Findings Of Fact Cilla McCray, is a resident of Gadsden County. The parties have stipulated that on December 3, 1977, she was admitted to the Tallahassee Memorial Hospital in an emergency medical condition, and that the treatment performed by the hospital was of an emergency nature. The parties have further stipulated that the Tallahassee Memorial Hospital is a regional referral hospital within the meaning of Section 154.304(4) , Florida Statutes (1977). Cilla McCray was admitted to the Tallahassee Memorial Hospital on December 3, 1977, and was discharged on January 9, 1978. The total bill for her services amounted to $8,753.80. The Hospital submitted a bill to Gadsden County in the amount of $1,521.48 for the services. This latter amount is the maximum allowed to be billed in accordance with the Florida Health Care Responsibility Act. Gadsden County has refused to pay the bill, contending that the patient was not indigent. The patient has not paid the bill. Cilla McCray is married to Lawrence McCray. They have three children but only two of them reside at home. The oldest child is not supported by his parents. During the six months preceding the hospitalization of Cilla McCray her husband had average earnings of $80.00 per week as a logger. Mrs. McCray had earned a total of $732.60 for employment during the six months prior to her hospitalization. The McCray's thus had average monthly earnings during that period in excess of $450.00 per month.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED: That a final order be entered rejecting the bill submitted by the Tallahassee Memorial Hospital for medical services performed for Cilla McCray. RECOMMENDED this 16th day of June, 1978, in Tallahassee, Florida. G. STEVEN PFEIFFER, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: John Shaw Curry, Esquire Post Office Box 706 Quincy, Florida 32351 John D. Buchanan, Jr., Esquire Post Office Drawer 1049 Tallahassee, Florida 32302 Chairman Board of County Commissioners Gadsden County Courthouse Quincy, Florida
The Issue Whether Florida Hospital Medical Center is entitled to reimbursement in the amount preliminarily determined by the Department of Financial Services, Division of Workers’ Compensation, in a reimbursement dispute regarding bills submitted by Florida Hospital Medical Center to Macy’s Claims Services and Amerisure Mutual Insurance Company for medical services provided to two individuals involved in work-related accidents; and Whether Macy’s Claims Services and Amerisure Mutual Insurance Company properly adjusted those bills of Florida Hospital Medical Center in accordance with the requirements of Florida’s Workers’ Compensation law and applicable rules.
Findings Of Fact Florida Hospital is a full-service, not-for-profit hospital system located in Orlando, Florida, that operates a smaller satellite hospital in Winter Park, Florida. Florida Hospital is a “health care provider” within the meaning of Section 440.13(1)(h), Florida Statutes. Macy’s and Amerisure are “carriers” within the meaning of Sections 440.02(4) and 440.02(38), Florida Statutes. The Department has exclusive jurisdiction to resolve disputes between carriers and health care providers regarding payments for services rendered to injured workers, pursuant to Sections 440.13(7) and 440.13(11)(c), Florida Statutes. Qmedtrix is a medical bill review company.3/ Case No. 09-6871 R. P., an employee of Macy’s, slipped and fell at work on May 20, 2009, and presented to Florida Hospital Winter Park for evaluation and treatment where medical personnel documented vomiting, brain attack, and brain trauma. After evaluation and treatment, patient R. P. was diagnosed with a bruise to the head and released the same day. On September 16, 2009, Florida Hospital submitted its bill for services provided to R. P. totaling $5,547.20 to Macy’s for payment, utilizing Form DFS-F5-DWC-90, also known as UB-04 CMS-1450, identifying the charges billed for each line item by revenue code and HCPS or CPT codes. Macy’s forwarded the bill to its workers’ compensation medical bill review agent, Qmedtrix. Qmedtrix reviewed the bill by comparing the procedure codes and diagnosis codes reported by Florida Hospital with examples in the CPT book for billing of emergency department services. Florida Hospital reported ICD diagnosis code 920, which reads “contusion of face, scalp, or neck.” Use of this code means R. P. presented with a bruise or hematoma, but not a concussion. Florida Hospital also reported ICD diagnosis code 959.01 (“head injury, unspecified”) which also means that R. P. did not present with a concussion, loss of consciousness, or intracranial injuries. Florida Hospital’s bill included a charge of $2,417 with CPT code 99285 for emergency department services. The bill also included separate charges for a head CT, and various lab tests, drugs, and IV solutions. According to Mr. von Sydow, the bill was sent through Qmedtrix’s computer program for review, and was flagged for review by a physician. Mr. von Sydow further testified that one of Qmedtrix’s medical director’s suggested that the CPT code of 99285 be reduced. The medical director, who Mr. von Sydow said reviewed the bill, however, did not testify and no documentation of his recommendation was submitted at the final hearing. Qmedtrix determined that Florida Hospital should have used CPT code 99284 when billing for the emergency services rendered instead of CPT code 99285. Qmedtrix found that, while the hospital billed $2,417 with CPT code 99285, its usual charge for an emergency department visit billed with CPT code 99284 is $1,354. Macy’s paid Florida Hospital a total of $2,683.55, which amount included $1,010.24 for the emergency department visit based on [approximately] 75 percent of Florida Hospital’s usual charge for CPT code 99284. The payment was accompanied by an EOBR. The EOBR Macy’s (or its designated entity)4/ issued to Florida Hospital for services rendered to R. P. identifies the amount billed by Florida Hospital as to each line item in a column designated “Billed,” and has columns designated as “BR Red,” “PPO Red,” “Other Red,” and “Allowance,” each containing an amount for each line item in the “Billed” column. There is also a column entitled “Reason Code” which sets forth codes, as required by Florida Administrative Code Rule 69L-7.602(5)(o)3., that are supposed to explain the reason for adjustment of any line item.5/ The “reason code” set forth adjacent to the $2,417.00 billed by Florida Hospital for emergency department services is “82,” which means “Payment adjusted: payment modified pursuant to carrier charge analysis.” There is also another code, “P506” listed in the “Reason Code” column adjacent to the same line item, which, according to the key provided on the EOBR, means “[a]ny questions regarding this Qmedtrix review, please call (800)-833-1993.” “P506,” however, is not a “reason code” listed in Florida Administrative Code Rule 68L- 7.602(5)(o)3. The EOBR does not advise that the bill was adjusted because of a determination that Florida Hospital should have used CPT code 99284 when billing for the emergency services rendered instead of CPT code 99285 as originally billed. Upon receipt of the payment and the EOBR, Florida Hospital timely filed a Petition for Resolution of Reimbursement Dispute with the Department pursuant to Section 440.13(7)(a), Florida Statutes, and Florida Administrative Rule 69L-31, contending that payment should be at 75 percent of its total charges, and citing the Florida Workers’ Compensation Reimbursement Manual for Hospitals, 2006 Edition (Hospital Manual). Qmedtrix timely filed a response to Florida Hospital’s petition on behalf of Macy’s pursuant to Section 440.13(7)(b), Florida Statutes, and Florida Administrative Code Rule 69L-31, asserting that correct payment should be determined based on, first, whether the hospital in fact billed its usual charge for the services and, second, whether the hospital’s charges are in line with the charges of other hospitals in the same community, citing One Beacon Insurance v. Agency for Health Care Administration, 958 So. 2d 1127 (Fla. 1st DCA 2007) for the proposition that “SB-50 amended section 440.13 . . . [revealing] legislative intent to eliminate calculation of a “usual and customary charge” based on the fees of any one provider in favor of a calculation based on average fees of all providers in a given geographic area.” Qmedtrix’s response on behalf of Macy’s also contended that “upcoding” and “unbundling” were additional grounds for adjustment or disallowance that were not identified on the EOBR. The response explained that “upcoding” refers to billing with a procedure code that exaggerates the complexity of the service actually provided; that CPT codes 99281 through 99285 describe emergency department services; that the CPT book includes examples of proper billing with these codes; that the hospital billed $2,417 with CPT code 99285; and that the CPT book describes an “emergency department visit for a healthy, young adult patient who sustained a blunt head injury with local swelling and bruising without subsequent confusion, loss of consciousness or memory deficit” as an example of proper billing with CPT code 99283. The response requested a determination by the Department that Macy’s payment equaled or exceeded the amount usual and customary for CPT code 99283. On November 13, 2009, the Department, through its Office of Medical Services (OMS) issued a determination (Determination in 09-6871) which found, in pertinent part: The petitioner asserts that services provided by Florida Hospital Medical Center to the above-referenced injured employee on May 20, 2009, were incorrectly reimbursed. Florida Hospital Medical Center billed $5,547.20 and the carrier reimbursed $2,683.55. The petition does not address a contract and does not reflect a contract discount in the calculation of requested reimbursement. The Carrier Response to Petition for Resolution of Reimbursement Dispute disputes the reasonableness of the hospital’s “usual and customary charges”, maintains the petitioners’ charges should be based on the average fee of other hospitals in the same geographic area, references a manual not incorporated by rule, and provides CPT codes that the respondent alleges are correct. There are no rules or regulations within Florida’s Workers’ Compensation program prohibiting a provider from separately billing for individual revenue codes. The carrier did not dispute that the charges listed on the Form DFS-F5-DWC-90 (UB-92) or the charges listed on the itemized statement did not conform to the hospital’s Charge Master. Nor did the carrier submit the hospital’s Charge Master in the response or assert that the carrier performed an audit of the Charge Master to verify the accuracy of the billed charges. Therefore, since no evidence was presented to dispute the accuracy of the Form DFS-F5-DWC-90 or the itemized statement as not being representative of the Charge Master, the OMS finds that the charges billed by the hospital are the hospital’s usual and customary charges. Rule 69L-7.602, F.A.C., stipulates the appropriate EOBR codes that must be utilized when explaining to the provider the carrier’s reasons for disallowance or adjustment. The EOBR submitted with the petition conforms to the EOBR code requirements of Rule 69L-7.602(5)(q), F.A.C. Only through an EOBR is the carrier to communicate to the health care provider the carrier’s reasons for disallowance or adjustment of the provider’s bill. Pursuant to s. 440.13(12), F.S., a three member panel was established to determine statewide reimbursement allowances for treatment and care of injured workers. Rule 69L-7.501, F.A.C., incorporates, by reference, the applicable reimbursement schedule created by the panel. Section 440.13(7)(c), F.S., requires the OMS to utilize this schedule in rendering its determination for this reimbursement dispute. No established authority exists to permit alternative schedules or other methodologies to be utilized for hospital reimbursement other than those adopted by Rule 69L-7.501, F.A.C., unless the provider and the carrier have entered into a mutually agreeable contract. Rule 69L-7.501, F.A.C., incorporates, by reference, the Florida Workers’ Compensation Reimbursement Manual for Hospitals, 2006 Edition (Hospital Manual). Since the carrier failed to indicate any of the services are not medically necessary, the OMS determined proper reimbursement applying the above referenced reimbursement guidelines. Therefore, the OMS has determined that the carrier improperly adjusted reimbursement to Florida Medical Center for services rendered to the above- referenced injured employee on May 20, 2009. Based on the above analysis, the OMS has determined that correct reimbursement equals $4,160.40 ($5,547.20 x 75% [Hospital Manual]=$4,160.40). The carrier shall reimburse Florida Hospital Medical Center $4,160.40 for services rendered to the above-referenced employee; and submit proof of reimbursement of the amount determined by the OMS within thirty days of the date the Determination is received. . . . The difference between what Petitioner Macy’s paid Florida Hospital for services rendered to R. P., and the amount the Department determined that Petitioner Macy’s is required to pay for such services, equals $1,476.85. The Determination in 09-6871 did not directly address Macy’s allegation of the alleged billing error of “upcoding.” The Determination in 09-6871 provided a 21-day notice for request of an administrative hearing and, as noted in the Preliminary Statement above, Macy’s timely requested a hearing. Case No. 09-6872 J. L., an employee of Major League Aluminum, was injured in a work-related accident on the evening of May 3, 2009, and visited the emergency department of Florida Hospital Orlando. After evaluation and treatment, J. L. was diagnosed with a bruise to the knee and released the next morning. On September 23, 2009, Florida Hospital submitted its bill for services provided to J. L. totaling $2,851 to Amerisure, Major League Aluminum’s workers’ compensation insurer, for payment, utilizing Form DFS-F5-DWC-90, also known as UB-04 CMS-1450, identifying the charges billed for each line item by revenue code and HCPS or CPT codes. Amerisure forwarded the hospital bill to its medical bill review agent, Qmedtrix for review. Qmedtrix’s medical bill review in this case, as in the companion case, entailed comparing the procedure codes and diagnosis codes reported by the hospital with examples in the CPT book. The hospital reported ICD diagnosis code 924.11, which reads “contusion of . . . knee.” The hospital also reported ICD diagnosis codes 724.2 (“lumbago”), E888.1 (“fall on or from ladders or scaffolding”) and 959.7 (“injury, other and unspecified . . . knee, leg, ankle, and foot.”). Florida Hospital billed $1,354 with CPT code 9924 for emergency department services and also billed for X-rays and various drugs and IV solutions. Comparing procedure codes and diagnosis codes reported by the hospital with examples in the CPT book, Qmedtrix concluded that billing with CPT code 99284 was not appropriate, but that billing with CPT code 99282 was. Qmedtrix also found that, while the hospital billed $1,354 with CPT code 99284, the average charge in the community for a visit to the emergency department billed with CPT code 99282 is $721. Qmedtrix determined the “usual and customary charge” in the community from its own database compiled by entering all of particular hospital bills into Qmedtrix’s database, along with data from the American Hospital Directory. Qmedtrix derives the average charge in the community based upon zip codes of the hospitals. Amerisure paid Florida Hospital a total of $1,257.15, which amount included $524.70 for the emergency department visit codes based on 75 percent of what Qmedtrix determined to be the average charge in the community for CPT code 99282. The payment was accompanied by an EOBR. The EOBR Petitioner Amerisure (or its designated entity)6/ issued to Florida Hospital for services rendered to J. L. identifies the amount billed by Florida Hospital as to each line item in a column designated “Billed Charges,” and has columns designated as “FS/UCR Reductions,” “Audit Reductions,” “Network Reductions,” and “Allowance,” each containing an amount for each line item in the “Billed Charges” column. There is also a column entitled “Qualify Code” which sets forth reason codes that are supposed to explain the reason for adjustment of any line item.7/ The code set forth adjacent to the $1,354.00 billed by Florida Hospital for emergency department services is “82,” which means “Payment adjusted: payment modified pursuant to carrier charge analysis.” The EOBR does not advise that the bill was adjusted because of a determination that Florida Hospital should have used CPT code 99282 when billing for the emergency services rendered instead of CPT code 99284 as originally billed. Upon receipt of the payment and the EOBR, Florida Hospital timely filed a Petition for Resolution of Reimbursement Dispute with the Department pursuant to Section 440.13(7)(a), Florida Statutes, and Florida Administrative Code Rule 69L-31, contending that payment should be at 75 percent of its total charges, and citing the Hospital Manual. Qmedtrix timely filed a response to Florida Hospital’s petition on behalf of Amerisure pursuant to Section 440.13(7)(b), Florida Statutes, and Florida Administrative Code Rule 69L-31, asserting that correct payment should be determined based on, first, whether the hospital, in fact, billed its usual charge for the services and, second, whether the hospital’s charges are in line with the charges of other hospitals in the same community, citing One Beacon, supra. Qmedtrix’s response on behalf of Amerisure contended “upcoding” as an additional ground for adjustment or disallowance that was not identified on the EOBR. As in the companion case, the response explained “upcoding,” that CPT codes 99281 through 99285 describe emergency department services, and that the CPT book includes examples of proper billing with these codes. The response further stated that the hospital billed $1,354 with CPT code 99284, and that the CPT book describes an “emergency department visit for a patient with a minor traumatic injury of an extremity with localized pain, swelling, and bruising” as an example of proper billing with CPT code 99282. The response requested a determination by the Department that Amerisure’s payment equaled or exceeded the usual and customary charge for CPT code 99282. On October 20, 2009, the Department’s OMS issued a determination (Determination in 09-6872) which found, in pertinent part: The petitioner asserts that services provided by Florida Hospital Medical Center to the above-referenced injured employee on May 3, 2009, and May 4, 2009, were incorrectly reimbursed. Florida Hospital Medical Center billed $2,851.00 and the carrier reimbursed $1,257.15. The petition does not address a contract and does not reflect a contract discount in the calculation of requested reimbursement. The Carrier Response to Petition for Resolution of Reimbursement Dispute disputes the reasonableness of the hospital’s “usual and customary charges”, maintains the petitioners’ charges should be based on the average fee of other hospitals in the same geographic area, and references a manual not incorporated by rule. There are no rules or regulations within Florida’s Workers’ Compensation program prohibiting a provider from separately billing for individual revenue codes. Therefore, the charges, as billed by the hospital, did not constitute billing errors. The carrier did not dispute that the charges listed on the Form DFS-F5- DWC-90 (UB-92) or the charges listed on the itemized statement did not conform to the hospital’s Charge Master. Nor did the carrier submit the hospital’s Charge Master in the response or assert that the carrier performed an audit of the Charge Master to verify the accuracy of the billed charges. Therefore, since no evidence was presented to dispute the accuracy of the Form DFS-F5- DWC-90 or the itemized statement as not being representative of the Charge Master, the OMS finds that the charges billed by the hospital are the hospital’s usual and customary charges. Rule 69L-7.602, F.A.C., stipulates the appropriate EOBR codes that must be utilized when explaining to the provider the carrier’s reasons for disallowance or adjustment. The EOBR submitted with the petition conforms to the EOBR code requirements of Rule 69L-7.602(5)(q), F.A.C. Only through an EOBR is the carrier to communicate to the health care provider the carrier’s reasons for disallowance or adjustment of the provider’s bill. Pursuant to s. 440.13(12), F.S., a three member panel was established to determine statewide reimbursement allowances for treatment and care of injured workers. Rule 69L-7.501, F.A.C., incorporates, by reference, the applicable reimbursement schedule created by the panel. Section 440.13(7)(c), F.S., requires the OMS to utilize this schedule in rendering its determination for this reimbursement dispute. No established authority exists to permit alternative schedules or other methodologies to be utilized for hospital reimbursement other than those adopted by Rule 69L-7.501, F.A.C., unless the provider and the carrier have entered into a mutually agreeable contract. Rule 69L-7.501, F.A.C., incorporates, by reference, the Florida Workers’ Compensation Reimbursement Manual for Hospitals, 2006 Edition (Hospital Manual). Since the carrier failed to indicate any of the services are not medically necessary, the OMS determined proper reimbursement applying the above referenced reimbursement guidelines. Therefore, the OMS has determined that the carrier improperly adjusted reimbursement to Florida Medical Center for services rendered to the above- referenced injured employee on May 3, 2009, and May 4, 2009. Based on the above analysis, the OMS has determined that correct reimbursement equals $2,138.25 ($2,851.00 x 75% [Hospital Manual]=$2,138.25). The carrier shall reimburse Florida Hospital Medical Center $2,138.25 for services rendered to the above-referenced employee; and submit proof of reimbursement of the amount determined by the OMS within thirty days of the date the Determination is received. . . . The difference between what Petitioner Amerisure paid Florida Hospital for services rendered to J. L. and the amount the Department determined that Petitioner Amerisure is required to pay for such services equals $881.10. The Determination in 09-6872 did not directly address Amerisure’s allegation of the alleged billing error of “upcoding.” The Determination in 09-6872 provided a 21-day notice for request of an administrative hearing and, as noted in the Preliminary Statement above, Amerisure timely requested a hearing. Alleged “Upcoding” for Emergency Department Services The Petitioners’ responses in both cases allege that Florida Hospital “upcoded” its bill for emergency department evaluation and management services. Neither EOBR submitted to Florida Hospital, however, reported alleged “upcoding” as an explanation for the Petitioners’ adjustment or disallowance of reimbursement. While the Dispute Determinations by the Department do not directly address the carrier’s allegation of the alleged billing error of “upcoding” raised in the Petitioners’ responses, they found that “Rule 69L-7.602, F.A.C., stipulates the appropriate EOBR codes that must be utilized when explaining to the provider the carrier’s reasons for disallowance or adjustment[, and that] [o]nly through an EOBR is the carrier to communicate to the health care provider the carrier’s reasons for disallowance or adjustment of the provider’s bill.” According to Mr. von Sydow, who was offered by Petitioners as an expert in billing, coding, reimbursement, and payment issues,8/ the “reason codes” that workers’ compensation carriers are to use pursuant to Florida Administrative Code Rule 69L-7.602, do not mention “upcoding,” and therefore an EOBR could not be generated with a reason code explaining reduction or disallowance based on “upcoding.” The following reason codes, however, are included in Florida Administrative Code Rule 69L-7.602: 23 – Payment disallowed: medical necessity: diagnosis does not support the services rendered. – Payment disallowed: insufficient documentation: documentation does not substantiate the service billed was rendered. – Payment disallowed: insufficient documentation: level of evaluation and management service not supported by documentation. Neither EOBR submitted to Florida Hospital includes reason code 23, 40, or 41. And neither EOBR explains or otherwise suggests that that Florida Hospital’s level of billing was not supported by medical necessity, services rendered, or sufficient documentation. In fact, Petitioners did not disallow reimbursement and do not contend that reimbursement should be denied for any services rendered by Florida Hospital to R. P. and J. L. on the grounds that the billed services were not medically necessary for the injured employees’ compensable injuries. In addition, Petitioners did not adjust or disallow payment for any of the billed procedures on the grounds that the procedures were not provided. In sum, the EOBR’s did not give Florida Hospital notice that alleged “upcoding” was an issue. Even if Petitioner’s EOBR’s gave Florida Hospital notice that it was asserting “upcoding” as a reason to reduce or adjust the hospital’s bill, the evidence does not support a finding that Florida Hospital utilized the wrong code in its billing for emergency department evaluation and management services. The CPT® 2009 Current Procedural Terminology Professional Edition, (Copyright 2008), (CPT book), is adopted by reference in Florida Administrative Code Rule 69L-7.602(3)(d) and Florida Administrative Code Rule 60L-7.020(2). The CPT book sets forth the procedure codes for billing and reporting by hospitals and physicians. The CPT book sets forth CPT codes ranging from 99281 through 99285 used to report evaluation and management services provided in a hospital’s emergency department, described as follows: 99281: Emergency department visit for the evaluation and management of a patient, which requires these 3 key components: A problem focused history; A problem focused examination; and Straightforward medical decision making. Counseling and/or coordination of care with other providers or agencies and provided consistent with the nature of the problem(s) and the patient’s and/or family’s needs. Usually, the presenting problem(s) are self limited or minor. 99282: Emergency department visit for the evaluation and management of a patient, which requires these 3 key components: An expanded problem focused history; An expanded problem focused examination; and Medical decision making of low complexity. Counseling and/or coordination of care with other providers or agencies and provided consistent with the nature of the problem(s) and the patient’s and/or family’s needs. Usually, the presenting problem(s) are of low to moderate severity. 99283: Emergency department visit for the evaluation and management of a patient, which requires these 3 key components: An expanded problem focused history; An expanded problem focused examination; and Medical decision making of moderate complexity. Counseling and/or coordination of care with other providers or agencies and provided consistent with the nature of the problem(s) and the patient’s and/or family’s needs. Usually, the presenting problem(s) are of moderate severity. 99284: Emergency department visit for the evaluation and management of a patient, which requires these 3 key components: A detailed history; A detailed examination; and Medical decision making of moderate complexity. Counseling and/or coordination of care with other providers or agencies and provided consistent with the nature of the problem(s) and the patient’s and/or family’s needs. Usually, the presenting problem(s) are of high severity, and require urgent evaluation by the physician but do not pose an immediate significant threat to life or physiologic function. 99285: Emergency department visit for the evaluation and management of a patient, which requires these 3 key components: A comprehensive history; A comprehensive examination; and Medical decision making of high complexity. Counseling and/or coordination of care with other providers or agencies and provided consistent with the nature of the problem(s) and the patient’s and/or family’s needs. Usually, the presenting problem(s) are of high severity and pose an immediate significant threat to life or physiologic function. Mr. von Sydow testified that a Qmedtrix “medical director,” reviewed Florida Hospital’s bill for services rendered to R. P., but not the medical records, and recommended that the hospital’s charge for emergency department services under CPT 99285 be “re-priced” to Qmedtrix’s determination of the “usual and customary charge” for CPT 99284. Mr. von Sydow acknowledged the need for physician review for some cases (as opposed to review by non-physician coders) by testifying, “The more complicated the medicine, the more likely it is that he [a medical director at Qmedtrix] wants to see it.” Despite Qmedtrix’s original determination to “reprice” the bill from CPT code 99285 to CPT code 99284 (reflected in the reduced payment but not explained in the EOBR), Mr. von Sydow opined that the correct CPT code for emergency department services provided to patient R. P. was 99283, as opposed to 99285 billed by the hospital. Mr. von Sydow testified that his opinion was based upon his own review of the medical records, without the assistance of a medical director or medical expert, and review of examples for the CPT codes for emergency department services from the CPT book, and various provisions of ICD-9 and CPT book coding resources. Aside from the fact that Mr. von Sydow’s opinion differed from the purported recommendation of a Qmedtrix “medical director,” Mr. von Sydow is not a physician. Moreover, Qmedtrix failed to provide the testimony of the medical director, or anyone else with medical expertise to evaluate the medical records and services provided or to validate either the opinion of Mr. von Sydow or the original recommendation to “re- price” Florida Hospital’s use of CPT Code 99285 in its bill for emergency department services rendered to patient R. P. Mr. von Sydow offered similar testimony and examples to explain Qmedtrix’s “re-pricing” of Florida Hospital’s bill from CPT code 99284 to CPT code 99282 for emergency services rendered to patient J. L. on behalf of Amerisure. According to Mr. von Sydow, an internal Qmedtrix coder (not a medical director) reviewed the bill for emergency services rendered to J. L. and determined it should be re-priced to the usual and customary charge, as determined by Qmedtrix, using that CPT code 99282. While knowledgeable of the various codes and their uses, given the manner in which preliminary diagnostics under emergency circumstances drives Florida Hospital’s determination of the appropriate CPT code for billing emergency department services, without the testimony of a medical expert familiar with the medical records generated in these cases in light of the facts and circumstances surrounding the emergency care rendered to patients R. P. and J. L., Mr. von Sydow’s testimony was unpersuasive. Ross Edmundson, M.D., an employee, vice-president, and medical manager for Florida Hospital, explained that, unlike other settings, hospitals generally do not have the medical histories of patients presenting for emergency hospital services. When a patient comes to Florida Hospital for emergency services, they are triaged by a nurse to determine the level of urgency, then a doctor sees the patient, conducts a differential diagnosis to rule out possible causes, obtains the patient’s history, and then performs a physical examination. While emergency room physicians at Florida Hospital do not decide which CPT code is utilized for the evaluation and management services provided by its emergency department, the various tests and procedures they undertake to evaluate and treat emergency department patients do. James English, the director of revenue management for Florida Hospital explained the process through his deposition testimony. Florida Hospital, like over 400 other hospitals, uses the “Lynx System” – a proprietary system for creating and maintaining medical records electronically. The program captures each medical service, supply, and physician order that is inputted into the electronic medical record. The hospital’s emergency evaluation and management CPT code is generated from the electronic record. A “point collection system” in the Lynx System translates physician-ordered services, supplies it to a point system, and then assigns the CPT code that is billed based upon the total number of “points” that are in the system at the time the patient is discharged from the emergency department. The level of the evaluation and management CPT code (99281 to 99285) that is reported on Florida Hospital’s bill is a direct reflection of the number and types of medical services that a patient receives from his or her arrival through discharge. In light of evidence showing the manner in which emergency services are provided and the importance of medical records in generating the appropriate billing code for emergency evaluation and management services, it is found that Petitioners failed to provide an adequate analysis of the medical records of either R. P. or J. L. to show that the appropriate CPT codes were not utilized by Florida Hospital in billing for those services. On the other hand, both Petitions for Resolution of Reimbursement Dispute filed by Florida Hospital with the Department attached appropriately itemized bills utilizing Form DFS-F5-DWC-90, also known as UB-04 CMS-1450, identifying the charges billed for each line item by revenue code and HCPS or CPT codes. In addition, medical records for the evaluation and treatment provided by Florida Hospital for both patients R. B. and J. L. supporting the itemized bills were submitted to the Department. These documents were also received into evidence at the final hearing. Florida Hospital’s bills at issue correctly identified the hospital’s usual charges for each individual and separately chargeable item, service or supply, with the corresponding code assigned to such billable items as maintained in Florida Hospital’s “charge master.” In addition, Petitioners concede the compensability of both patients’ work-related injuries and do not dispute whether any service or supply rendered and billed by Florida Hospital for these two cases were “medically necessary.”9/ Unbundling As noted above, in Case No. 09-6871, Qmedtrix’s response to Florida Hospital’s petition for resolution of reimbursement dispute contended “unbundling” as a ground for adjustment or disallowance of reimbursement. At the final hearing, Arlene Cotton, the nurse who issued the Dispute Determinations, explained that reason code 63 regarding “unbundling” is inapplicable to hospital billing, as there is no rule that requires hospitals to bundle bill for its services. Mr. von Sydow agreed that reason code 63 was inapplicable. In addition, footnote 2 of Petitioners’ Proposed Recommended Order states, “they did not pursue the allegations of unbundling.” Therefore, it is found that Petitioners did not prove and otherwise abandoned their claim of “unbundling” as a ground to adjust or disallow reimbursement to Florida Hospital. Usual and Customary Charges The Dispute Determinations issued by the Department found that correct payment in both cases equaled 75% of billed charges, citing “Rule 69L-7.501, F.A.C., [which] incorporates, by reference, the Florida Workers’ Compensation Reimbursement Manual for Hospitals, 2006 Edition (Hospital Manual). Both Section 440.13(12)(a), Florida Statutes, and the Hospital Manual provide that hospital services provided to patients under the workers’ compensation law “shall be reimbursed at 75 percent of usual and customary charges.” The Department interprets the term “usual and customary charges” as set forth in the Hospital Manual and Section 440.13(12)(a), Florida Statutes, quoted above, to mean a hospital’s usual charges of the hospital, whereas Petitioners contend that “usual and customary charges” means the average fee of all providers in a given geographical area. While apparently not contending that Petitioners failed to raise the issue of “usual and customary” charges in their EOBR’s,10/ at the final hearing, the Department argued that “nowhere in [either Macy’s or Amerisure’s] response is the issue of customary charges raised.” A review of the responses filed by Qmedtrix to Florida Hospital’s reimbursement dispute petitions filed with the Department reveal that both raise the issue of “usual and customary charges.” Paragraphs 3 and 4 of Mr. von Sydow’s letter attached to both responses state: As you may know, the proposed adoption of Medicare’s Outpatient Prospective Payment System as a methodology for reimbursing hospitals 60% and 75% of “usual and customary charges” follows from the decision of the First District Court of Appeals in One Beacon Insurance v. Agency for Health Care Administration, No. 1D05-5459 (Fla. 1st DCA 2007) (SB-50 amended section 440.13 to remove all reference to the charges of any individual service provider; this amendment reveals the legislative intent to eliminate calculation of a “usual and customary charge” based on the fees of any one provider in favor of a calculation based on average fees of all providers in a given geographical area). This court decision requires DFS to define payment rates for out patient service that are uniformly applicable to all hospitals in a given geographic area. In addition, at the final hearing, the Department argued that the petitions for administrative hearing did “not raise as a disputed issue of fact or law whether or not usual and customary charges should apply in this case.” Indeed, a review of the request for relief set forth in the petitions for administrative hearings filed by Petitioners do not mention the issue of “usual and customary charges.” Rather, the relief requested by both petitions for administrative review of the Dispute Determinations, as summarized in the Joint Prehearing Stipulation, is: Petitioner[s] seeks reversal of OMS’ Determination(s) and the matters remanded for the Department to: direct payment based upon the actual treatment required/provided and pursuant to the correct CPT code; find that the hospital upcoded and that Petitioner properly reimbursed (or exceeded amount due); and determine that the hospital has the burden of proof to substantiate its billing and the use of the chosen CPT code. Contrary to the Department’s argument, however, both petitions for administrative hearing raise the issue of “usual and customary charges.” Page 9 of Macy’s petition, in pertinent part states: Petitioner submits that in issuing the above findings OMS failed to consider the holding in One Beacon Insurance v. Agency for Health Care Administration (wherein the Court determined that reimbursement should not be based solely upon a mathematical equation [as found within the Reimbursement Manual] and applying it to the fee charged by a particular provider; and that by eliminating the reference to any one facility’s charges, the legislature intended that the charges be based on average fees of all providers in a geographical area as opposed to the fees of the particular provider in question). Likewise, review of Amerisure’s petition for administrative hearing reveals that the issue of “usual and customary charges” was raised. Pages 7 and 8 of Amerisure’s petition state, in pertinent part: Further, if the Hospital is permitted to utilize incorrect revenue codes it would be impossible to determine whether the charges are consistent with the Hospital’s own [usual and customary] charges for the service, procedure or supplies in question and, further, whether such charges are consistent with charges by other like facilities (in the same geographical area) for the same services, procedures, or supplies. See One Beacon Insurance, supra. In addition, Amerisure’s petition on page 12 states with regard to the Department’s determination: Such finding was issued without consideration of . . . the amounts charged for the same services in the Orlando area where this hospital is located. Petitioners further preserved the issue of “usual and customary charges” in the first paragraph of their statement of position on page 3 of the Joint Prehearing Statement, as follows: Petitioners, Macy’s and Amerisure, take the position that the Determinations must be reversed as the Department has the duty to scrutinize the bills in question in order to determine, first, whether the hospital, in fact, charged its usual charge for the services provided, and second, whether the billed charges are in line with the customary charges of other facilities in the same community (for the same or similar services) and that the Department failed to do so. As such, Petitioners contend that payment for services provided by Florida Hospital should have been based upon 75% of usual and customary charges, not 75% of billed charges. Therefore, it is found that Petitioners have preserved the issue of “usual and customary charges” for consideration in this administrative proceeding. Although preserved, Petitioners failed to demonstrate that their interpretation of “usual and customary charges” should prevail. The Department has consistently interpreted the term “usual and customary charges” as used in the Hospital Manual, Section 440.13(12)(a), Florida Statutes, and rules related to hospital reimbursement under the workers’ compensation law as the “usual and customary charges” of the hospital reflected on the hospital’s “charge master.” The Hospital Manual requires each hospital to maintain a charge master and to produce it “when requested for the purpose of verifying its usual charges. . . .” (Emphasis added). Petitioners did not conduct or request to conduct an audit to verify whether the charges billed by Florida Hospital corresponded with the Florida Hospital’s charge master. In fact, Mr. von Sydow conceded at the final hearing that Florida Hospital’s bills at issue were charged in accordance with Florida Hospital’s charge master. Nor did Petitioners institute rule challenge proceedings against the Department regarding the Hospital Manual, incorporated by reference into Florida Administrative Code Rule 38F-7.501. Instead, Petitioners assert that they should be able to reduce Florida Hospital bills based upon a different interpretation of the phrase “usual and customary charges” to mean the average charge in the community as determined by Qmedtrix. Qmedtrix is not registered with the Florida Department of State, Division of Corporations, and does not employ any Florida-licensed insurance adjuster, physician, or registered nurse. Qmedtrix earns 12 to 15 percent of “savings” realized by carriers utilizing their bill review services. For example, if a bill is reduced by $100, Qmedtrix is paid $12.11/ Qmedtrix uses a proprietary bill review system called “BillChek.” According to Qmedtrix’s website: BillChek reviews out-of-network medical charges for all bill types in all lines of coverage, including group health, auto, medical, and workers’ compensation. BillChek is a unique specialty cost- containment service that determines an accurate and reasonable reimbursement amount for non-network facility and ancillary medical charges. BillChek incorporates historical data to help determine reasonable payment recommendations across all sectors of the health care industry. All BillCheck recommendations are backed by extensive medical and legal expertise, and supported by Qmedtrix’s experienced Provider Relations and Dispute Resolution teams. According to the testimony of Mr. von Sydow, Qmedtrix collects and maintains data from various sources, including Florida’s Agency for Health Care Administration (AHCA), the American Hospital Directory (AHD.com), and HCFA 2552’s (data reported to the Centers of Medicare and Medicaid Services on HCFA 2522) in order to construct a database of health care providers’ usual charges. Mr. von Sydow advised that AHD.com data was a principle source for constructing the database. He also advised that AHCA data was included in the database even though Qmedtrix found the AHCA data defective. Examples of data downloaded from AHD.com for Florida Hospital showing a profile of the facility was received into evidence as P-5. The data did not, however, show usual charges for the CPT codes for emergency department services at issue in this case. Petitioners also introduced into evidence Exhibits P-6 and P-7, which contained AHD.com data showing average charges for Florida Regional Medical Center and Florida Hospital, respectively, for Level 1 through Level 5 emergency room visits (corresponding to CPT codes 99281 through 99285). Mr. von Sydow explained that the data was part of the information Qmedtrix used to construct the average charge in the community. Petitioners failed to provide similar AHD.com data for other hospitals in the area Qmedtrix determined to be the “community.” In addition, Petitioners introduced AHCA’s Florida Health Finder Web-site, as Exhibit P-8, which ostensibly included average charges for all hospitals in Florida for the subject emergency department CPT codes (99281 through 99285). Mr. von Sydow explained, however, “[w]e find that [the AHCA data] is not refreshed very often, unfortunately, and some other defects in the scrubbing of the data by the agency, which they know, I will say. But this is incorporated in our database to a large extent.” The exhibit was received into evidence for the purpose of helping to explain how Qmedtrix constructed its database, with the recognition that it was largely composed of hearsay. In sum, while Petitioners showed their methodology of constructing the database, other than the AHD.com data for Orlando Regional Medical Center and Florida Hospital, Petitioners failed to introduce reliable evidence sufficient to show the “usual and customary charge” of all providers in a given geographical area as determined by Qmedtrix. In addition, the AHCA data, though characterized by Mr. von Sydow as unreliable, indicates that there is a wide range of differences in emergency room charges between hospitals in Florida. Petitioners’ interpretation of “usual and customary charge” to mean the average fee of all providers in a given geographical area does not take into account an individual hospital’s indigent care, cost of labor, overhead, number of beds, size, age, or various other differences between facilities that could affect amounts each hospital charges for emergency department and other services; the Department’s interpretation does.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services, Division of Workers’ Compensation, enter a Final Order consistent with this Recommended Order that: Directs Macy’s Claims Services to reimburse Florida Hospital Medical Center $4,160.40 for services rendered to patient R. P., and to submit proof of reimbursement of that amount within 30 days from the date the Final Order is received; Directs Amerisure Mutual Insurance Company to reimburse Florida Hospital Medical Center $2,138.25 for services rendered to patient J. L., and submit proof of reimbursement of that amount to the Department within 30 days from the date the Final Order is received. DONE AND ENTERED this 17th day of June, 2010, in Tallahassee, Leon County, Florida. S JAMES H. PETERSON, III Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of June, 2010.
The Issue The question in these cases is whether proposed rule 27J-1.062 is an invalid exercise of delegated legislative authority pursuant to section 120.54(4), Fla. Stat. (1985). The stipulated issues in these cases are: Does the Hospital Cost Containment Board have the authority to reduce a hospital's gross revenue per adjusted admission in applying the penalty specified in section 395.5094, Fla. Stat. (1985)? If so, may the reduced gross revenue per adjusted admission serve as the base for comparison in evaluating the rate of increase in the subsequent year's budgeted gross revenue per adjusted admission? No ruling will be made as to the second issue since the parties did not submit evidence or argument on the point. It appears that the issue has been abandoned. Florida Hospital Association, Inc., presented three exhibits, Florida League of Hospitals, Inc., presented one exhibit, the parties presented one joint exhibit, the Hospital Cost Containment Board (HCCB) presented two exhibits, and the prehearing stipulation was made a Hearing Officer's exhibit. All exhibits are in evidence. Testimony was presented from two witnesses, John Benz and James Bracher.
Findings Of Fact Petitioner Florida Hospital Association, Inc., is a non-profit corporation organized for the benefit of its 220 member hospitals, including not-for-profit, investor-owned, and governmental hospitals. T. 6. Petitioner Florida League of Hospitals, Inc., is a non-profit corporation organized for the benefit of its members, which are 80 investor- owned hospitals. The Respondent is the Hospital Cost Containment Board (HCCB). The Intervenor is the Public Counsel on behalf of the Citizens of the State of Florida. The following findings of fact are based upon stipulated facts: Throughout calendar year 1985, various drafts and revisions of the proposed rule were prepared by Respondent. The proposed rule was analyzed and discussed at meetings of the Financial Analysis Technical Advisory Panel (TAP) in August, October, and November 1985 and in January 1986. As a result of industry concern raised at those TAP meetings, Respondent made several substantial revisions to the proposed rule including: Amending subsection (3)(a) regarding the offset to the penalty from indigent care assessments, to allow credit for assessments paid by the hospital, rather than accrued in the fiscal year; Amending subsection (3)(b) to provide a "carry forward" provision in the rule that would allow hospitals to carry forward into subsequent years the amount of assessments paid minus the amount of revenues received for purposes of reducing the excess used in calculating the penalty; Amending subsection (5)(e) of the rule to provide that, in applying the penalty to gross revenues, the penalty would not apply to gross revenue reflecting charity care and certain fixed-priced government payors; and Amending subsection (5)(e) to allow other adjustments to the penalty on gross revenue [that might be justified as fair and equitable to all payors. In addition to the substantive changes described above, Respondent made various technical revisions to the proposed rule in response to suggestions from representatives of the hospital industry. The HCCB voted to adopt rule 27J-1.062 at its January 30, 1986, Board meeting, and instructed staff to initiate the rulemaking process. Joint Exhibit 1 is the April 17, 1986, draft of the proposed rule. This draft has not yet been published in the Florida Administrative Weekly, but is the proposed rule that is challenged herein. The draft incorporates the following stipulations: Paragraph (b) of subsection (1) of proposed rule 27J-1.062 shall be deleted from the proposed rule. Subsection (5) of proposed Rule 27J-1.062 shall be amended to specify that the budget reduction imposed pursuant to the proposed rule shall apply pro rata to the 12 months immediately following final Board action. Subsection (6) of proposed rule 27J-1.062 shall be deleted. Paragraph (c) of subsection (3) of proposed Rule 27J-1.062 shall be changed to specify that adjustments are based on adjusted admissions in the audited actual experience for the most recently complete fiscal year. Paragraph (b) of subsection (3) of proposed rule 27J-1.062 shall be changed to specify that the Board shall consider changes in case-mix in levying any penalty pursuant to the rule, It is officially recognized that the Respondent, the HCCB, published proposed rule 27J-1.062 in Vol. 12, Issue No. 7, at pp. 606-7, of the Florida Administrative Weekly on February 14, 1986. The proposed rule establishes a method of calculating the penalty provided in section 395.5094(1), Fla. Stat. (1985), which is commonly called the "main" penalty. Joint Ex. 1. Rule challenges by the Petitioners were timely filed. The proposed rule, implementing the above statute, requires an annual comparison by the HCCB of the hospital's audited actual experience for that year with both the Board approved budget for that year and the audited actual experience for the prior year. Joint Ex. 1. The proposed rule first calculates what is to be termed the "excess." The excess is the lesser of the following two amounts: either the absolute dollar amount of the difference between the audited actual net revenue per adjusted admission (NRAA) for the most recently completed fiscal year and the NRAA in the Board approved budget for the same year, or the absolute dollar difference between the audited actual NRAA for the most recently completed fiscal year and the prior fiscal year and the prior year's audited actual NRAA increased by the maximum allowable rate of increase (NARI). The Executive Director of the Board testified that the penalty will not be applied unless the hospital's actual audited experience for net revenues per adjusted admission exceeds both of these bases. T. 74-5. The proposed rule then contains a procedure for reducing the excess and the excess as reduced is called the "adjusted excess." The "penalty" then is calculated by multiplying the adjusted excess by the total adjusted admissions based on the actual audited data for the most recently completed fiscal year. The proposed rule also establishes procedures for reducing the hospital's budget based upon the penalty. Subparagraph (5), proposed rule 27J- 1.062. The reduction applies on a pro rata basis to the 12 months immediately following final Board action on the penalty. For the first occurrence within a five-year period, the Board is to reduce the hospital's budget for net revenues up to the amount of the adjusted excess not to exceed 5 percent of the prior year's actual net revenues inflated by the NARI. Any amount in excess of the 5 percent is then imposed as a fine. Subparagraphs (5)(a) and (c), proposed rule 27J-1.062. For the second occurrence within a five-year period, the Board is to reduce the hospital's budget for net revenues up to the amount of the adjusted excess not to exceed 2 percent of the prior year's actual net revenues inflated by the NARI. Any amount in excess of the 2 percent is then imposed as a fine. Subparagraphs (5)(a) and (c), proposed rule 27J-1.062. For the third occurrence within a five-year period, the Board does not reduce the budget of the hospital in any amount, but simply applies the entire penalty as a cash fine. Subparagraph (5)(b), proposed rule 27J-1.062. Finally, subparagraph (5)(e) of proposed rule 27J-1.062 provides that the gross revenue in the hospital's budget must be reduced. First, pursuant to subparagraph (5)(d) of the proposed rule, the percentage of the reduction of net revenues is calculated by dividing the amount of the penalty by the amount of actual audited net revenue for the most recently completed fiscal year. The percentage of the reduction of net revenues is then multiplied by the actual audited gross revenues for the most recently completed fiscal year. The result is multiplied again by the percentage of the hospital's gross revenue generated from sources other than charity care (which is further defined in the proposed rule) and fixed-price government payors specified in the FHURS (Florida Hospital Uniform Reporting System). Manual. To convert the reduced net and gross revenues in the budget to the NRRA and GRRA format, the reduced amounts are divided by the number of adjusted admissions in the budget. Subparagraph (5)(f) of the proposed rule. Petitioner, Florida Hospital Association, Inc., presented the testimony of John Benz, who was accepted as an expert in hospital finance, accounting, and budgeting. T. 17. Mr. Benz testified regarding the asserted effect of the proposed rule on a hypothetical group of eleven hospitals. See FHA Ex. 1. In this hypothetical, hospital number three was chosen as the hospital penalized, and the penalty amount was assumed to be $150 in gross revenues per adjusted admission. Hospital number three initially ranked above the 50th percentile, but just below the 80th percentile for GRAA. The hypothetical example further assumed that gross revenues per adjusted admission for each hospital would increase annually for ten years at 7 percent. It thus assumed no Board-approved GRAA in excess of 7 percent, or no automatically approved increase to GRAA above 7 percent. The current MARI is 7 percent. T. 88. It also assumed that the adjusted admissions for hospital number three would be 10,000 each of the ten years. T. 24. This is typical of a 300 bed hospital. T. 29. The assumption of uniform admissions is reasonable T. 54-5. It was also assumed in the hypothetical that the HCCB will annually use the GRAA as adjusted as the basis for future year budget calculations and determining the 50th and 80th percentiles for the group. Finally, the example assumed that a 5 percent overage is equal to $250 and a 2 percent overage is equal to $100. T. 34. The hypothetical example then calculated what the GRAA for all eleven hospitals would be for the ten-year period both without application of a penalty to gross revenues and with the penalty applied to gross revenues. In the first year, application of the penalty to GRAA lowers the GRAA of hospital three by $150, and lowers the total gross revenues of that hospital by $1,500,000. T. The reduction in GRAA lowers the 80th percentile GRAA by $20, or about 0.5 percent. Carrying these changes forward using the constant inflation factor of 7 percent, by the tenth year the GRAA of hospital three is $278 lower than it would have been without the penalty in the first year, the loss of gross revenues in the tenth year is $2,780,000, the cumulative loss of gross revenues in the ten years is $20,790,000, and the 80th percentile GRAA is less than it would have been by $55, or about 0.5 percent. T. 38; FHA Ex. 1. The decrease in the 80th percentile GRAA would potentially affect all eleven hospitals in the group. The hypothetical example presented by the Florida Hospital Association, Inc., also set forth a calculation of the asserted effect of the penalty after ten years imposed as a first, second, or third violation in a five-year period. T. 42. The asserted effect is mathematically different because the rule allocates the penalty differently for the first, second, or third violations. As mentioned above, the example assumes that a 5 percent overage is $250 and a 2 percent overage is $100. Again assuming a 7 percent rate of increase for each year in GRAA, the asserted effect of the three kinds of penalties is: Violation Total 10 year Total Cash Fine Asserted total reduction to effect gross revenues First $20,790,000 -0- $20,790,000 Second 13,880,000 500,000 14,380,000 Third -0- 1,500,000 1,500,000 As will be discussed ahead, it is not possible on this record to conclude that the above three-tiered penalty procedure will result in a harsher penalty for the first violation since (1) it is not certain that there will actually be a reduction to gross revenues for the entire 10 years, and (2) there is no expert evidence as to the time value of the cash fines. In the hypothetical discussed above, assuming as was assumed in the hypothetical that adjusted admissions would be 10,000 each year and that the GRAA would increase at 7 percent each year, in ten years, hospital three would have total gross revenues of $777,140,000. It would have lost $20,790,000 in gross revenues in the hypothetical example, and the sum of these two figures is $797,930,000. Thus, the percentage of the asserted amount of lost revenues is 2.6 percent. The Respondent, the Hospital Cost Containment Board, presented the testimony of James Bracher, Executive Director of the Board, who was accepted as an expert in health care financial regulation, including certificate of need, rate review, and budget regulation. T. 72-3. Mr. Bracher presented another hypothetical example to illustrate the asserted effects of the penalty applied only to net revenues and applied to both net and gross revenues. The hypothetical, contained in HCCB Ex. 2, assumes that net revenues will be 70 percent of gross revenues in any given year, that gross revenues will increase yearly by 8 percent, that 50 percent are fixed government payers, that the penalty is to be applied 3 months in 1987 and 9 months in 1988, and that gross revenues are initially $150,000 in 1987. T. 81-82. Finally, the example assumes that the penalty will be 5 percent of net revenues, and is a first violation penalty. T. 82. The result of the HCCB's hypothetical is that if the 5 percent penalty is applied only to net revenues, the penalty is completely recovered from those revenues in the first two years (pro rated since the first year has only a 3- month impact under the hypothetical assumption), and thereafter, net revenues return to the same level as if no penalty had been levied. This occurs directly as a result of the assumption that net revenues will always be 70 percent of gross revenues. T. 83. If the penalty is applied to gross revenues as well as net revenues, the HCCB hypothetical asserts that both gross revenues and net revenues will be permanently lowered. T. 83. This occurs because gross revenues in future years are assumed to be only a constant percentage increase from the penalty year, and net revenues are assumed to be 70 percent of gross revenues in any given year. By 1990, the gross revenues of the hypothetical hospital would be less by $4,462, or by about 2.4 percent, and net revenues would be less by $3,123, which of course would be the same percentage reduction since net revenues are directly related to gross revenues. HCCB Ex. 2. A projected budget is based in part upon historical budgets, and thus, if an earlier budget is incorrectly too high, it is possible that the error may be carried into the future. T. 96. However, the current Florida regulatory scheme provides all hospitals with the opportunity to justify increases in gross revenues annually, based upon current information. T. 86-7. It is possible in a future year for a hospital to gain HCCB approval of a budget for increased gross revenues due to new or expanded services, a change in case mix, or a change in length of stay. T. 90, 51. It is also possible for increases in GRAA to be automatically approved by the HCCB if the hospital is ranked below the 50th percentile in its group, or if the hospital is ranked below the 80th percentile in its group and the increase is less than the MARI. Thus, it is possible that the effect of a penalty to gross revenues in one year may be cancelled out in a future year by increases to GRAA due to approval of a new budget justified upon new facts or due to automatic approval. None of the hypotheticals presented in this case are expected to actually occur precisely as set forth above, and only serve as reasonable illustrations of the potential mathematical relationships between the penalty and future gross or net revenues. As discussed above, since a hospital might be able to justify a higher GRAA in a future year, the Petitioner's and Respondent's hypotheticals might never occur, or at least it is impossible to say whether the cumulative effect may continue for ten years, five years, or forever. Similarly, the assumption of the examples used, that a uniform increase in GRAA of 7 percent or 8 percent per year, while useful as a mathematical example, is unlikely to actually occur. T. 90. The rates of increase for competitor hospitals of the North Broward Hospital District have not been uniform. T. 55. Finally, the assumption of the HCCB that NRAA will be a uniform 70 percent of GRAA might be roughly correct, but in fact the relationship will vary from year to year. T. 123-4. However, notwithstanding the lack of precise examples, several conclusions can be drawn from the hypotheticals presented. First, although it is impossible to predict how long and how much of a cumulative penalty will be felt by a hospital if the penalty is applied to gross revenues, it is relatively certain that the effect of the penalty on gross revenues will continue for several years beyond the base year. This will occur because the budget review process of the HCCB is based primarily upon past history of GRAA. T. 120. If a hospital's GRAA is lowered in a single year, it is likely that this loss of approved GRAA will affect a number of future years. Second, it is also relatively certain that if the penalty is applied only to NRAA, a hospital will be able to return to the same NRAA it would have had without the penalty in a relatively short time, even if one assumes that the relationship between NRAA and GRAA will not uniformly be 70 percent each year. This should occur because GRAA has not been lowered, and thus stands as an approved basis in future years for justification of the higher NRAA. Indeed, if the GRAA is below the 50th percentile, approval will be automatic. Gross revenues minus other operating revenues equals total patient charges. T. 51, 57. Gross revenues minus other operating revenues is what is billable to the patient. Id; T. 56-7. Not all charges billed are collected. The percentage of uncollected patient billings differs from hospital to hospital. Indigents do not pay, and the percentage of indigent care can be 10 percent in some hospitals. T. 97. Medicare may not pay the entire amount billed for a Medicare eligible patient. T. 97. In Florida, hospitals may have 45-50 percent of their patients as Medicare patients. T. 98. Health maintenance organization patients and preferred provider patients may be billed discounted rates. T. 97. Net revenues equal the amount received from patients, and reflect gross receipts from charges to patients. T. 50, 57, 58. Net revenues are a product of patient charges, but are not a direct reflection of such charges. T. 59. Gross revenues thus do not "equal" the amount paid by patients since at least one-half of all patients in Florida do not themselves pay charges. However, excluding other operating revenue, gross revenues do reflect the charges paid by charge-paying patients and the charges paid by third-party payors whose payments are charge-based or discounted, which is somewhat less than one-half of all patients in Florida. There is a significant relationship between gross revenues and charges to patients such that the reduction of gross revenues in a budget is likely, over time, to contain or slow the increase of charges to Florida patients. Petitioner's example of a lump sum Medicare settlement causing a penalty due to increase of net revenues, without increase in gross revenues, is not likely to occur. The HCCB has procedures whereby receipt of a lump sum Medicare settlement may be recognized and approved through budget amendment. T. 90-3. Two prior final orders of the HCCB are in evidence as arguable precedent for the case at bar. These are the final orders in the Lake Hospital of the Palm Beaches case, DOAH Case Number 85-1666H, FHA Ex. 2, and the American Medical International cases, DOAH Case Numbers 85-2296H, 85-2297H, and 85-2265H, HCCB Ex. 1. In the Lake Hospital case, the Board applied the base year adjustment of section 395.509(11), Fla. Stat. (1984), to net revenues only. In the American Medical International cases, the Board construed its authority to review and approve "budgets" to include the power to approve or disapprove net revenue amounts as well as gross revenues. The North Broward Hospital District invests excess funds at a rate of interest of 8 percent to 10 percent. T. 50. The practical effect of the proposed rule is to provide a way to return a hospital to the approximate place it would have been had it not exceeded either its approved budget or its actual audited experience inflated by the MARI. A secondary effect is to alter the percentile relationship of all hospitals to the level it would have been had the subject hospital not exceeded these limits. If it is lawful for the HCCB to reduce GRAA as is intended in the proposed rule, and if the HCCB adopts the proposed rule and fails to follow it, the failure would unlawfully benefit both the subject hospital and all hospitals in the group since both the GRAA of the hospital and the percentile ranking of GRAA of all hospitals in the group, in that event, should be reduced. It would be an unlawful detriment in that event to Florida consumers as well.
The Issue Whether policies of the Agency For Health Care Administration (Agency) which impose certain obligations upon hospitals with regard to classification in Prior Year Reports of activity related to certain home health agencies violate the requirement that those statements, rules by definition, be adopted as rules.1 Sections 120.54(1)(a) and 120.56(4), Fla. Stat. (1996 Supp). An additional issue for consideration is whether certain provisions of the Florida Hospital Uniform Reporting System (FHURS) Manual, incorporated by reference in Rule 59E-5.102, Florida Administrative Code, constitute invalid exercises of delegated legislative authority as otherwise set forth in Section 120.52(8), Fla. Stat. (1996 Supp.)
Findings Of Fact In accordance with stipulation of the parties, all parties to this proceeding have standing in, and are parties to, each of the consolidated cases. Background Hospital Regulatory System Overview Under Florida law, hospitals are subject to a regulatory program commonly known as the budget review or hospital cost containment program. The cost containment program is currently administered by the Agency. Under the cost containment regulatory system, the State of Florida regulates a hospital's gross revenues per adjusted admission ("GRAA") and net revenues per adjusted admission ("NRAA"). GRAA is defined in statute and refers to a hospital's average charges per case. NRAA is defined in statute and refers to the average amount which a hospital collects per case. The Florida regulatory system does not directly regulate hospital charges. Florida hospitals must annually submit a budget to the Agency for its review. The statute creates a process for the detailed review of those budgets for hospitals which are requesting a rate of increase in GRAA or NRAA greater than the "maximum allowable rate of increase" as defined in statute. The maximum allowable rate of increase ("MARI") is different for various hospitals, based upon hospital-specific inputs of data as delineated in statute. Hospitals which exceed the MARI are subject to administrative fines and/or penalties. As part of the review process for hospital budgets or budget amendments, the Agency groups hospitals to attempt to compare like hospitals to like hospitals for analysis purposes. The Agency's cost containment regulatory process and actual report review process applies only to hospitals. Section 408.07, et al., Fla. Stat. "Hospital" is defined as an entity which holds a license to operate a hospital in the State of Florida. Section 408.07(33), Fla. Stat. A hospital must be licensed to operate in the State of Florida. Hospital licenses in Florida are issued by the Agency under Chapter 395, Fla. Stat.2 A hospital license does not permit a hospital to offer home health services. A hospital is not a HHA. Hospitals and HHAs are licensed by the State to provide different types of services in different locations. A HHA is required to operate under a separate license from a hospital license. A hospital cannot bill for home health services. Home Health Agencies A HHA is an agency that is licensed by the State of Florida under Chapter 400, Fla Stat., to provide home health services. The State of Florida has various rules and regulations governing the operation of HHAs. The budget review and penalty system which applies to Florida hospitals is not applicable to HHAs. The HHA license does not permit a HHA to offer hospital services. There are three types of HHAs operating in the State of Florida: stand alone agencies, hospital affiliated agencies, and chain-affiliated home health agencies. Stand alone agencies are those with no affiliation with another entity. All three types of agencies are licensed by the State, and are authorized to provide similar services. There is great competition among HHAs for the provision of those services. Marketplace changes have resulted in more patients receiving more treatment in the home. The rise of managed care has also resulted in an increase in home care in Florida and throughout the nation. Medicare The Medicare program is a federal program designed to pay for the cost of services provided to the elderly by healthcare providers. The Medicare program covers home health services provided to Medicare-eligible patients. For a provider to participate in the Medicare program, it must be certified by Medicare under applicable federal statutes and regulations. Every Medicare provider is issued a provider number by the Health Care Financing Administration (HCFA), the federal agency which administers the Medicare program. Medicare-certified home health agencies have separate Medicare provider numbers from hospitals. The three types of HHAs operating in Florida can be designated by HCFA as Medicare-certified. Only Medicare-certified HHAs are able to provide services to Medicare patients, bill Medicare recipients, and receive payment from the federal government for the provision of services to Medicare-eligible patients. In addition, hospital-based home health agency (HBHHA) is a federal Medicare reimbursement term. A HBHHA is not a defined term under Florida Statutes or regulations. The Medicare reimbursement system for home health care is a cost reimbursed system. The federal government reimburses home care providers based upon their allowable costs, up to a certain cost cap. The Medicare program utilizes a cost allocation process to allocate costs by comparison to costs incurred by similar organizations that provide home health services. There are similar cost allocation processes applied to HBHHAs and Medicare-certified chain affiliated HHAs. These costs are subject to audit, and providers must submit an annual Medicare Cost Report pursuant to applicable federal regulations. The Medicare program then subjects allowable costs to a cost limit, which is the maximum payment which will be made by the federal government for home health visits. It takes only a few seconds to determine if a Medicare Cost Report includes the activity of a Medicare-certified HBHHA. It is HCFA's decision whether or not to certify a given HHA as being a HBHHA. The applicable federal regulations governing certification of home health agencies as hospital-based are found in the 1980 Federal Register. As applied, HCFA has certified agencies as HBHHAs if these agencies have common control and ownership with the affiliated hospital.3 HHAs bill for Medicare services on HCFA Form 1500. Hospitals bill on form UB-92. HHA charges do not appear on a hospital bill. AHCA Hospital Prior Year Reports In addition to filing budgets or budget letters, hospitals are required under statute to file with the Agency an annual report known as the Prior Year Report. Section 408.061, Fla. Stat. A hospital Prior Year Report is made up of three distinct parts: 1) the hospital's prior year actual report, which consists of a standardized set of forms; 2) the hospital's audited financial statements; and 3) the hospital's Medicare Cost Report. The prior year actual reporting forms are found in the FHURS Manual. The Agency began collecting the Medicare Cost Report as part of the Prior Year Report in approximately 1988. The FHURS Manual, a uniform reporting system utilized by the Agency governing the filing of Prior Year Reports, was developed in approximately 1980. The FHURS Manual contains the prior year actual report forms which hospitals file with the Agency. In all material respects, the current version of the FHURS Manual is substantially similar to its predecessors. If the hospital prior year actual reporting forms do not tie to the audited financial statements, the hospital must provide a reconciliation. The hospital prior year reporting forms contain Worksheet X-4, which is a blank form to be utilized for detailed explanations including any reconciliation’s between the prior year actual report forms and the audited financial statements. There is no statute or rule requiring the prior year actual reporting forms to be reconciled to the Medicare Cost Report. The statute governing reporting for Prior Year Reports defines hospitals and HHAs as two separate types of health care facilities. Sections 408.061(3), 407.07(27), (31), (33), Fla. Stat. The Agency does not require HHAs to file Prior Year Reports. The Agency has the responsibility to review hospital Prior Year Reports, and to determine that the Prior Year Report has been filed in compliance with applicable rules and regulations. The Agency is required to determine that a hospital's Prior Year Report has been "accepted." Accepted is a defined term in Florida Statutes.4 After a hospital's Prior Year Report has been "accepted" by the Agency, the Agency then calculates penalties, administrative fines and Public Medical Assistance Trust Fund (PMATF) and Health Care Cost Containment Trust Fund (HCCCTF) taxes based upon the Prior Year Report. The regulatory system governing hospital Prior Year Report review is not a voluntary system. Although it is the hospital that decides how to classify items on its Prior Year Report for filing, it is the sole responsibility of the Agency to determine whether or not the report is to be "accepted." As part of its review process, the Agency typically asks hospitals a series of detailed questions that are provided to the hospital in a form known as a Notice of Violation. The Agency sends a Notice of Violation on virtually every hospital Prior Year Report. If a hospital does not respond to a Notice of Violation, the hospital can be subject to administrative fines. Audited Financial Statements The audited financial statements included as part of the hospital's Prior Year Report submission must, by law, be examined by an independent certified public accountant. In preparing audited financial statements, auditors opine on the financial statements of management, and issue what is known as a "clean opinion" if, in the auditor's opinion, management's financial statements do not materially misstate the financial position of the entity being audited and if the statements are prepared in accordance with generally accepted accounting principles. Financial statements can be issued for a division of an overall corporation, provided that appropriate disclosures are made in the footnotes to the financial statements. The standard place for a footnote disclosing the organization being audited and related organizations is in footnote 1 to the audited financial statements. Generally accepted accounting principles allow management the discretion to determine what are the principal and central ongoing operations of the entity being audited. PMATF and HCCTF The PMATF was established in 1984 to fund certain expansions to Florida's Medicaid program. Chapter 84-35, Laws of Florida. Under Section 395.701, Fla Stat., hospitals are taxed 1.5 percent of their annual net operating revenue, with the assessments to be based upon the hospital's Prior Year Report filed with the Agency. The HCCTF tax was established to fund certain data collection functions of the Agency. Section 408.20, Fla. Stat. Those revenues and expenses which appear on the hospital's Prior Year Report as "operating" are subject to PMATF and HCCTF tax. Those revenues or expenses which appear as "non-operating" or are excluded from a hospital Prior Year Report are not subject to PMATF and HCCTF tax. In 1991, the Florida Legislature expanded the PMATF tax base to include certain other specified health care providers. These specified providers included clinical laboratories, ambulatory surgery centers, and diagnostic imaging centers. See, Section 395.7015, Fla. Stat. HHAs were not included in the list of expanded taxable entities by the Legislature. HHAs do not pay PMATF or HCCTF tax. Hospital-Home Health Agency Relationships As the healthcare marketplace has evolved, hospitals have increasingly established relationships with HHAs. The operational and structural relationship between hospitals and HHAs varies from hospital to hospital and agency to agency. Corporate organizational structure and operational relationships between the hospitals and affiliated HHAs will vary. A variety of corporate structures can be employed, including separating the HHA and the hospital into separate corporations, parent/subsidiary relationships, sibling corporations, or one corporation with more than one operating division. Some hospitals have affiliations with both a Medicare- certified and a non-Medicare certified HHA. Not every hospital affiliated HHA is designated as a Medicare-certified HBHHA. A hospital can have the same operational relationship with two home health agencies, with one being a certified agency and one being non-certified. Not every relationship between a hospital and related HHA results in increased reimbursement or a dollar benefit to the hospital. While the Agency has never adopted a uniform reporting system for HHAs, uniform reporting systems covering the four types of health care facilities that were included in the increased PMATF assessment beginning in 1991, have been adopted by the Agency. A hospital does not always control which HHA will treat a patient after discharge from the hospital. HBHHA’s compete with other HHAs for patients. Some HBHHAs are located far from the affiliated hospital, and serve virtually none of the patients who were patients of the hospital.5 There are several HHAs in Florida which have been certified as HBHHAs to hospitals which are located outside the State of Florida. Memorial Hospital Savannah has in the past been affiliated with numerous HHAs in Florida. Flowers Hospital in Dothan, Alabama has also maintained an affiliation with a HHA located in Florida. Separate Reporting for Separately Licensed Facilities Under Florida law, separately licensed health care facilities must separately report financial data to the Agency. Section 408.061(3), Fla. Stat. The definition of "health care facility" applicable to this reporting requirement was changed in 1992, and now specifically refers to "hospitals" and "home health agencies" as two separate types of health care facilities.6 The Way We Were -- Agency Prior Action The Agency has reviewed and "accepted" the Prior Year Reports of Florida hospitals for more than a decade. The Agency reviews between 320 and 325 Prior Year Reports every year. The applicable definition of an "accepted" report is one that is determined by the Agency to have been filed in a manner conforming with applicable rules and the FHURS Manual in force at the time of filing the report. The Agency has accepted hospital Prior Year Reports which classified HHA activity as "operating" activity of the hospital, has accepted hospital Prior Year Reports in which home health activity was reported as "non-operating" activity of the hospital, and has accepted reports where HHA activity was excluded entirely from the report. In all such cases, the hospital made disclosure to the Agency that the hospital was related in some fashion to a HHA. The Agency has accepted reports presented in a variety of manners, and has interpreted its applicable rules and the FHURS Manual to allow all such filings. The "accepted" reports have all been used by the Agency for regulatory purposes including the calculation of hospital MARIs, the review of hospital budgets and budget amendments, the formation of hospital peer groups for budget review, and the calculation of penalties for hospitals potentially exceeding allowable levels of GRAA and NRAA. All of the accepted reports have also been utilized for the purposes of taxing hospitals under the PMATF assessment and the HCCCTF assessment. Hospitals have reasonably relied upon the acceptance of these reports as evidencing that the reports were filed in a manner conforming to Agency rules. The Petitioners presented extremely extensive documentation, all drawn from public records, to establish the Agency's prior actions regarding the classification of HHA activity on Agency accepted hospital Prior Year Reports. This documentation included more than 40 notebooks which were accepted into evidence.7 Although detailed findings of fact could be made regarding each of the items in each of the books, this would result in unnecessary cumulative findings of fact. In place of such findings, the following summary findings are made: Acceptance of Hospital-Only Reports The Agency accepted the Prior Year Reports of numerous hospitals in numerous years in which the prior year actual report forms were prepared on a hospital-only basis, excluding all HHA activity. Many hospitals excluded HHA activity from the hospitals' audited financial statements, but provided disclosure of the existence of a related HHA.8 These hospitals submitted prior year actual report forms which excluded HHA activity from the report. The following hospital Prior Year Reports were accepted by the Agency prepared in the above-described manner: Morton Plant Hospital, FY 1986 - FY 1994 (Pet. Ex. 35); Sarasota Memorial Hospital, FY 1986 - FY 1994 (Pet. Ex. 36); Winter Haven Hospital, FY 1989 - 1994 (Pet. Ex. 37); Manatee Memorial Hospital, FY 1989 - FY 1994 (Pet. Ex. 38); Cedars Medical Center, FY 1991 - FY 1993 (Pet. Ex. 23, 47); Memorial Hospital of Hollywood, FY 1993 - FY 1995 (Pet. Ex. 39); Orlando Regional Medical Center, FY 1990 - FY 1994 (Petitioners Ex. 40); Leesburg Regional, FY 1989, FY 1990, FY 1993, FY 1994 (Pet. Ex. 41); St. Joseph's Hospital Tampa, FY 1991 - FY 1995 (Pet. Ex. 42); Mt. Sinai Medical Center, FY 1993, FY 1994 (Pet. Ex. 43). The accepted hospital reports referenced above were all "hospital only" reports, and all provided disclosure to the Agency of the existence of a HHA that was related in some fashion to the hospital.9 In addition to the reports accepted as described above, the Agency has also accepted "hospital only" reports in which the audited financial statements included the activity of a HHA as operating activity of the entity being audited, and in which the audited financial statements included what is known as "other financial information" or "OFI" which separated out the HHA, the hospital, and other activities. However, the prior year actual reports of the hospitals excluded the home health activity from hospital "operating" activity, and provided a reconciliation to the audited financial statements on Worksheet X-4. The following hospital reports were accepted by the Agency prepared in the above- described manner: Morton Plant Hospital, FY 1984 - FY 1985 (Pet. Ex. 35); Mease Hospital, FY 1994 (Pet. Ex. 51); Lee Memorial Hospital, FY 1990 - FY 1994 (Pet. Ex. 44); Hialeah Hospital, FY 1989 - FY 1994 (Pet. Ex. 45); Mt. Sinai Hospital, FY 1992 (Pet. Ex. 23, 43); Suncoast Hospital, FY 1990 - FY 1994 (Pet. Ex. 46); Cedars Medical Center, FY 1990 (Pet. Ex. 47, 23); Leesburg Regional, FY 1991 - FY 1992 (Pet. Ex. 41). The Agency accepted the Prior Year Reports of numerous hospitals in numerous years in which the audited financial statements included HHA activity as operating activity of the entity being audited without OFI, but in which the prior year actual report forms excluded HHA activity, with a reconciliation on Worksheet X-4. The following reports were accepted by the Agency that were presented in this manner: Cedars Medical Center, 12/31/93 Partial Prior Year Report (Pet. Ex. 23, 47); University- Tamarac, FY 1993 and FY 1994 (Pet. Ex. 48); Doctors Hospital of Sarasota, FY 1993 and original 5/31/94 Partial Year Report (Pet. Ex. 49); Florida Hospital, Revised FY 1993 Report, FY 1994 Report (Pet. Ex. 50); Mease Hospital, Revised FY 1993 Report (Pet. Ex. 51); Palms of Pasadena Hospital, FY 1994 Report (Pet. Ex. 52); Shands Teaching Hospital, FY 1994 Report (Pet. Ex. 53; Resp. Ex. 71 at p. 32). Prior to accepting the above-referenced reports, the Agency would have had to reconcile the prior year actual report which excluded HHA activity to the audited financial statements which included HHA activity as operating with or without OFI. To perform this reconciliation, the Agency analyst would have reviewed Worksheet X-4, and would have been aware of the hospital's disclosure of a relationship to a HHA. The Agency has accepted "hospital only" reports in contexts other than those involving HHAs. The Agency has instructed numerous Community Mental Health Centers ("CMHCs") to exclude certain activity not provided in hospital-licensed beds from the Prior Year Reports submitted to the Agency. The Agency instructed CMHCs to exclude certain outpatient revenues from the hospital Prior Year Report, even though this activity was included in the entity's Medicare Cost Report. The Agency has instructed at least one of these facilities that it should also have its own audit for the hospital only (Pet. Ex. 74, p. 248).10 Victoria Montanaro served as the Bureau Chief and Regulatory Analyst Supervisor for the Agency for a two-year period covering May 1993 through June 1995. In these roles, Ms. Montanaro was the senior person responsible for the review and acceptance of hospital Prior Year Reports. Ms. Montanaro was aware that the Agency had accepted hospital Prior Year Reports prepared on a hospital-only basis, with HHA activity excluded. The Agency does not know how many hospital Prior Year Reports it accepted in which home health activity was excluded. There is no electronic data base which currently captures this information. Acceptance of Hospital Prior Year Reports as Non-Operating The Agency has accepted the reports of numerous hospitals in which hospitals submitted their prior year actual report forms with HHA activity reported as non-operating activity. The Agency accepted the following hospital reports in which HHA activity was included as operating activity on the audited financial statements, but in which HHA activity was reported as non-operating on the prior year actual report forms, with a reconciliation provided on Worksheet X-4: Westside Hospital, FY 1994 (Pet. Ex. 54); Largo Medical Center, FY 1994 (Pet. Ex. 55); St. Petersburg General Hospital, FY 1994 (Pet. Ex. 56); Columbia Hospital Palm Beaches, FY 1994 (Pet. Ex. 57); Northwest Regional, FY 1994 (Pet. Ex. 58); Doctors Hospital of Sarasota, 6/1/94 - 12/31/94 Partial Prior Year Report (Pet. Ex. 49); Winter Park Memorial Hospital, FY 1994 (Pet. Ex. 59); Lake City Medical Center, FY 1994 (Pet. Ex. 62); Clearwater Community Hospital, FY 1994 (Pet. Ex. 63); South Bay Medical Center, FY 1994 (Pet. Ex. 64); Bay Medical Center, FY 1994 (Pet. Ex. 65); South Miami Hospital, Revised FY 1994 (Pet. Ex. 66); Palmetto, Revised FY 1994 (Pet. Ex. 67); Mercy Hospital, Revised FY 1993 and FY 1994 (Pet. Ex. 68); Cedars, FY 1994 (Pet. Ex. 47). For the Agency to accept the above-referenced hospitals' Prior Year Reports, the Agency would have reconciled the prior year actual report to the audited financial statements, and in so doing would have been aware of the existence of the HHA.11 The Agency does not know how many hospital Prior Year Reports it accepted in which HHA activity was included as non- operating activity. There is no current data base from which the Agency can determine how many hospitals had their reports accepted in this fashion. The Agency has in at least one case not involving home health revenues, directed a hospital to record certain non-hospital activity in non-operating revenues. The Agency instructed The Willough at Naples to include those activities which were not related to hospital activities, but rather related to separately- licensed activities, as hospital non-operating activity in its Prior Year Reports (Pet. Ex. 69). Acceptance of Hospital Reports as Operating The Agency has also accepted the reports of numerous hospitals in which home health activity was classified as operating in both the audited financial statements and prior year actual report forms. The Agency is able to capture a complete list of reports that were accepted in this fashion, based upon existing data bases. The Agency presented a summary table of this information which was admitted into evidence as Respondents' Exhibit 1. Respondents' Ex. 1 lists all of the hospital Prior Year Reports which were accepted in which HHA activity was reported as operating from 1982 through the present.12 Agency-Industry Communications Regarding Home Health Agency Reporting Prior to filing the FY 1993 short period Prior Year Report for Cedars Medical Center, healthcare consultant Sarah Fitzgerald met with Victoria Montanaro, who at that time was the Agency Chief in charge of the review of hospital Prior Year Reports. At that meeting, the issue regarding how Cedars Medical Center would report HHA activity was discussed, as well as similar reporting for University Hospital-Tamarac. Ms. Fitzgerald was told by Ms. Montanaro that reporting as non-operating would be acceptable and was preferred (See Pet. Ex. 21). The Cedars and University-Tamarac reports were accepted by the Agency (Pet. Ex. 47, 48). Mills Smith, a healthcare consultant, also inquired of Ms. Montanaro regarding the classification of HHA activity on hospital Prior Year Reports (Pet. Ex. 20). Ms. Montanaro informed Mr. Smith by letter dated March 2, 1994, that hospitals should not include HHA activity as hospital operating activity in the hospital Prior Year Report (Pet. Ex. 20). Prior to her leaving the Agency, Ms. Montanaro prepared an internal memorandum to Diane Berryhill, who was at the time employed by the Agency as a regulatory analyst reviewing hospital Prior Year Reports (Pet. Ex. 21). This memorandum reflected Ms. Montanaro's understanding of the Agency's position regarding HHA reporting as of the date of the memo. At the time that Ms. Montanaro wrote her memorandum, she had purview over the acceptance of Prior Year Reports, had the authority to accept reports, and had the authority to respond to questions from hospitals regarding how to fill out Prior Year Reports. The memo, a copy of which was sent by Ms. Montanaro to Ms. Fitzgerald, stated that the Agency's position was not to require that HHA activity be reported as hospital operating activity. The memorandum also states that a legal opinion was going to be sought by the Agency, and that prior to any changes in policy, a work plan would be implemented. The legal opinion was requested by Ms. Montanaro because she was concerned about whether reporting HHA activity as "hospital operating" activity was even an option after the 1992 statutory changes. The legal opinion referenced in Ms. Montanaro's memorandum was never provided. The work plan referenced in Ms. Montanaro's memorandum was never implemented. Acceptance of Hospital Revised Prior Year Reports Florida Hospital revised its FY 1993 report to exclude HHA activity. This report was accepted by the Agency (Pet. Ex. 50, pp. 65, 90, 109). Mease Hospital also revised its FY 1993 report, and highlighted the changes in the revised report (Pet. Ex. 51; p. 78). In each of these cases, the Agency was aware of changes in the reporting, and accepted the reports as filed. In FY 1993, Mercy Hospital filed its Prior Year Report and included revenues and expenses associated with a HBHHA as hospital operating revenues (Pet. Ex. 68). The Agency accepted this report. The Hospital then filed with the Agency a revision to its FY 1993 Prior Year Report, moving the HHA activity from operating to non-operating. The Agency accepted the revised report. After the revised FY 1993 report was accepted, Mercy Hospital asked the Agency for a refund of PMATF assessments which had been calculated and paid based upon the inclusion of HHA activity as hospital operating activity in the original accepted FY 1993 Prior Year Report (Pet. Ex. 68, p. 128). The Agency issued a refund check to Mercy Hospital to reimburse it for the PMATF assessment which it had paid based upon HHA activity. This is Now--New AHCA Policy and Actions AHCA's Statements and Actions Evidencing New Policy or Rule Interpretation Beginning with the FY 1994 Prior Year Reports of 14 hospitals owned by Columbia/HCA who are Petitioners in this case, the Agency changed its practice regarding the acceptance of Prior Year Reports. Where in the past the Agency accepted Prior Year Reports classifying home health activities in the numerous ways described above, the Agency determined that it would only accept hospital Prior Year Reports that include HHA activity as "hospital operating" activity. Beginning with the 14 Columbia hospital FY 1994 Prior Year Reports, the Agency has sent out numerous notices of violation involving hospital Prior Year Reports which were filed with the Agency and which classified HHA activity as non-operating or which excluded HHA activity from the Prior Year Report with disclosure of the existence of a hospital-related HHA (Pet. Ex. 53). This change in practice has not been accompanied by any change in statute or the FHURS Manual. Prior to the review of these fourteen FY 1994 Prior Year Reports, the Agency never told a hospital that it had to report HHA activity as operating in order to have its Prior Year Report accepted. By requiring hospitals to include HHA activity as hospital operating activity in Prior Year Reports, the Agency is also requiring that hospitals pay PMATF and HCCTF taxes on HHA activity. The Agency has admitted that its new practice is a statement of general applicability (Pet. Ex. 8, Tabs A, B, C, Requests 2, 3, 7, 8, 9 and 10). Dudek April 5 and 9 Letters On April 5 and April 9, 1996, the Agency sent letters to every Florida hospital concerning the reporting of HHA activity in FY 1995 Prior Year Reports. These letters were signed by Liz Dudek, AHCA Chief of Certificate of Need and Budget Review (Pet. Ex. 15, 16). The letters state that if a hospital includes the activity of a HHA on its Medicare Cost Report, it must be included as operating activity in the Hospital's FY 1995 Prior Year Report submitted to the Agency. The April 9 letter does not refer to any factors to be considered aside from the Medicare Cost Report. The Agency's New Practice As Applied The Agency's new practice is to require that every hospital that includes a HBHHA on its Medicare Cost Report must report to the AHCA the activity of home health agencies as "operating" activity on the hospital Prior Year Report (Pet. Ex. 15, 16, 35, 41, 45, 46). The Agency's reliance upon the Medicare Cost Report as the basis for requiring such reporting with the Agency is a new practice. The Medicare Cost Report is a document submitted to the federal government for review by HCFA. The Medicare Cost Report itself has not been adopted as a rule in the State of Florida. Phil Detweiler, a regulatory analyst whose primary duty at the Agency is to review Prior Year Reports, testified that the Agency now looks for evidence that HHAs have a relationship to the hospital, but that this was not an area of inquiry before the fall of 1995. Mr. Detweiler was told by his supervisor in late December 1995 or early January 1996 to send notices of violations to all hospitals if a HBHHA is included in its Medicare Cost Report and HHA activity was classified as other than operating activity in the hospitals' Prior Year Report. Mr. Detweiler testified that he did not need to know anything about the operational relationship between a hospital and a HHA in order to send out a Notice of Violation requiring that a hospital reclassify HHA activity to operating activity. In determining that the FY 1995 budget amendment of Osceola Regional Hospital was incorrect in its classification of HHA activity as non-operating, the sole factor relied upon by Chris Augsburger, who was reviewing this report for the Agency, was the inclusion in the Medicare Cost Report of a HBHHA. Mr. Augsburger testified that he considered the inclusion on the Medicare Cost Report to be conclusive evidence of the relationship such as to require reporting as hospital "operating," and that he did not ask any additional questions of the hospital regarding the relationship of the hospital to the HHA, or rely upon other information which could relate to that relationship. Mr. Augsburger stated that the determinative factor for reporting is whether the HBHHA is included on the Medicare Cost Report, not whether the hospital "operates" a HHA.13 Hospital "Operation" of Home Health Agencies There is no definition in Florida law of what it means for a hospital to "operate" a HHA. The Agency never attempted to define the term "operated by" or "operated as a part of" a hospital. Nothing in the FHURS Manual offers any test or guidance to determine what it means for a hospital to operate a HHA, or to describe any factors which would be utilized in determining whether any given relationship between a hospital and a HHA meets this supposed test. Although the Agency maintained through some of its witnesses that in addition to the Medicare Cost Report, hospitals must report on HHAs if the hospital "operates" a HHA, the Agency has no formalized set of factors by rule to provide any standards regarding how this test would be applied. The Agency has never made inquiry of a hospital, outside of this proceeding, regarding the nature of the operational relationship between a hospital and any HHAs. In addition, the Agency has never asked any hospital, in the course of the review of a hospital Prior Year Report, whether a HHA was operated as a department of the hospital. Not all HHAs related to a hospital are Medicare- certified. Non-Medicare-certified HHAs will not appear on any hospital's Medicare Cost Report. For non-certified HHAs, the Agency maintains that such agencies are required to be reported as "operating" on a Prior Year Report, if there is a close enough operational relationship between the hospital and the HHA. There is, however, nothing in rule to provide any guidance as to how such a requirement would be implemented, and there is nothing from the factors delineated by Agency witnesses in this case which would provide the answer of whether reporting is required in a given instance or not. Rulemaking is Feasible and Practicable The new Agency practice described above has not been promulgated as a rule. The Agency has been receiving and reviewing hospital Prior Year Reports for over a decade. The Agency has accepted reports, and was made aware through disclosure of the existence of relationships between hospitals and home health agencies, for more than a decade. The Agency's new practice is distinguishable from its old practice only in the result of whether a given report is to be accepted, not in the information required by the Agency to make that decision. The Agency's witnesses testified that the Agency could have "discovered the inconsistency" between Medicare cost reporting and AHCA prior year reporting earlier than it did. When the FHURS Manual was created, the Agency was required to go through a process prior to adopting the Manual which included obtaining the input of Hospital personnel and industry representatives in the promulgation of the Manual, as required by Section 408.061 (2), Fla Stat. The Agency went through the required process. Based upon the 1992 change in the legislation, the Agency is required to go through a similar process if it wishes to collect data from other types of health care facilities, including HHAs. The Agency has chosen not to go through the process required by statute. The Agency presented the testimony of Chris Augsburger that the Agency had not discovered any problem with HHA activity reporting earlier because the disclosure by hospitals in Prior Year Reports was "too subtle to get anyone's attention." This contention regarding disclosure is specifically found to be not credible, given the overwhelming weight of evidence presented by Petitioners to the contrary. Rulemaking in this matter would be feasible and practicable. Affect of Changed Policy/Rule Interpretation The Agency's requirement regarding the filing of HHA activity as "operating" activity on hospital Prior Year Reports will substantially affect hospitals and HHAs in the State of Florida. Among the impacts of the Agency's new practice are increased penalties, administrative fines, and taxes on hospitals which are required to report HHA activity as "operating" activity. There are additional regulatory impacts regarding the budget review process, as found in greater detail below. Penalties The Agency annually calculates regulatory penalties and administrative fines based upon whether a hospital has generated "excess" GRAA and NRAA in a given fiscal year, based upon Prior Year Reports accepted by the Agency. The inclusion of HHA activity in hospital's operating activity could increase or create a penalty, when the Agency reviews a hospital Prior Year Report. Petitioners gave two examples of the potential penalty impact on specific hospitals. In the case of Southwest Florida Regional Medical Center, the effect of including HHA activity in both the FY 1995 and the FY 1994 Prior Year Report would be to create a $2,000,000 penalty, where none existed based upon a comparison of the reports without home health activity (Pet. Ex. 28). If the Agency were to compare the 1995 report for Southwest Florida Regional Medical Center including home health activity to the accepted FY 1994 Prior Year Report of Southwest Florida Regional Medical Center which did not include such activity as operating, the penalty increases from $2,000,000 to $9,000,000. The potential penalty impact on Morton Plant Hospital should the Agency require Morton Plant to report HHA activity as operating in 1995 would exceed $12,500,000. This penalty would have a substantial and adverse impact on Morton Plant, and would result in a permanent reduction to Morton Plant. Morton Plant Hospital has had its Prior Year Reports accepted by the Agency for more than 10 years in a manner which excluded HHA activity from the Prior Year Report, with disclosure. Morton Plant Hospital is not in a penalty situation if its 1995 Prior Year Report is compared to its FY 1994 Prior Year Report, with both reports excluding HHA activity, as has been accepted by the Agency for more than 10 years. Southwest Florida Regional Medical Center and Morton Plant Hospital are only two examples of the potential penalty impact of an Agency requirement that HHA activity be reported as "operating" -- many more hospitals would be affected. Ms. Dudek was not aware of the potential penalty impact involving Morton Plant, and stated that the amount of the fine or penalty was "beyond her control." Administrative Fines Relating to Filing In addition to the penalties described above, the Agency has notified hospitals that, if it prevails in this litigation, hospitals would be subject to fines up to $1,000 per day for failing to file FY 1995 Prior Year Reports including HHA activity as "operating" (Pet. Ex. 33). Ms. Dudek sent such a letter to Morton Plant, although she was not aware of how Morton Plant had reported HHA activity in the past. Regulatory Impact on Budget Review In addition to the penalty and fine implications described above, including HHA activity as "hospital operating" activity would also have an impact on the regulatory program through which hospital budgets are reviewed by the Agency. The inclusion of HHA activity for certain hospitals could increase those hospitals' NRAA and cost per adjusted admission, and could result in those hospitals artificially appearing less cost efficient as compared to other hospitals in their peer group. The finding of inefficiency would affect the budget review process for the hospitals in question. In addition to increasing the NRAA and cost per adjusted admission of those hospitals with HHA relationships, the comparability of hospital to hospital upon which the peer group system is based would be impacted, as HHA activity is not a variable utilized in the creation of hospital groups. Increased PMATF and HCCTF Taxes Under Florida Law, the Agency imposes a 1.5 percent PMATF tax on the operating revenues reported to the Agency by hospitals (Section 395.701, Fla. Stat.). This tax, which is not assessed against stand alone or chain-related HHAs, is based upon the operating revenues of hospitals reported in their Prior Year Reports. If hospitals are forced to include HHA activity as operating revenue on their Prior Year Reports, the PMATF tax would be increased. The Agency also imposes the HCCTF tax on hospital operating expenses as reported to the Agency. If HHA activity is required to be included in operating expenses, this would result in increased HCCTF taxes for hospitals so reporting. Imposing PMATF assessments on HHA activity would raise the costs to those home health agencies by 1.5 percent. For Morton Plant Hospital alone, the additional PMATF tax would be approximately $750,000 in additional taxes annually. The overall increased taxes as a result of this classification change would be approximately $10,000,000 to $20,000,000 annually. Retrospective Application of New Practice In the past, when the Agency has made changes in rules or policy, these changes have been applied prospectively. The Agency knows how to make prospective changes in rules, and has done so in other cases. The Agency has recently decided to change how it would require Community Mental Health Centers to report in hospital Prior Year Reports, and has notified affected providers that this change in policy or practice would be applied prospectively only. The prospective application of rules is especially important in a case such as this where a hospital cannot take corrective action to avoid penalties or fines after the close of a given fiscal period. In this instance, the Agency has rejected the FY 1995 actual reports of numerous hospitals which were filed in the same manner as accepted 1994 reports. The Agency has notified numerous hospitals of the change in practice after the conclusion of the hospital's fiscal year 1995. The Agency did not notify these hospitals of the requested change in time for the facilities to file a FY 1995 budget amendment. The Agency did not notify these hospitals early enough to enable the hospitals to lower charges to remove or lower any potential penalty caused by the Agency's change in practice. Anti-Competitive Effect The marketplace for HHA services is very competitive. Imposing PMATF assessments on certain HHAs would raise costs to those agencies by 1.5 percent of net operating revenues. The tax would negatively impact competition, as it would impair the taxed HHAs' ability to compete against other HHAs not subject to tax. In the current marketplace, the additional 1.5 percent tax could be the difference between HHAs obtaining or not being able to fairly compete for managed care contracts. In addition to the inequity of taxing only certain HHAs based upon whether they are related to a hospital, the Agency's proposal is anti-competitive in that there are HHAs which are associated with hospitals that are not located in the State of Florida. The Agency does not have authority to impose PMATF taxes on hospitals located outside of the State of Florida. It would be a competitive disadvantage to HHAs having to pay the tax to compete against other hospital-based HHAs which do not have to pay the tax simply because the hospital to which the HHA is related is located out of state. New Agency Practice Reviews The Same Information And Reaches A Result Different Than That In The Past. The Agency has accepted Prior Year Reports filed by numerous hospitals for more than a decade with HHA activity reported in ways other than as "hospital operating" activity. The Agency is now taking the same information, and without promulgating a rule, changing its interpretation to require that all hospitals report as operating. The Agency's Actions in this Case are not "Mistakes" Over the course of more than 10 years of accepting hospital reports in manners classifying home health agencies as other than "operating," a number of AHCA staffers have been involved in the review and acceptance of these reports. The acceptance of these reports has spanned many administrations at the Agency. In the case of Leesburg Regional Hospital, at least twelve different analysts, supervisors, or bureau chiefs reviewed Leesburg's Prior Year Reports, all of which were accepted for 1988- 1994, with no questions asked regarding the classification of HHA activity until 1995. Ms. Montanaro, the former Bureau Chief and Regulatory Analyst Supervisor responsible for the acceptance of reports, testified that the Agency accepted reports in three separate manners, and that the Agency did not require that any individual hospital with a HBHHA relationship identified in its Medicare Cost Report report HHA activity as "operating" on the hospital's Prior Year Report. Agency witnesses characterized the acceptance of Prior Year Reports in a manner other than "operating" as being a mistake. Mr. Augsburger testified that he did not know why certain reports had been accepted that he reviewed in prior years. The contention by current Agency staffers that all past actions of the Agency regarding the acceptance of these reports were "mistakes" is not credible, given the overwhelming weight of evidence presented by Petitioners in this case. In accepting hospital Prior Year Reports in these manners for over 10 years, the Agency has declared that such reports were conforming to applicable rules including the FHURS Manual. Section 408.07(1), Fla. Stat. The Agency's actions demonstrate that the Agency now seeks to consciously change its practice regarding the acceptance of hospital Prior Year Reports. The Agency's requirement that HHA activity be classified as hospital operating activity is not found in existing rules, and is a new policy which has the effect of rule. It is extremely easy to determine, from the Medicare Cost Report, whether a HBHHA is included in the cost report. The existence of a HBHHA is disclosed on pages 1 and 2 of a typical cost report. The information available to the Agency regarding hospital relationships with HHAs has not changed. The Agency has been collecting Medicare Cost Reports since 1988, and not until 1995 has it sought to equate the filing of the Medicare Cost Report with a requirement to classify activity as "hospital operating" in the Prior Year Reports filed with the Agency. FHURS Manual Provisions The FHURS Manual has been in place since 1980, and is incorporated by reference in Rule 59E-5.102, Florida Administrative Code. The Manual has not been changed significantly regarding references to HHA activity. The FHURS Manual does not clearly describe the circumstances under which hospitals must report HHA activity as "operating activity." The FHURS Manual contains numerous lines and spaces that are never used by the Agency. The FHURS Manual is, on its face, a hospital manual, and not a manual which was designed to capture information from or about HHAs. The present statutory definition of “[h]ealth care facility” includes HHAs. Section 408.07(27), Fla. Stat. The definition in the FHURS Manual is more restrictive, providing only that a health care facility is “[a] hospital, skilled nursing facility, or intermediate care facility.” The Manual does not define hospital department nor does it define operations of a hospital. The definition of ambulatory services is unclear under the FHURS Manual as it relates to HHA activity.14 The FHURS Manual is a hospital manual and covers services that are provided by hospitals. The FHURS Manual does not use or define the terms "controlled by a hospital" or "integral and subordinate part of a hospital." There is nothing in the FHURS Manual that offers factors to instruct a reader as to what it means for a hospital to "provide" services. The terms "hospital-based HHA," "operated by a hospital," "component of a hospital," and "department of a hospital" are not defined in the FHURS Manual. Referenced federal regulations involving the filing of Medicare Cost Reports have not been promulgated as rules in the State of Florida, although specific provisions for adoption of federal standards are set forth in Section 120.54(6), Fla. Stat. (1996 Supp). The Agency has presented numerous factors which it states that it could utilize in determining whether the operational relationship between a hospital and a HHA is close enough so that reporting as “operating” would be required. None of these factors are contained in current rule or in the current FHURS Manual. In addition, none of these factors have ever been utilized by the Agency in its review of a Prior Year Report, nor was it explained how these factors would be applied to reach a final decision.15
