for lack of supporting calculations or facts in the record. Irrelevant. Irrelevant since this legal issue has not been reached in this order. Rejected as an issue of law. Rejected as specified in detail in the findings of fact. Rejected as specified in detail in the findings of fact. COPIES FURNISHED: Curtis Ashley Billingsley, Esquire Hospital Cost Containment Board Woodcrest Office Plaza, Building L, Suite 101 325 John Knox Road Tallahassee, Florida 32303 Ralph Haben, Jr., Esquire Steven T. Mindlin, Esquire 306 N. Monroe Street Tallahassee, Florida 32301 Jack Shreve, Public Counsel John Knight, Esquire Office of Public Counsel 202 Blount Street 624 Fuller Warren Building Tallahassee, Florida 32301 James Bracher, Secretary Executive Director Hospital Cost Containment Board Woodcrest Office Plaza 325 John Knox Road Tallahassee, Florida 32303
